<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 30, 1996.
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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PJ AMERICA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 5812 61-1308435
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
9109 PARKWAY EAST
BIRMINGHAM, ALABAMA 35206
(205) 836-1212
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
DOUGLAS S. STEPHENS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PJ AMERICA, INC.
9109 PARKWAY EAST
BIRMINGHAM, ALABAMA 35206
(205) 836-1212
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
IVAN M. DIAMOND, ESQ. DAN BUSBEE, ESQ.
GREENEBAUM DOLL & MCDONALD PLLC LOCKE PURNELL RAIN HARRELL
3300 NATIONAL CITY TOWER (A PROFESSIONAL CORPORATION)
LOUISVILLE, KENTUCKY 40202-3197 2200 ROSS AVENUE, SUITE 2200
(502) 589-4200 DALLAS, TEXAS 75201-6776
(214) 740-8000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
---------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
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<S> <C> <C> <C> <C>
Common Stock, $.01 par 2,070,000
value shares $11.50 $23,805,000 $8,209
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</TABLE>
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(1) Includes 270,000 shares which the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED AUGUST 30, 1996
1,800,000 SHARES
LOGO
PJ AMERICA, INC.
COMMON STOCK
Of the 1,800,000 shares of Common Stock offered hereby, 1,620,000 shares are
being sold by PJ America, Inc. (the "Company") and 180,000 shares are being
sold by the Selling Stockholders. See "Principal and Selling Stockholders." The
Company will not receive any of the proceeds from the sale of shares by the
Selling Stockholders.
Prior to this offering, there has been no public market for the Common Stock
of the Company. It is currently estimated that the initial public offering
price will be between $9.50 and $11.50 per share. See "Underwriting" for a
discussion of factors to be considered in determining the initial public
offering price. The Company has applied to have the Common Stock approved for
quotation on the Nasdaq National Market under the symbol "PJAM."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
Proceeds to
Price to Underwriting Proceeds to Selling
Public Discount(1) Company(2) Stockholders(2)
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<S> <C> <C> <C> <C>
Per Share...................... $ $ $ $
Total(3)....................... $ $ $ $
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</TABLE>
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(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company and the Selling Stockholders have granted to the Underwriters a
30-day option to purchase up to an additional 270,000 shares of Common
Stock, solely to cover over-allotments, if any. If the Underwriters
exercise this option in full, the Price to Public will total $ ,
the Underwriting Discount will total $ , the Proceeds to Company
will total $ and the Proceeds to Selling Stockholders will total
$ . See "Principal and Selling Stockholders" and "Underwriting."
The shares of Common Stock are offered by the Underwriters named herein when,
as and if delivered to and accepted by the Underwriters and subject to their
right to reject any order in whole or in part. It is expected that delivery of
certificates representing the shares will be made against payment therefor at
the office of Montgomery Securities on or about , 1996.
-----------
MONTGOMERY SECURITIES ALEX. BROWN & SONS
Incorporated
, 1996
<PAGE>
[PHOTOGRAPHS OF COMPANY RESTAURANTS AND PERSONNEL]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ
NATIONAL MARKET, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The Company was recently formed to succeed to the businesses of five Papa
John's International, Inc. franchisees, Extra Cheese, Inc., Twice the Cheese,
Inc., Textra Cheese Corp. (collectively, the "Alabama Group"), and PJVA, Inc.
and PJV, Inc. (collectively, the "Virginia Group"), pursuant to an Agreement
dated June 10, 1996, as amended July 10, 1996, and a Plan of Merger (the
"Reorganization"). The Alabama Group and the Virginia Group are referred to
herein as the "Predecessor Companies." Unless otherwise indicated, the
information set forth herein assumes (i) the consummation of the Reorganization
as specifically described under "The Reorganization" and (ii) no exercise of
the Underwriters' over-allotment option. All references in this Prospectus to
the "Company" or "PJ America" mean PJ America, Inc. with the combined
operations of the Predecessor Companies, unless the context provides otherwise.
Certain financial data contained in this Prospectus reflect the operations of
the Alabama Group, the Virginia Group and, on a pro forma basis, the Company.
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus.
THE COMPANY
PJ America is the largest franchisee of "Papa John's" pizza delivery and
carry-out restaurants based upon the number of restaurants currently in
operation. At June 30, 1996, the Company owned and operated 42 Papa John's
restaurants in Birmingham, Alabama and the surrounding area; in Norfolk,
Richmond and Virginia Beach, Virginia and the surrounding areas; and in East
Texas. In addition to its existing territories, the Company has been granted by
its franchisor, Papa John's International, Inc. ("PJI"), the rights to enter
into development agreements for Papa John's restaurants in the Ventura, Kern,
San Luis Obispo and Santa Barbara counties of California (the "California
Counties"); Vancouver, Canada and the surrounding area; and Puerto Rico. In
addition, the Company has an option, exercisable during 1998, to acquire the
operations and development rights for Papa John's restaurants in Utah from an
affiliate of the Company. The Company also intends to pursue selective
strategic acquisitions of existing Papa John's franchisees. At June 30, 1996,
PJI and its franchisees (including the Company) operated 1,000 Papa John's
restaurants in 28 states.
The key elements of the Papa John's concept include a focused menu of high
quality pizza and related items, an effective commissary, distribution and
equipment supply system and an efficient in-store operating design. Papa John's
original, medium thick crust is made from fresh dough (never frozen) produced
in PJI's regional commissaries. Every pizza is prepared using real mozzarella
cheese, pizza sauce made from fresh-packed tomatoes (not concentrate), a
proprietary mix of savory spices and a choice of high quality meat and
vegetable toppings in generous portions. This focused menu and the use of
quality ingredients enables Papa John's restaurants to concentrate on
consistently "Delivering the Perfect Pizza!"(TM). PJI's commissary system
supplies pizza dough, food products and paper products twice weekly to each of
the Company's restaurants. This commissary system enables PJI to closely
monitor and control product quality and consistency, while lowering food costs
for its franchisees. PJI also provides the Company assistance with restaurant
design and site selection and a complete equipment package for new restaurants.
This provides the Company with a convenient, cost-effective means of opening
restaurants while ensuring a consistent restaurant appearance. The in-store
operating design includes specific areas for order taking, pizza preparation
and routing, resulting in simplified operations, lower training and labor
costs, increased efficiency and improved consistency and product quality. The
Company's restaurants are typically 1,200 to 1,500 square feet in size and are
located in strip centers or free-standing buildings which provide visibility,
curb appeal and accessibility.
The Company believes the performance of its Papa John's restaurants has been
exceptional. In 1995, PJI awarded one of the Predecessor Companies its 1994
Franchisee of the Year Award. The Company's average unit volumes have
historically exceeded the average of the Papa John's franchise system. In
particular, one of the Company's restaurants achieved the highest sales volume
in 1995 of any franchised restaurant in the
3
<PAGE>
Papa John's system. During the 53 weeks ended June 30, 1996, the 31 restaurants
that were open throughout the period generated average sales of $752,000,
average restaurant cash flow (operating income plus depreciation) of $136,000
and average restaurant operating income after royalties of $115,000 (or 15.3%
of sales). However, there can be no assurance that such results can be
maintained. The average cash investment, including franchise fees, to open
these 31 restaurants was approximately $165,000, exclusive of land and pre-
opening expenses. The Company expects that its average cash investment for
restaurants opened in 1996 will approximate $185,000. The Company also
anticipates that occupancy costs and the cash investment required to open
restaurants in its new territories will be higher than those experienced in its
existing markets.
The Company's growth strategy will focus on further developing the Papa
John's concept through (i) building out its existing markets; (ii) acquiring
and developing new territories; and (iii) strategically acquiring existing Papa
John's franchisee groups and territories, if available. The Company's objective
is to become the leading chain of pizza delivery restaurants in each of its
development markets. Through a market-by-market expansion strategy focused on
clustering restaurants, the Company seeks to increase consumer awareness and
take advantage of operational and advertising efficiencies. During fiscal 1995,
the Company opened 12 restaurants. In fiscal 1996, the Company plans to open
approximately seven restaurants (three of which had been opened as of June 30,
1996), and in fiscal 1997, the Company expects to open approximately ten
additional restaurants. As part of its overall growth strategy, the Company
intends to supplement its new restaurant development through acquisition of
existing Papa John's franchisees.
The Company was organized as a Delaware corporation in August 1996. The
Company's principal executive offices are located at 9109 Parkway East,
Birmingham, Alabama 35206, and its telephone number is (205) 836-1212.
THE OFFERING
Common Stock offered by the Company... 1,620,000 shares
Common Stock offered by the Selling 180,000 shares
Stockholders..........................
Common Stock to be outstanding after 4,620,000 shares(1)
the offering..........................
Use of proceeds....................... To fund expansion, repay indebtedness,
pay undistributed S corporation earn-
ings, and for general corporate pur-
poses
Proposed Nasdaq National Market PJAM
symbol................................
- --------
(1) Excludes (i) 225,000 shares reserved for issuance pursuant to a warrant to
purchase 225,000 shares of Common Stock to be issued to PJI upon the
closing of this offering; (ii) 600,000 shares reserved for issuance under
the Company's 1996 Stock Ownership Incentive Plan, including options to
purchase 249,000 shares of Common Stock expected to be issued upon the
closing of this offering at the initial public offering price; and (iii)
160,000 shares reserved for issuance under the Company's Non-Employee
Directors 1996 Stock Incentive Plan, including 72,000 shares expected to be
issued upon the closing of this offering at the initial public offering
price. See "Management--Non-Employee Directors 1996 Stock Incentive Plan,"
"--Employee Awards Granted," "--1996 Stock Ownership Incentive Plan" and
"Certain Transactions."
4
<PAGE>
SUMMARY FINANCIAL AND RESTAURANT DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA AND NUMBER OF RESTAURANTS)
The following table sets forth summary financial data for the Alabama Group
and the Virginia Group. The table also sets forth summary pro forma financial
data for the Company as if the Reorganization had occurred at the beginning of
fiscal 1995. In addition, the table sets forth certain restaurant data for the
Company's restaurants for each of the periods presented. See "The
Reorganization."
<TABLE>
<CAPTION>
FISCAL YEAR ENDED(1) 26 WEEKS ENDED
-------------------------- ------------------
DEC. 26, DEC. 25, DEC. 31, JUNE 25, JUNE 30,
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA--ALABAMA
GROUP:
Restaurant sales................ $3,127 $6,415 $10,457 $ 4,626 $ 6,197
Operating income................ 105 554 1,074 480 497
Income before income taxes...... 99 532 1,009 457 458
Net income...................... 99 532 1,009 457 458
INCOME STATEMENT DATA--VIRGINIA
GROUP:
Restaurant sales................ $2,908 $7,695 $12,642 $ 5,570 $ 7,900
Operating income................ 10 417 960 439 606
Income (loss) before income
taxes.......................... (26) 347 804 367 521
Net income (loss)............... (18) 202 804 367 521
PRO FORMA INCOME STATEMENT DATA--
THE COMPANY(2):
Restaurant sales................ $23,099 $10,196 $14,097
Operating income................ 2,035 920 1,103
Income before income taxes...... 1,813 824 979
Net income...................... 1,151 523 622
Net income per share............ $ 0.37 $ 0.17 $ 0.20
Weighted average shares(3)...... 3,133 3,148 3,143
Supplemental pro forma net
income per share(4)............ $ 0.37 $ 0.17 $ 0.20
RESTAURANT DATA--THE COMPANY(2):
Percentage change in comparable
restaurant sales(5)............ 5.6% 24.1% 3.3% 8.3% 3.7%
Average sales for restaurants
open for full period........... $ 608 $ 731 $ 727 $ 350 $ 352
Number of restaurants open at
end of period.................. 16 27 39 31 42
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------------
PRO AS
ACTUAL FORMA(6) ADJUSTED(7)
------ -------- -----------
<S> <C> <C> <C>
BALANCE SHEET DATA--THE COMPANY(2):
Total assets...................................... $6,900 $6,975 $18,320
Total debt, including current maturities.......... 3,673 3,673 --
Stockholders' equity.............................. 1,968 643 15,662
</TABLE>
- --------
(1) The Company operates on a 52-53 week fiscal year ending on the last Sunday
in December of each year. Fiscal year 1995 was a 53 week year.
(2) Includes the Alabama Group and the Virginia Group. The pro forma income
statement data reflect the effect of the Reorganization on the historical
income statement data for the fiscal year ended December 31, 1995, and the
26 weeks ended June 25, 1995 and June 30, 1996, assuming that the
Predecessor Companies were C corporations rather than S corporations for
income tax purposes, with assumed combined Federal, state and local
effective income tax rates aggregating 36.5%. See "Prior S Corporation
Status of Predecessor Companies."
(3) Based on (i) 3,000,000 weighted average shares used in the calculation of
pro forma net income per share plus (ii) 148,490, 133,129 and 143,369
shares of Common Stock, respectively, to reflect the number of shares of
Common Stock that the Company would be required to sell at an assumed
initial public offering price of $10.50 per share (after deducting the
underwriting discount) in this offering to fund the payment of
undistributed S corporation earnings at June 25, 1995 ($1,450,000),
December 31, 1995 ($1,300,000) and June 30, 1996 ($1,400,000).
(4) Supplemental pro forma net income includes all adjustments used in
determining pro forma net income and also reflects the reduction of
interest expense that would have resulted from the repayment of $2,200,000
of the Company's outstanding bank borrowings and $1,450,000 in indebtedness
to certain of the Company's existing shareholders as if the offering had
occurred at the beginning of fiscal 1995. Supplemental pro forma net income
per share is based upon the number of shares of Common Stock used in the
calculation of pro forma net income per share plus 376,179 shares of Common
Stock that the Company would be required to sell at an assumed initial
public offering price of $10.50 per share (after deducting the underwriting
discount) to fund such repayments.
(5) Includes restaurants open throughout the periods being compared. Fiscal
1995 comparable restaurant sales have been adjusted to reflect a 52 week
period versus a 53 week period.
(6) Reflects a provision of $1,400,000 for the distribution of undistributed S
corporation earnings at June 30, 1996 (which is expected to increase to
$2,200,000 at the Termination Date), and the establishment of a deferred
tax asset in the amount of $75,000, assuming the termination of the S
corporation status of the Predecessor Companies. See "Prior S Corporation
Status of Predecessor Companies."
(7) Adjusted to reflect the sale of 1,620,000 shares of Common Stock offered by
the Company hereby at an assumed initial public offering price of $10.50
per share and the application of the estimated net proceeds therefrom. See
"Use of Proceeds" and "Capitalization."
5
<PAGE>
THE REORGANIZATION
Extra Cheese, Inc. ("Extra Cheese") entered into an Agreement dated June 10,
1996, as amended on July 10, 1996, and a Plan of Merger with Twice the Cheese,
Inc., Textra Cheese Corp., PJVA, Inc. and PJV, Inc. pursuant to which all such
corporations agreed to be merged into PJ Cheese, Inc. ("PJ Cheese"), a wholly-
owned subsidiary of Extra Cheese, in exchange for shares of common stock of
Extra Cheese. On the date of the closing of this offering (i) all such
corporations will be merged into PJ Cheese; (ii) Extra Cheese will contribute
to PJ Cheese all of the assets of Extra Cheese relating to its restaurants,
with PJ Cheese assuming all of Extra Cheese's liabilities relating thereto;
and (iii) Extra Cheese will be merged into the Company with the stockholders
of Extra Cheese receiving an aggregate of 3,000,000 shares of Common Stock of
the Company. Accordingly, the Company will be the parent of PJ Cheese, and PJ
Cheese will own all of the Papa John's restaurants which were owned by the
Predecessor Companies. The Company and PJ Cheese will have no assets or
operations prior to the consummation of the Reorganization.
The Reorganization is an exchange of nonmonetary assets by stockholders and
has been accounted for at historical cost. The financial information related
to Extra Cheese, the acquiring company for accounting purposes, has been
combined with that of Twice the Cheese, Inc. and Textra Cheese Corp. in this
Prospectus, as all three entities were operated under common control. The
financial information related to PJVA, Inc. and PJV, Inc., have likewise been
combined, as these entities were operated under common control. Richard F.
Sherman, who serves as the Chairman of the Board of the Company, owned from
14% to 26% of the shares of the Predecessor Companies. Subsequent to the
Reorganization, all entities will operate under common management.
PRIOR S CORPORATION STATUS OF PREDECESSOR COMPANIES
Since their inception (except for PJVA, Inc., which was a C corporation
until December 25, 1994), the Predecessor Companies have been treated for
Federal and state income tax purposes as S corporations under Subchapter S of
the Internal Revenue Code of 1986, as amended (the "Code"), and comparable
provisions of state income tax laws. As a result, from inception through the
day preceding the date of termination of the Predecessor Companies' S
corporation status (the "Termination Date"), the earnings of the Predecessor
Companies have been and will be taxed for Federal and certain state income tax
purposes directly to the Predecessor Companies' stockholders. The Termination
Date will occur prior to the date of the closing of this offering. On the
Termination Date, the Predecessor Companies will become subject to Federal and
state income taxes.
Certain of the Predecessor Companies made distributions to their
stockholders in fiscal 1994 and 1995 and additional distributions aggregating
$1,445,000 in 1996 ($1,295,000 through June 30, 1996, and $150,000 subsequent
to June 30, 1996). The Predecessor Companies have declared a distribution
payable to stockholders of record on the Termination Date in an amount equal
to their accumulated adjustment accounts (as that term is defined in the
Code), which generally represents an S corporation's undistributed earnings
("Undistributed S Corporation Earnings") through the Termination Date. Such
distribution will be paid from the proceeds of this offering. See "Use of
Proceeds." Undistributed S Corporation Earnings were approximately $1,300,000
at December 31, 1995, $1,400,000 at June 30, 1996 and are estimated to be
approximately $2,200,000 at the Termination Date, although there can be no
assurance of the actual amount of such earnings through such date. Retained
earnings, as determined for financial reporting purposes ("Book Retained
Earnings"), were approximately $1,530,000 at December 31, 1995, $1,220,000 at
June 30, 1996 and are expected to be approximately $2,100,000 at the
Termination Date. The difference between Undistributed S Corporation Earnings
and Book Retained Earnings is attributable to various factors, most of which
are timing differences in the treatment of accruals, differences in tax
depreciation and the earnings of PJVA, Inc. while it was a C corporation.
6
<PAGE>
RISK FACTORS
In addition to the other information contained elsewhere in this Prospectus,
prospective investors should consider the following factors in evaluating an
investment in the Common Stock offered hereby:
ABSENCE OF COMBINED OPERATING HISTORY; GEOGRAPHIC CONCENTRATION
Prior to the Reorganization, the Predecessor Companies had been operated as
two separate independent groups, the Alabama Group and the Virginia Group.
There can be no assurance that the Company will be able to successfully
integrate the operations of these businesses or institute integrated Company-
wide systems and procedures to manage successfully the combined enterprise on
a profitable basis. The inability of the Company to integrate successfully the
Predecessor Companies could have a material adverse effect on the Company's
business, financial condition and results of operations. See "The
Reorganization."
The Company opened its first restaurant in 1991 and has experienced rapid
growth in restaurant openings, revenues and level of operations. At June 30,
1996, 23 restaurants (54.8%) had been open less than two years. Consequently,
operating results achieved to date may not be indicative of the results that
may be achieved by any existing or new restaurant in the future. In addition,
the financial results of the Predecessor Companies cover periods when certain
of the Predecessor Companies were not under common management and, therefore,
may not be indicative of the Company's future financial or operating results.
All of the Company's restaurants are currently located in Alabama, Virginia
and Texas. The Company's geographic concentration exposes its business to
certain risks, including economic and weather conditions and demographic and
population changes in those regions. There can be no assurance that adverse
developments in the geographic regions in which the Company's business is
concentrated will not have an adverse effect on its future results of
operations or financial condition. See "Business--Restaurant Locations."
EXPANSION RISK
The Company has grown rapidly in recent periods and intends to continue to
pursue an aggressive growth strategy. The Company plans to use a portion of
the proceeds from this offering to open approximately four additional
restaurants during the remainder of 1996 and approximately ten additional
restaurants during 1997. The development agreements with PJI with respect to
its existing territories provide that the Company will open three, ten and
five Papa John's restaurants in such territories in fiscal 1996, 1997 and
1998, respectively. If the Company fails to develop such restaurants, PJI
could, among other remedies, terminate the Company's development agreements in
such areas. The Company has been granted by PJI the rights to enter into
development agreements for Papa John's restaurants in the California Counties;
Vancouver, Canada and the surrounding area; and Puerto Rico. The Company
estimates that these territories could support approximately 90 to 100 Papa
John's restaurants. However, the Company has not entered into development
agreements for such territories, and there can be no assurance that the terms
of the development agreements offered by PJI will be acceptable to the
Company.
In the course of its expansion, the Company will enter new geographic
regions in which it has no previous operating experience and where the Papa
John's brand name is relatively unknown. There can be no assurance that the
Company's restaurants will be successful in such new markets. In addition, the
Company intends to attempt to acquire existing PJI franchisees as part of its
overall expansion plan. The Company may face competition in acquiring existing
PJI franchisees from PJI, which has a right of first refusal with respect to
the sale of all Papa John's restaurants (which in certain instances has been
waived), and other PJI franchisees. There can be no assurance that the Company
will be able to acquire additional PJI franchisees on terms acceptable to the
Company, if at all. See "--Franchisee Status," "Business--Expansion and Site
Selection," "--Franchise and Development Agreements" and "Certain
Transactions."
The Company's continued growth will depend primarily upon its ability to
open and operate additional restaurants profitably. The opening of new
restaurants will depend upon a number of factors, many of which are beyond the
control of the Company. These factors include, among other things, selection
and availability of suitable locations, negotiation of acceptable lease or
purchase terms, timely construction of restaurants, securing
7
<PAGE>
required governmental permits and approvals, and employment and training of
qualified personnel. The Company's timely development of new territories also
is dependent upon its ability to obtain adequate food supplies for its
restaurants. While the Company expects to obtain such supplies for the
California Counties and Vancouver, Canada and the surrounding area from PJI's
commissary and distribution system, such facilities have not yet been opened.
In Puerto Rico, the Company does not expect that PJI will open a commissary;
therefore, the Company will be dependent upon its or PJI's ability to contract
with local entities to provide the Company with dough and other food supplies.
The Company's inability to achieve its development plan could have a material
adverse effect on its business, financial condition and results of operations.
Moreover, the Company's current expansion plan may pose significant strains on
the Company's managerial, operational and financial and other resources. There
can be no assurance that the Company will be able to open the number of
restaurants anticipated in a timely manner or that existing restaurants or new
restaurants opened by the Company will be operated profitably. See "Business--
Expansion and Site Selection."
FRANCHISEE STATUS
The success of the Company will, in part, be dependent upon the success of
the Papa John's system. In addition, significant matters relating to the
Company's growth and operational strategies must be coordinated with, and
approved by, PJI. In particular, PJI must approve the opening by the Company
of any new restaurant, including restaurants opened within the Company's
existing franchise territories. PJI also maintains discretion over the menu
items that may be offered in the Company's restaurants. The franchise and
development agreements with PJI require the Company to pay to PJI certain fees
on or before the opening of new restaurants, as well as monthly royalties. PJI
may increase the royalty fee to 5% of sales after a franchise agreement has
been in effect for between three to five years. In no event may the royalty
fee be increased to an amount greater than the royalty fee then in effect for
new Papa John's franchisees. These agreements also provide for the termination
of the Company as a franchisee upon the failure of the Company to comply with
certain restrictions and applicable obligations. Should the Company fail to
comply with the development agreements for restaurants within the covered
territories, PJI could, among other remedies, terminate the exclusive nature
of the Company's franchises in these areas or terminate the Company's
franchise right to open additional restaurants in such territories. PJI's
consent is generally required for the Company's acquisition of existing Papa
John's restaurants from other franchisees. In addition, PJI may choose not to
grant additional development rights to the Company. PJI's approval is also
required for the renewal of existing franchise agreements beyond the initial
renewal period. There can be no assurance that the Company will be able to
obtain any such consents or approvals from PJI. See "Business--Franchise and
Development Agreements."
The Company currently purchases most of its food supplies and all of its
restaurant equipment from PJI. The Company is dependent on frequent deliveries
of food supplies from PJI's commissaries. The Company also receives
advertising, promotional and other materials from PJI. Currently, the
Company's restaurants are being supplied by PJI's Raleigh, North Carolina and
Jackson, Mississippi commissaries, and PJI's Dallas, Texas distribution
center. The Company's development of additional territories is dependent upon
PJI's opening commissaries or distribution centers to service such areas.
While the Company expects to obtain such supplies for the California Counties
and Vancouver, Canada and the surrounding area from PJI's commissary
distribution system, such facilities have not yet been opened. In Puerto Rico,
the Company does not expect that PJI will open a commissary; therefore, the
Company will be dependent upon its or PJI's ability to contract with local
entities to provide the Company with dough and other food supplies. PJI's
failure to deliver food supplies from its commissaries to the Company or to
continue to expand and successfully operate its commissary and distribution
system would adversely affect the Company. See "Business--Papa John's
International, Inc."
INCREASES IN OPERATING COSTS; AVAILABILITY AND COST OF INSURANCE
An increase in operating costs could adversely affect the profitability of
the Company. Factors such as inflation, increased food costs, increased labor
and employee benefit costs and the availability of qualified
8
<PAGE>
management and hourly employees may adversely affect the Company's operating
costs. Most of these factors are beyond the control of the Company. PJI
currently purchases all of the cheese which it supplies to its franchisees from
one supplier. Cheese currently represents approximately 40% of the Company's
food costs. The price of cheese, as well as that of other commodities, is
subject to seasonal fluctuations, weather, demand and other factors. The
Federal government recently increased the minimum wage, which could adversely
affect the Company.
A risk to the Company, as with other companies which offer delivery services,
is the potential for claims resulting from traffic accidents involving its
delivery personnel. The Company does not have, and has not in the past offered,
guaranteed delivery times. The Company maintains excess liability coverage on
its delivery drivers in an amount believed by management to be adequate. In
addition, the Company maintains property, casualty and liability insurance on
its business and employees. However, a change in the cost or availability of
such insurance, or the incurrence of a significant number of claims or
liability in excess of policy limits, could adversely affect the Company.
HIGHLY COMPETITIVE INDUSTRY
The restaurant industry is highly competitive and is affected by changes in
consumer tastes, as well as national, regional and local economic conditions
and demographic trends. The performance of individual restaurants can be
affected by changes in traffic patterns, local demographics and the type,
number and location of competing restaurants. The quick-service restaurant
industry is extremely competitive with respect to price, service, location and
food quality. The Company competes with a variety of other restaurants in the
quick-service restaurant industry, including those that offer dine-in, carry-
out and delivery services. These competitors include national and regional
chains, franchisees of other restaurant chains and local owner-operated
restaurants. Many competitors have been in existence longer, and have a more
established market presence and substantially greater financial, marketing and
other resources than the Company. See "Business--Competition."
CONFLICTS OF INTEREST
Certain directors and executive officers of the Company own interests in Papa
John's franchisees that will not be acquired by the Company as part of the
Reorganization. In addition, Mr. Sherman, Chairman of the Board of the Company,
is a director of PJI, and Mr. Charles W. Schnatter, a director of the Company,
is Senior Vice President, General Counsel, Secretary and a director of PJI.
Such directors and officers may have conflicts of interest with respect to
transactions between the Company and such franchisees or PJI. In addition, such
directors and officers may have conflicts of interest with respect to corporate
opportunities suitable for both the Company and such franchisees or PJI. See
"Certain Transactions."
DEPENDENCE UPON KEY PERSONNEL
Management of the Company is dependent on the continuing services of Douglas
S. Stephens, the Company's President and Chief Executive Officer, and other key
personnel. The loss of the services of Mr. Stephens or other key personnel
could have a material adverse effect on the Company's business. See
"Management."
CONTROL BY OFFICERS AND DIRECTORS
Upon completion of this offering, the Company's executive officers and
directors will beneficially own 48.7% of the outstanding Common Stock (45.1% if
the Underwriters' over-allotment option is exercised in full). These persons,
if acting together, will be in a position to elect all of the directors of the
Company and effectively control the management and operations of the Company.
See "Management" and "Principal and Selling Stockholders."
9
<PAGE>
GOVERNMENT REGULATION
The restaurant industry is subject to numerous federal, state and local
government regulations, including those relating to the preparation and sale
of food and building and zoning requirements. Also, the Company is subject to
laws governing its relationship with employees, including minimum wage
requirements, overtime, working conditions and citizenship requirements. The
failure to obtain or retain food licenses or an increase in the minimum wage
rate, employee benefit costs or other costs associated with employees, could
adversely affect the Company. The Federal government recently increased the
minimum wage, which could adversely affect the Company. See "Business--
Government Regulation."
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
The Company has been granted territorial rights to open Papa John's
restaurants in Vancouver, Canada and the surrounding area and Puerto Rico,
beginning in 1998. The Company's ability to establish international operations
is subject to various risks, including changing political and economic
conditions, currency fluctuations, trade barriers, adverse tax consequences,
and government regulations relating to, among other things, the preparation
and sale of food, building and zoning requirements, wages, working conditions,
and the Company's relationship with its employees. There can be no assurance
that the Company will be successful in establishing international operations.
ANTI-TAKEOVER PROVISIONS
The Company's Certificate of Incorporation and By-laws, as well as Delaware
corporate law, contain certain provisions that could have the effect of making
it more difficult for a third party to acquire, or of discouraging a third
party from attempting to acquire, or take control of the Company. These
provisions could limit the price that certain investors might be willing to
pay in the future for shares of Common Stock. Certain of these provisions
allow the Company to issue, without stockholder approval, preferred stock
having voting rights senior to those of the Common Stock. Other provisions
impose various procedural and other requirements that could make it more
difficult for stockholders to effect certain corporate actions. In addition,
the Company's Board of Directors will be divided into three classes with
staggered three-year terms, which may make it more difficult for a third party
to gain control of the Board of Directors. As a Delaware corporation, the
Company is subject to Section 203 of the Delaware General Corporation Law
which, in general, prevents an "interested stockholder" (defined generally as
a person owning 15% or more of a corporation's outstanding voting stock) from
engaging in a "business combination" for three years following the date such
person became an interested stockholder unless certain conditions are
satisfied. As a result, third parties may be discouraged from attempting to
acquire or take control of the Company. See "--Control by Officers and
Directors" and "Description of Capital Stock--Certain Corporate Governance
Matters."
ABSENCE OF PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock. There can be no assurance that an active trading market will develop
for the Common Stock after this offering or, if developed, that such market
will be sustained. The initial public offering price of the Common Stock will
be based on negotiations between the Company and the Underwriters and may bear
no relationship to the price at which the Common Stock will trade after
completion of this offering. See "Underwriting" for factors to be considered
in determining the initial public offering price. In addition, the stock
market in recent years has experienced broad price and volume fluctuations
that have frequently been unrelated to the performance of particular
companies. Such market fluctuations may have a material adverse effect the
market price of the Common Stock. Quarterly operating results or other
developments relating to the Company or other restaurant companies, including
PJI, and changes in general conditions in the economy or the restaurant
industry could cause the market price of the Common Stock to fluctuate
significantly.
10
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 4,620,000 shares of
Common Stock outstanding. Of these shares, 1,800,000 shares sold in this
offering will be freely transferable without restriction or limitation under
the Securities Act of 1933, as amended ("Securities Act"), except for any
shares purchased by "affiliates" of the Company, as such term is defined in
Rule 144 under the Securities Act. The remaining 2,820,000 shares constitute
"restricted securities" within the meaning of Rule 144 such that the sale of
such securities would be restricted for two years (one year if certain
proposed amendments to Rule 144 are adopted). Commencing 180 days following
completion of this offering, the stockholders of the Predecessor Companies and
PJI, the holder of a warrant to purchase 225,000 shares of Common Stock, will
be entitled to certain registration rights with respect to such shares.
Further, the Company intends to register within 180 days of the date of this
offering, 760,000 shares of Common Stock reserved for issuance pursuant to the
Company's incentive compensation programs. At the date of this offering, the
Company anticipates that it will have granted outstanding options to purchase
321,000 shares of Common Stock. Options to purchase shares become exercisable
in four equal annual installments beginning one year from the date of grant.
Sales of substantial amounts of shares of Common Stock in the public market
after this offering or the perception that such sales could occur may
adversely affect the market price of the Common Stock. See "Shares Eligible
for Future Sale."
The Company, its directors and executive officers, the stockholders of the
Predecessor Companies and PJI have agreed with the Underwriters not to sell or
otherwise dispose of any shares of Common Stock, any options to purchase
Common Stock or any securities convertible or exchangeable for shares of
Common Stock for a period of 180 days after the date of this Prospectus
without the prior written consent of Montgomery Securities, except for shares
issued (i) in connection with acquisitions and (ii) pursuant to the exercise
of options granted under the Directors Plan or the 1996 Plan. See
"Underwriting."
SUBSTANTIAL AND IMMEDIATE DILUTION
Purchasers of the Common Stock offered hereby will experience immediate and
significant dilution in net tangible book value per share of their investment
of $7.24 per share of Common Stock (assuming an initial public offering price
of $10.50 per share). See "Dilution."
11
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,620,000 shares of
Common Stock offered hereby, assuming an initial public offering price of
$10.50 per share, are estimated to be $15,019,300 ($16,337,575 if the
Underwriters' over-allotment option is exercised in full). The Company will
not receive any of the proceeds from the sale of shares of the Common Stock by
the Selling Stockholders.
The Company will use approximately $2.2 million of the net proceeds to repay
the outstanding balance of two term notes, which bear interest at 8% and the
prime rate of the lending bank (8.25% at June 1996), respectively. Monthly
payments of $20,000 on the first term note are due through May 2000. Monthly
payments of approximately $42,900 on the second term note are due through
October 1998. The Company will use approximately $1.6 million of the net
proceeds to repay outstanding stockholder loans, which currently bear interest
at 7% and are payable upon demand. These borrowings were used primarily to
fund new restaurant development.
The Company expects to use approximately $2.2 million of the net proceeds to
fund the payment of the amount of Undistributed S Corporation Earnings at the
Termination Date to its current stockholders. See "Prior S Corporation Status
of Predecessor Companies." The remaining net proceeds of approximately $9.0
million will be used to fund new restaurant development and for general
corporate purposes. A portion of the remaining net proceeds of the offering
may be used to acquire other Papa John's franchisees. Although the Company
intends to pursue such acquisitions, the Company does not have any pending
agreements for such acquisitions at the date of this Prospectus. Pending such
uses, the Company will invest the net proceeds in short-term, investment
grade, interest-bearing securities.
DIVIDEND POLICY
The Company intends to retain any future earnings for use in its business
and does not intend to pay cash dividends in the foreseeable future. The
payment of future dividends, if any, will be at the discretion of the
Company's Board of Directors and will depend upon, among other things, future
earnings, operations, capital requirements, restrictions in future financing
agreements, the general financial condition of the Company and general
business conditions.
Certain of the Predecessor Companies made cash distributions to their
stockholders of $9,000, $932,000 and $1,295,000 in 1994, 1995 and the twenty-
six weeks ended June 30, 1996, respectively. Additional cash distributions
aggregating $150,000 were made subsequent to June 30, 1996. See "Prior S
Corporation Status of Predecessor Companies" and "Use of Proceeds."
12
<PAGE>
DILUTION
The net tangible book value of the Company at June 30, 1996 was
approximately $51,606 or $0.02 per share of Common Stock, after giving effect
to (i) the establishment of a deferred tax asset in the amount of $75,000,
assuming the termination of the S corporation status of Predecessor Companies
at June 30, 1996, and (ii) payment of $1,400,000 for the distribution of the
Undistributed S Corporation Earnings (as of June 30, 1996). Net tangible book
value per share represents the amount of total tangible assets less total
liabilities, divided by the number of shares of Common Stock outstanding.
After giving effect to the sale of 1,620,000 shares of Common Stock offered by
the Company hereby at an assumed initial public offering price of $10.50 per
share and the application of the estimated net proceeds therefrom, the pro
forma net tangible book value of the Company at June 30, 1996 would have been
$15,070,906 or $3.26 per share. This represents an immediate increase in pro
forma net tangible book value of $3.24 per share to existing stockholders and
an immediate dilution of $7.24 per share to new investors purchasing shares of
Common Stock in the offering. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $10.50
Net tangible book value per share before offering......... $0.02
Increase attributable to new investors.................... 3.24
-----
Pro forma net tangible book value after offering............ 3.26
------
Dilution per share to new stockholders...................... $ 7.24
======
</TABLE>
The following table summarizes, on a pro forma basis as of June 30, 1996,
the differences between the number of shares purchased from the Company, the
total consideration paid and the average price per share paid by the existing
stockholders and the new investors (at an assumed initial public offering
price of $10.50 per share):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1). 3,000,000 64.9% $ 752,345 4.2% $ 0.25
New investors............ 1,620,000 35.1 17,010,000 95.8 10.50
--------- ----- ----------- -----
Total................ 4,620,000 100.0% $17,762,345 100.0%
========= ===== =========== =====
</TABLE>
- --------
(1) Sales by the Selling Stockholders in this offering will reduce the number
of shares held by the existing stockholders to 2,820,000, or 61.0% (or
2,685,000, or 56.5%, if the over-allotment option is exercised in full) of
the total number of shares of Common Stock to be outstanding after this
offering, and will increase the number of shares to be purchased by new
investors to 1,800,000, or 39.0% (or 2,070,000, or 43.5%, if the over-
allotment option is exercised in full) of the total shares of Common Stock
to be outstanding. See "Principal and Selling Stockholders."
13
<PAGE>
CAPITALIZATION
The following table sets forth (i) the actual short-term debt and
capitalization of the Company at June 30, 1996; (ii) the pro forma short-term
debt and capitalization at such date reflecting the distribution of
Undistributed S Corporation Earnings at June 30, 1996, and the termination of
the Predecessor Companies' S corporation status; and (iii) the short-term debt
and capitalization as adjusted as of such date to give effect to the issuance
and sale of 1,620,000 shares of Common Stock offered by the Company hereby at
an assumed initial public offering price of $10.50 per share and the
application of the net proceeds therefrom. See "Prior S Corporation Status of
Predecessor Companies" and "Use of Proceeds." This table should be read in
conjunction with the financial statements and the notes thereto, included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------
PRO AS
ACTUAL FORMA(1) ADJUSTED
------ -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt(2):
Current maturities of long-term debt.......... $ 754 $ 754 $ --
Due to stockholders........................... 1,465 1,465 --
------ ------ -------
Total short-term debt....................... $2,219 $2,219 $ --
====== ====== =======
Long-term debt(2)............................... $1,454 $1,454 $ --
------ ------ -------
Stockholders' equity:
Preferred Stock, $1.00 par value, 1,000,000
shares authorized; no shares outstanding..... $ -- $ -- $ --
Common Stock, $.01 par value, 20,000,000
shares authorized; 3,000,000 shares
outstanding; 4,620,000 shares outstanding,
as adjusted(3)............................... 5 5 46
Paid-in capital............................... 747 638 15,616
Retained earnings............................. 1,216 -- --
------ ------ -------
Total stockholders' equity.................. 1,968 643 15,662
------ ------ -------
Total capitalization...................... $3,422 $2,097 $15,662
====== ====== =======
</TABLE>
- --------
(1) Gives effect to (i) establishment of a deferred tax asset in the amount of
$75,000 in connection with the termination of the Predecessor Companies' S
corporation status and (ii) payment of $1.4 million to existing
stockholders for distribution of the Undistributed S Corporation Earnings
(which amount is expected to increase to $2.2 million at the Termination
Date). The difference between Undistributed S Corporation Earnings and
Book Retained Earnings is attributable to various factors. See "Prior S
Corporation Status of the Predecessor Companies" and "Use of Proceeds."
(2) See Notes 5 and 6 of the financial statements for information regarding
the Company's short-term and long-term debt.
(3) Excludes (i) 225,000 shares reserved for issuance pursuant to a warrant to
purchase 225,000 shares of Common Stock to be issued to PJI upon the
closing of this offering; (ii) 600,000 shares reserved for issuance under
the Company's 1996 Stock Ownership Incentive Plan, including options to
purchase 249,000 shares of Common Stock expected to be issued upon the
closing of this offering; and (iii) 160,000 shares reserved for issuance
under the Company's 1996 Non-Employee Directors 1996 Stock Incentive Plan,
including 72,000 shares expected to be issued upon the closing of this
offering. See "Management--Non-Employee Directors 1996 Stock Incentive
Plan," "--Employee Awards Granted," "--1996 Stock Ownership Incentive
Plan" and "Certain Transactions."
14
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INTRODUCTION
The following table sets forth selected financial data of the Alabama Group,
the Virginia Group, and on a pro forma basis, the Company. See "The
Reorganization."
The selected income statement and balance sheet data of the Alabama Group
and the Virginia Group for the years ended December 26, 1993, December 25,
1994 and December 31, 1995, and for the six months ended June 30, 1996, are
derived from the combined financial statements for each of the Alabama Group
and the Virginia Group which have been audited by Ernst & Young LLP,
independent auditors, whose reports thereon are included elsewhere in this
Prospectus. The selected income statement and balance sheet data for the years
ended December 29, 1991 and December 28, 1992 and the selected income
statement data for the 26 weeks ended June 25, 1995 are unaudited. The pro
forma income statement and balance sheet data set forth below, of the Company
as of and for the periods ended June 25, 1995, December 31, 1995 and June 30,
1996, are unaudited.
The Selected Financial Data set forth below should be read in conjunction
with, and are qualified in their entirety by, the financial statements and
related notes and other financial information included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED (1) 26 WEEKS ENDED
-------------------------------------------------- --------------------
DEC. 29, DEC. 28, DEC. 26, DEC. 25, DEC. 31, JUNE 25, JUNE 30,
1991 1992 1993 1994 1995 1995 1996
----------- ----------- -------- -------- -------- ----------- --------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
ALABAMA GROUP:
INCOME STATEMENT DATA:
Restaurant sales...................... $170 $1,318 $3,127 $6,415 $10,457 $4,626 $6,197
Costs and expenses:
Cost of sales....................... 62 433 1,054 2,098 3,511 1,527 2,068
Salaries and benefits............... 68 406 888 1,677 2,647 1,193 1,563
Other operating expenses............ 47 344 772 1,481 2,393 1,053 1,400
General and administrative expenses. 20 131 229 433 557 248 495
Depreciation and amortization....... 3 50 79 172 275 125 174
---- ------ ------ ------ ------- ------ ------
Total costs and expenses.......... 200 1,364 3,022 5,861 9,383 4,146 5,700
---- ------ ------ ------ ------- ------ ------
Operating income (loss)............... (30) (46) 105 554 1,074 480 497
Other expense, net.................... -- -- (6) (22) (65) (23) (39)
---- ------ ------ ------ ------- ------ ------
Income (loss) before income taxes..... (30) (46) 99 532 1,009 457 458
Income tax benefit (expense).......... -- -- -- -- -- -- --
---- ------ ------ ------ ------- ------ ------
Net income (loss)................. $(30) $ (46) $ 99 $ 532 $ 1,009 $ 457 $ 458
==== ====== ====== ====== ======= ====== ======
BALANCE SHEET DATA (END OF PERIOD):
Total assets.......................... $240 $ 432 $ 823 $1,655 $ 2,491 $2,569
Total debt, including current
maturities........................... -- -- 300 427 1,066 1,692
Stockholders' equity.................. 210 314 435 995 1,073 235
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED (1) 26 WEEKS ENDED
-------------------------------------------------- -----------------------
DEC. 29, DEC. 28, DEC. 26, DEC. 25, DEC. 31, JUNE 25, JUNE 30,
1991(2) 1992 1993 1994 1995 1995 1996
-------- ----------- -------- -------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
VIRGINIA GROUP:
INCOME STATEMENT DATA:
Restaurant sales....... $211 $2,907 $7,695 $12,642 $ 5,569 $ 7,900
Costs and expenses:
Cost of sales........ 74 994 2,621 4,316 1,871 2,684
Salaries and
benefits............ 127 855 2,093 3,148 1,391 1,925
Other operating
expenses............ 102 772 1,915 3,350 1,476 2,081
General and
administrative
expenses............ 19 190 429 486 217 352
Depreciation and
amortization........ 11 86 220 382 175 252
---- ------ ------ ------- ------- -------
Total costs and
expenses.......... 333 2,897 7,278 11,682 5,130 7,294
---- ------ ------ ------- ------- -------
Operating income
(loss)................ (122) 10 417 960 439 606
Other expense, net..... -- (36) (70) (156) (72) (85)
---- ------ ------ ------- ------- -------
Income (loss) before
income taxes.......... (122) (26) 347 804 367 521
Income tax benefit
(expense)............. 43 8 (145) -- -- --
---- ------ ------ ------- ------- -------
Net income (loss).. $(79) $ (18) $ 202 $ 804 $ 367 $ 521
==== ====== ====== ======= ======= =======
BALANCE SHEET DATA (END
OF PERIOD):
Total assets........... $347 $1,193 $2,526 $ 3,854 $ 4,331
Total debt, including
current maturities.... -- 790 1,655 2,139 1,982
Stockholders' equity... 329 157 400 1,204 1,733
<CAPTION>
26 WEEKS ENDED
-----------------------
FISCAL JUNE 25, JUNE 30,
1995(1) 1995 1996
----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
THE COMPANY(3):
PRO FORMA INCOME STATEMENT DATA:
Restaurant sales.............................................. $23,099 $10,196 $14,097
Costs and expenses:
Cost of sales............................................... 7,827 3,398 4,752
Salaries and benefits....................................... 5,795 2,583 3,488
Other operating expenses.................................... 5,742 2,530 3,481
General and administrative expenses......................... 1,043 465 848
Depreciation and amortization............................... 657 300 425
------- ------- -------
Total costs and expenses.................................. 21,064 9,276 12,994
------- ------- -------
Operating income.............................................. 2,035 920 1,103
Other expense, net............................................ (222) (96) (124)
------- ------- -------
Income before income taxes.................................... 1,813 824 979
Income tax benefit (expense).................................. (662) (301) (357)
------- ------- -------
Net income................................................ $ 1,151 $ 523 $ 622
======= ======= =======
Net income per share.......................................... $ 0.37 $ 0.17 $ 0.20
Weighted average shares(4).................................... 3,133 3,148 3,143
Supplemental pro forma net income per share(5)................ $ 0.37 $ 0.17 $ 0.20
BALANCE SHEET DATA (END OF PERIOD):
Total assets.................................................. $ 6,345 $ 6,900
Total debt, including current maturities...................... 3,205 3,673
Stockholders' equity.......................................... 2,277 1,968
</TABLE>
16
<PAGE>
- --------
(1) The Company operates on a 52-53 week fiscal year ending on the last Sunday
in December of each year. Fiscal year 1995 was a 53 week year.
(2) PJVA, Inc. and PJV, Inc. were incorporated in 1992.
(3) Includes the Alabama Group and the Virginia Group. The pro forma income
statement data reflect the effect of the Reorganization on the historical
income statement data for the fiscal year ended December 31, 1995, and the
26 weeks ended June 25, 1995 and June 30, 1996, assuming that the
Predecessor Companies were C corporations rather than S corporations for
income tax purposes, with assumed combined Federal, state and local
effective income tax rates aggregating 36.5%. See "Prior S Corporation
Status of Predecessor Companies."
(4) Based on (i) 3,000,000 weighted average shares used in the calculation of
pro forma net income per share plus (ii) 148,490, 133,129 and 143,369
shares of Common Stock, respectively, to reflect the number of shares of
Common Stock that the Company would be required to sell at an assumed
initial public offering price of $10.50 per share (after deducting the
underwriting discount) in this offering to fund the payment of
undistributed S corporation earnings at June 25, 1995 ($1,450,000),
December 31, 1995 ($1,300,000) and June 30, 1996 ($1,400,000).
(5) Supplemental pro forma net income includes all adjustments used in
determining pro forma net income and also reflects the reduction of
interest expense that would have resulted from the repayment of $2,200,000
of the Company's outstanding bank borrowings and $1,450,000 in
indebtedness to certain of the Company's existing shareholders as if the
offering had occurred at the beginning of fiscal 1995. Supplemental pro
forma net income per share is based upon the number of shares of Common
Stock used in the calculation of pro forma net income per share plus
376,179 shares of Common Stock that the Company would be required to sell
at an assumed initial public offering price of $10.50 per share (after
deducting the underwriting discount) to fund such repayments.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The Company is the largest franchisee of Papa John's pizza delivery and
carry-out restaurants based upon the number of restaurants currently in
operation. At June 30, 1996, the Company owned and operated 42 Papa John's
restaurants in Birmingham, Alabama and the surrounding area; in Norfolk,
Richmond and Virginia Beach, Virginia and the surrounding areas; and in East
Texas. At June 30, 1996, PJI and its franchisees (including the Company)
operated 1,000 Papa John's restaurants in 28 states.
The Company was recently formed as the successor company in the
Reorganization. Prior to the Reorganization, each of the Predecessor Companies
operated as separate entities. However, the three Predecessor Companies
comprising the Alabama Group (Extra Cheese, Textra Cheese Corp. and Twice the
Cheese, Inc.) were under substantially common ownership, as were the two
Predecessor Companies comprising the Virginia Group (PJVA, Inc. and PJV,
Inc.). Thus, the following discussion and analysis separately address the
Alabama Group's and the Virginia Group's results of operations on a historical
combined basis for the periods presented. The pro forma financial data for
fiscal 1995 and the 26 weeks ended June 25, 1995 and June 30, 1996 are
presented as if the Reorganization had occurred at the beginning of fiscal
1995. The following should be read in conjunction with the historical combined
financial statements for each of the Alabama Group and the Virginia Group and
the summary and selected financial and other data for both the Alabama Group
and the Virginia Group contained elsewhere in this Prospectus. See "The
Reorganization."
The Company's restaurants operate under separate franchise agreements, which
generally have terms between five and ten years (with renewal options between
five and ten years) and require payment of monthly royalties equal to 4% of
restaurant sales. The Company also has entered into development agreements
with PJI to open a certain number of restaurants over a defined period of time
within specific geographic areas. The Company's development agreements
generally require it to pay a non-refundable fee per restaurant covered by the
respective agreements. This amount is generally credited against the initial
franchise fee that the Company is required to pay for each new restaurant
opened. The Company amortizes development and franchise fees over a 20 year
period, beginning with the opening of a restaurant. See "Business--Franchise
and Development Agreements."
The Company's growth strategy will focus on further developing the Papa
John's concept through (i) building out its existing markets; (ii) acquiring
and developing new territories; and (iii) strategically acquiring existing
Papa John's franchisee groups and territories, if available. The Company's
market-by-market expansion strategy focuses on clustering restaurants, thereby
increasing consumer awareness and enabling the Company to take advantage of
operational and advertising efficiencies. To date, the Company believes that
this strategy has contributed to increases in comparable restaurant sales,
although there can be no assurance that comparable restaurant sales will
continue to be positive. The Company expects that its average cash investment,
including franchise fees, required to open restaurants in 1996 will
approximate $185,000. The Company anticipates that the cash investment
required to open restaurants in its new territories will be higher than that
experienced in its existing markets. Pre-opening costs are expensed as
incurred.
The Company operates on a 52-53 week fiscal year ending on the last Sunday
of December of each year. Fiscal 1995 was a 53 week year.
18
<PAGE>
RESULTS OF OPERATIONS--ALABAMA GROUP
The following table sets forth the percentage relationship to restaurant
sales for certain income statement data for the Alabama Group.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED 26 WEEKS ENDED
-------------------------- -----------------
DEC. 26, DEC. 25, DEC. 31, JUNE 25, JUNE 30,
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Restaurant sales............. 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of sales.............. 33.7 32.7 33.6 33.0 33.4
Salaries and benefits...... 28.4 26.1 25.3 25.8 25.2
Other operating expenses... 24.7 23.1 22.9 22.7 22.6
General and administrative
expenses.................. 7.3 6.8 5.3 5.4 8.0
Depreciation and
amortization.............. 2.5 2.7 2.6 2.7 2.8
----- ----- ----- ----- -----
Total costs and expenses. 96.6 91.4 89.7 89.6 92.0
----- ----- ----- ----- -----
Operating income............. 3.4 8.6 10.3 10.4 8.0
Other expense, net........... (0.2) (0.3) (0.7) (0.5) (0.6)
----- ----- ----- ----- -----
Income before income taxes... 3.2 8.3 9.6 9.9 7.4
Income tax benefit (expense). -- -- -- -- --
----- ----- ----- ----- -----
Net income............... 3.2% 8.3% 9.6% 9.9% 7.4%
===== ===== ===== ===== =====
</TABLE>
Twenty-six Weeks Ended June 30, 1996 Compared to Twenty-six Weeks Ended June
25, 1995.
Restaurant Sales. Restaurant sales increased 34.0% to $6.2 million for the
26 weeks ended June 30, 1996 from $4.6 million for the comparable period in
1995. The increase in restaurant sales was attributable to sales from the four
new restaurants opened between June 26, 1995 and June 30, 1996, a full 26
weeks of operations for the two restaurants opened in the first 26 weeks of
1995, and a 2.7% increase in comparable restaurant sales for the 10
restaurants open throughout both periods. The increase in comparable
restaurant sales was primarily attributable to continued market penetration,
partially offset by the impact of inclement weather in the first quarter of
1996.
Costs and Expenses. Cost of sales, which consists of food, beverage and
paper costs, increased as a percentage of restaurant sales to 33.4% for the
first 26 weeks of 1996 from 33.0% for the comparable period in 1995. This
percentage increase resulted from a slight increase in food costs, primarily
cheese.
Salaries and benefits, which consist of all store level employee wages,
taxes and benefits, decreased as a percentage of restaurant sales to 25.2% for
the first 26 weeks of 1996 from 25.8% for the comparable period in 1995. The
decrease in salaries and benefits as a percentage of restaurant sales was
primarily due to better labor utilization and a smaller percentage of new
restaurants opened during the 26 weeks ended June 30, 1996, versus the
comparable period in 1995. Salaries and benefits historically have been higher
as a percentage of restaurant sales in the early months of operations of new
restaurants.
Other operating expenses include other restaurant level operating costs, the
material components of which are automobile mileage reimbursement for delivery
drivers, rent, royalties, utility expenses and advertising expenses. Other
operating expenses decreased slightly as a percentage of restaurant sales to
22.6% in the first 26 weeks of 1996 from 22.7% for the comparable period in
1995. Reduced mileage reimbursement and other expenses as a percentage of
restaurant sales were partially offset by increased advertising expenses from
the Alabama Group's participation in PJI's eleventh anniversary promotion in
April 1996.
General and administrative expenses increased by $247,000 in the first 26
weeks of 1996 to $495,000 from $248,000 during the comparable period in 1995,
and increased as a percentage of restaurant sales to 8.0% in the first 26
weeks of 1996 from 5.4% for the comparable period in 1995. The dollar and
percentage increases were primarily due to relocation expenses of $120,000 for
executives and the addition of restaurant supervisory and corporate support
personnel.
19
<PAGE>
Depreciation and amortization increased by $49,000 in the first 26 weeks of
1996 to $174,000 from $125,000 during the comparable period in 1995, and
increased slightly as a percentage of restaurant sales to 2.8% in the first 26
weeks of 1996 from 2.7% for the comparable period in 1995. The dollar increase
was primarily due to the opening of additional restaurants.
Other expense, which consists primarily of interest expense, increased to
$39,000 for the first 26 weeks of 1996 from $23,000 for the comparable period
in 1995, primarily due to increased borrowings.
Fiscal Year 1995 Compared to Fiscal Year 1994.
Restaurant Sales. Restaurant sales increased 63.0% to $10.5 million in 1995
from $6.4 million in 1994. The increase in restaurant sales was attributable
to sales from the five new restaurants opened in 1995, a full year of
operations for the four restaurants opened during 1994, and an 6.6% increase
in comparable restaurant sales for the six restaurants open throughout both
fiscal years. The increase in comparable restaurant sales was primarily
attributable to increased market penetration in Birmingham, Alabama and the
surrounding area.
Costs and Expenses. Cost of sales increased as a percentage of restaurant
sales to 33.6% in 1995 from 32.7% in 1994. This percentage increase resulted
from an increase in topping portions on pizzas and more aggressive cost
discounting.
Salaries and benefits decreased as a percentage of restaurant sales to 25.3%
in 1995 from 26.1% in 1994. The decrease in salaries and benefits as a
percentage of restaurant sales was primarily due to better labor utilization
and a smaller percentage of new restaurants opened in 1995 as compared to
1994.
Other operating expenses decreased as a percentage of restaurant sales to
22.9% in 1995 from 23.1% in 1994. The decrease was attributable to decreases
in other operating expenses as a percentage of restaurant sales in Birmingham,
Alabama and the surrounding area, partially offset by higher other operating
expenses for new restaurants opened in Texas.
General and administrative expenses increased by $124,000 in 1995 to
$557,000 from $433,000 in 1994, but declined as a percentage of restaurant
sales to 5.3% in 1995 from 6.8% in 1994. The dollar increase was the result of
the addition of restaurant supervisory and corporate support personnel. The
percentage decrease was primarily due to an increase in restaurant sales
without a proportionate increase in general and administrative expenses.
Depreciation and amortization increased by $103,000 in 1995 to $275,000 from
$172,000 in 1994, but decreased slightly as a percentage of restaurant sales
to 2.6% in 1995 from 2.7% in 1994. The dollar increase was primarily related
to the opening of additional restaurants.
Other expense increased to $65,000 for 1995 from $22,000 in 1994, primarily
due to increased borrowings.
Fiscal Year 1994 Compared to Fiscal Year 1993.
Restaurant Sales. Restaurant sales increased 105.2% to $6.4 million in 1994
from $3.1 million in 1993. The increase in restaurant sales was attributable
to sales from the four new restaurants opened in 1994, a full year of
operations for the three restaurants opened in 1993, and a 23.3% increase in
comparable restaurant sales for the three restaurants open throughout both
fiscal years. The increase in comparable restaurant sales was primarily
attributable to increased market penetration.
Costs and Expenses. Cost of sales decreased as a percentage of restaurant
sales to 32.7% in 1994 from 33.7% in 1993, primarily due to increased
efficiencies at the store level.
Salaries and benefits decreased as a percentage of restaurant sales to 26.1%
in 1994 from 28.4% in 1993. The decrease in salaries and benefits as a
percentage of restaurant sales was primarily due to better labor utilization
and a smaller percentage of new restaurants opened in 1994 as compared to
1993.
Other operating expenses decreased as a percentage of restaurant sales to
23.1% in 1994 from 24.7% in 1993. The decrease was primarily attributable to
leveraging advertising expenses over a larger sales base.
20
<PAGE>
General and administrative expenses increased by $204,000 to $433,000 in
1994 from $229,000 in 1993, but decreased as a percentage of restaurant sales
to 6.8% in 1994 from 7.3% in 1993. The dollar increase was the result of the
addition of restaurant supervisory and corporate support personnel. The
percentage decrease was primarily due to an increase in restaurant sales
without a proportionate increase in general and administrative expenses.
Depreciation and amortization increased by $93,000 to $172,000 in 1994 from
$79,000 in 1993, and increased slightly as a percentage of restaurant sales to
2.7% in 1994 from 2.5% in 1993. The dollar increase was related to the opening
of additional restaurants.
Other expense increased to $22,000 in 1994 from $6,000 in 1993, primarily
due to increased borrowings.
RESULTS OF OPERATIONS--VIRGINIA GROUP
The following table sets forth the percentage relationship to restaurant
sales of certain income statement data for the Virginia Group.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED 26 WEEKS ENDED
--------------------------- -----------------
DEC. 26, DEC. 25, DEC. 31, JUNE 25, JUNE 30,
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Restaurant sales............. 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of sales.............. 34.2 34.1 34.2 33.6 34.0
Salaries and benefits...... 29.4 27.2 24.9 25.0 24.4
Other operating expenses... 26.6 24.8 26.5 26.5 26.3
General and administrative
expenses.................. 6.5 5.6 3.8 3.9 4.4
Depreciation and
amortization.............. 2.9 2.9 3.0 3.1 3.2
----- ----- ----- ----- -----
Total costs and expenses. 99.6 94.6 92.4 92.1 92.3
----- ----- ----- ----- -----
Operating income............. 0.4 5.4 7.6 7.9 7.7
Other expense, net........... (1.3) (0.9) (1.2) (1.3) (1.1)
----- ----- ----- ----- -----
Income (loss) before income
taxes....................... (0.9) 4.5 6.4 6.6 6.6
Income tax benefit (expense). 0.3 (1.9) -- -- --
----- ----- ----- ----- -----
Net income (loss)........ (0.6)% 2.6% 6.4% 6.6% 6.6%
===== ===== ===== ===== =====
</TABLE>
Twenty-six Weeks Ended June 30, 1996 Compared to Twenty-six Weeks Ended June
25, 1995.
Restaurant Sales. Restaurant sales increased 41.9% to $7.9 million for the
26 weeks ended June 30, 1996 from $5.6 million for the comparable period in
1995. The increase in restaurant sales was attributable to sales from the six
new restaurants opened from June 26, 1995 to June 30, 1996, a full 26 weeks of
operations for the two restaurants opened in the first 26 weeks of 1995, and a
4.5% increase in comparable restaurant sales for the 17 restaurants open
throughout both periods. The increase in comparable restaurant sales was
primarily attributable to continued market penetration, partially offset by
the impact of inclement weather in the first quarter of 1996.
Costs and Expenses. Cost of sales increased as a percentage of restaurant
sales to 34.0% for the first 26 weeks of 1996 from 33.6% for the comparable
period in 1995. This percentage increase resulted from a slight increase in
food costs, primarily cheese.
Salaries and benefits decreased as a percentage of restaurant sales to 24.4%
for the first 26 weeks of 1996 from 25.0% for the comparable period in 1995.
The decrease in salaries and benefits as a percentage of restaurant sales was
primarily due to better labor utilization and a smaller percentage of new
restaurants opened during the 26 weeks ended June 30, 1996, versus the
comparable period in 1995.
Other operating expenses decreased as a percentage of restaurant sales to
26.3% in the first 26 weeks of 1996 from 26.5% for the comparable period in
1995. The percentage decrease was primarily attributable to decreases in
mileage reimbursement and certain other expenses as a percentage of restaurant
sales.
21
<PAGE>
General and administrative expenses increased by $135,000 in the first 26
weeks of 1996 to $352,000 from $217,000 for the comparable period in 1995, and
increased as a percentage of restaurant sales to 4.4% in the first 26 weeks of
1996 from 3.9% for the comparable period in 1995. The dollar and percentage
increases were the result of the addition of restaurant supervisory and
corporate support personnel.
Depreciation and amortization increased by $77,000 to $252,000 in the first
26 weeks of 1996 from $175,000 for the comparable period in 1995, and
increased slightly as a percentage of restaurant sales to 3.2% in the first 26
weeks of 1996 from 3.1% for the comparable period in 1995. The dollar increase
was primarily related to the opening of additional restaurants.
Other expense increased to $85,000 for the first 26 weeks of 1996 from
$72,000 for the comparable period in 1995, primarily due to increased
borrowings.
Fiscal Year 1995 Compared to Fiscal Year 1994.
Restaurant Sales. Restaurant sales increased 64.3% to $12.6 million in 1995
from $7.7 million in 1994. The increase in restaurant sales was attributable
to sales from the seven new restaurants opened in 1995, a full year of
operations for the seven restaurants opened during 1994, and a 0.6% increase
in comparable restaurant sales for the 10 restaurants open throughout both
fiscal years. The increase in comparable restaurant sales was primarily
attributable to increased market penetration.
Costs and Expenses. Cost of sales increased slightly as a percentage of
restaurant sales to 34.2% in 1995 from 34.1% in 1994.
Salaries and benefits decreased as a percentage of restaurant sales to 24.9%
for 1995 from 27.2% in 1994. The decrease in salaries and benefits as a
percentage of restaurant sales was primarily due to better labor utilization
and a smaller percentage of new restaurants opened in 1995 as compared to
1994.
Other operating expenses increased as a percentage of restaurant sales to
26.5% in 1995 from 24.8% in 1994. This increase was primarily attributable to
a significant increase in advertising expenses in 1995 directed at increasing
market awareness.
General and administrative expenses increased by $57,000 in 1995 to $486,000
from $429,000 in 1994, but declined as a percentage of restaurant sales to
3.8% in 1995 from 5.6% in 1994. The dollar increase was the result of the
addition of restaurant supervisory and corporate support personnel. General
and administrative expenses as a percentage of restaurant sales were higher in
1994 due primarily to a defalcation by a consultant in 1994, which resulted in
an expense of approximately $105,000 in such period.
Depreciation and amortization increased by $162,000 in 1995 to $382,000 from
$220,000 in 1994, and increased slightly as a percentage of restaurant sales
to 3.0% in 1995 from 2.9% in 1994. The dollar increase was primarily related
to the opening of additional restaurants.
Other expense increased to $156,000 for 1995 from $70,000 in 1994, primarily
due to increased borrowings.
Fiscal Year 1994 Compared to Fiscal Year 1993.
Restaurant Sales. Restaurant sales increased 164.7% to $7.7 million in 1994
from $2.9 million in 1993. The increase in restaurant sales was attributable
to sales from the seven new restaurants opened in 1994, a full year of
operations for the seven restaurants opened in 1993, and a 25.3% increase in
comparable restaurant sales for the three restaurants open throughout both
fiscal years. The increase in comparable restaurant sales was primarily
attributable to increased market penetration.
Costs and Expenses. Cost of sales decreased as a percentage of restaurant
sales to 34.1% in 1994 from 34.2% in 1993.
Salaries and benefits decreased as a percentage of restaurant sales to 27.2%
for 1994 from 29.4% in 1993. The decrease in salaries and benefits as a
percentage of restaurant sales was primarily due to better labor utilization
and a smaller percentage of new restaurants opened in 1994 as compared to
1993.
22
<PAGE>
Other operating expenses decreased as a percentage of restaurant sales to
24.8% in 1994 as compared to 26.6% in 1993. The decrease was primarily
attributable to decreased advertising expenditures as a percentage of
restaurant sales.
General and administrative expenses increased by $239,000 in 1994 to
$429,000 from $190,000 in 1993, but decreased as a percentage of restaurant
sales to 5.6% in 1994 from 6.5% in 1993. This dollar increase was the result
of the addition of restaurant supervisory and corporate support personnel and
a defalcation by a consultant, which resulted in an expense of approximately
$105,000 in such period.
Depreciation and amortization increased by $134,000 in 1994 to $220,000 from
$86,000 in 1993, but remained the same as a percentage of restaurant sales.
The dollar increase was primarily related to the opening of additional
restaurants.
Other expense increased to $70,000 for 1994 from $36,000 in 1993, primarily
due to increased borrowings.
RESULTS OF OPERATIONS--THE COMPANY
The following table sets forth the percentage relationship to restaurant
sales for certain income statement data for the Company on a pro forma
combined basis.
<TABLE>
<CAPTION>
26 WEEKS ENDED
-----------------
FISCAL JUNE 25, JUNE 30,
1995 1995 1996
------ -------- --------
<S> <C> <C> <C>
Restaurant sales................................. 100.0% 100.0% 100.0%
Costs and expenses:
Cost of sales.................................. 33.9 33.3 33.7
Salaries and benefits.......................... 25.1 25.4 24.8
Other operating expenses....................... 24.9 24.8 24.7
General and administrative expenses............ 4.5 4.6 6.0
Depreciation and amortization.................. 2.8 2.9 3.0
----- ----- -----
Total costs and expenses..................... 91.2 91.0 92.2
----- ----- -----
Operating income................................. 8.8 9.0 7.8
Other expense, net............................... (0.9) (1.0) (0.9)
----- ----- -----
Income before income taxes....................... 7.9 8.0 6.9
Income tax benefit (expense)..................... (2.9) (2.9) (2.5)
----- ----- -----
Net income................................... 5.0% 5.1% 4.4%
===== ===== =====
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company will not have significant receivables or inventory, and
therefore it will require capital primarily for the development of new
restaurants. In 1993, 1994, 1995 and the twenty-six weeks ended June 30, 1996,
the Predecessor Companies' capital expenditures totalled $1.2 million, $1.8
million, $2.5 million and $365,000, respectively. In addition, certain of the
Predecessor Companies made distributions to their stockholders with respect to
S corporation earnings during 1994, 1995 and the twenty-six weeks ended June
30, 1996 in the aggregate amount of $2.2 million. The Predecessor Companies
traditionally funded their capital requirements from cash provided by
operating activities and proceeds from bank borrowings and stockholder loans.
The Predecessor Companies' net cash provided by operating activities was
$277,000, $1.1 million, $2.4 million and $1.6 million for 1993, 1994, 1995 and
the twenty-six weeks ended June 30, 1996, respectively. Net borrowings by the
Predecessor Companies totalled $940,000, $1.0 million, $1.1 million and
$469,000 for 1993, 1994, 1995 and the twenty-six weeks ended June 30, 1996,
respectively.
23
<PAGE>
Since June 30, 1996, the Predecessor Companies have made additional
distributions of Undistributed S Corporation Earnings of $150,000. The Company
intends to use approximately $2.2 million of the net proceeds from this
offering to fund the payment of the amount of Undistributed S Corporation
Earnings at the Termination Date to the current stockholders of the
Predecessor Companies. In addition, the Company will use approximately $2.2
million of the net proceeds to repay the outstanding balance of two bank
notes, and approximately $1.6 million to repay outstanding stockholder loans.
The Company estimates that its total capital expenditures will be
approximately $900,000 for the second half of 1996 and approximately $2.8
million in 1997. The Company also may acquire the operations of other Papa
John's franchisees if such operations become available on terms satisfactory
to the Company. The Company expects that cash flow from operations and the net
proceeds from this offering after repayment of bank debt and stockholder loans
and payment of Undistributed S Corporation Earnings will provide sufficient
funds to finance its capital expenditures through 1997.
IMPACT OF INFLATION
The Company does not believe inflation has materially affected earnings
during the past three years. Substantial increases in costs, particularly
labor, employee benefits or food costs, could have a significant impact on the
Company. See "Risk Factors--Increases in Operating Costs; Availability and
Cost of Insurance."
24
<PAGE>
BUSINESS
GENERAL
PJ America is the largest franchisee of "Papa John's" pizza delivery and
carry-out restaurants based upon the number of restaurants currently in
operation. At June 30, 1996, the Company owned and operated 42 Papa John's
restaurants in Birmingham, Alabama and the surrounding area; in Norfolk,
Richmond and Virginia Beach, Virginia and the surrounding areas; and in East
Texas. In addition to its existing territories, the Company has been granted by
PJI the territorial rights for Papa John's restaurants in the California
Counties; Vancouver, Canada and the surrounding area; and Puerto Rico. In
addition, the Company has an option, exercisable during 1998, to acquire the
operations and development rights for Papa John's restaurants in Utah from an
affiliate of the Company. At June 30, 1996, PJI and its franchisees (including
the Company) operated 1,000 Papa John's restaurants in 28 states.
PAPA JOHN'S INTERNATIONAL, INC.
General. The Papa John's concept was initiated in 1985 with the opening of
the first Papa John's restaurant by PJI. PJI is a publicly-held company
headquartered in Louisville, Kentucky. At June 30, 1996, the Papa John's
restaurant system consisted of 1,000 restaurants in 28 states, including 248
restaurants operated by PJI, 42 restaurants operated by the Company and 710
restaurants operated by other franchisees. The key elements of the Papa John's
concept include a focused menu of high quality pizza and related items, an
effective commissary distribution and equipment supply system and an efficient
in-store operating design.
Menu. Papa John's restaurants offer a focused menu of high quality, value
priced pizza, breadsticks and cheesesticks. Papa John's original, medium thick
crust is made from fresh dough (never frozen) produced in PJI's regional
commissaries. Every pizza is prepared using real mozzarella cheese, pizza sauce
made from fresh-packed tomatoes (not concentrate), a proprietary mix of savory
spices and a choice of high quality meat and vegetable toppings in generous
portions. Fresh onions and green peppers are chopped daily at all restaurants
and are purchased from local produce suppliers. Each pizza is complemented by
the addition of a container of Papa John's special garlic sauce (for dipping
the crust) and two pepperoncinis. This focused menu and use of quality
ingredients enables Papa John's restaurants to concentrate on consistently
"Delivering the Perfect Pizza!"(TM). During the second half of 1995, PJI began
testing a thin crust product in certain PJI-owned and franchised markets. PJI
is continuing to test this product while completing additional consumer
research. An expanded market test of the thin crust product is expected by the
end of 1996.
Purchasing and Distribution. PJI's commissary system supplies pizza dough and
other food and paper products twice weekly to each of its franchised
restaurants. PJI currently operates five regional commissaries in Louisville,
Kentucky; Raleigh, North Carolina; Orlando, Florida; Jackson, Mississippi; and
Denver, Colorado. PJI also operates one distribution center in Dallas, Texas.
PJI expects to open new commissaries and distribution centers as PJI and its
franchisees expand into new territories. Specifically, PJI has announced that
it plans to open up to three additional commissaries by year-end 1997. PJI's
commissary system enables it to closely monitor and control product quality and
consistency, while lowering food and operating costs for its franchisees. All
Papa John's restaurants are required to purchase a proprietary mix of savory
spices and dough from PJI. Produce is purchased locally by each franchisee to
ensure freshness. Franchisees may purchase other goods from approved suppliers
or PJI, which has negotiated purchasing agreements with most of its suppliers.
The Company believes that these agreements enable it to benefit from volume
discounts which result in prices the Company believes are below those which it
could otherwise obtain. In addition, all the equipment, counters and smallwares
required to open a Papa John's restaurant are available from PJI. PJI also
provides layout and design services and recommends subcontractors, signage
installers and telephone systems to its franchisees. Although not required to
do so, the Company purchases substantially all of its food products and
restaurant equipment from PJI.
Restaurant Layout and Design. Papa John's restaurants are typically 1,200 to
1,500 square feet in size and are located in strip centers or free-standing
buildings which provide visibility, curb appeal and accessibility. The exterior
of a Papa John's restaurant is generally characterized by backlighted awnings,
neon window designs
25
<PAGE>
and other visible signage. The layout is designed to facilitate a smooth flow
of food orders through the restaurant. The layout includes specific areas for
order taking, pizza preparation and routing, resulting in simplified
operations, lower training and labor costs, increased efficiency and improved
consistency and quality of food products. The decor of a restaurant has a
vibrant red and white color scheme with green striping, and includes a bright
menu board, custom counters and a carry-out customer area. The counters are
designed to allow customers to watch the employees slap out the dough and put
sauce and toppings on pizzas. Certain of the Company's restaurants in Alabama
also have limited seating areas. PJI provides the Company assistance with
restaurant design, site selection and a complete equipment package for new
restaurants. This provides the Company with a convenient, cost-effective means
of opening restaurants while ensuring a consistent restaurant appearance.
RESTAURANT LOCATIONS
The following table sets forth the location and number of Company
restaurants at June 30, 1996 (exclusive of two restaurants under construction
at such date).
<TABLE>
<CAPTION>
NUMBER OF
LOCATION RESTAURANTS
-------- -----------
<S> <C>
Birmingham, Alabama and the surrounding area............................. 14
Norfolk, Richmond and Virginia Beach, Virginia and the surrounding areas. 25
East Texas............................................................... 3
---
Total restaurants.................................................... 42
===
</TABLE>
UNIT ECONOMICS
The Company believes the performance of its Papa John's restaurants has been
exceptional. In 1995, PJI awarded one of the Predecessor Companies its 1994
Franchisee of the Year Award. The Company's average unit volumes have
historically exceeded the average of the Papa John's franchise system. In
particular, one of the Company's restaurants achieved the highest sales volume
in 1995 of any franchised restaurant in the Papa John's system. During the 53
weeks ended June 30, 1996, the 31 restaurants that were open throughout the
period generated average sales of $752,000, average restaurant cash flow
(operating income plus depreciation) of $136,000 and average restaurant
operating income after royalties of $115,000 (or 15.3% of sales). However,
there can be no assurance that such results can be maintained. The average
cash investment, including franchise fees, to open these 31 restaurants was
approximately $165,000, exclusive of land and pre-opening expenses. The
Company expects that its average cash investment for restaurants opened in
1996 will approximate $185,000. The Company also anticipates that the new
restaurants projected to open in 1996 and 1997 will be in the Company's
existing markets. The Company expects that occupancy costs and the cash
investment required to open restaurants in its new territories will be higher
than that experienced in its existing markets. The Company leases, rather than
owns, most of its properties and expects to continue to do so in the future.
EXPANSION AND SITE SELECTION
The Company's growth strategy will focus on further developing the Papa
John's concept through (i) building out its existing markets; (ii) acquiring
and developing new territories; and (iii) strategically acquiring existing
Papa John's franchisee groups and territories, if available. The Company's
objective is to become the leading chain of pizza delivery restaurants in each
of its development markets. Through a market-by-market expansion strategy
focused on clustering restaurants, the Company seeks to increase consumer
awareness and take advantage of operational and advertising efficiencies.
During fiscal 1995, the Company opened 12 restaurants. In fiscal 1996, the
Company plans to open approximately seven restaurants (three of which had been
opened as of June 30, 1996), and in fiscal 1997, the Company expects to open
approximately ten additional restaurants. As part of its overall growth
strategy, the Company intends to supplement its new restaurant development
through acquisition of existing Papa John's franchisees.
In addition to developing its existing territories, the Company has been
granted by PJI the rights to enter into development agreements for Papa John's
restaurants in the California Counties; Vancouver, Canada and the surrounding
area; and Puerto Rico. The Company estimates that these territories could
support approximately
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90 to 100 Papa John's restaurants. In addition, the Company has an option,
exercisable during 1998, to acquire the operations and development rights for
Papa John's restaurants in Utah from an affiliated party. The development
rights with respect to the Utah territory provide for two Papa John's
restaurants to be opened in 1996, and six restaurants to be opened in each of
1997, 1998 and 1999. There can be no assurance that the Company will exercise
the option for the Utah territory or that, if exercised, such restaurants will
be developed. Currently, there are no Papa John's restaurants open in
California, Canada, Puerto Rico or Utah. PJI has waived its right of first
refusal with respect to the Company's possible acquisition of the Utah
territory.
The Company also has a right of first refusal with a term of five years
beginning September 1, 1996 to acquire from an affiliated party the operations
and development rights for Papa John's restaurants in (i) Iowa, including the
Moline and Rock Island, Illinois areas (but excluding the Council Bluffs area
of Iowa), in which four restaurants are currently open, and (ii) in the Baton
Rouge, Lafayette and Lake Charles, Louisiana areas, in which three restaurants
are currently open. The development rights with respect to such territories
provide that a total of 31 additional Papa John's restaurants will be opened
through 2002. There are no agreements, however, with respect to the Company's
acquisition of such territories, and there can be no assurance that such
territories will be acquired. PJI has waived its right of first refusal with
respect to the Company's possible acquisition of the Iowa and Louisiana
territories described above. In addition, certain officers, directors and
stockholders of the Company own interests in Papa John's franchisees that
operate in certain areas in Michigan, Ohio and South Carolina. PJI has waived
its right of first refusal with respect to the Company's possible acquisition
of such franchisees.
The Company devotes significant resources to the investigation and evaluation
of potential sites. The site selection process focuses on trade area
demographics, target population density, household income levels and
competitive factors. Management inspects each potential Company restaurant
location and the surrounding market before a site is approved. The Company's
restaurants are typically located in strip shopping centers or free-standing
buildings that provide visibility, curb appeal and accessibility. All site
selections must be approved by PJI. Papa John's restaurant design may be
configured to fit a wide variety of building shapes and sizes, thereby
increasing the number of suitable locations for Papa John's restaurants.
MARKETING PROGRAMS
The Company's restaurant-level marketing programs target the delivery area of
each restaurant, making extensive use of distinctive print materials in direct
mail and store-to-door couponing. The Company tailors its store-to-door coupons
according to customer buying habits as tracked by the Company's point of sale
computer systems used in each restaurant. Local marketing efforts also include
a variety of community-oriented activities with schools, sports teams and other
organizations. The Company currently supplements its local marketing efforts
with a limited amount of radio and television advertising. The Company believes
that its marketing programs are cost-effective and significantly increase Papa
John's visibility among potential customers. The Company's advertising
expenditures as a percentage of restaurant sales for the 26 weeks ended June
30, 1996 were 6.9%.
The Company's restaurant-level marketing efforts are supported by print and
electronic advertising materials that are produced by the Papa John's Marketing
Fund, Inc. (the "Marketing Fund") for use by both PJI and its franchisees. The
required Marketing Fund contribution is established from time to time by the
governing board of the Marketing Fund and is currently 0.75% of restaurant
sales. The maximum required contribution for PJI franchisees is 1.5% of
restaurant sales and can be increased above 1.5% only upon approval by not less
than 60% of Marketing Fund members. In addition, PJI may require the Company to
participate in an advertising cooperative for its designated market area and to
contribute a minimum amount of restaurant sales for local advertising. PJI also
provides each of its franchisees with catalogs for uniforms and promotional
items and pre-approved, print marketing materials that can be ordered from PJI.
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RESTAURANT OPERATIONS
Management and Employees. A typical Company restaurant employs a restaurant
manager, two or three assistant managers and approximately 25 hourly
employees, most of whom work part-time. The restaurant manager is responsible
for the day-to-day operation of the restaurant and for the maintenance of
Company established operating standards. The Company seeks to hire experienced
restaurant managers and staff, and motivate and retain them by providing
opportunities for advancement and performance-based financial incentives. In
addition, in conjunction with this offering, the Company has established the
1996 Stock Ownership Incentive Plan, which will enable the Company to provide
long-term equity-based incentives for corporate and restaurant management
personnel. See "Management--1996 Stock Ownership Incentive Plan." The Company
believes that it has a low managerial turnover rate in comparison to the quick
service restaurant industry and that this low turnover rate results in
decreased training costs and higher productivity.
The Company employs seven area supervisors, each of whom has responsibility
for overseeing four to seven Company restaurants. The Company also employs
three regional operations directors who oversee area supervisors and managers
within their respective markets.
Training. The Company has full-time training coordinators in the Alabama and
Virginia markets. In addition, PJI provides an on-site training team as
needed. Each regional area supervisor and restaurant manager is required to
complete PJI's two-week training program in which instruction is given on all
aspects of PJI's systems and operations. The program includes classroom
instruction and hands-on training at an operating Papa John's restaurant. In
addition, the Company has developed a specific education and safety program
for its delivery drivers.
Point of Sale System. All of the Company's restaurants are equipped with
point-of-sale equipment. The Company believes that this technology increases
speed and accuracy in order taking and pricing, reduces paper work and allows
the restaurant manager to better monitor and control food and labor costs. The
point of sale system enhances restaurant-level marketing capabilities through
a database that provides information on customers and their buying habits with
respect to the Company's products. The Company anticipates that in 1997,
polling capabilities will allow the Company to obtain current restaurant
reporting information, thereby improving the speed, accuracy and efficiency of
restaurant-level reporting. Pursuant to its franchise agreements, the Company
is required to install The Papa John's PROFIT SystemSM in all of the Company's
restaurants during 1996 and 1997. This new system will, among other things,
enable the Company and PJI to communicate with each other more effectively
with respect to overall operations and delivery of food supplies.
Reporting. Managers at restaurants prepare daily reports of sales, cash
deposits and operating costs. Physical inventories of all food and beverage
items are taken weekly. The Company's area supervisors prepare weekly profit
and loss statements for each of the restaurants. The Company believes that the
PROFIT SystemSM, when installed, will simplify and accelerate many of these
reporting functions.
Hours of Operation. The Company's restaurants are open seven days a week,
typically from 11:00 a.m. to 12:00 midnight Sunday through Thursday, and from
11:00 a.m. to 1:30 a.m. on Friday and Saturday.
FRANCHISE AND DEVELOPMENT AGREEMENTS
Franchise and Development Agreements. The Company has entered into exclusive
development agreements with PJI for the exclusive right to construct one or
more Papa John's restaurants pursuant to a development schedule within
specified geographic areas. The Company's existing territories consist of
Birmingham, Alabama and the surrounding area; Norfolk, Richmond and Virginia
Beach, Virginia and the surrounding areas; and East Texas. In addition, the
Company has been granted by PJI the rights to enter into development
agreements for Papa John's restaurants in three new territories: the
California Counties; Vancouver, Canada and the surrounding area; and Puerto
Rico.
The Company has entered into two development agreements with respect to its
Alabama territory. At the time of execution of the first Alabama development
agreement, the Company paid a one-time development fee
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of $16,700 to PJI. Under the second Alabama development agreement and under
the development agreements for its Virginia and Texas territories, the Company
paid a non-refundable fee of $3,500 for each of the restaurants covered by
development agreements. With respect to the Company's California, Vancouver
and Puerto Rico territories, the Company is required to pay a non-refundable
development fee based on the number of restaurants to be covered by the
development agreements.
Generally, a franchise agreement is executed when the Company secures a
restaurant location. Each per restaurant development fee is typically credited
against PJI's franchise fee, which is payable to PJI upon signing the
franchise agreement for a specific location. The franchise fees payable with
respect to the first Alabama development agreement was $10,000. The franchise
fees paid with respect to the second Alabama development agreements was the
Virginia and Texas development agreements was $14,000, $15,000 and $18,500,
respectively. With respect to the California Counties and the Vancouver and
Puerto Rico territories, the Company expects to pay PJI's standard franchisee
fees at the time the development agreement is entered into, which is currently
$20,000.
Under each of the Company's franchise agreements, the Company pays to PJI a
royalty fee of 4% of sales. Under such agreements, PJI may increase the
royalty fee to 5% of sales after the agreement has been in effect for between
three to five years. In no event may the royalty fee be increased to an amount
greater than the royalty fee then in effect for new PJI franchisees.
The franchise agreements executed under the first Alabama development
agreement provide for a term of five years. These franchise agreements renew
automatically for an additional five-year term if the Company is in compliance
with the franchise agreement and can secure the premises for such term.
Furthermore, the franchises granted pursuant to this development agreement may
be renewed for four additional five-year terms, provided that the Company
meets certain conditions, including, but not limited to, agreeing to execute
the form of PJI franchise agreement then being offered to new franchisees. The
franchise agreements executed under the second Alabama development agreement
and under the Virginia and Texas development agreements provide for an initial
term of ten years and can be renewed for additional terms of five to ten
years, subject to the same conditions as are contained in the franchise
agreements described above.
PJI's franchise agreements authorize the Company to use its trade names,
trademarks and service marks with respect to specific Papa John's restaurants.
PJI also provides general construction specifications, designs, color schemes,
signs, equipment, preparation methods for food and beverages, marketing
concepts, operations and financial control methods, management training,
technical assistance and materials. Each franchise agreement prohibits the
Company from transferring a franchise without the prior approval of PJI. PJI
has the contractual 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 PJI's policies and standards. Many state franchise laws limit the
ability of a franchisor to terminate or refuse to renew a franchise. See
"Business--Government Regulation."
The development agreements, and each of the franchise agreements, prohibit
the Company, during the term of the agreements and for a two-year period
following their termination or expiration from owning or operating any other
pizza delivery or take-out restaurant within ten to fifty miles of the
franchise granted or any other Papa John's franchise. In addition, the Company
and its senior executive officers have agreed for a period of three years not
to operate any restaurant concepts other than Papa John's without PJI's
approval. Also, the Company's directors (other than Messrs. Sherman and
Schnatter) have agreed not to be actively involved in the management of other
restaurant concepts during such period without PJI's consent.
Existing Territories. In order for the Company to maintain its development
rights under the agreements relating to Birmingham, Alabama and the
surrounding area; Norfolk, Richmond and Virginia Beach, Virginia and the
surrounding areas; and East Texas, the Company is required to open an
aggregate of four, ten and six
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stores during the remainder of 1996, 1997 and 1998, respectively. Once the
Company completes this development schedule, it may open additional
restaurants in these territories subject to PJI's consent.
Franchise Restaurant Development. PJI assists the Company in selecting sites
and developing restaurants. PJI provides the Company with the physical
specifications for typical restaurants, both for free-standing restaurants and
restaurants located in strip shopping centers. The Company procures virtually
all of the design plans, counters and equipment for its restaurants from PJI
at prices the Company believes are favorable. The Company is responsible for
selecting the location for its restaurants but must obtain PJI's approval of
each restaurant design and each location based on accessibility and visibility
of the site and targeted demographic factors, including population, density,
income, age and traffic. The Company is responsible for all costs and expenses
incurred in locating, acquiring and developing restaurant sites.
Franchise Training and Support. The Company is required to have a principal
operator approved by PJI who satisfactorily completes PJI's two-week training
program and who devotes his or her full business time and efforts to the
operation of the Company's restaurants. The Company's managers are also
required to complete PJI's two-week training program. See "--Restaurant
Operations--Training."
Franchise Operations. All Company restaurants are required to operate their
Papa John's restaurants in compliance with PJI's policies, standards and
specifications, including matters such as menu items, ingredients, materials,
supplies, services, fixtures, furnishings, decor and signs. The Company has
full discretion to determine the prices to be charged to its customers.
Reporting. PJI collects weekly and monthly sales and other operating
information from the Company. All of the Company's restaurants are equipped
with point of sale technology and two restaurants are equipped with PJI's
proprietary PROFIT SystemSM. The Company has agreements with PJI permitting
PJI to electronically debit the Company's bank accounts for the payment of
royalties, Marketing Fund contributions and purchases from PJI. This system
significantly reduces the resources needed to process payables. In 1995, PJI
implemented a requirement that new and existing franchisees purchase and
install the PROFIT SystemSM in all of their restaurants. See "--Restaurant
Operations--Point of Sale System."
COMPETITION
The restaurant industry is intensely competitive with respect to price,
service, location and food quality, and there are many well-established
competitors with substantially greater financial and other resources than the
Company. Such competitors include a large number of national and regional
restaurant chains, as well as local pizza restaurant operators. Some of the
Company's competitors have been in existence for a substantially longer period
than the Company and may be better established in the markets where the
Company's restaurants are, or may be, located. Within the pizza segment of the
restaurant industry, the Company believes that its primary competitors are the
national pizza chains, including Pizza Hut, Domino's and Little Caesar's. A
change in the pricing, marketing or promotional strategies or product mix of
one or more of these competitors could have a material adverse impact on the
Company's sales and earnings. In general, there is also active competition for
management personnel and real estate sites suitable for Papa John's
restaurants.
The restaurant business is often affected by changes in consumer tastes,
national, regional or local economic conditions, demographic trends, traffic
patterns and the type, number and location of competing restaurants. In
addition, factors such as inflation, increased food, labor and benefits costs
and the lack of experienced management and hourly employees may adversely
affect the restaurant industry in general and the Company's restaurants in
particular.
GOVERNMENT REGULATION
The Company is subject to various Federal, state and local laws affecting
its business. Each Papa John's restaurant is subject to licensing and
regulation by a number of governmental authorities, which include health,
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safety, sanitation, building and fire agencies in the state or municipality in
which the restaurant is located. Difficulties in obtaining or failures to
obtain required licenses or approvals can delay or prevent the opening of a
new restaurant in a particular area. The Company is also subject to Federal
and state environmental regulations, but these have not had a material effect
on the Company's operations.
The Company's relationship with PJI is governed by the laws of several
states which regulate substantive aspects of the franchisor-franchisee
relationship. Substantive state laws that regulate the franchisor-franchisee
relationship presently exist or are being considered in a substantial number
of states and bills have been introduced in Congress (one of which is now
pending) which would provide for Federal regulation of substantive aspects of
the franchisor-franchisee relationship. These current and proposed franchise
relationship laws limit, among other things, the duration and scope of non-
competition provisions, the ability of a franchisor to terminate or refuse to
renew a franchise and the ability of a franchisor to designate sources of
supply.
The Company's restaurant operations are also subject to Federal and state
laws governing such matters as wages, working conditions, citizenship
requirements and overtime. Some states have set minimum wage requirements
higher than the Federal level, and the Federal government recently increased
the Federal minimum wage. Significant numbers of hourly personnel at the
Company's restaurants are paid at rates related to the Federal minimum wage
and, accordingly, increases in the minimum wage will increase labor costs at
the Company's restaurants. Other governmental initiatives such as mandated
health insurance, if implemented, could adversely affect the Company as well
as the restaurant industry in general. The Company is also subject to the
Americans With Disabilities Act of 1990, which, among other things, may
require certain minor renovations to its restaurants to meet federally-
mandated requirements. The cost of these renovations is not expected to be
material to the Company.
The Company has been granted by PJI the rights to enter into development
agreements for Papa John's restaurants in Vancouver, Canada and the
surrounding area, and Puerto Rico. The Company's ability to establish
international operations is subject to various risks, including changing
political and economic conditions, currency fluctuations, trade barriers,
adverse tax consequences, and government regulations relating to, among other
things, the preparation and sale of food, building and zoning requirements,
wages, working conditions, and the Company's relationship with its employees.
There can be no assurance that the Company will be successful in establishing
its international operations or that such risks will not have a material
adverse effect on the Company in the future.
TRADEMARKS
The Company's rights to use PJI's trademarks and service marks are a
significant part of its business. PJI is the owner of the Federal registration
of the trademark "Papa John's." PJI has also registered "Pizza Papa John's"
and design as a trademark and a service mark. PJI owns Federal registrations
for the marks "Pizza Papa John's Delivering the Perfect Pizza!" and design,
"Call Your Papa" and "Perfect Pizza Perfect Price." PJI has applied for the
registration of "Delivering the Perfect Pizza!," "Perfect Pizza," "We Deliver
Perfection," "Indoor Tailgate Party," "The Official Pizza of Summer," and
"Pizza Papa John's Print Network" and design as trademarks and service marks.
PJI is aware of the use by other persons in certain geographic areas of names
and marks which are the same as or similar to the Company's marks. It is PJI's
policy to pursue registration of its marks whenever possible and to vigorously
oppose any infringement of its marks.
PROPERTIES
All but one of the Company's restaurants are located in leased space. The
initial terms of most of the Company's leases are three to five years and
provide for one or more options to renew for at least one additional term. The
Company's leases generally specify a fixed annual rent with fixed increases,
or increases based on changes in the Consumer Price Index, at various
intervals during the lease term. Generally, the leases are net leases which
require the Company to pay all or a portion of the cost of insurance,
maintenance and utilities.
The Company leases approximately 6,000 square feet of corporate office space
collectively in Alabama, Virginia and Kentucky.
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EMPLOYEES
At June 30, 1996, the Company had approximately 1,050 employees of which
approximately 880 were restaurant employees, approximately 160 were restaurant
management and supervisory personnel, and approximately 10 were corporate
personnel. Most restaurant employees are paid on an hourly basis. None of the
Company's employees is currently represented by a labor union, and the Company
is not aware of any union organizing activity among its employees. The Company
believes that its relationship with its employees is good.
LITIGATION
The Company is involved in lawsuits and claims arising in the normal course
of business. In the opinion of management of the Company, although the
outcomes of these lawsuits and claims are uncertain, in the aggregate they
should not have a material adverse effect on the Company's business, financial
condition or results of operations.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning each of the
Company's directors and executive officers and certain key employees:
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH THE COMPANY
---- --- ----------------------------
<S> <C> <C>
Richard F. Sherman
(1)(2) 52 Chairman of the Board
Douglas S. Stephens 32 President, Chief Executive Officer and Director
D. Ross Davison 34 Vice President--Chief Financial Officer and
Treasurer
James S. Riekel 36 Vice President--Operations
Robert W. Curtis 31 Senior Operations Director--Alabama
Stephen M. Saunders 27 Operations Director--Virginia
James C. Bradshaw 28 Operations Director--East Texas
Michael M. Fleishman
(1) 52 Director
Martin T. Hart
(1)(2) 60 Director
Frank O. Keener (2) 53 Director
Stephen P. Langford
(1) 42 Director
Charles W. Schnatter
(2) 33 Director
</TABLE>
- --------
(1) Member of the Compensation Committee of which Mr. Fleishman is Chairman.
(2) Member of the Audit Committee of which Mr. Hart is Chairman.
Richard F. Sherman has served as a director of the Company since August
1996. Mr. Sherman has served as a director of Extra Cheese, Textra Cheese
Corp., Twice the Cheese, Inc., PJVA, Inc. and PJV, Inc. since 1991, 1994,
1995, 1992 and 1993, respectively. Mr. Sherman is a private investor who has
been a franchisee and a consultant to PJI since 1991. From 1993 to present,
Mr. Sherman has been a director of PJI. From 1987 to 1991, Mr. Sherman was
Chairman of the Board and President of Rally's Hamburgers, Inc. From 1984 to
1987, Mr. Sherman was President and a director of Church's Chicken, Inc. From
1971 to 1984, Mr. Sherman was Group Executive Vice President and director of
Hardee's Food Systems, Inc. and its parent, Imasco USA, Inc. Mr. Sherman
serves on the board of directors of Taco Cabana, Inc., Hartz Restaurants, Inc.
and Reed's Jewelers, Inc.
Douglas S. Stephens has served as a director and the President and Chief
Executive Officer of the Company since August 1996. Mr. Stephens has served as
a director and the President of Extra Cheese, Textra Cheese Corp. and Twice
the Cheese, Inc. since 1991, 1994 and 1995, respectively. From 1989 to 1991,
Mr. Stephens was the Vice President of Information Systems for the Kentucky
Lottery Corporation. From 1986 to 1989, Mr. Stephens was a systems consultant
for Andersen Consulting, a division of Arthur Andersen, LLP, an international
professional services firm.
D. Ross Davison has served as Vice President--Chief Financial Officer and
Treasurer of the Company since August 1996. From 1985 to 1996, Mr. Davison was
with Arthur Andersen, LLP, an international professional services firm, and
his most recent position was Senior Manager. From 1983 to 1985, Mr. Davison
was with Cotton and Allen, P.S.C., a certified public accounting firm. Mr.
Davison is a licensed Certified Public Accountant.
James S. Riekel has served as Vice President--Operations of the Company
since August 1996. Mr. Riekel has served as a Vice President of PJV, Inc.
since 1993. From 1992 to 1993, Mr. Riekel was Operations Director of PJV, Inc.
From 1983 to 1992, Mr. Riekel was with Domino's Pizza, Inc., where his most
recent position was Regional Operations Director.
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Michael M. Fleishman has served as a director of the Company since August
1996. Mr. Fleishman has served as a director of Extra Cheese, Textra Cheese
Corp. and Twice the Cheese, Inc. since 1991, 1994 and 1995, respectively.
Since 1970, Mr. Fleishman or his professional service corporation has been a
member of the law firm of Greenebaum Doll & McDonald pllc. a law firm which
provides legal services to the Company. Mr. Fleishman served as a director of
Chi-Chi's, Inc., from 1983 to 1987. Mr. Fleishman also served as a director of
Rally's Hamburgers, Inc. from 1988 through April 1996.
Martin T. Hart has served as a director of the Company since August 1996.
Mr. Hart has served as a director of PJVA, Inc. and PJV, Inc. since 1992 and
1993, respectively. Mr. Hart is a Denver-based private investor. Mr. Hart has
been a Trustee of MassMutual Corporate Investors and MassMutual Participation
Investors since 1991. Mr. Hart serves on the Board of Directors of Schuler
Homes, Inc., Optical Securities Group, Inc., and PNB Financial Group (a bank
holding company).
Frank O. Keener has served as a director of the Company since August 1996.
Mr. Keener has served as a director of Extra Cheese, Textra Cheese Corp. and
Twice the Cheese, Inc. since 1991, 1994 and 1995, respectively. Since 1993,
Mr. Keener has served as Executive Vice President of First American National
Bank, Nashville, Tennessee. From 1991 to 1993, Mr. Keener served as Senior
Vice President of Dominion Banks. From 1989 to 1990, Mr. Keener was President
and Chief Executive Officer of the Kentucky Lottery Corporation.
Stephen P. Langford has served as a director of the Company since August
1996. Mr. Langford has served as a director of Extra Cheese, Textra Cheese
Corp. and Twice the Cheese, Inc. since 1991, 1994 and 1995, respectively.
Charles W. Schnatter has served as a director of the Company since August
1996. Mr. Schnatter has served as General Counsel and Secretary of PJI since
1991 and has been a director and a Senior Vice President of PJI since 1993.
From 1988 to 1991, Mr. Schnatter was an attorney with Greenebaum Doll &
McDonald pllc. Mr. Schnatter has been a franchisee of PJI since 1989.
The Company's Certificate of Incorporation divides the Board of Directors
into three classes, with regular three year staggered terms and initial terms
of one, two and three years for each of Class I, Class II and Class III
directors, respectively. Accordingly, Messrs. Langford and Schnatter will hold
office until the annual meeting of stockholders to be held in 1997, Messrs.
Fleishman and Hart will hold office until the 1998 annual meeting and Messrs.
Keener, Sherman and Stephens will hold office until the 1999 annual meeting.
CERTAIN KEY EMPLOYEES
Robert W. Curtis has served as Senior Operations Director--Alabama since
January 1993. From May 1992 through December 1992, Mr. Curtis was a franchise
consultant for PJI. From 1984 through 1992, Mr. Curtis was employed by
Domino's Pizza, Inc., where his most recent position was area supervisor.
Stephen M. Saunders has served as Operations Director--Virginia since 1995.
From 1994 to 1995, Mr. Saunders was a supervisor for PJV, Inc., and from 1993
to 1994, Mr. Saunders was a restaurant manager for PJVA, Inc. From 1987 to
1993, Mr. Saunders was a restaurant manager at Domino's Pizza, Inc.
James C. Bradshaw has served as Operations Director--East Texas since
September 1994. From 1986 to 1994, Mr. Bradshaw was employed by Domino's
Pizza, Inc., where his most recent position was area supervisor.
COMMITTEES OF THE BOARD OF DIRECTORS
Compensation Committee. The members of the Compensation Committee are
Messrs. Sherman, Fleishman, Hart and Langford, all of whom are non-employee
directors. The Compensation Committee makes recommendations to the full Board
of Directors concerning compensation and benefits for executive officers of
the Company.
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Audit Committee. The members of the Audit Committee are Messrs. Sherman,
Hart, Keener and Schnatter, all of whom are non-employee directors. The Audit
Committee, among other things, makes recommendations concerning the engagement
of independent auditors, reviews the results and scope of the annual audit and
other services provided by the Company's independent auditors and reviews the
adequacy of the Company's internal accounting controls.
COMPENSATION OF DIRECTORS
Directors are reimbursed for reasonable out-of-pocket expenses incurred in
attending Board and Committee meetings. Directors do not receive additional
compensation for services rendered as a director.
NON-EMPLOYEE DIRECTORS 1996 STOCK INCENTIVE PLAN
Directors not employed by the Company will receive options to purchase
shares of Common Stock pursuant to the Non-Employee Directors 1996 Stock
Incentive Plan (the "Directors Plan"). The Directors Plan provides for an
initial grant of options to purchase shares of Common Stock as of the date of
the offering (the "Initial Grant Date"). Each non-employee director will
receive options to purchase 12,000 shares on the Initial Grant Date (the
"Initial Grants"). Each new non-employee director will be granted options to
purchase 12,000 shares of Common Stock on the date of his or her election. The
Company will thereafter annually issue, beginning on the first anniversary of
the Initial Grant Date, to each of the Company's non-employee directors,
options to purchase 4,000 shares of Common Stock. Initial grants of options to
purchase Common Stock will be at an exercise price equal to the initial public
offering price. Thereafter, all options will be granted at the fair market
value of the Common Stock on the date of grant. A total of 160,000 shares are
reserved for issuance under the Directors Plan. All options granted under the
Directors Plan will become exercisable in four equal annual installments,
beginning on the first anniversary of such option's date of grant.
COMPENSATION OF EXECUTIVE OFFICERS
The Company was organized in August 1996, and its operations since that time
have related primarily to its formation and to the Reorganization. During
1995, Messrs. Stephens and Riekel earned annual salaries of $72,000 and
$50,000, respectively, and each of their performance bonuses were $36,000 and
$40,000, respectively. During 1996, Messrs. Stephens, Davison and Riekel will
earn annual salaries of $80,000, $75,000 and $60,000, respectively, exclusive
of performance bonuses which will not exceed 60% of their respective base
salaries.
In June 1996, Extra Cheese and Ross Davison entered into an employment
agreement (the "Employment Agreement") pursuant to which Mr. Davison serves as
Vice President, Chief Financial Officer and Treasurer for a term of two years
at an annual salary of not less than $75,000. Mr. Davison is eligible to
participate in the Company's bonus plan and the 1996 Stock Ownership Incentive
Plan, and he is guaranteed a bonus of at least $15,000 during his first twelve
months of employment. Pursuant to the terms and conditions of the Employment
Agreement, Mr. Davison will be granted options to purchase 27,500 shares of
the Company's Common Stock at the initial public offering price (the "Initial
Option"). The Initial Option shall vest in the event of a change in control of
the Company, or upon his death or disability.
EMPLOYEE AWARDS GRANTED
Pursuant to the Company's 1996 Stock Ownership Incentive Plan (the "1996
Plan"), certain executive officers of the Company will receive options upon
completion of this offering. Mr. Stephens, Chief Executive Officer, President
and Director, will be granted options to purchase 62,500 shares of Common
Stock, Mr. Davison, Vice President--Chief Financial Officer and Treasurer,
will receive options to purchase 27,500 shares of Common Stock, and Mr.
Riekel, Vice President--Operations, will receive options to purchase 20,000
shares of Common Stock. All options to purchase Common Stock under the 1996
Plan will be granted at an exercise price equal to the fair market value of
the Common Stock on the date the option is granted. The initial grants of
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options to purchase shares of Common Stock will be granted at an exercise price
equal to the initial public offering price and will become exercisable in four
equal annual installments, beginning on the first anniversary of the grant
date.
1996 STOCK OWNERSHIP INCENTIVE PLAN
The 1996 Plan provides for the granting of any of the following awards
("Employee Awards") to eligible employees of the Company and its subsidiaries:
(i) stock options which do not constitute "incentive stock options" within the
meaning of section 422 of the Internal Revenue Code of 1986, as amended ("non-
qualified stock options"); (ii) incentive stock options; (iii) restricted
shares; and (iv) performance units. The 1996 Plan is intended to provide
incentives and rewards for employees to support the implementation of the
Company's business plan and to associate the interests of employees with those
of the Company's stockholders.
The 1996 Plan will be administered by a committee composed of two or more
directors or the entire Board (the "Committee"). In administering the 1996
Plan, the Committee will determine, among other things: (i) individuals to whom
grants of Employee Awards will be made; (ii) the type and size of Employee
Awards; (iii) the terms of an Employee Award including, but not limited to, a
vesting schedule, exercise price, restriction or performance criteria; and (iv)
the length of any relevant performance, restriction or option period. The
Committee may also construe, interpret and correct defects, omissions and
inconsistencies in the 1996 Plan.
The Common Stock subject to the 1996 Plan will be authorized but unissued
shares or previously acquired shares. The 1996 Plan provides that 600,000
shares of Common Stock will be available for grant of Employee Awards, and the
total number of shares of Common Stock with respect to which stock options may
be granted to any individual over the term of the 1996 Plan may not exceed 40%
of the total shares authorized for the 1996 Plan. The total number of shares of
Common Stock available for awards of restricted stock is 20% of the total
shares authorized under the 1996 Plan. Pursuant to the 1996 Plan, the number
and kind of shares to which Employee Awards are subject may be appropriately
adjusted in the event of certain changes in capitalization of the Company,
including stock dividends and splits, reclassification, recapitalization,
reorganizations, mergers, consolidations, spin-offs, split-ups, combinations or
exchange of shares, and certain distributions and repurchases of shares.
Stock Options. The Committee may grant stock options to eligible individuals
in the form of an incentive stock option or a non-qualified stock option. The
exercise period for any stock option will be determined by the Committee at the
time of grant, but may not exceed ten years from the date of grant (five years
in the case of an incentive stock option granted to a "Ten-Percent Stockholder"
as defined in the 1996 Plan). The exercise price per share of Common Stock
covered by a stock option may not be less than 100% of the fair market value of
a share of Common Stock on the date of grant (110% in the case of an incentive
stock option granted to a Ten-Percent Stockholder). The exercise price is
payable, at the Committee's discretion, in cash, in shares of already owned
Common Stock or in any combination of cash and shares. Stock options will
become exercisable in installments as determined by the Committee and as set
forth in the optionee's option agreement. Each option grant may be exercised in
whole, at any time, or in part, from time to time, after the option becomes
exercisable.
If a participant's employment terminates for any reason other than for cause,
unless the Committee in its sole discretion determines otherwise, outstanding
stock options, to the extent they are then exercisable, may be exercised within
90 days after the date of termination (but in no event beyond the stated term
of the option); provided, however, Mr. Davison's options will automatically
vest in full and be exercisable at any time within one year following the date
of his death or disability (but in no event beyond the stated term of his
option). In the event of termination for cause, all options, whether or not
exercisable, will terminate.
Restricted Stock. Subject to the limitations of the 1996 Plan, the Committee
may grant restricted stock to eligible individuals. Restricted stock awards are
shares of Common Stock that are subject to restrictions on transfer or other
incidents of ownership where the restrictions lapse based solely on continued
employment with the Company for specified periods or based upon the attainment
of specified performance standards in either
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<PAGE>
case, as the Committee may determine. The Committee will determine all terms
and conditions pursuant to which restrictions upon restricted stock will lapse.
At the discretion of the Committee, certificates representing shares of
restricted stock will be deposited with the Company until the restriction
period ends. Grantees of restricted stock will have all the rights of a
stockholder with respect to the restricted stock and may receive dividends,
unless the Committee determines otherwise. Dividends may, at the discretion of
the Committee, be deferred until the restriction period ends and may bear
interest if the Committee so determines.
If a grantee's employment terminates by reason of death or disability prior
to the expiration of the restriction period applicable to any restricted shares
then held by the grantee, all restrictions pertaining to such shares
immediately lapse. Upon termination for any other reason, all restricted shares
are forfeited.
Performance Units. The Committee may grant performance units to eligible
individuals. Each performance unit will specify the performance goals, the
performance period and the number of performance units granted. The performance
period will be not less than one year, nor more than five years, as determined
by the Committee. Performance goals are those objectives established by the
Committee which may be expressed in terms of earnings per share, price of the
Common Stock, pre-tax profit, net earnings, return on equity or assets,
revenues or any combination of the above. Performance goals may relate to the
performance of the Company, a subsidiary, a division or other operating unit of
the Company. Performance goals may be established as a range of goals if the
Committee so desires.
If the Committee determines that the performance goals have been met, the
grantee will be entitled to the appropriate payment with respect thereto. At
the option of the Committee, payment may be made solely in shares of Common
Stock, solely in cash, or a combination of cash and shares of Common Stock.
Change in Control. Generally, in the event of a "change in control" (as
defined in the 1996 Plan) of the Company, all outstanding stock options become
fully vested and immediately exercisable in their entirety. In addition, if
provided in an optionee's agreement, the optionee will be permitted to sell the
option to the Company generally for an amount equal to the excess of (x) the
fair market value over (y) the per share exercise price for such shares under
the stock option. In addition, all restrictions on restricted stock lapse upon
a change in control and outstanding performance units become fully vested and
payable in an amount equal to the greater of: (i) the maximum amount payable
under the performance unit multiplied by a percentage equal to the percentage
that would have been earned assuming the rate at which the performance goals
have been achieved as of the date of the change in control would have continued
until the end of the performance cycle; or (ii) the maximum amount payable
multiplied by the percentage of the performance cycle completed at the time of
the change in control.
Amendments and Termination. The Board may at any time terminate and, from
time to time, may amend or modify the 1996 Plan; provided, however, that no
amendment may impair the rights of a participant with respect to outstanding
Employee Awards without the participant's consent. Any such action of the Board
may be taken without the approval of the Company's stockholders, but only to
the extent that such stockholder approval is not required by applicable law or
regulation. The 1996 Plan will terminate ten years from its effective date.
CERTAIN TRANSACTIONS
REORGANIZATION
Merger. The Company was formed to acquire the business and operations of the
Predecessor Companies in the Reorganization, which will occur on or before the
closing of this offering. Pursuant to an Agreement dated June 10, 1996 as
amended July 10, 1996, and a Plan of Merger (the "Reorganization"), the
stockholders of the Predecessor Companies will receive shares of Common Stock
of the Company in the proportion determined by the respective boards of
directors of each of the Predecessor Companies through arm's length
negotiations. The factors considered by each of the Predecessor Companies in
determining the exchange ratio included revenues, financial condition and
results of operations, and past and projected earnings for each Predecessor
Company. An aggregate of 3,000,000 shares of Common Stock will be issued to the
stockholders of the Predecessor Companies in the Reorganization. See "The
Reorganization."
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The consummation of the Reorganization is subject to customary conditions.
These conditions include, among others, the continuing accuracy of the
representations and warranties of the stockholders of the Predecessor
Companies on or before the closing of this offering and the performance by the
Predecessor Companies of all covenants included in the agreements relating to
the Reorganization.
Indemnification Agreement. The Predecessor Companies and each of their
stockholders entered into an Indemnification Agreement (the "Indemnification
Agreement") pursuant to which the stockholders of the Predecessor Companies
have made customary representations and warranties to the Company with respect
to the business, assets, financial condition and operations of the Predecessor
Companies. In addition, the stockholders of the Predecessor Companies have
indemnified the Company for a period of 18 months from the closing of this
offering against breaches of such representations and warranties as well as
other breaches of the Indemnification Agreement, or breaches of the June 10,
1996 Agreement (as amended July 10, 1996) or the Plan of Merger. The
stockholders of the Predecessor Companies have established an escrow account
in support of such indemnities, which will be funded with an aggregate of
$100,000 in cash and 300,000 shares of Common Stock received in the
Reorganization. In general, the Indemnification Agreement provides the sole
remedy for claims brought in connection with the Reorganization, and the
aggregate amount of the claims is limited to the cash and shares deposited in
the escrow account.
Undistributed S Corporation Earnings. Following the closing of this
offering, the Company will make distributions to stockholders of the
Predecessor Companies, which includes certain officers, directors and 5%
stockholders of the Company, in the aggregate amount of approximately $2.2
million with respect to Undistributed S Corporation Earnings. Such
distributions will be paid from a portion of the net proceeds of this
offering. See "Prior S Corporation Status of Predecessor Companies."
Stockholder Loans. From time to time prior to the Reorganization, Michael M.
Fleishman, Frank O. Keener, Stephen P. Langford, Richard F. Sherman, Douglas
S. Stephens, Jack A. Laughery, Martin T. Hart and Michael J. Grisanti, who
were all stockholders of certain Predecessor Companies, and who are officers,
directors and/or 5% stockholders of the Company, have advanced funds to the
Predecessor Companies. Such stockholder loans will be repaid with a portion of
the proceeds of this offering. At June 30, 1996, the Predecessor Companies had
obligations to the following persons in the following amounts: Messrs.
Fleishman, $141,543; Keener, $147,911; Langford, $138,258; Sherman, $327,194;
Stephens, $138,944; Laughery, $188,250; Hart, $188,250; and Grisanti,
$188,250. These loans will continue to accrue interest at a rate of 7% per
annum through the date of repayment. The Company made interest payments of
$9,000, $132,000 and $58,000 on the above indebtednesses in 1993, 1994 and
1995, respectively.
Registration Rights Agreement. The Company has granted certain registration
rights to the stockholders of the Predecessor Companies, who received shares
of Common Stock of the Company in connection with the Reorganization. The
Company also has granted certain registration rights to PJI in connection with
the warrant to be issued to PJI to purchase 225,000 shares of Common Stock.
See "Description of Capital Stock--Registration Rights Agreement."
Guarantees. From time to time, Extra Cheese and PJVA, Inc. have borrowed
funds from banks. These borrowings, which were guaranteed by the stockholders
of Extra Cheese and PJVA, Inc. based on their proportionate ownership in each
company, totaled $2,208,571 at June 30, 1996. Such guarantees will be released
in connection with the repayment of the outstanding loans with a portion of
the proceeds of this offering. The stockholders of Extra Cheese and PJVA, Inc.
include the following officers, directors and/or 5% stockholders of the
Company: Messrs. Fleishman, Grisanti, Keener, Langford, Laughery, Sherman and
Stephens.
PJI Warrant. In connection with the Company's initial public offering (and
contingent thereon), the Company will issue a warrant to PJI to purchase
225,000 shares of Common Stock. The purchase price for each share of Common
Stock will be the lesser of $1.00 below the initial public offering price per
share or 90.0% of the initial public offering price per share. The warrant
will be issued in consideration for, among other things, the rights to enter
into development agreements for the California Counties; Vancouver, Canada and
the
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<PAGE>
surrounding area; and Puerto Rico; as well as PJI's $3,000 per restaurant
transfer fee with respect to the 42 restaurants acquired in the Reorganization
as well as any other Papa John's restaurants acquired by the Company within
twelve months from the closing of this offering. The Company expects to pay
all standard development and franchise fees in connection with opening
restaurants in these territories. The warrant will be exercisable in whole or
in part at any time within five years from the closing date of this offering.
In addition, the warrant will be transferable subject to applicable securities
laws restrictions.
Consulting Fees. In connection with the Company's initial public offering,
Messrs. Sherman, Hart and Fleishman, and Jason T. Fleishman (Mr. Fleishman's
son) and Judy H. Keener (Mr. Keener's wife) will receive $78,750, $56,250,
$51,500, $38,500 and $35,000, respectively, for consulting services provided
with respect to the structuring, organization and implementation of the
offering. Such payments will be made from a portion of the proceeds of the
offering.
OTHER TRANSACTIONS AND AGREEMENTS.
Utah Option Agreement. PJ Utah, LLC holds the development and franchise
rights for Papa John's restaurants in Utah. The Company and PJ Utah, LLC have
entered into an option agreement granting the Company the option to acquire
for cash the operations and development rights for the franchised Papa John's
restaurants in Utah. The option is exercisable at any time during 1998. The
purchase price of the option is equal to the aggregate amount invested in the
Papa John's restaurants, operations (including operating losses, if any) and
related matters in Utah by PJ Utah, LLC, including interest paid to a third
party and/or its members on any loans, an imputed yield on all equity invested
in PJ Utah, LLC equal to the "prime rate," as published in The Wall Street
Journal, plus $10,000 for each store that is open at the time the option is
exercised. The option expires on December 31, 1998. The Company expects, but
is not obligated, to exercise such option in 1998. PJ Utah, LLC is owned by
the following officers, directors and/or 5% stockholders of the Company:
Messrs. Davison (2.0%), Fleishman (11.5%), Grisanti (7.75%), Hart (7.75%),
Keener (16.75%), Langford (9.25%), Laughery (10.25%), Riekel (2.0%), Sherman
(19.5%) and Stephens (9.25%).
In connection with the option agreement, the Company will provide
operational supervision and managerial services (e.g., payroll, accounting,
tax, human resources and other administrative services) to PJ Utah, LLC on a
fee for service basis. The cost to PJ Utah, LLC for such services is expected
to range from $10,000 to $25,000 per month depending on the services rendered.
The Predecessor Companies began providing such services on August 1, 1996 and
expects to continue to provide such services through December 31, 1998. The
Company believes these fees are comparable to fees that would be charged by
unaffiliated third parties for comparable services.
Right of First Refusal; Management Services (Iowa markets). PJ Iowa, LLC
holds the Papa John's development and franchise rights for Papa John's
restaurants in Iowa, including the Moline and Rock Island, Illinois areas, but
excluding the Council Bluffs area. The Company has obtained a right of first
refusal to acquire such franchise and development rights; however, there is no
agreement or understanding between the Company and PJ Iowa, LLC or its
stockholders for the Company to acquire such entity or any of its assets. PJ
Iowa, LLC is owned in part by the following officers, directors and/or 5%
stockholders of the Company: Messrs. Riekel (2.5%), Sherman (21.0%), Laughery
(21.0%), Hart (18.0%) and Grisanti (18.0%). The right of first refusal expires
in August 2001. The Company provides operational supervision, managerial and
administrative services to PJ Iowa, LLC at a cost of approximately $5,000 per
month depending on the services rendered.
Right of First Refusal; Management Services (Louisiana markets). PJ
Louisiana, LLC holds the Papa John's development and franchise rights for
Baton Rouge, Lafayette and Lake Charles, Louisiana and the surrounding areas.
The Company has obtained a right of first refusal to acquire such franchise
and development rights; however, there is no agreement or understanding
between the Company and PJ Louisiana, LLC or its stockholders for the Company
to acquire such entity or any of its assets. PJ Louisiana, LLC is owned in
part by Messrs. Keener (18.525%), Fleishman (18.525%), Langford (18.525%),
Sherman (18.525%), Stephens (18.525%) and Curtis (2.375%). The right of first
refusal expires in August 2001. The Company provides operational supervision,
managerial and administrative services to PJ Louisiana, LLC at a cost of
approximately $5,000 per month depending on the services rendered.
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Waiver of Right of First Refusal and Transfer Fees. PJI has waived its
franchisor right of first refusal on all of the entities included in this
offering. In addition to PJI's waiver of its right of first refusal with
regard to the Company's acquisition of the Iowa and Louisiana markets
described above, PJI has also waived its right of first refusal with respect
to certain markets in Michigan, Ohio and South Carolina, the franchise and
development rights of which are also owned by affiliated franchisees. If the
Company does not exercise its right of first refusal, PJI would still have
such right. In addition, PJI has waived its $3,000 per restaurant transfer fee
with respect to the 42 restaurants acquired in the Reorganization as well as
any other Papa John's restaurants acquired by the Company within twelve months
from the closing of this offering.
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth at July 31, 1996 certain information with
respect to beneficial ownership of the Common Stock (assuming completion of
the Reorganization) by (i) each person known by the Company to be the
beneficial owner of more than five percent of the outstanding Common Stock;
(ii) each director and executive officer of the Company; (iii) each Selling
Stockholder; and (iv) all directors and executive officers of the Company as a
group.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
OWNED PRIOR TO SHARES BENEFICIALLY
THE OWNED AFTER THE
OFFERING(1) SHARES TO BE OFFERING
----------------- SOLD IN -----------------------
NAME AND ADDRESS NUMBER PERCENT OFFERING NUMBER PERCENT
---------------- --------- ------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
D. Ross Davison......... * * * * *
Michael M.
Fleishman(2)(3)......... 356,430 11.9% 24,900 331,530 7.2
Michael J.
Grisanti(2)(4).......... 248,713 8.3 17,100 231,613 5.0
Martin T. Hart(2)(5).... 248,711 8.3 17,100 231,611 5.0
Frank O. Keener(2)(4)... 522,603 17.4 36,000 486,603 10.5
Stephen P.
Langford(2)(4).......... 292,464 9.7 20,200 272,264 5.9
Jack A. Laughery(2)(4).. 324,080 10.8 22,300 301,780 6.5
James S. Riekel(4)...... 60,294 2.0 -- 60,294 1.3
Charles W. Schnatter(6). * * -- * *
Richard F.
Sherman(2)(7)........... 616,551 20.6 42,400 574,151 12.4
Douglas S. Stephens(4).. 292,464 9.7 -- 292,464 6.3
All executive officers
and directors as a
group (nine persons)... 2,389,517 79.7% 180,000 2,248,917 48.7
</TABLE>
- --------
*Less than one percent
(1) In accordance with Securities and Exchange Commission rules, a person is
deemed to have beneficial ownership of any securities as to which such
person, directly or indirectly, has or shares voting power or investment
power and of any securities with respect to which such person has the
right to acquire such voting or investment power within 60 days. Except as
otherwise noted in the accompanying footnotes, the named persons have sole
voting and investment power.
(2) The Company and the Selling Stockholders have granted the Underwriters an
over-allotment option, exercisable not later than 30 days after the date
of this Prospectus, to purchase an aggregate of 270,000 shares of Common
Stock at the public offering price set forth on the cover page of this
Prospectus, less the underwriting discount. See "Underwriting." If the
Underwriters exercise the option in full, the following persons will sell
that number of shares set forth next to each persons name: Messrs.
Fleishman (18,600), Grisanti (12,900), Hart (12,900), Keener (27,000),
Langford (15,100), Laughery (16,700) and Sherman (31,800); and the Company
will sell an additional 135,000 shares, resulting in Messrs. Fleishman
owning 312,930 shares (6.7%), Grisanti owning 218,713 shares (4.6%), Hart
owning 218,711 shares (4.6%), Keener owning 459,603 shares (9.7%),
Langford owning 257,164 shares (5.4%), Laughery owning 285,080 shares
(6.0%) and Sherman owning 542,351 shares (11.4%) and all executive
officers and directors as a group owning 2,143,517 shares (45.1%) after
the closing of the offering.
(3) The address for Mr. Fleishman is 3300 National City Tower, Louisville,
Kentucky 40202-3197.
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(4) Address is 9109 Parkway East, Birmingham, Alabama 35206.
(5) Includes an aggregate of 160,880 shares held by Mr. Hart for the benefit
of family members. The address for Mr. Hart is 875 Race Street, Denver, CO
80206.
(6) The address for Mr. Schnatter is 11492 Bluegrass Parkway, Suite 175,
Louisville, Kentucky 40299.
(7) The address for Mr. Sherman is 202 Schooner Lane, Duck Key, FL 33050.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's Certificate of Incorporation provides that the authorized
capital stock of the Company consists of 20,000,000 shares of Common Stock,
par value $.01 per share, and 1,000,000 shares of Preferred Stock, par value
$1.00 per share. Upon completion of this offering, 4,620,000 shares of Common
Stock will be issued and outstanding (4,755,000 shares if the Underwriters'
over-allotment option is exercised in full), and no shares of Preferred Stock
will be issued or outstanding.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share owned of
record on all matters voted upon by stockholders. Subject to the requirements
(including preferential rights) of any Preferred Stock outstanding, holders of
Common Stock are entitled to receive dividends if, as and when declared by the
Board out of funds legally available therefor. See "Dividend Policy." In the
event of a liquidation, dissolution or winding up of the Company, holders of
Common Stock are entitled to share equally and ratably in the assets of the
Company, if any, remaining after the payment of all liabilities of the Company
and the liquidation preferences of any outstanding Preferred Stock. Holders of
the Common Stock have no preemptive rights, no cumulative voting rights and no
rights to convert their Common Stock into any other securities, and there are
no redemption or sinking fund provisions with respect to the Common Stock.
National City Bank will act as the transfer agent and registrar for the
Common Stock.
PREFERRED STOCK
The Board has the authority to issue the authorized shares of Preferred
Stock in one or more series and to fix the designations, powers, preferences,
rights, qualifications, limitations and restrictions of all shares of each
such series, including, without limitation, dividend rates, conversion rights,
voting rights, redemption and sinking fund provisions, liquidation preferences
and the number of shares constituting each such series, without any further
vote or action by the stockholders. The issuance of Preferred Stock could
decrease the amount of earnings and assets available for distribution to
holders of Common Stock or adversely affect the rights and powers, including
voting rights, of the holders of Common Stock. The issuance of Preferred Stock
also could have the effect of delaying, deterring or preventing a change in
control of the Company without further action by the stockholders.
CERTAIN CORPORATE GOVERNANCE MATTERS
The Company's Certificate of Incorporation and the By-laws provide that the
Board will be divided into three classes. Following completion of this
offering, there will be seven directors. Two classes of directors will consist
of two directors each and one class will consist of three directors, with the
term of office of the first class to expire at the 1997 annual meeting of
stockholders, the term of office of the second class to expire at the 1998
annual meeting of stockholders, and the term of office of the third class to
expire at the 1999 annual meeting of stockholders. At each succeeding annual
meeting of stockholders, directors will be elected to a three-year term of
office.
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The Company's Certificate of Incorporation and the By-laws provide that: (i)
the number of directors of the Company will be fixed by resolution of the
Board, but in no event will be less than three nor more than 15 directors;
(ii) the directors of the Company in office from time to time will fill any
vacancy or newly created directorship on the Board, with any new director to
serve in the class of directors to which he or she is so elected; (iii)
directors of the Company may be removed only for cause by the holders of at
least a majority of the Company's voting stock; (iv) stockholder action can be
taken only at an annual or special meeting of stockholders and not by written
consent in lieu of a meeting; and (v) except as described below, special
meetings of stockholders may be called only by the Chairman of the Board, the
President of the Company or by a majority of the total number of directors of
the Company and the business permitted to be conducted at any such meeting is
limited to that stated in the notice of the special meeting. The By-laws also
require that stockholders desiring to bring any business before an annual
meeting of stockholders deliver written notice thereof to the Secretary of the
Company not fewer than 60 days nor more than 90 days in advance of the annual
meeting of stockholders; provided, however, if the date of the meeting is not
furnished to stockholders in a notice, or is not publicly disclosed by the
Company, more than 70 days prior to the meeting, notice by the stockholder, to
be timely, must be delivered to the President or Secretary of the Company not
later than the close of business on the tenth day following the day on which
such notice of the date of the meeting was mailed or such public disclosure
was made.
The By-laws also provide that stockholders desiring to nominate persons for
election as directors must make their nominations in writing to the President
of the Company not fewer than 60 days nor more than 90 days prior to the
scheduled date for the annual meeting; provided, however, if fewer than 70
days notice or prior public disclosure of the scheduled date for the annual
meeting is given or made, notice by the stockholders, to be timely, must be
delivered to the President or Secretary of the Company not later than the
close of business on the tenth day following the day on which such notice of
the date of the meeting was mailed or such public disclosure was made.
Under applicable provisions of the Delaware General Corporation Law, the
approval of a Delaware corporation's board of directors, in addition to
stockholder approval, is required to adopt any amendment to the corporation's
certificate of incorporation, but a corporation's by-laws may be amended
either by action of its stockholders or, if the corporation's certificate of
incorporation so provides, its board of directors. The Certificate of
Incorporation and By-laws provide that the provisions summarized above may not
be amended by the stockholders, nor may any provision inconsistent therewith
be adopted by the stockholders, without the affirmative vote of the holders of
at least 85% of the Company's voting stock, voting together as a single class.
The foregoing provisions of the Certificate of Incorporation and By-laws may
discourage or make more difficult the acquisition of control of the Company by
means of a tender offer, open market purchase, proxy contest or otherwise.
These provisions may have the effect of discouraging certain types of coercive
takeover practices and inadequate takeover bids and to encourage persons
seeking to acquire control of the Company first to negotiate with the Company.
The Company's management believes that the foregoing measures provide benefits
to the Company and its stockholders by enhancing the Company's ability to
negotiate with the proponent of any unfriendly or unsolicited proposal to take
over or restructure the Company and that such benefits outweigh the
disadvantages of discouraging such proposals because, among other things,
negotiation of such proposals could result in an improvement of their terms.
The Company is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation Law. In general, Section 203 prevents an
"interested stockholder" (defined generally as a person owning 15% or more of
the corporation's outstanding voting stock) from engaging in a "business
combination" (as defined in Section 203) with a Delaware corporation for three
years following the date such person became an interested stockholder unless:
(i) before such person became an interested stockholder, the board of
directors of the corporation approved either the transaction in which the
interested stockholder became an interested stockholder or the business
combination; (ii) upon consummation of the transaction that resulted in the
stockholder becoming an interested stockholder, the interested stockholder
owned at least 85% of the voting stock of the corporation
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<PAGE>
outstanding at the time such transaction commenced (excluding stock held by
directors who are also officers of the corporation and by employee stock plans
that do not provide employees with the rights to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer); or (iii) following the transaction in which such person
became an interested stockholder, the business combination is approved by the
board of directors of the corporation and authorized at a meeting of
stockholders by the affirmative vote of the holders of at least two-thirds of
the outstanding voting stock of the corporation not owned by the interested
stockholder. Under Section 203, the restrictions described above also do not
apply to certain business combinations proposed by an interested stockholder
following the public announcement or notification (as required by Section 203)
of a transaction which is one of certain extraordinary transactions involving
the corporation, is with or by a person who either has not been an interested
stockholder during the previous three years or who became an interested
stockholder with the approval of a majority of the corporation's directors,
and is approved or not opposed by a majority of the board of directors then in
office.
REGISTRATION RIGHTS AGREEMENTS
The Company has granted certain registration rights to the stockholders of
the Predecessor Companies who will hold 2,820,000 shares of Common Stock of
the Company, and to PJI with respect to the 225,000 shares of Common Stock
covered by the warrant to be issued to PJI, for the registration of shares of
Common Stock owned by such stockholders in a registration statement filed by
the Company under the Securities Act of 1933. These stockholders received
shares of the Company in connection with the Reorganization. The Company will
pay the fees and expenses of the registrations, while such stockholders and
PJI will pay all underwriting discounts and commissions. These registration
rights expire five years from the completion of this offering and are subject
to certain conditions and limitations, including the right of underwriters to
limit the number of shares owned by such stockholders and PJI included in such
registration.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
4,620,000 shares of Common Stock (4,755,000 shares if the Underwriters' over-
allotment option is exercised in full). The 1,800,000 shares sold in this
offering (2,070,000 shares if the Underwriters' over-allotment option is
exercised in full) will be freely tradable without restriction or further
registration under the Securities Act, unless held by "affiliates" of the
Company as that term is defined in Rule 144 under the Securities Act. The
remaining 2,820,000 shares outstanding are "restricted securities" as that
term is defined under Rule 144 and were issued by the Company in private
transactions in reliance upon one or more exemptions under the Securities Act.
Such restricted securities may be resold in a public distribution only if
registered under the Securities Act (which registration is contemplated with
respect to all of such restricted securities as described below) or pursuant
to an exemption therefrom, including Rule 144. The Company, its directors and
executive officers, the stockholders of the Predecessor Companies and PJI have
agreed that they will not sell or otherwise dispose of any shares of Common
Stock, any options to purchase Common Stock or any securities convertible or
exchangeable for shares of Common Stock for a period of 180 days after the
date of this Prospectus without the prior written consent of Montgomery
Securities, except for shares issued (i) in connection with acquisitions and
(iii) pursuant to the exercise of options granted under the Directors Plan or
the 1996 Plan.
In general, under Rule 144, a person (or persons whose shares are
aggregated), including an affiliate of the Company, who has beneficially owned
restricted securities for at least two years is entitled to sell within any
three month period a number of shares that does not exceed the greater of the
average weekly trading volume during the four calendar weeks preceding such
sale or 1% of the then outstanding shares of the Common Stock, provided
certain manner of sale and notice requirements and requirements as to the
availability of current public information about the Company are satisfied. In
addition, affiliates of the Company must comply with the restrictions and
requirements of Rule 144, other than the holding period to sell shares of
Common Stock. A person who is deemed not to have been an "affiliate" of the
Company at any time during the 90 days preceding a sale by such person, and
who has beneficially owned such shares for at least three years, would be
entitled to sell such shares without regard to the volume limitations
described above.
43
<PAGE>
The Commission has proposed to amend the holding period required by Rule 144
to permit sales of "restricted securities," subject to the volume limitations
described above, after one year rather than two years (and two years rather
than three years for "non-affiliates" under Rule 144(k) without regard to the
volume limitations described above). If such proposed amendment is adopted,
restricted securities would become freely tradable (subject to any applicable
contractual restrictions) at correspondingly earlier dates.
After completion of this offering, certain stockholders will be entitled to
certain rights with respect to the registration of 2,820,000 shares of Common
Stock for sale under the Securities Act. Also, PJI will have certain rights
with respect to the registration of the 225,000 shares of Common Stock covered
by the warrant to be issued to PJI upon the closing of this offering. See
"Description of Capital Stock--Registration Rights Agreement."
UNDERWRITING
The underwriters named below, represented by Montgomery Securities and Alex.
Brown & Sons Incorporated (the "Representatives") have severally agreed,
subject to the terms and conditions contained in the underwriting agreement
(the "Underwriting Agreement") by and among the Company, the Selling
Stockholders and the Underwriters, to purchase from the Company and the Selling
Stockholders the number of shares of Common Stock indicated below opposite
their respective names at the initial public offering price less the
underwriting discount set forth on the cover page of this Prospectus. The
Underwriting Agreement provides that the obligations of the Underwriters are
subject to certain conditions precedent and that the Underwriters are committed
to purchase all of such shares if they purchase any.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Montgomery Securities...........................................
Alex. Brown & Sons Incorporated.................................
---------
Total....................................................... 1,800,000
=========
</TABLE>
The Representatives have advised the Company and the Selling Stockholders
that the Underwriters propose initially to offer the shares of Common Stock to
the public on the terms set forth on the cover page of this Prospectus. The
Underwriters may allow to selected dealers a concession of not more than $
per share, and the Underwriters may allow to selected dealers, and such dealers
may reallow, a concession of not more than $ per share to certain other
dealers. After the offering, the public offering price and other selling terms
may be changed by the Representatives. The Common Stock is offered subject to
receipt and acceptance by the Underwriters, and to certain other conditions,
including the right to reject an order in whole or in part.
The Company and the Selling Stockholders have granted an option to the
Underwriters, exercisable during the 30-day period after the date of this
Prospectus, to purchase up to a maximum of 270,000 additional shares of Common
Stock to cover over-allotments, if any, at the same price per share as the
initial 1,800,000 shares to be purchased by the Underwriters. To the extent
that the Underwriters exercise this option, the Underwriters will be committed,
subject to certain conditions, to purchase such additional shares in
approximately the same proportion as set forth in the above table. The
Underwriters may purchase such shares only to cover over-allotments made in
connection with this offering.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including civil liabilities under the
Securities Act of 1933, as amended, or will contribute to payments the
Underwriters may be required to make in respect thereof.
44
<PAGE>
The Representatives have informed the Company that the Underwriters do not
expect to make sales of Common Stock offered by this Prospectus to accounts
over which they exercise discretionary authority in excess of 5% of the shares
of Common Stock offered hereby.
Prior to this offering, there has been no public trading market for the
Common Stock. Consequently, the initial public offering price was determined
by negotiations among the Representatives, the Company and the Selling
Stockholders. Among the factors considered in such negotiations were the
history of, and the prospects for, the Company and the industry in which it
competes, an assessment of the Company's management, its past and present
earnings and the trend of such earnings, the prospects for future earnings of
the Company, the present state of the Company's development, the general
condition of securities markets at the time of this offering and the market
price of publicly traded stock of comparable companies in recent periods.
The stockholders of the Predecessor Companies, the executive officers and
directors of the Company and PJI have agreed that, for a period of 180 days
from the date of this Prospectus, they will not offer, sell or otherwise
dispose of any shares of their Common Stock or options to acquire shares of
Common Stock without the prior written consent of Montgomery Securities. The
Company has agreed not to sell any shares of Common Stock for a period of 180
days from the date of this Prospectus without the prior written consent of
Montgomery Securities, except for shares issued (i) in connection with
acquisitions and (ii) pursuant to the exercise of options granted under the
Directors Plan or the 1996 Plan.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Greenebaum Doll & McDonald PLLC, Louisville, Kentucky,
and for the Underwriters by Locke Purnell Rain Harrell (A Professional
Corporation), Dallas, Texas. Mr. Fleishman, whose professional service
corporation is a member of Greenebaum Doll & McDonald PLLC, is a director of
the Company and beneficially owns 356,430 shares of Common Stock of the
Company. Greenebaum Doll & McDonald pllc performs legal services from time to
time for PJI.
EXPERTS
The separate combined financial statements of Extra Cheese, Textra Cheese
Corp. and Twice the Cheese, Inc. (the Alabama Group) and PJVA, Inc. and PJV,
Inc. (the Virginia Group) at December 25, 1994, December 31, 1995 and June 30,
1996, and for the years ended December 26, 1993, December 25, 1994, December
31, 1995 and the 26 weeks ended June 30, 1996, appearing in this Prospectus
and Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere herein,
and are included in reliance upon such reports given upon the authority of
such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Electronic Data Gathering, Analysis and
Retrieval system with the Securities and Exchange Commission (the "SEC") in
Washington, D.C., a Registration Statement on Form S-1 (the "Registration
Statement," which includes all amendments, exhibits and schedules thereto),
pursuant to the Securities Act of 1933, as amended (the "Act"), and the rules
and regulations promulgated thereunder, with respect to this offering. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all the information set forth in the Registration Statement, certain
parts of which are omitted from this Prospectus in accordance with the rules
and regulations of the SEC, and to which reference is hereby made.
45
<PAGE>
As a result of this offering, the Company will become subject to the
informational and reporting requirements of the Securities Exchange Act of
1934, as amended, and in accordance therewith, will be required to file proxy
statements, reports and other information with the SEC. The Registration
Statement, as well as any such report, proxy statement and other information
filed by the Company with the SEC, may be inspected and copied at the public
reference facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the following regional
offices of the SEC: Northeast Regional Office, 7 World Trade Center, 13th
Floor, New York, New York 10048; and Midwest Regional Office, Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can be obtained from the Public Reference Section of the SEC at 450
Fifth Street, N.W., Washington, D.C. 205498, at prescribed rates. Such filings
may also be obtained from the SEC through the Internet at http://www.sec.gov.
Statements made in this Prospectus concerning the provisions of any contract,
agreement or other document referred to herein are not necessarily complete.
With respect to each such statement concerning a contract, agreement or other
document filed as an exhibit to the Registration Statement or otherwise filed
with the SEC, reference is made to such exhibit or other filing for a more
complete description of the matter involved, and each such statement is
qualified in its entirety by such reference.
The Company intends to furnish to its stockholders annual reports containing
financial statements audited by an independent accounting firm. The Company
also intends to furnish such other reports as it may determine or as may be
required by law.
----------------
PJI IS NOT IN ANY WAY PARTICIPATING IN, APPROVING OR ENDORSING THIS OFFERING
OF SECURITIES, OR ANY REPRESENTATIONS MADE IN CONNECTION WITH THE OFFERING. THE
GRANT BY PJI OF ANY FRANCHISE OR OTHER RIGHTS TO THE COMPANY IS NOT INTENDED
AS, AND SHOULD NOT BE INTERPRETED AS, AN EXPRESS OR IMPLIED APPROVAL,
ENDORSEMENT OR ADOPTION OF ANY STATEMENT REGARDING ACTUAL OR PROJECTED
FINANCIAL OR OTHER PERFORMANCE WHICH MAY BE CONTAINED IN THE PROSPECTUS. EXCEPT
AS INDICATED IN THE PROSPECTUS, ALL INFORMATION CONTAINED IN THIS PROSPECTUS
HAS BEEN PREPARED BY, AND IS THE SOLE RESPONSIBILITY OF, THE COMPANY.
ANY REVIEW BY PJI OF THE PROSPECTUS OR THE INFORMATION INCLUDED IN THE
REGISTRATION STATEMENT HAS BEEN CONDUCTED SOLELY FOR THE BENEFIT OF PJI TO
DETERMINE CONFORMANCE WITH PJI'S INTERNAL POLICIES, AND NOT TO BENEFIT OR
PROTECT ANY OTHER PERSON. NO INVESTOR SHOULD INTERPRET SUCH REVIEW BY PJI AND
DISPLAY OF ANY PJI LOGOS, TRADEMARKS OR SERVICEMARKS HEREIN AS AN APPROVAL,
ENDORSEMENT, ACCEPTANCE OR ADOPTION OF ANY REPRESENTATION, WARRANTY, STATEMENT
OR PROJECTION CONTAINED IN THE MATERIALS REVIEWED.
THE ENFORCEMENT OR WAIVER OF ANY OBLIGATION OF THE COMPANY UNDER ANY
AGREEMENT BETWEEN THE COMPANY OR ITS AFFILIATES AND PJI OR PJI'S AFFILIATES IS
A MATTER OF PJI OR PJI'S AFFILIATES' SOLE DISCRETION. EXCEPT AS SET FORTH IN
THIS PROSPECTUS, NO INVESTOR SHOULD RELY ON ANY REPRESENTATION, ASSUMPTION OR
BELIEF THAT PJI OR PJI'S AFFILIATES WILL WAIVE ITS RIGHTS OR ENFORCE OR WAIVE
PARTICULAR OBLIGATIONS OF THE COMPANY UNDER SUCH AGREEMENTS.
46
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
EXTRA CHEESE, INC., TEXTRA CHEESE CORP. AND TWICE THE CHEESE, INC.
(ALABAMA GROUP)
Report of Independent Auditors......................................... F-2
Combined Balance Sheets................................................ F-3
Combined Statements of Income.......................................... F-4
Combined Statements of Changes in Stockholders' Equity................. F-5
Combined Statements of Cash Flows...................................... F-6
Notes to Combined Financial Statements................................. F-7
PJVA, INC. AND PJV, INC. (VIRGINIA GROUP)
Report of Independent Auditors......................................... F-11
Combined Balance Sheets................................................ F-12
Combined Statements of Income.......................................... F-13
Combined Statements of Changes in Stockholders' Equity................. F-14
Combined Statements of Cash Flows...................................... F-15
Notes to Combined Financial Statements................................. F-16
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Extra Cheese, Inc., Textra Cheese Corp. and Twice the Cheese, Inc.
We have audited the accompanying combined balance sheets of Extra Cheese,
Inc., Textra Cheese Corp. and Twice the Cheese, Inc. as of December 25, 1994,
December 31, 1995 and June 30, 1996, and the related combined statements of
income, changes in stockholders' equity, and cash flows for the years ended
December 26, 1993, December 25, 1994 and December 31, 1995, and the 26 weeks
ended June 30, 1996. These financial statements are the responsibility of the
Companies' management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of Extra Cheese,
Inc., Textra Cheese Corp. and Twice the Cheese, Inc. as of December 25, 1994,
December 31, 1995, and June 30, 1996, and the combined results of their
operations and their cash flows for the years ended December 26, 1993,
December 25, 1994 and December 31, 1995 and the 26 weeks ended June 30, 1996,
in conformity with generally accepted accounting principles.
Ernst & Young LLP
Louisville, Kentucky
August 2, 1996
F-2
<PAGE>
EXTRA CHEESE, INC., TEXTRA CHEESE CORP. AND TWICE THE CHEESE, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 25, DECEMBER 31, JUNE 30,
1994 1995 1996
------------ ------------ ----------
ASSETS
------
<S> <C> <C> <C>
Current assets:
Cash................................... $ 155,293 $ 224,379 $ 309,603
Accounts receivable.................... 14,141 24,010 50,718
Inventories............................ 58,345 58,288 73,973
Advances to related parties............ -- 132,725 --
Prepaid expenses and other............. 7,490 5,183 37,326
---------- ---------- ----------
Total current assets................. 235,269 444,585 471,620
Net property and equipment............... 1,288,777 1,820,828 1,847,665
Deferred franchise and development costs,
net of accumulated amortization of
$7,415 in 1994, $17,424 in 1995 and
$24,402 in 1996......................... 131,056 225,194 249,442
---------- ---------- ----------
Total assets......................... $1,655,102 $2,490,607 $2,568,727
========== ========== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
Current liabilities:.....................
Accounts payable....................... $ 3,128 $ 8,481 $ 9,312
Accrued expenses....................... 229,790 343,656 632,195
Current maturities of bank debt........ -- 148,887 240,000
Notes payable to stockholders.......... 427,200 742,846 711,814
---------- ---------- ----------
Total current liabilities............ 660,118 1,243,870 1,593,321
Note payable to bank, less current
maturities.............................. -- 174,138 740,000
Stockholders' equity:
Common stock........................... 2,085 3,085 3,085
Additional paid-in capital............. 446,260 446,260 446,260
Retained earnings (deficit)............ 546,639 623,254 (213,939)
---------- ---------- ----------
Total stockholders' equity........... 994,984 1,072,599 235,406
---------- ---------- ----------
Total liabilities and stockholders'
equity.............................. $1,655,102 $2,490,607 $2,568,727
========== ========== ==========
</TABLE>
See accompanying notes.
F-3
<PAGE>
EXTRA CHEESE, INC., TEXTRA CHEESE CORP. AND TWICE THE CHEESE, INC.
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
-------------------------------------
DECEMBER 26 WEEKS
DECEMBER 26, DECEMBER 25, 31, ENDED JUNE 30,
1993 1994 1995 1996
------------ ------------ ----------- --------------
<S> <C> <C> <C> <C>
Restaurant sales ........ $3,126,695 $6,414,651 $10,456,893 $6,197,272
Restaurant operating
expenses:
Cost of sales ......... 1,054,368 2,097,613 3,511,245 2,067,649
Salaries and benefits . 888,101 1,676,627 2,646,602 1,563,471
Depreciation and
amortization.......... 77,263 172,230 274,875 173,563
Other operating
expenses ............. 772,417 1,481,175 2,392,575 1,400,362
---------- ---------- ----------- ----------
2,792,149 5,427,645 8,825,297 5,205,045
---------- ---------- ----------- ----------
Restaurant operating
income ................. 334,546 987,006 1,631,596 992,227
General and
administrative expenses. 229,394 433,222 557,143 494,966
---------- ---------- ----------- ----------
Operating income......... 105,152 553,784 1,074,453 497,261
Interest expense......... (9,005) (34,036) (78,846) (45,875)
Other income............. 2,866 12,115 13,242 6,600
---------- ---------- ----------- ----------
Net income............... $ 99,013 $ 531,863 $ 1,008,849 $ 457,986
========== ========== =========== ==========
Historical net income ... $ 1,008,849 $ 457,986
Unaudited pro forma
income tax expense...... (368,230) (167,165)
----------- ----------
Unaudited pro forma net
income.................. $ 640,619 $ 290,821
=========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE>
EXTRA CHEESE, INC., TEXTRA CHEESE CORP. AND TWICE THE CHEESE, INC.
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL RETAINED TOTAL
COMMON PAID-IN EARNINGS STOCKHOLDERS'
STOCK CAPITAL (DEFICIT) EQUITY
-------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Balance, December 28, 1992..... $ 28,500 $361,115 $ (75,575) $ 314,040
Net income, fiscal 1993...... -- -- 99,013 99,013
Capital contributions by
existing stockholders....... -- 22,300 -- 22,300
-------- -------- ----------- -----------
Balance, December 26, 1993..... 28,500 383,415 23,438 435,353
Net income, fiscal 1994...... -- -- 531,863 531,863
Reverse stock split.......... (27,500) 27,500 -- --
S Corporation distributions.. -- -- (8,662) (8,662)
Capital contributions:
Incorporation of Textra.... 1,000 -- -- 1,000
Issue additional shares of
Extra to officer.......... 85 35,345 -- 35,430
-------- -------- ----------- -----------
Balance, December 25, 1994..... 2,085 446,260 546,639 994,984
Net income, fiscal 1995...... -- -- 1,008,849 1,008,849
S Corporation distributions.. -- -- (932,234) (932,234)
Incorporation of Twice....... 1,000 -- -- 1,000
-------- -------- ----------- -----------
Balance, December 31, 1995..... 3,085 446,260 623,254 1,072,599
Net income, 26 weeks ended
June 30, 1996............... -- -- 457,986 457,986
S Corporation distributions.. -- -- (1,295,179) (1,295,179)
-------- -------- ----------- -----------
Balance, June 30, 1996......... $ 3,085 $446,260 $ (213,939) $ 235,406
======== ======== =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
EXTRA CHEESE, INC., TEXTRA CHEESE CORP. AND TWICE THE CHEESE, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED 26 WEEKS
-------------------------------------- ENDED
DECEMBER 26, DECEMBER 25, DECEMBER 31, JUNE 30,
1993 1994 1995 1996
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income................ $ 99,013 $ 531,863 $1,008,849 $ 457,986
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization........... 77,263 172,230 274,875 173,563
Changes in operating
assets and liabilities:
Accounts receivable... (6,259) (7,357) (9,869) (26,708)
Inventories........... (14,553) (29,851) 57 (15,685)
Prepaid expenses and
other................ 10,389 27,370 2,307 (32,143)
Deferred franchise and
development costs.... (26,500) (75,771) (104,147) (31,226)
Accounts payable...... (1,387) 1,143 5,353 831
Accrued expenses...... 13,712 99,312 113,866 288,539
--------- --------- ---------- -----------
Net cash provided by
operating activities..... 151,678 718,939 1,291,291 815,157
INVESTING ACTIVITIES
Purchases of property and
equipment................ (473,482) (738,660) (797,513) (200,867)
Changes in advances to
related parties.......... -- -- (132,725) 132,725
Other..................... (4,665) (8,961) 596 7,445
--------- --------- ---------- -----------
Net cash used by investing
activities............... (478,147) (747,621) (929,642) (60,697)
FINANCING ACTIVITIES
Proceeds from bank
borrowings............... -- -- 450,000 1,000,000
Payments on bank
borrowings............... -- -- (126,975) (343,025)
Issuance of (payments on)
stockholder notes........ 300,000 127,200 315,646 (31,032)
Distributions paid........ -- (8,662) (932,234) (1,295,179)
Capital contributions..... 22,300 36,430 1,000 --
--------- --------- ---------- -----------
Net cash provided (used)
by financing activities.. 322,300 154,968 (292,563) (669,236)
--------- --------- ---------- -----------
Net increase (decrease) in
cash..................... (4,169) 126,286 69,086 85,224
Cash at beginning of
period................... 33,176 29,007 155,293 224,379
--------- --------- ---------- -----------
Cash at end of period..... $ 29,007 $ 155,293 $ 224,379 $ 309,603
========= ========= ========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE>
EXTRA CHEESE, INC., TEXTRA CHEESE CORP. AND TWICE THE CHEESE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION, DESCRIPTION OF BUSINESS AND PENDING REORGANIZATION
Basis of Presentation
The accompanying combined financial statements represent the combined
financial position, results of operations and cash flows of Extra Cheese, Inc.
(Extra), Textra Cheese Corp. (Textra) and Twice the Cheese, Inc. (Twice),
collectively referred to herein as the "Companies." Extra was incorporated in
1991 and began operations in October 1991. Textra was incorporated in 1994 and
commenced operations in September 1994. Twice was incorporated in 1995 and
began operations in March 1995. Five individuals own substantially all of the
Companies' outstanding common stock (in varying amounts) and the Companies are
operated under common management. The assets and liabilities of the Companies
are reflected at their historical amounts. All significant intercompany
balances and transactions have been eliminated.
Description of Business
As of June 30, 1996, the Companies operated 17 Papa John's Pizza delivery
and carry-out restaurants in Birmingham, Alabama and the surrounding area and
East Texas. The Companies hold franchise and development rights from Papa
John's International, Inc. (the Franchisor) to own and operate Papa John's
restaurants in Birmingham, Alabama and the surrounding area and East Texas.
Pending Reorganization
The Companies and their shareholders entered into an agreement dated June
10, 1996, as amended July 10, 1996, and a Plan of Merger whereby the
Companies, along with two other entities, will be merged into PJ America, Inc.
(PJA) concurrent with an initial public offering of the common stock of PJA.
2. SIGNIFICANT ACCOUNTING POLICIES
Reporting Periods
The Companies maintain their accounts on a 52/53 week fiscal year ending on
the last Sunday in December. The fiscal years ended December 26, 1993 and
December 25, 1994 were 52 weeks (14 weeks for Textra). The fiscal year ended
December 31, 1995 included 53 weeks (40 weeks for Twice). The period ended
June 30, 1996 included 26 weeks.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
Accounts Receivable
Accounts receivable consist principally of amounts due for pizza sales to
institutional customers and are considered fully collectible.
Inventories
Inventories consist of food products, paper goods and supplies and are
stated at the lower of cost, determined under the first-in, first-out (FIFO)
method, or market. Virtually all of the Companies' food products and supplies
are purchased from the Franchisor.
F-7
<PAGE>
EXTRA CHEESE, INC., TEXTRA CHEESE CORP. AND TWICE THE CHEESE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets, which
range from three to seven years for restaurant and other equipment, and up to
20 years for buildings and improvements. Leasehold improvements are amortized
over the terms of the respective leases, including the first renewal period
(generally five to ten years). Normal repair and maintenance costs are
expensed as incurred.
Development and Franchise Fees
Development fees paid by the Companies to the Franchisor for the right to
open a certain number of restaurants in a geographic area are deferred and
amortized to expense on a pro rata basis as each restaurant is opened.
Franchise fees are generally paid when each restaurant is opened and are
deferred. Deferred development and franchise fees are amortized over a 20 year
period using the straight-line method beginning with the opening of each
restaurant.
Advertising and Related Costs
Advertising and related costs include restaurant activities such as mail
coupons, door hangers, promotional items, and required contributions to the
Franchisor's advertising fund (0.5% to 0.75% of sales). Such amounts are
expensed as incurred and were $206,999 in 1993, $346,697 in 1994, $583,097 in
1995 and $346,169 in 1996, and are included in other operating expenses in the
combined statements of income.
Income Taxes
The Companies have elected to be taxed under Subchapter S of the Internal
Revenue Code. As a result of the election, federal and state income taxes on
the net income of the Companies are payable personally by the stockholders.
Accordingly, the combined statements of income do not include a provision for
federal and state income taxes. The Companies' Subchapter S status will
terminate on the date of the pending reorganization.
Accounting Changes
Effective January 1, 1996, the Companies adopted Financial Accounting
Standards Board Statement No. 121 (FAS 121), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The adoption
of FAS 121 had no impact on the Companies.
3. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 25, DECEMBER 31, JUNE 30,
1994 1995 1996
------------ ------------ --------
<S> <C> <C> <C>
Salaries and wages.................... $ 81,203 $ 79,979 $156,234
Taxes other than income............... 49,311 93,585 112,754
Advertising and royalties............. 42,434 55,593 47,555
Relocation costs...................... -- -- 120,000
Other................................. 56,842 114,499 195,652
-------- -------- --------
$229,790 $343,656 $632,195
======== ======== ========
</TABLE>
F-8
<PAGE>
EXTRA CHEESE, INC., TEXTRA CHEESE CORP. AND TWICE THE CHEESE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
4. NET PROPERTY AND EQUIPMENT
Net property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 25, DECEMBER 31, JUNE 30,
1994 1995 1996
------------ ------------ ----------
<S> <C> <C> <C>
Land............................... $ 113,829 $ 113,829 $ 114,079
Buildings and improvements......... 53,349 223,516 223,516
Leasehold improvements............. 463,321 611,794 643,427
Restaurant equipment............... 777,644 1,163,859 1,286,209
Other.............................. 167,512 246,138 286,877
---------- ---------- ----------
1,575,655 2,359,136 2,554,108
Less accumulated depreciation and
amortization...................... (286,878) (538,308) (706,443)
---------- ---------- ----------
Net property and equipment......... $1,288,777 $1,820,828 $1,847,665
========== ========== ==========
</TABLE>
5. NOTE PAYABLE TO BANK
Note payable to bank consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ --------
<S> <C> <C>
Note payable to bank............................... $323,025 $980,000
Less current maturities............................ (148,887) (240,000)
-------- --------
$174,138 $740,000
======== ========
</TABLE>
The note payable to bank bears interest at a fixed rate of 8% and is
guaranteed by the stockholders, secured by all assets of Extra, and requires
maintenance of certain levels of working capital and other financial ratios.
Monthly payments of $20,000 plus interest are due through May 2000. Interest
payments on the note payable to bank were $36,000 in 1995 and $21,000 in 1996
(none in 1993 and 1994).
The fair value of the note payable to bank approximates its carrying value at
June 30, 1996.
6. RELATED PARTY TRANSACTIONS
Notes payable to stockholders are due on demand and carry interest at 7%.
Interest expense related to these notes was $9,000 in 1993, $34,000 in 1994,
$47,000 in 1995 and $25,000 in 1996. Interest payments were $9,000 in 1993,
$18,000 in 1994, $4,000 in 1995 and $53,000 in 1996.
A director of the Franchisor owns 16% of Extra, 14% of Twice and 20% of
Textra. Consulting fees amounting to $10,500 in both 1993 and 1994 and $3,500
in 1995 were paid to this director.
Under the terms of area development agreements between the Companies and the
Franchisor, the Companies paid development fees ranging from $1,700 to $3,850
per restaurant. Franchise fees ranging from $10,000 to $15,000 have been paid
as each new restaurant is opened. Royalties in the amount of 4% of restaurant
sales are paid monthly to the Franchisor, and a monthly contribution of 0.50%
to 0.75% of sales is paid to an advertising fund of the Franchisor. The
Companies are required to buy certain proprietary food products from the
Franchisor's commissary subsidiary and have elected to buy substantially all
other food products, supplies, marketing materials and equipment from the
Franchisor or its subsidiaries.
F-9
<PAGE>
EXTRA CHEESE, INC., TEXTRA CHEESE CORP. AND TWICE THE CHEESE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
6. RELATED PARTY TRANSACTIONS (CONTINUED)
The Companies' franchise and development agreements with the Franchisor
contain certain requirements regarding the number of units to be opened in the
future. Should the Companies fail to comply with the required development
schedule or with the requirements of the agreements for restaurants within
areas covered by the development agreements, the Franchisor has the right to
terminate the exclusive nature of the Companies' franchises. The franchise
agreements also provide the Franchisor with significant rights regarding the
business and operations of the Companies.
During the year ended December 31, 1995, the Companies have made advances
aggregating $132,725 to companies in which several of the Companies'
stockholders hold an interest. The advances had been repaid as of June 30,
1996.
7. LEASES
The Companies lease office and retail space under operating leases with terms
generally ranging from three to five years and providing for at least one
renewal. Certain leases further provide that the lease payments may be
increased annually based on the Consumer Price Index. Future minimum lease
payments are as follows:
<TABLE>
<C> <S> <C>
July through December 1996.................................... $ 94,361
1997.................................... 173,688
1998.................................... 140,888
1999.................................... 97,380
2000.................................... 59,601
2001.................................... 25,516
--------
$591,434
========
</TABLE>
Rent expense was $40,825 in 1993, $96,398 in 1994, $149,782 in 1995 and
$94,402 in 1996.
8. STOCKHOLDERS' EQUITY
At June 30, 1996, Extra, Textra and Twice had 1,085, 1,000 and 1,000 shares,
respectively, of $1 par common stock authorized, issued and outstanding,
respectively.
In 1994, shares of Extra were issued to an officer for cash. These shares
were recorded at approximate book value which was deemed to be equivalent to
fair market value.
9. UNAUDITED PRO FORMA INFORMATION
A pro forma adjustment has been made to historical net income to reflect a
provision for federal, state and local income taxes at an assumed effective
rate of 36.5%.
F-10
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
PJVA, Inc. and PJV, Inc.
We have audited the accompanying combined balance sheets of PJVA, Inc. and
PJV, Inc. as of December 25, 1994, December 31, 1995 and June 30, 1996, and the
related combined statements of income, changes in stockholders' equity, and
cash flows for the years ended December 26, 1993, December 25, 1994 and
December 31, 1995, and the 26 weeks ended June 30, 1996. These financial
statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of PJVA, Inc. and PJV,
Inc. as of December 25, 1994, December 31, 1995, and June 30, 1996, and the
combined results of their operations and their cash flows for the years ended
December 26, 1993, December 25, 1994 and December 31, 1995 and the 26 weeks
ended June 30, 1996, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Louisville, Kentucky
August 2, 1996
F-11
<PAGE>
PJVA, INC. AND PJV, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 25, DECEMBER 31, JUNE 30,
ASSETS 1994 1995 1996
------ ------------ ------------ ----------
<S> <C> <C> <C>
Current assets:
Cash.................................... $ 273,769 $ 254,080 $ 723,981
Accounts receivable..................... 3,171 9,178 22,543
Inventories............................. 72,288 78,069 96,632
Advances to related parties............. -- -- 41,703
Other current assets.................... 210,476 151,368 214,158
---------- ---------- ----------
Total current assets.................. 559,704 492,695 1,099,017
Net property and equipment................ 1,675,673 2,968,588 2,889,667
Deferred franchise and development costs,
net of accumulated amortization of
$24,401 in 1994, $42,392 in 1995 and
$49,502 in 1996.......................... 290,823 392,832 342,222
---------- ---------- ----------
Total assets.......................... $2,526,200 $3,854,115 $4,330,906
========== ========== ==========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
Current liabilities:
Accounts payable........................ $ 108,609 $ 234,807 $ 118,290
Accrued expenses........................ 363,047 276,657 498,181
Current maturities of bank debt......... 314,285 514,286 514,286
Notes payable to stockholders........... 753,000 753,000 753,000
---------- ---------- ----------
Total current liabilities............. 1,538,941 1,778,750 1,883,757
Notes payable to bank, less current
maturities............................... 587,715 871,428 714,285
Stockholders' equity:
Common stock, ($10 par value, 2500
shares authorized for each Company,
issued and outstanding 195 in 1994, 200
in 1995 and 204 in 1996)............... 1,950 2,000 2,040
Additional paid-in capital.............. 293,050 293,000 300,960
Retained earnings....................... 104,544 908,937 1,429,864
---------- ---------- ----------
Total stockholders' equity............ 399,544 1,203,937 1,732,864
---------- ---------- ----------
Total liabilities and stockholders'
equity............................... $2,526,200 $3,854,115 $4,330,906
========== ========== ==========
</TABLE>
See accompanying notes.
F-12
<PAGE>
PJVA, INC. AND PJV, INC.
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
--------------------------------------
DECEMBER 26, DECEMBER 25, DECEMBER 31, 26 WEEKS ENDED
1993 1994 1995 JUNE 30, 1996
------------ ------------ ------------ -------------------
<S> <C> <C> <C> <C> <C> <C>
Restaurant sales........ $2,907,634 $7,695,375 $12,642,157 $7,900,050
Restaurant operating
expenses:
Cost of sales......... 993,589 2,621,146 4,315,868 2,684,162
Salaries and benefits. 854,934 2,092,973 3,148,381 1,924,565
Depreciation and
amortization......... 86,034 219,836 381,757 251,637
Other operating
expenses............. 772,528 1,914,865 3,350,325 2,080,836
---------- ---------- ----------- ----------
2,707,085 6,848,820 11,196,331 6,941,200
---------- ---------- ----------- ----------
Restaurant operating
income................. 200,549 846,555 1,445,826 958,850
General and
administrative
expenses............... 190,075 429,305 485,571 352,819
---------- ---------- ----------- ----------
Operating income........ 10,474 417,250 960,255 606,031
Interest expense........ (38,759) (76,270) (155,862) (91,462)
Other income............ 2,423 6,056 -- 6,358
---------- ---------- ----------- ----------
Income (loss) before
taxes.................. (25,862) 347,036 804,393 520,927
Income tax benefit
(expense).............. 7,719 (145,159) -- --
---------- ---------- ----------- ----------
Net income (loss)... $ (18,143) $ 201,877 $ 804,393 $ 520,927
========== ========== =========== ==========
Historical net income... $ 804,393 $ 520,927
Unaudited pro forma
income tax expense..... (293,603) (190,138)
----------- ----------
Unaudited pro forma net
income................. $ 510,790 $ 330,789
=========== ==========
</TABLE>
See accompanying notes.
F-13
<PAGE>
PJVA, INC. AND PJV, INC.
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------ ---------- ---------- -------------
<S> <C> <C> <C> <C>
Balance, December 28, 1992......... $ 825 $399,175 $ (79,190) $ 320,810
Net loss, fiscal 1993............ -- -- (18,143) (18,143)
Conversion of equity to notes
payable to stockholders......... -- (150,000) -- (150,000)
------ --------- ---------- ----------
Balance, December 26, 1993 ........ 825 249,175 (97,333) 152,667
Net income, fiscal 1994.......... -- -- 201,877 201,877
Capital contributions:
Initial capitalization of PJV.. 825 24,175 -- 25,000
Issue additional shares of PJVA
and PJV (12.5 shares each) to
two founding stockholders..... 250 (250) -- --
Issue 5 additional shares of
PJVA to officer............... 50 19,950 -- 20,000
------ --------- ---------- ----------
Balance, December 25, 1994......... 1,950 293,050 104,544 399,544
Net income, fiscal 1995.......... -- -- 804,393 804,393
Issue 5 additional shares of PJV
to officer...................... 50 (50) -- --
------ --------- ---------- ----------
Balance, December 31, 1995......... 2,000 293,000 908,937 1,203,937
Net income, 26 weeks ended June
30, 1996........................ -- -- 520,927 520,927
Issue additional shares of PJVA
and PJV (2 shares each) to
officer......................... 40 7,960 -- 8,000
------ --------- ---------- ----------
Balance, June 30, 1996............. $2,040 $ 300,960 $1,429,864 $1,732,864
====== ========= ========== ==========
</TABLE>
See accompanying notes.
F-14
<PAGE>
PJVA, INC. AND PJV, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED 26 WEEKS
--------------------------------------- ENDED
DECEMBER 26, DECEMBER 25, DECEMBER 31, JUNE 30,
1993 1994 1995 1996
------------ ------------ ------------ ---------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)......... $ (18,143) $ 201,877 $ 804,393 $ 520,927
Adjustments to reconcile
net income (loss) to net
cash provided by
operating activities:
Depreciation and
amortization........... 86,034 219,836 381,757 251,637
Deferred income taxes... (7,719) 54,228 -- --
Changes in operating
assets and liabilities:
Accounts receivable... (5,040) (3,251) (6,007) (13,365)
Inventories........... (31,931) (33,124) (5,781) (18,563)
Other current assets . (68,155) (112,978) 59,108 (62,790)
Deferred franchise and
development costs.... (98,000) (105,000) (120,000) 43,500
Accounts payable ..... 148,452 (53,765) 126,198 (116,517)
Accrued expenses ..... 119,522 177,948 (86,391) 220,322
--------- ----------- ----------- ---------
Net cash provided by
operating activities..... 125,020 345,771 1,153,277 825,151
INVESTING ACTIVITIES
Purchases of property and
equipment................ (685,650) (1,035,221) (1,656,681) (164,404)
Advances to related
parties.................. -- -- -- (41,703)
--------- ----------- ----------- ---------
Net cash used by investing
activities............... (685,650) (1,035,221) (1,656,681) (206,107)
FINANCING ACTIVITIES
Proceeds from bank
borrowings............... -- 902,000 798,000 100,000
Proceeds from stockholder
notes.................... 640,000 765,000 -- --
Payments on bank
borrowings............... -- -- (314,285) (257,143)
Payments on stockholder
notes.................... -- (802,000) -- --
Proceeds from issuance of
common stock............. -- 45,000 -- 8,000
--------- ----------- ----------- ---------
Net cash provided (used)
by financing activities.. 640,000 910,000 483,715 (149,173)
--------- ----------- ----------- ---------
Net increase (decrease) in
cash..................... 79,370 220,550 (19,689) 469,901
Cash at beginning of
period................... (26,151) 53,219 273,769 254,080
--------- ----------- ----------- ---------
Cash at end of period..... $ 53,219 $ 273,769 $ 254,080 $ 723,981
========= =========== =========== =========
</TABLE>
See accompanying notes.
F-15
<PAGE>
PJVA, INC. AND PJV, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION, DESCRIPTION OF BUSINESS AND PENDING REORGANIZATION
Basis of Presentation
The accompanying combined financial statements represent the combined
financial position, results of operations and cash flows of PJVA, Inc. (PJVA)
and PJV, Inc. (PJV), collectively referred to herein as "the Companies." PJVA
was incorporated in 1992 and began operations in August 1992. PJV was also
incorporated in 1992 and began operations in April 1994. Four individuals or
their family members own substantially all of the Companies' outstanding
common stock and the Companies are operated under common management. The
assets and liabilities of the Companies are reflected at their historical
amounts. All significant intercompany balances and transactions have been
eliminated.
Description of Business
As of June 30, 1996, the Companies operated 25 Papa John's Pizza delivery
and carryout restaurants in Norfolk, Richmond and Virginia Beach, Virginia and
the surrounding areas. The Companies hold franchise and development rights
from Papa John's International, Inc. (the Franchisor) to own and operate Papa
John's restaurants in Norfolk, Richmond and Virginia Beach, Virginia and the
surrounding areas.
Pending Reorganization
The Companies and their shareholders entered into an agreement dated June
10, 1996, as amended July 10, 1996, and a Plan of Merger whereby the
Companies, along with three other entities, will be merged into PJ America,
Inc. (PJA) concurrent with an initial public offering of the common stock of
PJA.
2. SIGNIFICANT ACCOUNTING POLICIES
Reporting Periods
The Company maintains its accounts on a 52/53 week fiscal year ending on the
last Sunday in December. The fiscal years ended December 26, 1993 and December
25, 1994 were 52 weeks. The fiscal year ended December 31, 1995 included 53
weeks. The period ended June 30, 1996 included 26 weeks.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
Accounts Receivable
Accounts receivable consist principally of amounts due for pizza sales to
institutional customers and are considered fully collectible.
Inventories
Inventories consist of food products, paper goods and supplies and are
stated at the lower of cost, determined under the first-in, first-out (FIFO)
method, or market. Virtually all of the Companies' food and supplies are
purchased from the Franchisor.
F-16
<PAGE>
PJVA, INC. AND PJV, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the assets, which
generally range from three to seven years for restaurant and other equipment.
Leasehold improvements are amortized over the terms of the respective leases,
including the first renewal period (generally five to ten years). Normal repair
and maintenance costs are expensed as incurred.
Development and Franchise Costs
Development fees paid by the Companies to the Franchisor for the right to
open a certain number of restaurants in a geographic area are deferred and
amortized to expense on a pro rata basis as each restaurant is opened.
Franchise fees are generally paid when each restaurant is opened and are
deferred. Deferred development and franchise fees are amortized over a 20 year
period using the straight-line method beginning with the opening of each
restaurant.
Advertising and Related Costs
Advertising and related costs include restaurant activities such as mail
coupons, door hangers, promotional items, and required contributions to the
Franchisor's advertising fund (0.5% to 0.75% of sales) and, for PJV,
contributions required by the Franchisor to local market cooperative
advertising funds (2% of sales). Such amounts are expensed as incurred and were
$225,958 in 1993, $471,443 in 1994, $981,354 in 1995 and $584,753 in 1996, and
are included in other operating expenses in the combined statements of income.
Income Taxes
The Companies have elected to be taxed under Subchapter S of the Internal
Revenue Code. As a result of the election, federal and state income taxes on
the net income of the Companies are payable personally by the stockholders.
From inception in February 1992 through December 25, 1994, PJVA was taxable as
a regular C Corporation. The combined statements of income include a provision
for federal and state income taxes for 1993 and 1994, which is all attributable
to PJVA's Subchapter C Corporation status period. The Companies' Subchapter S
status will terminate on the date of the pending reorganization.
Accounting Changes
Effective January 1, 1996, the Companies adopted Financial Accounting
Standards Board Statement No. 121 (FAS 121), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The adoption of
FAS 121 had no impact on the Companies.
3. OTHER CURRENT ASSETS AND ACCRUED EXPENSES
Other current assets and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 25, DECEMBER 31, JUNE 30,
1994 1995 1996
------------ ------------ --------
<S> <C> <C> <C>
Other current assets:
Prepaid expenses..................... $120,388 $ 64,706 $122,261
Other................................ 90,088 86,662 91,897
-------- -------- --------
$210,476 $151,368 $214,158
======== ======== ========
</TABLE>
F-17
<PAGE>
PJVA, INC. AND PJV, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
3. OTHER CURRENT ASSETS AND ACCRUED EXPENSES (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 25, DECEMBER 31, JUNE 30,
1994 1995 1996
------------ ------------ --------
<S> <C> <C> <C>
Accrued expenses:
Salaries and wages.................. $ 49,315 $ -- $207,566
Taxes other than income............. 143,226 121,800 126,801
Advertising and royalties........... 42,007 67,686 111,241
Income taxes........................ 90,931 -- --
Other............................... 37,568 87,171 52,573
-------- -------- --------
$363,047 $276,657 $498,181
======== ======== ========
</TABLE>
4. NET PROPERTY AND EQUIPMENT
Net property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 25, DECEMBER 31, JUNE 30,
1994 1995 1996
------------ ------------ ----------
<S> <C> <C> <C>
Leasehold improvements............. $ 928,879 $1,744,422 $1,849,914
Restaurant equipment............... 1,029,370 1,860,267 1,911,970
Other.............................. 10,933 21,174 28,384
---------- ---------- ----------
1,969,182 3,625,863 3,790,268
Less accumulated depreciation and
amortization...................... (293,509) (657,275) (900,601)
---------- ---------- ----------
Net property and equipment......... $1,675,673 $2,968,588 $2,889,667
========== ========== ==========
</TABLE>
5. NOTES PAYABLE TO BANK
Notes payable to bank consists of the following:
<TABLE>
<CAPTION>
DECEMBER 25, DECEMBER 31, JUNE 30,
1994 1995 1996
------------ ------------ ----------
<S> <C> <C> <C>
Notes payable to bank............... $ 902,000 $1,385,714 $1,228,571
Less current maturities............. (314,285) (514,286) (514,286)
--------- ---------- ----------
Total........................... $ 587,715 $ 871,428 $ 714,285
========= ========== ==========
</TABLE>
The notes payable to bank bear interest at the prime rate (8.25% at June 30,
1996) and are guaranteed by the stockholders, secured by the assets of PJVA,
and require maintenance of certain levels of working capital and other
financial ratios. Monthly payments of $42,857 plus interest are due through
October 1998.
Interest payments on the notes payable to bank were $102,000 in 1995 and
$58,000 in 1996 (none in 1993 and 1994).
The fair value of notes payable to bank approximates their carrying value at
June 30, 1996.
6. RELATED PARTY TRANSACTIONS
Notes payable to stockholders are due on demand and carry interest at 7%.
Interest expense on these notes was $38,000 in 1993, $76,000 in 1994, $54,000
in 1995 and $27,000 in 1996. Interest payments were $114,000 in 1994, $54,000
in 1995 and $27,000 in 1996 (none in 1993).
F-18
<PAGE>
PJVA, INC. AND PJV, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
6. RELATED PARTY TRANSACTIONS (CONTINUED)
Two directors of the Franchisor each own 26% of the Companies.
Under the terms of area development agreements between the Companies and the
Franchisor, the Companies paid $3,500 for each of the restaurants to be opened
pursuant to the development agreements. Franchise fees ranging from $11,500 to
$15,000 have been paid as each new restaurant was opened. During 1996, PJVA
received a $54,000 rebate of franchise fees from the Franchisor relative to a
restaurant opening incentive program. Such amount was recorded as a reduction
of deferred franchise costs in 1996. Royalties in the amount of 4% of
restaurant sales are paid monthly to the Franchisor, and a monthly
contribution of 0.75% of sales is paid to an advertising fund of the
Franchisor. The Companies are required to buy certain proprietary food
products from the Franchisor's commissary subsidiary and have elected to buy
substantially all other food products, supplies, marketing materials and
equipment from the Franchisor or its subsidiaries.
The Companies' franchise and development agreements with the Franchisor
contain certain requirements regarding the number of units to be opened in the
future. Should the Companies fail to comply with the required development
schedule or with the requirements of the agreements for restaurants within
areas covered by the development agreements, the Franchisor has the right to
terminate the exclusive nature of the Companies' franchises. The franchise
agreements also provide the Franchisor with significant rights regarding the
business and operations of the Companies.
As of June 30, 1996, the Companies had advanced $41,703 to a company in
which several of the Companies' stockholders hold an interest. Such advances
are due on demand.
During early 1994, a defalcation of the Companies' assets resulted in a loss
of approximately $105,000 which is included in general and administrative
expenses in the 1994 combined statement of income.
7. LEASES
The Companies lease office and retail space under operating leases with
terms generally ranging from three to five years and providing for at least
one renewal. Certain leases further provide that the lease payments may be
increased annually based on the Consumer Price Index. Future minimum lease
payments are as follows:
<TABLE>
<C> <S> <C>
July through December 1996.................................... $148,792
1997..................................... 292,880
1998..................................... 242,408
1999..................................... 132,357
2000..................................... 75,230
2001..................................... 20,441
Thereafter............................... 43,410
--------
$955,518
========
</TABLE>
Rent expense was $49,465 in 1993, $157,186 in 1994, $244,247 in 1995 and
$160,161 in 1996.
8. INCOME TAXES
The provision for income taxes, attributable to PJVA consist of the
following:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
-------------------------
DECEMBER 26, DECEMBER 25,
1993 1994
------------ ------------
<S> <C> <C>
Federal--currently payable...................... $ -- $ (75,786)
--deferred benefit (expense)................. 7,719 (54,228)
State........................................... -- (15,145)
------ ---------
Income tax benefit (expense).................... $7,719 $(145,159)
====== =========
</TABLE>
F-19
<PAGE>
PJVA, INC. AND PJV, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONCLUDED)
8. INCOME TAXES (CONTINUED)
Federal income taxes currently payable and deferred income taxes in 1994
reflect the utilization of net operating losses of approximately $98,000 which
principally arose and were recorded in 1992. The federal tax provision in 1993
and 1994 approximate the amount that would result from applying the statutory
tax rate to PJVA's income before income taxes.
During 1995, PJVA made income tax payments of $90,931.
9. STOCKHOLDERS' EQUITY
In 1994, additional shares of both PJVA and PJV were issued to two
shareholders to adjust the previous equal interests of the initial four
investors. Shares of PJVA and PJV issued to an officer in 1994 and 1995 were
recorded at approximate book value which was deemed to be equivalent to fair
market value. Shares of both companies were issued to another officer in 1996
upon vesting of a 1994 stock award. These shares were also recorded at
approximate book value which was deemed to be equivalent to fair market value
at grant date.
10. UNAUDITED PRO FORMA INFORMATION
A pro forma adjustment has been made to historical net income to reflect a
provision for federal, state and local income taxes at an assumed effective
rate of 36.5%.
F-20
<PAGE>
[PHOTOGRAPHS]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or other person has been authorized to give any infor-
mation or to make any representations other than those contained in this Pro-
spectus in connection with this offering and, if given or made, such informa-
tion or representation must not be relied upon as having been authorized by the
Company or the Selling Stockholders or any Underwriter. This Prospectus does
not constitute an offer to sell or solicitation of an offer to buy any of the
securities offered hereby in any jurisdiction to any person to whom it is un-
lawful to make such offer in such jurisdiction. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that the information contained herein is correct as of any time
subsequent to the date hereof or that there has been no change in the affairs
of the Company since such date.
-------------------
TABLE OF CONTENTS
-------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................ 3
The Reorganization........................................................ 6
Prior S Corporation Status of Predecessor Companies....................... 6
Risk Factors.............................................................. 7
Use of Proceeds........................................................... 12
Dividend Policy........................................................... 12
Dilution.................................................................. 13
Capitalization............................................................ 14
Selected Financial Data................................................... 15
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 18
Business.................................................................. 25
Management................................................................ 33
Certain Transactions...................................................... 37
Principal and Selling Stockholders........................................ 40
Description of Capital Stock.............................................. 41
Shares Eligible for Future Sale........................................... 43
Underwriting.............................................................. 44
Legal Matters............................................................. 45
Experts................................................................... 45
Available Information..................................................... 45
Index to Financial Statements............................................. F-1
</TABLE>
----------------
Until , 1996 (25 days after the date of the offering), all dealers
effecting transactions in the Common Stock, whether or not participating in
this distribution, may be required to deliver a Prospectus. This is in addition
to the obligation of dealers to deliver a Prospectus when acting as underwrit-
ers and with respect to their unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1,800,000 SHARES
LOGO
PJ AMERICA, INC.
COMMON STOCK
----------------
PROSPECTUS
----------------
MONTGOMERY SECURITIES
ALEX. BROWN & SONS
Incorporated
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated costs and expenses to be borne
by the Company in connection with the offering described in the Registration
Statement.
<TABLE>
<S> <C>
Registration Fee................................................ $ 8,209
Legal Fees and Expenses......................................... 190,000
Accounting Fees and Expenses.................................... 140,000
Printing and Engraving Expenses................................. *
Blue Sky Registration Fees and Expenses......................... *
Transfer Agent's Fees........................................... *
Stock Exchange Listing Fees..................................... *
NASD Filing Fees................................................ 2,880
Miscellaneous Expenses.......................................... 120,000
Consulting Fees................................................. 260,000
--------
Total....................................................... *
========
</TABLE>
*To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
A. Elimination of Certain Liability. Pursuant to Article IX of the
registrant's Certificate of Incorporation ("Article IX"), a director of the
registrant shall not be personally liable to the registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
the registrant or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the General Corporation Law of the State of
Delaware, or (iv) for any transaction from which the director derived an
improper personal benefit. If the General Corporation Law of the State of
Delaware is hereafter amended to permit further elimination or limitation of
the personal liability of directors, then the liability of a director of the
registrant shall be eliminated or limited to the fullest extent permitted by
the General Corporation Law of the State of Delaware, as so amended. Any
repeal or modification of Section A of Article IX shall not adversely effect
any right or protection of a director of the registrant existing at the time
of such repeal or modification.
B. Right to Indemnification. Subject to Section C of Article XI of the
registrant's Certificate of Incorporation, each person who was or is made a
party or is threatened to be made a party to or is involved in any action,
suit or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that such person, or a
person of whom such person is the legal representative, is or was a director
or officer of the registrant or is or was serving at the request of the
registrant as a director, officer, employee or agent of another corporation or
of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans, whether the basis of such proceeding
is alleged action in an official capacity as a director, officer, employee or
agent or in any other capacity while serving as a director, officer, employee
or agent, shall be indemnified and held harmless by the registrant to the
fullest extent authorized by the General Corporation Law of the State of
Delaware, as the same exists or may hereafter be amended (but, in the case of
any such amendment, only to the extent that such amendment permits the
registrant to provide broader indemnification rights than said law permitted
the registrant to provide prior to such amendment), against all expense,
liability and loss (including attorneys' fees, judgments, fines, excise taxes
under the Employee Retirement Income Security Act of 1974, as in effect from
time to time ("ERISA"), penalties and amounts to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith. The
registrant may, by action of its Board of Directors, provide indemnification
to other employees or agents of the registrant with the same scope and effect
as the indemnification of directors and officers pursuant to Article IX.
II-1
<PAGE>
C. Procedure for Indemnification. Any indemnification under Article IX
(unless ordered by a court) shall be made by the registrant only as authorized
in the specific case upon a determination that indemnification is proper in the
circumstances because the indemnitee has met the applicable standard of conduct
set forth in the General Corporation Law of the State of Delaware, as the same
exists or hereafter may be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the registrant to provide
broader indemnification rights then said law permitted the registrant to
provide prior to such amendment). Such determination shall be made (i) by the
Board of Directors by a majority vote of a quorum consisting of directors who
are not parties to such action, suit or proceeding (the "Disinterested
Directors"), or (ii) if such a quorum of Disinterested Directors is not
obtainable, or, even if obtainable, a quorum of Disinterested Directors so
directs, by independent legal counsel and a written opinion, or (iii) by the
stockholders. The majority of Disinterested Directors may, as they deem
appropriate, elect to have the registrant indemnify any other employee, agent
or other person acting for or on behalf of the registrant.
D. Advances for Expenses. Costs, charges and expenses (including attorneys'
fees) incurred by a director or officer of the registrant, or such other person
acting on behalf of the registrant as determined in accordance with Section C
of Article IX, in defending a civil or criminal action, suit or proceeding
shall be paid by the registrant in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of
the director, officer or other person to repay all amounts so advanced in the
event that it shall ultimately be determined that such director, officer or
other person is not entitled to be indemnified by the registrant as authorized
in Article IX or otherwise.
E. Right of Claimant to Bring Suit. If a claim under Sections B/2 or D/D of
Article IX is not paid in full by the registrant within 30 days after a written
claim has been received by the registrant, the claimant may at any time
thereafter bring suit against the registrant to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall be
entitled to be paid also the expense of prosecuting such claim. It shall be a
defense to any such action (other than an action brought to enforce a claim for
expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any is required, has been
tendered to the registrant) that the claimant has not met the standard of
conduct which make it permissible under the General Corporation Law of the
State of Delaware for the registrant to indemnify the claimant for the amount
claimed, but the burden of proving such defense shall be on the registrant.
Neither the failure of the registrant (including its Board of Directors,
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant
is proper in the circumstances because the claimant has met the applicable
standards of conduct set forth in the General Corporation Law of the State of
Delaware, nor an actual determination by the registrant (including its Board of
Directors, independent legal counsel, or its stockholders) that the claimant
has not met such applicable standard of conduct, shall be a defense to the
action or create a presumption that the claimant has not met the applicable
standard of conduct.
F. Other Rights; Continuation of Right to Indemnification. The
indemnification and advancement of expenses provided by Article IX shall not be
deemed exclusive of any other rights to which a claimant may be entitled under
any law (common or statutory) by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his or her official
capacity and as to any action in another capacity while holding office or while
employed by or acting as agent for the registrant, and shall inure to the
benefit of the estate, heirs, executors and administrators of such person. All
rights to indemnification under Article IX shall be deemed to be a contract
between the registrant and each director and officer of the registrant who
serves or served in such capacity at any time while Article IX is in effect.
Any repeal or modification of Article IX or any repeal or modification of
relevant provisions of the General Corporation Law of the State of Delaware or
any other applicable law shall not in any way diminish any rights to
indemnification of such director, officer or the obligations of the registrant
arising hereunder with respect to any action, suit or proceeding arising out
of, or relating to, any actions, transactions or facts occurring prior to the
final adoption of such modification or repeal. For the purposes of Article IX,
references to "the registrant" include all constituent corporations absorbed in
a consolidation or merger as well as the resulting or surviving corporation, so
that any person who is or was a director or officer of such a constituent
corporation or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or
II-2
<PAGE>
other enterprise shall stand in the same position under the provisions of this
Article IX of the registrant's Articles of Incorporation, with respect to the
resulting or surviving corporation, as such person would if such person had
served the resulting or surviving corporation in the same capacity.
G. Insurance. The registrant may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the registrant
or another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the registrant
would have the power to indemnify such person against such expense, liability
or loss under the General Corporation Law of the State of Delaware.
H. Severability. If any provision or provisions of Article IX shall be held
to be invalid, illegal or unenforceable for any reason whatsoever: (1) the
validity, legality and enforceability of the remaining provisions of Article
IX (including, without limitation, each portion of any paragraph of Article IX
containing any such provision held to be invalid, illegal or unenforceable,
that is not itself held to be invalid, illegal or unenforceable) shall not in
any way be affected or impaired thereby; and (2) to the fullest extent
possible, the provisions of Article IX of the registrant's Articles of
Incorporation (including, without limitation, each such portion of any
paragraph of Article IX containing any such provision held to be invalid,
illegal or unenforceable) shall be construed so as to give effect to the
intent manifested by the provision held invalid, illegal or unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
None.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Index to and Description of Exhibits
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
The undersigned registrant hereby undertakes:
(1) For the purposes of determining liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as a part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(b) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, IN THE CITY OF LOUISVILLE, COMMONWEALTH OF KENTUCKY, ON AUGUST
30, 1996.
PJ America, Inc.
/s/ Douglas S. Stephens
By: _________________________________
Douglas S. Stephens
Chief Executive Officer and
President
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
POWER OF ATTORNEY
KNOW ALL MEN AND WOMEN BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE
APPEARS BELOW AND APPOINTS MARTIN T. HART, RICHARD F. SHERMAN, DOUGLAS S.
STEPHENS AND MICHAEL M. FLEISHMAN, AND EACH OF THEM SUCH INDIVIDUAL'S TRUE AND
LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF SUBSTITUTION AND
RESUBSTITUTION, FOR SUCH INDIVIDUAL AND IN HIS OR HER NAME, PLACE AND STEAD,
IN ANY AND ALL CAPACITIES, TO SIGN ALL AMENDMENTS (INCLUDING POST-EFFECTIVE
AMENDMENTS) TO THIS REGISTRATION STATEMENT AND ANY REGISTRATION STATEMENT
RELATED TO THE OFFERING CONTEMPLATED BY THIS REGISTRATION STATEMENT THAT IS TO
BE EFFECTIVE UPON FILING PURSUANT TO RULE 462(B) UNDER THE SECURITIES ACT OF
1933, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND ALL DOCUMENTS IN
CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION AND ANY
STATE OR OTHER REGULATORY AUTHORITY, GRANTING UNTO SAID ATTORNEYS-IN-FACT AND
AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND
EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE, AS FULLY TO ALL
INTENTS AND PURPOSES AS HE OR SHE MIGHT OR COULD DO IN PERSON, HEREBY
RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEYS-IN-FACT AND AGENTS, OR ANY OF
THEM, OR THEIR SUBSTITUTE OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE
BY VIRTUE HEREOF.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Richard F. Sherman Chairman of the Board August 30, 1996
____________________________________
Richard F. Sherman
/s/ Douglas S. Stephens Chief Executive Officer, August 30, 1996
____________________________________ President and Director
Douglas S. Stephens
/s/ D. Ross Davison Vice President--Chief August 30, 1996
____________________________________ Financial Officer and
D. Ross Davison Treasurer
(Chief Financial and
Accounting Officer)
/s/ Michael M. Fleishman Director August 30, 1996
____________________________________
Michael M. Fleishman
/s/ Martin T. Hart Director August 30, 1996
____________________________________
Martin T. Hart
/s/ Frank O. Keener Director August 30, 1996
____________________________________
Frank O. Keener
/s/ Stephen P. Langford Director August 30, 1996
____________________________________
Stephen P. Langford
/s/ Charles W. Schnatter Director August 30, 1996
____________________________________
Charles W. Schnatter
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER DESCRIPTION NO.
------ ----------- ----
<C> <S> <C>
1 Form of Underwriting Agreement...............................
3.1 Certificate of Incorporation.................................
3.2 By-laws......................................................
4* Specimen Common Stock Certificate............................
5* Opinion of Greenebaum Doll & McDonald PLLC as to the legality
of the securities being registered...........................
10.1 Form of Registration Rights Agreement........................
10.2 Form of 1996 Stock Ownership Incentive Plan..................
10.3 Form of Non-Employee Directors 1996 Stock Incentive Plan.....
10.4 Agreement relating to the Reorganization.....................
10.5 Plan of Merger...............................................
10.6 Indemnification Agreement....................................
10.7 Escrow Agreement.............................................
10.8 Warrant issued to PJI........................................
10.9 Agreement between PJI and Extra Cheese, Inc. relating to
certain Southern California counties; Puerto Rico; Vancouver,
Canada; consent for this offering from PJI; the issuance of
the warrant; and certain other matters.......................
10.10 Development Agreement relating to the Utah territory.........
10.11 Development Agreement relating to the development of an ag-
gregate of ten restaurants in Birmingham, Tuscaloosa and Au-
burn, Alabama................................................
10.12 Form of Franchise Agreement relating to the Birmingham, Tus-
caloosa and Auburn, Alabama restaurants (e.g., Franchise
Agreement dated February 18, 1992, by and between Extra
Cheese, Inc. and PJI at 2503 McFarland Blvd. W., Northport,
Alabama 35476)...............................................
10.13 Development Agreement relating to the development of an ag-
gregate of four restaurants in Cullman, Jasper, Sylacauga and
Talladega, Alabama...........................................
10.14 Form of Franchise Agreement relating to the Cullman, Jasper,
Sylacauga and Talladega, Alabama restaurants (e.g., Franchise
Agreement dated August 14, 1995, by and between Extra Cheese,
Inc. and PJI at 680 Highway 78 West, Jasper, Alabama 35501)..
10.15 Development Agreement relating to the development of an ag-
gregate of five restaurants in Longview, Lufkin and Nacogdo-
ches, Texas..................................................
10.16 Form of Franchise Agreement relating to the East Texas res-
taurants (e.g., Franchise Agreement dated September 20, 1994,
by and between Textra Cheese Corp. and PJI at 2702 North
Street, Nacogdoches, Texas 75961)............................
10.17 Development Agreement relating to the East Texas development
of an aggregate of 47 restaurants in Virginia Beach, Richmond
and Norfolk, Virginia........................................
10.18 Form of Franchise Agreement relating to the Virginia restau-
rants (e.g. Franchise Agreement dated March, 31, 1994, by and
between PJVA and PJI at 10054 Robious Road, Richmond, Vir-
ginia 23235).................................................
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
NUMBER DESCRIPTION NO.
------ ----------- ----
<C> <S> <C>
10.19 PJI's Waiver of Right of First Refusal (certain Utah, Iowa
markets and other markets)...................................
10.20 The Company's Right of First Refusal relating to certain Iowa
territories..................................................
10.21 The Company's Right of First Refusal relating to certain Lou-
isiana territories...........................................
10.22 Option Agreement relating to the Utah territories............
10.23 $1,200,000 Commercial Installment Note issued to National
City Bank from PJVA, Inc. and PJV, Inc., and guaranteed by
Messrs. Sherman, Laughery, Hart and Grisanti.................
10.24 $1,000,000 Credit Facility with AmSouth Bank of Alabama
guaranteed by Messrs. Stephens, Langford, Sherman, Fleishman
and Keener...................................................
10.25 Employment Agreement with Mr. Davison........................
10.26 Agreement between PJI and PJ Utah, LLC relating to develop-
ment rights to be granted with respect to the Utah territory.
21 Subsidiaries of the Registrant...............................
23.1 Consent of Greenebaum Doll & McDonald PLLC (included in Ex-
hibit 5).....................................................
23.2 Consent of Ernst & Young LLP.................................
24 Power of Attorney (included on Signature Page of the Regis-
tration Statement)...........................................
27** Financial Data Schedule......................................
</TABLE>
- --------
*To be filed by amendment.
**Included only in the EDGAR version.
<PAGE>
EXHIBIT 1
1,800,000 Shares
PJ AMERICA, INC.
Common Stock
UNDERWRITING AGREEMENT
----------------------
September ___, 1996
MONTGOMERY SECURITIES
ALEX. BROWN & SONS INCORPORATED
c/o Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
Dear Sirs:
SECTION 1. Introductory. PJ America, Inc., a Delaware corporation
(the "Company"), proposes to issue and sell 1,620,000 shares of its authorized
but unissued Common Stock, $.01 par value per share (the "Common Stock"), and
certain stockholders of the Company named in Schedule B annexed hereto (the
"Selling Stockholders") propose to sell an aggregate of 180,000 shares of the
Company's issued and outstanding Common Stock to the underwriters named in
Schedule A annexed hereto (the "Underwriters"). Said shares, aggregating a
total of 1,800,000 shares, are herein referred to as the "Firm Common Shares."
In addition, the Company proposes to grant to the Underwriters an option to
purchase up to _________ additional shares of Common Stock, and the Selling
Stockholders propose to grant to the Underwriters an option to purchase up to
________ additional shares of Common Stock (such ________ shares and ________
shares, aggregating a total of 270,000 shares, being referred to as the
"Optional Common Shares"), as provided in Section 5 hereof. The Firm Common
Shares and, to the extent such option is exercised, the Optional Common Shares
are hereinafter collectively referred to as the "Common Shares."
The Company has advised you that, prior to the Closing Date (as herein
defined) the Company and the corporations hereinafter specified will enter into
merger transactions referred to in the Prospectus (as hereinafter defined) as
the "Reorganization." The parties to the Reorganization include the Company and
the following corporations: [Newco], a _______________ corporation, Extra
Cheese, Inc., a Delaware corporation, Textra Cheese Corp., a Delaware
corporation, Twice the Cheese, Inc., a Delaware corporation, PJVA, Inc., a
Delaware corporation and PJV, Inc., a Delaware corporation (such six
corporations being herein referred to collectively as the "Roll-Up Entities").
The Reorganization will be consummated pursuant to an Agreement dated June 10,
1996, as amended July 10, 1996 (the "Agreement"), and an Agreement and Plan of
Merger, dated _______________, 1996 (the "Merger Agreement"). The Agreement,
Merger Agreement and any other agreements to be entered into among the Company
and the Roll-Up Entities are collectively referred to herein as the "Transaction
Documents" and each singly as a "Transaction Document." Under the terms of the
Reorganization, the Company will succeed to the business and operations of the
Roll-Up Entities.
You have advised the Company and the Selling Stockholders that the
Underwriters propose to make a public offering of the Common Shares on the
effective date of the registration statement hereinafter referred to, or as soon
thereafter as in their judgment is advisable.
The Company and the Selling Stockholders hereby confirm their
respective agreements with respect to the purchase of the Common Shares by the
Underwriters as follows:
<PAGE>
SECTION 2. Representations and Warranties of the Company. The
Company hereby represents and warrants to the Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-__________)
with respect to the Common Shares has been prepared by the Company in
conformity with the requirements of the Securities Act of 1933, as amended
(the "Act"), and the rules and regulations (the "Rules and Regulations") of
the Securities and Exchange Commission (the "Commission") thereunder, and
has been filed with the Commission. The Company has met all of the
eligibility requirements for the use of a registration statement on Form
S-1. There have been delivered to the Underwriters two signed copies of
such registration statement and amendments, together with two copies of
each exhibit filed therewith. Conformed copies of such registration
statement and amendments (but without exhibits) and of the related
preliminary prospectus have been delivered to each of the Underwriters in
such reasonable quantities as each of them has requested. The Company will
next file with the Commission one of the following: (i) prior to
effectiveness of such registration statement, a further amendment thereto,
including the form of final prospectus, or (ii) a final prospectus in
accordance with Rules 430A and 424(b) of the Rules and Regulations. As
filed, such amendment and form of final prospectus, or such final
prospectus, shall include all Rule 430A Information and, except to the
extent that the Underwriters shall agree in writing to a modification,
shall be in all substantive respects in the form furnished to the
Underwriters prior to the date and time that this Agreement was executed
and delivered by the parties hereto, or, to the extent not completed at
such date and time, shall contain only such specific additional information
and other changes (beyond that contained in the latest Preliminary
Prospectus) as the Company shall have previously advised the Underwriters
would be included or made therein.
The term "Registration Statement" as used in this Agreement shall mean
such registration statement at the time such registration statement becomes
effective and, in the event any post-effective amendment thereto becomes
effective prior to the First Closing Date (as hereinafter defined), shall
also mean such registration statement as so amended; provided, however,
that such term shall also include all Rule 430A Information deemed to be
included in such registration statement at the time such registration
statement becomes effective as provided by Rule 430A of the Rules and
Regulations. The term "Preliminary Prospectus" shall mean any preliminary
prospectus referred to in the preceding paragraph and any preliminary
prospectus included in the Registration Statement at the time it becomes
effective that omits Rule 430A Information. The term "Prospectus" as used
in this Agreement shall mean the prospectus relating to the Common Shares
in the form in which it is first filed with the Commission pursuant to Rule
424(b) of the Rules and Regulations or, if no filing pursuant to Rule
424(b) of the Rules and Regulations is required, shall mean the form of
final prospectus included in the Registration Statement at the time such
registration statement becomes effective. The term "Rule 430A Information"
means information with respect to the Common Shares and the offering
thereof permitted to be omitted from the Registration Statement when it
becomes effective pursuant to Rule 430A of the Rules and Regulations.
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus, and each Preliminary Prospectus has
conformed in all material respects to the requirements of the Act and the
Rules and Regulations and, as of its date, has not included any untrue
statement of a material fact or omitted to state a material fact necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading; and at the time the Registration
Statement becomes effective, and at all times subsequent thereto up to and
including each Closing Date hereinafter mentioned, the Registration
Statement and the Prospectus, and any amendments or supplements thereto,
will contain all material statements and
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information required to be included therein by the Act and the Rules and
Regulations and will in all material respects conform to the requirements
of the Act and the Rules and Regulations, and neither the Registration
Statement nor the Prospectus, nor any amendment or supplement thereto, will
include any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading in light of circumstances under which they were
made; provided, however, no representation or warranty contained in this
subsection 2(b) shall be applicable to information contained in or omitted
from any Preliminary Prospectus, the Registration Statement, the Prospectus
or any such amendment or supplement in reliance upon and in conformity with
written information furnished to the Company by or on behalf of either
Underwriter specifically for use in the preparation thereof.
(c) The Company does not own or control, directly or indirectly, any
corporation, association or other entity other than the subsidiaries listed
in Exhibit 21 to the Registration Statement, and any reference herein to
the Company's "subsidiaries" shall mean the subsidiaries listed in such
Exhibit 21. The Company and each of the subsidiaries have been duly
incorporated and are validly existing as corporations in good standing
under the laws of their respective jurisdictions of incorporation, with
full corporate power and authority (corporate and other) to own and lease
their properties and conduct their respective businesses as described in
the Prospectus; on the First Closing Date, the Company will own all of the
outstanding capital stock of its subsidiaries; the Company and its
subsidiaries are in possession of and are operating in compliance with all
authorizations, licenses, permits, consents, certificates and orders
material to the conduct of their respective businesses, except where
noncompliance would not have a material adverse effect on the business or
financial condition of the Company and its subsidiaries, taken as a whole;
the Company and each of its subsidiaries are duly qualified to do business
and are in good standing as foreign corporations in each jurisdiction in
which the ownership or leasing of properties or the conduct of their
respective businesses requires such qualification, except for jurisdictions
in which the failure to so qualify would not have a material adverse effect
upon the Company and its subsidiaries taken as a whole; and no proceeding
has been instituted in any such jurisdiction revoking, limiting or
curtailing, or seeking to revoke, limit or curtail, such power and
authority or qualification.
(d) The Company has an authorized and outstanding capital stock as
set forth under the heading "Capitalization" in the Prospectus; the issued
and outstanding shares of Common Stock have been duly authorized and
validly issued, are fully paid and nonassessable, have been issued in
compliance with all federal and state securities laws, were not issued in
violation of or subject to any preemptive rights or other rights to
subscribe for or purchase securities, and conform to the description
thereof contained under the heading "Description of Capital Stock" in the
Prospectus. As of the Closing Dates (as hereinafter defined), the Company
will have no outstanding shares of preferred stock. All issued and
outstanding shares of capital stock of the Company's subsidiaries have been
duly authorized and validly issued and are fully paid and nonassessable and
are owned by the Company free and clear of any lien, claim, equity or other
encumbrance of any kind or character. Except as disclosed in or
contemplated by the Prospectus and the financial statements of the Company
and its subsidiaries, and the related notes thereto, included in the
Prospectus, neither the Company nor any of its subsidiaries has outstanding
any options to purchase, or any preemptive rights or other rights to
subscribe for or to purchase, any securities or obligations convertible
into, or any contracts or commitments to issue or sell, shares of its
capital stock or any such options, rights, convertible securities or
obligations. The description of the Company's outstanding stock options,
and other stock plans or arrangements, and the options or other rights
granted and exercised thereunder, set forth in the Prospectus, accurately
and fairly presents in all material
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respects the information required to be shown with respect to such options,
plans, arrangements, and rights.
(e) The Common Shares to be sold by the Company have been duly
authorized and, when issued, delivered and paid for in the manner set forth
in this Agreement, will be duly authorized, validly issued, fully paid and
nonassessable, and will conform to the description thereof contained in the
Prospectus; and when duly countersigned by the Company's transfer agent and
registrar, and delivered to the Underwriters in accordance with the
provisions of this Agreement, good and valid title thereto will pass to the
Underwriters free and clear of any liens, claims, equities or other
encumbrances of any kind or character. No preemptive rights or other
rights to subscribe for or purchase exist with respect to the issuance and
sale of the Common Shares by the Company pursuant to this Agreement. No
stockholder of the Company has any right to require the Company to register
the sale of any shares owned by such stockholder under the Act in the
public offering contemplated by this Agreement.
(f) The Company has full legal right, power and authority to enter
into this Agreement and perform the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by the Company
and constitutes a valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except to the extent that
(i) the validity and binding effect and enforcement of this Agreement may
be limited by any applicable bankruptcy, reorganization, moratorium, or
similar laws of general application, (ii) the availability of equitable
remedies may be limited by principles of equity, whether considered in a
proceeding at law or in equity, and (iii) the terms thereof may be limited
by applicable securities laws and the policies embodied therein. The
making and performance of this Agreement by the Company and the
consummation of the transactions herein contemplated by the Company or the
performance by the Company or the Roll-Up Entities of their respective
obligations under the Transaction Documents or the consummation by the
Company or the Roll-Up Entities of the transactions contemplated hereby and
thereby (i) requires any consent, approval, authorization or order of or
registration or filing with any court, regulatory body, administrative
agency or other governmental body, agency or official (except such as may
be required for the registration of the Common Shares under the Act and
compliance with the securities or Blue Sky laws and Canadian securities
laws, and the clearance of the public offering of the Common Shares by the
National Association of Securities Dealers, Inc. (the "NASD")), or
conflicts or will conflict with, constitutes or will constitute a breach
of, or a default under, the Certificate or Articles of Incorporation, or
Bylaws or other organizational documents of the Company, any of its
subsidiaries or any of the Roll-Up Entities, (ii) conflicts or will
conflict or constitutes or will constitute a breach of or a default under
any agreement, indenture, lease or other instrument to which the Company,
any of its subsidiaries or any of the Roll-Up Entities is a party or by
which any of them or any of their respective properties may be bound
(except for such conflicts, breaches or defaults for which waivers or
consents have been obtained), or violates or will violate any statute, law,
regulation or filing or judgment, injunction, order or decree applicable to
the Company, any of its subsidiaries or any of the Roll-Up Entities, or any
of the their respective properties, or will result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets
of the Company or any of its subsidiaries or of any of the Roll-Up Entities
pursuant to the terms of any agreement or instrument to which any of them
is a party or by which any of the them may be bound or to which any of the
property or assets of any of them is subject, in each case, except for such
conflicts, breaches, defaults, violations, or encumbrances that would not
singly or in the aggregate have a material adverse effect the ability of
the Company or any of the Roll-Up Entities to fulfill its obligations
hereunder or under the Transaction Documents.
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<PAGE>
(g) Ernst & Young, who have expressed their opinion with respect to the
financial statements filed with the Commission as a part of the Registration
Statement and included in the Prospectus and in the Registration Statement, are
independent accountants as required by the Act and the Rules and Regulations.
(h) The Combined Financial Statements and the related notes thereto of
Extra Cheese, Inc., Textra Cheese Corp. and Twice the Cheese, Inc. (the "Alabama
Group"), and the Combined Financial Statements and related notes thereto of
PJVA, Inc. and PJC, Inc. (the "Virginia Group") included in the Registration
Statement and the Prospectus present fairly the financial position of the
Alabama Group and the Virginia Group respectively, as of the respective dates of
such financial statements, and the results of operations and changes in
financial position of the Alabama Group and the Virginia Group respectively, for
the respective periods covered thereby. Such financial statements and related
notes have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis and have been certified by Ernst &
Young, the Company's independent accountants. The interim financial data for the
Alabama Group and the Virginia Group for the twenty-six weeks ended June 25,
1995 and June 30, 1996 present fairly the financial position of the Alabama
Group and the Virginia Group, respectively, as of such dates, have been derived
from the financial statements of the Alabama Group and the Virginia Group,
respectively, and have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis, subject to normal year end
adjustments consistent with past practice. The pro forma financial information
included in the Prospectus has been prepared in accordance with the applicable
requirements of Rules 11-01 and 11-02 of Regulation S-X under the Act and the
Rules and Regulations and American Institute of Certified Public Accountant
guidelines with respect to pro forma financial information, has been properly
compiled on the pro forma basis described therein, and in the opinion of the
Company, the assumptions used in preparation thereof are reasonable and the
adjustments therein are appropriate. No other financial statements, schedules or
financial information are required to be included in the Registration Statement.
The financial and statistical data set forth in the Prospectus under the
captions "Prospectus Summary," "The Company," "The Reorganization," "Prior S
Corporation Status of Predecessor Companies," "Risk Factors," "Use of Proceeds,"
"Dividend Policy," "Dilution," "Capitalization," "Selected Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business," "Management," "Certain Transactions," "Principal and
Selling Stockholders" and "Shares Eligible for Future Sale" fairly present the
information set forth therein on the basis stated in the Registration Statement.
(i) The Company is not in violation or default of any provision of its
Restated Certificate of Incorporation; none of the Company's subsidiaries is in
violation or default of its Certificate of Incorporation; neither the Company
nor any of its subsidiaries is in violation or default of any provision of its
Bylaws or is in breach of or default with respect to any provision of any
judgment, decree or order, or is in breach of or default with respect to any
provision of any material agreement, mortgage, deed of trust, lease, loan
agreement, security agreement, license, indenture, permit or other instrument to
which it is a party or by which it or any of its properties are bound; and there
does not exist any state of facts which constitutes an event of default on the
part of the Company or any of its subsidiaries as defined in such documents or
which, with notice or lapse of time or both, would constitute such an event of
default.
(j) There are no contracts or other documents required to be described
in the Registration Statement or to be filed as exhibits to the Registration
Statement by the Act or by the Rules and Regulations which have not been
described or filed as required. The contracts so described in the
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<PAGE>
Prospectus are in full force and effect on the date hereof; and neither the
Company nor any of its subsidiaries, nor to the best of the Company's or
any subsidiaries's knowledge any other party, is in breach of or default
under any material provision of any such contract which would have a
material adverse effect on the Company and its subsidiaries, taken as a
whole.
(k) There are no legal or governmental actions, suits or proceedings
pending or, to the best of the Company's knowledge, threatened to which the
Company or any of its subsidiaries or any of the Roll-Up Entities is or may
be a party or with respect to which property owned or leased by the Company
or any of its subsidiaries or any of the Roll-Up Entities is or may be the
subject, or related to environmental, employment of aliens or
discrimination matters, which actions, suits or proceedings might,
individually or in the aggregate, prevent or adversely affect the
transactions contemplated by this Agreement or result in a material adverse
change in the condition (financial or otherwise), properties, business,
results of operations or prospects of the Company, its subsidiaries and the
Roll-Up Entities taken as a whole, and no labor disturbance by the
employees of the Company or its subsidiaries or any of the Roll-Up Entities
exists or, to the knowledge of the Company or any of its subsidiaries or
any of the Roll-Up Entities is imminent which might be expected to result
in a material adverse change in the condition (financial or otherwise),
properties, business, results of operations or prospects of the Company or
any of its subsidiaries or any of the Roll-Up Entities, taken as a whole.
Neither the Company, any of its subsidiaries or any of the Roll-Up Entities
is a party to, or subject to the provisions of, any material injunction,
judgment, decree or order of any court, regulatory body, administrative
agency or other governmental body.
(l) The Company, each of its subsidiaries, and each of the Roll-Up
Entities have good and marketable title to all the properties and assets
reflected as owned by them, respectively, in the financial statements
hereinabove described (or as reflected or described elsewhere in the
Prospectus), subject to no lien, mortgage, pledge, charge or encumbrance of
any kind except (i) those, if any, reflected in such financial statements
(or elsewhere in the Prospectus), or (ii) those which do not materially
adversely affect the use made and proposed to be made of such property by
the Company or any of its subsidiaries or any of the Roll-Up Entities. The
Company and each of its subsidiaries and each of the Roll-Up Entities hold
their respective leased properties under valid and binding leases, with
such exceptions as are not materially significant in relation to the
business of the Company or its subsidiaries or any of the Roll-Up Entities.
Except as disclosed in the Prospectus, the Company and each of its
subsidiaries or any of the Roll-Up Entities own or lease all such
properties as are necessary to their respective operations as now
conducted.
(m) Since the respective dates as of which information is given in
the Registration Statement and Prospectus, and except as described in or
specifically contemplated by the Prospectus (i) neither the Company nor any
of its subsidiaries or any of the Roll-Up Entities has incurred any
liabilities or obligations, direct, indirect or contingent, or entered into
any verbal or written agreement or other transaction which is not in the
ordinary course of business and which reasonably could be expected to
result in a material reduction in the future earnings of the Company, its
subsidiaries or the Roll-Up Entities, taken as a whole; (ii) the Company,
its subsidiaries, and the Roll-Up Entities, taken as a whole, have not
sustained any material loss or interference with their respective
businesses or properties from fire, flood, windstorm, accident or other
calamity, whether or not covered by insurance; (iii) the Company has not
paid or declared any dividends or other distributions with respect to its
capital stock, and the Company and its subsidiaries are not in default in
the payment of principal or interest on any outstanding debt obligations;
(iv) there has not been any change in the capital stock (other than upon
the sale of the Common Shares hereunder) or indebtedness material to the
Company, or any of the Roll-Up Entities taken as a whole; and (v) there has
not been
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<PAGE>
any material adverse change in the condition (financial or otherwise),
business, properties, results of operations or prospects of the Company,
its subsidiaries, or the Roll-Up Entities, taken as a whole.
(n) The Company and its subsidiaries have sufficient trademarks,
trade names, patent rights, mask works, copyrights, licenses, approvals and
governmental authorizations to conduct their respective businesses as now
conducted; and the Company has no knowledge of any infringement by it or
its subsidiaries of trademarks, trade name rights, trade dress, patent
rights, mask works, copyrights, licenses, trade secret or other similar
rights of others; and except as disclosed in the Prospectus, the Company
has no knowledge of any infringement by others of "Papa John's" as a
service mark, "Pizza Papa John's" and design as a trademark, and "Pizza
Papa John's Delivery the Perfect Pizza!" and design as a trademark and as a
servicemark, or of the Company's or its subsidiaries' trademarks, trade
name rights, trade dress, patent rights, mask works, copyrights, licenses,
trade secrets or other similar rights that would be material to the
business or financial condition of the Company and its subsidiaries taken
as a whole; and there is no claim being made against the Company or any of
its subsidiaries regarding trademark, trade name, trade dress, patent
right, mask work, copyright, license, trade secret or other infringement
which could have a material adverse effect on the condition (financial or
otherwise), business, results of operations or prospects of the Company and
its subsidiaries, taken as a whole.
(o) The Company has not been advised, and has no reason to believe,
that either it or any of its subsidiaries or any of the Roll-Up Entities is
not conducting business in compliance with all applicable laws, rules and
regulations of the jurisdictions in which it is conducting business,
including, without limitation, all applicable local, state and federal
employment, truth-in-advertising, franchising, immigration and
environmental laws and regulations, except where failure to be so in
compliance would not materially adversely affect the condition (financial
or otherwise), business, results of operations or prospects of the Company,
its subsidiaries and the Roll-Up Entities, taken as a whole.
(p) The Company, each of its subsidiaries and each of the Roll-Up
Entities have filed all federal, state and foreign income and franchise tax
returns or extensions therefor required to be filed and have paid all taxes
shown as due thereon; and the Company has no knowledge of any tax
deficiency which has been or might be asserted or threatened against the
Company or any of its subsidiaries or any of the Roll-Up entities which
could materially and adversely affect the business, operations or
properties of the Company, its subsidiaries and the Roll-Up Entities, taken
as a whole.
(q) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurances
that (i) transactions are executed in accordance with management's general
or specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets;
and (iii) the recorded accountability for assets is compared with existing
assets at reasonable intervals and appropriate action is taken with respect
to any differences.
(r) The Company is not required to make, and following receipt of the
proceeds from the sale of the Common Shares will not be required to make,
any filing or to register under the Investment Company Act of 1940, as
amended.
(s) There is no proceeding pending or threatened (or, to the
knowledge of the Company or any of its subsidiaries or any officer of the
Company or its subsidiaries, any basis therefor) which
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<PAGE>
may lead to the revocation, suspension, termination or nonrenewal or any
certificate, order, license, permit, easement, consent, waiver, approval,
franchise, grant, authorization or concession required to conduct the
business of the Company or its subsidiaries or any of the Roll-Up Entities
as now conducted and as proposed to be conducted and which are material to
the Company, its subsidiaries and the Roll-Up Entities, taken as a whole.
(t) The Company does not sell alcoholic beverages at any of the
Company's restaurants.
(u) The execution and delivery of, and the performance by the
Company and the Roll-Up Entities of their respective obligations under,
each Transaction Document has been duly and validly authorized by the
Company and the Roll-Up Entities, respectively, and each Transaction
Document has been duly executed and delivered by the Company and, as
applicable, the Roll-Up Entities prior to the Closing Date, and each
Transaction Document constitutes the legally valid and binding agreement of
the Company and the Roll-Up Entities enforceable against the Company and
the Roll-Up Entities, respectively, in accordance with its terms, except to
the extent that (i) the validity and binding effect and enforcement of any
Transaction Document may be limited by any applicable bankruptcy,
reorganization, moratorium, or similar laws of general application, and
(ii) the availability of equitable remedies may be limited by principles of
equity, whether considered in a proceeding at law or in equity.
(v) Neither the Company, any subsidiary of the Company nor any of
the Roll-Up Entities conducts business with the Government of Cuba, or in
Cuba or with any Cuban business entity or enterprise.
SECTION 3. Additional Representations, Warranties and Covenants of the
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Selling Stockholders.
- --------------------
(a) Each of the Selling Stockholders severally represents and
warrants to, and agrees with, the several Underwriters that:
(i) Such Selling Stockholder has good and valid title to the
Common Shares proposed to be sold by such Selling Stockholder
hereunder and the full right, power and authority to enter into this
Agreement and to sell, assign, transfer and deliver such Common Shares
hereunder, free and clear of all liens, claims, equities or other
encumbrances of any kind or character; and upon delivery of and
payment for such Common Shares hereunder, the Underwriters will
acquire good and valid title thereto, free and clear of all liens,
claims, equities or other encumbrances of any kind or character.
(ii) Such Selling Stockholder has executed and delivered a
Power of Attorney and a Custody Agreement (hereinafter collectively
referred to as the "Stockholders' Agreement") and in connection
herewith such Selling Stockholder further represents, warrants and
agrees that such Selling Stockholder has deposited in custody, under
the Stockholders' Agreement, with the agent named therein (the
"Agent") as custodian, certificates in negotiable form for the Common
Shares to be sold hereunder by such Selling Stockholder for the
purpose of further delivery pursuant to this Agreement. Such Selling
Stockholder agrees that the Common Shares to be sold by such Selling
Stockholder on deposit with the Agent are subject to the interests of
the Company and the Underwriters, that the arrangements made for such
custody are in that extent irrevocable, and that the obligations of
such Selling Stockholder hereunder shall not be terminated, except as
provided in this Agreement or in the Stockholders' Agreement, by any
act of such Selling Stockholder,
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<PAGE>
by operation of law, by the death or incapacity of such Selling
Stockholder or by the occurrence of any other event. If the Selling
Stockholder should die, become incapacitated, or if any other event
should occur before the delivery of the Common Shares hereunder, the
certificates and documents evidencing Common Shares then on deposit
with the Agent shall be delivered by the Agent in accordance with the
terms and conditions of this Agreement as if such death, incapacity or
other event had not occurred, regardless of whether the Agent shall
have received notice thereof. This Agreement and the Stockholders'
Agreement have been duly executed and delivered by or on behalf of
such Selling Stockholder and the form of such Stockholders' Agreement
has been delivered to you.
(iii) The performance of this Agreement and the Stockholders'
Agreement and the consummation of the transactions contemplated hereby
and by the Stockholders' Agreement will not result in a breach or
violation by such Selling Stockholder of any of the terms or
provisions of, or constitute a default by, such Selling Stockholder
under any indenture, mortgage, deed of trust, trust (constructive or
other), loan agreement, lease, franchise, license or other agreement
or instrument to which such Selling Stockholder is a party or by which
such Selling Stockholder or any of his properties is bound, or any
statute, judgment, decree, order, rule or regulation of any court or
governmental agency or body applicable to such Selling Stockholder or
any of his properties.
(iv) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action designed to, or which has
constituted or which might reasonably be expected to cause or result
in, stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Common Shares.
(v) Each Preliminary Prospectus and the Prospectus, respectively,
has conformed or conform, as the case may be, in all material respects
to the requirements of the Act and the Rules and Regulations and has
not included any untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein not
misleading in light of the circumstances under which they were made;
and neither the Registration Statement nor the Prospectus, nor any
amendment or supplement thereto will include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading.
(vi) The representations and warranties of the Company set forth
in Section 2 above are true and correct in all material respects.
(b) Each of the Selling Stockholders agrees with the Company and the
Underwriters not to offer to sell, sell or contract to sell or otherwise
dispose of any shares of Common Stock or securities convertible into or
exchangeable for any shares of Common Stock for a period of 180 days from
the date of the Prospectus without the prior written consent of either
Montgomery Securities or the Underwriters acting jointly (the giving or
withholding of such consent being in the sole discretion of Montgomery
Securities, or the Underwriters acting jointly, as the case may be).
SECTION 4. Representations and Warranties of the Underwriters. The
Underwriters represent and warrant to the Company and the Selling Stockholders
that the information set forth (i) on the cover page of the Prospectus with
respect to price, underwriting discounts and commissions and terms of the
offering and (ii) under "Underwriting" in the Prospectus furnished to the
Company by the Underwriters for use in connection with the preparation of the
Registration Statement and the Prospectus is correct in all material
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respects. The Company and the Selling Stockholders acknowledge that this
information is the sole information furnished to the Company by the Underwriters
for inclusion in the Registration Statement, any Preliminary Prospectus, any
Prospectus, or any amendment or supplement thereto.
SECTION 5. Purchase, Sale and Delivery of Common Shares. On the basis of
the representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, the Company agrees to issue and sell
to the Underwriters 1,250,000 Firm Common Shares, and the Selling Stockholders
agree to sell to the Underwriters the number of Firm Common Shares set forth
beside such Selling Stockholders' name on Schedule B hereto, and the
Underwriters agree, severally and not jointly, to purchase from the Company and
the Selling Stockholders the number of Firm Common Shares set forth opposite
their respective names in Schedule A hereto. The purchase price per share to be
paid by the several Underwriters to the Company and the Selling Stockholders
shall be $_______ per share.
Delivery of certificate(s) for the Firm Common Shares to be purchased by
the Underwriters shall be made by or on behalf of the Company and the Selling
Stockholders to the Underwriters or to the account of Montgomery Securities at
the Depositary Trust Corporation, New York, New York ("DTC"), as the
Representatives may direct, for the respective accounts of Underwriters. In the
event certificates are delivered to the Underwriters other than through DTC,
such delivery shall be made at the offices of Greenebaum Doll & McDonald, 3300
First National Tower, Louisville, Kentucky 40202-3197 (or such other place as
may be agreed upon by the Company, the Selling Stockholders and the
Representatives). Delivery of certificates, whether through DTC or otherwise,
shall be made at such time and date, not later than the third (or, if the Firm
Common Shares are priced, as contemplated by Rule 15cb-1(c) promulgated under
the Securities Exchange Act of 1934, as amended, after 4:30 p.m., Washington,
D.C. time, the fourth) full business day following the first day that any of
Common Shares are released by the Underwriters for sale to the public, as the
Representatives shall designate (the "First Closing Date"); provided, however,
that if the Prospectus is at any time prior to the First Closing Date
recirculated to the public, the First Closing Date shall occur upon the later of
the third or fourth, as the case may be, full business day following the first
date that any of the Common Shares are released by the Underwriters for sale to
public or the date that is 48 hours after the date that the Prospectus has been
so recirculated. The certificates for the Firm Common Shares shall be
registered in such names and denominations as the Representatives shall have
requested at least two full business days prior to the First Closing Date and
shall be made available for checking and packaging on the business day preceding
the First Closing Date at a location in New York, New York, as may be designated
by the Representatives. Time shall be of the essence, and delivery at the time
and place specified in this Agreement is a further condition to the obligations
of the Underwriters. Payment by the Underwriters for the purchase price for the
Firm Common Shares shall be made by wire transfer in federal funds to
____________________ Bank, account number _________________, in the case of the
Company, and to ____________________ Bank, account number ___________________,
in the case of the Selling Stockholders.
In addition, on the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company hereby grants an option to the Underwriters to purchase up to _________
Optional Common Shares, and the __________ Selling Stockholders hereby grant an
option to the Underwriters to purchase up to _________ Optional Shares,
aggregating 270,000 shares, at the purchase price per share to be paid for the
Firm Common Shares, for use solely in covering any over-allotments made by the
Underwriters in the sale and distribution of the Firm Common Shares. The
options granted hereunder may be exercised at any time (but not more than once)
within 30 days after the first date that any of the Firm Common Shares are
released by the Underwriters for sale to the public upon notice by the
Underwriters to the Company and the Selling Stockholders setting forth the
aggregate number of Optional Common Shares as to which the Underwriters are
exercising the options, the names and denominations in which the certificates
for such shares are to be registered and the time and
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place at which such certificates will be delivered. Such time of delivery (which
may not be earlier than the First Closing Date), being herein referred to as the
"Second Closing Date," shall be determined by the Underwriters, but if at any
time other than the First Closing Date shall not be earlier than three nor later
than five full business days after delivery of such notice of exercise. The
number of Optional Common Shares to be purchased by each Underwriter shall be
determined by multiplying the aggregate number of Optional Common Shares to be
sold by the Company and the Selling Stockholders, respectively, pursuant to such
notice of exercise by a fraction, the numerator of which is the number of Firm
Common Shares to be purchased by such Underwriter as set forth opposite its name
in Schedule A and the denominator of which is 1,800,000 (subject to such
adjustments to eliminate any fractional share purchases as the Underwriters in
their discretion may make). In the event that the option is exercised by the
Underwriters for less than all of the Optional Common Shares, the number of
Optional Common Shares with respect to which the option is exercised shall be
purchased from the Company and the Selling Stockholders on a pro rata basis.
Certificates for the Optional Common Shares will be made available for checking
and packaging on the business day preceding the Second Closing Date at a
location in New York, New York, designated by you. The manner of payment for and
delivery of the Optional Common Shares shall be the same as for the Firm Common
Shares purchased, as specified in this Section 5. At any time before lapse of
the option, the Underwriters may cancel such option by giving written notice of
such cancellation to the Company and the Option Selling Stockholder. If the
option is canceled or expires unexercised in whole or in part, the Company will
deregister under the Act the number of Optional Common Shares as to which the
option has not been exercised.
Subject to the terms and conditions hereof, the Underwriters propose to
make a public offering of their respective portions of the Firm Common Shares,
and of the Optional Common Shares if and to the extent that the Underwriters
exercise their option to purchase Optional Common Shares, as soon after the
effective date of the Registration Statement as in the judgment of the
Underwriters is advisable and at the public offering price set forth on the
cover page of and on the terms set forth in the Prospectus.
SECTION 6. Covenants of the Company. The Company covenants and agrees
------------------------
that:
(a) The Company will use its best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date
that this Agreement is executed and delivered by the parties hereto, to
become effective. If the Registration Statement has become or becomes
effective pursuant to Rule 430A of the Rules and Regulations, or the filing
of the Prospectus is otherwise required under Rule 424(b) of the Rules and
Regulations, the Company will file the Prospectus, properly completed,
pursuant to the applicable paragraph of Rule 424(b) of the Rules and
Regulations within the time period prescribed and will provide evidence
satisfactory to the Underwriters of such timely filing. The Company will
promptly advise the Underwriters in writing (i) of the receipt of any
comments of the Commission, (ii) of any request of the Commission for
amendment of or supplement to the Registration Statement (either before or
after it becomes effective), any Preliminary Prospectus or the Prospectus
or for additional information, (iii) when the Registration Statement shall
have become effective and (iv) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or of
the institution of any proceedings for that purpose. If the Commission
shall enter any such stop order at any time, the Company will use its best
efforts to obtain the lifting of such order at the earliest possible
moment. The Company will not file any amendment or supplement to the
Registration Statement (either before or after it becomes effective), any
Preliminary Prospectus or the Prospectus of which the Underwriters have not
been furnished with a copy a reasonable time prior to such filing or to
which the Underwriters reasonably object in writing or which is not in
compliance with the Act and the Rules and Regulations.
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(b) The Company will prepare and file with the Commission, promptly
upon the Underwriters' request, any amendments or supplements to the
Registration Statement or the Prospectus which in the Underwriters'
judgment may be necessary or advisable to enable the several Underwriters
to continue the distribution of the Common Shares and will use its best
efforts to cause the same to become effective as promptly as possible. The
Company will fully and completely comply with the provisions of Rule 430A
of the Rules and Regulations with respect to information omitted from the
Registration Statement in reliance upon such Rule.
(c) If at any time within the nine-month period referred to in
Section 10(a)(3) of the Act during which a prospectus relating to the
Common Shares is required to be delivered under the Act any event occurs,
as a result of which the Prospectus, including any amendments or
supplements, would include an untrue statement of a material fact, or omit
to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, or if it is necessary at any
time to amend the Prospectus, including any amendments or supplements, to
comply with the Act or the Rules and Regulations, the Company will promptly
advise the Underwriters thereof and will promptly prepare and file with the
Commission, at its own expense, an amendment or supplement which will
correct such statement or omission or an amendment or supplement which will
effect such compliance and will use its best efforts to cause the same to
become effective as soon as possible; and, in case any Underwriter is
required to deliver a prospectus after such nine-month period, the Company,
upon request, but at the expense of such Underwriter, will promptly prepare
such amendment or amendments to the Registration Statement and such
Prospectus or Prospectuses as may be necessary to permit compliance with
the requirements of Section 10(a)(3) of the Act.
(d) As soon as practicable, but not later than 45 days after the end
of the first quarter ending after one year following the "effective date of
the Registration Statement" (as defined in Rule 158(c) of the Rules and
Regulations), the Company will make generally available to its security
holders an earnings statement (which need not be audited) covering a period
of 12 consecutive months beginning after the effective date of the
Registration Statement which will satisfy the provisions of the last
paragraph of Section 11(a) of the Act.
(e) During such period as a prospectus is required by law to be
delivered in connection with sales by an Underwriter or dealer, the
Company, at its expense, but only for the nine-month period referred to in
Section 10(a)(3) of the Act, will furnish to the Underwriters or mail
copies of the Registration Statement, the Prospectus, the Preliminary
Prospectus and all amendments and supplements to any such documents in
each case as soon as available and in such quantities as the Underwriters
may request, for the purposes contemplated by the Act.
(f) The Company shall cooperate with the Underwriters and their
counsel in order to qualify or register the Common Shares for sale under
(or obtain exemptions from the application of) the Blue Sky laws of such
jurisdictions as the Underwriters designate, will comply with such laws and
will continue such qualifications, registrations and exemptions in effect
so long as reasonably required for the distribution of the Common Shares.
The Company shall not be required to qualify as a foreign corporation or to
file a general consent to service of process in any such jurisdiction where
it is not presently qualified or where it would be subject to taxation as a
foreign corporation. The Company will advise the Underwriters promptly of
the suspension of the qualification or registration of (or any such
exemption relating to) the Common Shares for offering, sale or trading in
any jurisdiction or any initiation or overt threat of any proceeding for
any such purpose, and in the event of the issuance of any order suspending
such qualification, registration or exemption, the
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Company, with the Underwriters' cooperation, will use its best efforts to
obtain the withdrawal thereof.
(g) During the period of five years hereafter, the Company will
furnish to the Underwriters: (i) as soon as practicable after the end of
each fiscal year, copies of the Annual Report to Stockholders of the
Company containing the balance sheet of the Company as of the close of such
fiscal year and statements of income, stockholders' equity and cash flows
for the year then ended and the opinion thereon of the Company's
independent public accountants; (ii) as soon as practicable after the
filing thereof, copies of each proxy statement, Annual Report on Form 10-K,
Quarterly Report on Form 10-Q, Report on Form 8-K or other report filed by
the Company with the Commission, the NASD or any securities exchange; and
(iii) as soon as available, copies of any report or communication of the
Company mailed generally to holders of its Common Stock.
(h) During the period of 180 days from the date of the Prospectus,
without the prior written consent of either Montgomery Securities or the
Underwriters acting jointly (the giving or withholding of such written
consent being in the sole discretion of Montgomery Securities, or the
Underwriters acting jointly, as the case may be), the Company will not
issue, offer, sell, grant options to purchase or otherwise dispose of any
of the Company's equity securities or any other securities convertible into
or exchangeable with its Common Stock or other equity security, except for
(i) the grant of options in the ordinary course of business pursuant to
existing stock option plans described in the Prospectus, or (ii) the
issuance of shares of Common Stock pursuant to the exercise of director,
officer or employee stock options that are disclosed in the Registration
Statement or Prospectus and are outstanding on the date of the Prospectus.
(i) The Company will apply the net proceeds of the sale of the Common
Shares sold by it substantially in accordance with its statements under the
caption "Use of Proceeds" in the Prospectus and will file with the
Commission, and deliver copies thereof to the Representatives upon any such
filing, such reports on Form SR as may be required pursuant to Rule 463
under the Act.
(j) The Company will use its best efforts to qualify or register its
Common Stock for sale in non-issuer transactions under (or obtain
exemptions from the application of) the Blue Sky laws of the State of
California (and thereby permit market making transactions and secondary
trading in the Company's Common Stock in California), will comply with such
Blue Sky laws and will use its best efforts to maintain such
qualifications, registrations and exemptions in effect for a period of five
years after the date hereof.
(k) The Company will use its best efforts to designate the Common
Stock for quotation as a National Market System security on the NASD
Automated Quotation System.
The Representatives may, in their sole discretion and on behalf of the
Underwriters, waive in writing the performance by the Company of any one or more
of the foregoing covenants or extend the time for their performance.
SECTION 7. Payment of Expenses. Whether or not the transactions
contemplated hereunder are consummated or this Agreement becomes effective or is
terminated, the Company agrees to pay all costs, fees and expenses incurred in
connection with the performance of its obligations hereunder, including without
limiting the generality of the foregoing, (i) all expenses incident to the
issuance and delivery of the Common Shares (including all printing and engraving
costs), (ii) all fees and expenses of the registrar and transfer agent of the
Common Stock, (iii) all necessary issue, transfer and other stamp taxes in
connection with the
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issuance and sale of the Common Shares to the Underwriters, (iv) all fees and
expenses of the Company's counsel, Selling Stockholders' counsel and the
Company's independent accountants, (v) all costs and expenses incurred in
connection with the preparation, printing, filing, shipping and distribution to
the Underwriters and dealers of the Registration Statement, each Preliminary
Prospectus and the Prospectus (including all exhibits and financial statements)
and all amendments and supplements provided for herein, this Agreement, the
Agreement Among Underwriters, the Selected Dealers Agreement, the Underwriters'
Questionnaire, the Underwriters' Power of Attorney and the preliminary Blue Sky
memorandum and final Blue Sky memorandum, (vi) all filing fees, attorneys' fees
and expenses incurred by the Company or the Underwriters in connection with
qualifying or registering (or obtaining exemptions from the qualification or
registration of) all or any part of the Common Shares for offer and sale under
the Blue Sky laws and applicable Canadian securities laws, (vii) the filing fee
of the NASD and attorneys fees and expenses incurred by the Company or the
Underwriters in obtaining a letter of no objection from the NASD, and (viii) all
other fees, costs and expenses referred to in Item 13 of the Registration
Statement. Except as provided in this Section 7, Section 9 and Section 11
hereof, the Underwriters shall pay all of their own expenses, including the fees
and disbursements of their counsel (excluding those relating to qualification,
registration or exemption under the Blue Sky laws, Canadian securities laws, the
Blue Sky memoranda and relating to obtaining a letter of no objection from the
NASD, referred to above).
SECTION 8. Conditions of the Obligations of the Underwriters. The
obligations of the Underwriters to purchase and pay for the Firm Common Shares
on the First Closing Date and the Optional Common Shares on the Second Closing
Date shall be subject to the accuracy of the representations and warranties on
the part of the Company and the Selling Stockholders herein set forth as of the
date hereof and as of the First Closing Date or the Second Closing Date, as the
case may be, to the accuracy of the statements of Company officers and the
Selling Stockholders made pursuant to the provisions of this Agreement, to the
performance by the Company and the Selling Stockholders of their respective
obligations hereunder, and to the following additional conditions:
(a) The Registration Statement shall have become effective; if the
filing of the Prospectus, or any supplement thereto, is required pursuant
to Rule 424(b) of the Rules and Regulations, the Prospectus shall have been
filed in the manner and within the time period required by Rule 424(b) of
the Rules and Regulations; and prior to such Closing Date, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been instituted or
shall be pending or, to the knowledge of the Company, the Selling
Stockholders or the Underwriters, shall be contemplated by the Commission;
and any request of the Commission for inclusion of additional information
in the Registration Statement, or otherwise, shall have been complied with
to the Underwriters' satisfaction.
(b) The Underwriters shall be satisfied that since the respective
dates as of which information is given in the Registration Statement and
Prospectus, (i) there shall not have been any change in the capital stock
(other than pursuant to the exercise of director, officer or employee stock
options disclosed in the Registration Statement or Prospectus and
outstanding as of the date of the Prospectus) of the Company or its
subsidiaries or any material change in the indebtedness of the Company or
its subsidiaries, (ii) except as set forth in or contemplated by the
Registration Statement or the Prospectus, no material verbal or written
agreement or other transaction shall have been entered into by the Company
or its subsidiaries which is not in the ordinary course of business and
which reasonably could be expected to result in a material reduction in the
future earnings of the Company or its subsidiaries, taken as a whole, (iii)
no loss or damage (whether or not insured) to the property of the Company
or its subsidiaries shall have been sustained which materially and
adversely affects the condition (financial or otherwise), business, results
of operations or prospects
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<PAGE>
of the Company or its subsidiaries, taken as a whole, (iv) no legal or
governmental action, suit or proceeding affecting the Company or its
subsidiaries which could have a material adverse effect upon the Company
and its subsidiaries, taken as a whole, or which affects or may affect the
transactions contemplated by this Agreement shall have been instituted or
threatened and (v) there shall not have been any material change in the
condition (financial or otherwise), business, management, results of
operations or prospects of the Company and its subsidiaries taken as a
whole which makes it impractical or inadvisable in the judgment of the
Underwriters to proceed with the public offering or purchase of the Common
Shares as contemplated hereby.
(c) There shall have been furnished to the Underwriters on each
Closing Date, in form and substance satisfactory to the Underwriters, such
documents and certificates as the Underwriters shall reasonably request,
including the following:
(i) An opinion of Greenebaum Doll & McDonald, counsel for the
Company and the Selling Stockholders, addressed to the Underwriters
and dated the First Closing Date, or the Second Closing Date, as the
case may be, to the effect that:
(1) Each of the Company and its subsidiaries, respectively,
has been duly incorporated and is validly existing as a
corporation in good standing under the laws of its jurisdiction
of incorporation, is duly qualified to do business as a foreign
corporation and is in good standing in all other jurisdictions
where the ownership or leasing of properties or the conduct of
its business requires such qualification, except for
jurisdictions in which the failure to so qualify would not have a
material adverse effect on the Company or its subsidiaries, as
the case may be, and each has full corporate power and authority
to own its properties and conduct its business as described in
the Registration Statement;
(2) The authorized capital stock of the Company is as set
forth under the caption "Capitalization" in the Prospectus, and
the number of shares of Common Stock that will be issued and
outstanding after consummation of the transactions contemplated
hereby is as set forth under the caption "Prospectus Summary -
The Offering" (assuming the Underwriters do not elect to purchase
any of the Optional Common Shares); all necessary and proper
corporate proceedings have been taken in order to validly
authorize such authorized Common Stock and to validly issue such
issued and outstanding Common Stock; all outstanding shares of
Common Stock (including the Firm Common Shares and Optional
Common Shares, if any) have been duly and validly authorized and
issued, are fully paid and nonassessable, were not issued in
violation of any preemptive rights or other rights to subscribe
for or purchase any securities and conform to the description
thereof contained in the Prospectus; without limiting the
foregoing, there are no preemptive or other rights to subscribe
for or purchase any of the Common Shares to be sold by the
Company hereunder; neither the Restated Certificate of
Incorporation nor Bylaws of the Company, nor does any contract,
contain any restriction upon the voting or transfer of any of the
shares of capital stock of the Company (including the Firm Common
Shares and the Option Common Shares), except such restrictions as
may be imposed by federal and state securities laws or as may be
expressly described in the Prospectus;
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<PAGE>
(3) All of the issued and outstanding shares of capital
stock of the Company's subsidiaries have been duly and validly
authorized and issued, are fully paid and nonassessable, and good
and valid title thereto is held by the Company free and clear of
all liens, claims, equities or other encumbrances of any kind or
character;
(4) The certificate(s) evidencing the Common Shares to be
delivered hereunder are in due and proper form under Delaware
law, and when duly countersigned by the Company's transfer agent
and registrar, and delivered to the Underwriters or to the order
of the Underwriters against payment of the agreed consideration
therefor in accordance with the provisions of this Agreement,
good and valid title to the Common Shares (including the Firm
Common Shares to be sold by the Company and the Optional Common
Shares to be sold by the Company to the extent that the over-
allotment option is exercised) will pass to the Underwriters free
and clear of any liens, claims, equities or other encumbrances of
any kind or character, and the Common Shares represented by such
certificate(s) will be duly authorized and validly issued, fully
paid and nonassessable, will not have been issued in violation of
or subject to any preemptive rights or other rights to subscribe
for or purchase securities, and will conform to the description
thereof contained in the Prospectus;
(5) Except as disclosed in the Prospectus, there are no
outstanding options, warrants or other rights calling for the
issuance of, and no commitments or obligations to issue, any
shares of capital stock of the Company or any security
convertible into or exchangeable for capital stock of the
Company;
(6) (a) The Registration Statement has become effective
under the Act, and, to such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement or
preventing the use of the Prospectus has been issued and no
proceedings for that purpose have been instituted or are pending
or overtly threatened by the Commission; any required filing of
the Prospectus and any supplement thereto pursuant to Rule 424(b)
of the Rules and Regulations has been made in the manner and
within the time period required by such Rule 424(b);
(b) The Registration Statement, the Prospectus and
each amendment or supplement thereto (except for the financial
statements and schedules and other statistical financial data and
schedules included therein, as to which such counsel need express
no opinion) comply as to form in all material respects with the
requirements of the Act and the Rules and Regulations; and
(c) To such counsel's knowledge, there are no
franchises, leases, contracts, agreements or documents of a
character required to be disclosed in the Registration Statement
or Prospectus or to be filed as exhibits to the Registration
Statement which are not disclosed or filed, as required;
(7) The Company has full right, corporate power and
authority to enter into this Agreement and to sell and deliver
the Common Shares to be sold by it to the Underwriters; this
Agreement has been duly and validly authorized by all necessary
corporate action by the Company, has been duly and validly
executed and
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<PAGE>
delivered by and on behalf of the Company, and is a valid and
binding agreement of the Company enforceable against the Company
in accordance with its terms, except to the extent that (i) the
validity and binding effect and enforcement of this Agreement may
be limited by any applicable bankruptcy, reorganization,
moratorium, or similar laws of general application, (ii) the
availability of equitable remedies may be limited by principles
of equity, whether considered in a proceeding at law or in
equity, and (iii) the terms hereof may be limited by applicable
securities laws and the policies embodied therein; and no
approval, authorization, order, consent, registration, filing,
qualification, license or permit of or with any court,
regulatory, administrative or other governmental body is required
for the execution and delivery of this Agreement by the Company
or the consummation of the transactions contemplated by this
Agreement, except such as have been obtained and are in full
force and effect under the Act and such as may be required under
applicable Blue Sky laws and applicable Canadian securities laws
in connection with the purchase and distribution of the Common
Shares by the Underwriters and the obtaining of a letter of no
objection from the NASD with respect to such offering;
(8) The execution and performance of this Agreement, the
sale of the Common Shares and the consummation of the
transactions herein contemplated will not violate any of the
provisions of the Certificate of Incorporation or Bylaws of the
Company or the Certificate of Incorporation or Bylaws of any of
its subsidiaries or, to such counsel's knowledge, conflict with,
result in the breach of, or constitute, either by itself or upon
notice or the passage of time or both, a default under any
agreement, mortgage, deed of trust, lease, franchise, license,
indenture, permit or other instrument to which the Company or its
subsidiaries is a party or by which the Company or its
subsidiaries or any of its or their property may be bound or
affected, or violate any statute, judgment, decree, order, rule
or regulation of any court or government body having jurisdiction
over the Company or its subsidiaries or any of its or their
property (other than state securities or Blue Sky laws and
regulations as to which counsel need not express any opinion);
(9) The Company is not in violation of its Certificate of
Incorporation or Bylaws and the Company's subsidiaries are not in
violation of their of Incorporation or Bylaws, and, to such
counsel's knowledge neither the Company nor its subsidiaries is
in breach of or default with respect to any provision of any
agreement, mortgage, deed of trust, lease, loan agreement,
security agreement, license, indenture, permit or other
instrument to which the Company or its subsidiaries is a party or
by which the Company or any of its properties or the Company's
subsidiaries or any of their properties may be bound or
affected, except where such default would not materially
adversely affect the Company or its subsidiaries, taken as a
whole; and, to such counsel's knowledge, the Company and its
subsidiaries are in compliance with all laws, rules, regulations,
judgments, decrees, orders and statutes of any court or
jurisdiction to which they are subject, except where
noncompliance would not materially adversely affect the Company
or its subsidiaries, taken as a whole;
(10) To such counsel's knowledge, there are no legal
actions, suits or governmental proceedings pending or threatened
before any court or governmental agency, authority or body which,
if determined adversely to the Company or its
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<PAGE>
subsidiaries, would individually or in the aggregate have a
material adverse effect on the financial position, stockholders'
equity or results of operations of the Company or its
subsidiaries, taken as a whole;
(11) To such counsel's knowledge, no holders of securities
of the Company have rights to the registration of shares of
Common Stock or other securities which would be required to be
included in the Registration Statement filed by the Company or
included in the offering contemplated thereby;
(12) No transfer taxes are required to be paid under the
laws of the Commonwealth of Kentucky or the States of Alabama or
Virginia in connection with the sale and delivery of the Common
Shares to the Underwriters hereunder;
(13) To such counsel's knowledge, this Agreement and the
Stockholders' Agreement have been duly authorized, executed and
delivered by each of the Selling Stockholders; and to the best of
such counsel's knowledge, the performance of this Agreement and
the Stockholders' Agreement and the consummation of the
transactions herein contemplated by the respective Selling
Stockholders will not result in a breach of, or constitute a
default under, any indenture, mortgage, deeds of trust, trust
(constructive or other), loan agreement, lease, franchise,
license or other agreement or instrument to which the respective
Selling Stockholder is a party or by which the respective Selling
Stockholder or any of his properties may be bound, or violate any
statute, judgment, decree, order, rule or regulation known to
such counsel of any court or governmental body having
jurisdiction over the Selling Stockholders, respectively, or any
of the properties of the respective Selling Stockholders; and to
such counsel's knowledge, no approval, authorization, order or
consent of any court, regulatory body, administrative agency or
other governmental body is required for the execution and
delivery of this Agreement or the Stockholders' Agreement or the
consummation by the respective Selling Stockholders of the
transactions contemplated by this Agreement and the Stockholders'
Agreement, except such as have been obtained and are in full
force and effect under the Act and such as may be required under
the rules of NASD, applicable Blue Sky laws and Canadian
securities laws;
(14) To the best knowledge of such counsel, each of the
Selling Stockholders has the full right, power and authority to
enter into this Agreement and the Stockholders' Agreement and to
sell, transfer and deliver the Common Shares to be sold by each
Selling Stockholder on the Closing Date, and good and valid title
to such Common Shares so sold, free and clear of all liens,
claims, equities or other encumbrances of any kind or character,
will be transferred to the Underwriters who have purchased such
Common Shares hereunder; and
(15) To the best knowledge of such counsel, this Agreement
and the Stockholders' Agreement are valid and binding agreements
of the respective Selling Stockholders in accordance with their
respective terms except to the extent that (i) the validity and
binding effect and enforcement of this Agreement and the
Stockholders' Agreement may be limited by any applicable
bankruptcy, reorganization, moratorium, or similar laws of
general application, (ii) the availability of equitable remedies
may be limited by principles of equity, whether
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considered in a proceeding at law or in equity, and (iii) the
indemnification provisions contained in this Agreement may be
limited by applicable securities laws and the policies embodied
therein.
(16) The declaration and payment by the Company of the
distribution of S corporation undistributed earnings as described
under the caption "Prior S Corporation Status of Predecessor
Companies" and "Use of Proceeds" in the Prospectus is in
compliance with the applicable provisions of the Delaware General
Corporation Law.
(17) The Company and each of the Roll-Up Entities has the
necessary power and authority to enter into each of the
transaction documents, and each of the Transaction Documents have
been duly authorized, executed and delivered by the Company and,
as applicable, the Roll-Up Entities, and each of the Transaction
Documents is a legally valid and binding agreement of the Company
and, as applicable, the Roll-Up Entities, enforceable against the
Company, and as applicable, the Roll-Up Entities, in accordance
with its terms, except to the extent (i) the validity and binding
effect and enforcement of the Transaction Documents,
respectively, may be limited by any applicable bankruptcy,
reorganization, moratorium, or similar laws of general
application and (ii) the availability of equitable remedies may
be limited by principles of equity, whether considered in a
proceeding at law or in equity.
(18) To the best knowledge of such counsel, neither
issuance, sale or delivery of the Common Shares, nor the
execution, delivery or performance of this Agreement or the
Transaction Documents, or compliance by the Company or any of the
Roll-Up Entities of the transactions contemplated hereby or
thereby conflicts or will conflict or constitutes or will
constitute a breach of, or a default under, the Certificate or
Articles of Incorporation or Bylaws or other organizational
documents of the Company or any of the Roll-Up entities or any
agreement, indenture, lease, or other instrument to which the
Company or any of the Roll-Up Entities is a party, or will result
in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company or any of its
subsidiaries under any such agreement, indenture, lease or other
instrument, nor will any such action result in any violation of
any existing law, regulation, ruling, (assuming compliance with
all applicable state securities and Blue Sky laws and Canadian
securities laws), judgment, injunction, order or decree known to
such counsel, and applicable to the Company, any of its
subsidiaries or any of the Roll-Up Entities or any of their
respective properties, in each case except for such conflicts,
breaches, defaults, violation, or encumbrances that would not
singly or in the aggregate have a material adverse effect on the
ability of the Company or any of the Roll-Up Entities to fulfill
its obligations under this Agreement or under the Transaction
Documents.
In rendering such opinion, such counsel may rely, as to matters
of fact, on certificates of the Selling Stockholders and of officers
of the Company and of governmental officials, in which case their
opinion shall state that they are so doing and that the Underwriters
are justified in relying on such certificates and copies of such
certificates are to be attached to the opinion.
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<PAGE>
In addition, such counsel shall state that they have participated
in conferences with officers, employees and other representatives of
the Company, counsel for the Underwriters, representatives of the
independent public accountants for the Company and representatives of
the Underwriters at which the contents of the Registration Statement
and Prospectus and related matters were discussed and, although such
counsel is not passing upon and does not assume any responsibility
for, the accuracy, completeness or fairness of the statements
contained in the Registration Statement and Prospectus and has not
made any independent check or verification thereof, on the basis of
the foregoing (relying as to materiality to a large extent upon the
statements of officers, employees and other representatives of the
Company), no facts have come to such counsel's attention that lead
them to believe that either the Registration Statement at the time
such Registration Statement became effective contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein in light of the circumstances in which they were made, not
misleading, or the Prospectus as of its date contained an untrue
statement of a material fact or omitted to state a material fact
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that
such counsel need express no opinion with respect to the financial
statements, schedules and other statistical financial data included in
the Registration Statement or Prospectus.
(ii) Such opinion or opinions of Locke Purnell Rain Harrell (A
Professional Corporation), counsel for the Underwriters, dated the
First Closing Date or the Second Closing Date, as the case may be,
with respect to the incorporation of the Company and its subsidiaries,
the sufficiency of all corporate proceedings and other legal matters
relating to this Agreement, the validity of the Common Shares, the
Registration Statement and the Prospectus and other related matters as
the Underwriters may reasonably require, and the Company and the
Selling Stockholders shall have furnished to such counsel such
documents and shall have exhibited to them such papers and records as
they reasonably may request for the purpose of enabling them to pass
upon such matters. In connection with such opinions, such counsel may
rely on representations or certificates of the Selling Stockholders
and of officers of the Company and governmental officials.
(iii) A certificate of the Company executed by the President and
Chief Executive Officer and the Chief Financial or Accounting Officer
of the Company, dated the First Closing Date or the Second Closing
Date, as the case may be, to the effect that:
(1) The representations and warranties of the Company set
forth in Section 2 of this Agreement are true and correct as of
the date of this Agreement and as of the First Closing Date or
the Second Closing Date, as the case may be, and the Company has
complied with all the agreements and satisfied all the conditions
on its part to be performed or satisfied on or prior to such
Dates, respectively;
(2) The Commission has not issued any order preventing or
suspending the use of the Prospectus or any Preliminary
Prospectus filed as a part of the Registration Statement or any
amendment thereto; no stop order suspending the effectiveness of
the Registration Statement has been issued; and to the best of
the knowledge of the respective signers, no proceedings for that
purpose have been instituted or are pending or overtly threatened
under the Act;
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(3) Each of the respective signers of the certificate has
carefully examined the Registration Statement and the Prospectus;
in his opinion and to the best of his knowledge, the Registration
Statement and the Prospectus and any amendments or supplements
thereto contain all statements required to be stated therein
regarding the Company and its subsidiaries, and neither the
Registration Statement nor the Prospectus nor any amendment or
supplement thereto includes any untrue statement of a material
fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not
misleading;
(4) Since the initial date on which the Registration
Statement was filed, no agreement, written or oral, transaction
or event has occurred which should have been set forth in an
amendment to the Registration Statement or in a supplement to or
amendment of any Prospectus which has not been disclosed in such
a supplement or amendment;
(5) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, and
except as disclosed in or contemplated by the Prospectus, there
has not been any material adverse change or a development
involving a material adverse change in the condition (financial
or otherwise), business, properties, results of operations,
management or prospects of the Company and its subsidiaries,
taken as a whole; and no legal or governmental action, suit or
proceeding is pending or threatened against the Company or its
subsidiaries which is material to the Company or its
subsidiaries, whether or not arising from transactions in the
ordinary course of business, or which may adversely affect the
transactions contemplated by this Agreement; neither the Company
nor its subsidiaries has entered into any verbal or written
agreement or other transaction which is not in the ordinary
course of business or which reasonably could be expected to
result in a material reduction in the future earnings of the
Company or its subsidiaries, or incurred any material liability
or obligation, direct, contingent or indirect, made any change in
its capital stock, made any material change in its short-term
debt or long-term debt or repurchased or otherwise acquired any
of the Company's capital stock; and the Company has not declared
or paid any dividend, or declared or made any other distribution,
with respect to its outstanding capital stock payable to
stockholders of record, except as disclosed in the Prospectus, on
a date prior to the First Closing Date or Second Closing Date, as
the case may be; and
(6) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus and except
as disclosed in or contemplated by the Prospectus, neither the
Company nor its subsidiaries has sustained a material loss or
damage by strike, fire, flood, windstorm, accident or other
calamity (whether or not insured).
(iv) On the First Closing Date, a certificate, dated such
Closing Date and addressed to the Underwriters, signed by or on behalf
of the Selling Stockholders, and on the Second Closing Date a
certificate, dated the Second Closing Date and addressed to the
Underwriters, signed by the Selling Stockholders, to the effect that
the representatives and warranties of such Selling Stockholders are
true and correct as if made at and as of such Closing Date, and such
Selling Stockholder have complied with all the agreements and
satisfied all the
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conditions to be performed or satisfied prior to the First Closing
Date or the Second Closing Date, as the case may be.
(v) On the date before this Agreement is executed and also on
the First Closing Date and the Second Closing Date, a letter addressed
to the Underwriters from Ernst & Young, independent accountants, the
first one to be dated the day before the date of this Agreement, the
second one to be dated the First Closing Date and the third one (in
the event of a Second Closing) to be dated the Second Closing Date, in
form and substance satisfactory to you.
(vi) On or before the First Closing Date, letters from each
director and officer of the Company and from each person or entity
named under the caption "Principal and Selling Stockholders" in the
Prospectus, in form and substance satisfactory to you, confirming that
for a period of 180 days from the date of the Prospectus such person
or entity will not directly or indirectly sell or offer to sell or
otherwise dispose of any shares of Common Stock or any right to
acquire such shares without the prior written consent of either
Montgomery Securities or the Underwriters acting jointly, which
consent may be withheld at the sole discretion of Montgomery
Securities, or the Underwriters acting jointly, as the case may be.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are reasonably
satisfactory to the Underwriters and to Locke Purnell Rain Harrell (A
Professional Corporation), counsel for the Underwriters. The Company and
the Selling Stockholders shall furnish the Underwriters with such manually
signed or conformed copies of such opinions, certificates, letters and
documents as the Underwriters request. Any certificate signed by any
officer of the Company and delivered to the Underwriters shall be deemed to
be a representation and warranty by the Company to the Underwriters as to
the statements made therein.
If any condition to the Underwriters' obligations hereunder to be
satisfied prior to or at the First Closing Date is not so satisfied, this
Agreement at the election of the Underwriters will terminate upon
notification by the Underwriters to the Company without liability on the
part of any Underwriter or the Company, except for the expenses to be paid
or reimbursed by the Company pursuant to Sections 7 and 9 hereof and except
to the extent provided in Section 12 hereof.
SECTION 9. Reimbursement of Underwriters' Expenses. If this Agreement
shall be terminated by the Underwriters pursuant to Section 8, or if the sale to
the Underwriters of the Common Shares at the First Closing Date is not
consummated because of any refusal, inability or failure on the part of the
Company to perform any agreement herein or to comply with any provision hereof,
the Company agrees to reimburse the Underwriters upon demand for all out-of-
pocket expenses that shall have been reasonably incurred by the Underwriters in
connection with the proposed purchase and the sale of the Common Shares,
including but not limited to fees and disbursements of Underwriters' counsel,
printing expenses, travel expenses, postage, telecopy charges and telephone
charges relating directly to the offering contemplated by the Prospectus. Any
such termination shall be without liability of any party to any other party,
except that the provisions of this Section, Section 7 and Section 11 shall at
all times be effective and shall apply.
SECTION 10. Effectiveness of Registration Statement. The Underwriters and
the Company will use their respective best efforts to cause the Registration
Statement to become effective, to prevent the issuance of any stop order
suspending the effectiveness of the Registration Statement and, if such stop
order be issued, to obtain as soon as possible the lifting thereof.
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SECTION 11. Indemnification.
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(a) The Company and the Selling Stockholders jointly and severally,
agree to indemnify and hold harmless each Underwriter and each person, if
any, who controls any Underwriter within the meaning of the Act against any
losses, claims, damages, liabilities or expenses, joint or several, to
which such Underwriter or such controlling person may become subject, under
the Act, the Exchange Act, or other federal or state statutory law or
regulation, or at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of the
Company and the Selling Stockholders), insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof as
contemplated below) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or
alleged omission to state in any of them a material fact required to be
stated therein or necessary to make the statements in any of them not
misleading, or arise out of or are based in whole or in part on any
inaccuracy in the representations and warranties of the Company or the
Selling Stockholders contained herein or any failure of the Company or the
Selling Stockholders to perform their respective obligations hereunder or
under law; and will reimburse each Underwriter and each such controlling
person for any legal and other expenses as such expenses are reasonably
incurred by such Underwriter or such controlling person in connection with
investigating, defending, settling, compromising or paying any such loss,
claim, damage, liability, expense or action; provided, that the Company and
the Selling Stockholders will not be liable in any such case to the extent
that any such loss, claim, damage, liability or expense arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in the Registration Statement, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto in
reliance upon and in conformity with the information furnished to the
Company by the Underwriters pursuant to Section 4 hereof; and provided
further, that with respect to any untrue statement or omission or alleged
untrue statement or omission made in any Preliminary Prospectus, the
indemnity agreement contained in this paragraph shall not inure to the
benefit of any Underwriter from whom the person asserting any such losses,
claims, damages, liabilities or expenses purchased the Common Shares
concerned (or to the benefit of any person controlling such Underwriter) to
the extent that any such loss, claim, damage, liability or expense of such
Underwriter or controlling person results from the fact that a copy of the
Prospectus was not sent or given to such person at or prior to the written
confirmation of sale of such Common Shares to such person as required by
the Act, and if the untrue statement or omission has been corrected in the
Prospectus, unless such failure to deliver the Prospectus was a result of
noncompliance by the Company with its obligations under Section 6(e)
hereof; and, provided further, that the aforesaid joint and several
liability of each Selling Stockholder under this Section 11(a) shall not
exceed the sum of the net proceeds received by such Selling Stockholder
from the Common Shares sold by such Selling Stockholder pursuant hereto.
The Company and the Selling Stockholders may agree, as among themselves and
without limiting the rights of the Underwriters under this Agreement, as to
their respective amounts of such liability for which they each shall be
responsible, and this Agreement shall not modify or supersede any
agreements now in effect between the Company and the Selling Stockholders
with respect thereto.
(b) In addition to their other obligations under this Section 11 the
Company and the Selling Stockholders jointly and severally agree that, as
an interim measure during the pendency of any claim, action, investigation,
inquiry or other proceeding arising out of or based upon any statement or
omission, or any alleged statement or omission, or any inaccuracy in the
representations and warranties of the Company or the Selling Stockholders
herein or failure to perform the respective obligations of the Company and
the Selling Stockholders hereunder, all as described in Section 11(a),
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the Company and the Selling Stockholders will reimburse each Underwriter on
a quarterly basis for all reasonable legal or other expenses incurred in
connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of
a judicial determination as to the propriety and enforceability of the
Company's or the Selling Stockholders' obligations to reimburse each
Underwriter for such expenses and the possibility that such payments might
later be held to have been improper by a court of competent jurisdiction.
To the extent that any such interim reimbursement payment is so held to
have been improper, each Underwriter shall promptly return such payment to
the Company and the Selling Stockholders, pro rata, together with interest,
compounded daily, determined on the basis of the prime rate (or other
commercial lending rate for borrowers of the highest credit standing)
announced from time to time by Bank of America NT&SA, San Francisco,
California (the "Prime Rate"). Any such interim reimbursement payments
which are not made to an Underwriter within 30 days of a request for
reimbursement shall bear interest at the Prime Rate from the date of such
request. This indemnity agreement will be in addition to any liability
which the Company and the Selling Stockholders may otherwise have.
(c) Each Underwriter will severally indemnify and hold harmless the
Company, each of its directors, each of its officers who signed the
Registration Statement, Selling Stockholders and each person, if any, who
controls the Company within the meaning of the Act, against any losses,
claims, damages, liabilities or expenses to which the Company, or any such
director, officer, or controlling person may become subject under the Act,
the Exchange Act, or other federal or state statutory law or regulation, or
at common law or otherwise (including in settlement of any litigation, if
such settlement is effected with the written consent of such Underwriter),
insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof as contemplated below) arise out of or are based
upon any untrue or alleged untrue statement of any material fact contained
in the Registration Statement, any Preliminary Prospectus, the Prospectus,
or any amendment or supplement thereto, or arise out of or are based upon
the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged
omission was made in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, in
reliance upon and in conformity with the information furnished to the
Company pursuant to Section 4 hereof (which information is the sole
information furnished to the Company by the Underwriters for inclusion in
the Registration Statement, any Preliminary Prospectus, any Prospectus, or
any amendment or supplement thereto); and will reimburse the Company, or
any such director, officer, Selling Stockholder, or controlling person for
any legal and other expense reasonably incurred by the Company, or any such
director, officer, Selling Stockholder or controlling person in connection
with investigating, defending, settling, compromising or paying any such
loss, claim, damage, liability, expense or action. In addition to its other
obligations under this Section 11(c), each Underwriter severally agrees
that, as an interim measure during the pendency of any claim, action,
investigation, inquiry or other proceeding arising out of or based upon any
statement or omission, or any alleged statement or omission, described in
this Section 11(c) which relates to information furnished to the Company
pursuant to Section 4 hereof, it will reimburse the Company (and, to the
extent applicable, each officer, director, Selling Stockholder or
controlling person) on a quarterly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any such
claim, action, investigation, inquiry or other proceeding, notwithstanding
the absence of a judicial determination as to the propriety and
enforceability of the Underwriters' obligation to reimburse the Company
(and, to the extent applicable, each officer, director, Selling Stockholder
or controlling person) for such expenses and the possibility that such
payments might later be held to have been improper by a court of competent
jurisdiction. To the extent that any such interim reimbursement
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payment is so held to have been improper, the Company (and, to the extent
applicable, each officer, director, Selling Stockholder or controlling
person) shall promptly return such payment to the Underwriters, together
with interest, compounded daily, determined on the basis of the Prime Rate.
Any such interim reimbursement payments which are not made within 30 days
of a request for reimbursement, shall bear interest at the Prime Rate from
the date of such request. This indemnity agreement will be in addition to
any liability which such Underwriter may otherwise have.
(d) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against an indemnifying party
under this Section, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party
will not relieve it from any liability which it may have to any indemnified
party for contribution or otherwise hereunder to the extent it is not
materially prejudiced as a proximate result of such failure. In case any
such action is brought against any indemnified party and such indemnified
party seeks or intends to seek indemnity from an indemnifying party, the
indemnifying party will be entitled to participate in, and, to the extent
that it may wish, jointly with all other indemnifying parties similarly
notified, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party; provided, however, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably
concluded that there may be a conflict between the positions of the
indemnifying party and the indemnified party in conducting the defense of
any such action or that there may be legal defenses available to it and/or
other indemnified parties which are different from or additional to those
available to the indemnifying party, the indemnified party or parties shall
have the right to select separate counsel to assume such legal defenses and
to otherwise participate in the defense of such action on behalf of such
indemnified party or parties. Upon receipt of notice from the indemnifying
party to such indemnified party of its election so to assume the defense of
such action and approval by the indemnified party of counsel, the
indemnifying party will not be liable to such indemnified party under this
Section for any legal expenses subsequently incurred by such indemnified
party in connection with the defense thereof unless (i) the indemnified
party shall have employed such counsel in connection with the assumption of
legal defenses in accordance with the proviso to the next preceding
sentence (it being understood, however, that the indemnifying party shall
not be liable for the expenses of more than one separate counsel, approved
by the Underwriters in the case of Section 11(a), representing the
indemnified parties who are parties to such action) or (ii) the
indemnifying party shall not have employed counsel reasonably satisfactory
to the indemnified party to represent the indemnified party within a
reasonable time after notice of commencement of the action, in each of
which cases the fees and expenses of counsel shall be at the expense of the
indemnifying party.
(e) If the indemnification provided for in this Section 11 is
required by its terms, but for any reason is held to be unavailable to or
otherwise insufficient to hold harmless any indemnified party under
paragraphs (a), (b), (c) or (d) in respect of any losses, claims, damages,
liabilities or expenses as referred to herein, then each applicable
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of any losses, claims, damages, liabilities
or expenses referred to herein (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company, the Selling
Stockholders and the Underwriters from the offering of the Common Shares or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, then such proportion as is appropriate to reflect not only
the relative benefits referred to in clause (i) above but also the relative
fault of the Company, the Selling Stockholders and the Underwriters in
connection with the statements or omissions or inaccuracies in their
representations and warranties herein which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
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equitable considerations. The respective relative benefits received by the
Company, the Selling Stockholders and the Underwriters shall be deemed to
be in the same proportion, in the case of the Company and the Selling
Stockholders as the total price paid to the Company and the Selling
Stockholders, respectively for the Common Shares sold by them to the
Underwriters (before deducting expenses), and in the case of Underwriters
as the underwriting commissions received by them, bears to the total of
such amounts paid to the Company and the Selling Stockholders and the
amounts received by the Underwriters as underwriting commissions. The
relative fault of the Company, the Selling Stockholders and the
Underwriters shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to stating material fact or the inaccurate or
the alleged inaccurate representations and/or warranty relates to the
information supplied by the Company, the Selling Stockholders or the
Underwriters and the parties relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed
to include, subject to the limitations set forth in subsection (d) of this
Section 11, any legal or other fees or expenses reasonably incurred by such
party in connection with investigating or defending any action or claim.
The provisions set forth in subsection (d) of this Section 11 with respect
to notice of commencement of any action shall apply if a claim for
contribution is to be made under this subsection (e); provided, however,
that no additional notice shall be required with respect to any action for
which notice has been given under subsection (d) for the purposes of
indemnification. The Company, the Selling Stockholders, and the
Underwriters agree that it would not be just inequitable if contribution
pursuant to this Section 11 were determined solely by pro rata allocation
(even if the Underwriters were treated as one entity for such purpose) or
by any other method of allocation which does not take into account the
equitable considerations referred to in this subsection (e).
Notwithstanding the provisions of this Section 11, no Underwriter shall be
required to contribute any amount in excess of the amount of the total
underwriting commissions received by such Underwriter in connection with
the Common Shares underwritten by it and distributed to the public. No
person guilty of fraudulent misrepresentation (within a meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. The Underwriters'
obligations to contribute pursuant to this Section 11 are several in
proportion to their respective underwriting commitments and not joint.
(f) It is agreed that any controversy arising out of the operation of
the interim reimbursement arrangements set forth in this Section 11,
including the amounts of any requested reimbursement payments and the
method of determining such amounts, shall be settled by arbitration
conducted under the provisions of the Constitution and Rules of the Board
of Governors of the New York Stock Exchange, Inc. or pursuant to the Code
of Arbitration Procedure of the NASD. Any such arbitration must be
commenced by service of a written demand for arbitration or written notice
of intention to arbitrate, therein electing the arbitration tribunal. In
the event the party demanding arbitration does not make such designation of
an arbitration tribunal in such demand or notice, then the party responding
to said demand or notice is authorized to do so. Such an arbitration would
be limited to the operation of the interim reimbursement provisions
contained in this Section 11 and would not resolve the ultimate propriety
or enforceability of the obligation to reimburse expenses which is created
by the provisions of this Section 11.
SECTION 12. Default of Underwriters. It shall be a condition to this
Agreement and the obligation of the Company and the Selling Stockholders to sell
and deliver the Common Shares hereunder, and of each Underwriter to purchase the
Common Shares in the manner described herein, that, except as hereinafter in
this paragraph provided, each of the Underwriters shall purchase and pay for all
the Common Shares agreed
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to be purchased by such Underwriter hereunder upon tender to the Underwriters of
all such shares in accordance with the terms hereof. If either Underwriter
defaults in its obligation to purchase Common Shares hereunder on either the
First or Second Closing Date and the aggregate number of Common Shares that such
defaulting Underwriter agreed but failed to purchase on such Closing Date does
not exceed 10% of the total number of Common Shares which the Underwriters are
obligated severally, in proportion to their respective commitments hereunder, to
purchase on such Closing Date, the non-defaulting Underwriters shall be
obligated to purchase the Common Shares that such defaulting Underwriter agreed
but failed to purchase on such Closing Date. If any Underwriter so defaults and
the aggregate number of Common Shares with respect to which such default occurs
is more than the above percentage and arrangements satisfactory to the
Underwriters and the sellers of such Common Shares for the purchase of such
Common Shares by other persons are not made within 48 hours after such default,
this Agreement will terminate without liability on the part of the non-
defaulting Underwriters or the Company (except for the expenses to be paid by
the Company pursuant to Section 7 hereof and except to the extent provided in
Section 11 hereof).
In the event that Common Shares to which a default relates are to be
purchased by the non-defaulting Underwriters or by another party or parties, the
Underwriters or the sellers of such Common Shares shall have the right to
postpone the First or Second Closing Date, as the case may be, for not more than
five business days in order that the necessary changes in the Registration
Statement, Prospectus and any other documents, as well as any other
arrangements, may be effected. As used in this Agreement, the term "Underwriter"
includes any person substituted for an Underwriter under this Section. Nothing
herein will relieve a defaulting Underwriter from liability for its default.
SECTION 13. Effective Date. This Agreement shall become effective at such
time as the Registration Statement has become effective and you shall have
released the Firm Common Shares for sale to the public; provided, however, that
the provisions of Sections 7, 9, 11, 14 and 15 hereof shall at all times be
effective. For the purposes of this Section 13, the Firm Common Shares shall be
deemed to have been so released upon the release by the Underwriters for
publication, at any time after the Registration Statement has become effective,
of any newspaper advertisement relating to any of the Common Shares, or upon the
release by the Underwriters of any of the Common Shares for sale to the public,
whichever may occur first.
SECTION 14. Termination. Without limiting the right to terminate this
Agreement pursuant to any other provision hereof:
(a) This Agreement may be terminated by the Company and the Selling
Stockholders by notice to the Underwriters or by the Underwriters by notice
to the Company and the Selling Stockholders at any time prior to the time
this Agreement shall become effective as to all its provisions, and any
such termination shall be without liability on the part of the Company or
the Selling Stockholders to the Underwriters (except for the expenses to be
paid or reimbursed by the Company pursuant to Sections 7 and 9 hereof and
except to the extent provided in Sections 11 and 15 hereof) or of any
Underwriter to the Company (except to the extent provided in Sections 11
and 15 hereof).
(b) This Agreement may also be terminated by the Underwriters prior
to the First Closing Date or prior to the Second Closing Date, as the case
may be, by notice to the Company and the Selling Stockholders (i) if
additional material governmental restrictions not in force and effect on
the date hereof shall have been imposed upon trading in securities
generally or minimum or maximum prices shall have been generally
established on the New York Stock Exchange or on the American Stock
Exchange or in the NASDAQ National Market System or in the over the counter
market by the NASD, or trading in securities generally shall have been
suspended on either such Exchange or
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in the NASDAQ National Market System or in the over the counter market by
the NASD or the Commission, or a general banking moratorium shall have been
established by federal, New York, Kentucky or California authorities, (ii)
if an outbreak of hostilities or other national or international calamity
or any material change in political, financial or economic conditions shall
have occurred or shall have accelerated to such an extent that the effect
on the financial markets shall, in the judgment of the Underwriters, affect
adversely the marketability of the Common Shares, (iii) if any adverse
event shall have occurred or shall exist which makes untrue or incorrect in
any material respect any statement or information contained in the
Registration Statement or Prospectus or which is not reflected in the
Registration Statement or Prospectus but should be reflected therein in
order to make the statements or information contained therein not
misleading in any material respect, or (iv) if there shall be any action,
suit or proceeding pending or threatened, or there shall have been any
development involving particularly the business or properties or securities
of the Company or its subsidiaries or the transactions contemplated by this
Agreement, which, in the judgment of the Underwriters, may materially and
adversely affect the business or earnings of the Company and its
subsidiaries taken as a whole or makes it impracticable to offer or sell
the Common Shares. Any termination pursuant to this subsection (b) shall be
without liability on the part of the Underwriters to the Company or the
Selling Stockholders or on the part of the Company or the Selling
Stockholders to the Underwriters (except for expenses to be paid or
reimbursed by the Company or the Selling Stockholders pursuant to Sections
7 or 11 hereof and except to the extent provided in Sections 11 and 15).
SECTION 15. Failure of the Selling Stockholders to Sell and Deliver. If
any Selling Stockholder fails to sell and deliver to the Underwriters the Common
Shares to be sold and delivered by such Selling Stockholder at the First Closing
Date or the Second Closing Date under the terms of this Agreement, then the
Underwriters may at their option, by written notice to the Company and the
Selling Stockholders, either (i) terminate this Agreement without any liability
on the part of any Underwriter or, except as provided in Sections 7, 9, 11 and
16 hereof, the Company or the Selling Stockholders, or (ii) purchase the shares
which the Company and the Selling Stockholders who have sold and delivered the
Common Shares to be sold and delivered by them to the Underwriters in accordance
with the terms hereof. In the event of a failure by a Selling Stockholder to
sell and deliver as referred to in this Section, either the Underwriters or the
Company and the Selling Stockholders who have sold and delivered their shares to
the Underwriters shall have the right to postpone the Closing Date for a period
not exceeding seven (7) business days in order that the necessary changes in the
Registration Statement, Prospectus and any other documents, as well as any other
arrangements, may be effective.
SECTION 16. Representations and Indemnities to Survive Delivery. The
respective indemnities, agreements, representations, warranties and other
statements of the Company and its officers, the Selling Stockholders and of the
Underwriters set forth in or made pursuant to this Agreement will remain in full
force and effect, regardless of any investigation made by or on behalf of the
Underwriters or the Company, or the Selling Stockholders, or any of their
partners, officers or directors or any controlling person, as the case may be,
and will survive delivery of and payment for the Common Shares sold hereunder
and any termination of this Agreement.
SECTION 17. Notices. All communications hereunder shall be in writing and,
if sent to the Underwriters, shall be mailed, delivered or telecopied or
telegraphed and confirmed to the Underwriters at Montgomery Securities, 600
Montgomery Street, San Francisco, California 94111, Attention: General Counsel,
and Alex. Brown & Sons Incorporated, 135 East Baltimore Street, Baltimore,
Maryland 21202, Attention: Mark Goodman, with a copy to Locke Purnell Rain
Harrell (A Professional Corporation), 2200 Ross Avenue, Suite 2200, Dallas,
Texas 75201, Attention: Dan Busbee; and if sent to the Company or the Selling
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<PAGE>
Stockholders shall be mailed, delivered or telecopied or telegraphed and
confirmed to the Company at 9109 Parkway East, Birmingham, Alabama 35206,
Attention: Douglas S. Stephens, President, with a copy to Greenebaum Doll &
McDonald, 3300 First National Tower, Louisville, Kentucky, 40202, Attention:
Ivan Diamond. The Company, the Selling Stockholders or the Underwriters may
change the address for receipt of communications hereunder by giving notice to
the others.
SECTION 18. Successors. This Agreement will inure to the benefit of and
be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 12 hereof, and to the benefit of the officers and directors
and controlling persons referred to in Section 11, and in each case their
respective successors, personal Underwriters and assigns, and no other person
will have any right or obligation hereunder. No such assignment shall relieve
any party of its obligations hereunder. The term "successors" shall not
include any purchaser of the Common Shares as such from any of the Underwriters
merely by reason of such purchase.
SECTION 19. Partial Unenforceability. The invalidity or unenforceability
of any Section, subsection, paragraph or provision of this Agreement shall not
affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, subsection, paragraph or provision of this
Agreement is for any reason determined to be invalid or unenforceable, there
shall be deemed to be made such minor changes (and only such minor changes) as
are necessary to make it valid and enforceable.
SECTION 20. Applicable Law. This Agreement shall be governed by and
construed in accordance with the internal laws (and not the laws pertaining to
conflicts of laws) of the State of Kentucky.
SECTION 21. General. This Agreement constitutes the entire agreement of
the parties to this Agreement and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations with respect to
the subject matter hereof. This Agreement may be executed in several
counterparts, each one of which shall be an original, and all of which shall
constitute one and the same document.
In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This Agreement may be amended
or modified, and the observance of any term of this Agreement may be waived,
only by a writing signed by the Company, the Selling Stockholders and the
Underwriters.
If the foregoing is in accordance with the Underwriters' understanding of
our agreement, kindly sign and return to us the enclosed copies hereof,
whereupon it will become a binding agreement among the Company, the Selling
Stockholders and the Underwriters, all in accordance with its terms.
Very truly yours,
PJ AMERICA, INC.
By:
_____________________________________
Douglas S. Stephens, President
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<PAGE>
SELLING STOCKHOLDERS
*
-----------------------------------------
*
-----------------------------------------
*
-----------------------------------------
*
-----------------------------------------
*
-----------------------------------------
*
-----------------------------------------
*By: _________________________________
______________ (Attorney-In-Fact)
The foregoing Underwriting Agreement
is hereby confirmed and accepted
as of the date first above written
by the undersigned Underwriters.
MONTGOMERY SECURITIES
ALEX. BROWN & SONS INCORPORATED
By: MONTGOMERY SECURITIES
By: ______________________________
Its: Managing Director
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<PAGE>
SCHEDULE A
Number of Firm Common
Name of Underwriter Shares to be Purchased
- -------------------- ----------------------
Montgomery Securities
Alex. Brown & Sons Incorporated
TOTAL
-------------
=============
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<PAGE>
SCHEDULE B
Number of Firm Common Shares
Name of Selling Stockholder to be Sold by Selling Stockholder
- --------------------------- ---------------------------------
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<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
PJ AMERICA, INC.
I, the undersigned, for the purposes of incorporating and organizing a
corporation under the General Corporation Law of the State of Delaware, do
execute this Certificate of Incorporation and hereby certify as follows:
ARTICLE I
NAME
The name of the Corporation is PJ America, Inc. (hereinafter referred to as
the "Corporation").
ARTICLE II
REGISTERED AGENT
The address of the Corporation's registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of
New Castle, Delaware 19801. The name of the Corporation's registered agent at
such address is The Corporation Trust Company.
ARTICLE III
PURPOSE
The purpose of the Corporation shall be to engage in any lawful act or
activity for which corporations may be organized and incorporated under the
General Corporation Law of the State of Delaware.
ARTICLE IV
CAPITAL STOCK
The Corporation shall be authorized to issue 21,000,000 shares of capital
stock, of which 20,000,000 shares shall be designated Common Stock, having a par
value of $0.01 per share, and 1,000,000 shares shall be designated Preferred
Stock, having a par value of $1.00 per share. The voting powers, designations
and relative rights and preferences of the two classes of capital stock are set
forth below. Except as otherwise provided by law or by the resolution or
resolutions adopted by the Board of Directors designating the rights, powers,
and preferences of any series of Preferred Stock, the Common Stock shall have
the exclusive right to vote for
<PAGE>
the election of directors and for all other purposes, and holders of Preferred
Stock shall not be entitled to receive notice of any meeting of stockholders at
which they are not entitled to vote.
A. COMMON STOCK.
------------
1. POWERS, RIGHTS AND PREFERENCES. The Common Stock shall be without
distinction as to powers, rights and preferences and as to the qualifications,
limitations or restrictions thereof. At every annual or special meeting of
stockholders of the Corporation, every holder of Common Stock shall be entitled
to one vote, in person or by proxy, for each share of Common Stock standing in
such holder's name on the stock transfer records of the Corporation in
connection with all matters on which stockholders are generally entitled to
vote. The Common Stock shall be subject to the express terms of the Preferred
Stock and any series thereof.
2. DIVIDENDS. After the requirements regarding preferential
dividends on Preferred Stock, if any, have been met and after the Corporation
has complied with all the requirements, if any, regarding the setting aside of
sums as sinking funds or redemption or purchase accounts, and subject further to
any preferential rights, if any, of the Preferred Stock, then, but not
otherwise, the holders of Common Stock shall be entitled to receive such
dividends, if any, as may be declared from time to time by the Board of
Directors.
3. LIQUIDATION, DISSOLUTION OR WINDING UP. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the Corporation, after payment or provision for payment of the debts and
other liabilities of the Corporation and of the preferential amounts, if any, to
which the holders of Preferred Stock may be entitled, the holders of Common
Stock shall be entitled to share ratably, in proportion to the number of shares
of Common Stock held by each, in the remaining net assets of the Corporation.
B. PREFERRED STOCK.
---------------
1. ISSUANCE BY BOARD RESOLUTION; SERIES. The Board of Directors is
authorized to adopt, from time to time, a resolution or resolutions providing
for the issuance of one or more series of Preferred Stock, to establish the
number of shares to be included in each such series, and to fix the designation,
powers, privileges and relative, participating, optional or other special rights
of the shares of each such series and the qualifications, limitations and
restrictions thereof.
2. PREFERENCES AND RIGHT. The authority of the Board of Directors
with respect to each series shall include, but not be limited to, determination
of the following:
A. the designation of the series, which may be by
distinguishing number, letter or title;
B. the number of shares of the series, which number the Board
of Directors may thereafter (except where otherwise provided in a resolution of
the Board of Directors providing for such series or the certificate of
designations recorded with the Secretary
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<PAGE>
of State of the State of Delaware relating to such series) increase or decrease
(but not below the number of shares thereof then outstanding);
C. the rate and times at which, and the terms and conditions of
which, dividends on the shares of the series shall be paid, whether the
dividends shall be cumulative or non-cumulative, and if cumulative, from what
date or dates, and the preferences or relation, if any, of such dividends to the
dividends payable on any shares of any other series or class of the Corporation;
D. the price or prices (or method of determining such price or
prices) at which, the form of payment of such price or prices (which may be
cash, property or rights, including securities of the same or another
corporation or other entity) for which, the period or periods within which, and
the terms and conditions upon which the shares of such series may be redeemed,
in whole or in part, at the option of the Corporation or at the option of the
holder or holders thereof or upon the happening of a specified event or
specified events, if any;
E. the obligation, if any, of the Corporation to purchase or
redeem shares of such series pursuant to a sinking fund or otherwise and the
price or prices at which, the form of payment of such price or prices (which may
be cash, property or rights, including securities of the same or another
corporation or other entity) for which, the period or periods within which, and
the terms and conditions upon which the shares of such series shall be redeemed
or purchased, in whole or in part, pursuant to such obligation;
F. the amount payable out of the assets of the Corporation to
the holders of shares of the series in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation;
G. provisions, if any, for the conversion or exchange of the
shares of such series, at any time or times at the option of the holder or
holders thereof or at the option of the Corporation or upon the happening of a
specified event or specified events, into shares of any other class or classes
or any other series of the same or any other class or classes of stock, or any
other security, of the Corporation or any other corporation or other entity, and
the conversion price or prices, or the rate or rates of exchange, and any
adjustments thereof at which such conversion or exchange may be made, and any
other terms and conditions of such conversion or exchange;
H. restrictions on the issuance of shares of the same series or
of any other class or series, if any; and
I. the voting rights, if any, of the holders of shares of the
series, including the right to vote as a separate class or as one class with the
holders of any other series of Preferred Stock or Common Stock, or both;
J. whether any series of Preferred Stock shall have priority
over or parity with or be junior to Preferred Stock of any other series, or
shall be entitled to the benefit of limitations restricting (i) the creation of
indebtedness of the Corporation, (ii) the issuance of
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<PAGE>
shares of any other class or series having priority over or being on a parity
with the shares of such series, or (iii) the payment of dividends on, the making
of other distributions with respect to, or the purchase or redemption of shares
of any other class or series on parity or ranking junior to the Preferred Stock
of any such series as to dividends or to other distributions, and the terms of
any such restrictions, or any other restrictions with respect to shares of any
class or series on parity with or ranking junior to Preferred Stock of such
series in any respect; and
K. any other powers, preferences, privileges and relative,
participating, optional or other special rights of such series and the
qualifications, limitations or restrictions thereof, to the full extent now or
hereafter permitted by law.
C. REGISTERED HOLDERS. The Corporation shall be entitled to treat
the person in whose name any share of its capital stock is registered as the
owner thereof for all purposes and shall not be bound to recognize any equitable
or other claim to, or interest in, such share on the part of any other person,
whether or not the Corporation shall have notice thereof, except as expressly
provided by applicable law.
ARTICLE V
STOCKHOLDER ACTION
A. STOCKHOLDER ACTION. Any action required or permitted to be taken
by the stockholders of the Corporation must be effected at a duly called annual
or special meeting of such holders and may not be effected by any consent in
writing by such holders.
B. CALL OF SPECIAL MEETINGS; BUSINESS. Except as otherwise required
by law and subject to the rights of the holders of any series of Preferred
Stock, special meetings of stockholders of the Corporation for any purpose or
purposes may be called only by (1) the Board of Directors pursuant to a
resolution stating the purpose or purposes thereof approved by a majority of the
total number of Directors which the Corporation would have if there were no
vacancies (the "Whole Board"), (2) by the Chairman of the Board of Directors of
the Corporation, or (3) by the President of the Corporation. Any power of
stockholders to call a special meeting is specifically denied. No business
other than that stated in the notice shall be transacted at any special meeting.
ARTICLE VI
BOARD OF DIRECTORS
The business and affairs of the Corporation shall be managed by or under
the direction of the Board of Directors. The Board of Directors may exercise all
such authority and powers of the Corporation and do all such lawful acts and
things as are not by statute or this Certificate of Incorporation directed or
required to be exercised or done by the stockholders.
A. NUMBER OF DIRECTORS; CLASSES. The number of directors of the
Corporation (except as otherwise fixed by or pursuant to the provisions of
Article IV hereof relating to the
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<PAGE>
rights of the holders of any class or series of Preferred Stock to elect
additional directors under specified circumstances) shall be fixed from time to
time exclusively pursuant to a resolution adopted by a majority of the Whole
Board, but in no event shall be less than three nor more than fifteen. The
directors shall be divided into three classes, which shall be as nearly equal in
number as possible, with the term of office of the first class of directors to
expire at the first annual meeting of stockholders, the term of office of the
second class of directors expiring one year thereafter, and the term of office
of the third class of directors to expire two years thereafter, with each class
to hold office until its successor is duly elected and qualified. At each
succeeding annual meeting of stockholders, directors elected to succeed those
directors whose terms then expire shall be elected for a full term of office to
expire at the third succeeding annual meeting of stockholders after their
election or thereafter when their respective successors in each case shall have
been duly elected and qualified. If the number of directors fixed by or
pursuant to resolution of the Board of Directors is changed at any time, any
newly created directorships or any decrease in directorships shall be so
apportioned among the classes by the Board of Directors so as to make all
classes as nearly equal in number as possible; provided, however, no decrease in
the number of directors constituting the Board of Directors shall shorten the
term of any incumbent director.
B. STOCKHOLDER NOMINATION OF DIRECTOR CANDIDATES; STOCKHOLDER
PROPOSAL OF BUSINESS. Advance notice of stockholder nominations for the
election of directors and of the proposal of business by stockholders at the
annual meeting of the Corporation shall be given in the manner provided in the
By-Laws of the Corporation, as amended and in effect from time to time.
C. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Subject to the rights,
if any, of any series of Preferred Stock to elect directors under specified
circumstances, newly created directorships resulting from any increase in the
number of directors and any vacancies on the Board of Directors resulting from
death, resignation, disqualification, removal or other cause shall be filled by
the affirmative vote of a majority of the remaining directors then in office,
even though less than a quorum of the Board of Directors, and not by the
stockholders. Any director elected in accordance with the preceding sentence
shall hold office for the remainder of the full term of the class of directors
in which the new directorship was created or the vacancy occurred and until such
director's successor shall have been duly elected and qualified.
D. REMOVAL. Subject to the rights, if any, of any series of Preferred
Stock to elect directors under specified circumstances, any director may be
removed from office only for cause by the affirmative vote of the holders of at
least a majority of the voting power of all shares of the Corporation entitled
to vote generally in the election of directors (the "Voting Stock") then
outstanding, voting together as a single class.
E. ELECTION OF DIRECTORS. Unless and except to the extent that the
By-Laws of the Corporation shall so require, the election of directors of the
Corporation need not be by written ballot.
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<PAGE>
ARTICLE VII
INITIAL BOARD OF DIRECTORS
The number of directors constituting the initial board of directors is
seven (7), and the name and mailing address of each person who is to serve as an
initial director, and the class of directors to which each person is hereby
appointed, is as follows:
FIRST CLASS OF DIRECTORS:
Stephen P. Langsford Charles W. Schnatter
WAVE-3 TV Papa John's International, Inc.
725 South Floyd Street 11492 Bluegrass Parkway
Louisville, KY 40203 Louisville, KY 40299
SECOND CLASS OF DIRECTORS:
Martin T. Hart Michael M. Fleishman
875 Race Street Greenebaum Doll & McDonald PLLC
Denver, CO 80206 3300 National City Tower
Louisville, KY 40202
THIRD CLASS OF DIRECTORS:
Richard F. Sherman Frank O. Keener
Papa John's International, Inc. First American Center
11492 Bluegrass Parkway Nashville, TN 37237-0313
Louisville, KY 40299
Douglas S. Stephens
Papa John's, Inc.
9109 Parkway East
Birmingham, AL 35206
Each such director is to serve until the annual meeting of the
stockholders for the year in which his term expires and until such director's
successor in office is elected and shall qualify.
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<PAGE>
ARTICLE VIII
INCORPORATOR
The name and mailing address of the sole incorporator are:
Daniel E. Fisher
Greenebaum Doll & McDonald PLLC
3300 National City Tower
Louisville, KY 40202
ARTICLE IX
BY-LAWS
The Board of Directors is expressly authorized to adopt, amend or repeal
the By-laws of the Corporation. Any By-laws made by the Board of Directors under
the powers conferred hereby may be amended or repealed by the stockholders at
any annual or special meeting of stockholders, by the affirmative vote of the
holders of a majority of the voting power of all capital stock issued and
outstanding and entitled to vote at such meeting. Notwithstanding the foregoing
and anything contained in this Certificate of Incorporation to the contrary, any
proposed alteration or repeal of, or the adoption of any By-Law inconsistent
with, Sections 2.2, 2.9, 2.10 or 2.13 of Article 2 of the By-laws or Section
3.2, 3.9 or 3.11 of Article 3 of the By-laws, by the stockholders shall require
the affirmative vote of the holders of at least 85% of the voting power of all
Voting Stock then outstanding, voting together as a single class.
ARTICLE X
AMENDMENT OF CERTIFICATE OF INCORPORATION
The Corporation reserves the right at any time, and from time to time, to
amend, alter, change or repeal any provision contained in this Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and, except
as set forth in Article XI, all rights, preferences and privileges of whatsoever
nature conferred upon stockholders, directors or any other persons whomsoever by
and pursuant to this Certificate of Incorporation, in its present form or as
hereafter amended, are granted subject to the right reserved in this Article.
Notwithstanding anything contained in this Certificate of Incorporation to the
contrary, the affirmative vote of the holders of at least 85% of the Voting
Stock then outstanding, voting together as a single class, shall be required to
alter, amend, adopt any provision inconsistent with or repeal Article V, VI, IX,
X and XI of this Certificate of Incorporation.
ARTICLE XI
LIMITED LIABILITY; INDEMNIFICATION
A. ELIMINATION OF CERTAIN LIABILITY. A director of the Corporation shall
not be personally liable to the Corporation or its stockholders for monetary
damages for breach of
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<PAGE>
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General Corporation Law
of the State of Delaware, or (iv) for any transaction from which the director
derived an improper personal benefit. If the General Corporation Law of the
State of Delaware is hereby amended to permit further elimination or limitation
of the personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the General Corporation Law of the State of Delaware, as so amended. Any repeal
or modification of this Article. shall not adversely effect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
B. RIGHT TO INDEMNIFICATION. Subject to Article XI.C., each person who was
or is made a party or is threatened to be made a party to or is involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that such
person, or a person of whom such person is the legal representative, is or was a
director or officer of the Corporation or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another corporation
or of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee or agent
or in any other capacity while serving as a director, officer, employee or
agent, shall be indemnified and held harmless by the Corporation to the fullest
extent authorized by the General Corporation Law of the State of Delaware, as
the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than said law permitted the Corporation
to provide prior to such amendment), against all expense, liability and loss
(including attorneys' fees, judgments, fines, excise taxes under the Employee
Retirement Income Security Act of 1974, as in effect from time to time
("ERISA"), penalties and amounts to be paid in settlement) reasonably incurred
or suffered by such person in connection therewith. The Corporation may, by
action of its Board of Directors, provide indemnification to other employees or
agents of the Corporation with the same scope and effect as the indemnification
of directors and officers pursuant to this Article.
C. PROCEDURE FOR INDEMNIFICATION. Any indemnification under this Article
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification is proper in the
circumstances because the indemnitee has met the applicable standard of conduct
set forth in the General Corporation Law of the State of Delaware, as the same
exists or hereafter may be amended (but, in the case of any such amendment, only
to the extent that such amendment permits the Corporation to provide broader
indemnification rights then said law permitted the Corporation to provide prior
to such amendment). Such determination shall be made (i) by the Board of
Directors by a majority vote of a quorum consisting of directors who are not
parties to such action, suit or proceeding (the "Disinterested Directors"), or
(ii) if such a quorum of Disinterested Directors is not obtainable, or, even if
obtainable, a quorum of Disinterested Directors so directs, by independent legal
counsel and a written opinion, or (iii) by the stockholders. The majority of
Disinterested Directors may, as they deem appropriate, elect to have the
Corporation indemnify any other employee, agent or other person acting for or on
behalf of the Corporation.
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<PAGE>
D. ADVANCES FOR EXPENSES. Costs, charges and expenses (including
attorneys' fees) incurred by a director or officer of the Corporation, or such
other person acting on behalf of the Corporation as determined in accordance
with Article XI.C, in defending a civil or criminal action, suit or proceeding
shall be paid by the Corporation in advance of the final disposition of such
action, suit or proceeding upon receipt of a undertaking by or on behalf of the
director, officer or other person to repay all amounts so advanced in the event
that it shall ultimately be determined that such director, officer or other
person is not entitled to be indemnified by the Corporation as authorized in
this Article XI or otherwise.
E. RIGHT OF CLAIMANT TO BRING SUIT. If a claim under Article XI.B. or
Article XI.D. is not paid in full by the Corporation within 30 days after a
written claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall be entitled
to be paid also the expense of prosecuting such claim. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standard of conduct which make it
permissible under the General Corporation Law of the State of Delaware for the
Corporation to indemnify the claimant for the amount claimed, but the burden of
proving such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because the claimant has met the applicable standards of conduct set forth in
the General Corporation Law of the State of Delaware, nor an actual
determination by the Corporation (including its Board of Directors, independent
legal counsel or its stockholders) that the claimant has not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that the claimant has not met the applicable standard of conduct.
F. OTHER RIGHTS; CONTINUATION OF RIGHT TO INDEMNIFICATION. The
indemnification and advancement of expenses provided by this Article XI shall
not be deemed exclusive of any other rights to which a claimant may be entitled
under any law (common or statutory), By-Law, agreement, vote of stockholders or
Disinterested Directors or otherwise, both as to action in his or her official
capacity and as to any action in another capacity while holding office or while
employed by or acting as agent for the Corporation, and shall inure to the
benefit of the estate, heirs, executors and administrators of such person. All
rights to indemnification under this Article XI shall be deemed to be a contract
between the Corporation and each director and officer of the Corporation who
serves or served in such capacity at any time while this Article XI is in
effect. Any repeal or modification of this Article XI or any repeal or
modification of relevant provisions of the General Corporation Law of the State
of Delaware or any other applicable law shall not in any way diminish any rights
to indemnification of such director, officer or the obligations of the
Corporation arising hereunder with respect to any action, suit or proceeding
arising out of, or relating to, any actions, transactions or facts occurring
prior to the final adoption of such modification or repeal. For the purposes of
this Article XI, references to "the Corporation" include all constituent
corporations absorbed in a consolidation or merger as well as the resulting or
surviving corporation, so that any person who is or was a director or
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<PAGE>
officer of such a constituent corporation or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise shall
stand in the same position under the provisions of this Article XI, with respect
to the resulting or surviving corporation, as such person would if such person
had served the resulting or surviving corporation in the same capacity.
G. INSURANCE. The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense, liability or
loss under the General Corporation Law of the State of Delaware.
H. SEVERABILITY. If any provision or provisions of this Article XI shall
be held to be invalid, illegal or unenforceable for any reason whatsoever: (1)
the validity, legality and enforceability of the remaining provisions of this
Article XI (including, without limitation, each portion of any paragraph of this
Article XI containing any such provision held to be invalid, illegal or
unenforceable, that is not itself held to be invalid, illegal or unenforceable)
shall not in any way be affected or impaired thereby; and (2) to the fullest
extent possible, the provisions of this Article XI (including, without
limitation, each such portion of any paragraph of this Article XI containing any
such provision held to be invalid, illegal or unenforceable) shall be construed
so as to give effect to the intent manifested by the provision held invalid,
illegal or unenforceable.
I, the undersigned, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, do make this certificate, hereby declaring and certifying
that this is my act and deed and the facts herein stated are true, and
accordingly have hereunto set my hand this _____ day of August, 1996.
PJ AMERICA, INC.
By:____________________
Daniel E. Fisher
Incorporator
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<PAGE>
EXHIBIT 3.2
BY-LAWS
OF
PJ AMERICA, INC.
ARTICLE 1
OFFICES
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1.1 REGISTERED OFFICE. The registered office of the Corporation shall be
in the City of Wilmington, County of New Castle, State of Delaware.
1.2 OTHER OFFICES. The Corporation may also have offices at such other
places both within and without the State of Delaware as the Board of Directors
may from time to time determine or the business of the Corporation may require.
ARTICLE 2
STOCKHOLDERS
------------
2.1 ANNUAL MEETING. The annual meeting of the stockholders of the
Corporation, for the election of directors, the consideration of financial
statements and other reports, and the transaction of such other business as may
properly be brought before such meeting, shall be held no later than six months
following the end of the Corporation's fiscal year. The meeting shall be held
at such time and on such date as may be designated by the Board of Directors of
the Corporation. In the event the annual meeting is not held or if directors
are not elected at the annual meeting, a special meeting may be called and held
for that purpose.
2.2 SPECIAL MEETINGS. Except as otherwise required by law and subject to
the rights of the holders of any class or series of Preferred Stock, special
meetings of stockholders of the Corporation for any purpose or purposes may be
called only by (i) the Board of Directors pursuant to a resolution stating the
purpose or purposes thereof approved by a majority of the total number of
Directors which the Corporation would have if there were no vacancies (the
"Whole Board"), (ii) by the Chairman of the Board of Directors of the
Corporation, or (iii) by the President of the Corporation. No business other
than that stated in the notice of the Special Meeting shall be transacted at any
special meeting.
2.3 PLACE OF MEETING. All meetings of the stockholders for the election
of directors shall be held at such place either within or without the State of
Delaware as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting. Meetings of stockholders for any other
purpose may be held at such time and place either within or without the State of
Delaware as shall be stated in the notice of such meeting.
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2.4 NOTICE OF MEETINGS AND ADJOURNED MEETINGS. Written notice of the
annual meeting or a special meeting stating the place, date and hour of the
meeting and, in the case of a special meeting, the purpose or purposes for which
the meeting is called, shall be given to each stockholder entitled to vote at
such meeting not less than ten nor more than sixty days before the date of the
meeting. If mailed, such notice shall be deemed to be delivered when deposited
in the United States mail with postage thereon prepaid, addressed to the
stockholder at such person's address as it appears on the stock transfer books
of the Corporation. Such further notice shall be given as may be required by
law. When a meeting is adjourned to another time or place, notice need not be
given of the adjourned meeting if the time and place thereof are announced at
the meeting at which the adjournment is taken. At the adjourned meeting, the
Corporation may transact any business which might have been transacted at the
original meeting. If the adjournment is for more than thirty (30) days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting. Only such business shall be conducted at a
special meeting of stockholders as shall have been brought before the meeting
pursuant to the Corporation's notice of meeting. Any previously scheduled
meeting of the stockholders may be postponed, and any special meeting of the
stockholders may be cancelled, by resolution of the Board of Directors upon
public notice given prior to the date previously scheduled for such meeting of
stockholders.
2.5 STOCKHOLDERS LIST. The officer who has charge of the stock ledger of
the Corporation shall prepare and make, at least ten days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city, town or
village where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place
of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
2.6 QUORUM; ADJOURNMENTS. At any meeting of stockholders, the holders of
a majority of the issued and outstanding shares of stock entitled to vote at the
meeting of stockholders, present in person or represented by proxy, shall
constitute a quorum for the transaction of business at all meetings of
stockholders, except as otherwise provided by statute or by the Corporation's
Certificate of Incorporation as the same may be amended from time to time
("Certificate of Incorporation"). If, however, such quorum shall not be present
or represented at any meeting of the stockholders, the chairman of the meeting
or a majority of the stockholders entitled to vote at the meeting, present in
person or represented by proxy, shall have power to adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present or represented by proxy.
2.7 VOTING. When a quorum is present or represented at any meeting, the
vote of the holders of a majority of the shares of stock having voting power
present in person or represented by proxy shall decide any question brought
before such meeting, unless the
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question is one upon which by express provision of the General Corporation Law
of the State of Delaware, the Certificate of Incorporation or these By-laws a
different vote is required, in which case such express provision shall govern
and control the decision of such question.
2.8 PROXIES. At each meeting of the stockholders, each stockholder shall
be entitled to vote in person or by proxy the shares of capital stock having
voting power held by such stockholder, but no proxy shall be voted after three
years from its date, unless the proxy provides for a longer period.
2.9 INTRODUCTION OF BUSINESS AT A MEETING OF STOCKHOLDERS. At an annual
or special meeting of stockholders, only such business shall be conducted, and
only such proposals shall be acted upon, as shall have been properly brought
before an annual or special meeting of stockholders. To be properly brought
before a special meeting of stockholders and acted upon at the meeting, business
must be specified in the notice of the special meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, the Chairman of
the Board or the President pursuant to Section 22 of these By-laws. At an
annual meeting of stockholders, only such business shall be conducted, and only
such proposals shall be acted upon, as shall have been properly brought before
the annual meeting of stockholders (a) by, or at the direction of, the Board of
Directors, or (b) by any stockholder of the Corporation who was a stockholder of
record at the time of giving of notice of the annual meeting, who is entitled to
vote at the annual meeting and who otherwise complies with all procedures and
requirements set forth in this By-law. For business to be properly brought
before an annual meeting of stockholders by a stockholder, the stockholder must
have given timely notice thereof in writing to the President or Secretary of the
Corporation. To be timely, a stockholder's notice must be received at the
principal executive offices of the Corporation not fewer than 60 days nor more
than 90 days prior to the scheduled date of the annual meeting regardless of any
postponement, deferral or adjournment of that meeting to a later date; provided,
however, that if fewer than 70 days notice or prior public disclosure of the
date of the annual meeting is made or given to stockholders, notice by the
stockholder to be timely must be received not later than the close of business
on the tenth day following the earlier of (1) the day on which such notice of
the date of the meeting was mailed or (2) the day on which such public
disclosure was made.
A stockholder's notice shall set forth as to each matter the stockholder
proposes to bring before an annual meeting of stockholders (1) a brief
description of the business desired to be brought before the annual meeting, (2)
the name and address, as they appear on the Corporation's books, of the
stockholder proposing such business and any other stockholders known by such
stockholder to be supporting such proposal, (3) the class and number of shares
of the Corporation which are beneficially owned by such stockholder on the date
of such stockholder's notice and by any other stockholders known by such
stockholder to be supporting such proposal on the date of such stockholder's
notice, and (4) any material interest of the stockholder in such proposal.
Notwithstanding anything in the By-laws to the contrary, no business shall
be conducted at a meeting of stockholders except in accordance with the
procedure set forth in this Section 29. The chairman of the meeting shall, if
the facts warrant, determine and
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declare to the meeting that the business was not properly brought before the
meeting in accordance with the procedures described by the By-laws, and if he
should so determine, he shall so declare to the meeting and any such business
not properly brought before the meeting shall not be considered.
2.10 NOMINATION OF DIRECTORS. Only persons nominated in accordance with
the procedures set forth in this section shall be eligible for election as
directors. Nominations of persons for election to the board may be made at a
meeting of stockholders (1) by or at the direction of the Board of Directors, or
(2) by any stockholder of the Corporation who is entitled to vote for the
election of directors at such meeting and who complies with the notice
procedures set forth in this Section 210. Such nominations, other than those
made by or at the direction of the Board of Directors, shall be made pursuant to
timely notice in writing to the President or Secretary of the Corporation. To
be timely, a stockholder's notice must be received at the principal executive
offices of the Corporation not fewer than 60 days nor more than 90 days prior to
the scheduled date of a meeting, regardless of any postponement, deferral or
adjournment of that meeting to a later date; provided, however, that if fewer
than 70 days notice or prior public disclosure of the date of the meeting is
given or made to stockholders, notice by the stockholder to be timely must be so
delivered or received not later than the close of business on the tenth day
following the earlier of (1) the day on which such notice of the date of such
meeting was mailed or (2) the day on which such public disclosure was made.
A stockholder's notice shall set forth (1) as to each person whom the
stockholder proposes to nominate for election or reelection as a director (a)
the name, age, business address and residence address of such person, (b) the
principal occupation or employment of such person, (c) the class and number of
shares of the Corporation which are beneficially owned by such person on the
date of such stockholder's notice and (d) any other information relating to such
person that is required to be disclosed in solicitations of proxies for election
of directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (including without
limitation such person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected); and (2) as to the
stockholder giving the notice (a) the name and address, as they appear on the
Corporation's books, of such stockholder and any other stockholders known by
such stockholder to be supporting such nominees and (b) the class and number of
shares of the Corporation which are beneficially owned by such stockholder on
the date of such stockholder's notice and by any other stockholders known by
such stockholder to be supporting such nominees on the date of such
stockholder's notice.
No person shall be eligible for election as a director of the Corporation
unless nominated in accordance with procedures set forth in this section. The
chairman of the meeting shall, if the facts warrant, determine and declare to
the meeting that a nomination was not made in accordance with the procedures
prescribed by the By-laws, and if he should so determine, he shall so declare to
the meeting and the defective nomination shall be disregarded.
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This Section 210 shall not apply to the election of a director to a
directorship which may be filled by the Board of Directors under the General
Corporation Law of the State of Delaware.
2.11 PROCEDURE FOR ELECTION OF DIRECTORS; REQUIRED VOTE. Election of
directors at all meetings of the stockholders at which directors are to be
elected shall be by ballot, and, subject to the rights of the holders of any
series of Preferred Stock to elect directors under an applicable preferred stock
designation, a plurality of the votes cast thereat shall elect directors.
Except as otherwise provided by law, the Certificate of Incorporation, these By-
Laws, or in the designation of rights of holders of any series of Preferred
Stock in all matters other than the election of directors, the affirmative vote
of a majority of the voting power of the shares present in person or represented
by proxy at the meeting and entitled to vote on the matter shall be the act of
the stockholders.
2.12 INSPECTORS OF ELECTIONS; OPENING AND CLOSING THE POLLS. The Board of
Directors by resolution shall appoint, or shall authorize an officer of the
Corporation to appoint, one or more inspectors, which inspector or inspectors
may include individuals who serve the Corporation in other capacities,
including, without limitation, as officers, employees, agents or
representatives, to act at the meetings of stockholders and make a written
report thereof. One or more persons may be designated as alternate inspector(s)
to replace any inspector who fails to act. If no inspector or alternate has
been appointed to act or is able to act at a meeting of stockholders, the
Chairman of the meeting shall appoint one or more inspectors to act at the
meeting. Each inspector, before discharging such person's duties, shall take
and sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of such person's ability. The
inspector(s) shall have the duties prescribed by law. The Chairman of the
meeting shall fix and announce at the meeting the date and time of the opening
and the closing of the polls for each matter upon which the stockholders will
vote at a meeting.
2.13 NO STOCKHOLDER ACTION BY WRITTEN CONSENT. Any action required or
permitted to be taken by the stockholders of the Corporation must be effected at
a duly called annual or special meeting of such holders and may not be effected
by any consent in writing by such holders.
ARTICLE 3
BOARD OF DIRECTORS
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3.1 GENERAL POWERS. The business and affairs of the Corporation shall be
managed under the direction of its Board of Directors. The Board of Directors
may exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute, by the Certificate of Incorporation or by these
By-Laws required or directed to be exercised or done by the stockholders.
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3.2 NUMBER, CLASSIFICATION AND TERM OF OFFICE. Except as otherwise fixed
by or pursuant to the provisions of Article IV of the Certificate of
Incorporation relating to the rights of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances, the number of
the Directors of the Corporation shall be fixed from time to time exclusively
pursuant to a resolution adopted by a majority of the Whole Board (as defined in
the Certificate of Incorporation), but in no event shall be less than three nor
more than fifteen. The directors shall be divided into three classes, which
shall be as nearly equal in number as possible with the term of office of the
first class of directors elected to expire at the first annual meeting of
stockholders, the term of office of the second class of directors to expire one
year thereafter, and the term of office of the third class of directors to
expire two years thereafter, with each class to hold office until its successor
is duly elected and qualified. At each succeeding annual meeting of
stockholders, directors elected to succeed those directors whose terms then
expire shall be elected for a full term of office to expire at the third
succeeding annual meeting of stockholders after their election or thereafter
when their respective successors in each case are duly elected and qualified.
Any director elected to a particular class by the stockholders or directors
shall be eligible, upon resignation or expiration of their term, to be elected
to a different class.
3.3 PLACE OF MEETING. The Board of Directors may hold meetings, both
regular and special, either within or without the State of Delaware.
3.4 REGULAR MEETINGS. A regular meeting of the Board of Directors shall
be held, within or without the State of Delaware, without other notice than this
By-Law immediately after, and at the same place as, the annual meeting of
stockholders. The Board of Directors may, by resolution, provide the time and
place, within or without the State of Delaware, for the holding of additional
regular meetings without other notice than such resolution.
3.5 SPECIAL MEETINGS. Special meetings of the Board of Directors shall be
called at the request of the Chairman of the Board, the President or a majority
of the Board of Directors then in office. The person or persons authorized to
call special meetings of the Board of Directors may fix the place and time of
the meetings. Notice of each special meeting shall be given to each director,
at least three days before the day on which the meeting is to be held, in
accordance with Article IV of these By-laws. Each such notice shall state the
time and place either within or without the State of Delaware of the meeting but
need not state the purpose thereof, except as otherwise provided by the General
Corporation Law of the State of Delaware or by these By-laws. Notice of any
meeting of the Board need not be given to any director who is present at such
meetings; and any meeting of the Board of Directors shall be a legal meeting
without any notice thereof having been given if all of the directors then in
office are present at the meeting, unless a director attends a meeting for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meetings is not lawfully called or
convened.
3.6 ACTION BY CONSENT OF BOARD OF DIRECTORS. Any action required or
permitted to be taken at any meeting of the Board of Directors or any committee
thereof may be taken without a meeting if all members of the Board of Directors
or committee, as the case may
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be, consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board of Directors or committee.
3.7 CONFERENCE TELEPHONE MEETINGS. Members of the Board of Directors or
any committee thereof may participate in a meeting of the Board of Directors or
such committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at such meeting.
3.8 QUORUM. At all meetings of the Board of Directors, a majority of
directors then in office shall constitute a quorum for the transaction of
business, and the act of the majority of the directors present at any meeting at
which a quorum is present shall be the act of the Board of Directors, except as
may be otherwise specifically provided by the General Corporation Law of the
State of Delaware or by the Certificate of Incorporation. If a quorum shall not
be present at any meeting of the Board of Directors, a majority of the directors
present thereat may adjourn the meeting from time to time, without notice other
than announcement at the meeting until a quorum shall be present. The directors
present at a duly organized meeting may continue to transact business until
adjournment, notwithstanding the withdrawal of enough directors to leave less
than a quorum.
3.9 VACANCIES. Except as otherwise provided for or fixed by or pursuant
to the provisions of Article IV of the Certificate of Incorporation relating to
the rights of the holders of any series of Preferred Stock to elect directors
under specified circumstances, newly created directorships resulting from any
increase in the number of directors and any vacancies on the Board of Directors
resulting from death, resignation, disqualification, removal or other cause
shall be filled by the affirmative vote of a majority of the remaining directors
then in office, even though less than a quorum of the Board of Directors. Any
director elected in accordance with the preceding sentence shall hold office for
the remainder of the full term of the class of directors in which the new
directorship was created or the vacancy occurred and until such director's
successor shall have been duly elected and qualified. No decrease in the number
of Directors constituting the Board of Directors shall shorten the term of any
incumbent Director.
3.10 COMMITTEES.
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a. The Board of Directors may, by resolution adopted by a majority
of the whole Board of Directors, designate one or more committees, each
committee to consist of one or more directors of the Corporation. The Board of
Directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. In addition, in the absence or disqualification of the member of
a committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not such members constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors,
shall have and may exercise all the powers over business and affairs of the
Corporation, and may authorize the seal of the
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Corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation
under Sections 251 and 252 of the General Corporation Law of the State of
Delaware, recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
stockholders the dissolution of the Corporation or revocation of a dissolution,
or amending the By-laws of the Corporation; and, unless the Resolution so
provides, no such committee shall have the power or authority to declare a
dividend, to authorize the issuance of stock, or to adopt a certificate of
ownership or merger pursuant to Section 253 of the General Corporation Law of
the State of Delaware. Such committee or committees shall have such name or
names as may be determined from time to time by resolution adopted by the Board
of Directors. Each committee shall keep regular minutes of its meetings and
report the same to the Board of Directors when required.
b. A majority of any committee may determine its action and fix the
time and place of its meetings, unless the Board shall otherwise provide. Notice
of such meetings shall be given to each member of the committee in the manner
provided for in Section 3.5 of these By-Laws. The Board shall have power at any
time to fill vacancies in, to change the membership of, or to dissolve any such
committee.
3.11 REMOVAL. Subject to the rights of any series of Preferred Stock to
elect Directors under specified circumstances, any Director may be removed from
office only for cause by the affirmative vote of the holders of at least a
majority of the voting power of all shares of the Corporation entitled to vote
generally in the election of directors (the "Voting Stock") then outstanding,
voting together as a single class.
3.12 RECORDS. The Board of Directors shall cause to be kept a record
containing the minutes of the proceedings of the meetings of the Board and of
the stockholders, appropriate stock books and registers and such books of
records and accounts as may be necessary for the proper conduct of the business
of the Corporation.
3.13 COMPENSATION. The Board of Directors shall have the authority to
fix the compensation of directors. The directors may be paid their expenses, if
any, of attendance at each meeting of the Board of Directors and may be paid a
fixed sum for attendance at each meeting of the Board of Directors or stated
salary as director. No such payment shall preclude any director from serving
the Corporation in any other capacity and receiving compensation therefor.
Members of special or standing committees may be allowed like compensation for
attending committee meetings.
ARTICLE 4
NOTICES
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4.1. NOTICES. Whenever, under the provisions of the General Corporation
Law of the State of Delaware or of the Certificate of Incorporation or of these
By-laws, notice is
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required to be given to any director or stockholder, such notice shall be in
writing, and shall be hand-delivered or sent by mail, addressed to such director
or stockholder, at his address as it appears on the records of the Corporation,
with postage thereon prepaid, and such notice shall be deemed to be given at the
time when the same is personally delivered or deposited in the United States
mail. Notice to directors may also be given orally, in person or by telephone,
facsimile (fax), and such notice shall be deemed to be given upon confirmation
of the transmission of the fax, or upon oral notice to the person who is the
intended recipient when given orally.
4.2. WAIVER OF NOTICE. Whenever any notice is required to be given under
the provisions of the General Corporation Law of the State of Delaware, the
Certificate of Incorporation or these By-laws, a waiver thereof in writing,
signed by the person or persons entitled to said notice, whether before or after
the time stated therein, shall be deemed equivalent thereto. Neither the
business to be transacted at, nor the purpose of, any annual or special meeting
of the stockholders or the Board of Directors or committee thereof need be
specified in any waiver of notice of such meeting.
ARTICLE 5
OFFICERS
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5.1. OFFICERS. The Corporation may have such officers as the Board of
Directors may determine from time to time, including a Chairman of the Board,
Vice-Chairman, Chief Executive Officer, President, one or more Vice Presidents,
a Secretary, a Treasurer, and, if the Board shall so determine, an Assistant
Secretary and an Assistant Treasurer. Any two or more offices may be held by
the same person. Such other officers and agents shall be appointed in such
manner, have such duties and hold their offices for such terms, as may be
determined by resolution of the Board of Directors.
5.2. ELECTION OF OFFICERS. The officers shall be elected by the Board of
Directors at the first meeting of the Board of Directors after each annual
meeting of stockholders. Each officer shall hold office at the pleasure of the
Board of Directors until his or her successor shall have been duly elected and
qualified, or until his or her death, or until he or she shall have resigned or
shall have been removed or disqualified in the manner hereinafter provided.
5.3. RESIGNATION. Any officer may resign at any time by giving written
notice of his resignation to the Board of Directors or to the Chairman of the
Board of the Corporation. Any such resignation shall take effect at the time
specified therein or, if the time when it shall become effective shall not be
specified therein, immediately upon receipt by the Board of Directors or
Chairman of the Board. Unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
5.4. REMOVAL. Any officer may be removed, either with or without cause,
at any time, by action of the Board of Directors or the Chairman of the Board.
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5.5. CHAIRMAN OF THE BOARD. If the Board of Directors designates a
Chairman of the Board, he shall preside at all meetings of the stockholders and
of the Board of Directors. He may sign certificates for shares of stock of the
Corporation, any deeds, mortgages, bonds, contracts or other instruments which
the Board of Directors has authorized to be executed, except in cases where the
signing and execution thereof shall be expressly delegated by the Board of
Directors or by these By-laws to some other officer or agent of the Corporation,
or shall be required by law to be otherwise signed or executed. The Chairman of
the Board shall, in general, perform all duties incident to the office of
chairman of the board and such other duties as may be set forth in the By-laws
or may be prescribed by the Board of Directors from time to time.
5.6. PRESIDENT. The President shall perform all duties instant to the
office of President and such other duties as may from time to time be assigned
to him or her by the Board of Directors. Unless the Board of Directors
otherwise determines, the President shall be the Chief Executive Officer of the
Corporation. At the request of the Chairman of the Board or in his or her
absence, or in the event of the Chairman of the Board's inability or refusal to
act, the President shall perform the duties of the Chairman of the Board, and,
when so acting, shall have the powers of and be subject to the restrictions
placed upon the Chairman of the Board in respect of the performance of such
duties, unless the Board of Directors otherwise designates.
5.7. CHIEF EXECUTIVE OFFICER. If the Board appoints a Chief Executive
Officer, he or she shall have direct charge of the business of the Corporation,
subject to the general control of the Board of Directors, and shall be the chief
executive officer of the Corporation unless otherwise determined by the Board of
Directors. The Chief Executive Officer shall have direct charge of the daily
operational aspects of the Corporation's business, unless otherwise determined
by the Board of Directors, and shall have such other duties as may be assigned
to him or her from time to time by the Board of Directors or its Chairman.
5.8. VICE-PRESIDENT. Each Vice President shall perform all such duties as
from time to time may be assigned to him or her by the Board of Directors, the
Chairman of the Board, the President or the Chief Executive Officer. At the
request of the President, or in the absence of the President, or in the event of
his or her inability or refusal to act, the Vice-President (or, in the event
there be more than one Vice-President, the Vice-Presidents in the order
designated at the time of their election, or in the absence of any designation,
then in the order of their election), shall perform all the duties of the
President and, when so acting, shall have the power of and be subject to the
restrictions placed on the President in respect of the performance of such
duties.
5.9. TREASURER. The Treasurer shall have charge and custody of and be
responsible for all funds and securities of the Corporation; receive and give
receipts for monies due and payable to the Corporation from any source
whatsoever, and keep full and accurate accounts of receipts and disbursements in
books belonging to the Corporation; deposit all moneys and other valuable
effects in the name and to the credit of the Corporation in such banks, trust
companies and other depositories as shall be designated by the Board of
Directors or pursuant to its direction; and, in general, perform all the duties
incident to the
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office of Treasurer and such other duties as from time to time may be assigned
to him or her by the Chairman of the Board, the President, the Chief Executive
Officer or the Board of Directors. The Treasurer shall disburse the funds of
the Corporation as may be ordered by the Board of Directors, taking proper
vouchers for such disbursements, and shall supervise the investments of the
Corporation's funds. The Treasurer shall render to the President and to the
Board of Directors, at its regular meetings, or when the Board of Directors so
requires, an account of all transactions as Treasurer and of the financial
condition of the Corporation.
5.10. SECRETARY. The Secretary shall (a) attend all meetings of the
stockholders and all meetings of the Board of Directors and shall record and
keep, or cause to be recorded and kept, the minutes of the corporate meetings in
one or more books provided for that purpose, and shall perform like duties for
the standing committees when required; (b) see that all notices are duly given
in accordance with the provisions of these By-laws or as required by law; (c) be
custodian of the corporate records and of the seal, if any, of the Corporation;
(d) keep a register of the mailing address of each stockholder; (e) sign with
the Chairman of the Board, President or Vice-President certificates for shares
of stock of the Corporation; (f) have general charge of the stock transfer books
of the Corporation; and (g) in general, perform all duties as from time to time
may be assigned to him or her by the Chairman of the Board, the President, the
Chief Executive Officer or the Board of Directors.
5.11 ASSISTANT TREASURER. The Assistant Treasurer, or if there shall be
more than one, the Assistant Treasurers in the order determined by the Board of
Directors (or if there shall be no such determination, then in the order of
their election), shall, in the absence of the Treasurer or in the event of the
Treasurer's inability or refusal to act, perform the duties and exercise the
powers of the Treasurer and shall perform such other duties as from time to time
may be assigned by the Board of Directors.
5.12 ASSISTANT SECRETARY. The Assistant Secretary, or if there shall be
more than one, the Assistant Secretaries in the order determined by the Board of
Directors (or if there shall be no such determination, then in the order of
their election), shall, in the absence of the Secretary or in the event of the
Secretary's inability or refusal to act, perform the duties and exercise the
powers of the Secretary and shall perform such other duties as from time to time
may be assigned by the Board of Directors.
5.13. POWERS AND DUTIES. In the absence of any officer of the
Corporation, or for any other reason the Board of Directors may deem sufficient,
the Board of Directors may delegate for the time being, the powers or duties of
such officer, or any of them, to any other officer or to any director. The
Board of Directors may from time to time delegate to any officer authority to
appoint and remove subordinate officers and to prescribe their authority and
duties.
5.14 OFFICERS' BOND OR OTHER SECURITY. If required by the Board of
Directors, any officer of the Corporation shall give a bond or other security
for the faithful performance of such officer's duties, in such amount and with
such surety as the Board of Directors may require.
-11-
<PAGE>
5.15. COMPENSATION. The compensation of the officers shall be fixed from
time to time by the Board of Directors. Nothing contained herein shall preclude
any officer from serving the Corporation in any other capacity, including that
of director, or from serving any of its stockholders, subsidiaries or affiliated
corporations in any capacity, and receiving proper compensation therefor.
ARTICLE 6
CERTIFICATES OF STOCK
---------------------
6.1. STOCK CERTIFICATES. Every holder of stock in the Corporation shall
be entitled to have a certificate signed by, or in the name of the Corporation
by, the Chairman of the Board, the President or a Vice-President, and by the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary
of the Corporation, certifying the number of shares of stock owned by the holder
in the Corporation. If the Corporation shall be authorized to issue more than
one class of stock or more than one series of any class, the designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock; provided that, except as
otherwise provided in Section 202 of the General Corporation Law of the State of
Delaware, in lieu of the foregoing requirements, there may be set forth on the
face or back of the certificate which the Corporation shall issue to represent
such class or series of stock, a statement that the Corporation will furnish
without charge to each stockholder who so requests the designations, preferences
and relative, participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights.
6.2 FACSIMILE SIGNATURES. Where a certificate of stock is countersigned
(a) by a transfer agent other than the Corporation or its employee, (b) by a
registrar other than the Corporation or its employee, any other signature on the
certificate may be a facsimile signature. In case any officer, transfer agent
or registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if such person were such officer, transfer agent or registrar at
the date of issue.
6.3 LOST, STOLEN OR DESTROYED CERTIFICATES. The Board of Directors may
direct a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the Corporation alleged to
have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate of stock to be lost, stolen or
destroyed. When authorizing such issue of a new certificate or certificates,
the Board of Directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost, stolen or destroyed
certificate or certificates, or his legal representative, to give the
Corporation a bond in such sum as it may direct as indemnity against any
-12-
<PAGE>
claim that may be made against the Corporation with respect to the certificate
alleged to have been lost, stolen or destroyed.
6.4 TRANSFER OF STOCK. Upon surrender to the Corporation or the transfer
agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, the Corporation shall issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its records;
provided, however, that the Corporation shall be entitled to recognize and
enforce any lawful restriction on transfer. Whenever any transfer of stock
shall be made for collateral security, and not absolutely, it shall be so
expressed in the entry of transfer if, when the certificates are presented to
the Corporation for transfer, both the transferor and the transferee request the
Corporation to do so.
6.5 TRANSFER AGENTS AND REGISTRARS. The Board of Directors may appoint,
or authorize any officer or officers to appoint, one or more transfer agents and
one or more registrars.
6.6 REGULATIONS. The Board of Directors may make such additional rules
and regulations, not inconsistent with these By-laws, as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation.
6.7 FIXING THE RECORD DATE. In order that the Corporation may determine
the holders of stock of the Corporation entitled to notice of or to vote at any
meeting of stockholders or any adjournments thereof, or entitled to receive
payment of any dividend or other distribution or allotment of any rights, or
entitled to exercise any rights in respect of any change, conversion or exchange
of stock, or for the purpose of any other lawful action, the Board of Directors
may fix a record date which shall not precede the date upon which the resolution
fixing the record date is adopted, and which record date, as applicable, shall
not be more than sixty nor less than ten days before the date of the meeting of
stockholders, nor more than sixty days prior to any other action. If no record
date is fixed, the record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders, or entitled to the benefit of any
such other action, shall be determined pursuant to Section 213 of the General
Corporation Law of the State of Delaware. A determination of stockholders of
record entitled to notice of or to vote at a meeting of stockholders shall apply
to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
6.8 REGISTERED STOCKHOLDERS. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares of stock to receive dividends and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares of stock, and shall not be bound to recognize any equitable or other
claim to or interest in such share or shares of stock on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of the State of Delaware.
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<PAGE>
ARTICLE 7
GENERAL PROVISIONS
------------------
7.1 AUDITS. The accounts, books and records of the Corporation shall be
audited upon the conclusion of each fiscal year by an independent certified
public accountant selected by the Board of Directors, and it shall be the duty
of the Board of Directors to cause such audit to be done annually.
7.2 BOOKS AND RECORDS. The books and records of the Corporation may be
kept outside the State of Delaware at such place or places as may from time to
time be designated by the Board of Directors.
7.3 CHECKS, NOTES, DRAFTS, ETC. All checks, notes, drafts or other orders
for the payment of money of the Corporation shall be signed, endorsed or
accepted in the name of the Corporation by such officer, officers, person or
persons as from time to time may be designated by the Board of Directors or by
an officer or officers authorized by the Board of Directors to make such
designation.
7.4 DIVIDENDS. Subject to the provisions of statute and the Certificate
of Incorporation, dividends upon the shares of capital stock of the Corporation
may be declared by the Board of Directors at any regular or special meeting.
Dividends may be paid in cash, in property or in shares of stock of the
Corporation, unless otherwise provided by statute or the Certificate of
Incorporation.
7.5 EXECUTION OF CONTRACTS, DEEDS, ETC. The Board of Directors may
authorize any officer or officers, agent or agents, in the name and on behalf of
the Corporation to enter into or execute and deliver any and all contracts,
deeds, bonds, mortgages and other obligations or instruments, and such authority
may be general or confined to specific instances.
7.6 FISCAL YEAR. The Board of Directors of the Corporation shall have the
power to fix, and from time to time change, the fiscal year of the Corporation.
7.7 RESERVES. Before payment of any dividend, there may be set aside out
of any funds of the Corporation available for dividends such sum or sums as the
Board of Directors may, from time to time, in its absolute discretion, determine
to be proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation or
for such other purpose as the Board of Directors may deem to be conducive to the
interests of the Corporation. The Board of Directors may modify or abolish any
such reserve in the manner in which it was created.
7.8 SEAL. The seal of the Corporation shall have inscribed thereon the
name of the Corporation, the year of its organization and the words "Corporate
Seal, Delaware." The seal may be used by causing it or a facsimile thereof to
be impressed or affixed or reproduced or otherwise.
-14-
<PAGE>
7.9 VOTING OF STOCK IN OTHER CORPORATIONS. Unless otherwise provided by
resolution of the Board of Directors, the Chairman of the Board or the
President, from time to time, may (or may appoint one or more attorneys or
agents to) cast the votes which the Corporation may be entitled to cast as a
stockholder or otherwise in any other corporation, any of whose shares of
securities may be held by the Corporation, at meetings of the holders of the
shares or other securities of such other corporation. In the event one or more
attorneys or agents are appointed, the Chairman of the Board or the President
may instruct the person or persons so appointed as to the manner of casting such
votes or giving such consent. The Chairman of the Board or the President may,
or may instruct the attorneys or agents appointed to, execute or cause to be
executed in the name and on behalf of the Corporation or under its seal or
otherwise, such written proxies, consents, waivers or other instruments as may
be necessary or proper in the circumstances.
ARTICLE 8
AMENDMENTS
----------
These By-laws may be amended or repealed or new by-laws adopted as provided
by the Certificate of Incorporation.
The foregoing By-laws are a true and
correct copy of the By-laws, as of
August ___, 1996.
------------------------------------
Michael M. Fleishman, Secretary
-15-
<PAGE>
EXHIBIT 10.1
PJ AMERICA, INC.
REGISTRATION RIGHTS AGREEMENT
___________, 1996
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
PAGE
----
<C> <S> <C>
1. Certain Definitions................................. 1
1.1 Affiliates..................................... 1
1.2 Common Shares.................................. 1
1.3 Person......................................... 1
1.4 Register; Registered; Registration............. 2
1.5 Registrable Shares............................. 2
1.6 Registration Expenses.......................... 2
1.7 Rule 144....................................... 2
1.8 Securities Act................................. 2
1.9 Selling Expenses............................... 2
2. Transferability..................................... 2
2.1 Restrictions on Transferability................ 2
2.2 Restrictive Legend............................. 3
2.3 Notice of Proposed Transfers................... 3
3. Registration Rights................................. 4
3.1 Piggy-Back Rights on PJ Registration........... 4
3.2 Holdback Agreement............................. 5
3.3 Expenses of Registration....................... 5
3.4 Registration Procedures........................ 6
3.5 Indemnification................................ 7
3.6 Information by Shareholders Group.............. 9
3.7 Rule 144 Reporting............................. 9
3.8 Termination of PJ's Obligations................ 10
4. No Transfer of Registration Rights.................. 10
5. Miscellaneous....................................... 10
5.1 Governing Law.................................. 10
5.2 Counsel........................................ 10
5.3 Delays or Omissions............................ 10
5.4 Entire Agreement............................... 10
5.5 Binding Effect................................. 10
5.6 Notices........................................ 11
5.7 Headings....................................... 11
5.8 Counterparts................................... 11
5.9 Severability of Provisions..................... 11
5.10 Exhibits....................................... 12
5.11 Number; Gender................................. 12
5.12 Amendment...................................... 12
</TABLE>
<PAGE>
REGISTRATION RIGHTS AGREEMENT
-----------------------------
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is made and entered into
this ____ day of ____, 1996, by and between PJ AMERICA, INC., a Delaware
corporation ("PJ"), and the individuals identified on the signature page hereof
(the "Shareholders Group").
RECITALS:
A. On the date hereof, PJ issued _________shares of its common stock,
$0.01 par value per share ("Common Stock"), to the Shareholders Group pursuant
to the terms of that certain Agreement and Plan of Merger dated as of July 10,
1996 (the "Merger Agreement").
B. PJ has filed a Registration Statement of Form S-1 with the Securities
and Exchange Commission (the "Commission") in connection with the initial public
offering of shares of its Common Stock (the "IPO").
C. PJ and the members of the Shareholders Group desire to set forth in a
single agreement the registration rights to be granted to the members of the
Shareholders Group incident to their acquiring shares of PJ's common stock.
AGREEMENT:
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereby agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the following respective meanings:
1.1 AFFILIATES. "Affiliates" shall mean any person that, directly or
indirectly, through one or more intermediaries, controls, or is controlled by,
or is under common control with, such specified person.
1.2 COMMON SHARES. "Common Shares" shall mean the shares of PJ's
Common Stock issued to the Shareholders Group pursuant to the Organization
Agreement.
1.3 PERSON. "Person" shall mean any individual, partnership,
corporation, trust or other entity.
<PAGE>
1.4 REGISTER; REGISTERED; REGISTRATION. "Register," "registered" and
"registration" shall refer to a registration effected by preparing and filing a
registration statement in compliance with the Securities Act, and the
declaration or ordering of the effectiveness of such registration statement by
the Commission.
1.5 REGISTRABLE SHARES. "Registrable Shares" shall mean (i) the
Common Shares, and (ii) all shares of PJ's Common Stock issued as a dividend on,
or other distribution with respect to, or in exchange or in replacement of, the
Common Shares, excluding in all cases, however (including exclusion from the
calculation of the number of outstanding Registrable Shares), any Registrable
Shares sold or otherwise disposed of by a member of the Shareholders Group,
including, without limitation, any sale or other disposition in a registration
pursuant to this Agreement or in any transaction pursuant to Rule 144 (as
defined herein).
1.6 REGISTRATION EXPENSES. "Registration Expenses" shall mean all
expenses incurred by PJ in complying with Sections 3.1, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for PJ, blue sky fees and expenses, and the expense of
any special consents, advice or similar audit services of independent auditors
incident to or required by any such registration (but excluding the compensation
of regular employees of PJ which shall be paid in any event by PJ).
1.7 RULE 144. "Rule 144" shall mean 17 CFR (S) 230.144 as promulgated
by the Commission pursuant to the Securities Act.
1.8 SECURITIES ACT. The "Securities Act" shall mean the Securities
Act of 1933, as amended, or any similar federal statute, and the rules and
regulations of the Commission thereunder, all as the same shall be in effect at
the time.
1.9 SELLING EXPENSES. "Selling Expenses" shall mean all underwriting
discounts and selling commissions applicable to the sale of shares of PJ's
Common Stock, including Registrable Shares, in any sale pursuant to a
Registration by PJ pursuant to this Agreement.
2. TRANSFERABILITY.
2.1 RESTRICTIONS ON TRANSFERABILITY. The Common Shares shall not be
transferable except upon the conditions specified in this Agreement, which
conditions are intended to ensure compliance with the provisions of the
Securities Act, or, in the case of Section 3.7 hereof, to assist in an orderly
distribution.
<PAGE>
2.2 Restrictive Legend. Each certificate representing the Common
Shares or securities issued in respect of the Common Shares, shall (unless
otherwise permitted by the provisions of Section 23 below) be stamped or
otherwise imprinted with a legend in the following form (in addition to any
legend required under applicable state securities laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
OR ANY APPLICABLE STATE SECURITIES LAWS. THESE SECURITIES ARE
"RESTRICTED SECURITIES" AS DEFINED IN THE RULE 144 PROMULGATED UNDER
THE ACT AND MAY NOT BE SOLD OR OFFERED FOR SALE OR OTHERWISE
DISTRIBUTED EXCEPT (i) IN CONJUNCTION WITH AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SHARES UNDER THE ACT AND APPLICABLE STATE SECURITIES
LAWS, (ii) IN COMPLIANCE WITH RULE 144 AND AN EXEMPTION UNDER
APPLICABLE STATE SECURITIES LAWS, OR (iii) PURSUANT TO AN OPINION OF
COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION OR
COMPLIANCE IS NOT REQUIRED AS TO SUCH SALE, OFFER OR DISTRIBUTION.
2.3 Notice of Proposed Transfers. Prior to any proposed transfer of
any Common Shares, unless there is an effective registration statement under the
Securities Act covering the proposed transfer, a member of the Shareholders
Group who desires to transfer any Common Shares shall give written notice to PJ
of its intention to effect such transfer. Each such notice shall describe the
manner and circumstances of the proposed transfer in sufficient detail, and
shall be accompanied (except that the requirements set forth in the balance of
this sentence need not be complied with where the proposed transaction complies
with Rule 144 so long as PJ is furnished with evidence of compliance with such
rule) by either (i) an unqualified written opinion of legal counsel which shall
be reasonably satisfactory to PJ addressed to PJ's counsel, to the effect that
the proposed transfer of the Restricted Securities may be effected without
registration of the Securities Act, (ii) a "no action" letter from the
Commission to the effect that the distribution of such securities without
registration will not result in a recommendation by the staff of the Commission
that action be taken with respect thereto, or (iii) such other showing that may
be reasonably satisfactory to legal counsel to PJ, whereupon such member of the
Shareholders Group shall be entitled to transfer such Restricted Securities in
accordance with the terms of a notice delivered to PJ. Each certificate
evidencing the Restricted Securities transferred as above provided shall bear
the appropriate restrictive legend set forth in Section 22., except that such
certificate shall not bear such restrictive legend if in the opinion of counsel
for PJ such legend is not required in order to establish compliance with any
provisions of the Securities Act or applicable state securities laws.
<PAGE>
3. Registration Rights.
3.1 Piggy-Back Rights on PJ Registration.
a. Grant of Piggyback Registration Rights. If PJ shall, at any
time and from time to time, propose to register any of its Common Stock for its
own account, in connection with an underwritten public offering of Common Stock
solely for cash (other than a registration statement filed on Form S-4 or any
other form filed in connection with any acquisition, merger, consolidation or
stock exchange, a registration statement filed solely in connection with
director or employee benefit plans of PJ, or PJ's IPO) PJ shall:
i. give written notice as promptly as practicable of the
proposed registration to the Shareholders Group (which shall include a list of
the jurisdictions in which PJ intends to attempt to qualify such Common Stock
under the applicable Blue Sky or other state securities laws); and
ii. include in such registration (and any related
qualification under Blue Sky laws or other compliance), and in any underwriting
involved therein, all of the Registrable Shares specified in a written request
or requests by the Shareholders Group to PJ, made within 20 days after receipt
of such written notice from PJ.
Notwithstanding anything herein to the contrary, PJ may at any time prior
to the effectiveness of any such registration statement, in its sole discretion
and without the consent of the Shareholders Group, abandon the proposed
registration in which the Shareholders Group had requested to participate.
b. Underwriting. If the registration of which PJ gives notice
is for a registered public offering involving an underwriting, PJ shall so
advise the Shareholders Group as a part of the written notice given pursuant to
Section 3.1.a.i. In such event the right of Shareholders Group to register its
Registrable Shares pursuant to Section 3.1 shall be conditioned upon the
Shareholders Group's participation in such underwriting and the inclusion of
their Registrable Shares in the underwriting to the extent provided herein. The
Shareholders Group shall (together with PJ and any other stockholders
(hereinafter, the "Additional Selling Stockholders") proposing to offer and sell
their shares of PJ Common Stock through such underwriting) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by PJ. Notwithstanding any other provision of
this Section 31, if the managing underwriter or underwriters determine that
such offering would be materially adversely affected by inclusion in such
underwriting of all of the Registrable Shares requested by the Shareholders
Group, the managing underwriter or underwriters may exclude a portion of such
Registrable Shares from such registration and underwriting. PJ shall so advise
the Shareholders Group of the managing underwriter's or underwriters'
determination to exclude a portion of the Registrable Shares from such
registration and underwriting within five days after the Shareholders Group
delivers its request pursuant to Section 3.1.b., and the number of shares of
Common Stock of PJ that may be included in the registration and underwriting
shall be allocated among the Shareholders Group and the Additional Selling
Stockholders in proportion, as nearly as
<PAGE>
practicable, to the respective amounts of shares of Common Stock of PJ owned by
the Shareholders Group and each of the Additional Selling Stockholders at the
time of filing the registration statement. No Registrable Shares excluded from
the underwriting by reason of the managing underwriter's or underwriters'
determination shall be included in such registration. If the Shareholders Group
disapproves of the terms of any such underwriting, they may elect to withdraw
therefrom all or a portion of the Registrable Shares included in their request
for registration by written notice to PJ and the managing underwriter or
underwriters, and the Registrable Shares so withdrawn from the underwriting
shall also be withdrawn from such registration. If, however, one or more
Additional Selling Stockholders withdraw shares of Common Stock from the
underwriting and registration, and by virtue of such withdrawal of such shares
and the Shareholder Group's withdrawal of Registrable Shares from such
registration, a greater number of shares of Common Stock may be included in such
registration (up to the maximum of any limitation imposed by the managing
underwriter or underwriters), then PJ shall offer to the members of the
Shareholders Group and the Additional Selling Stockholders who have elected to
include their shares of Common Stock in the registration the right to include
additional shares of Common Stock, as applicable, in the registration in the
same proportions as were used above in determining the underwriter limitation.
3.2 Holdback Agreement. The Shareholders Group agrees, that upon
request of PJ or the managing underwriter or underwriters in any underwritten
offering of any such Registrable Shares, not to make or cause any offering, sale
or other disposition, directly or indirectly, of any Common Shares (or any other
securities of PJ) without the prior approval of the underwriters for such period
of time (not to exceed 180 days) from the effective date of such registration as
may be requested by PJ or the managing underwriter or underwriters. In
addition, the Shareholders Group agrees, that upon request of PJ or the managing
underwriter or underwriters in any underwritten offering and registration of
shares of Common Stock (or other securities of PJ) in which the Shareholders
Group (having been given notice and the opportunity as required by Section 3.1)
declines to participate, not to make or cause any offering, sale or other
disposition, directly or indirectly, of any Common Shares or any other
securities of PJ held by them (other than any such Common Shares sold or
otherwise disposed of pursuant to a previously registered and underwritten
offering) without the prior approval of the managing underwriter or underwriters
(but not to exceed a period of time from the effective date of such registration
as the managing underwriter or underwriters shall have requested of all
"affiliates" (as defined in Rule 144) of PJ).
3.3 Expenses of Registration. All Registration Expenses incurred in
connection with registrations under Section 3.1 shall be borne by PJ. All
Selling Expenses incurred in connection with any registration under Section 3.1
shall be borne by the members of the Shareholders Group and each Additional
Selling Stockholder who participates in the registration pro rata on the basis
of the number of shares of Common Stock registered by each member of the
Shareholders Group and the Additional Selling Stockholders, respectively. The
Shareholders Group shall pay the fees and expenses of their legal counsel, but
if and only to the extent that such legal counsel is in addition to counsel as
may be retained to represent PJ and the Shareholders Group in connection with
any registration or other matter relating to this Agreement.
<PAGE>
3.4 Registration Procedures. In each registration effected by PJ
pursuant to this Section 3, PJ will keep the Shareholders Group advised in
writing as to the initiation of each such registration and as to the completion
thereof. At its expense, PJ will:
i. prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement;
ii. furnish to the Shareholders Group such numbers of copies
of a prospectus, including a preliminary prospectus, that conforms to the
requirements of the Securities Act, the registration statement, and such other
documents (including any exhibits thereto or documents referred to therein) as
the Shareholders Group may reasonably request in order to facilitate the
disposition of the Registrable Shares owned by it;
iii. in the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter or underwriter of such offering.
Each member of the Shareholders Group participating in such underwriting shall
also enter into and perform such member's obligations under such an underwriting
agreement;
iv. at the closing, furnish unlegended certificates
representing ownership of the Registrable Shares being sold in such
denominations as the members of the Shareholders Group participating in the
registration or the managing underwriter or underwriters shall request;
v. instruct the transfer agent and registrar to release any
stop transfer order with respect to the Registrable Shares being sold;
vi. promptly notify the Shareholders Group of the happening
of any event as a result of which any registration statement or any preliminary
prospectus or the prospectus included in such registration statement, as then in
effect, or any other offering document, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing, and prepare and furnish to the Shareholders Group
as many copies of a supplement to or an amendment of such offering document
which shall correct such untrue statement or eliminate such omission, as the
Shareholders Group shall request; and
vii. take such actions and execute and deliver such other
documents as may be necessary to give full effect to the rights of the
Shareholders Group under this Agreement.
<PAGE>
3.5 Indemnification.
a. PJ Indemnity. In the case of each registration contemplated
by this Agreement, PJ will indemnify each member of the Shareholders Group, each
underwriter and each person who controls any underwriter, against all claims,
losses, damages and liabilities (or actions in respect thereof), including any
of the foregoing incurred in settlement of any litigation, commenced or
threatened, to which they may become subject under the Securities Act or other
federal or state law, arising out of or based on (i) any untrue statement (or
alleged untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other similar document (including
any related registration statement, notification or the like) incident to any
such registration, or based on any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under which
they were made, or (ii) any violation by PJ of any federal, state or common law
made or regulation applicable to PJ in connection with any such registration,
qualification or compliance, and will reimburse each member of the Shareholders
Group, the underwriter, and each person controlling the underwriter, for any
legal and any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action, as
incurred; provided, that PJ will not be liable, and shall have no
indemnification obligation hereunder, in any such case to the extent that any
such claim, loss, damage, liability or expense arises out of or is based on any
untrue statement or omission, made in reliance on and in conformity with written
information furnished to PJ by an instrument duly executed by such member of the
Shareholders Group, and stated to be specifically for use therein.
b. Indemnity by Shareholders Group. Each member of the
Shareholders Group will, if Registrable Shares held by such member are included
in the securities as to which such registration is being effected, indemnify PJ,
each of its officers and directors, each underwriter and each person who
controls any underwriter, and each person, if any, who controls PJ or any such
underwriter within the meaning of Section 15 of the Securities Act, and each
person affiliated with or retained by PJ and who may be subject to liability
under any applicable securities laws, against all claims, losses, damages and
liabilities (or actions in respect thereof), including any of the foregoing
incurred in settlement of any litigation, commenced or threatened, to which they
may become subject under the Securities Act or other federal or state law,
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any such registration statement, prospectus,
offering circular or other similar document, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made, and will reimburse PJ, such directors,
officers, persons, underwriters or control persons, for any legal or any other
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action, as incurred, in each case to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written informa-
<PAGE>
tion furnished to PJ by an instrument duly executed by such member and stated to
be specifically for use therein.
c. Procedure for Indemnification.
i. Each party entitled to indemnification under this
Section 3.5.c. (the "Indemnitee") shall give notice to the party required to
provide indemnification (the "Indemnitor") promptly (within 20 days if a third
party has commenced actual litigation against the Indemnitee) after such
Indemnitee has received written notice of any claim as to which indemnity may be
sought, and shall permit the Indemnitor, at the Indemnitor's cost, to assume the
defense of any such claim or any litigation resulting therefrom, provided that
the Indemnitor acknowledges in writing to the Indemnitee its indemnification
obligation hereunder to fully indemnify the Indemnitee and that counsel for the
Indemnitor, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnitee (whose approval shall not unreasonably be withheld).
Such notice shall specify in reasonable detail the facts known to the Indemnitee
giving rise to such indemnification rights and, if possible, an estimate of the
amount of liability which could result therefrom. The right of the Indemnitee to
indemnification hereunder shall be deemed agreed to unless, within ten days
after the receipt of such notice, the Indemnitee is notified in writing by the
Indemnitor that it disputes the right to indemnification as set forth in such
notice. Failure by the Indemnitor to notify the Indemnitee of the Indemnitor's
election to defend such action within ten days after notice thereof shall have
been given to the Indemnitor, or notification to the Indemnitee by the
Indemnitor that the Indemnitee's right to indemnification is being disputed,
shall be deemed a waiver by the Indemnitor of its right to defend such action.
If the Indemnitee shall be so notified of such dispute of such right to
indemnification, the dispute resolution procedures of Section 13.7 of the Merger
Agreement shall apply. In any action defended by the Indemnitor, the Indemnitee
may participate in such defense at such party's expense; provided, however, that
the Indemnitor shall bear the expense of such defense of the Indemnitee if
representation of both parties by the same counsel would be inappropriate due to
actual or potential conflicts of interest. The failure of any Indemnitee to give
notice as provided herein shall relieve the Indemnitor of its obligations under
this Section 3.5.c. only to the extent that such failure to give notice shall
materially adversely prejudice the Indemnitor in the defense of any such claim
or any such litigation. No Indemnitor, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnitee, consent to entry
of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnitee of a release from all liability in respect to such claim or
litigation.
ii. If the Indemnitor shall not assume the defense of any
such claim or litigation resulting therefrom, the Indemnitee may defend against
such claim or litigation in such manner as it may deem appropriate. The
Indemnitee may settle such claim or litigation on such terms as it may deem
appropriate and the Indemnitor shall promptly reimburse the Indemnitee for the
amount of such settlement, and all expenses, legal or otherwise, incurred by the
Indemnitee in connection with the defense against, or settlement of, such claim
or litigation. If no settlement of such claim or litigation is made, the
Indemnitor shall promptly reimburse the Indemnitee for the amount of any
judgment
<PAGE>
rendered with respect to such claim or in such litigation, and of all expenses,
legal or otherwise, incurred by the Indemnitee in the defense against such claim
or litigation. Notwithstanding the foregoing, if the Indemnitor has disputed the
Indemnitee's right to indemnification in accordance with the provisions of
Section 3.5.c.i., the Indemnitor shall not be obligated to pay the Indemnitee
the amounts provided for in this Section 3.5.c.ii until such dispute has been
resolved and it has been determined that the Indemnitor is required to make such
indemnification.
3.6 Information by Shareholders Group. Each member of the
Shareholders Group who elects to participate in the registration shall furnish
to PJ such information regarding such member and, as necessary, such member's
Affiliates and the distribution proposed by such member as PJ may request in
writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Section 3.6.
3.7 Rule 144 Reporting. With a view to making available the benefits
of certain rules and regulations of the Commission which may at any time permit
the sale of the Restricted Securities to the public without registration, after
such time as a public market exists for the Common Stock of PJ, PJ agrees to:
a. use its reasonable best efforts to facilitate the sale of the
Restricted Securities to the public, without registration under the Securities
Act, pursuant to Rule 144, provided that this shall not require PJ to file
reports under the Securities Act and the Securities and Exchange Act of 1934, as
amended ("Exchange Act") at any time prior to PJ's being otherwise required to
file such reports;
b. make and keep public information available, as those terms
are understood and defined in Rule 144 at all times after 90 days after the
effective date of the first registration under the Securities Act filed by PJ
for an offering of its securities to the general public;
c. use its reasonable best efforts to then file with the
Commission in a timely manner all reports and other documents required of PJ
under the Securities Act and the Exchange Act (at any time after it has become
subject to such reporting requirements); and
d. so long as any member of the Shareholders Group owns any
Restricted Securities, to furnish to such members of the Shareholders Group
forthwith upon request a written statement by PJ as to the compliance with the
reporting requirements of said Rule 144 (at any time after 90 days after the
effective date of the first registration statement filed by PJ for an offering
of its securities to the general public), and of the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of PJ, and
such other reports and documents so filed by PJ as such members may reasonably
request in availing themselves of any rule or regulation of the Commission
allowing such members of the Shareholders Group to sell any such securities
without registration.
<PAGE>
3.8 Termination of PJ's Obligations. The obligation of PJ to
register the Registrable Shares pursuant to Section 3.1 of this Agreement shall
expire on the earlier of (i) the date when the members of the Shareholders Group
cease beneficially to own any Registrable Shares, or (ii) the date which is the
fifth anniversary of the date the registration statement for the IPO is declared
effective by the Commission.
4. No Transfer of Registration Rights. The registration rights granted
under Section 3.1 may not be assigned or otherwise conveyed by the members of
the Shareholders Group.
5. Miscellaneous.
5.1 Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Delaware.
5.2 Counsel. PJ shall select and employ legal counsel to represent
the parties in the registration of shares of Common Stock under this Agreement.
If, in the judgment of the Shareholders Group, it would be appropriate to do so,
the Shareholders Group may select counsel to represent it in connection with the
registration. The Shareholders Group shall be solely responsible for the fees
and expenses of any separate counsel so selected, and PJ shall have no
responsibility or liability whatsoever with respect thereto.
5.3 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to the Shareholders Group, or any member thereof, upon
any breach or default by PJ under this Agreement, shall impair any such right,
power or remedy of the Shareholders Group, or any of its members, nor shall it
be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereunder occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of the Shareholders
Group, or any member thereof, or any breach or default under this Agreement, or
any waiver on the part of the Shareholders Group, or any of its members, of any
provisions or conditions of this Agreement, must be in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement, or by law or otherwise afforded to the
Shareholders Group, or any of its members, shall be cumulative and not
alternative.
5.4 Entire Agreement. This Agreement constitutes the entire
agreement and understanding of the parties hereto with respect to the subject
matter hereof, and supersedes all prior agreements, correspondence, arrangements
and understandings relating to the subject matter hereof.
5.5 Binding Effect. All of the terms, provisions and conditions
hereof shall be binding upon and shall inure to the benefit of and be
enforceable by the parties hereto, and their respective heirs, personal
representatives, successors and assigns. Nothing
<PAGE>
in this Agreement shall entitle any person to any claim, cause of action, remedy
or right of any kind.
5.6 Notices. All notices and other communications required or
permitted hereunder shall be sufficiently given if in writing and personally
delivered against a written receipt, if delivered to a reputable express
messenger service (such as Federal Express, UPS or DHL Carrier) for overnight
delivery, when transmitted by confirmed telephone facsimile (fax) or sent by
registered, express or certified U.S. mail, postage prepaid, addressed as
follows:
To PJ: PJ America, Inc.
9109 Parkway East
Birmingham, Alabama 35206
Attention: Douglas S. Stephens, President
and Chief Executive Officer
If to Shareholders Group: To the addresses set forth on the attached
Exhibit A
or to such other address as either party hereto shall furnish to the other in
writing. Notices shall be deemed given when personally delivered, when
delivered to an express messenger service, when transmitted by confirmed fax or
when deposited in the U.S. mail in accordance with the foregoing provisions.
However, the time period in which a response to any such notice, demand or
request must be given shall commence to run from the date of personal delivery,
the date of delivery by a reputable messenger service, the date on the
confirmation of a fax, or the date on the return receipt, as applicable.
5.7 Headings. The headings in this Agreement are included for
purposes of convenience only and shall not be considered a part of the Agreement
in construing or interpreting any provision hereof.
5.8 Counterparts. This Agreement may be executed in counterparts and
each such executed counterpart shall be deemed an original instrument. It shall
not be necessary in making proof of this Agreement or the terms of this
Agreement to produce or account for more than one of such counterparts.
5.9 Severability of Provisions. If any provision of this Agreement
or the application thereof to any person or entity or circumstance shall to any
extent be held in any proceeding to be invalid or unenforceable, the remainder
of this Agreement, or the application of such provision to persons or entities
or circumstances other than those to which it was held to be invalid or
unenforceable, shall not be affected thereby, and shall be valid and enforceable
to the fullest extent permitted by law, but only if and to the extent such
enforcement would not materially and adversely frustrate the parties' essential
objectives as expressed herein.
<PAGE>
5.10 Exhibits. All Exhibits to this Agreement shall be deemed to be
incorporated herein by reference and made a part hereof as if set out in full
herein.
5.11 Number; Gender. Unless the context clearly states otherwise,
the use of the singular or plural in this Agreement shall include the other and
the use of any gender shall include all others.
5.12 Amendment. This Agreement may be amended, modified, superseded,
or canceled only by a written instrument signed by all of the parties hereto and
any of the terms, provisions and conditions hereof may be waived, only by a
written instrument signed by the waiving party.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
PJ AMERICA, INC.
By:
------------------------------------------
Douglas S. Stephens, President and
Chief Executive Officer
THE SHAREHOLDERS GROUP:
------------------------------------------
MICHAEL M. FLEISHMAN
------------------------------------------
FRANK M. KEENER
------------------------------------------
STEPHEN P. LANGFORD
------------------------------------------
RICHARD F. SHERMAN
------------------------------------------
DOUGLAS S. STEPHENS
<PAGE>
------------------------------------------
ADRIAN OWENS
------------------------------------------
ROBERT W. CURTIS, JR.
------------------------------------------
PAMELA M. BAKER
------------------------------------------
MICHAEL J. GRISANTI
------------------------------------------
KARA HART
------------------------------------------
MARCINE HART
------------------------------------------
MARTIN T. HART
------------------------------------------
JACK A. LAUGHERY
------------------------------------------
MARTHA C. LAUGHERY
------------------------------------------
LISA I. O'CONNELL
------------------------------------------
JAMES REIKEL
<PAGE>
------------------------------------------
CYNTHIA A. SAUNDERS
------------------------------------------
STEPHEN M. SAUNDERS
------------------------------------------
MERIDA L. SHERMAN
------------------------------------------
NICHOLAS H. SHERMAN
<PAGE>
EXHIBIT 10.2
PJ AMERICA, INC.
1996 STOCK OWNERSHIP INCENTIVE PLAN
ARTICLE 1. PURPOSE
The purpose of this 1996 Stock Ownership Incentive Plan ("Plan") is to
advance the interest of PJ America, Inc., a Delaware corporation ("Company"),
and its subsidiaries by encouraging employees who will largely be responsible
for the long-term success and development of the Company to acquire and retain
an ownership interest in the Company. The Plan is also intended to provide
flexibility to the Company in attracting and retaining such employees and
stimulating their efforts on behalf of the Company.
ARTICLE 2. DEFINITIONS AND CONSTRUCTION
2.1 Definitions. As used in the Plan, terms defined parenthetically
immediately after their use shall have the respective meanings provided by such
definitions, and the terms set forth below shall have the following meanings (in
either case, such terms shall apply equally to both the singular and plural
forms of the terms defined):
(a) "Award" shall mean, individually or collectively, a grant under
the Plan of Options, Restricted Stock or Performance Units.
(b) "Board" shall mean the Board of Directors of the Company .
(c) "Cause" shall mean, unless otherwise defined in an agreement
evidencing an Award, a felony conviction of a Participant or the failure of a
Participant to contest prosecution for a felony, or a Participant's willful
misconduct or dishonesty, any of which is determined by the Committee to be
directly and materially harmful to the business or reputation of the Company or
its Subsidiaries.
(d) A "change in Control" shall mean any of the
following events:
(1) An acquisition (other than directly from the Company) of any
voting securities of the Company ("Voting Securities") by any Person immediately
after which such Person has Beneficial Ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of more than 50% of the combined
voting power of the Company's then outstanding Voting Securities; provided,
however, that in determining whether a Change in Control has occurred, Voting
Securities which are acquired in a Non-Control Acquisition (as hereinafter
defined)
<PAGE>
shall not constitute an acquisition which would cause a Change in Control. A
Non-Control Acquisition shall mean an acquisition by (i) the Company or any
Subsidiary, (ii) an employee benefit plan (or a trust forming a part thereof)
maintained by the Company or any Subsidiary, (iii) any Person in connection with
a Non-Control Transaction (as hereinafter defined);
(2) The individuals who, as of the effective date of the Plan, are
members of the Board ("Incumbent Board"), cease for any reason to constitute at
least a majority of the Board; provided, however, that if the election, or
nomination for election by the Company's stockholders, of any new director was
approved by a vote of at least a majority of the Incumbent Board, such new
director shall, for purposes of the Plan, be considered as a member of the
Incumbent Board; provided, further, however, that no individual shall be
considered a member of the Incumbent Board if such individual initially assumed
office as a result of either an actual or threatened Election Contest (as
described in Rule 14a-11 promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person other
than the Board ("Proxy Contest") including by reason of any agreement intended
to avoid or settle any Election Contest or Proxy Contest; or
(3) Approval by stockholders of the Company of:
(A) A merger, consolidation or reorganization involving the
Company, unless such is a Non-Control Transaction. For purposes of the Plan, the
term "Non-Control Transaction" shall mean a merger, consolidation or
reorganization of the Company in which:
(i) the stockholders of the Company, immediately
before such merger, consolidation or reorganization, own, directly or indirectly
immediately following such merger, consolidation or reorganization, at least a
majority of the combined voting power of the outstanding voting securities of
the corporation resulting from such merger or consolidation or reorganization
("Surviving Corporation") in substantially the same proportion as their
ownership of the Voting Securities immediately before such merger, consolidation
or reorganization;
(ii) the individuals who were members of the Incumbent
Board immediately prior to the execution of the agreement providing for such
merger, consolidation or reorganization constitute at least a majority of the
members of the board of directors of the Surviving Corporation; and
(iii) no Person (other than the Company, any Subsidiary,
any employee benefit plan (or any trust forming a part thereof) maintained by
the Company, the Surviving
<PAGE>
Corporation or any Subsidiary, or any Person who, immediately prior to such
merger, consolidation or reorganization had Beneficial Ownership of 20% or more
of the then outstanding Voting Securities) has Beneficial Ownership of 20% or
more of the combined voting power of the Surviving Corporation's then
outstanding voting securities;
(B) A complete liquidation or dissolution of the Company; or
(C) An agreement for the sale or other disposition of all or
substantially all of the assets of the Company to any Person (other than a
transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur
solely because any Person ("Subject Person") acquired Beneficial Ownership of
more than the permitted amount of the outstanding Voting Securities as a result
of the acquisition of Voting Securities by the Company which, by reducing the
number of Voting Securities outstanding, increases the proportional number of
shares Beneficially Owned by the Subject Person; provided, however, that if a
Change in Control would occur (but for the operation of this sentence) as a
result of the acquisition of Voting Securities by the Company, and after such
share acquisition by the Company the Subject Person becomes the Beneficial Owner
of any additional Voting Securities which increases the percentage of the then
outstanding Voting Securities Beneficially Owner by the Subject Person, then a
Change in Control shall occur.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, or any successor thereto.
(f) "Committee" shall mean the committee described in Section 31.
(g) "Disability" shall mean the total disability as determined by the
Committee in accordance with standards and procedures similar to those under the
Company's long-term disability plan, or, if none, a physical or mental infirmity
which the Committee determines impairs the Participant's ability to perform
substantially his or her duties for a period of 180 consecutive days.
(h) "Employee" shall mean an individual who is a full-time employee of
the Company or a Subsidiary.
(i) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
(j) "Fair Market Value" of the Shares shall mean, as of any applicable
date, the closing sale price of the Shares on the Nasdaq National Market System
or any national or regional
<PAGE>
stock exchange in which the Shares are traded, or if no such reported sale of
the Shares shall have occurred on such date, on the next preceding date on which
there was such a reported sale. If there shall be any material alteration in the
present system of reporting sale prices of the Shares, or if the Shares shall no
longer be listed on the Nasdaq National Market System or a national or regional
stock exchange, the fair market value of the Shares as of a particular date
shall be determined by such method as shall be determined by the Committee.
(k) "ISOs" shall have the meaning given such term in Section 61.
(l) "NQSOs" shall have the meaning given such term in Section 61.
(m) "Option" shall mean an option to purchase Shares granted pursuant
to Article 6.
(n) "Option Agreement" shall mean an agreement evidencing the grant of
an Option as described in Section 62.
(o) "Option Exercise Price" shall mean the purchase price per Share
subject to an Option, which shall not be less than the Fair Market Value of the
Share on the date of grant (110% of Fair Market Value in the case of an ISO
granted to a Ten Percent Shareholder).
(p) "Participant" shall mean any Employee selected by the Committee to
receive an Award under the Plan.
(q) "Performance Goals" shall have the meaning given such term in
Section 84.
(r) "Performance Period" shall have the meaning given such term in
Section 83.
(s) "Performance Unit" shall mean the right to receive a payment from
the Company upon the achievement of specified Performance Goals as set forth in
a Performance Unit Agreement.
(t) "Performance Unit Agreement" shall mean an agreement evidencing a
Performance Unit Award, as described in Section 82.
(u) "Person" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and as used in Sections 13(d) and 14(d) thereof,
including a "group" as defined in Section 13(d).
<PAGE>
(v) "PLAN" shall mean this PJ America, Inc. 1996 Stock Ownership
Incentive Plan as the same may be amended from time to time.
(w) "RESTRICTION PERIOD" shall mean the period determined by the
Committee during which the transfer of Shares is limited in some way or Shares
are otherwise restricted or subject to forfeiture as provided in Article 7.
(x) "RESTRICTED STOCK" shall mean Shares granted pursuant to
Article 7 as to which the restrictions have not expired.
(y) "RESTRICTED STOCK AGREEMENT" shall mean an agreement evidencing a
Restricted Stock Award, as described in Section 7.2.
(z) "RETIREMENT" shall mean retirement by a Participant in accordance
with the terms of the Company's retirement or pension plans, if any, or if the
Company has no such plans, then retirement after reaching age 65.
(aa) "SHARES" shall mean the shares of the Company's common stock, par
value $.01 per share.
(bb) "SUBSIDIARY" shall mean, with respect to any company, any
corporation or other Person of which a majority of its voting power, equity
securities, or equity interest is owned directly or indirectly by such company.
(cc) "TEN PERCENT SHAREHOLDER" shall mean an Employee who, at the time
an ISO is granted, owns (within the meaning of section 422(b)(6) of the Code)
stock possessing more than 10% of the total combined voting power of all classes
of stock of the Company.
2.2 GENDER AND NUMBER. Except where otherwise indicated by the context,
reference to the masculine gender shall include the feminine gender, the plural
shall include the singular and the singular shall include the plural.
2.3 SEVERABILITY. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
ARTICLE 3. ADMINISTRATION
3.1 THE COMMITTEE. The Plan shall be administered by a Committee
appointed by the Board consisting of two or more directors of the Company or the
entire Board. The Committee shall meet at such times and places as it determines
and may meet
<PAGE>
through a telephone conference call. The members of the Committee shall be
appointed from time to time by, and shall serve at the discretion of, the Board.
3.2 Authority of the Committee. Subject to the provisions of the Plan,
the Committee shall have full authority to:
(a) select Participants to whom Awards are granted;
(b) determine the size, types and frequency of Awards granted under
the Plan;
(c) determine the terms and conditions of Awards, including any
restrictions or conditions to the Award, which need not be identical;
(d) cancel or modify, with the consent of the Participant,
outstanding Awards and to grant new Awards in substitution therefor;
(e) accelerate the exercisability of any Award, for any reason;
(f) construe and interpret the Plan and any agreement or instrument
entered into under the Plan;
(g) establish, amend and rescind rules and regulations for the Plan's
administration; and
(h) amend the terms and conditions of any outstanding Award to the
extent such terms and conditions are within the discretion of the Committee as
provided in the Plan. Committee shall make all other determinations which may be
necessary or advisable for the administration of the Plan. To the extent
permitted by law and Rule 16b-3 promulgated under the Exchange Act, the
Committee may delegate its authority as identified hereunder.
3.3 Decisions Binding. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan, and all related orders or
resolutions of the Board, shall be final, conclusive and binding upon all
persons, including the Company, its stockholders, Employees, Participants and
their estates and beneficiaries.
3.4 Section 16 Compliance; Bifurcation of Plan. It is the intention of
the Company that the Plan and the administration of the Plan comply in all
respects with Section 16(b) of the Exchange Act and the rules and regulations
promulgated thereunder. If any Plan provision, or any aspect of the
administration of the Plan, is found not to be in compliance with Section 16(b)
of the Exchange Act, the provision or administration shall be deemed null and
void, and in all events the Plan shall be construed in favor of its meeting the
<PAGE>
requirements of Rule 16b-3 promulgated under the Exchange Act. Notwithstanding
anything in the Plan to the contrary, the Board or the Committee, in its
discretion, may bifurcate the Plan so as to restrict, limit or condition the use
of any provision of the Plan to Participants who are subject to Section 16 of
the Exchange Act without so restricting, limiting or conditioning the Plan with
respect to other Participants.
ARTICLE 4. SHARES AVAILABLE UNDER THE PLAN
4.1 Number of Shares. Subject to adjustment as provided in Section 4.3, the
number of Shares reserved for issuance upon the exercise of Awards and the
payment of benefits in connection with Awards is 600,000 Shares. Any Shares
issued under the Plan may consist, in whole or in part, of authorized and
unissued Shares or treasury Shares. If and to the extent an Award shall expire
or terminate for any reason without having been exercised in full (including a
cancellation and regrant of an Option), or shall be forfeited, without, in
either case, the Participant having realized any of the economic benefits of a
shareholder (such as the receipt of dividends or other distributions paid on
shares of Restricted Stock), the Shares (including Restricted Stock) associated
with such Awards shall again become available for Awards under the Plan.
4.2 Shares of Restricted Stock Available Under the Plan. Subject to
adjustment as provided in Section 4.3, the number of Shares which may be the
subject of Awards granted in the form of Restricted Stock is limited to 20% of
the Shares subject to the Plan.
4.3 Adjustments in Authorized Shares and Outstanding Awards. In the event
of a merger, reorganization, consolidation, recapitalization, reclassification,
split-up, spin-off, separation, liquidation, stock dividend, stock split,
reverse stock split, cash dividend, property dividend, share repurchase, share
combination, share exchange, issuance of warrants, rights or debentures, or
other change in the corporate structure of the Company affecting the Shares, the
Committee may substitute or adjust the total number and class of Shares or other
stock or securities which may be issued under the Plan, and the number, class
and/or price of Shares subject to outstanding Awards, as it determines to be
appropriate and equitable to prevent dilution or enlargement of the rights of
Participants and to preserve, without exceeding, the value of any outstanding
Awards; and further provided, that the number of Shares subject to any Award
shall always be a whole number. In the case of ISOs, such adjustments shall be
made in such a manner so as not to constitute a "modification" within the
meaning of section 424(h)(3) of the Code and only to the extent otherwise
permitted by sections 422 and 424 of the Code.
ARTICLE 5. ELIGIBILITY AND PARTICIPATION
<PAGE>
All Employees of the Company and its Subsidiaries are eligible to receive
Awards under the Plan. In selecting Employees to receive Awards under the Plan,
as well as in determining the number of Shares subject to, and the other terms
and conditions applicable to, each Award, the Committee shall take into
consideration such factors as it deems relevant in promoting the purposes of the
Plan, including the duties of the Employees, their present and potential
contribution to the success of the Company and their anticipated number of years
of active service remaining with the Company or a Subsidiary.
ARTICLE 6. STOCK OPTIONS
6.1 Grant of Options. Subject to the terms and provisions of the Plan,
the Committee may grant Options to Participants at any time and from time to
time, in the form of options which are intended to qualify as incentive stock
options within the meaning of section 422 of the Code ("ISOS"), Options which
are not intended to so qualify ("NQSOS") or a combination thereof. The maximum
number of Shares with respect to which Options may be granted to any Participant
under the Plan shall not exceed 40% of the Shares subject to the Plan.
6.2 Option Agreement. Each Option shall be evidenced by an Option
Agreement that shall specify the Option Exercise Price, the duration of the
Option, the number of Shares to which the Option relates and such other
provisions as the Committee may determine or which are required by the Plan.
The Option Agreement shall also specify whether the Option is intended to be an
ISO or a NQSO and shall include such provisions applicable to the particular
type of Option granted.
6.3 Duration of Options. Each shall expire at such time as is
determined by the Committee at the time of grant; provided, however, that no
Option shall be exercised later than the tenth anniversary of its grant (fifth
anniversary in the case of an ISO granted to a Ten Percent Shareholder).
6.4 Exercise of Options. Options shall be exercisable at such times and
be subject to such restrictions and conditions as the Committee shall approve at
the time of grant, which need not be the same for each grant or for each
Participant. Except as provided in Section 6.6, however, in no event may any
Option become exercisable within six months of the date of grant in the case of
any Participant subject to Section 16(b) of the Exchange Act. Options shall be
exercised by delivery to the Company of a written notice of exercise, setting
forth the number of Shares with respect to which the Option is to be exercised
and accompanied by full payment of the Option Exercise Price and all applicable
withholding taxes.
6.5 Payment of Option Exercise Price. The Option Exercise Price for
Shares as to which an Option is exercised shall be paid
<PAGE>
to the Company in full at the time of exercise either (a) in cash in the form of
currency or other cash equivalent acceptable to the Company, (b) by tendering
Shares having a Fair Market Value (determined as of the close of the business
day immediately preceding the day on which the Option is exercised) equal to the
Option Exercise Price (provided, however, that in the case of a Participant
subject to Section 16(b) of the Exchange Act, such Shares have been held by the
Participant for at least six months prior to their tender), (c) any other
reasonable consideration that the Committee may deem appropriate or (d) by a
combination of the forms of consideration described in (a), (b) and (c) of this
Section 6.5. The Committee may permit the cashless exercise of Options as
described in Regulation T promulgated by the Federal Reserve Board, subject to
applicable securities law restrictions, or by any other means which the
Committee determines to be consistent with the Plan's purpose and applicable
law.
6.6 Vesting Upon Change in Control. Upon a Change in Control, any then
outstanding Options held by Participants shall become fully vested and
immediately exercisable. Furthermore, if provided in an Option Agreement, the
Participant shall have the right to sell the Option back to the Company for an
amount generally equal to the excess of the Fair Market Value of the Shares
subject to the Option over the Option Price.
6.7 Termination of Employment. If the employment of a Participant is
terminated for Cause, all then outstanding Options of such Participant, whether
or not exercisable, shall terminate immediately. If the employment of a
Participant is terminated for any reason other than for Cause, unless the
Committee determines otherwise, to the extent then outstanding Options of such
Participant are exercisable, such Options may be exercised by such Participant
or such Participant's personal representative at any time prior to the
expiration date of the Options or within 90 days after the date of such
termination of employment, whichever is shorter. In the event of the death of a
Participant, the Option may be exercised by the person or persons to whom rights
pass by will or by the laws of descent and distribution, or if appropriate, the
legal representative of the deceased Participant's estate. In the event of the
Disability of a Participant, Options may be exercised by the Participant, or if
such Participant is incapable of exercising the Options, by such Participant's
legal representative.
ARTICLE 7. RESTRICTED STOCK
7.1 Grant of Restricted Stock. Subject to the terms and provisions of the
Plan, the Committee may grant shares of Restricted Stock to Participants at any
time and from time to time and upon such terms and conditions as it may
determine.
7.2 Restricted Stock Agreement. Each Restricted Stock grant shall be
evidenced by a Restricted Stock Agreement which
<PAGE>
shall specify the Restriction Period, the number of shares of Restricted Stock
granted and such other provisions as the Committee may determine and which are
required by the Plan.
7.3 Non-Transferability of Restricted Stock. Except as provided in this
Article 7, shares of Restricted Stock may not be sold, transferred, pledged,
assigned or otherwise alienated or hypothecated until the end of the applicable
Restriction Period as specified in the Restricted Stock Agreement, or upon
earlier satisfaction of any other conditions determined at the time of grant
specified in the Restricted Stock Agreement. Except as provided in Section 7.9,
however, in no event may any Restricted Stock become vested in a Participant
subject to Section 16(b) of the Exchange Act prior to six months following the
date of its grant.
7.4 Other Restrictions. The Committee may impose such other restrictions
on any shares of Restricted Stock as it may deem advisable, including, without
limitation, restrictions based upon the achievement of Performance Goals, years
of service and/or restrictions under applicable Federal or state securities
laws. The Committee may provide that any share of Restricted Stock shall be
held (together with a stock power executed in blank by the Participant) in
custody by the Company until any or all restrictions thereon shall have lapsed.
7.5 Forfeiture. The Committee shall determine and set forth in a
Participant's Restricted Stock Agreement such events upon which a Participant's
shares of Restricted Stock shall be forfeitable, which may include, without
limitation, the termination of a Participant's employment during the Restriction
Period or the nonachievement of Performance Goals. Any such forfeited shares of
Restricted Stock shall be immediately returned to the Company by the
Participant, and the Participant shall only receive the amount, if any, paid by
the Participant for such Restricted Stock.
7.6 Certificate Legend. In addition to any legends placed on certificates
pursuant to Section 7.4, each certificate representing shares of Restricted
Stock shall bear the following legend:
"The sale or other transfer of the shares represented by this
Certificate, whether voluntary, involuntary or by operation of law, is
subject to certain restrictions on transfer as set forth in the 1996
PJ America, Inc. Stock Ownership Incentive Plan, and in the related
Restricted Stock Agreement. A copy of the Plan and such Restricted
Stock Agreement may be obtained from the Secretary of PJ America,
Inc."
<PAGE>
7.7 Lapse of Restrictions Generally. Except as otherwise provided in this
Article 7, shares of Restricted Stock shall become freely transferable by the
Participant and no longer subject to forfeiture after the last day of the
Restriction Period; provided however, that if the restriction relates to the
achievement of a Performance Goal, the Restriction Period shall not end until
the Committee has certified in writing that the Performance Goal has been met.
Once the shares of Restricted Stock are released from their restrictions, the
Participant shall be entitled to have the legend required by Section 7.6 removed
from the Participant's share certificate, which certificate shall thereafter
represent freely transferable and nonforfeitable Shares free from any and all
restrictions under the Plan.
7.8 Lapse of Restrictions Upon Change in Control. Upon a Change in
Control, any restrictions and other conditions pertaining to then outstanding
shares of Restricted Stock held by Participants, including, but not limited to,
vesting requirements, shall lapse and such Shares shall thereafter be
immediately transferable and nonforfeitable.
7.9 Voting Rights; Dividends and Other Distributions. Unless the
Committee exercises its discretion as provided in Section 7.10, during the
Restriction Period, Participants holding shares of Restricted Stock may exercise
full voting rights, and shall be entitled to receive all dividends and other
distributions paid, with respect to such Restricted Stock. If any dividends or
distributions are paid in Shares, the Shares shall be subject to the same
restrictions as the shares of Restricted Stock with respect to which they were
paid.
7.10 Treatment of Dividends. At the time shares of Restricted Stock are
granted to a Participant, the Committee may, in its discretion, determine that
the payment of dividends, or a specified portion thereof, declared or paid on
such shares shall be deferred until the lapse of the restrictions with respect
to such shares, in which event such deferred dividends shall be held by the
Company for the account of the Participant. In the event of such deferral,
there may be credited at the end of each year (or portion thereof) interest on
the amount of the account during the year at a rate per annum as the Committee,
in its discretion, may determine. Deferred dividends, together with interest
accrued thereon, if any, shall be (a) paid to the Participant upon the lapse of
restrictions on the shares of Restricted Stock as to which the dividends related
or (ii) forfeited to the Company upon the forfeiture of such shares by the
Participant.
7.11 Termination of Employment. If the employment of a Participant is
terminated for any reason other than death or Disability prior to the expiration
of the Restriction Period applicable to any shares of Restricted Stock then held
by the Participant, such shares shall thereupon be forfeited immediately by the
Participant and returned to the Company, and the Participant shall only receive
the amount, if any, paid by the
<PAGE>
Participant for such Restricted Stock. If the employment of a Participant is
terminated as a result of death or Disability prior to the expiration of the
Restriction Period applicable to any shares of Restricted Stock then held by the
Participant, any restrictions and other conditions pertaining to such shares
then held by the Participant, including, but not limited to, vesting
requirements, shall immediately lapse and such Shares shall thereafter be
immediately transferable and nonforfeitable. Notwithstanding anything in the
Plan to the contrary, except in the case of Restricted Stock for which a
Performance Goal must be achieved, the Committee may determine, in its sole
discretion, in the case of any termination of a Participant's employment other
than for Cause, that the restrictions on some or all of the shares of Restricted
Stock awarded to a Participant shall immediately lapse and such Shares shall
thereafter be immediately transferable and nonforfeitable.
ARTICLE 8. PERFORMANCE UNITS
8.1 Grant of Performance Units. The Committee may, from time to time and
upon such terms and conditions as it may determine, grant Performance Units
which will become payable to a Participant upon certification in writing by the
Committee that the Performance Goals related thereto have been achieved.
8.2 Performance Unit Agreement. Each Performance Unit grant shall be
evidenced by a Performance Unit Agreement that shall specify the Performance
Goals, the Performance Period and the number of Performance Units to which it
pertains.
8.3 Performance Period. The period of performance ("Performance Period")
with respect to each Performance Unit shall be such period of time, which shall
not be less than one year, nor more than five years, as determined by the
Committee, for the measurement of the extent to which Performance Goals are
attained.
8.4 Performance Goals. The goals ("Performance Goals") that are to be
achieved with respect to each Performance Unit, or Restricted Stock subject to a
requirement that Performance Goals be achieved, shall be those objectives
established by the Committee as it deems appropriate, and which may be expressed
in terms of (a) earnings per Share, (b) Share price, (c) pre-tax profit, (d) net
earnings, (e) return on equity or assets, (f) revenues or (g) any combination of
the foregoing. Performance Goals may be in respect of the performance of the
Company and its Subsidiaries (which may be on a consolidated basis), a
Subsidiary, a Division or other operating unit of the Company. Performance
Goals may be absolute or relative and may be expressed in terms of a progression
within a specified range. The Performance Goals with respect to a Performance
Period shall be established by the Committee in order to comply with Rule 16b-
<PAGE>
3 under the Exchange Act and section 162(m) of the Code, as applicable.
8.5 Termination of Employment. If the employment of a Participant shall
terminate prior to the expiration of the Performance Period for any reason other
than for death, Disability or Retirement, the Performance Units then held by the
Participant shall terminate. In the case of termination of employment by reason
of death, Disability or Retirement of a Participant prior to the expiration of
the Performance Period, any then outstanding Performance Units of such
Participant shall be payable in an amount equal to the maximum amount payable
under the Performance Unit multiplied by a percentage equal to the percentage
that would have been earned under the terms of the Performance Unit Agreement
assuming that the rate at which the Performance Goals have been achieved as of
the date of such termination of employment would have continued until the end of
the Performance Period; provided, however, that if no maximum amount payable is
specified in the Performance Unit Agreement, the amount payable shall be such
amount as the Committee shall determine is reasonable.
8.6 Payment Upon Change in Control. Upon a Change in Control, any then
outstanding Performance Units shall become fully vested and immediately payable
in an amount which is equal to the greater of (a) the maximum amount payable
under the Performance Unit multiplied by a percentage equal to the percentage
that would have been earned under the terms of the Performance Unit Agreement
assuming that the rate at which the Performance Goals have been achieved as of
the date of such Change in Control would have continued until the end of the
Performance Period or (b) the maximum amount payable under the Performance Unit
multiplied by the percentage of the Performance Period completed by the
Participant at the time of the Change in Control; provided, however, that if no
maximum amount payable is specified in the Performance Unit Agreement, the
amount payable shall be such amount as the Committee shall determine is
reasonable.
8.7 Payment of Performance Units. Subject to such terms and conditions as
the Committee may impose, and unless otherwise provided in the Performance Unit
Agreement, Performance Units shall be payable within 90 days following the end
of the Performance Period during which the Participant attained at least the
minimum acceptable level of achievement under the Performance Goals, or 90 days
following a Change in Control, as applicable. The Committee, in its discretion,
may determine at the time of payment required in connection with a Performance
Unit whether such payment shall be made (a) solely in cash, (b) solely in Shares
(valued at the Fair Market Value of the Shares on the date of payment) or (c) a
combination of cash and Shares; provided, however, that if a Performance Unit
becomes payable upon a Change in Control, the Performance Unit shall be paid
solely in cash.
<PAGE>
8.8 Designation of Beneficiary. Each Participant may, from time to time,
name any beneficiary or beneficiaries (who may be named contingently or
successively) to whom the right to receive payments under a Performance Unit is
to be paid in case of the Participant's death before receiving any or all such
payments. Each such designation shall revoke all prior designations by the
Participant, shall be in a form prescribed by the Company and shall be effective
only when filed by the Participant in writing with the Committee during the
Participant's lifetime. In the absence of any such designation, benefits
remaining unpaid at the Participant's death shall be paid to the Participant's
estate.
ARTICLE 9. AMENDMENT, MODIFICATION AND TERMINATION
9.1 Effective Date. The Plan shall become effective upon adoption by the
Board. The Plan shall be rescinded and all Options and shares of Restricted
Stock granted hereunder shall be null and void unless within 12 months from the
date of the adoption of the Plan by the Board it shall have been approved by the
holders of a majority of the outstanding Shares present or represented and
entitled to vote on the Plan at a stockholders' meeting.
9.2 Termination Date. The Plan shall terminate on the earliest to occur
of (a) the tenth anniversary of the adoption of the Plan by the Board, (b) the
date when all Shares available under the Plan shall have been acquired pursuant
to the exercise of Awards and the payment of all benefits in connection with
Performance Unit Awards has been made or (c) such other date as the Board may
determine in accordance with Section 9.2.
9.3 Amendment, Modification and Termination. The Board may, at any time,
amend, modify or terminate the Plan. Without the approval of the stockholders
of the Company (as may be required by the Code, Section 16 of the Exchange Act
and the rules promulgated thereunder, any national securities exchange or system
on which the Shares are then listed or reported or a regulatory body having
jurisdiction with respect hereto), however, no such amendment, modification or
termination may:
(a) materially increase the benefits accruing to Participants under
the Plan;
(b) increase the total amount of Shares which may be issued under the
Plan, except as provided in Section 4.3; or
(c) materially modify the class of Employees eligible to participate
in the Plan.
9.4 Awards Previously Granted. No amendment, modification or termination
of the Plan shall in any manner adversely affect any outstanding Award without
the written consent of the Participant holding such Award.
<PAGE>
ARTICLE 10. NON-TRANSFERABILITY
A Participant's rights under the Plan may not be assigned, pledged or
otherwise transferred other than by will or the laws of descent and
distribution, except that upon a Participant's death, the Participant's rights
to payment pursuant to a Performance Unit may be transferred to a beneficiary
designated in accordance with Section 8.8; provided, however, that in the case
of NQSOs, the Participant may, subject to any restrictions under Section 16(b)
of the Exchange Act, if applicable, transfer the Options to the Participant's
spouse, lineal descendants, trusts for their benefit or a charitable remainder
trust of which Participant or such family members referred to above are a
beneficiary.
ARTICLE 11. NO GRANTING OF EMPLOYMENT RIGHTS
Neither the Plan, nor any action taken under the Plan, shall be construed
as giving any Employee the right to become a Participant, nor shall an Award
under the Plan be construed as giving a Participant any right with respect to
continuance of employment by the Company. The Company expressly reserves the
right to terminate, whether by dismissal, discharge or otherwise, a
Participant's employment at any time, with or without Cause, except as may
otherwise be provided by any written agreement between the Company and the
Participant.
ARTICLE 12. WITHHOLDING
12.1 Tax Withholding. A Participant shall remit to the Company an amount
sufficient to satisfy Federal, state and local taxes (including the
Participant's FICA and Medicare obligation) required by law to be withheld with
respect to any grant, exercise or payment made under or as a result of the Plan.
12.2 Share Withholding. If the Company has a withholding obligation upon
the issuance of Shares under the Plan, a Participant may, subject to the
discretion of the Committee, elect to satisfy the withholding requirement, in
whole or in part, by having the Company withhold Shares having a Fair Market
Value on the date the withholding tax is to be determined equal to the amount
required to be withheld under applicable law. Notwithstanding the foregoing,
the Committee may, by the adoption of rules or otherwise, modify the provisions
of this Section 12.2 or impose such other restrictions or limitations on such
elections as may be necessary to ensure that such elections will be exempt
transactions under Section 16(b) of the Exchange Act.
ARTICLE 13. INDEMNIFICATION
No member of the Board or the Committee, nor any officer or Employee acting
on behalf of the Board or the Committee, shall be personally liable for any
action, determination or interpretation
<PAGE>
taken or made with respect to the Plan, and all members of the Board, the
Committee and each officer or Employee of the Company acting on their behalf
shall, to the extent permitted by law, be fully indemnified and protected by the
Company with respect to any such action, determination or interpretation.
ARTICLE 14. SUCCESSORS
All obligations of the Company with respect to Awards granted under the
Plan shall be binding on any successor to the Company, whether the existence of
such successor is a result of a direct or indirect purchase, merger,
consolidation or otherwise, of all or substantially all of the business and/or
assets of the Company.
ARTICLE 15. GOVERNING LAW
To the extent not preempted by Federal law, the Plan, and all agreements
under the Plan, shall be governed by, and construed in accordance with, the laws
of the State of Delaware without regard to its conflict of laws rules.
Furthermore, all the Plan and all Option Agreements relating to ISOs shall be
interpreted so as to qualify as incentive stock options under the Code.
IN WITNESS WHEREOF, this 1996 Stock Ownership Incentive Plan has been
executed by the Company as of the ______ day of ________, 1996, being the date
the Plan was adopted by the Board.
PJ AMERICA, INC.
By: __________________________
__________________________
ATTEST:
_______________________________
Secretary
<PAGE>
Exhibit 10.3
PJ AMERICA, INC.
NON-EMPLOYEE DIRECTORS
1996 STOCK INCENTIVE PLAN
-------------------------
ARTICLE 1. PURPOSE
The purpose of this 1996 Non-Employee Directors Stock Incentive Plan is to
promote the interests of PJ America, Inc., its subsidiaries and stockholders, by
having non-employee directors of the Company acquire a proprietary interest in
the Company. Such investments should increase the personal interest and the
special effort of such persons in providing for the continued success and
progress of the business of the Company and should enhance the Company's efforts
to attract and retain competent non-employee directors.
ARTICLE 2. DEFINITIONS AND CONSTRUCTION
2.1 DEFINITIONS. As used in the Plan, terms defined parenthetically
immediately after their use shall have the respective meanings provided by such
definitions, and the terms set forth below shall have the following meanings (in
either case, such terms shall apply equally to both the singular and plural
forms of the terms defined):
(a) "BOARD" shall mean the Board of Directors of the Company.
(b) "CAUSE" shall mean, unless otherwise defined in an Option Agreement or
Restricted Stock Agreement, a felony conviction of a Non-Employee Director or
the failure of a Non-Employee Director to contest prosecution for a felony, or a
Non-Employee Director's willful misconduct or dishonesty, any of which is
determined by the Committee to be directly and materially harmful to the
business or reputation of the Company or its Subsidiaries.
(c) "CHANGE IN CONTROL" shall mean any of the following events:
(1) An acquisition (other than directly from the Company) of any
voting securities of the Company ("Voting Securities") by any Person immediately
after which such Person has Beneficial Ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of more than 50% of the combined
voting power of the Company's then outstanding Voting Securities; provided,
however, that in determining whether a Change in Control has occurred, Voting
Securities which are acquired in a Non-Control Acquisition (as hereinafter
defined) shall not constitute an acquisition which would cause a Change in
Control. A Non-Control Acquisition shall mean an acquisition by (i) the Company
or any Subsidiary, (ii) an employee benefit plan (or a trust forming a part
thereof) maintained by the Company or any Subsidiary, (iii) any Person in
connection with a Non-Control Transaction (as hereinafter defined);
<PAGE>
(2) The individuals who, as of the effective date of the Plan, are
members of the Board ("Incumbent Board"), cease for any reason to constitute at
least a majority of the Board; provided, however, that if the election, or
nomination for election by the Company's stockholders, of any new director was
approved by a vote of at least a majority of the Incumbent Board, such new
director shall, for purposes of the Plan, be considered as a member of the
Incumbent Board; provided, further, however, that no individual shall be
considered a member of the Incumbent Board if such individual initially assumed
office as a result of either an actual or threatened Election Contest (as
described in Rule 14a-11 promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person other
than the Board ("Proxy Contest") including by reason of any agreement intended
to avoid or settle any Election Contest or Proxy Contest; or
(3) Approval by stockholders of the Company of:
(A) A merger, consolidation or reorganization involving the
Company, unless such is a Non-Control Transaction. For purposes of the Plan, the
term "Non-Control Transaction" shall mean a merger, consolidation or
reorganization of the Company in which:
(i) the stockholders of the Company, immediately before such
merger, consolidation or reorganization, own, directly or indirectly immediately
following such merger, consolidation or reorganization, at least a majority of
the combined voting power of the outstanding voting securities of the
corporation resulting from such merger or consolidation or reorganization
("Surviving Corporation") in substantially the same proportion as their
ownership of the Voting Securities immediately before such merger, consolidation
or reorganization;
(ii) the individuals who were members of the Incumbent Board
immediately prior to the execution of the agreement providing for such merger,
consolidation or reorganization constitute at least a majority of the members of
the board of directors of the Surviving Corporation; and
(iii) no Person (other than the Company, any Subsidiary, any
employee benefit plan (or any trust forming a part thereof) maintained by the
Company, the Surviving Corporation or any Subsidiary, or any Person who,
immediately prior to such merger, consolidation or reorganization had Beneficial
Ownership of 20% or more of the then outstanding Voting Securities) has
Beneficial Ownership of 20% or more of the combined voting power of the
Surviving Corporation's then outstanding voting securities;
<PAGE>
(B) A complete liquidation or dissolution of the Company; or
(C) An agreement for the sale or other disposition of all or
substantially all of the assets of the Company to any Person (other than a
transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur
solely because any Person ("Subject Person") acquired Beneficial Ownership of
more than the permitted amount of the outstanding Voting Securities as a result
of the acquisition of Voting Securities by the Company which, by reducing the
number of Voting Securities outstanding, increases the proportional number of
shares Beneficially Owned by the Subject Person; provided, however, that if a
Change in Control would occur (but for the operation of this sentence) as a
result of the acquisition of Voting Securities by the Company, and after such
share acquisition by the Company the Subject Person becomes the Beneficial Owner
of any additional Voting Securities which increases the percentage of the then
outstanding Voting Securities Beneficially Owner by the Subject Person, then a
Change in Control shall occur.
(d) "CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and any successor thereto.
(e) "COMMITTEE" shall mean the Committee provided for in Section 6.1.
(f) "COMPANY" shall mean PJ America, Inc., a Delaware corporation.
(g) "DISABILITY" shall mean the total disability as determined by the
Committee in accordance with standards and procedures similar to those under the
Company's long-term disability plan, or, if none, a physical or mental infirmity
which the Committee determines impairs the Participant's ability to perform
substantially his or her duties for a period of 180 consecutive days.
(h) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
(i) "FAIR MARKET VALUE" of the Shares shall mean, as of any applicable
date, the closing sale price of the Shares on the Nasdaq National Market System
or any national or regional stock exchange in which the Shares are traded, or if
no such reported sale of the Shares shall have occurred on such date, on the
next preceding date on which there was such a reported sale. If there shall be
any material alteration in the present system of reporting sale prices of the
Shares, or if the Shares shall no longer be listed on the Nasdaq National Market
System or a national or
<PAGE>
regional stock exchange, the fair market value of the Shares as of a particular
date shall be determined by such method as shall be determined by the Committee.
(j) "INITIAL GRANT DATE" shall mean the date the Registration Statement
with respect to the Company's initial public offering becomes effective.
(k) "NON-EMPLOYEE DIRECTOR" shall mean a member of the Board who is not an
employee of the Company or any of its subsidiaries.
(l) "OPTION" shall mean an option granted to an Optionee pursuant to the
Plan.
(m) "OPTION AGREEMENT" shall mean a written agreement between the Company
and an Optionee evidencing the grant of an Option and containing terms and
conditions concerning the exercise of the Option.
(n) "OPTION PRICE" shall mean the price to be paid for Shares to be
purchased pursuant to the exercise of an Option.
(o) "OPTIONEE" shall mean a Non-Employee Director who has been granted an
Option or the personal representative, heir or legatee of an Optionee who has
the right to exercise the Option upon the death of the Optionee.
(p) "PERSON" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and as used in Sections 13(d) and 14(d) thereof,
including a "group" as defined in Section 13(d).
(q) "PLAN" shall mean this 1996 Non-Employee Directors Stock Incentive
Plan, as the same may be amended from time to time.
(r) "SHARES" shall mean the shares of the Company's common stock, par
value $.10 per share.
(s) "SUBSIDIARY" shall mean, with respect to any company, any corporation
or other Person of which a majority of its voting power, equity securities or
equity interest is owned directly or indirectly by such company.
2.2 GENDER AND NUMBER. Except where otherwise indicated by the context,
reference to the masculine gender shall include the feminine gender, the plural
shall include the singular and the singular shall include the plural.
<PAGE>
2.3 SEVERABILITY. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
ARTICLE 3. GRANTING OF OPTIONS
3.1 INITIAL GRANTS. Each Non-Employee Director on the Initial Grant Date
shall be granted on the Initial Grant Date an Option to purchase 12,000 Shares.
3.2 NEW NON-EMPLOYEE DIRECTORS GRANTS. Each new Non-Employee Director who
is elected subsequent to the Initial Grant Date shall automatically be granted
an Option to purchase 12,000 Shares upon the initial date of election to the
Board, provided that the number of Shares available for grant under the Plan is
sufficient to permit such automatic grant.
3.3 ADDITIONAL OPTION GRANTS. On each anniversary of the date of the
grant of an Option to a Non-Employee Director pursuant to the terms of the Plan,
such Non-Employee Director shall automatically be granted an Option to purchase
4,000 Shares provided that (i) such Non-Employee Director shall have continually
served as a director of the Company since the date of such prior Option grant
and (ii) the number of Shares available for grant under the Plan is sufficient
to permit such automatic grant.
3.4 PROPORTIONATE REDUCTION. If as of any date on which there is to be a
grant of Options hereunder there are an insufficient number of Shares available
pursuant to Section 4 to make all of the grants then to be made, each Non-
Employee Director then entitled to be granted an Option shall receive an Option
to purchase a proportionately lesser number of Shares.
ARTICLE 4. SHARES SUBJECT TO THE PLAN
The stock to be offered under the Plan shall be the Shares, which Shares
may be unissued Shares or treasury Shares. Subject to the adjustments provided
for in Section 7, the aggregate number of Shares to be delivered upon exercise
of all Options granted under the Plan plus shares of Restricted Stock issued
under the Plan shall not exceed 240,000 Shares. Shares subject to, but not
delivered under, an Option terminating or expiring for any reason prior to its
exercise in full, and shares of Restricted Stock which are forfeited pursuant to
the terms of the Plan, shall be deemed available for Options to be granted
thereafter during the term of the Plan.
ARTICLE 5. TERMS AND CONDITIONS OF OPTIONS
<PAGE>
All Options granted hereunder shall be subject to the following terms and
conditions which shall be set forth in the Option Agreement for all Options to
the extent applicable:
5.1. TO WHOM OPTIONS MAY BE GRANTED. Options shall be granted only to
Non-Employee Directors.
5.2 NON-TRANSFERABILITY OF OPTION. The Option shall not be transferable
by the Optionee otherwise than by bequest or the laws of descent and
distribution, and shall be exercisable during the Optionee's lifetime only by
the Optionee; provided, however, that the Optionee may, subject to any
restrictions under Section 16(b) of the Exchange Act, transfer the Options to
the Optionee's spouse, lineal descendants, trusts for their benefit or a
charitable remainder trust of which Optionee or such family members are a
beneficiary.
5.3 TERMINATION OF OPTION.
(a) If the Optionee ceases to be a director of the Company for any
reason other than death, Disability or removal for Cause, the Option shall
terminate three months after the Optionee ceases to be director of the Company
(unless the Optionee dies during such period), or on the Option's expiration
date, if earlier, and shall be exercisable during such period after the Optionee
ceases to be a director of the Company only with respect to the number of Shares
which the Optionee was entitled to purchase on the day preceding the day on
which the Optionee ceased to be a director.
(b) If the Optionee ceases to be a director of the Company because of
removal for Cause, the Option shall terminate on the date of the Optionee's
removal.
(c) In the event of the Optionee's death or Disability while a
director of the Company, or the Optionee's death within three months after the
Optionee ceases to be a director (other than by reason of removal for Cause),
the Option shall terminate upon the earlier to occur of (A) 12 months after the
date of the Optionee's death or Disability, or (B) the Option's expiration date.
The Option shall be exercisable during such period after the Optionee's death or
Disability with respect to the number of Shares as to which the Option shall
have been exercisable on the date preceding the Optionee's death or Disability,
as the case may be.
5.4 NUMBER OF SHARES OF COMMON STOCK. The number of Shares to which the
Option pertains.
5.5 EXERCISE PRICE. The exercise price of the Option, which shall be
equal to 100% of the Fair Market Value of the Shares at the time of the grant of
the Option.
<PAGE>
5.6 The Term of Option. The term of the Option, which shall be 10 years.
5.7 Exercisability. The time at which the Option becomes exercisable.
The Option shall be exercisable as follows:
(a) From the date the Option is granted until the first anniversary
thereof, the Option may not be exercised.
(b) Beginning on the day following the first anniversary of the date
the Option is granted, the Option may be exercised with respect to one-fourth
of the Shares subject to the Option.
(c) Beginning on the day following the second anniversary of the date
the Option is granted, the Option may be exercised with respect to an additional
one-fourth of the Shares subject to the Option.
(d) Beginning on the day following the third anniversary of the date
the Option is granted, the Option may be exercised with respect to an additional
one-fourth of the Shares subject to the Option.
(e) Beginning on the day following the fourth anniversary of the date
the Option is granted, the Option may be exercised with respect to all of the
Shares subject to the Option.
Notwithstanding the provisions of this Section 5.7, upon a Change in Control,
the Optionee shall have the right to exercise the Option in full as to all
Shares subject to the Option.
5.8 Payment of Exercise price. The Option Price shall be paid in cash at
the time of exercise, except that in lieu of all or part of the cash, the
Optionee may tender to the Company Shares owned by the Optionee having a Fair
Market Value equal to the exercise price, less any cash paid. The Fair Market
Value of such tendered Shares shall be determined as of the close of the
business day immediately preceding the day on which the Option is exercised.
ARTICLE 6. ADMINISTRATION
6.1. The Committee. The Plan is designed to operate automatically and not
require any significant administration. To the extent administration is
required, the Plan shall be administered by a Committee appointed by the Board
which shall include two or more directors of the Company or the entire Board of
the Company. The Committee shall meet at such times and places as it determines
and may meet through a telephone conference call. A majority of its members
shall constitute a quorum, and the decision of the majority of those present at
any meeting at which
<PAGE>
a quorum is present shall constitute the decision of the Committee. Any decision
reduced to writing and signed by a majority of the members of the Committee
shall be fully effective as if it had been made by a majority at a meeting duly
held. No discretion concerning decisions under the Plan shall be afforded to a
person who is not a "disinterested person." All decisions, determinations and
selections made by the Committee pursuant to the provisions of the Plan shall be
final. To the extent required by law and Rule 16b-3 promulgated under the
Exchange Act, the Committee may delegate its authority hereunder.
6.2 Section 16 Compliance. It is the intention of the Company that the
Plan and the administration of the Plan comply in all respects with Section
16(b) of the Exchange Act and the rules and regulations promulgated thereunder.
If any Plan provision, or any aspect of the administration of the Plan, is found
not to be in compliance with Section 16(b) of the Exchange Act, the provision or
administration shall be deemed null and void, and in all events the Plan shall
be construed in favor of its meeting the requirements of Rule 16b-3 promulgated
under the Exchange Act.
ARTICLE 7. ADJUSTMENTS UPON CHANGE IN CAPITALIZATION
Notwithstanding the limitations set forth in Section 4, in the event of a
merger, reorganization, consolidation, recapitalization, reclassification,
split-up, spin-off, separation, liquidation, stock dividend, stock split,
reverse stock split, property divided, share repurchase, share combination,
share exchange, issuance of warrants, rights or debentures or other change in
corporate structure of the Company affecting the Shares, the Committee shall
make an appropriate and equitable adjustment in the maximum number of Shares
available under the Plan or to any one individual and in the number, kind and
Option Price of Shares subject to Options granted under the Plan to prevent
dilution or enlargement of the rights of Non-Employee Directors under the Plan
and outstanding Options.
ARTICLE 8. AMENDMENTS AND DISCONTINUANCE
8.1 In General. Except as provided in Section 82, the Board may
discontinue, amend, modify or terminate the Plan at any time.
8.2 Section 16(b) Compliance. To the extent required to meet the
conditions for exemption from Section 16(b) of the Exchange Act or the
requirements of any national securities exchange or system on which the Shares
are then listed or reported or a regulatory body having jurisdiction with
respect thereto, without the approval of the stockholders of the Company, no
amendment, modification or termination may:
<PAGE>
(a) materially increase the benefits accruing to Non-Employee
Directors under the Plan;
(b) materially increase the total number of Shares which may be
issued under the Plan, except as provided in Section 7; or
(c) materially modify the eligibility requirements to receive an
Option under the Plan.
Furthermore, to the extent required to meet the conditions for exemption from
Section 16(b) of the Exchange Act, no amendment which would change the amount,
price or timing of Option grants, other than to comply with changes in the Code
or the Employee Retirement Income Security Act of 1974, as amended (to which the
Plan is not currently subject), or the rules and regulations promulgated
thereunder, shall be made more than once every six months.
8.3 No Effect on Outstanding Options. Any Option which is outstanding
under the Plan at the time of its amendment or termination shall remain in
effect in accordance with its terms and conditions and those of the Plan as in
effect when the Option was granted.
ARTICLE 9. MERGER, CONSOLIDATION, ETC.
9.1 Conversion on Certain Mergers. In the event the Company merges or
consolidates with another corporation, or all or substantially all of the
Company's capital stock or assets are acquired by another corporation, and the
surviving or acquiring corporation issues shares of its stock to the Company's
shareholders in connection with the merger, consolidation or acquisition, the
surviving or acquiring corporation shall adopt the Plan and upon the exercise of
an Option, the Optionee shall, at no additional cost (other than the Option
Price), be entitled to receive, in lieu of the number of Shares to which such
Option is then exercisable, the number and class of stock or other securities to
which the Optionee would have been entitled pursuant to the terms of the merger,
consolidation or acquisition if immediately prior thereto the Optionee had been
the holder of record of a number of Shares equal to the number of Shares as to
which the Option shall then be exercisable.
9.2 No Conversion on Other Mergers. In the event that the Company merges
or consolidates with another corporation, or all or substantially all of the
Company's capital stock or assets are acquired by another corporation, and the
surviving or acquiring corporation does not issue shares of its stock to the
Company's shareholders in connection with the merger, consolidation or
acquisition, then, notwithstanding any other provision of the Plan to the
contrary, no Option may be exercised after the effective date of the merger,
consolidation or acquisition.
<PAGE>
ARTICLE 10. EFFECTIVENESS AND TERMINATION OF THE PLAN
10.1 EFFECTIVE DATE. The Plan shall become effective upon adoption by the
Board. The Plan shall be rescinded and all Options granted hereunder shall be
null and void unless within 12 months from the date of the adoption of the Plan
by the Board it shall have been approved by the holders of a majority of the
outstanding Shares present or represented and entitled to vote on the Plan at a
stockholders' meeting.
10.2 TERMINATION DATE. The Plan shall terminate on the earliest to occur
of (i) the date when all of the Shares available under the Plan shall have been
acquired through the exercise of Options granted under the Plan; (ii) 10 years
after the date of adoption of the Plan by the Board; or (iii) such other date as
the Board may determine.
ARTICLE 11. NO RIGHT OF REELECTION
Neither the Plan, nor any action taken under the Plan, shall be construed
as conferring upon a Non-Employee Director any right to continue as a director
of the Company, to be renominated by the Board or reelected by the stockholders
of the Company.
ARTICLE 12. INDEMNIFICATION
No member of the Board or the Committee, nor any officer or employee acting
on behalf of the Board or the Committee, shall be personally liable for any
action, determination or interpretation taken or made with respect to the Plan,
and all members of the Board, the Committee and each officer or employee of the
Company acting on their behalf shall, to the extent permitted by law, be fully
indemnified and protected by the Company with respect to any such action,
determination or interpretation.
ARTICLE 13. GOVERNING LAW
The provisions of the Plan shall be construed, administered and enforced
according to the laws of the State of Delaware without regard to its conflict of
laws rules.
IN WITNESS WHEREOF, this Non-Employee Directors 1996 Stock Incentive Plan
has been executed by the Company as of the ______ day of ______________, 1996,
being the date the Plan was adopted by the Board.
PJ AMERICA, INC.
By: _____________________________________
<PAGE>
Title: _____________________________
<PAGE>
Exhibit 10.4
EXTRA CHEESE, INC.
P.O. Box 611165
Birmingham, Alabama 35261-1165
June 10, 1996 [as amended July 10, 1996]
PJV, Inc.
PJVA, Inc.
Richmond, Virginia
Attn: Mr. Martin T. Hart, Director
Re: Proposed Merger
Gentlemen:
The purpose of this letter is to memorialize, in the form of a binding letter of
intent, the discussions we have held and the agreements we have reached
regarding the merger of PJV, Inc. and PJVA, Inc., both Virginia corporations
(the "Virginia Corporations"), into Extra Cheese, Inc., an Alabama corporation
(or one of its subsidiaries), along with a simultaneous merger into Extra
Cheese, Inc. of Twice the Cheese, Inc. and possibly Textra Cheese Corp. (or
another corporation) (Extra Cheese, Inc., Twice the Cheese, Inc. and Textra
Cheese, Inc. (or such other corporation) are sometimes collectively referred to
herein as the "Cheese Corporations"). The Virginia Corporations and the Cheese
Corporations are sometimes collectively referred to herein as the
"Corporations." Subject to such caveat, the parties have tentatively agreed as
follows:
1. The Virginia Corporations shall be merged into Extra Cheese, Inc. (the
"Merger"). It is intended that the Merger will qualify as a tax-free
reorganization under the Internal Revenue Code, as amended. Following the
Merger, the stock in Extra Cheese, Inc. shall be divided between the existing,
shareholders of the Cheese Corporations, on the one hand, and the
existing stockholders of the Virginia Corporations, on the other hand, in
accordance with the following procedure: (a) multiply the "Formula Earnings," as
hereinafter defined, of the Virginia Corporations by a P/E multiple of 18 to
determine the overall value of the Virginia Corporations; (b) multiply the
Formula Earnings of the Cheese Corporations by a P/E multiple of 20 to determine
the overall value of the Cheese Corporations; and (c) allocate the stock in
Extra Cheese, Inc. to the shareholders of the Virginia Corporations and the
shareholders of the Cheese Corporations in proportion to such relative values
as so determined.
The Cheese Corporations get 59% and the Virginia Corporations get 41%. The
Cheese Corporations by Michael Fleishman, Secretary 7/10/96. The Virginia
Corporations by Richard F. Sherman, President 7/10/96.
<PAGE>
PJV, Inc.
PJVA, Inc.
June 10, 1996
Page -2-
"Formula Earnings" shall be computed for the Virginia Corporations and for the
Cheese Corporations in accordance with the provisions of Exhibit A attached
hereto and made a part hereof, and shall be computed by either the chief
financial officer that Extra Cheese, Inc. intends to hire or, at Extra Cheese,
Inc.'s option, by the firm of independent certified public accountants Extra
Cheese, Inc. intends to retain.
2. It is intended that the parties will jointly accomplish the goal of going
public immediately following the Merger, through an initial public offering of
stock by Extra Cheese, Inc. ("IPO"). The Merger shall be consummated immediately
prior to the IPO. The Virginia Corporations and Extra Cheese, Inc. hereby
appoint Richard F. Sherman and Michael M. Fleishman as the "Team" to select and
contract with investment bankers, accounting firms, attorneys and the like, and
generally to design the structure of the merged corporations and the terms of
the IPO (the "IPO Process"), subject to final approval by the respective Boards
of Directors of each of the Virginia Corporations and the Cheese Corporations.
3. In pursuing the IPO Process, it will be necessary to expend substantial
dollars and to incur substantial expenses, including but not limited to, the
cost of hiring a controller and a chief financial officer (either on a permanent
or consulting basis) (and who may be an employee of Extra Cheese, Inc., but who
nevertheless will be paid from the "IPO Account," as hereinafter defined),
employing an accounting firm to conduct audits of the Corporations and law firms
to perform corporate work, and printing and travel expenses and the like. The
Virginia Corporations hereby agree to pay to Extra Cheese, Inc. the sum of
Ninety Thousand Dollars ($90,000), to be deposited in a special bank account
(the "IPO Account") and Extra Cheese, Inc. agrees to deposit the sum of One
Hundred Ten Thousand Dollars ($110,000), in the IPO Account. The parties
acknowledge that the Two Hundred Thousand Dollar ($200,000) amount of the IPO
Account will be sufficient only to pay the preliminary expenses of exploring the
IPO Process. The Team is authorized by the Corporations to direct Extra Cheese,
Inc. to pay various expenses from the IPO Account in furtherance of the IPO
Process, including the fees of Judy Keener (but only to the extent applicable to
worldling on the numbers and accounting for the IPO Process), and the fees or
salary of a chief financial officer, to be hired or retained on a consulting
basis by Extra Cheese, Inc. The provisions of this Paragraph 3 shall be legally
binding and enforceable on the Virginia Corporations and the Cheese Corporations
and their respective shareholders.
At such time as the Team determines that additional funds are needed to pay
expenses incurred in connection with the IPO Process, it shall send a notice of
the additional amount requested to the Corporations. Such additional amount
shall be funded 45% by the Virginia Corporations and 55% by the Cheese
Corporations, until the respective ownership interests of the shareholders of
the Virginia Corporations and the Cheese Corporations (the "Ownership
Percentages"), have then been determined for purposes of consummating the
Merger, after which such additional amounts shall he funded in accordance with
such respective Ownership Percentages and the initial and any
<PAGE>
PJV, Inc.
PJVA, Inc.
June 10, 1996
Page -3-
previous findings into the IPO Account shall be adjusted so that all of the
contributions to the IPO Account, in the aggregate, shall have been made in
accordance with the respective Ownership Percentages.
Either the Virginia Corporations or the Cheese Corporations may terminate their
future obligation to deposit funds into the IPO Account by giving the other 30
days prior written notice, but such termination shall not affect or diminish
either party's obligation to pay for expenses already incurred, and, further,
all work then under way at the time of such notice, such as the audit of the
Corporations or writing of the prospectus, will be completed and paid for out of
the IPO Account.
In the event the Merger is not consummated for any reason whatsoever, any money
remaining in the IPO Account after payment of all expenses incurred in the IPO
Process shall be returned to the Virginia Corporations and the Cheese
Corporations in the same proportion that each have made contributions to the IPO
Account; however, except for the foregoing refund of any remaining funds in the
IPO Account, neither the Virginia Corporations nor the Cheese Corporations shall
have any claims against each other or the Team for a refund or return of any of
such funds or otherwise.
[paragraph 4 deleted by amendment]
5. Following the Merger, the Board of Directors of Extra Cheese, Inc. shall
consist of Michael M. Fleishman, Stephen P. Langford, Frank O. Keener, Douglas
S. Stephens, a representative from Papa John's International, Inc. ("PJI") (so
long as it agrees to have a member on such board), Richard F. Sherman and
Martin T. Hart, and such other persons as such Board may determine, until the
first annual meeting of shareholders of Extra Cheese, Inc. after the IPO.
6. Each of the shareholders of the Virginia Corporations and the Cheese
Corporations shall agree to sign and be bound and abide by the terms of whatever
"lock-up" agreement is reached between the Team and the underwriters selected by
the Team, restricting the sale of the stock in Extra Cheese, Inc. for such
period of time following the IPO as is agreed to by the Team. Further, each
shareholder of the Virginia Corporations and the Cheese Corporations shall enter
an agreement with Extra Cheese, Inc. which (A) allows each such shareholder to
sell in any secondary offering (in which Extra Cheese, Inc. agrees to allow
shareholders to sell shares) that percentage of stock in Extra Cheese, Inc.,
that is to be sold by selling shareholders as is equal
<PAGE>
PJV, Inc.
PJVA, Inc.
June l0, 1996
Page -4-
to the percentage determined by dividing (i) the total number of shares in Extra
Cheese, Inc. owned by such particular selling shareholder by (ii) the total
number of shares in Extra Cheese, Inc. owned by all the shareholders of the
Virginia Corporations and the Cheese Corporations, in the aggregate, immediately
prior to the IPO, and (B) prohibits each such shareholder from selling shares in
Extra Cheese, Inc. for a period of three years from the date of the IPO, in
excess of 15% of the number of shares held by each such shareholder each
calendar quarter, except as authorized by the Board of Directors of Extra
Cheese, Inc.
[paragraphs 7 and 8 deleted by amendment]
<PAGE>
PJV, Inc.
PJVA, Inc
June 10, 1996
Page -5-
9. Each of the Virginia Corporations and the Cheese Corporations agree to
provide to each other various historical, budgeted and forecasted information
regarding sales, expenses, net income and the like with respect to each of such
Corporations and each individual Papa John's pizza store owned by such
Corporation. All such information shall also be made available to the Team and
the underwriters, accountants and attorneys selected by the Team, for their use
in accomplishing the Merger and the IPO.
10. The members of the Team shall be allowed to purchase such number of
additional shares of Extra Cheese, Inc., at book value, in the immediate future
or shall be granted such stock options, as may be determined by the Board of
Directors of Extra Cheese, Inc.
11. The Virginia Corporations shall have a net worth of Zero Dollars ($.00), in
the aggregate, at the date of the Merger. The Cheese Corporations shall have a
net worth of Zero Dollars ($.00), in the aggregate at the date of the Merger.
Subject to the foregoing net worth amounts, each of the Virginia Corporations
and each of the Cheese Corporations may dividend out its finds to its own
respective shareholders prior to the Merger. Each of the Corporations may repay
its loans to its shareholders. Likewise, each of the Cheese Related Entities,
the Iowa Company and the Distant Corporations shall have a net worth of Zero
Dollars ($.00) at the time of closing under the options to be granted pursuant
to Paragraphs 7 and 8 hereof, and, subject to such requirement, each may
dividend out its funds to its respective shareholders prior to such closing and
repay its loans to its shareholders.
If the foregoing correctly sets forth our agreement, please sign and have
the shareholders of the Virginia Corporations and the Iowa Company sign this
letter where indicated below.
Very truly yours,
EXTRA CHEESE, INC.
BY: /s/ Douglas S. Stephens
------------------------------
Douglas S. Stephens, President
<PAGE>
PJV, Inc.
PJVA, Inc.
June 10, 1996
Page -6-
Agreed to:
PJV, Inc.
By: /s/ Richard F. Sherman
--------------------------
Title: President
-----------------------
Date: June 10, 1996
------------------------
PJVA, Inc.
By: /s/ Richard F. Sherman
--------------------------
Title: President
-----------------------
Date: June 10, 1996
------------------------
Shareholders of the Virginia Corporations:
/s/ Richard F. Sherman
- -----------------------------
Richard F. Sherman
- -----------------------------
Martin T. Hart
/s/ Jack A. Laughery
- -----------------------------
Jack A. Laughery
- -----------------------------
Michael Grisanti
Date: June 10, 1996
<PAGE>
PJV, Inc.
PJVA, Inc.
June 10, 1996
Page -6-
Agreed to:
PJV, Inc.
By: /s/ Richard F. Sherman
--------------------------
Title: President
-----------------------
Date: June 10, 1996
------------------------
PJVA, Inc.
By: /s/ Richard F. Sherman
--------------------------
Title: President
-----------------------
Date: June 10, 1996
------------------------
Shareholders of the Virginia Corporations:
/s/ Richard F. Sherman
- -----------------------------
Richard F. Sherman
/s/ Martin T. Hart
- -----------------------------
Martin T. Hart
- -----------------------------
Jack A. Laughery
/s/ Michael Grisanti
- -----------------------------
Michael Grisanti
Date: June 10, 1996
<PAGE>
PJV, Inc.
PJVA, Inc.
June 10, 1996
Page -7-
Shareholders of the Cheese Corporations:
/s/ Michael M. Fleishman
- ------------------------------
Michael M. Fleishman
- ------------------------------
Frank O. Keener
/s/ Douglas S. Stephens
- ------------------------------
Douglas S. Stephens
/s/ Richard F. Sherman
- ------------------------------
Richard F. Sherman
- ------------------------------
Stephen P. Langford
- ------------------------------
Adrian Owens
- ------------------------------
Robert W. Curtis
- ------------------------------
Larry Best
Date: June 10, 1996
Members of the Iowa Company
/s/ Richard F. Sherman
- ------------------------------
Richard F. Sherman
/s/ Martin T. Hart
- ------------------------------
Martin T. Hart
/s/ Jack A. Laughery
- ------------------------------
Jack A. Laughery
<PAGE>
PJV, Inc.
PJVA, Inc.
June 10, 1996
Page -7-
Shareholders of the Cheese Corporations:
- ----------------------------------------
Michael M. Fleishman
- ----------------------------------------
Frank O. Keener
/s/ Douglas S. Stephens
- ----------------------------------------
Douglas S. Stephens
/s/ Richard F. Sherman
- ----------------------------------------
Richard F. Sherman
- ----------------------------------------
Stephen P. Langford
- ----------------------------------------
Adrian Owens
/s/ Robert W. Curtis
- ----------------------------------------
Robert W. Curtis
/s/ Larry Best
- ----------------------------------------
Larry Best
Date: June 10, 1996
Members of the Iowa Company
/s/ Richard F. Sherman
- ----------------------------------------
Richard F. Sherman
- ----------------------------------------
Martin T. Hart
- ----------------------------------------
Jack A. Laughery
<PAGE>
PJV, Inc.
PJVA, Inc.
June 10, 1996
Page -7-
Shareholders of the Cheese Corporations:
- ----------------------------------------
Michael M. Fleishman
- ----------------------------------------
Frank O. Keener
- ----------------------------------------
Douglas S. Stephens
/s/ Richard F. Sherman
- ----------------------------------------
Richard F. Sherman
/s/ Stephen P. Langford
- ----------------------------------------
Stephen P. Langford
- ----------------------------------------
Adrian Owens
- ----------------------------------------
Robert W. Curtis
- ----------------------------------------
Larry Best
Date: June 10, 1996
Members of the Iowa Company
/s/ Richard F. Sherman
- ----------------------------------------
Richard F. Sherman
- ----------------------------------------
Martin T. Hart
- ----------------------------------------
Jack A. Laughery
<PAGE>
PJV, Inc.
PJVA, Inc.
June 10, 1996
Page -7-
Shareholders of the Cheese Corporations:
- ----------------------------------------
Michael M. Fleishman
/s/ Frank O. Keener
- ----------------------------------------
Frank O. Keener
- ----------------------------------------
Douglas S. Stephens
/s/ Richard F. Sherman
- ----------------------------------------
Richard F. Sherman
- ----------------------------------------
Stephen P. Langford
- ----------------------------------------
Adrian Owens
- ----------------------------------------
Robert W. Curtis
- ----------------------------------------
Larry Best
Date: June 10, 1996
Members of the Iowa Company
/s/ Richard F. Sherman
- ----------------------------------------
Richard F. Sherman
- ----------------------------------------
Martin T. Hart
- ----------------------------------------
Jack A. Laughery
<PAGE>
PJV, Inc.
PJVA, Inc.
June 10, 1996
Page -8-
/s/ Michael Grisanti
- --------------------------------------
Michael Grisanti
Date: June 10, 1996
<PAGE>
PJV, Inc.
PJVA, Inc.
June 10, 1996
Page -9-
Exhibits to Letter Agreement
----------------------------
Exhibit A Formula Earnings for Virginia Corporations and
Cheese Corporations
Exhibit B List of Cheese Related Entities
Exhibit C Related Formula Earnings for Cheese Related
Entities
Exhibit D List of Distant Corporations
<PAGE>
EXHIBIT A
FORMULA EARNINGS CALCULATION
VIRGINA CORPORATIONS AND
CHEESE CORPORATIONS
Formula earnings shall be computed for the Virginia Corporations and for the
Cheese Corporations as follows:
Sum of individual store operating profit
- Administrative Valuation
-----------------------------------------------
= Formula Earnings
INDIVIDUAL STORE OPERATING PROFIT
Individual store operating profit will be calculated using a combination of
historical and projected financial data. Weighted factors will be dependent
upon the opening date of the individual store.
Type 1.
Stores opened prior to December 31, 1994
<TABLE>
<CAPTION>
Historical Data 80%
Projected Data 20%
--------------------------------
QTR YR %
--------------------------------
<S> <C> <C>
3 95 actual 8%
4 95 actual 16%
1 96 actual 24%
2 96 actual 32%
3 96 Proj 8%
4 96 proj 6%
1 97 proj 4%
2 97 proj 2%
-----
100%
--------------------------------
</TABLE>
Page 1
<PAGE>
Type II.
Stores opened between January 1, 1995 - March 31, l995
<TABLE>
<CAPTION>
Historical Data 70%
Projected Data 30%
----------------------------------------
QTR YR %
----------------------------------------
<S> <C> <C>
4 95 actual 14%
1 96 actual 25%
2 96 actual 32%
3 96 proj 12%
4 96 proj 9%
1 97 proj 6%
2 97 proj 3%
-----
100%
-----------------------------------------
Type III.
Stores opened between April 1, 1995 - June 30, 1995
Historical Data 60%
Projected Data 40%
-----------------------------------------
QTR YR %
-----------------------------------------
1 96 actual 27%
2 96 actual 33%
3 96 proj 10%
4 96 proj 10%
1 97 proj 10%
2 97 proj 10%
100%
-----------------------------------------
</TABLE>
Page 2
<PAGE>
Type IV.
Stores opened between July 1, 1995 - 1995 September 30, 1995
<TABLE>
<CAPTION>
Historical Data 25%
Projected Data 75%
<S> <C> <C>
QTR YR %
2 96 actual 25%
3 96 proj 19%
4 96 proj 19%
1 97 proj 19%
2 97 proj 19%
---
100%
</TABLE>
Type V.
Stores opened after October 1, 1995 and stores underway as of June 30, 1996 will
be valued based on reasonable projections for operating months 7 through 18.
<TABLE>
Historical Data 0%
Projected Data 100%
<S> <C> <C>
QTR YR %
3 96 proj 25%
4 96 proj 25%
1 97 proj 25%
2 97 proj 25%
----
100%
</TABLE>
The calculation of Store Profit will be as follows:
Sales
- Controllable Expenses
- Non-Controllable Expenses
- Advertising
----------------------------
= Net Store Operating Profit
Page 3
<PAGE>
I. SALES
Store Sales
II. FLM
Food Costs
Food
Paper
Delivery
Labor Cost
Salaries-Mgt
Hourly Wages-In House
Overtime
Payroll Taxes
Accrued Vacation
Group Insurance
Mileage
Auto Expense
III. CONTROLLABLES
Cleaning Supplies/Laundry
Office Supplies
Repairs & Maintenance
Employee Incentive
Utilities
Smallwares
MVR's
Restaurant Supplies
Uniforms *
Telephone & Pagers
Garbage/Maintenance Contracts
Cash (Over) Short/Robbery
IV. NON-CONTROLLABLES
Rent
Royalty Fee
Taxes & Licenses
Sales Commissions
Insurance
Miscellaneous Expense
V. ADVERTISING
Production Fund
Co-Op Advertising
* Uniform cost for PJVA and PJV will be allocated to the store level based
on a proration of sales.
Page 4
<PAGE>
ADMINISTRATIVE VALUATION
Administration valuation will be calculated using a formulation of 1995
expenses and annualized 1996 expenses.
-------------------------------
YR %
-------------------------------
95 actual 33%
96 actual/projected 67%
----
100%
-------------------------------
The calculation of Administration Valuation will be as follows:
Miscellaneous Income
- Cash Expenses
- Depreciation & Amortization
- Bonuses
----------------------------------------
= Net General & Administrative Valuation
I. MISCELLANEOUS INCOME
Rental Income
Consulting Income
II. CASH EXPENSES
Salaries
Training Salaries
District Mgr
Operating Partner
Office Salaries
Payroll Taxes
Admin Workman's Comp
Group Insurance
Rent
Office Supplies
Postage
Auto/Travel
Mileage
Mthly Allocation
Travel
Lodging
Page 5
<PAGE>
Meals
Entertainment
Training
Uniforms
Utilities
Telephone
Repairs
Recruitment Ads
Bank Service Charges
Legal/Professional Fees
Accounting Fees
Payroll Fees
Dues & Subscriptions
Relocation
Taxes & Licenses
Returned Checks
Miscellaneous
Bad Debt
Interest Expense
III DEPRECIATION & AMORTIZATION
Depreciation
Restaurant Equipment
Office Equipment
Leasehold Improvements
Amortization
Franchise Fees
Development Fees
Organizational Costs
Depreciation Adjustment**
IV BONUSES
Store Mgr
District Mgr
Operating Partner
MIT
** Depreciation adjustment for current period.
Page 6
<PAGE>
CONTINUATION OF EXHIBIT A
-------------------------
In calculating the Formula Earnings for the Virginia Corporations and the
Cheese Corporations, the following provisions shall be followed:
1. In computing the net income of each of the Virginia Corporations and
the Cheese Corporations all interest income on the cash balances and
other similar types of investment of each of the Virginia Corporations
and the Cheese Corporations shall be excluded.
2 The net income of each of the Virginia Corporations and Cheese
Corporations shall be computed and re-computed using the same
depreciation and amortization formulas and provisions.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT B
-----------------------------
Cheese Related Entities
<S> <C>
Earliest Date On Which
Name Option May Be Exercised
- ---- -----------------------
1. Lottsa Cheese, Inc. October 1, 1997
2. Sherfiz I Corp. July l, 1997
Sherfiz II Corp.
PJ Cambridge Corp.
3. Easy Cheese, LLC April 1, 1998
- -- ---------------- -------------
Birmingham E.C. Corp.
---------------------
</TABLE>
<PAGE>
EXHIBIT C
---------
Related Formula Earnings
The Related Formula Earnings shall be computed for each of the Cheese Related
Entities, the Distant Corporations and the Iowa Company (collectively, the
"Targets") in the same manner as "Formula Earnings" as set forth on Exhibit A
attached hereto and made a part hereof, subject to the following provisions.
1. The net income of each of the Targets shall be reduced by the amount of
applicable federal, state and local income taxes that would be owed on each
such Target's net income taxed as if it were a C corporation, even though
it may be a pass-through entity that does not pay taxes at such Target
level.
2. In computing the net after tax income of each of the Targets, (i) all
interest income on the cash balances and other similar type of investments
of each of the Targets shall be excluded on an after tax basis, and (ii)
interest expense shall be included, on an after tax basis, only on the
principal balance of the indebtedness owed by the particular Target
immediately prior to the closing of the acquisition of the Target by Extra
Cheese, Inc.
3. The net after tax income of each of the Targets shall be computed using the
same depreciation and amortization formulas and provisions as are used by
Extra Cheese, Inc. at the time of exercise of the option.
4. All of the dates and fiscal quarters set forth on Exhibit A shall be
appropriately moved forward for each particular Target so that the
beginning date for the financial calculations shall be 18 months prior to
the exercise of the option under Paragraphs 7 or 8 of the foregoing letter
by Extra Cheese, Inc., with corresponding adjustments in all other dates
and fiscal quarters.
5. The determination of the Related Formula Earnings for each of the Targets
shall be done by Extra Cheese, Inc.'s chief financial officer, controller
or accounting firm, in conjunction with assistance from the financial
personnel who work for the Target. In the event of any dispute between
Extra Cheese, Inc. and the Target regarding the Related Formula Earnings as
so calculated for that Target, then, at Extra Cheese's sole and exclusive
option: (i) such dispute shall be resolved by binding arbitration through
the selection of a Big-6 accounting firm that does not work for either
Extra Cheese, Inc. or the Target and whose determination shall be final and
binding on Extra Cheese and the Target and its shareholders, or (ii) the
Related Formula Earnings for that Target shall be computed at 105% of the
amount of the net after tax income of the Target for its most recently
ended four fiscal quarters prior to exercise of such option, after
adjustment for income taxes as if it were a C corporation, after adjustment
for its depreciation and amortization methods to correspond to those of
Extra Cheese, Inc. and after exclusion of interest income of that Target,
all as above provided.
<PAGE>
EXHIBIT D
---------
Distant Corporations
<TABLE>
<CAPTION>
Earliest Date On Which
Name Option May Be Exercised
---- -----------------------
<S> <C>
1. BG Cheese Corp. January 1, 1997
2. Michigan Cheese Corp. January 1, 1998
3. Say Cheese, Inc. January 1, 1997
</TABLE>
<PAGE>
TOTAL SUMMARY
FORMULA EARNINGS CALCULATION
ALL COMPANIES
- ------------------------------------------------------------
TOTAL COMPANY "FORMULA EARNINGS" $96,749,213
- ------------------------------------------------------------
- ------------------------------------------------------------
VIRGINIA/BIRMINGHAM SPLIT 41%/59%
- ------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------
<S> <C> <C>
Virginia Corp. $40,657,382 41.00%
Sherman 10.66%
Laughery 10 66%
Hart 8.41%
Grisanti 8 41%
Riekel 2.05%
Saunders 0.82%
- ----------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------
<S> <C> <C>
Textra Cheese $9,875,377 10.39%
Keener 2.08%
Fleishman 2.08%
Langford 2.08%
Sherman 2.08%
Stephens 2.08%
- ----------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------
<S> <C> <C>
Extra Cheese $43,500,015 45.76%
Keener 14.53%
Fleishman 9.44%
Langford 7.26%
Sherman 7.26%
Stephens 7.26%
- ----------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------
<S> <C> <C>
Twice The Cheese $2,716,438 2.86%
Keener 0.82%
Fleishman 0.53%
Langford 0.41%
Sherman 0.41%
Stephens 0.41%
Owens 0.14%
Curtis 0.14%
- ----------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
===========================================================================
<S> <C> <C> <C>
SHAREHOLDER PERCENTAGE DISTRIBUTION:
Sherman 20.40931% Hart 8.40571%
Keener 17.41933% Grisanti 8.40571%
Fleishman 12.04973% Riekel 2.05017%
Laughery 10.66090% Saunders 0.82007%
Langford 9.74840% Curtis 0.14286%
Stephens 9.74840% Owens 0.14286%
</TABLE>
7/8/96,TOTAL.XLS
<PAGE>
EXHIBIT 10.5
----------------------------------------------
PLAN OF MERGER
AMONG
PJ AMERICA, INC., EXTRA CHEESE, INC.,
TWICE THE CHEESE, INC., TEXTRA CHEESE CORP.,
PJV, INC. AND PJVA, INC.
AND
THE SHAREHOLDERS OF
EXTRA CHEESE, INC., TWICE THE CHEESE, INC.,
TEXTRA CHEESE CORP., PJV, INC. AND PJVA, INC.
NAMED ON THE
SIGNATURE PAGES HEREOF
----------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Section Page
------- ----
<C> <S> <C>
1. Plan of Merger........................................................ 2
1.1 Merger of Targets into Newco................................... 2
1.2 Effect of Operating Company Merger............................. 2
1.3 Effective Time of the Mergers.................................. 2
1.4 Conversion of Shares........................................... 3
1.5 Exchange of Shares............................................. 4
2. Escrow of Closing Documents; Closing.................................. 4
2.1 Deliveries in Escrow: Escrow Date.............................. 4
2.2 Closing; Closing Date.......................................... 4
3. Additional Covenants of the Parties................................... 5
3.1 Contribution Transaction....................................... 5
3.2 The Delaware Merger............................................ 5
3.3 Registration Statement for Public Offering..................... 6
3.4 Declaration and Payment of Distributions....................... 6
3.5 Shareholder Loans.............................................. 7
3.6 Non-Competition Agreement...................................... 7
3.7 Indemnification Escrow......................................... 7
3.8 Investment Letters............................................. 8
3.9 Registration Rights Agreement.................................. 8
3.10 Shareholder Releases........................................... 8
3.11 The Operating Company Income................................... 8
4. Obligations of the Parties Prior to Closing........................... 8
4.1 Restrictions on Capital Stock Transfers Pending Closing........ 8
4.2 Operations of Operating Companies Pending Closing.............. 9
4.3 Access to Information.......................................... 10
4.4 Additional Actions Pending Closing; Compliance With Conditions. 10
4.5 Negotiations With Others....................................... 10
4.6 Notification of Breaches....................................... 11
5. Conditions to the Obligation of PJ and Newco on Escrow Date........... 11
5.1 Representations and Warranties Correct; Compliance With
Covenants..................................................... 11
5.2 No Litigation.................................................. 11
5.3 Approvals Obtained............................................. 11
5.4 Release and Termination of Share Restrictions.................. 11
5.5 Registration Statement Disclosures............................. 12
5.6 Papa John's Estoppel........................................... 12
</TABLE>
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Section Page
------- ----
<C> <S> <C>
6. Conditions to Obligations of the Shareholders on Escrow Date.......... 12
6.1 Representations and Warranties; Compliance With Covenants...... 12
6.2 No Litigation.................................................. 12
6.3 PJ Share Certificates Delivered................................ 12
6.4 Approvals Obtained............................................. 13
7. Waiver of Conditions.................................................. 13
8. Actions on Escrow Date................................................ 13
9. Actions at Closing; Deliveries from Escrow............................ 13
9.1 Certificate of the Operating Companies and the Shareholders.... 14
9.2 Certificate of PJ.............................................. 14
10. Arbitration........................................................... 14
11. Shareholders' Representatives......................................... 14
11.1 Appointment of Shareholders' Representative.................... 14
11.2 Removal; Appointment of a Successor to Shareholders'
Representative................................................ 15
11.3 Reimbursement of Shareholders' Representative.................. 15
11.4 Obligations of Shareholders' Representative.................... 16
11.5 Reliance by PJ and Newco....................................... 16
12. Other Agreements of the Parties....................................... 16
12.1 Expenses....................................................... 16
12.2 Confidentiality................................................ 17
12.3 Press Releases................................................. 17
12.4 Further Assurances............................................. 17
12.5 Notices........................................................ 17
12.6 Severability of Provisions..................................... 18
12.7 Assignment..................................................... 19
12.8 Waiver......................................................... 19
12.9 Exhibits....................................................... 19
12.10 Amendments, Supplements, Etc................................... 19
12.11 Captions; Counterparts......................................... 19
12.12 Governing Law.................................................. 19
</TABLE>
<PAGE>
EXHIBIT LIST
Description Exhibit
TC Articles of Merger......................................... A
Textra Articles of Merger..................................... B
Virginia Articles of Merger................................... C
Summary of EC Share Exchanges................................. D
Closing Escrow Agreement...................................... E
Delaware Articles of Merger................................... F
Delaware Merger -- Share Exchanges............................ G
Indemnification Escrow Agreement.............................. H
Cash Deposit Percentages...................................... I
Registration Rights Agreement................................. J
<PAGE>
PLAN OF MERGER
--------------
THIS PLAN OF MERGER ("Plan") is made and entered into as of July 10, 1996,
pursuant to that certain Letter Agreement dated July 10, 1996, by and among PJ
AMERICA, INC., a Delaware corporation ("PJ"), EXTRA CHEESE, INC., an Alabama
corporation ("EC"), TWICE THE CHEESE, INC., an Alabama corporation ("TC"),
TEXTRA CHEESE CORP., a Texas corporation ("Textra"), PJV, INC., a Virginia
corporation ("PJV"), PJVA, INC., a Virginia corporation ("PJVA"), and the
Shareholders of EC, TC, Textra, PJV and PJVA, respectively, identified on the
signature page to this Plan (sometimes hereinafter collectively referred to as
the "Shareholders," and individually referred to as the "EC Shareholders" "TC
Shareholders," "Textra Shareholders," "PJV Shareholders" or "PJVA
Shareholders").
RECITALS:
--------
A. EC, TC, Textra, PJV and PJVA (sometimes hereinafter referred to
collectively as the "Operating Companies" and individually as an "Operating
Company") are franchisees of Papa John's International, Inc., a Delaware
corporation ("Papa John's"), engaged in the pizza delivery and carry-out
restaurant business in selected markets in Alabama, Texas and Virginia.
B. The Operating Companies are parties to a binding letter agreement
dated July 10, 1996 (the "Letter Agreement"), providing for the mergers of TC,
Textra, PJV and PJVA (sometimes hereinafter referred to as the "Targets") with
and into EC (or its subsidiary) in connection with an initial public offering of
shares of EC capital stock. The respective boards of directors and shareholders
of each of the Targets and of EC unanimously approved such mergers on July 4,
1996.
C. This Plan is made pursuant to the Letter Agreement to set forth the
terms of the mergers of the Targets with and into a subsidiary of EC, newly
organized by EC for purposes of such mergers, in transactions intended to
qualify as tax-free reorganizations pursuant to section 368(a)(1)(A) of the
Internal Revenue Code of 1986, as amended (the "Code"), by virtue of section
368(a)(2)(D) of the Code, and to set forth certain other transactions, all of
which are to be consummated in connection with the initial public offering.
D. The parties have caused PJ to be organized with the expectation that
EC will merge with and into PJ immediately following the mergers and certain
other transactions provided for herein, and with the further expectation that PJ
(as the successor by merger to EC) will register shares of its common stock,
$.01 par value per share ("PJ Shares"), with the Securities and Exchange
Commission ("SEC") pursuant to the Securities Act of 1933, as amended
("Securities Act") and, pursuant thereto, will effect an initial public offering
of PJ Shares (the "IPO") as contemplated by EC under the Letter Agreement.
<PAGE>
AGREEMENT:
---------
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, the parties hereby agree as follows:
1. PLAN OF MERGER.
1.1 MERGER OF TARGETS INTO NEWCO. At the "Effective Time" (as
defined in Section 1.3), each of the Targets shall be merged with and into a
wholly-owned subsidiary of EC, which EC shall incorporate under the laws of the
State of Alabama ("Newco"), in accordance with applicable laws as soon as
practicable after the date hereof (the "Operating Company Mergers"), the
separate corporate existence of each of the Targets shall thereupon cease, and
Newco, as the surviving corporation in the respective Operating Company Mergers
(the "Surviving Corporation"), shall continue its corporate existence under the
laws of the State of Alabama. The Operating Company Mergers shall be effected as
follows: (i) TC shall be merged with and into Newco in accordance with the
applicable laws of the State of Alabama; (ii) Textra shall be merged with and
into Newco in accordance with the applicable laws of the State of Texas and the
State of Alabama; and (iii) PJV and PJVA shall be merged with and into Newco in
accordance with the applicable laws of the Commonwealth of Virginia and the
State of Alabama.
1.2 EFFECT OF OPERATING COMPANY MERGER. At the Effective Time of each
of the respective Operating Company Mergers, the Surviving Corporation shall
thereupon and thereafter possess all assets and property of every description,
and every interest in the assets and property, wherever located, and the rights,
privileges, immunities, powers, franchises and authority, of a public as well as
of a private nature, of the constituent corporations to the Operating Company
Merger, and all obligations belonging to or due to each of such constituent
corporations without further deed or act; and the title to any real estate, or
any interest therein, vested in any of such constituent corporations shall not
revert or in any way be impaired by reason of the Operating Company Merger. At
the Effective Time, the Surviving Corporation shall thenceforth be responsible
and liable for all the liabilities and obligations of each of the constituent
corporations to each of the Operating Company Mergers, and any claim existing,
or action or proceeding pending, by or against any of such constituent
corporations may be prosecuted to judgment, with right of appeal, as if such
Operating Company Merger had not taken place, or the Surviving Corporation may
be substituted in its place. Neither the rights of creditors nor any liens upon
the property of any of the constituent corporations shall be impaired.
1.3 EFFECTIVE TIME OF THE MERGERS. At the "Escrow Closing" on the
"Escrow Date" (defined in Section 2.1): (a) TC and EC shall execute and deliver
to the "Closing Escrow Agent" (defined in Section 2.1) the Articles of Merger
substantially in the form of the Articles attached hereto as Exhibit A (the "TC
Articles"), together with this Plan or such other plan as shall be required
under applicable law to be filed in connection with the TC Articles and in form
and substance sufficient to effect the merger of TC with and into Newco; (b)
Textra and EC shall execute and deliver to the Closing Escrow Agent the Articles
of Merger (one for filing in Alabama and the other in Texas) substantially in
the form of the articles attached hereto as
<PAGE>
Exhibit B (collectively, the "Textra Articles"), together with this Plan or such
other plan as shall be required under applicable law to be filed in connection
with the Textra Articles and in form and substance sufficient to effect the
merger of Textra with and into Newco; and (c) PJV, PJVA and EC shall execute and
deliver to the Closing Escrow Agent the Articles of Merger (one for filing in
Alabama and the other in Virginia) substantially in the form of the articles
attached hereto as Exhibit C (collectively, the "Virginia Articles"), together
with this Plan or such plans as shall be required under applicable law to be
filed in connection with the Virginia Articles and in form and substance
sufficient to effect the mergers of PJV and PJVA with and into Newco. On or
prior to the "Closing" (defined in Section 2.2), the Closing Escrow Agent shall
deliver the TC Articles, the Textra Articles and the Virginia Articles to the
Secretary of State of Alabama, the Secretary of State of Texas and the State
Corporation Commission of Virginia for filing, in accordance with applicable
law. Each of the Operating Company Mergers, respectively, shall become
effective on the same date and at the same time as further specified in the TC
Articles, the Textra Articles and the Virginia Articles (sometimes hereinafter
referred to as the "Operating Company Articles").
1.4 CONVERSION OF SHARES. As of the Effective Time, by virtue of the
Operating Company Mergers, and without any further action on the part of the
holders of the shares of capital stock of TC (the "TC Shares"), Textra (the
"Textra Shares"), PJV (the "PJV Shares") or PJVA (the "PJVA Shares"), as
applicable, or the holders of the shares of capital stock of EC (the "EC
Shares"):
a. with respect to the merger of TC with and into Newco, (i)
each of the TC Shares which is outstanding immediately prior to the Effective
Time shall be canceled and converted into the right to receive .006775 EC
Shares; (ii) all TC Shares which are held by TC as treasury shares shall be
canceled, without payment of any further consideration; and (iii) each of the EC
Shares which is outstanding immediately prior to the Effective Time shall
continue to be outstanding after the Effective Time.
b. with respect to the merger of Textra with and into Newco, (i)
each of the Textra Shares which is outstanding immediately prior to the
Effective Time shall be canceled and converted into the right to receive .246317
EC Shares; (ii) all Textra Shares which are held by Textra as treasury shares
shall be canceled, without payment of any further consideration; and (iii) each
of the EC Shares which is outstanding immediately prior to the Effective Time
shall continue to be issued and outstanding after the Effective Time.
c. with respect to the merger of PJV and PJVA with and into
Newco, (i) each of the PJV Shares which is outstanding immediately prior to the
Effective Time shall be canceled and converted into the right to receive .476586
EC Shares; (ii) all PJV Shares which are held by PJV as treasury shares shall be
canceled, without payment of any further consideration; (iii) each of the PJVA
Shares which is outstanding immediately prior to the Effective Time shall be
canceled and converted into the right to receive .476586 EC Shares; (iv) all
PJVA Shares which are held by PJVA as treasury shares shall be canceled, without
payment of any further consideration; and (v) each of the EC Shares which is
outstanding immediately prior to the Effective Time shall continue to be issued
and outstanding after the Effective Time.
<PAGE>
1.5 EXCHANGE OF SHARES. At the Escrow Closing on the Escrow Closing
the Surviving Corporation shall deliver to the Closing Escrow Agent, for
delivery at the Closing to each of the Shareholders, certificates representing
the EC Shares which such Shareholder is entitled to receive by virtue of the
Operating Company Mergers, against delivery by such Shareholder to the Closing
Escrow Agent, for delivery to the Surviving Corporation at the Closing, of
certificates for all of the TC Shares, Textra Shares, PJV Shares and PJVA Shares
owned or held by such Shareholder. The number of EC Shares owned by each of the
Shareholders after the Operating Company Mergers and the "Contribution
Transaction" (defined in Section 3.1), by virtue of such transactions and their
existing ownership of EC Shares, is further summarized in Exhibit D attached
hereto
2. ESCROW OF CLOSING DOCUMENTS; CLOSING.
2.1 DELIVERIES IN ESCROW: ESCROW DATE. All documents, instruments,
certificates (the "Closing Documents") and actions required to be taken by the
parties hereto for the consummation of the transactions contemplated by this
Plan shall be executed, delivered and taken by the parties hereto at 10:00 a.m.,
local time, at the offices of Greenebaum Doll & McDonald PLLC, 3300 National
City Tower, Louisville, Kentucky 40202, within 10 days prior to the date Newco
contemplates that the underwriting agreement with the underwriters for the IPO
will be executed (the "Escrow Date"). The Escrow Date shall be selected by PJ,
which shall provide at least three days advance notice of the Escrow Date to EC,
TC, Textra, PJV, PJVA and the "Alabama Shareholders' Representative" and the
"Virginia Shareholders' Representative" (as defined in Section 11.1). On the
Escrow Date, the Closing Documents shall be delivered and deposited in escrow
with Greenebaum Doll & McDonald PLLC as escrow agent (the "Closing Escrow
Agent") pursuant to a Closing Escrow Agreement substantially in the form of
Exhibit E attached hereto, to be entered into by the Closing Escrow Agent and
the parties to this Plan on the Escrow Date, and shall be held by the Closing
Escrow Agent pursuant to the Closing Escrow Agreement pending fulfillment of the
"Closing Conditions" (as defined in Section 9) and the terms and conditions of
the Closing Escrow Agreement.
2.2 CLOSING; CLOSING DATE. The Closing Escrow Agent shall effect the
consummation of the transactions contemplated in this Plan (the "Closing"), in
accordance with Section 9 of this Plan and the terms of the Closing Escrow
Agreement, on the same date as the initial closing of the IPO under the terms of
the underwriting agreement with the underwriters (the "Closing Date"). During
the period between the Escrow Date and the Closing Date, this Plan may be
terminated only if (a) the Closing Conditions are not fulfilled or (b) the
underwriting agreement with the underwriters to the IPO is terminated pursuant
to the terms of such agreement. This Plan shall in any event terminate if (a)
the Closing Date has not occurred on or before December 1, 1996, or (b) the
Closing has not occurred within 30 days of the Escrow Date.
<PAGE>
3. ADDITIONAL COVENANTS OF THE PARTIES.
3.1 CONTRIBUTION TRANSACTION. As part of a single plan,
contemporaneously with the Operating Company Mergers, at the Closing on the
Closing Date, EC shall transfer and convey to Newco all of EC's right, title and
interest in and to its business as a franchisee and operator of Papa John's
restaurants and in and to all of its assets and properties, tangible and
intangible, real and personal, wherever situated, other than (a) the shares of
capital stock of Newco owned and held by EC, (b) the territorial rights from
Papa John's which are expected to be granted to EC with respect to the
Metropolitan Area of Vancouver, Canada, the Commonwealth of Puerto Rico, the
counties of Kern, Santa Barbara and Ventura, in consideration of which Newco
shall assume and agree to perform and discharge all of EC's debts, obligations
and liabilities reflected in EC's books and records as of the Closing Date,
together with all contractual liabilities relating to the assets transferred to
Newco pursuant hereto (the "Contribution Transaction"). The transactions
provided for in this Section 3.1 are designed to meet the requirements of
section 351(a) of the Code.
3.2 THE DELAWARE MERGER.
a. Immediately following the Operating Company Mergers and the
Contribution Transaction on the Closing Date, at the "Delaware Effective Time"
(as defined in this Section 3.2.b.), EC shall be merged with and into PJ in
accordance with the applicable laws of the State of Alabama and the State of
Delaware (the "Delaware Merger"), the separate corporate existence of EC shall
thereupon cease, and PJ, as the surviving corporation in the Delaware Merger,
shall continue its corporate existence under the laws of the State of Delaware.
At the Delaware Effective Time, PJ, as the surviving corporation, shall
thereupon and thereafter possess all assets and property of every description,
and every interest in the assets and property, wherever located, and the rights,
privileges, immunities, powers, franchises and authority, of a public as well as
of a private nature, of the constituent corporations to the Delaware Merger, and
all obligations belonging to or due to each of such constituent corporations
without further deed or act; and the title to any real estate, or any interest
therein, vested in any of such constituent corporations shall not revert or in
any way be impaired by reason of the Delaware Merger. At the Delaware Effective
Time, PJ, as the surviving corporation, shall thenceforth be responsible and
liable for all the liabilities and obligations of each of the constituent
corporations to the Delaware Merger, and any claim existing, or action or
proceeding pending, by or against any of such constituent corporations may by
prosecuted to judgment, with right of appeal, as if the Delaware Merger had not
taken place, or PJ, as the surviving corporation, may be substituted in its
place. Neither the rights of creditors nor any liens upon the property of
either of the constituent corporations to the Delaware Merger shall be impaired.
b. At the Escrow Closing on the Escrow Date, EC and PJ shall
execute and deliver to the Closing Escrow Agent the Articles of Merger and
Certificate of Merger for filing in Alabama and Delaware, respectively,
substantially in the form of Exhibit F attached hereto (the "Delaware
Articles"), together with this Plan or such other plans of merger as required
under applicable law to be filed in connection with the Delaware Articles and in
form and substance sufficient to effect the Delaware Merger. On or prior to the
Closing, the Delaware Articles shall be duly delivered to the Secretary of State
of Alabama and the Secretary
<PAGE>
of State of Delaware for filing in accordance with applicable law. The Delaware
Merger shall become effective immediately following the Operating Company
Mergers on the same date as the Operating Company Mergers, as further specified
in the Delaware Articles (the "Delaware Effective Time").
c. As of the Delaware Effective Time, by virtue of the Delaware
Merger, and without any further action on the part of the holders of the EC
Shares: (i) each of the EC Shares which is outstanding immediately prior to the
Delaware Effective Time shall be canceled and converted into the right to
receive 12,651.21 PJ Shares; and (ii) all EC Shares which are held by EC as
treasury shares shall be canceled, without payment of any further consideration.
In connection with the filing of the Registration Statement of PJ in
anticipation of the IPO, PJ shall have the right to adjust the number of PJ
Shares that it shall issue to the Shareholders in the Delaware Merger; provided,
however, that any adjustment made by PJ shall be subject to the following
limitations: (a) such adjustments shall not cause any Shareholder's percentage
ownership interest in PJ, after giving effect to the Delaware Merger and prior
to giving effect to the IPO, to be different than the percentage ownership
interest in PJ set forth opposite such Shareholder's name on Exhibit G attached
hereto; and (b) such adjustment shall not cause the aggregate number of PJ
Shares issued in the Delaware Merger to the Shareholders to be less than 60% of
the total number of issued and outstanding PJ Shares after giving effect to the
IPO, excluding for purposes of such determination any PJ Shares issuable to Papa
John's upon exercise of the PJI Warrant, without the consent of the Alabama
Shareholders' Representative and the Virginia Shareholders' Representative. No
fractional shares shall be issued in the Delaware Merger. The PJ Shares to be
received in the Delaware Merger shall be rounded to the nearest whole number.
d. At the Escrow Closing on the Escrow Date, PJ shall deliver
to the Closing Escrow Agent, for delivery at the Closing to each of the
Shareholders, certificates representing the PJ Shares which such Shareholder is
to receive by virtue of the Delaware Merger, as further summarized in Exhibit G
attached hereto. The PJ Shares shall be issued to the Shareholders at the
Closing only against delivery by such Shareholder (or their Shareholder's
Representative) to the Closing Escrow Agent, for delivery to PJ at the Closing,
of certificates (with stock powers duly endorsed for transfer to PJ) for all of
the EC Shares owned or held by such Shareholder. The PJ Shares, upon issuance
pursuant to the Delaware Merger, shall be duly authorized, validly issued,
fully-paid and non-assessable, and shall be free of preemptive rights.
Immediately prior to the IPO, each of the Shareholders will own and hold the
percentages of issued and outstanding PJ Shares set forth opposite their
respective names on Exhibit G attached hereto.
3.3 REGISTRATION STATEMENT FOR PUBLIC OFFERING. As soon as
practicable following the execution of this Plan, PJ shall prepare and file a
Registration Statement on Form S-1 ("Registration Statement"), with all
necessary exhibits thereto, with the SEC pursuant to the Securities Act and the
rules and regulations thereunder, to register the PJ Shares for the IPO.
3.4 DECLARATION AND PAYMENT OF DISTRIBUTIONS. On or prior to the
Closing Date, each Operating Company may declare a dividend with a record date
(for determination of
<PAGE>
the shareholders entitled to receive the dividend and for determination of the
amount thereof) to be set at the close of business on the date immediately prior
to the Closing Date; provided, in no event shall the dividend for the Operating
Company exceed (a) the accumulated adjustments account of that Operating
Company, determined in accordance with section 1368(e)(1) of the Code, at the
record date established for the dividend or (b) the amount that the Operating
Company may lawfully distribute under applicable state laws. PJ agrees that the
dividends will be paid by Newco (as successor to the Targets) and by PJ (as
successor to EC) within 120 days after the record date, subject only to
restrictions on such distributions under applicable state law, and to the extent
cash is needed by Newco to pay the dividends, PJ shall contribute or loan the
cash to Newco to enable Newco to make such dividend payments.
3.5 SHAREHOLDER LOANS. On or prior to the Closing Date, each
Operating Company may authorize and, if cash is available for such purposes, pay
all the outstanding indebtedness for borrowed money from its Shareholders which
is disclosed on Schedule 2.1 of the Operating Company to the "Indemnification
Agreement" (defined in Section 3.7.a.). If the Operating Company cannot repay
these debts prior to Closing, PJ shall contribute or loan funds to Newco (as
the successor of the Operating Company) in an amount sufficient to enable Newco
to repay the indebtedness to former Shareholders of the Operating Company,
within 15 days after the Closing Date.
3.6 NON-COMPETITION AGREEMENT. At the Escrow Closing, each of the
Shareholders shall execute and deliver to the Closing Escrow Agent, for delivery
to PJ at the Closing, a non-competition agreement, in form and substance
satisfactory to PJ, which shall restrict the Shareholders' competition with PJ
in a manner which is similar to, but no greater than, the restrictions on such
Shareholders' competition with Papa John's, as required by Papa John's in its
Papa John's Franchise Agreements or otherwise (the "Non-Competition Agreement").
Each of the Operating Companies shall cause the executive officers and directors
of each of the respective Operating Companies to execute and deliver to the
Closing Escrow Agent, for delivery to Newco at the Closing, a Non-Competition
Agreement.
3.7 INDEMNIFICATION ESCROW.
a. At the Escrow Closing, the Shareholders, PJ, Newco and a
trust company or other commercial financial institution selected by PJ, as
escrow agent (the "Indemnification Escrow Agent"), shall execute and deliver to
the Closing Escrow Agent, for delivery at the Closing, an escrow agreement (the
"Indemnification Escrow Agreement") in the form of Exhibit H attached hereto,
providing for 10% of the PJ Shares issued to each of the Shareholders at
Closing, together with $100,000 (to be allocated among and paid by each of the
Shareholders as shown on Exhibit I attached hereto) (collectively, the "Escrow
Funds"), to be placed in escrow to satisfy claims for indemnification made by PJ
or Newco pursuant to the Indemnification Agreement executed by the parties on
the date hereof (the "Indemnification Agreement"). At the Escrow Closing, each
of the Shareholders shall deliver to the Closing Escrow Agent, for delivery to
the Indemnification Escrow Agent at Closing, (a) a stock power duly endorsed by
the Shareholder, with signature properly guaranteed, for transfer to the
Indemnification Escrow Agent of 10% of the PJ Shares received by the Shareholder
in connection with the Delaware Merger, and (b) a check payable to the Closing
Escrow Agent, or a wire transfer of immediately available funds to an account
designated by the Closing
<PAGE>
Escrow Agent, in an amount set forth opposite their respective names on Exhibit
I attached hereto.
b. From and after the Closing, the Escrow Funds deposited with
the Indemnification Escrow Agent shall be segregated into five separate and
distinct accounts (sometimes referred to herein collectively as the "Escrow
Accounts" and individually as an "Escrow Account") to be used for the payment
and discharge of the "General Indemnified Liabilities" (defined in the
Indemnification Agreement) and the "Additional Indemnified Liabilities" (defined
in the Indemnification Agreement) which are particular to the Shareholders of
each of the five Operating Companies, respectively. Pursuant to the
Indemnification Escrow Agreement, the Indemnification Escrow Agent shall
allocate and contribute the Escrow Funds to each of the respective Escrow
Accounts in the proportion which the number of PJ Shares issued in the Delaware
Merger to the Shareholders of an Operating Company (in respect of the Operating
Company Shares held by such Shareholders) bears to the total number of PJ Shares
issued in the Delaware Merger.
3.8 INVESTMENT LETTERS. At the Escrow Closing, each of the
Shareholders agrees to execute and deliver to the Closing Escrow Agent for
delivery to PJ at the Closing, an investment letter ("Investment Letter") in a
form satisfactory to PJ to enable it to avail itself of exemptions from
registration under the Securities Act and applicable state securities laws.
3.9 REGISTRATION RIGHTS AGREEMENT. At the Escrow Closing, PJ and the
Shareholders agree to execute and deliver to the Closing Escrow Agent, for
delivery at the Closing, the Registration Rights Agreement in the form of
Exhibit J attached hereto, granting each Shareholder piggy-back registration
rights with respect to the PJ Shares issued on or prior to the Closing to such
Shareholder.
3.10 SHAREHOLDER RELEASES. At the Escrow Closing, each Shareholder
agrees to execute and deliver to the Closing Escrow Agent, for delivery to PJ at
the Closing, a General Release of Claims in form and substance customary for the
type of transactions contemplated hereby.
3.11 THE OPERATING COMPANY INCOME. PJ, Newco, each Operating Company
and the Shareholders shall make the election under section 1362(e)(3) of the
Code so that the taxable income for the S termination year of each of the
Operating Companies will not be allocated on the pro rata method.
4. OBLIGATIONS OF THE PARTIES PRIOR TO CLOSING.
4.1 RESTRICTIONS ON CAPITAL STOCK TRANSFERS PENDING CLOSING. From
the date hereof through the Closing Date, no Shareholder shall sell, convey,
exchange, assign or otherwise transfer any Operating Company Shares, or enter
into any agreement for the sale or transfer of any Operating Company Shares,
(except that Operating Company Shares may be sold, conveyed, gifted or otherwise
transferred to one or more immediate family member of a Shareholder or a trust
established for the benefit of such family members only, or to a corporation or
other entity in which such immediate family members are the sole equity owners,
<PAGE>
provided such family member agrees to be bound by all of the terms and
provisions of this Plan in form and substance satisfactory to counsel to PJ),
nor will any Shareholder subject any Operating Company Shares to any security
interest, claim, equity, restriction, pledge, lien, charge or encumbrance of any
nature whatsoever.
4.2 OPERATIONS OF OPERATING COMPANIES PENDING CLOSING. From the date
hereof through the Closing Date, unless otherwise agreed to by PJ and each of
the other Operating Companies, each Operating Company will:
a. continue its business and operations substantially in the
same manner as heretofore, and will not change any accounting principle followed
(except changes to the method of depreciation of the Operating Company's assets
as E&Y may recommend), nor undertake any transactions or enter into any
franchises, other contracts, commitments or arrangements, other than in the
ordinary course of business, and will use its best efforts to preserve its
present business and organization and to keep available for the benefit of Newco
and PJ, without entering into any binding agreement, the services of the
Operating Company's employees, and to preserve for the benefit of Newco and PJ,
the good will of Papa John's, suppliers, customers and other persons having
business dealings with the Operating Company;
b. not amend its Certificate or Articles of Incorporation or
Bylaws;
c. maintain the Licenses, including, without limitation, all
Papa John's Franchise Agreements, and will not take any action, or refrain from
taking any action, which could cause any Licenses to be terminated, revoked,
restricted or suspended;
d. not authorize for issue or issue any additional Operating
Company Shares or any other securities of any nature whatsoever;
e. not make any investment in any other corporation,
association, partnership, joint venture or other business organization or enter
into, modify, terminate or waive any right under any material lease, license,
franchise, contract or other instrument except in the ordinary course of
business consistent with past practices of the Operating Company;
f. not make any capital expenditures in excess of $10,000, nor
make any commitment to make any capital expenditures in excess of $25,000 in the
aggregate, except in connection with the operations of, or the development and
opening of, Papa John's restaurants or in connection with the IPO;
g. not dispose of or encumber, or agree to dispose of or
encumber, any of its properties or assets other than in the ordinary course of
business;
h. not increase the rate or change the nature of the
compensation payable to any of the directors, officers or supervisory employees
of the Operating Company;
<PAGE>
i. not incur or agree to incur any indebtedness for borrowed
money or allow any of its assets to be subjected to any security interest,
pledge, mortgage, lien, charge or similar encumbrance whatsoever;
j. maintain its level of advertising expenditures generally
consistent with past expenditures;
k. maintain all of its properties in good working order and
repair and take all steps reasonably necessary to maintain its assets for the
use and benefit of Newco and PJ;
l. except as provided in Section 3.4, not declare, set aside,
pay or make any dividend or other distribution to its Shareholders; and
m. maintain its existing insurance coverage, subject to
variations in amounts required by the ordinary operation of its business and
otherwise in compliance in all material respects with the requirements of Papa
John's, its lessors and others with whom it has contractual commitments.
4.3 ACCESS TO INFORMATION. From the date of execution and delivery
of this Plan through the Escrow Date, each Operating Company shall provide the
officers, employees, attorneys, accountants and other representatives and agents
of PJ, Newco and the other parties hereto free access to all records and
information relating to the business and assets of the Operating Company and
will permit such persons to have access to all the properties and records of the
Operating Company during reasonable business hours in order that they may have
full opportunity to make such investigations as they shall desire of the affairs
of the Operating Company.
4.4 ADDITIONAL ACTIONS PENDING CLOSING; COMPLIANCE WITH CONDITIONS.
From the date hereof through the Closing Date, none of the parties to this Plan
will take or knowingly permit to be taken any action, or do or knowingly permit
to be done anything in the conduct of the business of the Operating Companies or
PJ, as the case may be, or otherwise, which would be contrary to or in breach of
any of the representation and warranties, terms or conditions of this Plan, or
which would cause any of the representations and warranties herein to be untrue,
and each of the parties hereto shall cause the deliveries for which such party
is responsible at the Escrow Closing and the Closing to be made. Each party
hereto agrees to cooperate fully with each other party in order to meet the
conditions set forth in Sections 5 and 6. Each party hereto further agrees to
use such party's best efforts, and to act in good faith, to cause the conditions
precedent for which such party is responsible to be fulfilled, and to be
consummated.
4.5 NEGOTIATIONS WITH OTHERS. During the period from the date hereof
through the Closing Date, each of the Operating Companies and their respective
Shareholders shall not, directly or indirectly, solicit or initiate discussions
or engage in negotiations with, or provide any information (other than publicly
available information) to, or authorize any financial advisor or other person to
solicit or initiate discussions or engage in negotiations with, or
<PAGE>
provide any information to, any person or entity or group (other than the
parties to this Plan) concerning any proposal regarding a merger, consolidation,
reorganization, sale of all or substantially all of the assets, sale of the
outstanding capital stock or any other sale of the Operating Company in any form
whatsoever. Each of the Operating Companies shall promptly notify PJ and the
other Operating Companies if any such discussions or negotiations are sought to
be negotiated with, or any such information is requested from, or any such
proposal or possible proposal is received by, such Operating Company or any of
its Shareholders.
4.6 NOTIFICATION OF BREACHES. From the date hereof through the
Closing Date, the parties to this Plan will promptly notify each other party in
writing if any of the representations or warranties made by such party in this
Plan becomes inaccurate or is breached, or may become inaccurate or be breached,
or such party is unable to perform any agreement, covenant or condition required
of such party under the terms of this Plan.
5. CONDITIONS TO THE OBLIGATION OF PJ AND NEWCO ON ESCROW DATE. The
obligation of PJ and Newco to deliver the agreements, certificates, instruments
and other documents, and to take any action as contemplated in Section 8, is
subject to the fulfillment, prior to or on the Escrow Date, of the following
conditions (collectively, the "PJ Escrow Conditions"):
5.1 REPRESENTATIONS AND WARRANTIES CORRECT; COMPLIANCE WITH
COVENANTS. All representations and warranties of each Operating Company and its
Shareholders in the Indemnification Agreement, and each of the several
representations and warranties of the Shareholders made in Section 1 of the
Indemnification Agreement, shall be true and correct in all material respects as
of the date hereof and shall be true and correct in all material respects on the
Escrow Date the same as if again made on such date. Each Operating Company and
its Shareholders, and each of them, shall have performed and complied in all
material respects with all of the covenants, agreements and conditions required
by this Plan to be performed or complied with by them. The Operating Companies
and Shareholders shall have delivered to the Closing Escrow Agent, for delivery
to PJ at the Closing, certificates to the foregoing effect dated the Escrow
Date.
5.2 NO LITIGATION. No action, suit or proceeding before any court or
any governmental body or other authority pertaining to the consummation of the
transactions contemplated by this Plan shall have been instituted or threatened.
5.3 APPROVALS OBTAINED. All consents, acknowledgments,
authorizations and approvals required to be obtained by the Operating Companies
and the Shareholders, or any of them, with respect to the transactions
contemplated by this Plan shall have been obtained and delivered to the Closing
Escrow Agent for delivery to PJ at the Closing.
5.4 RELEASE AND TERMINATION OF SHARE RESTRICTIONS. PJ shall have
received written releases, termination statements, or other written evidence, in
form satisfactory to PJ, of the termination, release, waiver or satisfaction of
all Share Restrictions on the Operating Companies Shares set forth on Schedule
1.1 to the Indemnification Agreement, each of which shall be effective prior to
or as of the Closing Date.
<PAGE>
5.5 REGISTRATION STATEMENT DISCLOSURES. PJ shall have received
assurances, commitments or indemnities from each of the Operating Companies and
the Shareholders, as applicable, in form and substance satisfactory to PJ, with
respect to all disclosures (as permitted by Sections 2.8 or 2.19 of the
Indemnification Agreement) of facts, circumstances or conditions in the
Registration Statement filed in connection with the IPO which has had, or may
have, a material adverse effect on the business, financial condition, or results
of operation of the Operating Company, or the prospects of PJ or Newco upon
consummation of the transactions contemplated hereby, and such disclosure is not
otherwise set forth in a Schedule attached hereto or otherwise accepted and
waived by PJ.
5.6 PAPA JOHN'S ESTOPPEL. PJ shall have received a letter or other
instrument from Papa John's, in form satisfactory to PJ, certifying that Papa
John's knows of no default by any of the Operating Companies under their
respective Papa John's Franchise Agreements, and that Papa John's has no
knowledge of any event which would, with notice or passage of time, constitute a
default by any of the Operating Companies under their respective Papa John's
Franchise Agreements.
6. CONDITIONS TO OBLIGATIONS OF THE SHAREHOLDERS ON ESCROW DATE. The
obligations of each Operating Company and its Shareholders to deliver the
agreements, certificates, instruments and other documents, and to take any
action as contemplated in Section 8, are subject to the fulfillment, prior to
or on the Escrow Date, of the following conditions (collectively, the "Operating
Company Escrow Conditions"):
6.1 REPRESENTATIONS AND WARRANTIES; COMPLIANCE WITH COVENANTS. All
representations and warranties of PJ, and all of the representations and
warranties of each of the other Operating Companies and Shareholders of such
other Operating Companies, as set forth in the Indemnification Agreement shall
be true and correct in all material respects as of the date hereof and shall be
true and correct in all material respects on the Escrow Date the same as if
again made on such date. PJ, each of the other Operating Companies and the
Shareholders of such other Operating Companies, shall have performed and
complied in all material respects with all of the covenants, agreements and
conditions required by this Plan to be performed or complied with by them. Each
of the other Operating Companies (signed by the chief executive officer,
president or any vice president thereof) and the Shareholders of such other
Operating Companies shall have delivered to the Closing Escrow Agent, for
delivery at the Closing to the Operating Company and its Shareholders,
certificates to the foregoing effect dated as of the Escrow Date. PJ shall also
have delivered to the Closing Escrow Agent, for delivery at the Closing to the
Shareholders, certificates to the foregoing effect dated the Escrow Date, signed
by the chief executive officer, President or any Vice President of PJ.
6.2 NO LITIGATION. No action, suit or proceeding before any court or
any governmental body or other authority pertaining to the consummation of the
transactions contemplated by this Plan shall have been instituted or threatened.
6.3 PJ SHARE CERTIFICATES DELIVERED. PJ shall have delivered to the
Closing Escrow Agent, for delivery to the respective Shareholders and the
Indemnification Escrow
<PAGE>
Agent, as appropriate, certificates representing the PJ Shares to be issued to
each of the Shareholders pursuant to the Delaware Merger.
6.4 APPROVALS OBTAINED. All consents, authorizations and approvals
required to be obtained by PJ with respect to the transactions contemplated by
this Plan, except for the order of the SEC declaring and ordering the
Registration Statement for the IPO effective, and all consents, authorizations
and approvals required to be obtained by each of the other Operating Companies
and its Shareholders with respect to the transactions contemplated by this Plan,
shall have been obtained and delivered to the Closing Escrow Agent for delivery
at the Closing.
7. WAIVER OF CONDITIONS. Notwithstanding the provisions of Section 5,
PJ shall have the right and power to waive any condition precedent to its
obligations to consummate this Plan and the transactions herein described by
giving notice of such waiver to the Operating Companies and the Virginia and
Alabama Shareholder Representatives; provided, that any such waiver by PJ shall
not constitute a waiver of any other condition precedent unless expressly stated
otherwise therein. Notwithstanding the provisions of Section 6, each of the
Operating Companies and their respective Shareholders shall have the right and
power to waive any condition to their obligations to consummate this Plan and
the transactions herein described by giving notice of such waiver to PJ and, as
appropriate, to the other Operating Companies, as applicable; provided, that any
such waiver by an Operating Company and its Shareholders shall not constitute a
waiver of any other condition precedent unless expressly stated otherwise
therein.
8. ACTIONS ON ESCROW DATE. On the Escrow Date, the Closing Escrow Agent
and the parties to this Plan shall execute and deliver the Closing Escrow
Agreement. In addition, on the Escrow Date, the parties hereto shall take such
action as is described in the Closing Escrow Agreement and in this Plan, deliver
the documents, instruments and certificates described in the Closing Escrow
Agreement and in this Plan to the Closing Escrow Agent, to be held in escrow by
the Closing Escrow Agent for delivery on the Closing Date to the parties
entitled thereto under the terms of the Closing Escrow Agreement and this Plan,
all such deliveries to be made at Closing only upon fulfillment of all Closing
Conditions set forth in this Plan and in the Closing Escrow Agreement.
9. ACTIONS AT CLOSING; DELIVERIES FROM ESCROW. Subject only to the
conditions precedent (the "Closing Conditions") that (a) PJ shall have received
notice from the SEC of its declaration that the Registration Statement filed in
connection with the IPO is effective; (b) the Closing Escrow Agent shall have
received the officer and shareholder certificates set forth in this Section 9,
and (c) this Plan shall not have been terminated in accordance with Section 2.2,
the Closing shall occur on the Closing Date, and the Closing Escrow Agent, in
accordance with the terms of the Closing Escrow Agreement, shall deliver out of
escrow all documents, instruments and certificates held by it pursuant to the
Closing Escrow Agreement to the appropriate parties identified and provided for
in the Closing Escrow Agreement and in this Plan, and shall take all actions
necessary to consummate the transactions contemplated in this Plan, including,
without limitation, filing of the TC Articles, Textra Articles and the Virginia
Articles as required by Section 1.3 and the Articles of Merger and Certificate
of Merger as required by Section 3.2.b.
<PAGE>
The transactions contemplated herein shall be consummated, and the Closing
Escrow Agreement terminated, at the Effective Time of the Delaware Merger.
9.1 CERTIFICATE OF THE OPERATING COMPANIES AND THE SHAREHOLDERS. At
the Closing on the Closing Date, each of the Operating Companies and their
respective Shareholders shall deliver to the Closing Escrow Agent (i)
certificates signed by the Operating Company (by its chief executive officer,
president or any vice president) and the Shareholders of such Operating Company
certifying (A) that each representation and warranty of the Operating Company
and its Shareholders in this Plan is true and correct in all material respects
as of the Closing Date the same as if again made on such date, (B) that the
Operating Company and its Shareholders have complied in all material respects
with all covenants, agreements and conditions set forth in this Plan to be
performed by them prior to or at the Closing, and (C) that the PJ Escrow
Conditions continue to be fulfilled as of the Closing Date.
9.2 CERTIFICATE OF PJ. At the Closing on the Closing Date, PJ shall
deliver to the Closing Escrow Agent (i) a certificate signed by the Chief
Executive Officer, President or any Vice President of PJ certifying (A) that the
Registration Statement for the IPO has been declared effective by the SEC,
together with a copy of any written notice to such effect from the SEC, if
provided by the SEC, and that the Prospectus included therein has been delivered
to the Shareholders, (B) that each representation and warranty of PJ in this
Plan is true and correct in all material respects as of the Closing Date the
same as if again made on such date, (C) that PJ has complied in all material
respects with all covenants, agreements and conditions set forth in this Plan to
be performed by PJ prior to or at the Closing, and (D) that the Operating
Company Escrow Conditions continue to be fulfilled as of the Closing Date.
10. ARBITRATION. Any controversy or claim arising out of or relating to
this Plan between any of the parties hereto shall be determined by means of
arbitration before the American Arbitration Association in Louisville, Kentucky.
All claims for arbitration must be submitted to arbitration within 45 days after
the expiration of the Response Period, but in no event sooner than 15 days after
the Response Period if the Indemnifying Party has responded to the Claim within
the Response Period. The rules of the American Arbitration Association, as the
same may be amended from time to time, shall be applicable in the arbitration.
Any decision or award of the arbitrator shall be final and binding upon the
parties. Judgment upon the decision or award rendered by the arbitrator may be
entered in any state or federal court having jurisdiction, or application may be
made to such state or federal court for a judicial acceptance of the decision,
award or any order of enforcement, as the case may be.
11. SHAREHOLDERS' REPRESENTATIVES.
11.1 APPOINTMENT OF SHAREHOLDERS' REPRESENTATIVE. The Shareholders
of PJV and PJVA do hereby irrevocably constitute and appoint Martin T. Hart and
his successors appointed pursuant to Section 11.2 (the "Virginia Shareholders'
Representative"), as their agent and attorney-in-fact, on behalf and on behalf
of each of them, and the EC Shareholders, TC Shareholders and Textra
Shareholders do hereby irrevocably constitute and appoint Michael M. Fleishman
and his successors appointed pursuant to Section 11.2 (the "Alabama
Shareholders' Representative"), as their agent and attorney-in-fact, on behalf
of each of them: (i) to perform
<PAGE>
all acts which, by the provisions of this Plan, are to be performed by the
Shareholders or, as applicable, the Virginia or Alabama Shareholders'
Representative; (ii) to waive any of the provisions of and to execute and
deliver such amendments to this Plan, as he, in his sole judgment, shall deem
necessary or advisable; (iii) to execute and deliver such instruments and
documents pursuant to this Plan as the Virginia or Alabama Shareholders'
Representative, as applicable and in his sole judgment, shall deem necessary or
advisable; (iv) to execute and give all notices, requests and other
communications required, permitted or contemplated under this Plan, as the
Virginia or Alabama Shareholders' Representative, as applicable and in his sole
judgment, shall deem necessary or advisable; (v) to consent to, dispute,
compromise, adjust, settle, litigate, appeal or otherwise deal with any and all
set-offs, claims, breaches, obligations, liabilities, assessments, suits,
actions, proceedings, liens, charges, encumbrances, orders, judgments and
decrees with respect to this Plan or to refrain so to do, as the Virginia or
Alabama Shareholders' Representative (as applicable) shall, in his sole
judgment, deem necessary or advisable; (vi) to delegate all or any of his power
or authority under this Plan to any person or entity, as Shareholders'
Representative, in his sole judgment, shall deem necessary or advisable; (vii)
to expend such amounts in the exercise of his rights and powers and in the
performance of his duties hereunder as the Virginia or Alabama Shareholders'
Representative (as applicable) shall, in his sole judgment, deem necessary or
advisable; and (viii) generally to act for and on behalf of the Shareholders he
is representing and each of them in all matters connected with this Plan, with
the same force and effect as though such act had been taken by them, or any of
them, personally. The Shareholders agree that the Alabama Shareholders'
Representative or the Virginia Shareholders' Representative, as applicable,
shall be the sole and exclusive person with legal capacity and standing to
contest, dispute, compromise, adjust, settle, litigate, appeal or otherwise deal
with PJ or Newco with respect to the indemnification of PJ or Newco as set forth
in the Indemnification Agreement. This appointment and power-of-attorney is a
special power-of-attorney coupled with an interest, is irrevocable and shall
survive the death, disability or incapacity of each Shareholder.
11.2 REMOVAL; APPOINTMENT OF A SUCCESSOR TO SHAREHOLDERS'
REPRESENTATIVE. A majority in interest of the EC, TC and Textra Shareholders
shall have the right at any time to remove the Alabama Shareholders'
Representative and to designate his successor or, in the event of his death or
legal disability, to designate the successor to the Alabama Shareholders'
Representative. A majority in interest of the PJV and PJVA Shareholders shall
have the right to, at any time, remove the Virginia Shareholders' Representative
and to designate his successor or, in the event of his death or legal
disability, to designate the successor to the Virginia Shareholders'
Representative.
11.3 REIMBURSEMENT OF SHAREHOLDERS' REPRESENTATIVE. The Virginia
Shareholders' Representative shall be reimbursed by the PJV Shareholders and
PJVA Shareholders, and the Alabama Shareholders' Representative shall be
reimbursed by the EC Shareholders, TC Shareholders and Textra Shareholders, for
all costs and expenses (including, but not limited to, attorneys' fees) incurred
by him in the performance of his duties or the exercise of his rights and powers
hereunder, including, without limitation, expenses incurred in the defense by
him of any claim, suit or arbitration with respect to General Indemnified
Liabilities or Additional Indemnified Liabilities or in enforcing or contesting
any right in connection with any indemnification matter. Notwithstanding
anything herein to the contrary, either of the
<PAGE>
Shareholders' Representative may, at his option, require that the Shareholders
that he represents proportionately advance costs and expenses reasonably
anticipated by such Shareholders' Representative to be incurred hereunder. Each
of the Shareholders shall indemnify the Shareholders' Representative who
represents their interests and shall hold such Shareholders' Representative
harmless from and against all liabilities, claims, debts, obligations, losses,
damages, fees and expenses (including reasonable attorneys' fees) resulting
from, or arising out of, or in connection with, the performance of his duties or
the exercise of his rights and powers hereunder, including, without limitation,
any action, suit or proceeding threatened or brought against him by reason of
the fact that he is or was the Shareholders' Representative; provided, the
indemnity herein shall not apply to any action, suit or proceeding brought by
the Shareholders wherein the Shareholders' Representative is found to have acted
in bad faith, engaged in willful misconduct, or been grossly negligent.
11.4 OBLIGATIONS OF SHAREHOLDERS' REPRESENTATIVE. The duties and
obligations of the respective Shareholders' Representatives appointed hereunder
shall be determined solely by the express provisions of this Plan. Neither of
the Shareholders' Representatives shall be liable to the Shareholders they
represent by reason of any error of judgment or for any act done or step taken
or omitted by him, or for any mistake of fact or law or anything which he may do
or refrain from doing in connection herewith, including without limitation, any
failure to dispute or contest any set-off or nonpayment of any payment, unless
done in bad faith or caused by his own willful misconduct or gross negligence.
Each Shareholders' Representative shall be entitled to treat as genuine, and as
the document it purports to be, any letter, paper or other document furnished to
him by PJ, Newco or any other party or parties, and believed by him to be
genuine and to have been signed and presented by the proper party or parties.
11.5 RELIANCE BY PJ AND NEWCO. Each of the Shareholders hereby
agrees that PJ and Newco may deal solely with their appointed Shareholders'
Representative as the exclusive representative of the Shareholder with reference
to the matters set forth in this Section 11, that his actions are binding on
the Shareholder, and that PJ and Newco has no duty to ascertain if the
Shareholders' Representative is properly carrying out his obligations under this
Plan, including, but not limited to, the disbursement of any funds received by
him.
12. OTHER AGREEMENTS OF THE PARTIES.
12.1 EXPENSES. If for any reason this Plan is terminated prior to
consummation of the transactions contemplated hereby, the expenses incurred in
connection with the transactions described in this Plan, the audit of each of
the Operating Companies and the IPO, including, without limitation, all
attorneys' fees for counsel to PJ, travel expenses and expenses incurred by EC
in hiring Judy Keener as a financial consultant and Ross Davison as its Chief
Financial Officer, shall be divided among and paid by each of the Operating
Companies in the same aggregate percentages as the Shareholders of such
Operating Company would have been entitled to share in the total PJ Shares had
the Delaware Merger been consummated as contemplated hereby. Otherwise, upon
consummation of the transactions contemplated hereby, such expenses shall be
paid by PJ. The obligations of the Shareholders under this Section 12 shall
survive any termination of this Plan, even if the Operating Company Mergers, the
<PAGE>
Contribution Transaction, the Delaware Merger or the IPO is not consummated as
contemplated by this Plan.
12.2 CONFIDENTIALITY. All information furnished by one party to any
of the others in connection with this Plan or the transactions contemplated
hereby shall be kept confidential by such other party (and shall be used by it
only in connection with this Plan and the transactions contemplated hereby and
thereby) except to the extent that such information (i) already is known to such
other party when received, (ii) thereafter becomes lawfully obtainable from
other sources, or (iii) is required to be disclosed in any document filed with
the SEC or any other agency of any government. In the event that the
transactions contemplated by this Plan shall fail to be consummated, each party
shall promptly cause all copies of documents or extracts thereof containing
information and data as to another party hereto to be returned to the party
furnishing such information and data. No officer, director, employee, agent or
representative of any party shall have access to such confidential information
other than those who have been informed of the confidential nature of such
information and the covenants set forth in this Section 12.2 and who needs such
access to assist the party in fulfilling its obligations under this Plan. None
of the parties to this Plan, nor any of the officers, directors, employees,
agents or representatives of any party to this Plan, shall disclose either the
terms or the existence of this Plan to any person or entity, other than to their
respective attorneys and other representatives, or to those parties (such as
underwriters, investment bankers and lessors, and to the SEC and other
governmental agencies, as necessary and in connection with the IPO with whom
such party must communicate to consummate the transactions contemplated by this
Plan.
12.3 PRESS RELEASES. None of the Operating Companies nor the
Shareholders of the respective Operating Companies shall make any press release
or other public announcement concerning the transactions contemplated by this
Plan without the prior consent of Newco as to the form and contents of such
release or announcement, except to the extent that such may be required by law.
12.4 FURTHER ASSURANCES. Each of the parties hereto agrees that the
party will, at any time, and from time to time, either before or after the
Closing Date, upon the request of the appropriate party, do, execute,
acknowledge and deliver, or will cause to be done, executed, acknowledged and
delivered, all such further acts, deeds, assignments, transfers, conveyances,
powers of attorney and assurances as may be required to complete the
transactions contemplated by this Plan.
12.5 NOTICES. All notices and other communications required or
permitted hereunder shall be sufficiently given if in writing and personally
delivered against a written receipt, if delivered to a reputable express
messenger service (such as Federal Express, UPS or DHL Courier) for overnight
delivery, when sent by confirmed telephone facsimile (fax) or sent by
registered, express or certified U.S. mail, with postage prepaid, addressed as
follows:
<PAGE>
If to PJ or Newco: PJ America, Inc.
9109 Parkway East
Birmingham, Alabama 35206
Attn: Douglas S. Stephens, President
With Copy to: Greenebaum Doll & McDonald PLLC
3300 National City Tower
Louisville, Kentucky 40202
Attn: Ivan M. Diamond
If to EC, TC or Textra: Extra Cheese, Inc.
9109 Parkway East
Birmingham, Alabama 35206
Attn: Douglas S. Stephens
If to PJV or PJVA: PJV, Inc.
4909 Augusta Avenue
Richmond, VA 23230
Attn: Richard F. Sherman
If to Alabama Share-
holder Representative: Michael M. Fleishman
3300 National City Tower
Louisville, Kentucky 40202
If to Virginia Share-
holder Representative: Martin T. Hart
875 Race Street
Denver, Colorado 80206
or to such other address or addresses as any of the parties to this Plan shall
furnish to the others in writing. Notices shall be deemed given when personally
delivered, when delivered to an express messenger service, when transmitted by
confirmed fax or when deposited in the U.S. mail in accordance with the
foregoing provisions. However, the time period in which a response to any such
notice, demand or request must be given shall commence to run from the date of
personal delivery, the date of delivery by a reputable messenger service, the
date of confirmation of a fax, or the date on the return receipt, as applicable.
12.6 SEVERABILITY OF PROVISIONS. If any provisions of this Plan or
the applications thereof to any person or circumstance shall to any extent be
held in any proceeding to be invalid or unenforceable, the remainder of this
Plan, or the application of such provisions to persons or circumstances other
than those to which it was held to be invalid or unenforceable, shall not be
affected thereby, and shall be valid and be enforceable to the fullest extent
permitted by law, but only if and to the extent such enforcement would not
materially and adversely frustrate the parties' essential objectives as
expressed herein.
<PAGE>
12.7 ASSIGNMENT. No party shall assign or delegate this Plan or any
rights, interests or obligations hereunder without the prior written consent of
the other parties, except that Newco may assign, in its sole discretion, any or
all of its rights and interests, without the prior written consent of the other
parties, to any of its direct or indirect wholly owned subsidiaries. This Plan
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.
12.8 WAIVER. Any party hereto may, by written notice to the other
parties hereto, (i) extend the time for the performance of any of the
obligations or other actions of the other parties under this Plan; (ii) waive
any inaccuracies in the representations or warranties of the other parties
contained in this Plan or in any document delivered pursuant to this Plan;
(iii) waive compliance with any of the conditions or convents of the other
parties contained in this Plan; or (iv) waive or modify performance of any of
the obligations of the other parties under this Plan, including, without
limitation, any investigation by or on behalf of any party, shall be deemed to
constitute a waiver by the party taking such action of compliance with any of
the representations, warranties, covenants, conditions or agreements contained
in this Plan. The waiver by any party hereto of a breach of any provision of
this Plan shall not operate or be construed as a waiver of any subsequent
breach, nor shall it.
12.9 EXHIBITS. All Exhibits and Schedules to this Plan shall be
deemed to be incorporated herein by reference and made a part hereof as if set
out in full at the place where first mentioned. The Letter Agreement pursuant
to which this Plan is adopted and executed, the Plan and the documents, Exhibits
and Schedules incorporated herein, embody the entire agreement and understanding
of the parties hereto regarding its subject matter and supersedes all prior
agreements.
12.10 AMENDMENTS, SUPPLEMENTS, ETC. This Plan may not be amended or
supplemented by the parties except by an instrument in writing signed by all of
the parties hereto or, where appropriate, by the Virginia Shareholders'
Representative and the Alabama Shareholders' Representative on behalf of the
Shareholders.
12.11 CAPTIONS; COUNTERPARTS. The captions in this Plan are for
purposes of convenience only and shall not be considered a part of or affect the
construction or interpretation of any provision of this Plan. This Plan may be
executed in one or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.
12.12 GOVERNING LAW. The terms of this Plan shall be governed by and
construed and interpreted in accordance with the laws of the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, pursuant to the Letter Agreement dated July 10, 1996,
the parties have signed and delivered this Plan on the 26th day of August, 1996,
as of the date first above written.
PJ AMERICA, INC.
By:
-----------------------------------
Title:
--------------------------------
("PJ")
EXTRA CHEESE, INC.
By:
-----------------------------------
Title:
--------------------------------
TWICE THE CHEESE, INC.
By:
-----------------------------------
Title:
--------------------------------
TEXTRA CHEESE CORP.
By:
-----------------------------------
Title:
--------------------------------
<PAGE>
PJV, INC.
By:
-----------------------------------
Title:
--------------------------------
PJVA, INC.
By:
-----------------------------------
Title:
--------------------------------
--------------------------------------
MICHAEL M. FLEISHMAN, individually
a Shareholder of EC, TC and Textra
--------------------------------------
BRENDA A. FLEISHMAN, individually
a Shareholder of EC
--------------------------------------
BRENDA A. FLEISHMAN, as Custodian
of Zachary T. Fleishman, under the
Kentucky Uniform Gift to Minors Act,
a Shareholder of EC
-------------------------------------
JILL FLEISHMAN, individually
a Shareholder of EC
<PAGE>
--------------------------------------
JASON FLEISHMAN, individually
a Shareholder of EC
--------------------------------------
PATTY J. O'BRIEN, individually
a Shareholder of EC
--------------------------------------
FRANK M. KEENER, individually
a Shareholder of EC, TC and Textra
--------------------------------------
STEPHEN P. LANGFORD, individually
a Shareholder of EC, TC and Textra
--------------------------------------
RICHARD F. SHERMAN, individually
a Shareholder of EC, TC and Textra,
PJV and PJVA
--------------------------------------
DOUGLAS S. STEPHENS, individually
a Shareholder of EC, TC and Textra
--------------------------------------
ADRIAN OWENS, individually,
a Shareholder of TC
<PAGE>
--------------------------------------
ROBERT W. CURTIS, JR., individually,
a Shareholder of TC
--------------------------------------
PAMELA M. BAKER, individually,
a Shareholder of PJV AND PJVA
--------------------------------------
MICHAEL J. GRISANTI, individually,
a Shareholder of PJV and PJVA
--------------------------------------
KARA HART, individually,
a Shareholder of PJV and PJVA
--------------------------------------
MARCINE HART, individually,
a Shareholder of PJV and PJVA
--------------------------------------
MARTIN T. HART, individually,
a Shareholder of PJV and PJVA
--------------------------------------
JACK A. LAUGHERY, individually,
a Shareholder of PJV and PJVA
--------------------------------------
MARTHA C. LAUGHERY, individually,
a Shareholder of PJV and PJVA
<PAGE>
--------------------------------------
LISA I. O'CONNELL, individually,
a Shareholder of PJV and PJVA
--------------------------------------
JAMES REIKEL, individually,
a Shareholder of PJV and PJVA
--------------------------------------
CYNTHIA A. SAUNDERS, individually,
a Shareholder of PJV and PJVA
--------------------------------------
STEPHEN M. SAUNDERS, individually,
a Shareholder of PJV and PJVA
--------------------------------------
MERIDA L. SHERMAN, individually,
a Shareholder of PJV and PJVA
--------------------------------------
NICHOLAS H. SHERMAN, individually,
a Shareholder of PJV and PJVA
<PAGE>
EXHIBIT A
ARTICLES OF MERGER
OF
TWICE THE CHEESE, INC.
INTO
PJ CHEESE, INC.
==============================================================================
Pursuant to provisions of Section 10-2B-11.05 of the Alabama Business
Corporation Act, the undersigned corporations ("CONSTITUENT CORPORATIONS")
hereby adopt the following Articles of Merger for the purpose of merging TWICE
THE CHEESE, INC., an Alabama corporation ("TC"), with and into PJ CHEESE, INC.,
an Alabama corporation ("PJ"), which shall be the surviving entity in the
Merger.
FIRST: The Plan of Merger duly authorized and approved by each of the
Constituent Corporations is attached hereto as Exhibit A and is
hereby incorporated by reference as a part of these Articles of
Merger.
SECOND: TC has 1,000 outstanding shares of common stock, having $1.00
par value per share. Each such share was entitled to one vote
on the merger.
PJ has 1,000 outstanding share of common stock, having no par
value per share. Each such share was entitled to one vote on
the merger.
THIRD: All 1,000 common shares of TC voted in favor of the Plan of
Merger. All 1,000 common shares of PJ voted in favor of the
Plan of Merger.
FOURTH: TC's Articles of Incorporation are filed in __________ County,
Alabama and PJ's Articles of Incorporation are filed in
__________ County, Alabama.
FIFTH: The merger shall be effective as of 9:00 A.M. on ____________,
1996.
Dated: __________________
TWICE THE CHEESE, INC.
By:
------------------------------------
Douglas S. Stephens,
President
<PAGE>
PJ CHEESE, INC.
By:
-----------------------------------
Douglas S. Stephens,
President
The foregoing instrument
was prepared by:
- --------------------------
Daniel E. Fisher
Greenebaum Doll & McDonald
3300 National City Tower
Louisville, KY 40202
(502) 589-4200
<PAGE>
EXHIBIT B
ARTICLES OF MERGER
OF
TEXTRA CHEESE CORP.
INTO
PJ CHEESE, INC.
===============================================================================
Pursuant to provisions of Section (S)10-2B-11.05 of the Alabama Business
Corporation Act and Article 5.04 of the Texas Business Corporation Act, the
undersigned corporations ("CONSTITUENT CORPORATIONS") hereby adopt the following
Articles of Merger for the purpose of merging TEXTRA CHEESE CORP., a Texas
corporation ("TEXTRA"), with and into PJ CHEESE, INC., an Alabama corporation
("PJ"), which shall be the surviving entity in the Merger.
FIRST: The Plan of Merger duly authorized and approved by each of the
Constituent Corporations is attached hereto as Exhibit A and is
hereby incorporated by reference as a part of these Articles of
Merger.
SECOND: Textra has 100 outstanding shares of common stock, having $0.01
par value per share. Each such share was entitled to one vote
on the merger.
PJ has 1,000 outstanding share of common stock, having no par
value per share. Each such share was entitled to one vote on
the merger.
THIRD: All 100 common shares of Textra voted in favor of the Plan of
Merger. All 1,000 common shares of PJ voted in favor of the
Plan of Merger.
FOURTH: PJ's Articles of Incorporation are filed in __________ County,
Alabama.
The approval of the Plan of Merger and performance of its terms
was duly authorized by all action required by the laws of the
State of Alabama and by PJ's constituent documents.
SIXTH: The merger shall be effective as of 9:00 A.M. on ____________,
1996.
Dated: ______________________
TEXTRA CHEESE CORP.
By:
------------------------------------
Douglas S. Stephens,
President
<PAGE>
PJ CHEESE, INC.
By:
-------------------------------------
Douglas S. Stephens,
President
The foregoing instrument
was prepared by:
- -----------------------------------
Daniel E. Fisher
Greenebaum Doll & McDonald
3300 National City Tower
Louisville, KY 40202
(502) 589-4200
<PAGE>
EXHIBIT C
ARTICLES OF MERGER
OF
PJV, INC. AND PJVA, INC.
INTO
PJ CHEESE, INC.
================================================================================
Pursuant to provisions of Section 10-2B-11.05 of the Alabama Business
Corporation Act and Section (S)13.1-720 of the Virginia Stock Corporation Act,
the undersigned corporations ("CONSTITUENT CORPORATIONS") hereby adopt the
following Articles of Merger for the purpose of merging PJV, INC., a Virginia
corporation ("PJV"), and PJVA, INC., a Virginia corporation ("PJVA"), with and
into PJ CHEESE, INC., an Alabama corporation ("PJ"), which shall be the
surviving entity in the Merger.
FIRST: The Plan of Merger duly authorized and approved by each of the
Constituent Corporations is attached hereto as Exhibit A and is
hereby incorporated by reference as a part of these Articles of
Merger.
SECOND: The Plan of Merger was submitted to the shareholders of each
Virginia Constituent Corporation by its respective Boards of
Directors in accordance with Chapter 13 of the Virginia Stock
Corporation Act.
THIRD: PJV has 102 outstanding shares of common stock, having $10.00
par value per share. Each such shares was entitled to one vote
on the merger.
PJVA has 102 outstanding shares of common stock, having $10.00
par value per share. Each such share was entitled to one vote
on the merger.
PJ has 1,000 outstanding shares of common stock, having no par
value per share. Each such share was entitled to one vote on
the merger.
FOURTH: All 102 common shares of PJV voted in favor of the Plan of
Merger. All 102 common shares of PJVA voted in favor of the
Plan of Merger. All 1,000 common shares of PJ voted in favor of
the Plan of Merger.
FIFTH: PJ's Articles of Incorporation are filed in ___________ County,
Alabama.
<PAGE>
SIXTH: The merger shall be effective as of 9:00 A.M. on
__________, 1996.
Dated:
-----------------------
PJV, INC.
By:
---------------------------------
Title:
------------------------------
PJVA, INC.
By:
---------------------------------
Title:
------------------------------
PJ CHEESE, INC.
By:
---------------------------------
Douglas S. Stephens,
President
The foregoing instrument
was prepared by:
- --------------------------
Daniel E. Fisher
Greenebaum Doll & McDonald
3300 National City Tower
Louisville, KY 40202
(502) 589-4200
<PAGE>
EXHIBIT D
SUMMARY OF EC SHARE EXCHANGES
<TABLE>
<CAPTION>
EC
- --
EC SHARES
# OF CONVERSION AFTER
SHAREHOLDER SHARES RATIO CONVERSION
============================================================================
<S> <C> <C> <C>
Richard F. Sherman 17.22220 1.00 17.22220
Frank O. Keener 34.44440 1.00 34.44440
Michael M. Fleishman 20.17575 1.00 20.17575
Brenda A. Fleishman 1.58088 1.00 1.58088
Jill M. Fleishman 0.15810 1.00 0.15810
Brenda A. Fleishman, Custodian 0.23713 1.00 0.23713
for Zachary T. Fleishman
Jason T. Fleishman 0.15810 1.00 0.15810
Patty O'Brien 0.07904 1.00 0.07904
Stephen P. Langford 17.22220 1.00 17.22220
Douglas S. Stephens 17.22220 1.00 17.22220
=====================================
TOTAL 108.50000 108.50000
=====================================
TEXTRA
- ------
EC SHARES
# OF TEXTRA CONVERSION AFTER
SHAREHOLDER SHARES RATIO CONVERSION
============================================================================
<S> <C> <C> <C>
Richard F. Sherman 20 0.246317 4.926335
Frank O. Keener 20 0.246317 4.926335
Michael M . Fleishman 20 0.246317 4.926335
Stephen P. Langford 20 0.246317 4.926335
Douglas S. Stephens 20 0.246317 4.926335
=====================================
TOTAL 100 24.631680
=====================================
</TABLE>
<PAGE>
TWICE CHEESE
============
<TABLE>
<CAPTION>
# OF TWICE EC SHARES
CHEESE CONVERSION AFTER
SHAREHOLDER SHARES RATIO CONVERSION
==========================================================================
<S> <C> <C> <C>
Richard F. Sherman 143 0.006775 0.968894
Frank O. Keener 286 0.006775 1.937788
Michael M. Fleishman 185 0.006775 1.253464
Stephen P. Langford 143 0.006775 0.968894
Douglas S. Stephens 143 0.006775 0.968894
Adrian Owens 50 0.006775 0.338774
Robert W. Curtis, Jr. 50 0.006775 0.338774
-----------------------------------------------
TOTAL 1,000 6.775481
===============================================
</TABLE>
<TABLE>
<CAPTION>
PJ VA. INC.
===========
EC SHARES
# OF PJVA CONVERSION AFTER
SHAREHOLDER SHARES RATIO CONVERSION
====================================================================
<S> <C> <C> <C>
Richard F. Sherman 20.875 0.476586 9.948740
Merida L. Sherman 3.000 0.476586 1.429759
Nicholas H. Sherman 3.000 0.476586 1.429759
Jack A. Laughery 24.875 0.476586 11.855090
Martha C. Laughery 2.000 0.476586 0.953173
Martin T. Hart 5.625 0.476586 2.680798
Cynthia A. Saunders 3.000 0.476586 1.429759
Pamela M. Baker 3.000 0.476586 1.429759
Marcine Hart 3.000 0.476586 1.429759
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EC SHARES
# OF PJVA CONVERSION AFTER
SHAREHOLDER SHARES RATIO CONVERSION
================================================================================
<S> <C> <C> <C>
Lisa I. O'Connell 3.000 0.476586 1.429759
Kara Hart 3.000 0.476586 1.429759
Michael J. Grisanti 20.625 0.476586 9.829594
James Reikel 5.000 0.476586 2.382932
Stephen M. Saunders 2.000 0.476586 0.953173
============================================
TOTAL 102.000 48.611810
============================================
PJ V. INC.
- ----------
EC SHARES
# OF PJVA CONVERSION AFTER
SHAREHOLDER SHARES RATIO CONVERSION
================================================================================
<S> <C> <C> <C>
Richard F. Sherman 20.875 0.476586 9.948740
Merida L. Sherman 3.000 0.476586 1.429759
Nicholas H. Sherman 3.000 0.476586 1.429759
Jack A. Laughery 24.875 0.476586 11.855090
Martha C. Laughery 2.000 0.476586 0.953173
Martin T. Hart 5.625 0.476586 2.680798
Cynthia A. Saunders 3.000 0.476586 1.429759
Pamela M. Baker 3.000 0.476586 1.429759
Marcine Hart 3.000 0.476586 1.429759
Lisa I. O'Connell 3.000 0.476586 1.429759
Kara Hart 3.000 0.476586 1.429759
Michael J. Grisanti 20.625 0.476586 9.829594
James Reikel 5.000 0.476586 2.382932
Stephen M. Saunders 2.000 0.476586 0.953173
============================================
TOTAL 102.000 48.611810
============================================
</TABLE>
<PAGE>
SUMMARY EC SHAREHOLDERS AFTER
ABOVE MERGER (TOTAL # EC SHARES)
<TABLE>
<CAPTION>
# EC
SHAREHOLDER SHARES
================================================
<S> <C>
Richard F. Sherman 43.015590
Merida L. Sherman 2.859518
Nicholas H. Sherman 2.859518
Frank M. Keener 41.308520
Michael M. Fleishman 26.355549
Brenda A. Fleishman 1.580880
Jill M. Fleishman 0.158100
Brenda A. Fleishman, Custodian
for Zachary T. Fleishman 0.237130
Jason T. Fleishman 0.158100
Patty J. O'Brien 0.079040
Stephen P. Langford 23.117430
Douglas S. Stephens 23.117430
Jack A. Laughery 23.710170
Martha C. Laughery 1.906345
Martin T. Hart 5.361597
Cynthia A. Saunders 2.859518
Pamela M. Baker 2.859518
Marcine Hart 2.859518
Lisa I. O'Connell 2.859518
Kara Hart 2.859518
Michael J. Grisanti 19.659190
James Reikel 4.765864
</TABLE>
<PAGE>
# EC
SHAREHOLDER SHARES
==================================
Stephen M. Saunders 1.906345
Adrian Owens 0.338774
Robert W. Curtis, Jr. 0.338774
----------
237.131454
==========
<PAGE>
CLOSING ESCROW AGREEMENT
------------------------
THIS CLOSING ESCROW AGREEMENT ("Escrow Agreement") is made and entered into
as of this ______ day of August, 1996, by and among PJ AMERICA, INC., a Delaware
corporation ("PJ"), _______________ , an Alabama corporation ("Newco"), EXTRA
CHEESE, INC., an Alabama corporation ("EC"), TWICE THE CHEESE, INC., an Alabama
corporation ("TC"), TEXTRA CHEESE CORP., a Texas corporation ("Textra"), PJV,
INC., a Virginia corporation ("PJV"), PJVA, INC., a Virginia corporation
("PJVA"), and the Shareholders of EC, TC, Textra, PJV and PJVA, respectfully,
identified on the signature page to this Agreement (sometimes hereinafter
collectively referred to as the "Shareholders," and individually referred to as
the "EC Shareholders" "TC Shareholders," "Textra Shareholders," "PJV
Shareholders" or "PJVA Shareholders"). and GREENEBAUM DOLL & MCDONALD PLLC of
Louisville, Kentucky ("Closing Escrow Agent").
RECITALS:
---------
A. PJ, EC, TC, Textra, PJV, PJVA and the Shareholders are parties to that
certain binding letter agreement dated July 10, 1996 and a Plan of Merger dated
as of July 10, 1996 (collectively, the "Merger Agreement") providing for (i) (x)
the merger of TC, Textra, PJV and PJVA into Newco, the newly organized
subsidiary of EC (the "Operating Company Mergers") (y) the contribution for
substantially all of the assets of EC to, and assumption of all of EC's
liabilities by, Newco (the "Contribution Transaction") and (ii) immediately
thereafter, for the merger of EC with and into PJ (the "Delaware Merger"), with
the result that the Shareholders will receive issued and outstanding shares of
the common stock, $0.01 par value per share, of PJ ("PJ Shares") immediately
prior to an initial public offering of the PJ Shares by PJ.
B. Pursuant to the Merger Agreement, Newco and the Shareholders agreed to
execute and deliver certain agreements, certificates, instruments and other
documents to the Closing Escrow Agent, to be held in escrow pending satisfaction
of the Closing Conditions (as defined in the Merger Agreement) and the terms and
conditions of this Agreement, at which time the agreements, certificates,
instruments and other documents are to be released from escrow and delivered to
the appropriate parties as provided herein.
C. Closing Escrow Agent has agreed to accept, hold and disburse the
agreements, certificates, instruments and other documents delivered hereunder in
accordance with the terms of this Agreement.
AGREEMENT:
----------
NOW, THEREFORE, in consideration of the premises and the mutual covenants set
forth herein, it is agreed by and among the parties hereto as follows:
EXHIBIT E
---------
<PAGE>
1. CAPITALIZED TERMS. Capitalized terms used herein shall have the same
meaning given such terms in the Merger Agreement or the Indemnification
Agreement dated as of July 10, 1996 (the "Indemnification Agreement"), unless
otherwise defined herein.
2. APPOINTMENT OF CLOSING ESCROW AGENT. PJ, Newco, the Operating Companies
and the Shareholders hereby constitute and appoint Closing Escrow Agent as their
agent for the purpose of holding and disbursing all Closing Documents (as
defined in Section 3) delivered to it hereunder and effecting the consummation
of the transactions contemplated by the Merger Agreement (the "Closing"), and
Closing Escrow Agent hereby accepts such appointment, upon the terms and
conditions set forth herein.
3. Deposit of Documents. Simultaneously with the execution hereof, PJ, the
Operating Companies and the Shareholders have deposited the following
agreements, articles, certificates, instruments and documents with Closing
Escrow Agent, fully executed where appropriate, to be held by Closing Escrow
Agent pursuant to this Agreement for delivery upon the Closing to the parties
entitled thereto, upon fulfillment of all Closing Conditions.
3.1 DEPOSIT BY TARGET COMPANIES AND NEWCO. On the date hereof, the Target
Companies and Newco deposited with the Closing Escrow Agent (a) the TC Articles,
together with the Plan of Merger or such other plans or agreements of merger as
required under Section 1.3 of the Merger Agreement, (b) the Textra Articles,
together with the Plan of Merger or such other plans or agreements of merger as
required under Section 1.3 of the Merger Agreement, and (c) the Virginia
Articles, together with the Plan of Merger or such other plans or agreements of
merger as required under Section 1.3 of the Merger Agreement, all for delivery
and filing in accordance with applicable law, by the Closing Escrow Agent on or
prior to the Closing Date as follows: the TC Articles and such plans for filing
with the Secretary of State of Alabama; the Textra Articles and such plans for
filing with the Secretary of State of Texas and the Secretary of State of
Alabama; and the Virginia Articles and such plans for filing with the State
Corporation Commission of Virginia and the Secretary of State of Alabama.
3.2 DEPOSIT BY EACH OF THE OPERATING COMPANIES AND THEIR SHAREHOLDERS. On
the date hereof, each of the Operating Companies and the Shareholders of each of
such Operating Companies, for themselves or with respect to their interest in
the Operating Companies (as the context requires), deposited with the Closing
Escrow Agent the following agreements, certificates, instruments and documents
(duly executed where appropriate) (collectively, the "Operating Company
Documents"), receipt of which Closing Escrow Agent hereby acknowledges, for
delivery to PJ (except for the checks and stock powers described in subsections
b. and d., respectively, which shall be delivered to Indemnification Escrow
Agent) at the Closing:
a. Certificates for all of the Operating Company Shares owned by each
such Shareholder that are to be cancelled in the Operating Company Mergers, with
stock powers duly endorsed in blank for transfer on the books of the Target
Company;
<PAGE>
b. checks made payable to the Closing Escrow Agent, for delivery to
the Indemnification Escrow Agent at the Closing, with each Shareholder
delivering a check made payable to the Closing Escrow Agent in an amount set
forth opposite their name on Exhibit I to the Merger Agreement;
c. stock powers duly endorsed in blank by each of the Shareholders
covering the EC Shares which are to be held by each of the Shareholders after
the Operating Company Merger and the Contribution Transaction;
d. stock powers duly endorsed in blank by each of the Shareholders
covering the PJ Shares to be deposited by each of such Shareholders with the
Indemnification Escrow Agent pursuant to the Merger Agreement and the
Indemnification Escrow Agreement;
e. a copy of the resolutions duly adopted by the Board of Directors of
the Operating Company and a copy of the resolutions duly adopted by the
Shareholders of such Operating Company, both certified by the Secretary of such
Operating Company as being in full force and effect at the time of delivery,
authorizing the execution and delivery of the Merger Agreement and the
consummation and performance of the transaction provided for therein;
f. Investment Letters of the Shareholders in a form approved by PJ, as
provided in the Merger Agreement;
g. the Non-Competition Agreements of the Shareholders and the officers
and directors of the Operating Company as required by Section 3.6 of the Merger
Agreement;
h. the General Release of Claims of the Shareholders as required by
Section 3.10 of the Merger Agreement;
i. all consents, authorizations and approvals of the Shareholders
referenced in Schedule 2.4 of the Operating Company;
j. the stock transfer and minute books and records of the Operating
Company;
k. the releases, termination statements or written evidence of the
termination, release, waiver and satisfaction of all Share Restrictions set
forth on Schedule 1.1 to the Indemnification Agreement;
l. a certificate of good standing from the Secretary of State of the
state of incorporation of the Operating Company, and from each Secretary of
State where the Operating Company is qualified to do business as a foreign
corporation;
<PAGE>
m. a certificate signed by the Shareholders and the Operating Company
certifying as to the fulfillment of the conditions set forth in Sections 5.1 and
5.2 of the Merger Agreement as of the date hereof;
n. a certificate signed by the Shareholders certifying as to the
fulfillment of the conditions set forth in Sections 5.1 and 5.2 of the Merger
Agreement as of the Closing Date;
o. the estoppel letter or certificate of Papa John's provided for in
Section 5.6 of the Merger Agreement; and
p. such other documents as may be requested by PJ or Newco or either
of them deems reasonably necessary to effect the Closing.
3.3 DEPOSIT BY EC. On the date hereof, and in addition to the deposits made
by EC and its Shareholders pursuant to Section 3.2 hereof, EC deposited with the
Closing Escrow Agent the following agreements, certificates, instruments and
documents to (duly executed where appropriate) (the "EC Contribution
Documents"), receipt of which the Closing Escrow Agent hereby acknowledges, for
delivery to Newco at the Closing:
a. a general instrument of conveyance, transfer and assignment and
other good and sufficient instruments of sale, assignment and conveyance and
transfer in recordable form, as shall be sufficient to convey, transfer and
assign to Newco all of EC's rights, title and interests in and to the assets and
properties of EC to be transferred and conveyed to Newco in the Contribution
Transaction;
b. all consents required for the assignment and transfer by EC to
Newco of its assets and for assumption by Newco of its liabilities as
contemplated by the Merger Agreement;
c. certificates representing the number of EC Shares to be delivered
to each of the respective Shareholders in the Operating Company Mergers pursuant
to Section 1 of the Merger Agreement;
d. such other documents as may be requested by PJ or Newco as either
of them deems reasonably necessary to effect the Closing.
3.4 DEPOSIT BY NEWCO. On the date hereof, Newco deposited with the Closing
Escrow Agent the following agreements, certificates, instruments and documents
(duly executed where appropriate) (collectively, the "Newco Documents"), receipt
of which the Closing Escrow Agent hereby acknowledges, for delivery to EC and
the Operating Companies, or Shareholders of the Operating Companies at the
Closing:
a. an assumption agreement pursuant to which Newco will assume all of
the liabilities of EC as the same shall exist on the Closing Date, as provided
for in the Contribution Transaction;
<PAGE>
b. a certificate of good standing from the Secretary of State of
Alabama;
c. copies of the resolutions duly adopted by the Board of Directors of
Newco, and a copy of the resolution duly adopted by PJ as the sole Shareholder
of Newco, which shall be full force and effect at the time of delivery,
authorizing, approving and adopting the Merger Agreement, the Indemnification
Agreement and the consummation and performance of the transactions contemplated
by the Merger Agreement and the Indemnification Agreement, certified by the
Secretary of Newco; and
d. such other documents as reasonably requested by the Operating
Companies and the Shareholders in order to effectuate the Operating Company
Mergers, the Contribution Transaction and the other transactions contemplated by
the Merger Agreement.
3.5 DEPOSIT BY PJ. On the date hereof, PJ deposited with the Closing Escrow
Agent the following agreements, certificates, instruments and documents (duly
executed where appropriate) (collectively, the "PJ Documents"), receipt of which
Closing Escrow Agent hereby acknowledges, for delivery to the Shareholders of
the respective Operating Companies (except as otherwise noted in subsection b.
for delivery to the Indemnification Escrow Agent) at the Closing:
a. Copies of the resolutions duly adopted by the Board of Directors of
PJ, which shall be in full force and effect at the time of delivery,
authorizing, approving and adopting the Merger Agreement, the Indemnification
Agreement and the consummation and performance of the transactions contemplated
by the Merger Agreement and the Indemnification Agreement, certified by the
Secretary of PJ;
b. certificates representing the number of PJ Shares to be delivered
to each of the respective Shareholders in the Delaware Merger pursuant to
Section 3.2 of the Merger Agreement, including, without limitation, certificates
for each Shareholder that represents 10% of the total PJ Shares (the "Indemnity
Shares") to be issued to such Shareholder in the Delaware Merger for delivery at
Closing by the Closing Escrow Agent to the Indemnification Escrow Agent to be
held by the Indemnification Escrow Agent pursuant to the Indemnification Escrow
Agreement;
c. a certificate of good standing from the Secretary of State of
Delaware;
d. a certificate signed by the Chief Executive Officer of PJ
certifying as to the fulfillment of the conditions set forth in Sections 6.1 and
6.2 of the Merger Agreement as of the date hereof;
e. a certificate signed by the Chief Executive Officer of PJ
certifying as to the fulfillment of the conditions set forth in Sections 6.1 and
6.2 of the Operating Agreement as of the Closing Date; and
<PAGE>
f. such other documents as requested by the Virginia Shareholders'
Representative or the Alabama Shareholders' Representative as either of them
deems reasonably necessary to effect the Closing.
3.6 DEPOSIT BY PJ. NEWCO AND THE SHAREHOLDERS. On the date hereof, PJ,
Newco and the Shareholders, where appropriate, executed and deposited with the
Closing Escrow Agent the following agreements, receipt of which the Closing
Escrow Agent hereby acknowledges, for delivery to the parties signatory to such
agreements at the Closing:
a. the Indemnification Escrow Agreement in the form of Exhibit H
attached to the Merger Agreement; and
b. the Registration Rights Agreement in the form of Exhibit J attached
to the Merger Agreement.
3.7 DEPOSIT BY PJ AND EC. On the date hereof, PJ and EC deposited with the
Closing Escrow Agent the Delaware Articles, together with the Plan of Merger or
such other plans or agreements of merger as required under Section 3.2.b. of the
Merger Agreement, for delivery and filing on the Closing Date with the Secretary
of State of Alabama and the Secretary of State of Delaware, in accordance with
applicable law.
4. CLOSING OF TRANSACTIONS; ACTIONS AT CLOSING. The transactions provided for
in the Merger Agreement shall close, and the Closing Escrow Agent shall date and
deliver the agreements, certificates, instruments and documents deposited with
and held by it pursuant to this Agreement, to the appropriate parties identified
and provided for in Section 3 hereof, and shall take all actions necessary to
consummate the transactions contemplated in the Merger Agreement, only upon the
Closing Escrow Agent's determination that the following conditions precedent to
the closing of the transactions provided for in the Merger Agreement are
satisfied: (a) the Registration Statement filed by PJ in connection with the IPO
has been declared effective by the SEC; (b) the officer and shareholder
certificates set forth in Section 9 of the Merger Agreement shall have been
received, and (c) this Agreement shall not have been terminated in accordance
with Section 2.2 of the Merger Agreement. Upon completion of the delivery and
actions specified herein, the escrow established hereby shall terminate and the
Operating Company Mergers, the Contribution Transaction and the Delaware Merger,
and all other transactions contemplated in the Agreement of Merger shall have
occurred.
5. DUTIES, OBLIGATIONS AND RIGHTS OF CLOSING ESCROW AGENT. The duties and
obligations of Closing Escrow Agent shall be determined solely by the express
provisions of this Escrow Agreement, and Closing Escrow Agent shall be under no
obligation to refer to any other documents between the parties related in any
way to this Escrow Agreement, except for interpretation of certain defined terms
herein or for the notices specifically described herein, it being specifically
understood that the following provisions are accepted by each of the parties to
this Agreement:
<PAGE>
5.1 BENEFIT; COMPLIANCE WITH PROCESS. This Escrow Agreement is for the
exclusive benefit of the parties hereto and their respective successors
hereunder, and shall not be deemed to give any legal or equitable right, remedy
or claim to any other entity or person whatsoever. If any property subject
hereto is at any time attached, garnished or levied upon, or in case the
transfer or delivery of any such property shall be stayed or enjoined, or in the
case of any other legal process or judicial order affecting such property,
Closing Escrow Agent is authorized to comply with any such order in any manner
as it or legal counsel of its own choosing deems appropriate; and if Closing
Escrow Agent complies with any process, order, writ, judgment or decree, it
shall not be liable to any of the parties hereto or to any other person or
entity even though such order or process may be subsequently modified or vacated
or otherwise determined to have been without legal force or effect.
5.2 LIMITATION OF LIABILITY. Closing Escrow Agent shall not be liable for
any act taken or omitted hereunder except for its gross negligence or willful
misconduct. Closing Escrow Agent shall be fully protected in relying upon any
instruction, notice, demand, certificate or document which Closing Escrow Agent
in good faith believes to be genuine. Closing Escrow Agent may consult with
legal counsel as to the construction of any of the provisions of this Escrow
Agreement, and Closing Escrow Agent shall be fully protected in acting in good
faith in accordance with any such advice. Closing Escrow Agent shall not incur
any liability if by reason of any act or provision of any present or future law,
regulation or governmental authority, or by reason of any act of God or war or
other circumstances beyond Closing Escrow Agent's control, Closing Escrow Agent
shall be prevented or delayed in performing any act required of it hereunder.
5.3 VALIDITY OF DOCUMENTS. Except as expressly provided and agreed herein,
Closing Escrow Agent shall not be responsible in any respect for the form,
execution, validity or genuineness of documents or securities deposited
hereunder, or for any description therein, or for the identity, authority or
rights of persons executing or delivering or purporting to execute or deliver
any such document, security or endorsement.
5.4 INDEMNIFICATION. PJ, Newco, the Operating Companies and the
Shareholders agree, jointly and severally, to indemnify and hold Closing Escrow
Agent harmless from and against any loss, liability, costs, damages and
expenses, including reasonable counsel fees, that are incurred by Closing Escrow
Agent and that arise out of or in connection with this Escrow Agreement or its
performance of its obligations, or exercise of its rights hereunder, except for
those arising from Closing Escrow Agent's gross negligence or willful
misconduct.
5.5 RESIGNATION. Closing Escrow Agent may resign at any time by giving at
least 30 days written notice thereof. Within 20 days after receiving the
aforesaid notice, the parties hereto shall agree on and appoint a successor
Closing Escrow Agent, at which time Closing Escrow Agent shall distribute the
property then held hereunder to its successor.
5.6 DISPUTES. If a dispute or conflicting claim arises by or among PJ or
Newco and any of the Operating Companies or the Shareholders, or any other
person or entity, with respect to any property deposited hereunder, Closing
Escrow Agent shall be
<PAGE>
entitled to refuse to comply with any and all claims, demands or instructions
with respect to such property so long as such dispute or conflict shall
continue. Closing Escrow Agent shall not be or become liable in any way to any
of the parties hereto for its failure or refusal to comply with such conflicting
claims, demands or instructions. Closing Escrow Agent shall be entitled to
refuse to act until either such conflicting or adverse claims or demands shall
have been finally determined by a court of competent jurisdiction or settled by
agreement between the conflicting parties as evidenced in a writing satisfactory
to Closing Escrow Agent, or Closing Escrow Agent shall have received security or
an indemnity satisfactory to Closing Escrow Agent sufficient to save it harmless
from and against any and all loss, liability or expense which it may incur by
reason of its acting. Closing Escrow Agent may, in addition, elect to commence
an interpleader action or seek other judicial relief or orders as it may deem
necessary.
6. FEES OF CLOSING ESCROW AGENT. Except as specifically set forth herein, all
fees of Closing Escrow Agent shall be paid by PJ's.
7. NOTICES. All notices and other communications required or permitted
hereunder shall be sufficiently given if in writing and personally delivered
against a written receipt, if delivered to a reputable express messenger service
(such as Federal Express, UPS or DHL Courier) for overnight delivery, when sent
by confirmed telephone facsimile (fax) or sent by registered, express or
certified U.S. mail, with postage prepaid, addressed as follows:
If to PJ or Newco: PJ America, Inc.
9109 Parkway East
Birmingham, Alabama 35206
Attn: Douglas S. Stephens, President
With Copy to: Greenebaum Doll & McDonald PLLC
3300 National City Tower
Louisville, Kentucky 40202
Attn: Ivan M. Diamond
If to EC, TC or Textra: Extra Cheese, Inc.
9109 Parkway East
Birmingham, Alabama 35206
Attn: Douglas S. Stephens
<PAGE>
If to PJV or PJVA: PJV, Inc.
4909 Augusta Avenue
Richmond, VA 23230
Attn: Richard F. Sherman
If to Alabama Share-
holder Representative: Michael M. Fleishman
3300 National City Tower
Louisville, Kentucky 40202
If to Virginia Share-
holder Representative: Martin T. Hart
875 Race Street
Denver, Colorado 80206
To Closing
Escrow Agent: Greenebaum Doll & McDonald PLLC
3300 First National Tower
Louisville, Kentucky 40202
Attn: Ivan M. Diamond
or to such other address or addresses as any of the parties to this Plan shall
furnish to the others in writing. Notices shall be deemed given when personally
delivered, when delivered to an express messenger service, when transmitted by
confirmed fax or when deposited in the U.S. mail in accordance with the
foregoing provisions. However, the time period in which a response to any such
notice, demand or request must be given shall commence to run from the date of
personal delivery, the date of delivery by a reputable messenger service, the
date of confirmation of a fax, or the date on the return receipt, as applicable.
8. GOVERNING LAW. This Escrow Agreement shall be governed by, and shall be
construed and enforced in accordance with, the laws of the Commonwealth of
Kentucky.
9. BINDING AGREEMENT. All of the terms, provisions and conditions of this
Escrow Agreement shall be binding upon and shall inure to the benefit of and be
enforceable by the parties hereto, and their respective heirs, personal
representatives, successors and assigns.
10. TIME OF THE ESSENCE. Time is of the essence to the performance of the
duties and obligations of the parties hereto as set forth in this Escrow
Agreement.
11. TERMINATION. This Escrow Agreement shall terminate upon disposition of
Closing Documents pursuant to the provisions hereof. Notwithstanding any other
provision of this Escrow Agreement, if the Closing shall not have occurred prior
to December 1, 1996, and either PJ, an Operating Company or a Shareholders'
Representative notifies Closing Escrow Agent in writing of the termination of
the Merger Agreement, then this Escrow
<PAGE>
Agreement shall terminate and the agreements, certificates, documents,
instruments and funds, if any, delivered to the Closing Escrow Agent hereunder
shall be returned by the Closing Escrow Agent to the party delivering them
hereunder and the escrow hereunder shall terminate.
IN WITNESS WHEREOF, the parties hereto have duly executed this Escrow
Agreement as of the day and year first above written.
PJ AMERICA, INC.
By:
--------------------------------------
Title:
-----------------------------------
("PJ")
EXTRA CHEESE, INC.
By:
--------------------------------------
Title:
-----------------------------------
TWICE THE CHEESE, INC.
By:
--------------------------------------
Title:
-----------------------------------
TEXTRA CHEESE CORP.
By:
--------------------------------------
Title:
-----------------------------------
<PAGE>
PJV, INC.
By:
--------------------------------------
Title:
-----------------------------------
PJVA, INC.
By:
--------------------------------------
Title:
-----------------------------------
-----------------------------------------
MICHAEL M. FLEISHMAN, individually
a Shareholder of EC, TC and Textra
-----------------------------------------
BRENDA A. FLEISHMAN, individually
a Shareholder of EC
-----------------------------------------
BRENDA A. FLEISHMAN, as Custodian
of Zachary T. Fleishman, under the
Kentucky Uniform Gift to Minors Act, a
Shareholder of EC
-----------------------------------------
JILL FLEISHMAN, individually
a Shareholder of EC
<PAGE>
-----------------------------------------
JASON FLEISHMAN, individually
a Shareholder of EC
-----------------------------------------
PATTY J. O'BRIEN, individually
a Shareholder of EC
-----------------------------------------
FRANK M. KEENER, individually
a Shareholder of EC, TC and Textra
-----------------------------------------
STEPHEN P. LANGFORD, individually
a Shareholder of EC, TC and Textra
-----------------------------------------
RICHARD F. SHERMAN, individually
a Shareholder of EC, TC and Textra,
PJV and PJVA
-----------------------------------------
DOUGLAS S. STEPHENS, individually
a Shareholder of EC, TC and Textra
-----------------------------------------
ADRIAN OWENS, individually,
a Shareholder of TC
<PAGE>
----------------------------------------
ROBERT W. CURTIS, JR., individually,
a Shareholder of TC
----------------------------------------
PAMELA M. BAKER, individually,
a Shareholder of PJV and PJVA
----------------------------------------
MICHAEL J. GRISANTI, individually,
a Shareholder of PJV and PJVA
----------------------------------------
KARA HART, individually,
a Shareholder of PJV and PJVA
----------------------------------------
MARCINE HART, individually,
a Shareholder of PJV and PJVA
----------------------------------------
MARTIN T. HART, individually,
a Shareholder of PJV and PJVA
----------------------------------------
JACK A. LAUGHERY, individually,
a Shareholder of PJV and PJVA
----------------------------------------
MARTHA C. LAUGHERY, individually,
a Shareholder of PJV and PJVA
<PAGE>
----------------------------------------
LISA I. O'CONNELL, individually,
a Shareholder of PJV and PJVA
----------------------------------------
JAMES REIKEL, individually,
a Shareholder of PJV and PJVA
----------------------------------------
CYNTHIA A. SAUNDERS, individually,
a Shareholder of PJV and PJVA
----------------------------------------
STEPHEN M. SAUNDERS, individually,
a Shareholder of PJV and PJVA
----------------------------------------
MERIDA L. SHERMAN, individually,
a Shareholder of PJV and PJVA
----------------------------------------
NICHOLAS H. SHERMAN, individually,
a Shareholder of PJV and PJVA
GREENEBAUM DOLL & MCDONALD PLLC
By:
-----------------------------------
Title:
--------------------------------
<PAGE>
EXHIBIT F1
----------
CERTIFICATE OF MERGER
OF
EXTRA CHEESE, INC.
INTO
PJ AMERICA, INC.
================================================================================
Pursuant to provisions of Section 252 of the Delaware General Corporation
Law, the undersigned corporations ("CONSTITUENT CORPORATIONS") hereby adopt the
following Certificate of Merger for the purpose of merging EXTRA CHEESE, INC.,
an Alabama corporation ("EC"), with and into PJ AMERICA, Inc., a Delaware
corporation ("PJA"), which shall be the surviving entity in the Merger.
FIRST: EC was incorporated in the State of Alabama. PJA was
incorporated in the State of Delaware.
SECOND: The Agreement of Merger has been approved, adopted, certified,
executed and acknowledged by each of the Constituent
Corporations in accordance with Section 252(c) of the Delaware
General Corporation Law. The Agreement of Merger has been
approved by PJA in accordance with Section 251(f) as no shares
of stock of PJA were issued prior to the adoption by the Board
of Directors of PJA of the resolution approving the Agreement
of Merger.
THIRD: The name of the surviving corporation is PJ America, Inc.
FOURTH: The Certificate of Incorporation of PJA shall be the
Certificate of Incorporation of the surviving corporation.
FIFTH: The executed Agreement of Merger is on file at the principal
place of business of PJA, which is as follows:
9109 Parkway East
Birmingham, AL 35206
SIXTH: A copy of the Agreement of Merger will be furnished by PJA, on
request and without cost, to any stockholder of any Constituent
Corporation.
SEVENTH: The authorized capital stock of EC is 1,000 shares of Common
Stock, no par value per share.
EIGHTH: No agreement is required by Section 252(d) of the Delaware
General Corporation Law.
<PAGE>
NINTH: The merger shall be effective as of 9:01 A.M. on
______________, 1996.
Dated: _______________________
EXTRA CHEESE, INC.
By:
----------------------------------
Douglas S. Stephens,
President
By:
----------------------------------
-----------------------, Secretary
PJ AMERICA, INC.
By:
----------------------------------
Douglas S. Stephens,
President
By:
----------------------------------
-------------------, Secretary
The foregoing instrument
was prepared by:
- --------------------------
Daniel E. Fisher
Greenebaum Doll & McDonald
3300 National City Tower
Louisville, KY 40202
(502) 589-4200
<PAGE>
EXHIBIT F2
ARTICLES OF MERGER
OF
EXTRA CHEESE, INC.
INTO
PJ AMERICA, INC.
==============================================================================
Pursuant to provisions of Section 10-2B-11.05 of the Alabama Business
Corporation Act, the undersigned corporations ("Constituent Corporations")
hereby adopt the following Articles of Merger for the purpose of merging Extra
Cheese, Inc., an Alabama corporation ("EC"), with and into PJ America, Inc., a
Delaware corporation ("PJA"), which shall be the surviving entity in the Merger.
FIRST: The Plan of Merger duly authorized and approved by each of the
Constituent Corporations is attached hereto as Exhibit A and is
hereby incorporated by reference as a part of these Articles of
Merger.
SECOND: Shareholder approval with respect to PJA was not required
because PJA has no outstanding shares of stock.
THIRD: EC has 1,000 outstanding shares of common stock, having no par
value per share. Each such share was entitled to one vote on
the merger.
FOURTH: All 1,000 common shares of PJ voted in favor of the Plan of
Merger.
FIFTH: PJ's Articles of Incorporation are filed in __________ County,
Alabama.
SIXTH: The merger shall be effective as of 9:01 A.M. on ______ __,
1996.
Dated: ____________________
EXTRA CHEESE, INC.
By: /s/ Douglas S. Stephens
------------------------------
Douglas S. Stephens,
President
<PAGE>
PJ AMERICA, INC.
By:
------------------------
Douglas S. Stephens,
President
The foregoing instrument
was prepared by:
- --------------------------
Daniel E. Fisher
Greenebaum Doll & McDonald
3300 National City Tower
Louisville, KY 40202
(502) 589-4200
<PAGE>
EXHIBIT G
DELAWARE MERGER -- SHARE EXCHANGES
----------------------------------
<TABLE>
<CAPTION>
NAME SHARES PERCENT OF PJ
- ----------------------------------------------------------------------
<S> <C> <C>
Richard F. Sherman 544,199 0.181400
Merida L. Sherman 36,176 0.012059
Nicholas H. Sherman 36,176 0.012059
Frank M. Keener 522,603 0.174201
Michael M. Fleishman 333,430 0.111143
Brenda A. Fleishman 20,000 0.006667
Jill M. Fleishman 2,000 0.000667
Brenda A. Fleishman, Custodian for 3,000 0.001000
Zachary T. Fleishman
Jason T. Fleishman 2,000 0.000667
Patty J. O'Brien 1,000 0.000333
Stephen P. Langford 292,464 0.097488
Douglas S. Stephens 292,464 0.097488
Jack A. Laughery 299,962 0.099987
Martha C. Laughery 24,118 0.008039
Martin T. Hart 67,831 0.022610
Cynthia A. Saunders 36,176 0.012059
Pamela M. Baker 36,176 0.012059
Marcine Hart 36,176 0.012059
Lisa I. O'Connell 36,176 0.012059
Kara Hart 36,176 0.012059
Michael J. Grisanti 248,713 0.082904
James Reikel 60,294 0.020098
Stephen M. Saunders 24,118 0.008039
Adrian Owens 4,286 0.001429
Robert W. Curtis, Jr. 4,286 0.001429
---------------------------
3,000,000 1.000000
===========================
</TABLE>
<PAGE>
EXHIBIT I
CASH DEPOSIT PERCENTAGES
------------------------
<TABLE>
<CAPTION>
NAME SHARES PERCENT OF EC CASH DEPOSIT
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Richard F. Sherman 544,199 0.181400 18,139.97
Merida L. Sherman 36,176 0.012059 1,205.87
Nicholas H. Sherman 36,176 0.012059 1,205.87
Frank M. Keener 522,603 0.174201 17,420.10
Michael M. Fleishman 333,430 0.111143 11,114.33
Brenda A. Fleishman 20,000 0.006667 666.67
Jill M. Fleishman 2,000 0.000667 66.67
Brenda A. Fleishman, Custodian 3,000 0.001000 100.00
for Zachary T. Fleishman
Jason T. Fleishman 2,000 0.000667 66.67
Patty J. O'Brien 1,000 0.000333 33.33
Stephen P. Langford 292,464 0.097488 9,748.80
Douglas S. Stephens 292,464 0.097488 9,748.80
Jack A. Laughery 299,962 0.099987 9,998.73
Martha C. Laughery 24,118 0.008039 803.93
Martin T. Hart 67,831 0.022610 2,261.03
Cynthia A. Saunders 36,176 0.012059 1,205.87
Pamela M. Baker 36,176 0.012059 1,205.87
Marcine Hart 36,176 0.012059 1,205.87
Lisa I. O'Connell 36,176 0.012059 1,205.87
Kara Hart 36,176 0.012059 1,205.87
Michael J. Grisanti 248,713 0.082904 8,290.43
James Reikel 60,294 0.020098 2,009.80
Stephen M. Saunders 24,118 0.008039 803.93
Adrian Owens 4,286 0.001429 142.87
Robert W. Curtis, Jr. 4,286 0 001429 142.87
------------------------------------------
3,000,000 1.000000 100,000.00
==========================================
</TABLE>
<PAGE>
EXHIBIT 10.6
----------------------------------------
INDEMNIFICATION AGREEMENT
AMONG
PJ AMERICA, INC., EXTRA CHEESE, INC.,
TWICE THE CHEESE, INC., TEXTRA CHEESE CORP.,
PJV, INC. AND PJVA, INC.
AND
THE SHAREHOLDERS OF
EXTRA CHEESE, INC., TWICE THE CHEESE, INC.,
TEXTRA CHEESE CORP., PJV, INC. AND PJVA, INC.
NAMED ON THE
SIGNATURE PAGES HEREOF
----------------------------------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
Section Page
------- ----
<S> <C> <C>
1. Representations and Warranties of Shareholders Regarding Shares ........ 2
1.1 Title to Shares; Share Restrictions .............................. 2
1.2 Authority ........................................................ 2
1.3 Completeness of Statements........................................ 2
2. Representations and Warranties of the Operating Companies and the
Shareholders ........................................................... 2
2.1 Organization and Standing of the Operating Company ............... 3
2.2 Subsidiaries; Authority to Own Property and Conduct Business ..... 3
2.3 Authority ........................................................ 3
2.4 No Violations; Consents........................................... 3
2.5 Capitalization; Stock Ownership and Rights ....................... 4
2.6 Financial Statements ............................................. 5
2.7 Absence of Undisclosed Liability.................................. 5
2.8 Absence of Certain Events......................................... 6
2.9 Properties ....................................................... 8
2.10 Assets Necessary to Business ..................................... 8
2.11 Bank Accounts, etc ............................................... 8
2.12 Absence of Other Business Operations; Restrictive Covenants ...... 8
2.13 Contracts; Contract Status ....................................... 9
2.14 Copyrights, Trademarks, Trade Names, Etc ......................... 10
2.15 Current Employees and Compensation; Officers and Directors ....... 10
2.16 Employee Benefits ................................................ 10
2.17 Environmental Matters ............................................ 11
2.18 Indebtedness to or from Officers, Directors, Etc ................. 12
2.19 Insider Interests ................................................ 12
2.20 Insurane ......................................................... 13
2.21 Labor Matters .................................................... 13
2.22 Leases ........................................................... 13
2.23 Real Property .................................................... 14
2.24 Licenses and Permits ............................................. 14
2.25 Litigation ....................................................... 14
2.26 Payments ......................................................... 15
2.27 Tax Returns; Tax Elections ....................................... 15
2.28 Compliance ....................................................... 16
2.29 Books and Records ................................................ 16
2.30 Completeness of Statements ....................................... 17
</TABLE>
<PAGE>
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Section Page
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<S> <C>
3. Representations and Warranties of PJ.................................... 17
3.1 Organization and Standing of PJ.................................... 17
3.2 Authority.......................................................... 17
3.3 No Violations...................................................... 18
3.4 Capitalization of Newco; Stock Ownerships and Rights............... 18
3.5 Completeness of Statements......................................... 18
4. Survival of Representations and Warranties; Indemnities................. 19
4.1 Survival........................................................... 19
4.2 General Indemnities of the Shareholders............................ 19
4.3 Additional Indemnities of the Shareholders......................... 19
4.4 Indemnity by PJ.................................................... 20
4.5 Exclusive Remedy................................................... 20
4.6 Limitations on the Shareholders' Indemnification Obligations....... 21
4.7 Claims Procedure................................................... 22
4.8 Defense of Third Party Claim....................................... 22
4.9 Arbitration........................................................ 23
5. Shareholders' Representatives........................................... 24
5.1 Appointment of Shareholders' Representative........................ 24
5.2 Removal; Appointment of a Successor to Shareholders' Representative 24
5.3 Reimbursement of Shareholders' Representative...................... 25
5.4 Obligations of Shareholders' Representative........................ 25
5.5 Reliance by PJ and Newco........................................... 25
6. Miscellaneous........................................................... 26
6.1 No Finders Fees.................................................... 26
6.2 Notices............................................................ 26
6.3 Severability of Provisions......................................... 27
6.4 Assignment......................................................... 27
6.5 Waiver............................................................. 27
6.6 Exhibits; Entire Agreement......................................... 27
6.7 Amendments, Supplements, Etc....................................... 27
6.8 Captions; Counterparts............................................. 28
6.9 Governing Law...................................................... 28
6.10 Knowledge.......................................................... 28
</TABLE>
<PAGE>
SCHEDULE LIST
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<TABLE>
<CAPTION>
Description Schedule
<S> <C>
Title to Shares - Liens, Pledges, etc...................................... 1.1
Organization and Standing.................................................. 2.1
Consents; Authorizations; Approvals........................................ 2.4
Capitalization of Operating Company........................................ 2.5
Financial Statements....................................................... 2.6
Undisclosed Liabilities.................................................... 2.7
Certain Events............................................................. 2.8
Bank Accounts, Etc......................................................... 2.11
Restrictive Covenants...................................................... 2.12
Contracts.................................................................. 2.13
Employees; Employee Compensation........................................... 2.15
Employee Benefit Plans..................................................... 2.16
Environmental Matters...................................................... 2.17
Indebtedness .............................................................. 2.18
Insider Interests.......................................................... 2.19
Leases..................................................................... 2.22
Real Property.............................................................. 2.23
Litigation................................................................. 2.25
Taxes...................................................................... 2.27
</TABLE>
<PAGE>
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT ("Agreement") is made and entered into
as of July 10, 1996, by and among PJ AMERICA, INC., a Delaware corporation
("PJ"), EXTRA CHEESE, INC., an Alabama corporation ("EC"), TWICE THE CHEESE,
INC., an Alabama corporation ("TC"), TEXTRA CHEESE CORP., a Texas corporation
("Textra"), PJV, INC., a Virginia corporation ("PJV"), PJVA, INC., a Virginia
corporation ("PJVA"), and the Shareholders of EC, TC, Textra, PJV and PJVA,
respectively, identified on the signature page to this Agreement (sometimes
hereinafter collectively referred to as the "Shareholders," and individually
referred to as the "EC Shareholders" "TC Shareholders," "Textra Shareholders,"
"PJV Shareholders" or "PJVA Shareholders").
RECITALS:
A. EC, TC, Textra, PJV and PJVA (sometimes hereinafter referred to
collectively as the "Operating Companies" and individually as an "Operating
Company") are franchisees of Papa John's International, Inc., a Delaware
corporation ("Papa John's"), engaged in the pizza delivery and carry-out
restaurant business in selected markets in Alabama, Texas and Virginia.
B. PJ, the Operating Companies and the Shareholders are parties to a
binding letter agreement dated July 10, 1996 (the "Letter Agreement"), and a
Plan of Merger of even date herewith executed pursuant to the Letter Agreement
(the "Plan of Merger") (the Letter Agreement and the Plan of Merger are
sometimes hereinafter collectively referred to as the "Merger Agreement"), which
provides for (i) the mergers of TC, Textra, PJV and PJVA (sometimes hereinafter
referred to as the "Targets") with and into a subsidiary of EC, newly organized
by EC for purposes of such mergers ("Newco"), (ii) the contribution of all of
the assets of EC used in connection with its Papa John's restaurants to Newco,
and the assumption by Newco of all liabilities of EC related thereto, to be
effected contemporaneously with such mergers, and (iii) immediately thereafter,
for the merger of EC with and into PJ, all of which are to be consummated in
connection with the initial public offering of shares of PJ (the "IPO"). All
capitalized terms used herein, unless otherwise defined herein, shall have the
meaning ascribed to them in the Merger Agreement.
C. The parties have entered into this Agreement to make certain
representations and warranties associated with the transactions contemplated by
the Merger Agreement and to provide certain indemnities and other covenants in
furtherance of their agreements and commitments contained in the Merger
Agreement.
AGREEMENT:
NOW, THEREFORE, in consideration of the premises, which are incorporated in this
Agreement by this reference, and the covenants and agreements contained herein
and in the Merger Agreement, the parties hereby make the following
representations and warranties and agree as follows:
<PAGE>
1. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS REGARDING SHARES.
Each of the Shareholders of the Targets hereby severally represents and warrants
to EC, to each of the other Operating Companies in which such Shareholder does
not own "Operating Company Shares" (defined in Section 1.1), and to the other
Shareholders, as follows, and each of the Shareholders of EC hereby severally
represents and warrants to PJ, to each of the Targets in which such Shareholder
does not own Operating Company Shares, and to the other Shareholders, as
follows:
1.1 TITLE TO SHARES; SHARE RESTRICTIONS. The Shareholder is the sole
record, lawful and beneficial owner of the shares of capital stock of each of
the Operating Companies (the "Operating Company Shares") set forth opposite such
Shareholder's name on Exhibit D to the Plan of Merger, and has good and
marketable title to such Operating Company Shares. Except as disclosed on
Schedule 1.1 to the disclosure schedules (individually a "Schedule," and
collectively the "Schedules") applicable to the Shareholder, the Shareholder
owns such Operating Company Shares free and clear of all liens, pledges,
encumbrances, equities, restrictions, assessments, proxies and charges of any
nature whatsoever, and none of the Operating Company Shares owned or held by the
Shareholder is subject to any proxy, voting trust, stock restriction, stock
purchase, stock redemption agreement or the like, other than (a) restrictions on
transfer under applicable state and federal securities laws ("Share
Restrictions").
1.2 AUTHORITY. The Shareholder has full right, power, authority and
capacity to execute, deliver and perform this Agreement and the Merger Agreement
in accordance with their respective terms. This Agreement, the Merger
Agreement, and each and every agreement, document and instrument to be executed,
delivered and performed by the Shareholder in connection herewith or in
connection therewith constitutes, or will, when executed and delivered,
constitute, the valid and legally binding obligation of the Shareholder,
enforceable against the Shareholder in accordance with their respective terms,
except as enforceability may be limited by applicable equitable principals or by
bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting
the enforcement of creditors rights generally.
1.3 COMPLETENESS OF STATEMENTS. The Shareholder has disclosed in
writing all material facts known to the Shareholder relating to the
representations and warranties made by the Shareholder in this Section 1. To
the knowledge of the Shareholder, no representation, warranty or covenant of the
Shareholder in this Section 1 contains any untrue statement of a material fact,
any misstatement of a material fact, or omits to state a material fact necessary
to make the statements herein or therein not misleading.
2. REPRESENTATIONS AND WARRANTIES OF THE OPERATING COMPANIES AND THE
SHAREHOLDERS. Each of the Targets and the Shareholders of such Target, as
applicable, hereby make, subject to their "Proportionate Share" (defined below),
the following representations and warranties to EC, Newco, the other Targets and
the Shareholders of such other Targets, with respect to such Target only.
Similarly, EC and the Shareholders of EC make the following representations and
warranties to PJ, Newco, the Targets and the Shareholders of the Targets, with
respect to EC only. Notwithstanding anything herein to the contrary, no
Shareholder shall be liable for any misrepresentation or breach of a
representation or warranty in this Section 2 in an amount which exceeds such
Shareholder's "Proportionate Share" as hereinafter defined,
<PAGE>
of the total liability under the "Indemnification Agreement," as hereinafter
defined, resulting from such misrepresentation or breach, and no person to whom
such representation and warranty is made may make a claim against a Shareholder
for an amount which exceeds such Shareholder's Proportionate Share of the total
claim under the Indemnification Agreement. For purposes of this Agreement,
"Proportionate Share shall mean the proportion which the number of shares of
capital stock owned by the Shareholder in the Target or EC on the date hereof
bears to the total number of issued or outstanding shares of Target or EC, as
the case may be, on the date hereof.
2.1 ORGANIZATION AND STANDING OF THE OPERATING COMPANY. The
Operating Company is duly organized, validly existing and in good standing under
the laws of the state of its incorporation, which is identified on Schedule 2.1
of the Operating Company. The Operating Company is duly qualified as a foreign
corporation and is in good standing in each jurisdiction identified on such
Schedule 2.1. Neither the nature of the business of the Operating Company nor
the character or location of the properties of the Operating Company requires
the Operating Company to be qualified as a foreign corporation in any
jurisdiction, other than as set forth on such Schedule 2.1. The Operating
Company has full power and authority, corporate or otherwise, to own and lease
its properties as such properties are now owned and leased and to conduct its
business as and where such business is conducted.
2.2 SUBSIDIARIES; AUTHORITY TO OWN PROPERTY AND CONDUCT BUSINESS.
The Operating Company does not own any capital stock of, nor does it have any
proprietary interest of any nature in, any other corporation, partnership,
business trust, joint venture, association or other business organization.The
Operating Company has, and at all times has had, full power and authority,
corporate or otherwise, to own and lease its properties as such properties are
now owned and leased and to conduct its business as and where such business is
conducted.
2.3 AUTHORITY. The Operating Company has all necessary corporate
power and authority to execute, deliver and perform this Agreement and the
Merger Agreement in accordance with their respective terms. This Agreement,
the Merger Agreement and each and every agreement, document and instrument to
be executed, delivered and performed by the Operating Company in connection
herewith or therewith has been duly and validly authorized, executed and
delivered by the Operating Company and constitutes or will, when executed and
delivered, constitute, the valid and binding obligation of the Operating
Company, enforceable against the Operating Company in accordance with their
terms, except as enforcement may be limited by applicable equitable principles
or by bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally.
2.4 NO VIOLATIONS; CONSENTS. Except for the consent of Papa John's,
which consented to the Operating Company Mergers, the IPO and other transactions
to be consummated pursuant to this Agreement prior to the date hereof, and
authorizations and approvals of the SEC and state regulatory agencies required
for the effectiveness of the Registration Statement to be filed by PJ pursuant
to the IPO, or as otherwise set forth on Schedule 2.4 of the Operating Company,
the execution, delivery and performance of this Agreement and the Merger
Agreement, the consummation of the transactions described in this Agreement and
the Merger Agreement, and the fulfillment of and compliance with the terms and
<PAGE>
provisions of this Agreement and the Merger Agreement, do not and will not:
(i) in any material manner conflict with or violate the terms or conditions of,
result in the breach of or constitute a default under, (A) any material law,
rule or regulation of any government or agency or department of any government,
or any material judgment, order, writ, award, decree, permit or license of any
court or other agency of any government to which the Operating Company, or any
of its properties or assets, may be subject, (B) any material agreement,
instrument, mortgage, commitment, franchise or restriction to which the
Operating Company is a party or by which the Operating Company, or any of its
properties or assets, is bound or committed, or (C) the charter, bylaws or any
other organizational documents of the Operating Company; (ii) constitute an
event which could, or with the lapse of time or action by a third party could,
result in any material manner in any default under or modify any of the
foregoing, provide any third party the right to cancel any of the foregoing, or
result in the creation of any lien, charge or encumbrance upon any of the
Operating Company's assets or properties that could have a material adverse
effect on its business, assets, financial condition or results of operations;
(iii) constitute an event which could, or with the lapse of time or action by a
third party could, result in the creation of any lien, charge or encumbrance
upon any of the issued and outstanding capital stock of the Operating Company;
or (iv) require any consent, authorization or approval of any federal, state or
local court, governmental authority or regulatory body, or of any creditor or
any party to any such material agreement, instrument, mortgage, contract or
commitment, or any other person or entity; or (v) give any party with rights
under any material agreement, instrument, mortgage, franchise, commitment,
judgment, order, writ, award, decree, permit, license or other restriction to
which the Operating Company or any of its properties or assets are subject or
bound the right to terminate, accelerate, modify or otherwise alter the rights
or obligations of the Operating Company thereunder.
2.5 CAPITALIZATION; STOCK OWNERSHIP AND RIGHTS.
a. The authorized capital stock of the Operating Company is set
forth on Schedule 2.5 of the Operating Company (sometimes referred to herein, as
the context requires, as "EC Shares", "TC Shares", "Textra Shares", "PJV Shares"
or "PJVA Shares"). The Shareholders of the Operating Company are the sole record
and beneficial owners of all the issued and outstanding Operating Company Shares
in the amounts set forth on Schedule 2.5 attached hereto, all of which are being
exchanged hereunder. Each Operating Company Share is duly authorized, validly
issued, fully-paid and non-assessable.
b. As of the date of this Agreement, (i) the Operating Company
has no outstanding class of capital stock other than the Operating Company
Shares identified on Schedule 2.5 of the Operating Company, and (ii) except as
identified on such Schedule 2.5, there are no, nor is there any arrangement not
yet fully performed which would result in any, outstanding options, warrants,
conversion or exchange rights, subscriptions, agreements or other commitments of
any kind obligating the Operating Company to issue or sell, or to redeem,
purchase or otherwise acquire, directly or indirectly, any Operating Company
Shares or any outstanding restrictions, agreements or commitments of any kind to
which the Operating Company is a party or by which the Operating Company is
bound, which relate to or restrict in any way the issuance or sale, or purchase,
redemption or other acquisition, of any Operating Company Shares, except for the
Letter Agreement.
<PAGE>
c. None of the issued and outstanding Operating Company Shares
has been issued in violation of any federal, state or other law pertaining to
the issuance of securities, or in violation of any rights, preemptive or
otherwise, of the Operating Company or any present Shareholder or past
shareholder of the Operating Company.
2.6 FINANCIAL STATEMENTS. Included as Schedule 2.6 of the Operating
Company are selected Financial Statements of the Operating Company
(collectively, the "Operating Company Financial Statements") including the
following: (i) the unaudited balance sheet of the Operating Company as of
December 31, 1995, together with a statement of income for the period ending
December 31, 1995; and (ii) the interim balance sheet of the Operating Company
as of June 30, 1996, together with a Statement of Income for the period ending
June 30, 1996 (the "Stub Period Financials"). The balance sheet dated June 30,
1996 that is included in the Stub Period Financials is referred to herein as the
"Acquisition Balance Sheet." The Operating Company Financial Statements have
been prepared, from the books and records of the Operating Company, represent
actual, bona fide transactions and were prepared in conformity with generally
accepted accounting principles applied on a consistent basis. The balance
sheets included in the Operating Company Financial Statements present fairly the
financial condition of the Operating Company as of the respective dates of the
Operating Company Financial Statements, and the statements of income included in
the Operating Company Financial Statements present fairly the results of
operation of the Operating Company for the respective periods covered thereby
and do not contain any material items of special or nonrecurring income or
expense, except as specifically identified therein.
2.7 ABSENCE OF UNDISCLOSED LIABILITY. As of June 30, 1996, the
Operating Company had no debts, obligations (including, but not limited to,
obligations as a guarantor) or liabilities of any nature, secured or unsecured
(whether fixed, absolute, accrued, contingent or otherwise, and whether known or
unknown to the Shareholders) except (a) as shown (and in the amounts shown) on
the Acquisition Balance Sheet or in the Combined Balance Sheet dated June 30,
1996, as prepared and audited by Ernst & Young LLP, Certified Public Accounts
("E&Y"), a copy of which is included in Schedule 2.7 attached hereto (the
"Combined Balance Sheet"), or (b) for those obligations or liabilities which are
not required to be disclosed on the Acquisition Balance Sheet under generally
accepted accounting principles, but are otherwise disclosed to Newco in any
other provision of this Agreement or the Schedules attached hereto, and which,
in each case, conforms to the representations and warranties with respect
thereto made in this Agreement. Except as disclosed on Schedule 2.7 of the
Operating Company, since June 30, 1996, the Operating Company has not incurred
any debts, obligations (including, but not limited to, obligations as a
guarantor) or liabilities of any nature, secured or unsecured (whether fixed,
absolute, accrued, contingent or otherwise, and whether known or unknown to the
Operating Company or the Shareholders), other than debts, obligations and
liabilities incurred in the ordinary course of business consistent with past
practices, all of which have been paid in full in the ordinary course of
business or are reflected on the regular books of account of the Operating
Company on the date hereof, and none of which (a) is inconsistent with the
representations, warranties and covenants of the Operating Company and its
Shareholders contained herein or in any other provisions of this Agreement or
the Merger Agreement, (b) has had or may be expected to have any adverse effect
on the business, assets, financial condition or prospects of the Operating
Company, or (c) constitutes a guarantee of any form or type.
<PAGE>
2.8 ABSENCE OF CERTAIN EVENTS. Since June 30, 1996, the Operating
Company has not, except as set forth on Schedule 2.8 of the Operating Company or
as set forth from and after the date hereof in the Registration Statement as
approved by PJ, the Shareholders and the Operating Company for filing with the
SEC in connection with the IPO:
a. issued, sold, purchased or redeemed any stocks, bonds,
debentures, notes, partnership interests or other securities or interests, or
issued, sold or granted any option, warrant or right to acquire any thereof;
b. waived or released any debts, claims, rights of value or
suffered any extraordinary loss or written down the value of any inventories or
other assets, or written down or off any receivable, in excess of $10,000, in
the aggregate;
c. declared, set aside or paid any dividend or distributions
on any of the Operating Company Shares which is in excess of the accumulated
adjustments account of the Operating Company, determined in accordance with
section 1368(e)(1) of the Code, or which when made would be in violation of
applicable state law;
d. made any capital expenditures or commitment for capital
expenditures in excess of $10,000 for any single item or in excess of $25,000
in the aggregate, other than in connection with the operations of, or the
development and opening of, Papa John's restaurants;
e. made any change in its operations, other than changes in
the lawful and ordinary course of business, none of which has, and which in the
aggregate have not had, a material adverse effect on its business, operations,
financial condition, or results of operations or prospects;
f. suffered any casualty, damage, destruction or loss to any of
its assets in excess of $10,000 for any one event or in excess of $25,000 in the
aggregate;
g. suffered any material adverse change in its revenues or
expenses, financial position, assets, results of operations, business or cash
flow, or experienced any occurrence or event which alone or together with other
occurrences or events experienced by it has had or might reasonably be expected
to have a material adverse effect upon its revenues or expenses, financial
position, assets, results of operations, business or cash flow;
h. disposed of any of its properties or assets other than sales
of products in the ordinary course of business consistent with past practices or
which have been replaced with assets of similar utility that are of equal or
greater value;
i. terminated, placed on probation, disciplined, warned, or
experienced any resignation of any executive officer or experienced any
resignations of, or had any disputes involving the employment relationship
with, any executive officer which could have a material adverse effect on its
business, financial condition or results of operations;
<PAGE>
j. paid or obligated itself to pay any bonuses or extraordinary
compensation to, or made any increase (except increases in the ordinary course
of business) in the compensation payable (or to become payable by it) to, any
officer, director or employee, or entered into any contract of employment not
terminable by it upon 90 days notice without penalty or termination payment;
k. terminated or amended or suffered the termination or
amendment of (i) any lease, bids, contracts, commitments and other agreements
of the Operating Company, or (ii) any permits, licenses, concessions,
authorizations, franchises (including any Papa John's franchises) and similar
rights granted to or held by the Operating Company, which are necessary or are
material and related to its operations;
l. incurred any indebtedness for borrowed money or subjected any
of its properties or assets to any liens, mortgages, security interests, claims,
restrictions or other encumbrances or to any other similar charge of any nature
whatsoever;
m. made any loan or advance to any person or entity (except
normal travel or other reasonable expense advance to its employees);
n. made any change in accounting principles, methods or
practices;
o. adopted, modified or amended any plan, contract or
arrangement providing for management or consulting services, severance, employee
insurance, bonuses, pension, profit sharing, stock purchase, deferred
compensation or other employee benefits;
p. entered into any agreement, arrangement or transaction with
any of the Shareholders, or any of the officers, directors, agents or
representatives of the Operating Company, or any family members of any of the
foregoing, or any business or entity in which any of the foregoing has a direct
or indirect interest;
q. merged or consolidated with, or acquired all or any
substantial portion of the business or property of, any other entity, or entered
into any transactions other than in the ordinary course of business, consistent
with past practices;
r. entered into any agreement or commitment (whether or not in
writing) to do any of the above;
and the Operating Company has:
s. continued its operations in the ordinary course consistent
with its past practices and maintained its operations, assets, books of account,
records and files in substantially the same manner as before the Acquisition
Balance Sheet Date;
t. used its best efforts to preserve its business.
<PAGE>
2.9 PROPERTIES. The Operating Company has good and marketable title
to all of its properties, interests in properties, and assets, real and
personal, tangible and intangible, (excluding leased properties for which the
Operating Company has good and valid leasehold title), free and clear of all
mortgages, liens, pledges, charges or encumbrances of any nature whatsoever,
except for statutory liens securing payments not yet due or for those items set
forth in Schedule 2.9 of the Operating Company. Except for regular, scheduled
repairs which are to be performed in the ordinary course of business after the
date hereof, all of such tangible assets are free of material defect, well
maintained and in good working order, condition and repair in light of their age
and use. Except as set forth on Schedule 2.9 of the Operating Company, each
store owned or operated by the Operating Company is fully equipped with
equipment and other property and assets in material compliance with the
specifications of the "Papa John's Franchise Agreements" (defined in Section
2.13.) and Papa John's Operations Manual. Neither the whole nor any portion of
such assets has been condemned or otherwise taken by public authority, and the
Operating Company and the Shareholders have no knowledge that any such
condemnation or taking is threatened. With respect to property of the Operating
Company held by lease (or contract), each leasehold interest (or contract right)
is created pursuant to a valid and subsisting lease (or contract) enforceable in
accordance with its terms against the lessor (or other party to the contract)
and none of which are in default on the date hereof.
2.10 ASSETS NECESSARY TO BUSINESS. The Operating Company owns or
leases all properties and assets, real, personal and mixed, tangible and
intangible; has area development rights or franchise rights relating to
operation of the Papa John's pizza delivery and carry-out restaurants operated
or under development by it and the markets serviced by such restaurants stores;
has all required and proper permits and licenses, including, but not limited to,
the "Licenses" (as defined in Section 2.24); and is party to all other contracts
and agreements necessary and appropriate to permit it to carry on its business
as presently conducted and at the locations where presently conducted.
2.11 BANK ACCOUNTS, ETC. Included as Schedule 2.11 of the Operating
Company is a true and complete list of the name of each bank, brokerage firm or
other financial institution with which the Operating Company has a depository,
trading, margin, purchase, lending or similar account, a line of credit, or from
which the Operating Company is authorized to effect loans, or any safe deposit
box, and the names of all persons authorized by the Operating Company to draw on
such accounts, effect such loans or to have access to such safe deposit box.
2.12 ABSENCE OF OTHER BUSINESS OPERATIONS; RESTRICTIVE COVENANTS.
The only business activity in which the Operating Company has ever engaged has
been the business of owning, developing and operating Papa John's pizza delivery
and carry-out restaurants. Neither the Operating Company nor any of its
Shareholders is a party to, or subject to, any contract, arrangement or
commitment containing covenants not to compete in the business of owning,
developing or operating restaurants with any person or entity or restricting the
area in which it may own, operate or franchise restaurants, except as set forth
on Schedule 2.12 of the Operating Company. Neither the Operating Company nor
any of its Shareholders is a party to any such contract, arrangement or
commitment which would have a material adverse effect on
<PAGE>
PJ or Newco or any of the transactions contemplated herein, or would have an
adverse effect on the Papa John's Franchise Agreements.
2.13 CONTRACTS; CONTRACT STATUS. The Operating Company is not
currently a party to, or subject to, any of the following, whether written or
oral, except as set forth on Schedule 2.13 of the Operating Company:
a. any management or employment contract or agreement, or
any contract, arrangement or commitment with any director, officer, employee,
shareholder or representative;
b. any contracts, arrangements or commitments for capital
expenditures in excess of $10,000 as to any single expenditure or in excess of
$25,000 for all expenditures, except such contracts, arrangements or commitments
(the "Store Development Agreements") entered into in connection with the
construction and development of the Papa John's restaurants;
c. any contract, arrangement or commitment relating to borrowed
money or creating or providing for long-term debt or continuing credit or any
guaranty, indemnity or suretyship obligation with respect thereto or power of
attorney;
d. any contract, arrangement or commitment in which it or any
of its employees or officers has covenanted to keep any information confidential
(other than the Papa John's Franchise Agreements);
e. any franchise, development or license agreement with any
person or entity, including, without limitation, the franchise and development
agreements with Papa John's set forth on Schedule 2.13 of the Operating Company
(the "Papa John's Franchise Agreements"); or
f. any other material contract, arrangement or commitment, or
contract agreement of commitment not made in the ordinary course of business.
The Operating Company is not in default under the Papa John's Franchise
Agreements, any other contract, arrangement or commitment set forth on Schedule
2.13 of the Operating Company or any of the material Store Development
Agreements (collectively, the "Material Contracts"), nor has any event occurred
which, with notice or passage of time, or both, would constitute a default under
any of the Material Contracts, and (A) there is no basis for any of the other
parties to the Material Contracts to assert that the Operating Company is in
default thereunder and (B) the other parties to such Material Contracts are not
in default thereunder. There are no existing disputes between the Operating
Company and any other party to a Material Contract. Neither this Agreement nor
the Merger Agreement, nor the consummation of the Operating Company Mergers, the
Contribution Transaction or the Delaware Merger pursuant to the Merger
Agreement, the IPO or the other transactions contemplated by this Agreement and
the Merger Agreement will cause a default under any Material Contract and,
following consummation of the transactions contemplated by this Agreement and
the Merger Agreement,
<PAGE>
the Operating Company (and its successors) will continue to be entitled to the
full benefit of all the Material Contracts. The Operating Company has delivered
to PJ and each of the other Operating Companies a true and complete copy of each
of the Material Contracts.
2.14 COPYRIGHTS, TRADEMARKS, TRADE NAMES, ETC. The Operating Company
does not own or use any trade names, trademarks, trade dress, copyrights,
service marks, registrations or applications therefor, and other similar rights
("Intangibles") except such Intangibles as the Operating Company is authorized
and licensed to use pursuant to the Papa John's Franchise Agreements. The
Operating Company is not and has not been in violation or infringement of any
Intangible owned by any person or entity other than the Operating Company or in
which any person or entity other than the Operating Company has any right, and
there are no actual or threatened claims pending or, to the knowledge of the
Operating Company and the Shareholders, contemplated against the Operating
Company relating thereto. The Operating Company has not agreed to indemnify any
person (other than Papa John's) for or against infringement of any Intangibles.
No Intangible owned or used by the Operating Company is subject to any
outstanding order, award, writ, injunction, decree, or judgment.
2.15 CURRENT EMPLOYEES AND COMPENSATION; OFFICERS AND DIRECTORS.
Schedule 2.15 sets forth a true and complete list of all officers of the
Operating Company and area and regional store supervisory employees of the
Operating Company, along with the amount of the current annual salaries if in
excess of $75,000 (including bonus participation) and a general description of
any commitments (other than pursuant to the Operating Company's generally
prevailing employee practices) to such employees and officers with respect to
compensation payable thereafter. Also included in Schedule 2.15 of the
Operating Company is a true and complete list of all directors and officers of
the Operating Company. The Operating Company has not, because of previous
commitments with respect to its employees or officers, established any
extraordinary rights on the part of such employees or officers to continued
employment. Neither this Agreement nor the Merger Agreement, nor the
consummation of the other transactions contemplated by this Agreement and the
Merger Agreement will result in any payment becoming due from the Operating
Company to, increase any benefits otherwise payable to, or result in
acceleration of the time for payment or vesting of any such benefits of, any
current or former employee, director or officer.
2.16 EMPLOYEE BENEFITS.
a. Except as set forth on Schedule 2.16 of the Operating
Company, the Operating Company does not maintain or contribute to, and has never
maintained or contributed to, (a) any "employee pension benefit plans" ("Pension
Plans") or any "employee welfare benefit plans" ("Welfare Plans") (as described
in sections 3(2) and 3(1), respectively, of Title I of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or (b) any other form of plan
or agreement with any of its present or former employees, officers, directors,
agents or representatives providing for present or future employee benefits or
deferred compensation of any nature whatsoever, any golden parachute or other
severance protection agreement, or similar agreement, or any plans or agreements
providing stock options, stock purchase or any other employee benefits of any
nature whatsoever ("Compensation Plans").
<PAGE>
b. Each of the Welfare Plans has been administered and material
compliance with the requirements of the Code and ERISA and all reports required
by any governmental agency for each of such plans have been timely filed, except
as identified on Schedule 2.16 of the Operating Company.
c. On and after January 1, 1975, neither the Operating Company
nor any of its employees who is a fiduciary of any Welfare Plan, has engaged in
any transaction in violation of Section 406(a) or Section 406(b) of ERISA (for
which no exemption exists under Section 408 of ERISA) or any "prohibited
transaction" (as defined in Section 4975(c)(1) of the Code) for which no
exemption exists under Sections 4975(c)(2) or 4975(d) of the Code.
d. On or after July 1, 1986, each group health plan (as defined
in Section 5000(b)(1) of the Code) maintained by the Operating Company has been
administered in material compliance with the continuation coverage and notice
requirements of Title I, Subtitle B, Part 6 of ERISA and Section 4980B of the
Code (and the regulations thereunder).
e. The Operating Company and its Shareholders have furnished to
PJ a true and complete copy of each Welfare Plan and Compensation Plan described
on Schedule 2.16 of the Operating Company in the most recent Annual Report (Form
5500 Series) required by ERISA and the current summary plan description for each
of the Welfare Plans. No representation has been made to participants or
beneficiaries with respect to benefits under any of the Welfare Plans that would
entitle them to benefits greater than or in addition to the benefits provided by
the actual terms of such plans.
f. The Operating Company is not presently required to
contribute to, or during the period of five years ending on the date hereof has
not been required to contribute to, any multi-employer plan (as defined in
Section 4001(a)(3) of ERISA) which does or did cover any employee of the
Operating Company and the Operating Company is not, and will not be on account
of the consummation of the transactions described in this Agreement or the
Merger Agreement, subject to any withdrawal or partial withdrawal liability
within the contemplation of Section 4201 of ERISA.
2.17 ENVIRONMENTAL MATTERS. Except as set forth on Schedule 2.17 of
the Operating Company, to the actual knowledge of the Operating Company and the
Shareholders:
a. there are no toxic, hazardous or carcinogenic substances or
wastes disposed of, stored, or are present on, in or under, any real property
owned or leased by the Operating Company or utilized by the Operating Company in
the conduct of its business, nor have any such substances or wastes been sent by
the Operating Company for storage, treatment, reuse or recycling, or disposal to
any other sites prior to the date hereof;
b. there are no releases or threats of releases of any toxic,
hazardous or carcinogenic substances or wastes to the environment from or at any
store or other facility owned or operated by the Operating Company, including,
without limitation, any migration or any release or threatened release of such
substances or wastes from one environmental medium to another environmental
medium;
<PAGE>
c. the Operating Company is in compliance with all applicable
federal, state, and local statutes, rules, ordinances and other laws and
regulations relating to protection of the environment, including, without
limitation, the Solid Waste Disposal Act, as amended by the Resource
Conservation and Recovery Act, 42 U.S.C. (S)6901, et seq.; the Clean Air Act, 42
U.S.C. (S)7401, et seq.; the Clear Water Act, 33 U.S.C. (S)1251, et seq.; the
Safe Drinking Water Act, 42 U.S.C. (S)300f, et seq.; the Toxic Substances
Control Act, 15 U.S.C. (S)2601, et seq.; the Federal Insecticide, Fungicide, and
Rodenticide Act, 7 U.S.C. (S)136, et seq.; the Emergency Planning and Community
Right-To-Know Act, 42 U.S.C. (S)11001, et seq.; and the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C.
(S)9601, et seq. ("CERCLA"), and any foreign laws, statutes, rules, orders,
ordinances and other laws and regulations thereunder, relating to or regulating
hazardous or toxic substances or air, water or land quality, waste, or other
similar environmental matters ("Environmental Laws");
d. no conditions exist at the stores or other facilities owned,
leased or used by the Operating Company which would necessitate remedial action
under CERCLA or any other Environmental Law;
e. no conditions exist on any other property for which the Operating
Company is, or may be, responsible for all or any portion of costs or expenses
associated with the reclamation or clean-up of such property under CERCLA or any
other Environmental Laws;
f. no liens have been asserted against any assets of the Operating
Company, for all or any portion of the costs or expenses associated with the
reclamation or clean-up of any waste disposal site or other property under
CERCLA or any other Environmental Laws; and
g. there are no pending or threatened claims, assessments, or
litigation against the Operating Company with respect to any alleged
noncompliance with any Environmental Laws.
2.18 INDEBTEDNESS TO OR FROM OFFICERS, DIRECTORS, ETC. Except as set
forth on Schedule 2.18 of the Operating Company, none of the Shareholders nor
any of the directors, officers or employees of the Operating Company, nor any
family member of any of them, is now indebted to the Operating Company, nor is
the Operating Company indebted or obligated to any of them, except for accrued
salary and wages and normal employee benefits arising in the ordinary course of
its business. For purposes of this Agreement, the term "family members" shall
mean the current spouse, parents, siblings and children of any persons, officers
or employees of the Operating Company.
2.19 INSIDER INTERESTS. Except as set forth on Schedule 2.19 of the
Operating Company or as set forth in the Registration Statement approved by PJ,
the Shareholders and the Operating Company for filing with the SEC in connection
with the IPO, no Shareholder, officer or director of the Operating Company, nor
any family member of any of them:
a. owns, directly or indirectly, any interest in, or is an officer,
director, employee or principal of any corporation, partnership, firm,
association or other person
<PAGE>
or entity which is a competitor in the pizza delivery and carry out business or
a supplier of the Operating Company;
b. has any interest, directly or indirectly, in any contract,
arrangement, commitment or property pertaining to, and material to, the
business, operations, property or assets of the Operating Company; or
c. has, directly or indirectly, within the two-year period
immediately prior to the date hereof, engaged in any transaction with the
Operating Company except transactions inherent in the capacity of such person as
a shareholder, officer or director of the Operating Company.
2.20 INSURANCE. The Operating Company has all insurance policies
insuring the Operating Company, any of its assets or properties, and any of its
directors, officers and employees, and any bonds issued concerning the Operating
Company, that are required of the Operating Company under the Papa John's
Franchise Agreements and any other material agreements, leases of commitments
with its lessors, landlords or any other party with which it does business.
Such policies are in full force and effect, and all premiums thereon have been
paid in full. The Operating Company has not been refused any insurance, nor has
the Operating Company received notice that its coverage has or may be limited by
any insurance carrier or that its premiums or premium rates will be increased.
The Operating Company does not maintain, and has not maintained, any self-
insurance programs.
2.21 LABOR MATTERS. The Operating Company is not a party to, or
negotiating, any collective-bargaining agreement. There are no union
organizational or representation efforts underway or threatened, nor are there
any existing or threatened labor strikes, slow downs, disputes, grievances, or
disturbances involving the Operating Company's employees which might have a
material adverse affect on the Operating Company's business or operations. The
Operating Company has complied with the National Labor Relations Act, as
amended, Title VII of the Civil Rights Act of 1964, as amended, the Occupational
Safety and Health Act, Executive Order 11246, the regulations under such acts
and all other federal, state and local statutes, rules, orders, regulations,
ordinances, codes and other laws relating to employment. No proceedings before
any court, governmental agency or instrumentality or arbitrator relating to such
matters, including any unfair labor practice claims, are pending or threatened.
2.22 LEASES. Schedule 2.22 of the Operating Company includes a true
and complete list of all leases of real property and all material leases of
personal property and all options to lease such property (oral or written) to
which the Operating Company is a party, as lessor, lessee or otherwise (the
"Leases"), and a description of the property so leased. True and correct copies
of the Leases (each as amended through the date hereof) have been delivered to
PJ, and each of the Leases is in good standing, valid, binding and in full force
and effect. Except as disclosed on Schedule 2.22 of the Operating Company,
subject to the landlord's or lessor's rights set forth in the Leases, the rights
of the Operating Company in the property covered thereby (including any
improvements and appurtenances thereto) are, to the knowledge of the Operating
Company and the Shareholders, paramount to the rights of any other person or
entity. The Operating Company is not in default under any of such Leases, nor
is there any
<PAGE>
material dispute between the Operating Company and any other party to any of
such Leases, nor is any other party to any of such Leases in default thereunder.
No event has occurred which, with the passage of time, notice, or both, could
give the lessor or landlord under any of the Leases the right to claim a default
thereunder. Except as disclosed on Schedule 2.22 of the Operating Company
hereto, neither the execution and delivery of this Agreement nor the Merger
Agreement, nor the consummation of the transactions contemplated by this
Agreement or the Merger Agreement will cause a default under any of the Leases.
2.23 REAL PROPERTY. Schedule 2.23 of the Operating Company sets
forth a true and complete list and description, by metes and bounds or lot,
block and section number, of all real property (the "Real Property") owned by
the Operating Company, and a true and complete list of all options or other
agreements under which the Operating Company is obligated to or may acquire any
interest in any real property or improvements. The Operating Company's
operations on and use of the Real Property conforms in all material respects to
applicable zoning regulations, including use, set-back and area requirements,
and other restrictions and covenants on the use thereof. All improvements to
the Real Property are adequate and sufficient for the operation of the Papa
John's pizza and delivery restaurants thereon, and comply in all material
respects with the standards and specifications of Papa John's. All applicable
zoning ordinances, building codes and other federal, state and local laws with
respect to the Real Property, and the improvements thereon, permit the existence
of the presently existing improvements and the continuation of the operation of
the Papa John's pizza and delivery restaurants as presently conducted or as
required to be conducted in accordance with the standards and specifications of
Papa John's. The Real Property and all improvements located thereon comply in
all material respects with all other applicable municipal, county and other
governmental laws, orders, regulations and restrictions, and neither the
Operating Company nor any of its Shareholders has any knowledge or information
which would lead it or any of them to believe that the use of any of the Real
Property will be adversely affected by any pending or proposed zoning or use
changes.
2.24 LICENSES AND PERMITS. The Operating Company possesses all
permits, concessions, licenses, franchises (including Papa John's franchises),
certificates of compliance, consents, approvals, orders, certificates and
authorizations required or necessary to permit the Operating Company to carry on
its business or operations at the locations where such business is conducted,
without material interference or interruption (the "Licenses"). The Operating
Company has furnished PJ a true and complete copy of each of the Licenses. To
the knowledge of the Operating Company and the Shareholders no suspension or
cancellation of any License is threatened, and the consummation of the
transactions contemplated by this Agreement will not cause the suspension or
cancellation of any License.
2.25 LITIGATION. Except as set forth on Schedule 2.25 of the
Operating Company, there are no investigations, actions, suits, claims,
arbitrations or proceedings, either judicial, administrative or otherwise,
pending or threatened against or affecting (a) the Operating Company, or any
Shareholder concerning the Operating Company, or any of the properties,
business, assets, or operations of the Operating Company, (b) any employee,
officer or director of the Operating Company (in his capacity as such), (c) the
transactions contemplated hereunder, or (d) the ownership of any securities of
the Operating Company, by or before any court,
<PAGE>
governmental department, commission, board, bureau, agency, mediator, arbitrator
or other person or instrumentality that would have a material adverse effect on
the business or operations of the Operating Company.
2.26 PAYMENTS. Neither the Operating Company nor any of the
Shareholders has, directly or indirectly, paid or delivered any fees,
commissions or other sums of money or items of property, however characterized,
to any finders, agents, customers, suppliers, governmental officials or other
parties that in any manner are related to the business or operations of the
Operating Company and which the Shareholder or any officer or director of the
Operating Company knows, or had reason to believe, were illegal under any
federal, state or local laws.
2.27 TAX RETURNS; TAX ELECTIONS.
a. Except as set forth on Schedule 227, the Operating Company
has prepared, signed and filed all federal, state, local and other tax returns
and reports required to be filed by all applicable statutes, laws, rules and
regulations on or before the date hereof, and has paid all taxes or installments
thereof, interest, penalties, assessments and deficiencies of every kind and
nature whatsoever which were due and owing on such tax returns and reports or
which were or are otherwise due and owing under all applicable statutes, laws,
rules and regulations for any periods for which returns or reports were due. The
provisions for taxes in the Acquisition Balance Sheet are sufficient for the
payment of all federal, state, local, foreign and other taxes attributable to
all periods ended on or before June 30, 1996, and adequate and proper accruals
have been made by the Operating Company for all liabilities for taxes accruing
since the date of the Acquisition Balance Sheet. Except as set forth on Schedule
227, the Operating Company has timely paid in full all ad valorem property
taxes and other assessments levied on its assets and properties which have
heretofore become due and payable. There are in effect no agreements, waivers or
other arrangements providing for an extension of time with regard to the
assessment of any tax, or any deficiency with respect thereto, against the
Operating Company. Except as set forth on Schedule 227 of the Operating
Company, there are no material actions, suits, proceedings, arbitrations,
examinations, investigations or claims now pending, nor, to the knowledge of the
Operating Company and the Shareholders, proposed, against the Operating Company,
nor are there any matters under discussion with the Internal Revenue Service, or
other federal, state, local or other governmental authority, relating to any
taxes or assessments, or any claims or deficiencies with respect thereto. The
Operating Company has never received notice of an audit, review or examination
of any of its federal income tax returns by the Internal Revenue Service or any
other governmental agency of the federal government, nor have its federal income
tax returns been audited by the Internal Revenue Service. The Operating Company
has never received notice of an audit, review or examination of any of its state
income tax returns, ad valorem property tax returns, license tax returns,
employee withholding returns, sales tax returns or any and all other returns
filed with states in which the Operating Company is doing business, nor have any
such returns been audited by any department or agency, whether local or state,
charged with revenue and taxation, except as set forth on Schedule 227 of the
Operating Company.
<PAGE>
b. Except for the election under Section 1362 of the Code to be
taxed as an Subchapter S corporation, which the Operating Company and its
Shareholders acknowledge and agree will be terminated upon consummation of the
Operating Company Mergers contemplated in the Merger Agreement, there are no
material elections or consents filed with the Internal Revenue Service or any
other taxing authorities affecting the Operating Company. The Operating Company
has delivered to Newco true and complete copies of all federal and state income
tax returns filed by the Operating Company since January 1, 1993.
c. The Operating Company has withheld proper and accurate
amounts from its employees in full and complete compliance with the tax
withholding provisions of the Code and other applicable federal, state, local
and other statutes, laws, rules and regulations, and has filed proper and
accurate federal, state, local and other returns and reports for all years and
periods (and portions thereof) for which any such returns and reports were due
with respect to employee income taxes, withholding taxes, social security taxes
and unemployment taxes. Except as set forth on Schedule 227 of the Operating
Company, all payments due from the Operating Company on account of employee
income tax withholding, social security taxes or unemployment taxes in respect
of all periods (and portions thereof) ended on or prior to the date hereof have
been properly paid within the time allowed, without extension.
d. None of the assets of the Operating Company are subject to
any lien or levy or other manner of collection by a taxing authority for any tax
deficiency or liability of the Operating Company, nor will the assets become
subject to any such lien or levy as a result of this Agreement or the Merger
Agreement, the Operating Company Mergers, the Contribution Transaction, the
Delaware Merger or the other transactions contemplated herein or in the Merger
Agreement.
2.28 COMPLIANCE. The Operating Company has complied with all
applicable laws, regulations, rules and orders of Federal, state and local
governments and all agencies thereof applicable to its business, business
practices (including, but not limited to, the marketing, sales and distribution
of its products and services) and assets and properties owned or leased by it.
No claims have been filed against the Operating Company alleging a violation of
any such laws or regulations and the Operating Company has not received any
notice of, or claim alleging, any violation of such laws or regulations.
2.29 BOOKS AND RECORDS.
a. Prior to the execution of this Agreement, the Operating
Company made available to PJ and to each of the other parties to this Agreement
for its and their examination the books and records of the Operating Company,
including, without limitation, computer data and records relating to the
business and finances of the Operating Company (the "Operating Records"). No
material changes or additions to the Operating Records have been made from the
date the Operating Records were first made available to PJ and such other
parties and nothing which should be set forth in the Operating Records, as
prepared in the usual and customary manner of the Operating Company, occurred
from the date such Operating Records were first made available to PJ and such
other parties, except such changes, additions or events which have been made or
have occurred, as the case may be, in the ordinary course of the
<PAGE>
business of the Operating Company consistent with the prior practice of the
Operating Company, except for depreciation adjustments that are reflected in the
Operating Company Financial Statements. The Operating Records are complete and
correct in all material respects, have been prepared in the usual and customary
manner of the Operating Company, and all monies due or to become due from or to
or owing by, and all liabilities (actual, contingent or accrued) of, the
Operating Company by reason of any transaction, matter or cause whatsoever have
been duly, correctly and completely entered therein.
b. Prior to the execution of this Agreement, the Operating
Company furnished to PJ and the other parties hereto for its and their
examination the minute and stock books of the Operating Company or complete
copies thereof, which documents contained a complete record of any and all
proceedings and actions at all meetings of the shareholders and the board of
directors of the Operating Company required to be set forth in said minutes or
for which minutes were prepared. Except for actions required or necessitated by
this Agreement or the Merger Agreement, no changes or additions to the minutes
or stock books of the Operating Company have been made since the date such books
were so furnished, and no proceeding or action required to be set forth in said
books has occurred since the date such books were last furnished to PJ and the
other parties hereto.
2.30 COMPLETENESS OF STATEMENTS. The Operating Company and the
Shareholders have disclosed, in writing, all material facts known to them
relating to the representations and warranties made by them in this Agreement.
To the knowledge of the Operating Company and the Shareholders, no
representation, warranty or covenant of the Operating Company and the
Shareholders in this Agreement or in the Merger Agreement contains any untrue
statement of a material fact, any misstatement of a material fact, or omits to
state a material fact necessary to make the statements herein or therein not
misleading.
3. REPRESENTATIONS AND WARRANTIES OF PJ. PJ hereby represents and
warrants to the Operating Companies and the Shareholders as follows:
3.1 ORGANIZATION AND STANDING OF PJ. PJ is duly organized and
validly existing under the laws of the State of Delaware.
3.2 AUTHORITY. PJ has, and at all times has had, full power and
authority, corporate or otherwise, to own and lease its properties as such
properties are now owned and leased and to conduct its business as and where
such business is conducted. PJ has all necessary corporate power and authority
to execute, deliver and perform this Agreement and the Merger Agreement in
accordance with their respective terms. This Agreement and the Merger Agreement
and each and every agreement, document and instrument to be executed, delivered
and performed by PJ in connection herewith and therewith has been duly and
validly authorized, executed and delivered by PJ and constitutes or will, when
executed and delivered, constitute, the valid and binding obligation of PJ,
enforceable against PJ in accordance with their terms, except as enforcement may
be limited by applicable equitable principles or by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally.
<PAGE>
3.3 NO VIOLATIONS. Except for the consent of Papa John's, which
consented to the Operating Company Mergers, the IPO and other transactions to be
consummated pursuant to the Merger Agreement prior to the date hereof, and
authorizations and approvals of the SEC and state regulatory agencies required
for the effectiveness of the Registration Statement to be filed by PJ pursuant
to the IPO contemplated by this Agreement and the Merger Agreement, the
execution, delivery and performance of this Agreement and the Merger Agreement,
the consummation of the transactions described in this Agreement and the Merger
Agreement, and the fulfillment of and compliance with the terms and provisions
of this Agreement and the Merger Agreement, do not and will not: (a) conflict
with or violate the terms or conditions of, result in the breach of or
constitute a default under, (i) any law, rule or regulation of any government or
agency or department of any government, or any judgment, order, writ, award,
decree, permit or license of any court or other agency of any government to
which PJ, or any of its properties or assets, may be subject, (ii) any
agreement, instrument, mortgage, commitment, franchise or restriction to which
PJ is a party or by which PJ is bound or committed, or (iii) the Certificate of
Incorporation, By-laws or any other organizational documents of PJ; (b)
constitute an event which could, or with the lapse of time or action by a third
party could, result in any default under or modify any of the foregoing, provide
any third party the right to cancel any of the foregoing, or result in the
creation of any lien, charge or encumbrance upon any of PJ's assets or
properties; (c) constitute an event which could, or with the lapse of time or
action by a third party could, result in the creation of any lien, charge or
encumbrance upon any of the issued and outstanding capital stock of PJ; or (d)
require any consent, authorization or approval of any federal, state or local
court, governmental authority or regulatory body, or of any creditor or any
party to any such agreement, instrument, mortgage, contract or commitment, or
any other person or entity; or (e) give any party with rights under any
agreement, instrument, mortgage, franchise, commitment, judgment, order, writ,
award, decree, permit, license or other restriction to which PJ or any of its
properties or assets are subject or bound the right to terminate, accelerate,
modify or otherwise alter the rights or obligations of PJ thereunder.
3.4 CAPITALIZATION OF NEWCO; STOCK OWNERSHIPS AND RIGHTS. As of the
date of this Agreement, the authorized capital stock of PJ consists of
20,000,000 PJ Shares and 1,000,000 shares of preferred stock, $1.00 par value
per share. As of the date of this Agreement, PJ has no outstanding shares of
any class of capital stock. As of the date of this Agreement, there are no, nor
is there any arrangement not yet fully performed which would result in any,
outstanding options, warrants, conversions or exchange rights, subscriptions,
agreements or other commitments of any kind obligating PJ to issue or sell, or
to redeem, purchase or otherwise acquire, directly or indirectly, any PJ Shares
or any outstanding restrictions, agreements or commitments of any kind to which
PJ is a party or by which PJ is bound which relate to or restrict in any way the
issuance or sale, purchase or redemption or other acquisition, of any PJ Shares,
except for the obligation to issue Papa John's a warrant to purchase PJ Shares
equal to 7.5% of the PJ Shares that are issued and outstanding immediately prior
to the IPO (the "PJI Warrant").
3.5 COMPLETENESS OF STATEMENTS. PJ has disclosed to the Shareholders
in writing all material facts known to it relating to the representations and
warranties made by PJ in this Agreement. To the knowledge of PJ, no
representation, warranty or covenant of PJ in
<PAGE>
this Agreement or the Merger Agreement contains any untrue statement of a
material fact, any misstatement of a material fact, or omits to state a material
fact necessary to make the statements herein or therein not misleading.
4. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNITIES.
4.1 SURVIVAL. The representations and warranties contained in this
Agreement shall survive the execution and delivery of this Agreement and the
Merger Agreement the consummation of the transactions contemplated hereby and
thereby, and shall continue to be binding regardless of any investigation made
at any time by or on behalf of any party, for a period of 18 months from and
after the Closing Date, except for (a) the representations and warranties
contained in Sections 1.1 (Title to Shares; Share Restrictions), 1.2 (Authority)
and 2.5 (Capitalization; Stock Ownership and Rights), which shall not expire,
and (b) the representations and warranties contained in Section 2.27 (Tax
Returns; Tax Elections), which shall survive until the applicable limitations
period has run; provided, if a claim is brought within the applicable period set
forth above, the representations and warranties which are the subject of such
claim shall not expire until a final resolution or non-appealable determination
is made of such claim.
4.2 GENERAL INDEMNITIES OF THE SHAREHOLDERS. From and after the
Closing, each of the Shareholders of each Operating Company shall, subject to
the limitations set forth in Sections 4.6.a.,?. and 4.6.d., defend and indemnify
PJ and Newco, and hold PJ and Newco harmless from and against, the following
(collectively, the "General Indemnified Liabilities," individually a "General
Indemnified Liability"); provided, however, that nothing herein shall be
construed to impose a joint and several obligation on the Shareholders with
respect to the General Indemnified Liabilities:
a. all liabilities, debts, obligations, losses, damages,
deficiencies, penalties, claims, actions, suits, proceedings, investigations,
demands, assessments, orders and judgments (whether fixed, contingent, accrued,
absolute or otherwise) incurred by PJ or Newco resulting from, arising out of,
or in connection with (i) any inaccurate representation or warranty or the
breach or non-fulfillment of any representation or warranty of the Operating
Company and the Shareholders of such Operating Company, or any of them,
contained in this Agreement, except for those representations and warranties
specifically identified in Section 4.3, (ii) any breach or default in the
performance by the Operating Company or its Shareholders, or any of them, of any
covenant or agreement contained herein or in the Merger Agreement, and (iii) any
sales tax deficiency or assessment of the Operating Company relating to a period
ended on or prior to the Closing Date (regardless of any disclosures set forth
in this Agreement); and
b. any and all costs and expenses incident to any of the
foregoing, including, but not limited to, reasonable attorneys' and accountants'
fees.
4.3 ADDITIONAL INDEMNITIES OF THE SHAREHOLDERS. From and after the
Closing, the Shareholders of each Operating Company shall defend and indemnify
PJ and Newco, and shall hold PJ and Newco harmless, from and against the
following (collectively the "Additional Indemnified Liabilities", individually
an "Additional Indemnified Liability"); provided, that each of the Additional
Indemnified Liabilities of each of the Shareholders shall
<PAGE>
be subject to (a) such Shareholder's Proportionate Share thereof as described in
Section 4.6.b. (exclusive of an Additional Indemnified Liability which is also a
"Section 1 Indemnity"of the Shareholder, defined below, which shall be the sole
and exclusive obligation of such Shareholder) and (b) the other limitations on
Additional Indemnified Liabilities set forth in Sections 4.6.b., 4.6.c. and
4.6.d. hereto; provided further, that nothing herein shall be construed to
impose a joint and several obligation on the Shareholders:
a. all liabilities, debts, obligations, losses, damages,
deficiencies, penalties, claims, actions, suits, proceedings, investigations,
demands, assessments, orders and judgments (whether fixed, contingent, accrued,
absolute or otherwise) incurred by PJ or Newco resulting from, arising out of,
or in connection with (i) any misrepresentation or breach of a representation or
warranty of the Operating Company and the Shareholders, or any of them,
contained in Section 2.5 (Capitalization; Stock Ownership and Rights); and (ii)
any misrepresentation or breach of a representation or warranty of a Shareholder
contained in Section 1 (a "Section 1 Indemnity") (which shall be the sole and
exclusive obligation of the Shareholder who has misrepresented or breached the
representation or warranty giving rise to the Section 1 Indemnity, and no other
Shareholder); and
b. any and all costs and expenses incident to any of the
foregoing, including, but not limited to, reasonable attorneys' and accountants'
fees.
4.4 INDEMNITY BY PJ. From and after the Closing, PJ shall defend and
indemnify the Shareholders and hold the Shareholders harmless from and against
the following (collectively "PJ Indemnified Liabilities," individually a "PJ
Indemnified Liability"):
a. all liabilities, debts, obligations, losses, damages,
deficiencies, penalties, claims, actions, suits, proceedings, investigations,
demands, assessments, orders and judgments (whether fixed, contingent, accrued,
absolute or otherwise) incurred by the Shareholders resulting from, arising out
of, or in connection with (i) any misrepresentation or breach of any
representation or warranty of PJ contained in this Agreement, and (ii) any
breach or default in the performance by PJ of any agreement, covenant or
undertaking which it is to perform under this Agreement or the Merger Agreement;
and
b. any and all costs and expenses incident to any of the
foregoing, including, but not limited to, reasonable attorneys' and accountants'
fees.
4.5 EXCLUSIVE REMEDY. From and after the Closing, the indemnification
provided for in this Section 4 shall be the exclusive remedy in any action
seeking damages or any other form of monetary relief brought by any party to
this Agreement and the Merger Agreement against another party hereto or thereto,
including any action brought by any such party for any damages or other form of
monetary relief that is predicated upon or otherwise relates to, or arises out
of, the transactions provided for in this Agreement and the Merger Agreement,
the IPO and the Registration Statement for the IPO, or any prospectus forming a
part thereof, but which is otherwise not a General Indemnified Liability or
Additional Indemnified Liability as such terms are defined herein ("Associated
Liabilities"); provided, that nothing herein shall be construed to limit the
right of a party, in a proper case, to seek injunctive
<PAGE>
or other equitable relief for a breach of this Agreement or the Merger
Agreement. Each of the parties hereto shall have the right to offset the amount
for which it is entitled to indemnification (exclusive of the General
Indemnified Liabilities) against all amounts which it may at any time owe the
party from whom indemnification is being sought.
4.6 LIMITATIONS ON THE SHAREHOLDERS' INDEMNIFICATION OBLIGATIONS.
a. For the General Indemnified Liabilities and Associated
Liabilities that are particular to the Shareholders of an Operating Company, PJ
and Newco shall look solely to the particular Escrow Account segregated for
indemnity claims (or other claims described below) against such Shareholders as
their sole source for payment and discharge of the General Indemnified
Liabilities and Associated Liabilities of such Shareholders, and shall otherwise
have no right to hold such Shareholders personally liable for such General
Indemnified Liabilities or Associated Liabilities. The parties hereto hereby
acknowledge and agree that, except for the Additional Indemnified Liabilities,
all claims for indemnification under this Agreement or any other claims
whatsoever made against the Shareholders arising out of, resulting from, or
connected with their ownership of shares of capital stock of an Operating
Company, this Agreement, the Merger Agreement or the transactions contemplated
hereby or thereby, including, without limitation, the Associated Liabilities,
shall be subject to the amounts held in the Escrow Account segregated therefor
as set forth in this Section 4.6.a.
b. For the Additional Indemnified Liabilities that are particular
to the Shareholders of an Operating Company, or a Section 1 Indemnity of a
particular Shareholder (a "Section 1 Indemnitor"), PJ and Newco may look to the
particular Escrow Account that is segregated for indemnity claims against such
Shareholders (except that, for a Section 1 Indemnity, this includes only the
Escrow Account in which the Section 1 Indemnitor has an interest and against
which the claim is properly being made) for payment and discharge of the
Additional Indemnified Liabilities of such Shareholders, but may also look to
each breaching Shareholder personally (or the Section 1 Indemnitor, solely, the
case of a Section 1 Indemnity) for payment and discharge of such Additional
Indemnified Liabilities. Notwithstanding anything in this Section 4.6.b. to the
contrary, no Shareholder shall be liable for any Additional Indemnified
Liabilities in an amount which exceeds such Shareholder's Proportionate Share
(as described in the introductory paragraph to Section 2, except that a Section
1 Indemnitor's Proportionate Share shall be 100% for purposes hereof, subject to
the "Indemnification Cap" as hereinafter defined), of such Additional
Indemnified Liability and any claim made by PJ and Newco against a Shareholder
for an Additional Indemnified Liability shall be limited to such Shareholder's
Proportionate Share of the total claim for such Additional Indemnified Liability
or Associated Liability.
c. No Shareholder shall be obligated to indemnify PJ or Newco for
an Additional Indemnified Liability or Associated Liability (including, without
limitation, a Section 1 Indemnity) which, when added to all other sums
indemnified by the Shareholder pursuant to this Section 4, exceeds the value of
the PJ Shares received by such Shareholder in the Delaware Merger, valued as set
forth in Section 4.6.d. (the "Indemnification Cap").
<PAGE>
d. For purposes of this Section 4.6, the Shareholders may satisfy
an indemnification obligation through payment of cash and PJ Shares, or any
combination thereof, with any PJ Shares used to satisfy the indemnification
obligation to be valued as provided above. For purposes of this Section 4.6, any
PJ Shares used to satisfy an indemnification obligation of the Shareholders
shall be valued at such shares' initial public offering price as set forth in
the Registration Statement.
4.7 CLAIMS PROCEDURE. Any party (the "Indemnified Party") may assert a
claim (a "Claim") against the other party (the "Indemnifying Party") with
respect to any matter which it believes is subject to indemnification pursuant
to this Agreement by giving written notice (a "Claim Notice") to the
Indemnifying Party. The Claim Notice shall be given by the Indemnified Party
promptly, but in no event later than 10 days before a responsive pleading is
required to be filed in a third party action or otherwise no later than 30 days,
after (i) it has knowledge of a Claim under this Agreement or (ii) the
commencement of any legal proceeding against such Indemnified Party, whichever
occurs first. The Claim Notice shall state the basis for the Claim and the
dollar amount thereof and shall be accompanied by any documents or information
relevant thereto. The party receiving the Claim Notice shall have 45 days (or
such shorter period of time as is reasonable when the Indemnified Party must
respond to a pleading filed by a third party or any other type of "Third Party
Claim" (defined in Section 4.8)) after receipt within which to pay the amount
thereof to the Indemnified Party or to discharge such liability, or otherwise to
respond to the Claim Notice (the "Response Period"). If the party does not pay
the amount set forth in the Claim, discharge such liability or respond to the
Claim Notice within the Response Period, the party bringing the Claim may
institute arbitration or litigation (as required by Section 4.9) or, in the case
of PJ or Newco, may assert its rights to indemnification pursuant to the
Indemnification Escrow Agreement. If the Indemnifying Party does not pay or
discharge the Indemnified Liability, but otherwise responds to the Claim Notice
within the Response Period, except for a Third Party Claim (defined in Section
4.8), the parties shall in good faith attempt to resolve the Claim short of
arbitration or litigation during the 15 days following the expiration of the
Response Period. If the parties are unable to resolve the dispute within such 15
day period, then and only then may the party bringing the Claim institute
arbitration or litigation or, in the case of PJ or Newco, assert its rights to
indemnification pursuant to the Indemnification Escrow Agreement.
4.8 DEFENSE OF THIRD PARTY CLAIM. If the Indemnifying Party responds
to a Claim that is made by a third party ("Third Party Claim") within the
Response Period, the Indemnifying Party shall have the right to assume, at such
party's expense, the defense of any Third Party Claim and to control the Third
Party Claim and any settlement thereof if the Indemnifying Party acknowledges in
writing that the Third Party Claim constitutes an enforceable liability for
which such party is obligated to indemnify the Indemnified Party.
Notwithstanding the foregoing, the assumption and control of the defense of any
Third Party Claim involving a General Indemnified Liability shall be dependent
upon the amount of the Claim being less than the sums then remaining in the
particular Escrow Account applicable thereto, and, the assumption and control of
the defense of any Third Party Claim involving an Additional Indemnified
Liability is dependent upon the amount of such Claim, when aggregated with all
prior Additional Indemnified Liabilities and General Indemnified Liabilities,
being less
<PAGE>
than the Indemnification Cap applicable to the Indemnifying Party. If the
Indemnifying Party is not entitled to assume and control the defense of the
Third Party Claim, the Indemnifying Party, at its expense, may participate in
the defense of the Third Party Claim if it has an economic stake in the third
Party Claim. The Indemnified Party, at such party's expense, may assume or
participate in the defense of any Third Party Claim which may have a material
impact on its business or the business relationship between the Indemnified
Party and one or more of its business customers or associates. If the
Indemnifying Party elects to defend such Third Party Claim, the Indemnifying
Party shall use its best efforts to defend same or to effect a satisfactory
settlement thereof, and shall provide the Indemnified Party with all information
and copies of all pleadings and other documents and correspondence relating to
its defense or attempts to effect a settlement thereof. The Indemnifying Party
shall not, in the defense or settlement of any Third Party Claim, consent to any
injunctive or other equitable relief or consent to or enter into any order,
judgment or settlement with respect thereto, without the prior written consent
of the other party hereto, such consent not to be unreasonably withheld;
provided, however, if such consent to the settlement is withheld by the other
party, then the Indemnifying Party shall thereafter have no further obligation
to defend the Third Party Claim and the Indemnifying Party's obligation for the
Indemnified Liability which results from such Third Party Claim shall be limited
to the amount proposed by the Indemnifying Party in the settlement offer. If an
Indemnifying Party has the right to assume and defend any Third Party Claim
under this Section 4.8, but shall fail to assume the defense of such Third Party
Claim, the Indemnified Party may in its sole discretion defend, settle or
compromise such Third Party Claim, without prejudice to its right to
indemnification by the Indemnifying Party hereunder. The parties hereto agree to
cooperate fully with each other in connection with the defense, negotiation or
settlement of any Third Party Claim in order to minimize the indemnified
liability associated therewith and to preserve the Parties' respective goodwill
and business relationships. The Indemnifying Party shall not, in the defense of
such Third Party Claim, consent to entry of any judgment (except with the prior
written consent of the Indemnified Party) or enter into any settlement (except
with the prior written consent of the Indemnified Party) which does not include
as an unconditional term thereof the giving by all claimants therein of a full
and complete release from all liability in respect of such Third Party Claim to
the Indemnified Party. Notwithstanding anything in Section 4.7 or this Section
4.8, or any other provision of this Agreement to the contrary, the fees, costs
and expenses related to any claim for indemnification hereunder, including,
without limitation, reasonable attorneys' and accountants' fees, shall be paid
by PJ or Newco if it is determined by the parties that PJ or Newco, as the case
may be, is not entitled to indemnification or PJ or Newco shall be unsuccessful
in any action, suit or proceeding pursuant to Section 4 on the merits of their
claim for indemnification.
4.9 ARBITRATION. Any controversy or claim arising out of or relating
to this Agreement (including those relating to any Associated Liabilities)
between any of the parties hereto shall be determined by means of arbitration
before the American Arbitration Association in Louisville, Kentucky. All claims
for arbitration must be submitted to arbitration within 45 days after the
expiration of the Response Period, but in no event sooner than 15 days after the
Response Period if the Indemnifying Party has responded to the Claim within the
Response Period. The rules of the American Arbitration Association, as the same
may be amended from time to time, shall be applicable in the arbitration. Any
decision or award of the arbitrator shall be final and binding upon the parties.
Judgment upon the decision or award rendered by the
<PAGE>
arbitrator may be entered in any state or federal court having jurisdiction, or
application may be made to such state or federal court for a judicial acceptance
of the decision, award or any order of enforcement, as the case may be.
5. SHAREHOLDERS' REPRESENTATIVES.
5.1 APPOINTMENT OF SHAREHOLDERS' REPRESENTATIVE. The Shareholders of
PJV and PJVA do hereby irrevocably constitute and appoint Martin T. Hart and his
successors appointed pursuant to Section 5.2 (the "Virginia Shareholders'
Representative"), as their agent and attorney-in-fact, on behalf and on behalf
of each of them, and the EC Shareholders, TC Shareholders and Textra
Shareholders do hereby irrevocably constitute and appoint Michael M. Fleishman
and his successors appointed pursuant to Section 5.2 (the "Alabama Shareholders'
Representative"), as their agent and attorney-in-fact, on behalf of each of
them: (i) to perform all acts which, by the provisions of this Agreement, are to
be performed by the Shareholders or, as applicable, the Virginia or Alabama
Shareholders' Representative; (ii) to waive any of the provisions of and to
execute and deliver such amendments to this Agreement, as he, in his sole
judgment, shall deem necessary or advisable; (iii) to execute and deliver such
instruments and documents pursuant to this Agreement as the Virginia or Alabama
Shareholders' Representative, as applicable and in his sole judgment, shall deem
necessary or advisable; (iv) to execute and give all notices, requests and other
communications required, permitted or contemplated under this Agreement, as the
Virginia or Alabama Shareholders' Representative, as applicable and in his sole
judgment, shall deem necessary or advisable; (v) to consent to, dispute,
compromise, adjust, settle, litigate, appeal or otherwise deal with any and all
set-offs, claims, breaches, obligations, liabilities, assessments, suits,
actions, proceedings, liens, charges, encumbrances, orders, judgments and
decrees with respect to this Agreement or to refrain so to do, as the Virginia
or Alabama Shareholders' Representative (as applicable) shall, in his sole
judgment, deem necessary or advisable; (vi) to delegate all or any of his power
or authority under this Agreement to any person or entity, as Shareholders'
Representative, in his sole judgment, shall deem necessary or advisable; (vii)
to expend such amounts in the exercise of his rights and powers and in the
performance of his duties hereunder as the Virginia or Alabama Shareholders'
Representative (as applicable) shall, in his sole judgment, deem necessary or
advisable; and (viii) generally to act for and on behalf of the Shareholders he
is representing and each of them in all matters connected with this Agreement,
with the same force and effect as though such act had been taken by them, or any
of them, personally. The Shareholders agree that the Alabama Shareholders'
Representative or the Virginia Shareholders' Representative, as applicable,
shall be the sole and exclusive person with legal capacity and standing to
contest, dispute, compromise, adjust, settle, litigate, appeal or otherwise deal
with PJ or Newco with respect to the indemnification of PJ or Newco as set forth
in Section 4 (exclusive of a Section 1 Indemnity). This appointment and power-
of-attorney is a special power-of-attorney coupled with an interest, is
irrevocable and shall survive the death, disability or incapacity of each
Shareholder.
5.2 REMOVAL; APPOINTMENT OF A SUCCESSOR TO SHAREHOLDERS'
REPRESENTATIVE. A majority in interest of the EC, TC and Textra Shareholders
shall have the right at any time to remove the Alabama Shareholders'
Representative and to designate his successor or, in the event of his death or
legal disability, to designate the successor to the Alabama Shareholders'
<PAGE>
Representative. A majority in interest of the PJV and PJVA Shareholders shall
have the right to, at any time, remove the Virginia Shareholders' Representative
and to designate his successor or, in the event of his death or legal
disability, to designate the successor to the Virginia Shareholders'
Representative.
5.3 REIMBURSEMENT OF SHAREHOLDERS' REPRESENTATIVE. The Virginia
Shareholders' Representative shall be reimbursed by the PJV Shareholders and
PJVA Shareholders, and the Alabama Shareholders' Representative shall be
reimbursed by the EC Shareholders, TC Shareholders and Textra Shareholders, for
all costs and expenses (including, but not limited to, attorneys' fees) incurred
by him in the performance of his duties or the exercise of his rights and powers
hereunder, including, without limitation, expenses incurred in the defense by
him of any claim, suit or arbitration with respect to Indemnified Liabilities or
Additional Indemnified Liabilities as provided in Sections 43 or 42 in enforcing
or contesting any right in connection with any indemnification matter.
Notwithstanding anything herein to the contrary, either of the Shareholders'
Representative may, at his option, require that the Shareholders that he
represents proportionately advance costs and expenses reasonably anticipated by
such Shareholders' Representative to be incurred hereunder. Each of the
Shareholders shall indemnify the Shareholders' Representative who represents
their interests and shall hold such Shareholders' Representative harmless from
and against all liabilities, claims, debts, obligations, losses, damages, fees
and expenses (including reasonable attorneys' fees) resulting from, or arising
out of, or in connection with, the performance of his duties or the exercise of
his rights and powers hereunder, including, without limitation, any action, suit
or proceeding threatened or brought against him by reason of the fact that he is
or was the Shareholders' Representative; provided, the indemnity herein shall
not apply to any action, suit or proceeding brought by the Shareholders wherein
the Shareholders' Representative is found to have acted in bad faith, engaged in
willful misconduct, or been grossly negligent.
5.4 OBLIGATIONS OF SHAREHOLDERS' REPRESENTATIVE. The duties and
obligations of the respective Shareholders' Representatives appointed hereunder
shall be determined solely by the express provisions of this Agreement. Neither
of the Shareholders' Representatives shall be liable to the Shareholders they
represent by reason of any error of judgment or for any act done or step taken
or omitted by him, or for any mistake of fact or law or anything which he may do
or refrain from doing in connection herewith, including without limitation, any
failure to dispute or contest any set-off or nonpayment of any payment, unless
done in bad faith or caused by his own willful misconduct or gross negligence.
Each Shareholders' Representative shall be entitled to treat as genuine, and as
the document it purports to be, any letter, paper or other document furnished to
him by PJ, Newco or any other party or parties, and believed by him to be
genuine and to have been signed and presented by the proper party or parties.
5.5 RELIANCE BY PJ AND NEWCO. Each of the Shareholders hereby agrees
that PJ and Newco may deal solely with their appointed Shareholders'
Representative as the exclusive representative of the Shareholder with reference
to the matters set forth in this Section 5, that his actions are binding on the
Shareholder, and that PJ and Newco has no duty to ascertain if the Shareholders'
Representative is properly carrying out his obligations under this Agreement,
including, but not limited to, the disbursement of any funds received by him.
<PAGE>
6. MISCELLANEOUS.
-------------
6.1 NO FINDERS FEES. Each party hereto represents and warrants to
the others that all negotiations relative to this Agreement and the Merger
Agreement and the transactions described herein and therein have been conducted
by such party directly with the other parties, without the assistance or
intervention of any other person which would give rise to any valid claim
against any of the parties hereto for a finder's fee, brokerage commission,
investment advisor's fee or other like payment.
6.2 NOTICES. All notices and other communications required or
permitted hereunder shall be sufficiently given if in writing and personally
delivered against a written receipt, if delivered to a reputable express
messenger service (such as Federal Express, UPS or DHL Courier) for overnight
delivery, when sent by confirmed telephone facsimile (fax) or sent by
registered, express or certified U.S. mail, with postage prepaid, addressed as
follows:
If to PJ or Newco: PJ America, Inc.
9109 Parkway East
Birmingham, Alabama 35206
Attn: Douglas S. Stephens, President
With Copy to: Greenebaum Doll & McDonald PLLC
3300 National City Tower
Louisville, Kentucky 40202
Attn: Ivan M. Diamond
If to EC, TC or Textra: Extra Cheese, Inc.
9109 Parkway East
Birmingham, Alabama 35206
Attn: Douglas S. Stephens
If to PJV or PJVA: PJV, Inc.
4909 Augusta Avenue
Richmond, VA 23230
Attn: Richard F. Sherman
If to Alabama Share-
holder Representative: Michael M. Fleishman
3300 National City Tower
Louisville, Kentucky 40202
If to Virginia Share-
holder Representative: Martin T. Hart
875 Race Street
Denver, Colorado 80206
<PAGE>
or to such other address or addresses as any of the parties to this Agreement
shall furnish to the others in writing. Notices shall be deemed given when
personally delivered, when delivered to an express messenger service, when
transmitted by confirmed fax or when deposited in the U.S. mail in accordance
with the foregoing provisions. However, the time period in which a response to
any such notice, demand or request must be given shall commence to run from the
date of personal delivery, the date of delivery by a reputable messenger
service, the date of confirmation of a fax, or the date on the return receipt,
as applicable.
6.3 SEVERABILITY OF PROVISIONS. If any provisions of this Agreement
or the applications thereof to any person or circumstance shall to any extent be
held in any proceeding to be invalid or unenforceable, the remainder of this
Agreement, or the application of such provisions to persons or circumstances
other than those to which it was held to be invalid or unenforceable, shall not
be affected thereby, and shall be valid and be enforceable to the fullest extent
permitted by law, but only if and to the extent such enforcement would not
materially and adversely frustrate the parties' essential objectives as
expressed herein.
6.4 ASSIGNMENT. No party shall assign or delegate this Agreement or
any rights, interests or obligations hereunder without the prior written consent
of the other parties, except that Newco may assign, in its sole discretion, any
or all of its rights and interests, without the prior written consent of the
other parties, to any of its direct or indirect wholly owned subsidiaries. This
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns.
6.5 WAIVER. Any party hereto may, by written notice to the other
parties hereto, (i) extend the time for the performance of any of the
obligations or other actions of the other parties under this Agreement; (ii)
waive any inaccuracies in the representations or warranties of the other parties
contained in this Agreement or in any document delivered pursuant to this
Agreement; (iii) waive compliance with any of the conditions or convents of the
other parties contained in this Agreement; or (iv) waive or modify performance
of any of the obligations of the other parties under this Agreement, including,
without limitation, any investigation by or on behalf of any party, shall be
deemed to constitute a waiver by the party taking such action of compliance with
any of the representations, warranties, covenants, conditions or agreements
contained in this Agreement. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach, nor shall it.
6.6 EXHIBITS; ENTIRE AGREEMENT. All Schedules to this Agreement
shall be deemed to be incorporated herein by reference and made a part hereof as
if set out in full at the place where first mentioned. This Agreement and the
Merger Agreement embody the entire agreement and understanding of the parties
hereto regarding its subject matter and supersede all prior agreements.
6.7 AMENDMENTS, SUPPLEMENTS, ETC. This Agreement may not be amended
or supplemented by the parties except by an instrument in writing signed by all
of the parties hereto or, where appropriate, by the Virginia Shareholders'
Representative and the Alabama Shareholders' Representative on behalf of the
Shareholders.
<PAGE>
6.8 CAPTIONS; COUNTERPARTS. The captions in this Agreement are for
purposes of convenience only and shall not be considered a part of or affect the
construction or interpretation of any provision of this Agreement. This
Agreement may be executed in one or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
6.9 GOVERNING LAW. The terms of this Agreement shall be governed by
and construed and interpreted in accordance with the laws of the State of
Delaware.
6.10 KNOWLEDGE. With respect to any representations or warranties
contained herein that are made to the knowledge of Operating Company and the
Shareholders, or to the knowledge of Operating Company or the Shareholders, such
knowledge for purposes of this Agreement shall consist of the knowledge
possessed by any of such Shareholders or any officer or director of the
Operating Company which is the subject of the representation or warranty.
IN WITNESS WHEREOF, the parties signed and delivered this Agreement on
the ____ day of August, 1996, as of the date first above written.
PJ AMERICA, INC.
By:
--------------------------------------
Title:
-----------------------------------
("PJ")
EXTRA CHEESE, INC.
By:
--------------------------------------
Title:
-----------------------------------
TWICE THE CHEESE, INC.
By:
--------------------------------------
Title:
-----------------------------------
<PAGE>
TEXTRA CHEESE CORP.
By:
-----------------------------------
Title:
--------------------------------
PJV, INC.
By:
-----------------------------------
Title:
--------------------------------
PJVA, INC.
By:
------------------------------------
Title:
---------------------------------
---------------------------------------
MICHAEL M. FLEISHMAN, individually
a Shareholder of EC, TC and Textra
---------------------------------------
BRENDA A. FLEISHMAN, individually,
a Shareholder of EC
--------------------------------------
BRENDA A. FLEISHMAN, as Custodian
of Zachary T. Fleishman, under the
Kentucky Uniform Gift to Minors Act,
a Shareholder of EC
<PAGE>
---------------------------------------
JILL FLEISHMAN, individually
a Shareholder of EC
---------------------------------------
JASON FLEISHMAN, individually
a Shareholder of EC
---------------------------------------
PATTY J. O'BRIEN, individually
a Shareholder of EC
---------------------------------------
FRANK M. KEENER, individually,
a Shareholder of EC, TC and Textra
---------------------------------------
STEPHEN P. LANGFORD, individually,
a Shareholder of EC, TC and Textra
---------------------------------------
RICHARD F. SHERMAN, individually,
a Shareholder of EC, TC and Textra,
PJV and PJVA
---------------------------------------
DOUGLAS S. STEPHENS, individually,
a Shareholder of EC, TC and Textra
<PAGE>
---------------------------------------
ADRIAN OWENS, individually,
a Shareholder of TC
---------------------------------------
ROBERT W. CURTIS, JR., individually,
a Shareholder of TC
---------------------------------------
PAMELA M. BAKER, individually,
a Shareholder of PJV AND PJVA
---------------------------------------
MICHAEL J. GRISANTI, individually,
a Shareholder of PJV and PJVA
---------------------------------------
KARA HART, individually,
a Shareholder of PJV and PJVA
---------------------------------------
MARCINE HART, individually,
a Shareholder of PJV and PJVA
---------------------------------------
MARTIN T. HART, individually,
a Shareholder of PJV and PJVA
---------------------------------------
JACK A. LAUGHERY, individually,
a Shareholder of PJV and PJVA
<PAGE>
---------------------------------------
MARTHA C. LAUGHERY, individually,
a Shareholder of PJV and PJVA
---------------------------------------
LISA I. O'CONNELL, individually,
a Shareholder of PJV and PJVA
---------------------------------------
JAMES REIKEL, individually,
a Shareholder of PJV and PJVA
---------------------------------------
CYNTHIA A. SAUNDERS, individually,
a Shareholder of PJV and PJVA
---------------------------------------
STEPHEN M. SAUNDERS, individually,
a Shareholder of PJV and PJVA
--------------------------------------
MERIDA L. SHERMAN, individually,
a Shareholder of PJV and PJVA
---------------------------------------
NICHOLAS H. SHERMAN, individually,
a Shareholder of PJV and PJVA
<PAGE>
Exhibit 10.7
ESCROW AGREEMENT
----------------
THIS ESCROW AGREEMENT ("Agreement") is made and entered into this __ day of
__________, 1996, by and among PJ AMERICA, INC., a Delaware corporation ("PJ"),
________________, an Alabama corporation ("Newco"), and the individuals,
custodianships, trusts and other persons or entities identified on the signature
page to this Agreement, formerly the Shareholders of Extra Cheese, Inc., an
Alabama corporation ("EC"), Twice The Cheese, Inc., an Alabama corporation
("TC"), Textra Cheese Corp., a Texas corporation ("Textra"), PJV, Inc., a
Virginia corporation ("PJV"), and PJVA, Inc., a Virginia corporation ("PJVA"),
(sometimes hereinafter collectively referred to as the "Shareholders," and
individually referred to as the "EC Shareholders" "TC Shareholders," "Textra
Shareholders," "PJV Shareholders" or "PJVA Shareholders").
RECITALS:
A. On the date hereof, TC, Textra, PJV and PJVA were merged into Newco,
substantially all of the assets of EC were contributed to Newco, and the
liabilities of EC assumed by Newco and, immediately thereafter, EC merged into
PJ (the "Delaware Merger"), pursuant to the terms of a binding letter agreement
dated July 10, 1996 and the Plan of Merger dated as of July 10, 1996
(collectively, the "Merger Agreement").
B. Each of the Operating Companies and their respective Shareholders, and
each of the Shareholders, personally, have agreed to provide certain limited
indemnities (the "Indemnities") to PJ and Newco, pursuant to the terms of
Section 4 of the Indemnification Agreement dated as of July 10, 1996 (the
"Indemnification Agreement").
C. Under the terms of the Merger Agreement and the Indemnification
Agreement, each of the Shareholders agreed to pledge ten percent of the shares
of PJ's common stock, $0.01 par value per share ("PJ Stock"), which such
Shareholder received as a result of the Delaware Merger, together with $100,000
in the aggregate among all Shareholders, each as further segregated into various
escrow accounts described below, and to deposit the pledged PJ Stock and the
cash in such escrow accounts under the terms of this Agreement to secure the
performance of the Indemnities that are particular to the Shareholders of each
of EC, TC, Textra, PJV and PJVA, respectively.
D. The Shareholders have agreed to segregate the cash and the shares of PJ
Stock pledged hereunder into separate and distinct accounts (five in total)
(collectively, the "Escrow Accounts," and individually an "Escrow Account"),
each of which are to be used solely to secure the performance of the Indemnities
that are particular to the Shareholders of an Operating Company for which such
Indemnities have been given by such Shareholders under the Indemnification
Agreement, by allocating the pledged shares and cash among the Escrow Accounts
in the manner set forth opposite the Shareholder's name on Exhibit A attached
hereto.
<PAGE>
E. The Escrow Agent has agreed to hold the shares of PJ Stock so pledged,
to hold and invest the cash deposited with the Escrow Agent, and to disburse the
shares and the cash deposited in the Escrow Accounts, pursuant to the terms of
this Agreement.
AGREEMENT:
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained the parties hereto agree as follows:
1. Definitions. All capitalized terms, to the extent not otherwise
defined herein, shall have the same meaning herein as in the Merger Agreement
and the Indemnification Agreement. Notwithstanding the foregoing, the terms set
forth below shall have the meanings set forth below:
1.1 Valuation Price. The term "Valuation Price" shall mean the price
which equals the per share initial public offering price as set forth in the
Registration Statement of PJ filed in connection with the IPO.
1.2 Proportionate Share. For purposes of this Agreement, "Proportionate
Share" shall mean the proportion which the number of Escrowed Shares deposited
by the Shareholder in a particular Escrow Account on the date hereof bears to
the total number of Escrowed Shares deposited by all Shareholders in the
particular Escrow Account on the date hereof.
1.3 Shareholders' Representative. For purposes hereof, the "Shareholders'
Representative" of the Shareholders of EC, TC and Textra, respectively, shall be
Michael M. Fleishman, until notice shall be delivered to the Escrow Agent by
either Michael M. Fleishman or the EC, TC or Textra Shareholders, as applicable,
of the designation of a successor to Michael M. Fleishman (with evidence
satisfactory to Escrow Agent to verify such successor's appointment). For
purposes hereof, the "Shareholders' Representative" of the Shareholders of PJV
and PJVA, respectively, shall be Martin T. Hart, until notice shall be delivered
to the Escrow Agent by either Martin T. Hart or the PJV or PJVA Shareholders, as
applicable, of the designation of a successor to Martin T. Hart (with evidence
satisfactory to Escrow Agent to verify such successor's appointment).
2. Pledge; Deposits in Escrow.
--------------------------
2.1 Pledge. As security to PJ and Newco for the obligations of the EC
Shareholders, TC Shareholders, Textra Shareholders, PJV Shareholders and PJVA
Shareholders, respectively, to perform the Indemnities that are particular to
the EC Shareholders, TC Shareholders, Textra Shareholders, PJV Shareholders and
PJVA Shareholders, respectively, under the Indemnification Agreement (sometimes
hereinafter referred to as the "EC Indemnities," "TC Indemnities," "Textra
Indemnities," "PJV Indemnities" and "PJVA Indemnities," respectively), each of
the EC Shareholders, TC Shareholders, Textra Share-
<PAGE>
holders, PJV Shareholders and PJVA Shareholders, respectively, hereby pledges to
PJ and Newco, and give PJ and Newco a security interest in, subject in each case
to the Shareholder's Proportionate Share of the EC Indemnities, the TC
Indemnities, the Textra Indemnities, the PJV Indemnities or the PJVA
Indemnities, as the case may be, the shares of PJ Stock set forth on Exhibit A
attached hereto opposite the name of the EC Shareholder (the "EC Escrowed
Shares"), the TC Shareholder (the "TC Escrowed Shares"), the Textra Shareholder
(the "Textra Escrowed Shares"), the PJV Shareholder (the "PJV Escrowed Shares")
or the PJVA Shareholder (the "PJVA Escrowed Shares"), respectively (sometimes
hereinafter collectively referred to as the "Escrowed Shares"), together with
all rights of the Shareholder with respect to such Escrowed Shares pursuant to
this Agreement.
2.2 Deposits in Escrow. On the date hereof, as further security for the
obligation of each of the EC Shareholders, TC Shareholders, Textra Shareholders,
PJV Shareholders and PJVA Shareholders, respectively, for the EC Indemnities, TC
Indemnities, Textra Indemnities, PJV Indemnities and PJVA Indemnities,
respectively, each of the Shareholders have deposited with the Escrow Agent a
bank wire transfer of immediately available funds, or a certified check, to be
used to satisfy claims for such respective Indemnities in accordance with the
terms of this Agreement, in an amount set forth opposite each of the
Shareholders' names, respectively, on Exhibit A attached hereto (sometimes
hereinafter referred to individually as the "EC Cash Fund," "TC Cash Fund,"
"Textra Cash Fund," "PJV Cash Fund" and "PJVA Cash Fund," respectively, or in
the generic as the "Escrowed Cash Fund"). On the date hereof, the Shareholders
have deposited with the Escrow Agent Escrowed Shares as follows:
a. Each of the EC Shareholders have deposited certificates evidencing
the EC Escrowed Shares registered in such Shareholder's name on PJ's stock
transfer records, together with stock powers with respect to the EC Escrowed
Shares duly endorsed in blank, to be held by the Escrow Agent subject to the
terms and conditions of this Agreement. The EC Escrowed Shares and the EC Cash
Fund are sometimes hereinafter collectively referred to as the "EC Escrow
Account." The Escrow Agent hereby acknowledges that it received on the date
hereof a wire transfer or certified check in the amount of the EC Cash Fund and
the certificates for the EC Escrowed Shares, together with the stock powers duly
endorsed in blank.
b. Each of the TC Shareholders have deposited certificates evidencing
the TC Escrowed Shares registered in such Shareholder's name on PJ's stock
transfer records, together with stock powers with respect to the TC Escrowed
Shares duly endorsed in blank, to be held by the Escrow Agent subject to the
terms and conditions of this Agreement. The TC Escrowed Shares and the TC Cash
Fund are sometimes hereinafter collectively referred to as the "TC Escrow
Account." The Escrow Agent hereby acknowledges that it received on the date
hereof a wire transfer or certified check in the amount of the TC Cash Fund and
the certificates for the TC Escrowed Shares, together with the stock powers duly
endorsed in blank.
c. Each of the Textra Shareholders have deposited certificates
evidencing the Textra Escrowed Shares registered in such Shareholder's name on
PJ's stock
<PAGE>
transfer records, together with stock powers with respect to the Textra Escrowed
Shares duly endorsed in blank, to be held by the Escrow Agent subject to the
terms and conditions of this Agreement. The Textra Escrowed Shares and the
Textra Cash Fund are sometimes hereinafter collectively referred to as the
"Textra Escrow Account." The Escrow Agent hereby acknowledges that it received
on the date hereof a wire transfer or certified check in the amount of the
Textra Cash Fund and the certificates for the Textra Escrowed Shares, together
with the stock powers duly endorsed in blank.
d. Each of the PJV Shareholders have deposited certificates
evidencing the PJV Escrowed Shares registered in such Shareholder's name on PJ's
stock transfer records, together with stock powers with respect to the PJV
Escrowed Shares duly endorsed in blank, to be held by the Escrow Agent subject
to the terms and conditions of this Agreement. The PJV Escrowed Shares and the
PJV Cash Fund are sometimes hereinafter collectively referred to as the "PJV
Escrow Account." The Escrow Agent hereby acknowledges that it received on the
date hereof a wire transfer or certified check in the amount of the PJV Cash
Fund and the certificates for the PJV Escrowed Shares, together with the stock
powers duly endorsed in blank.
e. Each of the PJVA Shareholders have deposited certificates
evidencing the PJVA Escrowed Shares registered in such Shareholder's name on
PJ's stock transfer records, together with stock powers with respect to the PJVA
Escrowed Shares duly endorsed in blank, to be held by the Escrow Agent subject
to the terms and conditions of this Agreement. The PJVA Escrowed Shares and the
PJVA Cash Fund are sometimes hereinafter collectively referred to as the "PJVA
Escrow Account." The Escrow Agent hereby acknowledges that it received on the
date hereof a wire transfer or certified check in the amount of the PJVA Cash
Fund and the certificates for the PJVA Escrowed Shares, together with the stock
powers duly endorsed in blank.
2.3 Purpose of Escrow. The parties agree that the Escrowed Shares have
been deposited hereunder solely for the purpose of providing a fund of property
to secure the full and complete performance of the Indemnities by the
Shareholders in accordance with the terms of the Indemnification Agreement.
More specifically, the parties hereby agree as follows:
a. The EC Indemnification Account shall be used solely to secure
performance of the EC Indemnities (including, without limitation, any Section 1
Indemnity of an EC Shareholder made in his capacity as an EC Shareholder).
b. The TC Indemnification Account shall be used solely to secure
performance of the TC Indemnities (including, without limitation, any Section 1
Indemnity of a TC Shareholder made in his capacity as a TC Shareholder).
c. The Textra Indemnification Account shall be used solely to secure
performance of the Textra Indemnities (including, without limitation, any
Section 1 Indemnity of a Textra Shareholder made in his capacity as a Textra
Shareholder).
<PAGE>
d. The PJV Indemnification Account shall be used solely to secure
performance of the PJV Indemnities (including, without limitation, any Section 1
Indemnity of an PJV Shareholder made in his capacity as a PJV Shareholder).
e. The PJVA Indemnification Account shall be used solely to secure
performance of the PJVA Indemnities (including, without limitation, any Section
1 Indemnity of a PJVA Shareholder made in his capacity as a PJVA Shareholder).
The Escrow Agent hereby agrees that it will hold the Escrowed Shares and the
Escrowed Cash Funds in each of the Escrow Accounts for the purposes set forth in
this Agreement. Escrow Agent further agrees that it will have no authority to,
and will not, sell, assign or otherwise transfer, dispose of, or encumber the
Escrowed Shares, or any part thereof, except as provided in this Agreement.
Escrow Agent will invest and hold the Escrowed Cash Funds in accordance with
this Agreement and will not transfer, dispose of, or encumber the Escrowed Cash
Funds, or any part thereof, except as provided in this Agreement.
3. INVESTMENT OF ESCROWED FUNDS. Escrow Agent shall invest and reinvest
the Escrowed Cash Fund and any other cash proceeds which may from time to time
be held by Escrow Agent in the respective Escrow Accounts as the Shareholders'
Representatives of the EC Shareholders, TC Shareholders, Textra Shareholders,
PJV Shareholders and PJVA Shareholders, respectively, shall direct in writing.
If Escrow Agent has not received written instructions from the Shareholders'
Representatives at any time that an investment decision must be made, Escrow
Agent shall invest such Escrowed Cash Fund or cash proceeds, or portion thereof
as to which no written instructions have been received, in savings accounts or
similar money market accounts. Each of the foregoing investments shall be made
in the name of Escrow Agent in its stated capacity as escrow agent.
Notwithstanding anything herein to the contrary, Escrow Agent may, without
notice to the Shareholders' Representatives, sell or liquidate any of the
foregoing investments at any time if the proceeds thereof are required for any
release of funds permitted or required hereunder, and Escrow Agent shall not be
liable or responsible for any loss, costs or penalty from any such sale or
liquidation, or associated with any such investment decisions.
4. DISPOSITION OF ESCROWED SHARES.
4.1 CLAIMS PROCEDURE. PJ or Newco may, at any time or from time to
time, assert a claim ("Claim") against a particular Escrow Account established
hereunder, with respect to any matter which it believes is subject to the
Indemnities secured thereby, by giving notice ("Claim Notice") thereof to the
applicable Shareholders' Representative of those Shareholders whose Escrowed
Shares and Escrowed Cash Funds are deposited therein, with a copy to the Escrow
Agent; provided, that if the Claim relates to a Section 1 Indemnity of a
particular Shareholder, the Claim Notice Shall be given solely to the Escrow
Agent and the Shareholder from whom the Section 1 Indemnity is being sought (the
"Section 1 Indemnitor"). The Claim Notice shall be given by PJ or Newco
promptly, but in no event later than 10 days before a responsive pleading is
required to be filed in a third party action or otherwise no later than 30 days,
after (a) it has any knowledge of any Claim under the Indemnities or (b) the
commencement of any legal proceedings against PJ or Newco,
<PAGE>
whichever occurs first. The Claim Notice shall state the basis for the Claim,
whether the Claim relates to a General Indemnified Liability, an Associated
Liability, or an Additional Indemnified Liability (and in the later event,
whether the Claim is related to a Section 1 Indemnity or not), and the dollar
amount thereof, and shall be accompanied by any documents or information
relevant thereto. In addition, the Claim Notice shall state the number of
Escrowed Shares which are equal in value, valued at the Valuation Price, to the
amount of the Claim.
4.2 SHAREHOLDER RESPONSE. If the Shareholders' Representative (or a
Section 1 Indemnitor) receives a Claim Notice, the Shareholders' Representative
(or the Section 1 Indemnitor) may respond to such Claim Notice, with a copy to
the Escrow Agent, within 45 days (or such shorter period of time as is
reasonable when PJ or Newco must respond to a pleading filed by a third party or
to a Third Party Claim) after receipt of a Claim Notice (hereinafter referred to
as the "Response Period") within which to instruct the Escrow Agent to pay the
amount of the Claim or to otherwise dispute the Claim. If the Shareholders'
Representative (or the Section 1 Indemnitor) instructs the Escrow Agent to pay
the Claim, the Shareholders' Representative (or the Section 1 Indemnitor) may
further instruct the Escrow Agent (a) to pay the amount thereof from the
proceeds of the Escrowed Cash Fund, or the proceeds from the sale of securities
purchased with the Escrowed Cash Fund (net of any reasonable commissions and
expenses associated with the sale thereof), (b) to sell the Escrowed Shares and
apply the proceeds thereof (net of any reasonable commissions and expenses
associated with the sale thereof) to payment of the Claim, or (c) to transfer
and deliver to PJ or Newco, as the case may be, the Escrowed Shares specified in
the Claim Notice (not to exceed the number of shares as shall then remain in
escrow), or any combination thereof. If the Shareholders' Representative (or
Section 1 Indemnitor) does not so respond to the Claim Notice or dispute the
Claim Notice within the Response Period, then the Escrow Agent, within five
business days after the end of the Response Period, shall deliver to PJ or
Newco, as the case may be, first, the net proceeds from the Escrowed Cash Fund
as shall then remain in the Escrow Account and, only after the balance of the
Escrowed Cash Fund shall be zero, that number of Escrowed Shares, valued at the
Valuation Price, as shall equal the difference.
4.3 DISPUTE NOTICE; DISPOSITION UPON RECEIPT OF A DISPUTE NOTICE.
a. At any time within the Response Period, the Shareholders'
Representative (or the Section 1 Indemnitor) may notify PJ or Newco, as the case
may be, with a copy to the Escrow Agent, that the Claim referred to in the Claim
Notice is disputed by the Shareholders' Representative (or the Section 1
Indemnitor), or that pursuant to the terms of the Indemnification Agreement that
the Shareholders' Representative (or the Section 1 Indemnitor) is defending the
basis for the Claim (any such notice is hereinafter referred to as a "Dispute
Notice").
b. Upon the receipt of a Dispute Notice, the Escrow Agent (i)
shall distribute to PJ or Newco (as the case may be ) that portion, if any, of
the Claim which is not disputed by the Shareholders' Representative (or Section
1 Indemnitor) in that combination of cash proceeds or Escrowed Shares as the
Shareholders' Representative (or Section 1
<PAGE>
Indemnitor) may specify in the Dispute Notice, or absent such notice the cash
proceeds and Escrowed Shares in the same order of priority as is specified in
Section 4.2, (with all Escrowed Shares so delivered to PJ or Newco to be valued
at the Valuation Price), and (ii) shall designate as subject to the Claim those
Escrowed Cash Funds (or securities purchased therewith) and that number of
Escrowed Shares, based upon the Valuation Price, in the order of priority
specified in Section 4.2 or in any other combination as the Shareholders'
Representative (or the Section 1 Indemnitor) may otherwise specify in the
Dispute Notice, equal to that portion of the Claim which is disputed by the
Shareholder (the proceeds and securities so set aside being sometimes
hereinafter referred to as the "Designated Escrowed Assets"). The Escrow Agent
shall not dispose of any portion of the Designated Escrowed Assets as shall be
subject to a Claim pursuant to any provision of this Section 4.3.b. until the
occurrence of one of the following events:
i. The Escrow Agent shall have been directed to distribute such
Designated Escrowed Assets in accordance with the joint instructions of PJ or
Newco and the Shareholders' Representative (or the Section 1 Indemnitor); or
ii. The Escrow Agent shall have been requested to distribute
such Designated Escrowed Assets subject to Claim to PJ or Newco in accordance
with the instructions of the Shareholders' Representative (or Section 1
Indemnitor); or
iii. The Escrow Agent shall have received a certified copy of a
final decision of an arbitrator or a court of competent jurisdiction with
respect to the Claim or Claims set forth in the Claim Notice with respect to
which a Dispute Notice has been received, in which case the Escrow Agent shall
dispose of such Designated Escrowed Assets subject to Claim (or such additional
Escrowed Cash Funds or Escrowed Shares as shall be included in such decision) in
accordance with such final decision. For this purpose, a final decision shall
mean the final decision from an arbitrator or from any court of competent
jurisdiction from which no appeal may be taken, whether because of lapsed time
or otherwise.
4.4 FRACTIONAL SHARES. Should any fractional share result in
computing the Escrowed Shares subject to the Claim, the number of Escrowed
Shares subject to Claim shall be rounded upward or downward to the nearest whole
number.
4.5 DESIGNATION OF SHAREHOLDERS' FUNDS OR SHARES TO CLAIMS. With
respect to any transfer or designation of Escrowed Cash Funds or Escrowed Shares
to PJ or Newco in respect of a Claim pursuant to Section 4, the Escrow Agent
shall determine the amount of Escrowed Cash Funds or Escrowed Shares (or net
proceeds therefrom) of each Shareholder (whose Funds or Shares are included
within that particular Escrow Account) to be included in such transfer or
designation as follows:
a. For Indemnities which are General Indemnified Liabilities,
Associated Liabilities, or Additional Indemnified Liabilities (exclusive of a
Section 1 Indemnity), the Escrowed Cash Funds or Escrowed Shares (or net
proceeds therefrom, as
<PAGE>
applicable) of each Shareholder so transferred or designated shall equal such
Shareholder's Proportionate Share thereof; and
b. For Indemnities which are Section 1 Indemnities, the Escrowed
Cash Funds or Escrowed Shares (or net proceeds therefrom, as applicable) of each
Section 1 Indemnitor so transferred or designated shall be solely those of such
Section 1 Indemnitor, and not those of any other Shareholders, it being
expressly agreed that the Section 1 Indemnitor's Proportionate Share thereof
shall be 100%.
Nothing in this Agreement shall impose any liability or obligation on a
Shareholder for any Claim to the extent of that portion of the Claim which is in
excess of the sums held in the Escrow Account established to secure such Claim.
4.6 DISPOSITION OF BALANCE. On __________ __, 1998, with respect to
each of the Escrow Accounts established pursuant to this Agreement, Escrow Agent
shall deliver to each Shareholder depositing Escrowed Cash Funds and Escrowed
Shares therein, or to such Shareholder's personal representative, all of the
Escrowed Cash Funds or Escrowed Shares remaining in such Escrow Account and
distributable to such Shareholder; provided, however, that if a Dispute Notice
has been given with respect to a Claim involving such Escrow Account, and the
Claim has not been resolved prior to that date, then the Designated Escrowed
Assets of such Escrow Fund subject to the Claim shall continue to be held by the
Escrow Agent and shall not be delivered by the Escrow Agent until one of the
events set forth in Section 4.3.b. hereof has occurred. With respect to any
transfer or disposition of the balance of the Escrowed Cash Funds or Escrowed
Shares to each of the Shareholders pursuant to this Section 4.6, the Escrow
Agent shall determine the amount of Escrowed Cash Funds or Escrowed Shares
(valued at their Valuation Price) pledged and deposited into the Escrow Account
by each of the Shareholders at the commencement of the Escrow Account, and shall
subtract therefrom each such Shareholder's Proportionate Share of any Claims and
each such Shareholder's Section 1 Indemnities previously paid to PJ or Newco
pursuant to this Agreement (the "Interim Disposition Balance"). After making
such determination of each Shareholder's Interim Disposition Balance, the Escrow
Agent shall determine each Shareholder's "Percentage Share" (defined below) of
the Escrowed Shares and Escrowed Cash Funds remaining in the Escrow Account (or
net proceeds therefrom, as applicable), which are not otherwise Designated
Escrow Assets, and shall transfer and dispose of such Escrowed Shares and
Escrowed Cash Fund (including all net proceeds therefrom, as applicable) to each
Shareholder in accordance with their Percentage Share. For purposes hereof,
"Percentage Share" shall mean the percentage which the Interim Disposition
Balance of a Shareholder is to the total Interim Disposition Balances of all the
Shareholders on the date of the Escrow Agent's determination.
4.7 TERMINATION OF ESCROW ACCOUNTS; TERMINATION OF AGREEMENT. Upon
the delivery by the Escrow Agent of all of the Escrowed Cash Funds and Escrowed
Shares (and any proceeds therefrom) to either the Shareholders to whom such
particular account relates or PJ or Newco, that particular Escrow Account and
the escrow created hereby with respect to the obligations secured thereby, shall
terminate. Upon the final termination of each of the Escrow Accounts pursuant to
this Section 4.7, this Agreement shall terminate.
<PAGE>
5. Dividends and Voting Rights with Respect to Escrowed Shares. So long
as any Escrowed Shares are held by the Escrow Agent hereunder:
a. Each of the Shareholders shall be entitled to exercise any and all
voting and consequential rights and powers accruing to an owner of the Escrowed
Shares or any part thereof for any purposes not inconsistent with the terms of
this Agreement; provided, however, that each of the Shareholders shall give the
Escrow Agent at least five (5) days prior written notice of the manner in which
such Shareholder intends to exercise any such right or power. The Escrow Agent
shall determine the Escrowed Shares in each Escrow Account allocable to each
Shareholder for purposes of determining the Shareholders entitled to exercise
the voting and consequential rights and powers associated with such Escrowed
Shares, which determination shall be conclusive.
b. The Shareholders shall be entitled to receive and retain any and
all non-liquidating cash dividends paid in respect of the Escrowed Shares and
all interest or dividends paid in respect of the Escrowed Cash Funds. All other
distributions shall be retained by the Escrow Agent and shall only be released
at the time the Escrowed Shares and the Escrowed Cash Funds to which such
distributions relate are released from escrow, and shall be paid to the party
receiving such Escrowed Shares or Escrowed Cash Funds. The Escrow Agent shall
determine each of the Shareholders' shares of any such non-liquidating cash
dividends, interest or dividends, which determination shall be conclusive.
c. The Escrow Agent shall execute and deliver to the Shareholders, or
cause to be executed and delivered to the Shareholders, all such proxies, powers
of attorneys, and other instruments for the purpose of enabling the Shareholders
to exercise the voting and consequential rights and powers which the
Shareholders are entitled to exercise pursuant to Section 5.a., and to receive
the non-liquidating dividends and other distributions to which the Shareholder
is entitled pursuant to Section 5.b. hereof.
6. Release or Waiver of Claims. The acceptance by PJ or Newco of any
Escrowed Shares or Escrowed Cash Funds (or proceeds therefrom, as applicable)
from the Escrow Agent in accordance with the terms of this Agreement shall
constitute a full release of PJ or Newco's rights with respect to such Claims if
and to the extent such Claims relate to a General Indemnified Liability or an
Associated Liabilities and, with respect to any Additional Indemnified
Liabilities (including, without limitation, a Section 1 Indemnity), shall
constitute a release of PJ or Newco's rights with respect to such Claim only to
the extent of the sum of the Valuation Price of any Escrowed Shares so received
by PJ or Newco plus the cash proceeds so received by PJ or Newco. Nothing
herein contained, nor any act or failure to act by PJ or Newco, shall operate or
be construed as a waiver of any rights of PJ or Newco under the Indemnification
Agreement or Merger Agreement or any other agreement executed in connection
therewith, nor shall anything herein contained prohibit PJ or Newco from
pursuing any specific equitable remedies which it may have reserved to itself
under the Indemnification Agreement.
7. Change in Corporate Stvucture. If there shall occur during the term of
this Agreement any reorganization, stock dividend, stock split or other change
in corporate struc-
<PAGE>
ture or capitalization affecting the PJ Stock, an appropriate adjustment shall
be made to the number of Escrowed Shares to be released and in the computation
of the Valuation Price.
8. Liability of Escrow Agent.
8.1 Duties of the Escrow Agent. The Escrow Agent is not a party to,
and shall not be bound by, any contract between PJ, Newco, or the Shareholders.
The Escrow Agent shall act as a depository only and shall not be required to
take notice of any default, pledge or warranty under any contract between PJ,
Newco and the Shareholders. The duties and obligations of the Escrow Agent
hereunder shall be determined solely by the express provisions of this
Agreement. The Escrow Agent shall be liable only for its own negligence and
misconduct and not the negligence or misconduct of any other person.
8.2 Reliance by the Escrow Agent. The Escrow Agent is not
responsible in any manner whatever for the sufficiency, correctness, genuineness
or validity of any instrument, nor for the identity, authority or right of any
person executing it. The Escrow Agent may act in reliance upon any writing,
instrument or signature which it, in good faith, believes to be genuine, may
assume the validity and accuracy of any statement or assertion contained in such
writing or instrument, and may assume that any person purporting to give any
writing, notice or instrument in connection with the provisions hereof has been
duly authorized to do so.
8.3 Consultation with Counsel. The Escrow Agent may consult legal
counsel in the event of a dispute as to its duties hereunder, and shall incur no
liability, and shall be fully protected, in acting in accordance with the
opinion of counsel.
8.4 PJ Indemnity. PJ hereby agrees to indemnify the Escrow Agent
for, and hold the Escrow Agent harmless from, all costs, damages, attorneys'
fees, liabilities and expenses which the Escrow Agent incurs by virtue of acting
as escrow agent hereunder, except such liability and expense as may result from
the gross negligence, bad faith or willful misconduct or neglect.
8.5 Compensation of Escrow Agent. PJ shall bear the Escrow Agent's
fee for the performance of services by the Escrow Agent hereunder for each year
or portion thereof that any of the Escrowed Shares remain in escrow, and shall
be responsible for reimbursing the Escrow Agent for the reasonable costs and
expenses incurred by it in connection with the performance of such services. In
no event shall the Shareholders be required to pay any fees to the Escrow Agent.
8.6 Notices. All notices and other communications required or
permitted hereunder shall be sufficiently given if in writing and personally
delivered against a written receipt, if delivered to a reputable express
messenger service (such as Federal Express, UPS or DHL Courier) for overnight
delivery, when sent by confirmed telephone facsimile (fax) or sent by
registered, express or certified U.S. mail, with postage prepaid, addressed as
follows:
<PAGE>
If to PJ or Newco: PJ America, Inc.
9109 Parkway East
Birmingham, Alabama 35206
Attn: Douglas S. Stephens, President
With Copy to: Greenebaum Doll & McDonald PLLC
3300 National City Tower
Louisville, Kentucky 40202
Attn: Ivan M. Diamond
If to EC, TC or
Textra Shareholders: Michael M. Fleishman
3300 National City Tower
Louisville, Kentucky 40202
If to PJV or PJVA
Shareholders: Martin T. Hart
875 Race Street
Denver, Colorado 80206
If to the Escrow Agent: _______________________
_______________________
_______________________
or to such other address or addresses as any of the parties to this Agreement
shall furnish to the others in writing. Notices shall be deemed given when
personally delivered, when delivered to an express messenger service, when
transmitted by confirmed fax or when deposited in the U.S. mail in accordance
with the foregoing provisions. However, the time period in which a response to
any such notice, demand or request must be given shall commence to run from the
date of personal delivery, the date of delivery by a reputable messenger
service, the date of confirmation of a fax, or the date on the return receipt,
as applicable.
8.7 Entire Agreement. This Agreement contains the entire agreement
of the parties hereto with respect to the subject matter hereof. No variations
hereof shall be binding upon any party unless set forth in a writing executed by
all of the parties hereto.
8.8 Binding Agreement. This Agreement shall be binding upon, and
inure to the benefit of, the parties hereto and their respective executors,
administrators, heirs, successors and assigns.
8.9 Nonassignable. Except for the pledge by the Shareholder of the
Escrowed Shares and Shareholder's rights under this Agreement provided for in
Section 13 hereof, the Shareholder may not sell, assign, transfer, pledge or
otherwise dispose of the Escrowed Shares or his rights under this Agreement.
<PAGE>
8.10 Counterparts. This Agreement may be executed in several
counterparts, all of which shall be deemed to be one and the same instrument.
8.11 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware.
IN WITNESS WHEREOF, the undersigned have executed this Agreement the day
and year first above written.
PJ AMERICA, INC.
By:
-------------------------------------
Title:
----------------------------------
("PJ")
------------------------------
By:
-------------------------------------
Title:
----------------------------------
("Newco")
---------------------------------------
MICHAEL M. FLEISHMAN, individually,
as a former Shareholder of EC, TC and Textra
<PAGE>
--------------------------------------------------
BRENDA A. FLEISHMAN, individually,
as a former Shareholder of EC
--------------------------------------------------
BRENDA A. FLEISHMAN, as Custodian
of Zachary T. Fleishman, under the Kentucky
Uniform Gift to Minors Act, as a former
Shareholder of EC
--------------------------------------------------
JILL FLEISHMAN, individually
a Shareholder of EC
--------------------------------------------------
JASON FLEISHMAN, individually
a Shareholder of EC
--------------------------------------------------
PATTY J. O'BRIEN, individually
a Shareholder of EC
--------------------------------------------------
FRANK M. KEENER, individually,
as a former Shareholder of EC, TC and Textra
--------------------------------------------------
STEPHEN P. LANGFORD, individually,
as a former Shareholder of EC, TC and Textra
<PAGE>
--------------------------------------------------
RICHARD F. SHERMAN, individually,
as a former Shareholder of EC, TC and Textra,
PJV and PJVA
--------------------------------------------------
DOUGLAS S. STEPHENS, individually,
as a former Shareholder of EC, TC and Textra
--------------------------------------------------
ADRIAN OWENS, individually,
as a former Shareholder of TC
--------------------------------------------------
ROBERT W. CURTIS, JR., individually,
as a former Shareholder of TC
--------------------------------------------------
PAMELA M. BAKER, individually,
as a former Shareholder of PJV AND PJVA
--------------------------------------------------
MICHAEL J. GRISANTI, individually,
as a former Shareholder of PJV and PJVA
--------------------------------------------------
KARA HART, individually,
as a former Shareholder of PJV and PJVA
<PAGE>
--------------------------------------------------
MARCINE HART, individually,
as a former Shareholder of PJV and PJVA
--------------------------------------------------
MARTIN T. HART, individually,
as a former Shareholder of PJV and PJVA
--------------------------------------------------
JACK A. LAUGHERY, individually,
as a former Shareholder of PJV and PJVA
--------------------------------------------------
MARTHA C. LAUGHERY, individually,
as a former Shareholder of PJV and PJVA
--------------------------------------------------
LISA I. O'CONNELL, individually,
as a former Shareholder of PJV and PJVA
--------------------------------------------------
JAMES REIKEL, individually,
as a former Shareholder of PJV and PJVA
--------------------------------------------------
CYNTHIA A. SAUNDERS, individually,
as a former Shareholder of PJV and PJVA
<PAGE>
--------------------------------------------------
STEPHEN M. SAUNDERS, individually,
a former Shareholder of PJV and PJVA
--------------------------------------------------
MERIDA L. SHERMAN, individually,
a former Shareholder of PJV and PJVA
--------------------------------------------------
NICHOLAS H. SHERMAN, individually,
a former Shareholder of PJV and PJVA
<PAGE>
EXHIBIT A
---------
<TABLE>
<CAPTION>
EC ESCROW ACCOUNT:
EC ESCROWED EC ESCROWED
----------- -----------
SHAREHOLDER SHARES CASH FUND
----------- ------ ---------
<S> <C> <C>
Richard F. Sherman 21,788 $ 7,264.29
Frank O. Keener 43,576 14,528.57
Michael M. Fleishman 25,525 8,510.23
Brenda A. Fleishman 2,000 666.67
Jill M. Fleishman 200 66.67
Brenda A. Fleishman, Custodian U/GMA for 300 100.00
Zachary T. Fleishman
Jason T. Fleishman 200 66.67
Patty J. O'Brien 100 33.33
Stephen P. Langford 21,788 7,264.29
Douglas S. Stephens 21,788 7,264.29
TC ESCROW ACCOUNT:
TC ESCROWED TC ESCROWED
----------- -----------
SHAREHOLDER SHARES CASH FUND
----------- ------ ---------
Richard F. Sherman 1,226 $ 408.57
Frank O. Keener 2,452 817.13
Michael M. Fleishman 1,586 528.54
Stephen P. Langford 1,226 408.57
Douglas S. Stephens 1,226 408.57
Adrian Owens 429 142.87
Robert W. Curtis, Jr. 429 142.87
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TEXTRA ESCROW ACCOUNT:
TEXTRA ESCROWED TEXTRA ESCROWED
--------------- ---------------
SHAREHOLDER SHARES CASH FUND
----------- ------ ---------
<S> <C> <C>
Richard F. Sherman 6,232 $2,077.48
Frank O. Keener 6,232 2,077.48
Michael M. Fleishman 6,232 2,077.48
Stephen P. Langford 6,232 2,077.48
Douglas S. Stephens 6,232 2,077.48
PJV ESCROW ACCOUNT:
JV ESCROWED PJV ESCROWED
------------ ------------
SHAREHOLDER SHARES CASH FUND
----------- ------ ---------
Richard F. Sherman 12,586 $4,195.20
Merida L. Sherman 1,809 602.94
Nicholas H. Sherman 1,809 602.94
Jack A. Laughery 14,998 4,999.37
Martha C. Laughery 1,206 401.97
Martin T. Hart 3,392 1,130.52
Cynthia A. Saunders 1,809 602.94
Pamela M. Baker 1,809 602.94
Marcine Hart 1,809 602.94
Lisa I. O'Connell 1,809 602.94
Kara Hart 1,809 602.94
Michael J. Grisanti 12,436 4,145.22
James Reikel 3,015 1,004.90
Stephen M. Saunders 1,206 401.97
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PJVA ESCROW ACCOUNT:
PJVA ESCROWED PJVA ESCROWED
------------- -------------
SHAREHOLDER SHARES CASH FUND
----------- ------ ---------
<S> <C> <C>
Richard F. Sherman 12,586 $4,195.20
Merida L. Sherman 1,809 602.93
Nicholas H. Sherman 1,809 602.93
Jack A. Laughery 14,998 4,999.36
Martha C. Laughery 1,206 401.96
Martin T. Hart 3,392 1,130.51
Cynthia A. Saunders 1,809 602.93
Pamela M. Baker 1,809 602.93
Mariane Hart 1,809 602.93
Lisa I. O'Connell 1,809 602.93
Kara Hart 1,809 602.93
Michael J. Grisanti 12,436 4,145.21
James Reikel 3,015 1,004.90
Stephen M. Saunders 1,206 401.96
</TABLE>
<PAGE>
EXHIBIT 10.8
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
UNDER ANY APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND THE SECURITIES
ISSUABLE UPON EXERCISE HEREOF ARE "RESTRICTED SECURITIES" AS DEFINED IN
RULE 144 PROMULGATED UNDER THE ACT AND MAY NOT BE SOLD OR OTHERWISE
DISTRIBUTED EXCEPT (i) IN CONJUNCTION WITH AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, (ii) IN
COMPLIANCE WITH RULE 144 AND AN EXEMPTION UNDER APPLICABLE STATE SECURITIES
LAWS, OR (iii) PURSUANT TO AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION OR COMPLIANCE IS NOT REQUIRED AS TO SUCH
SALE, OFFER OR DISTRIBUTION.
WARRANT
-------
TO PURCHASE COMMON STOCK OF
PJ AMERICA, INC.
THIS WARRANT ("Warrant") certifies that, for the value and consideration
received, as further described below, PAPA JOHN'S INTERNATIONAL, INC., a
Delaware corporation, ("Holder"), is entitled to purchase from PJ AMERICA, INC.,
a Delaware corporation (the "Company"), TWO HUNDRED TWENTY FIVE THOUSAND
(225,000) shares of the Company's Common Stock, $0.01 par value per share (the
"Common Stock"), upon the terms and conditions set forth herein. This Warrant
has been issued for and in consideration of holder's grant of area development
rights to the Metropolitan Area of Vancouver, British Columbia, Canada and the
Commonwealth of Puerto Rico, holder's consent as franchisor of the Papa John's
franchise system to the initial public offering (the "IPO") of the Common Stock,
holder's waiver of certain rights of first refusal and other rights holder has
under various franchise and development agreements with your franchisees (which
propose to merge with and into PJ America, Inc. immediately prior to the IPO),
namely, Extra Cheese, Inc., Twice the Cheese, Inc., Textra Cheese Corp., PJV,
Inc. and PJVA, Inc., all as summarized in that certain letter agreement dated
May 20, 1996, and for other good and valuable consideration received on the date
hereof, the receipt and sufficiency of which the Company hereby acknowledges.
1. PURCHASE PRICE; EXERCISE.
------------------------
1.1 PURCHASE PRICE. The purchase price ("Purchase Price") for each
share of Common Stock subject to purchase hereunder upon exercise of this
Warrant shall be a price per share equal to the lesser of (i) $1.00 per share of
Common Stock less than the offering price per share of Common Stock in the IPO
or (ii) 90% of the offering price per share of Common Stock in the IPO, subject
to adjustment as provided in Section 3.1.
1.2 EXERCISE. The right to purchase Common Stock represented by this
Warrant may be exercised, in whole or in part (but not as to a fractional share
of Common Stock), at any time during the "Exercise Period" (as defined in
Section 1.5.a.), upon presentation
<PAGE>
and surrender of this Warrant, together with a properly executed purchase form
in the form of Exhibit A attached hereto (the "Purchase Form"), at the Company's
principal office in Birmingham, Alabama (or such other office or agency of the
Company as the Company may designate by notice in writing to Holder) and by
payment in full of the Purchase Price for each share of Common Stock as to which
this Warrant is exercised in the manner provided in this Section 1.2.
1.3 PAYMENT OF EXERCISE PRICE. The Company shall accept as payment
for the Exercise Price a check payable to the order of the Company in an amount
equal to the Purchase Price multiplied by the number of shares for which this
Warrant is being exercised (the "Exercise Price"), shares of Common Stock having
a value based on "Current Market Price Per Share" (as defined in Section 3.4)
after the date of receipt by the Company of the Purchase Form, equal to the
Exercise Price, a combination of check and shares of Common Stock having a
current Market Price Per Share equal to the Exercise Price (less the amount of
the check), or any other form acceptable to the Company. No fractional shares of
Common Stock shall be accepted by the Company as payment of the Exercise Price.
If holder makes payment only in Common Stock, the shares shall be rounded to the
lowest whole number of shares and the balance of the Exercise Price shall be
paid in cash. All shares of Common Stock used for the payment of the Exercise
Price shall be delivered by holder free and clear of all liens and encumbrances
and in transferable form.
1.4 DELIVERY OF SHARE CERTIFICATES. Certificates for the shares of
Common Stock so purchased shall be issued to Holder, as the record owner of such
shares, as of the close of business on the date on which this Warrant shall have
been surrendered and payment made for such shares of Common Stock as provided
in Section 1.3. Certificates for the Common Stock so purchased shall be
delivered to the Holder within a reasonable time, not exceeding 60 days, after
the rights represented by this Warrant shall have been so exercised, and, unless
this Warrant has expired, a new Warrant representing the number of shares of
Common Stock, if any, with respect to which this Warrant shall not then have
been exercised shall also be delivered to Holder within such time. The Company
may postpone delivery of shares of Common Stock until it receives satisfactory
proof that the issuance or transfer of the shares will not violate any of the
provisions of the Act or the Securities Exchange Act of 1934, as amended, any
rules or regulations of the Securities and Exchange Commission promulgated
thereunder or the requirements of applicable state law relating to
authorization, issuance or sale of securities, or until there has been
compliance with the provisions of such Act, rule and regulations, or such state
laws.
1.5 EXERCISE PERIOD; CANCELLATION.
-----------------------------
A. This Warrant shall be exercisable at any time and from time to time
from the date of the initial closing of the IPO (the "IPO Closing Date") until
the fifth anniversary of the IPO Closing Date (the "Exercise Period").
B. The Company, in obtaining certain consents, waivers and other
agreements of Holder, represented to Holder that the IPO would be declared
effective by the Securities and Exchange Commission and closed no later than two
years after the date of issuance of this Warrant. If for any reason the IPO is
not closed within such time, then (i) this
-2-
<PAGE>
Warrant shall be cancelled, without any action or notice by any party hereto,
and (ii) at the option of Holder, exercisable at any time within 30 days
following termination of such two year period by written notice to the Company,
all area development and franchise rights granted to the Company with respect
to the Metropolitan Area of Vancouver, British Columbia, Canada and the
Commonwealth of Puerto Rico, including, without limitation, all agreements,
entitlements, authorizations, licenses, franchises and other rights incident
thereto, may be terminated and, thereafter, shall be of no further force or
effect other than those terms and provisions thereof which by their terms
survive termination thereof; provided, Holder shall have no right, by virtue of
the provisions hereof, to cancel or terminate any such agreements or other
rights specified herein which relate to any Papa John's stores that the Company
or any of its affiliates then have opened or under development in such
territories.
2. CERTAIN COVENANTS OF THE COMPANY.
--------------------------------
2.1 RESERVATION OF COMMON STOCK. During the Exercise Period, the
Company shall at all times have authorized and reserved (free of preemptive or
other similar rights), for the exclusive purpose of issuance upon exercise of
this Warrant, a sufficient number of shares of its Common Stock to provide for
exercise of this Warrant in full.
2.2 ISSUANCE OF CERTIFICATES FOR SHARES. All shares of Common Stock
issued pursuant to this Warrant will, upon issuance, be duly authorized and
issued, fully paid and nonassessable and free from all taxes, liens and charges.
The Company shall pay when due any and all federal and state transfer taxes and
charges which are payable upon issuance or delivery of the certificates for the
shares of Common Stock upon exercise of this Warrant; provided, that the Company
shall not be required to pay any transfer tax or charge which is payable in
connection with the transfer of shares to any individual other than Holder, nor
will the Company have an obligation to issue or deliver any certificates until
any such transfer tax shall have been paid or until it has been established to
the Company's satisfaction that no such tax is due.
3. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES SUBJECT TO WARRANT.
The Exercise Price and the number of shares of Common Stock (or other securities
of the Company) issuable upon exercise of this Warrant shall be subject to
adjustment from time to time as follows:
3.1 ADJUSTMENT FOR DIVIDENDS, COMBINATIONS, SUBDIVISIONS OR
RECLASSIFICATION OF COMMON STOCK. If the Company at any time after the date this
Warrant is issued, (i) shall declare or pay any dividend on the Common Stock
payable in Common Stock or in any right to acquire Common Stock, (ii) shall
subdivide shares of Common Stock into a greater number of shares of Common Stock
(by stock split, reclassification or otherwise), or (iii) shall combine or
consolidate the outstanding shares of Common Stock, by reclassification or
otherwise, into a lesser number of shares of Common Stock, then in each such
event the number of shares of Common Stock issuable on such date shall be
adjusted so that Holder, upon the exercise of this Warrant, shall be entitled to
receive the aggregate number of shares of Common Stock which Holder would have
been entitled to receive by virtue of such dividend, subdivision, combination or
reclassification had Holder exercised this Warrant immediately prior to such
event.
-3-
<PAGE>
3.2 DISTRIBUTIONS OF SUBSCRIPTION RIGHTS OR CONVERTIBLE SECURITIES.
If the Company shall fix a record date for the issuance to all holders of Common
Stock of rights, options, warrants or convertible or exchangeable securities
entitling such holders to subscribe for or purchase shares of Common Stock or
securities convertible into Common Stock (other than those referred to in
Section 3.5), then in each such event the number of shares of Common Stock that
Holder may purchase pursuant to this Warrant after such record date, upon the
exercise of this Warrant, shall equal the product of the number of shares of
Common Stock purchasable upon the exercise of this Warrant immediately prior to
such record date multiplied by a fraction, the numerator of which shall be the
then Current Market Price Per Share on such record date and the denominator of
which shall be the then Current Market Price Per Share on such record date less
the then fair market value (as determined in good faith be the Board of
Directors, which determination shall be conclusive) of such subscription rights,
options or warrants, or of such convertible or exchangeable securities
distributed with respect to one such share of Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall become effective
on the date of distribution retroactive to the record date for the determination
of stockholders entitled to receive such distribution.
3.3 ADJUSTMENT OF PURCHASE PRICE. Simultaneously with any adjustment
of the total number of shares of Common Stock purchasable upon the exercise of
this Warrant pursuant to Sections 3.1 and 3.2, the Purchase Price per share
shall be adjusted to equal the quotient resulting from dividing the number of
shares (including fractional share interests) covered by this Warrant
immediately after such adjustment into the Exercise Price payable upon the full
exercise of this Warrant. The adjustments provided for in this Section 3.3 shall
become effective immediately after the opening of business on the day next
following (a) the record date of such dividend, (b) the date upon which such
subdivision, combination or reclassification shall become effective, or (c) the
record date of issuance of the subscription rights or convertible securities
described in Section 3.2.
3.4 CURRENT MARKET PRICE DEFINED. For all purposes of this Agreement,
the "Current Market Price Per Share" shall be determined by the Company's Board
of Directors in good faith (which determination shall be conclusive); provided,
however, that if a public market for the Common Stock exists at the time of such
exercise, the Current Market Price Per Share shall be the average of the closing
bid and asked prices of the Common Stock quoted on the Over-The-Counter Market
Summary or the last reported sale price of the Common Stock or the closing price
quoted on the NASDAQ National Market System or on any exchange on which the
Common Stock is listed, whichever is applicable, as published in the Midwestern
Edition of The Wall Street Journal for the five trading days prior to the date
of determination of the Current Market Price Per Share.
3.5 ISSUANCE OF COMMON STOCK AT LESS THAN CURRENT MARKET PRICE. If
the Company sells and issues shares of any Common Stock, or rights, options,
warrants or convertible or exchangeable securities containing the right to
subscribe for or purchase shares of Common Stock, at a price per share of Common
Stock (or having a conversion price per share of Common Stock, if a security
convertible into Common Stock) that is less than the then Current Market Price
Per Share of such Common Stock, then the Purchase Price per share shall be
adjusted so that it shall equal the price determined by multiplying the Purchase
Price per Share in effect immediately prior thereto by a fraction, the numerator
of which shall be the aggregate
-4-
<PAGE>
number of shares of Common Stock that would be purchased at the Current Market
Price Per Share upon payment of the aggregate price in any such sale,
subscription or purchase (or the sum of the aggregate initial conversion price
of the convertible securities so to be offered plus any consideration paid to
the Company to acquire such securities), and the denominator of which shall be
the aggregate number of shares of Common Stock to be offered in any such
subscription or purchase (or into which the convertible securities so to be
offered are initially convertible). Such adjustment shall be made successively
whenever an issuance covered by this Section 3.5 is made. In case such
subscription price may be paid in a consideration part or all of which shall be
in a form other than cash, the value of such consideration shall be as
determined by the Board of Directors of the Corporation, whose determination
shall be conclusive. Notwithstanding anything in this Section 3.5 to the
contrary, the adjustments set forth in this Section 3.5 shall not apply to: (i)
issuances of Common Stock pursuant to this Warrant; (ii) shares, rights,
options, warrants or convertible or exchangeable securities issued in a
transaction covered by another subsection of this Section 3.5; or (iii) shares
of Common Stock or other securities, or options or rights in respect thereof,
issued to full-time employees of the Company or its subsidiaries in the ordinary
course of business as compensation for services rendered or to be rendered or as
part of an employee incentive program.
3.6 DISTRIBUTIONS OTHER THAN CASH OR SECURITIES. If the Company shall
fix a record date for the making of a distribution to all holders of Common
Stock (including a distribution made in connection with a consolidation or
merger in which the Company is the continuing corporation, other than a
consolidation or merger in respect of which an adjustment is made pursuant to
Section 3.7) of evidences of indebtedness or assets (other than cash dividends
or cash distributions payable out of earnings or earned surplus, or dividends
payable in Common Stock), or of subscription rights or warrants (excluding those
referred to in Section 3.c.), then the Exercise Price per share to be in effect
after such record date shall be determined by multiplying the Exercise Price per
share in effect immediately prior to such record date by a fraction, the
numerator of which shall be the Current Market Price Per Share on such record
date, as adjusted on a per share basis to reflect the fair market value (as
determined by the Board of Directors of the Corporation, whose determination
shall be conclusive) of the portion of the assets or evidences of indebtedness
so to be distributed, or of such subscription rights or warrants applicable to
one share of Common Stock, and the denominator of which shall be such Current
Market Price Per Share. Such adjustments shall be made successively whenever
such a record date is fixed; provided, in the event that such distribution is
not so made, the Exercise Price per share shall again be adjusted to be the
Exercise Price per share which would then be in effect if such record date had
not been fixed.
3.7 ADJUSTMENTS FOR REORGANIZATIONS OR RECLASSIFICATION. If any
capital reorganization or reclassification of the capital stock of the Company,
or consolidation or merger of the Company with another corporation, or spin-off,
split-up or split-off involving the Company, or the sale of all or substantially
all of its assets to another corporation, or other similar event (hereinafter, a
"Reorganization"), shall be effected in such a way that holders of Common Stock
(or any other securities of the Company then issuable upon the exercise of this
Warrant) shall be entitled to receive stock, securities or assets with respect
to or in exchange for Common Stock (or such other securities), then, as a
condition of such Reorganization, lawful and adequate provision shall be made so
that Holder shall thereafter have the right to purchase and receive, upon the
exercise of this Warrant, the aggregate number, type and class of shares of
-5-
<PAGE>
stock, securities or assets which the Holder would have been entitled to receive
upon such Reorganization had the number of shares of Common Stock for which this
Warrant was exercised been outstanding immediately prior to such Reorganization.
If upon any such Reorganization different holders of Common Stock shall be
entitled to receive different forms of consideration, the form of such
consideration thereafter deliverable to Holder upon exercise of this Warrant
shall be determined by the Board of Directors of the Company. The provisions of
this Section 3.7 shall similarly apply to successive Reorganizations.
3.8 PAR VALUE LIMITATION. Before taking any action that would cause
an adjustment reducing the Purchase Price per share below the then par value per
share, if any, of the shares of Common Stock issuable upon exercise of this
Warrant, the Company shall take any corporate action which may, in the opinion
of its counsel, be necessary in order that the Company may validly and legally
issue fully paid and non-assessable shares of such Common Stock as such adjusted
Purchase Price per share.
3.9 NO IMPAIRMENT. The Company shall not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
dividend, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Company, but will
at all times in good faith assist in the carrying out all of the provisions of
this Section 3 and in the taking of all such action as may be necessary or
appropriate in order to protect the exercise rights of the holder of this
Warrant against impairment.
3.10 NOTICE OF ADJUSTMENTS. Upon any adjustment of the Purchase Price
per share or the number of shares of Common Stock purchasable upon exercise of
this Warrant, then, and in each such case, the Company shall give written notice
thereof stating the Purchase Price per share resulting from such adjustment and
the increase or decrease, if any, in the number of shares purchasable at such
price upon the exercise of this Warrant, setting forth in reasonable detail the
method of calculation and the facts upon which such calculation is based. If the
Company declares a dividend or any other distribution on its Common Stock (other
than a cash dividend), or prepares to take any other action which would result
in an adjustment to the Purchase Price per share or the number of shares of
Common Stock purchasable upon exercise of this Warrant, the Company shall mail
to the holder of this Warrant, at least 20 days prior to the applicable date
hereinafter specified, a notice stating (a) the record date for such dividend or
distribution or, if a record date is not established, the day as of which the
holders of Common Stock of record to be entitled to such dividend or
distribution are to be determined, or (b) the date on which such other action is
expected to affect the Purchase Price per share or the exercise rights of the
holder hereof. The Company shall not effect a consolidation, merger or sale,
unless prior to the consummation thereof the successor corporation resulting
from such consolidation or merger, or the corporation which purchases such
assets, shall have given (a) prior written notice to the holder, stating the
date such consolidation, merger or sale is expected to become effective, and the
date on which it is expected that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for securities or other
property, and (b) shall have assumed, by written instrument executed and mailed
to Holder, the obligation to deliver to Holder such shares of stock, securities
or assets (in accordance with the provisions set forth Section 3.7) such Holder
may be entitled to purchase upon exercise of this Warrant.
-6-
<PAGE>
4. REGISTRATION AND TRANSFER OF WARRANTS.
-------------------------------------
4.1 TRANSFERABILITY OF WARRANT. This Warrant may not be transferred
or assigned in whole or in part without compliance with all applicable federal
and state securities laws by the transferor and transferee (including the
delivery of investment representation letters and legal opinions reasonably
satisfactory to the Company, if such are requested by the Company). Subject to
compliance with applicable securities laws, the "Registration Rights Agreement"
(defined in Section 5) and the provisions of Section 4.3, this Warrant is
transferable by the registered holder hereof or by his attorney duly authorized
in writing at the principal office of the Company (or other office or agency of
the Company designated by the Company by written notice to the holder hereof)
without charge upon surrender of this Warrant properly endorsed and delivery of
the Form of Assignment attached hereto as Exhibit B. Upon any such transfer, the
Company will promptly issue a new warrant in exchange for this Warrant.
4.2 WARRANT REGISTER OF COMPANY. The Company or its duly appointed
agent shall maintain a separate register for this Warrant on which the issuance
and all transfers of this Warrant shall be registered. All transfers of this
Warrant shall be recorded on the register maintained by the Company or its
agent, and the Company shall be entitled to regard the registered holder of this
Warrant as the actual owner of this Warrant until the Company or its agent
records a transfer of this Warrant on its register. Subject to the provisions of
Section ?, the Company and its agent shall be required to record any such
transfer when it receives the Warrant to be transferred properly endorsed by the
registered holder thereof.
4.3 LEGEND. This Warrant is endorsed, and each Warrant subsequently
issued upon any transfer of this Warrant, and any certificates for Common Stock
issued upon exercise of this Warrant, shall be likewise endorsed, with the
following legend:
This Warrant and the securities issuable upon exercise of this Warrant
have not been registered under the Securities Act of 1933, as amended
(the "Act"), or under any applicable state securities laws. This
Warrant and the securities issuable upon exercise hereof are
"Restricted Securities" as defined in Rule 144 promulgated under the
Act and may not be sold or otherwise distributed except (i) in
conjunction with an effective registration statement under the Act and
applicable state securities laws, (ii) in compliance with Rule 144 and
an exemption under applicable state securities laws, or (iii) pursuant
to an opinion of counsel satisfactory to the Company that such
registration or compliance is not required as to such sale, offer or
distribution.
The Company may also instruct its transfer agent not to transfer any of said
securities unless the conditions of the foregoing legend are satisfied.
4.4 COMPLIANCE WITH SECURITIES LAWS. Holder, by acceptance hereof,
acknowledges that this Warrant and the shares of Common Stock to be issued upon
exercise hereof are being acquired solely for Holder's own account and not as a
nominee for any other party, and for investment, and that Holder shall not
offer, sell or otherwise dispose of this Warrant or any shares of Common Stock
to be issued upon exercise hereof except under circumstances that will not
result in a violation of the Act or any state securities laws. Holder,
-7-
<PAGE>
by acceptance hereof, further acknowledges that the transfer of this Warrant and
the shares of Common Stock issuable upon the exercise of all or any portion of
this Warrant (the "Securities") are subject to the provisions of the
Registration Rights Agreement, which includes restrictions on transfer of the
Securities; and that the Securities shall be entitled to all rights and benefits
accorded thereto in the Registration Rights Agreement, and that the Registration
Rights Agreement is hereby incorporated herein by this reference.
5. REGISTRATION RIGHTS. Upon exercise of this Warrant, Holder shall have
and be entitled to exercise, together with all other holders of Common Stock
obtaining registration rights in connection with the IPO, piggy-back
registration rights with respect to the shares of Common Stock issued to holder
on exercise of this Warrant, upon the terms and conditions of the Registration
Rights Agreement attached hereto as Exhibit C (the "Registration Rights
Agreement"). By its receipt of this Warrant, Holder agrees to be bound by the
Registration Rights Agreement upon exercise of this Warrant as a party thereto.
6. MISCELLANEOUS.
-------------
6.1 NO FRACTIONAL SHARES. The Company shall not issue fractions of
shares of Common Stock upon exercise of this Warrant and the shares of Common
Stock issuable upon such exercise shall be rounded to the lowest whole number of
shares with the balance of the aggregate Exercise Price returned to Holder in
cash.
6.2 TERMINATION. Upon expiration of the Exercise Period, this Warrant
and all rights of Holder hereunder shall be null and void and of no further
effect; provided, that the rights and obligations of the Company and Holder
contained in Sections 4.3, 4.4 and 5 shall survive the expiration of this
Warrant.
6.3 DELAYS OR OMISSIONS. No delay or omission to exercise any right,
power or remedy accruing to either party upon any breach or default under this
Warrant, shall be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of either party of any breach or default under this
Warrant, or any waiver on the part of either party of any provisions or
conditions of this Warrant, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Warrant or by law or otherwise afforded to either of the parties, shall be
cumulative and not alternative.
6.4 NO RIGHTS AS STOCKHOLDER. This Warrant shall not entitle Holder
to any voting rights or other rights as a stockholder of the Company.
6.5 CAPTIONS. The captions and section headings used herein are for
convenience only, shall not be deemed part of this Agreement and shall not in
any way restrict or modify the context and substance of any section or paragraph
of this Agreement.
6.6 NOTICES. All notices and other communications required or
permitted hereunder shall be sufficiently given if in writing and personally
delivered against a written receipt, if delivered to a reputable express
messenger service (such as Federal Express, UPS or
-8-
<PAGE>
DHL Courier) for overnight delivery, when sent by confirmed telephone facsimile
(fax) or sent by registered, express or certified U.S. mail, with postage
prepaid, addressed as follows:
If to Company: PJ America, Inc.
9109 Parkway East
Birmingham, Alabama 35206
Attn: Douglas S. Stephens, President
Fax: (205) 836-6630
If to Holder by mail: Papa John's International, Inc.
P.O. 99900
Louisville, KY 40269-9990
Attn: Charles W. Schnatter, Senior Vice President,
General Counsel and Secretary
If to Holder by
courier, hand
delivery or fax: Papa John's International, Inc.
11492 Bluegrass Parkway, Suite 175
Louisville, KY 40299
Attn: Charles W. Schnatter, Senior Vice President,
General Counsel and Secretary
Fax: (502) 266- 2991
or to such other address or addresses as any of the parties to this Agreement
shall furnish to the others in writing. Notices shall be deemed given when
personally delivered, when delivered to an express messenger service, when
transmitted by confirmed fax or when deposited in the U.S. mail in accordance
with the foregoing provisions. However, the time period in which a response to
any such notice, demand or request must be given shall commence to run from the
date of personal delivery, the date of delivery by a reputable messenger
service, the date of confirmation of a fax, or the date on the return receipt,
as applicable.
6.7 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware.
IN WITNESS WHEREOF, PJ AMERICA, INC., has caused this Warrant to be signed
by its duly authorized officers this _____ day of ____________________, 1996.
PJ AMERICA, INC.
By:
-------------------------------------
Douglas S. Stephens, President
-9-
<PAGE>
ATTEST:
- -------------------------
Michael M. Fleishman,
Secretary
-10-
<PAGE>
FORM OF ASSIGNMENT
(To be signed only upon transfer of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ___________________________________________ the right represented by the
within Warrant to purchase __________________ shares of Common Stock of PJ
AMERICA, INC., to which the within Warrant relates, and appoints
_____________________ attorney to transfer such right on the books of PJ
AMERICA, INC., with full power of substitution in the premises.
Date: , 19
------------------ --- ---------------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant)
-------------------------------
Address
Signed in the presence of:
- --------------------------------
<PAGE>
PURCHASE FORM
TO BE EXECUTED
UPON EXERCISE OF WARRANT
The undersigned hereby exercises the right to purchase ______ shares of
Common Stock, $0.01 par value per share, of PJ AMERICA, INC., a Delaware
corporation (the "Shares") evidenced by the within Warrant according to the
terms and conditions thereof, and herewith makes payment of the Exercise Price
of such Shares in full. The undersigned hereby requests that certificates for
such shares be issued in the name of the undersigned, and requests that a new
Warrant be issued to the undersigned, in the name of the undersigned,
representing any balance of shares evidence by this Warrant after the exercise
hereof by the undersigned.
Dated:
---------------------------------
Name:
----------------------------------
(Please print)
Soc. Sec. No.:
-------------------------
Address:
-------------------------------
(Please print)
Signature:
-----------------------------
<PAGE>
Exhibit 10.9
EXTRA CHEESE, INC.
P.O. Box 611165
Birmingham, Alabama 35261-1165
May 20, 1996
Papa John's International, Inc.
11492 Bluegrass Parkway
Louisville, Kentucky 40299
Attn: Mr. Charles W. Schnatter
Senior Vice President and General Counsel
Mr. Richard J. Emmett
Vice President and Senior Counsel
Gentlemen:
I am writing this letter on behalf of Extra Cheese, Inc. ("Extra Cheese")
as well as Textra Cheese Corp., Twice the Cheese, Inc., Easy Cheese, L.L.C., and
the other affiliated corporations listed on Exhibit A attached hereto and made a
part hereof (all of which are sometimes collectively referred to as the
"Affiliates"). This letter is being written to you in connection with my recent
discussions and meetings with Chuck Schnatter and Rich Emmett regarding Extra
Cheese's "going public," acquisition of additional territory from Papa John's
International, Inc. ("PJI") and related matters as set forth in greater detail
in this letter. Extra Cheese makes the following proposals to PJI for its
consideration; if PJI agrees to the terms set forth in this letter, then PJI and
Extra Cheese agree as follows:
1. PJI hereby consents to Extra Cheese "rolling up" or otherwise
acquiring the stock or assets of all or some of the Affiliates, for stock,
promissory notes, cash and such other consideration as Extra Cheese may
determine, either by way of merger of those Affiliates into Extra Cheese or an
affiliate or subsidiary thereof or by other similar type of consolidation,
reorganization or purchase of assets.
Extra Cheese agrees that, if PJI so requires in writing, Papa John's
Development Rights and Franchises held by Extra Cheese and all the Affiliates
that it acquires shall be regranted directly to Extra Cheese (or a subsidiary),
with Extra Cheese having the right to assign those Development and Franchise
Rights with respect to each different state, province or commonwealth in which
Extra Cheese and its Affiliates operate Papa John's restaurants, to a separate
corporation or LLC that operates the restaurants in such state, province or
commonwealth, so long as each such separate corporation or LLC is wholly owned,
either by Extra Cheese or a subsidiary of Extra Cheese. Any such assignment
will not relieve Extra Cheese of any primary liability which may either exist or
come into being with regard to any such corporation or LLC.
<PAGE>
Papa John's International, Inc.
May 20, 1996
Page -2-
2. PJI consents to Extra Cheese "going public" by the offering of a
portion of its common stock to the public, in an initial public offering ("IPO")
designed to raise an amount of equity capital in the range of $10-30,000,000.
It is anticipated that the proceeds of the IPO will be used for general
corporate purposes, and to develop additional Papa John's stores in Extra
Cheese's and its Affiliates' existing and new Papa John's territories.
3. Immediately prior to going public, Extra Cheese shall grant a warrant
to PJI to purchase that number of shares of common stock of Extra Cheese that is
equal to 7.5% of the total number of shares of common stock of Extra Cheese that
are issued and outstanding immediately preceding the IPO, at a price per share
equal to the lesser of: (i) $1.00 less than the offering price per Extra Cheese
share in the IPO, or (ii) ninety percent (90%) of the price per Extra Cheese
share in the IPO. The term of the warrant shall be five (5) years following the
date of the IPO. If for any reason the IPO is not consummated within two (2)
years of the date on which the warrant is issued to PJI, (i) the warrant shall
be cancelled and (ii) the development rights granted to Extra Cheese under
Paragraphs 6, 7 and 8 hereof with respect to the Vancouver Territory, Puerto
Rico and the Four California Counties shall be automatically cancelled, but such
cancellation shall not affect any Papa John's stores that Extra Cheese and/or
its Affiliates have opened or have under development in such new territories.
The terms of the warrant shall provide that following PJI's exercise of the
warrant, PJI shall have "piggyback" registration rights to require that Extra
Cheese register with the SEC the shares so acquired by PJI upon exercise of the
warrant, with PJI to pay its pro rata share of the costs of such registration,
including related legal and other expenses.
4. There will be no restrictions on when PJI may exercise the warrant,
but PJI will agree to the same "lock-up" restriction on the sale of shares so
acquired by PJI upon exercise of the warrant as are required by Extra Cheese's
underwriters from the principal stockholders, executives and directors of Extra
Cheese. Further, if Extra Cheese or its underwriters believe that it is
advisable, PJI will agree to a restriction on the sale of the shares so acquired
upon PJI's exercise of the warrant, provided that such restrictions shall not
last for more than three (3) years after the expiration of the "lock-up" period
and so long as such restriction allows PJI to sell 16.66% of the shares acquired
by it upon exercise of the warrant in each three (3) month period after
expiration of the "lock-up" period.
5. Extra Cheese will invite John Schnatter or Chuck Schnatter (or another
senior executive of PJI who is reasonably acceptable to Extra Cheese) to serve
on its Board of Directors following the IPO, for a term of three (3) years,
which we very much hope one of them will do, but this is not a requirement of
the "deal" from PJI's standpoint.
6. PJI will grant Extra Cheese the right to develop the City of
Vancouver, Canada and surrounding territory (the "Vancouver Territory"). PJI
has informed Extra Cheese that a third party may have a claim to the name "Papa
John's" in Canada, but that PJI anticipates acquiring
<PAGE>
Papa John's International, Inc.
May 20, 1996
Page -3-
all rights to use the name "Papa John's" in Canada within the next 90 - 180
days. PJI shall give written notice to Extra Cheese promptly after PJI has
acquired such rights to the name "Papa John's" in Canada. Extra Cheese shall
then have 60 days following the receipt of such written notice from PJI within
which to notify PJI whether Extra Cheese intends to develop the Vancouver
Territory. If Extra Cheese shall elect to develop the Vancouver Territory, it
shall pay the upfront development fees ($5,000) per store for the Vancouver
Territory at the time of signing the Development Agreement for such Territory,
which shall be within 30 days after such election by Extra Cheese. If PJI is
able to serve such additional territory by December 1, 1997, then Extra Cheese
will have its first restaurant opened in such new territory by no later than
March 31, 1998, and will open an additional eight (8) restaurants every twelve
(12) months (two (2) per quarter) thereafter until the development schedule has
been completed.
7. In addition to the foregoing, PJI will grant Extra Cheese the right to
develop the island of Puerto Rico, with the upfront Development Fees for Puerto
Rico to be paid to PJI thirty (30) days after the IPO has been completed, and
with the first store to be opened by the last to occur of September 15, 1998, or
three (3) months after PJI is able to deliver cheese, sauce and related
products, to such new territory; if PJI is not able to deliver dough to Puerto
Rico, it shall license Extra Cheese or a facility Extra Cheese designates to
produce such dough and shall provide it with the appropriate recipes and
procedures for the production of such dough, subject to appropriate
confidentiality agreements, which recipes and procedures must be complied with
in every detail. Beginning January 1, 1999, two (2) stores will be opened each
three (3) month period thereafter until Puerto Rico is built out. The terms of
the Development Agreement for Puerto Rico shall be PJI's standard Development
Agreement now in use.
8. In addition to the foregoing, PJI will grant Extra Cheese the right to
develop approximately twenty-five (25) Papa John's restaurants in the four
California counties of Santa Barbara County, Kern County, Ventura County and San
Luis Obisbo (the "Four California Counties"), with the upfront development fees
for the Four California Counties to be paid to PJI thirty (30) days after the
IPO has been completed and with the first store to be opened by the last to
occur of December 31, 1997 or six (6) months after PJI is able to serve such
Four California Counties with dough, cheese, sauce and related products. Extra
Cheese will open an additional two (2) restaurants every calendar quarter
thereafter until the development of the twenty-five (25) restaurants has been
completed.
9. The right of Extra Cheese to enter into a new Development Agreement
for Vancouver, Puerto Rico and the Four California Counties will be subject to
the requirement that Extra Cheese shall have timely and satisfactorily developed
and operated restaurants in each of Extra Cheese's markets and those markets of
its Affiliates that may have been acquired by Extra Cheese and the markets of
any other franchise group acquired by Extra Cheese, and Extra Cheese having
employed reasonably satisfactory management and operating personnel to develop
and run
<PAGE>
Papa John's International, Inc.
May 20, 1996
Page -4-
its current markets and its additional territories by the time such additional
territories are beginning to be developed.
10. Extra Cheese commits that within thirty (30) days after PJI's
acceptance of this letter, it will begin a search for a Director of Development
for its and its Affiliates' existing and new territories. We have already
employed a Chief Financial Officer.
11. Extra Cheese and the Affiliates it may acquire shall agree that for a
period of three (3) years after the date of PJI's acceptance of this letter, (i)
neither Extra Cheese nor the Affiliates it may acquire nor Douglas Stephens or
its other senior executive officers shall undertake any other restaurant
concepts, other than Papa John's, without PJI's prior approval, and (ii) its
directors shall not be actively involved in the actual management of other
restaurant concepts, without PJI's approval, but this provision shall not be
construed to prevent such directors from being investors in other restaurant
concepts.
12. Subject to the requirements of applicable laws, regulations and rules,
Extra Cheese agrees that it will generally follow PJI's lead concerning
information to be provided to the public (both in the prospectus and on an
ongoing basis).
13. PJI agrees that the Development Agreements and Franchise Agreements
held by, and to be granted in the future to, Extra Cheese (and/or its
Affiliates) from PJI shall provide for a grace period of (i) ten (10) days with
respect to monetary defaults, (ii) fifteen (15) days with respect to non-
monetary (other than development) defaults, (iii) five (5) days for material
operational defaults, and (iv) 30 days with respect to opening a Papa John's
store pursuant to the applicable development schedule, in the case of (i), (ii)
and (iii) after written notice specifying the particular default has been given
by PJI to Extra Cheese.
14. PJI will waive all transfer fees ($3,000 per transaction) with respect
to any restaurants acquired from related or unrelated PJI franchisees (including
all of the Affiliates) prior to or within twelve (12) months after completion of
the IPO.
15. The term "Extra Cheese," as used in this letter includes both Extra
Cheese and PJ America, Inc., a Delaware corporation, or such other corporation
as is intended to be the parent corporation of Extra Cheese.
We greatly appreciate your offer to make available to us the benefit of the
information and experiences you have gathered in preparing for and completing
your IPO and operating as a public company. Obviously, that type experience
will help us by-pass many of the obstacles that hinder, delay and derail
transactions of this sort and, I am sure, will prove to be an invaluable aid to
us.
<PAGE>
Papa John's International, Inc.
May 20, 1996
Page -5-
Your cooperation in helping us formulate and finalize these proposals has
been indispensable in allowing us to move forward on this front. We believe
that we can accomplish these goals and make ourselves into a much stronger and
larger Papa John's franchisee and, at the same time, hopefully generate
significant profit for PJI from the appreciation of Extra Cheese's stock
following the IPO.
Obviously, in order to prepare to go public and to acquire the additional
territories from PJI and construct the new restaurants, Extra Cheese will have
to spend and commit substantial dollars and, prior to doing so, we want to make
sure that PJI has agreed to and approved this plan. Accordingly, if you are in
agreement to the foregoing proposals, please sign this letter where indicated
below to indicate your binding legal agreement to this plan and the terms set
forth herein. We are proud to be part of the Papa John's family and are very
excited about the expansion of Extra Cheese's success to new Papa John's
territories. We very much appreciate your consideration of these matters.
Very truly yours,
EXTRA CHEESE, INC.
By: _________________________________
Michael M. Fleishman, Secretary
<PAGE>
Papa John's International, Inc.
May 20, 1996
Page -6-
Agreed to as a legally binding contract:
Papa John's International, Inc.
By: _______________________________
Title: _____________________________
Date: __________________, 1996
<PAGE>
Papa John's International, Inc.
May 20, 1996
Page -7-
EXHIBIT A
---------
MARKET ENTITY
- ------ ------
Alabama Extra Cheese, Inc.
Birmingham Twice the Cheese, Inc.
East Texas Textra Cheese Corp.
Louisiana Easy Cheese, L.L.C.
Easy Cheese Corp.
Birmingham EC Corp.
South Carolina Lottsa Cheese, Corp.
Virginia P.J.V., Inc.
P.J.Va., Inc.
Eastern Ohio Sherfiz, Inc.
Sherfiz II Corp.
P.J. Cambridge, Inc.
SPJ Operating Corp.
Bowling Green, Ohio BG Cheese Corp.
Michigan BG Cheese Corp. (a separate Michigan corporation is to be
formed in the immediate future)
Mobile, Alabama Say Cheese, Inc.
Iowa PJIowa, LC
Utah PJ Utah, L.L.C.
<PAGE>
Exhibit 10.10
PAPA JOHN'S
DEVELOPMENT AGREEMENT
Developer: PJ Utah, LLC.
Address: 9l09 Parkway East
Birmingham, Alabama 35206
Number of Restaurants: Thirty (30)
Development Area: Utah
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Page
1. Grant.................................................... 2
2. Development Fee.......................................... 2
3. Development of Restaurants; Schedule for Completion...... 3
4. Term..................................................... 6
5. Construction or Remodeling............................... 6
6. Your Organization, Operation and Ownership............... 6
7. Your Covenants........................................... 7
8. Principal Operator....................................... 9
9. Default and Termination.................................. 10
10. Assignment or Transfer................................... 12
11. No Grant of Franchise or Franchise Rights................ 13
12. Notices.................................................. 13
13. Independent Contractor; Indemnification ................. 14
14. Enforcement.............................................. 14
15. Acknowledgements......................................... 19
16. Miscellaneous............................................ 20
</TABLE>
(i)
<PAGE>
DEVELOPMENT AGREEMENT
---------------------
THIS DEVELOPMENT AGREEMENT ("Agreement") is made and entered into this 26th
day of August, 1996, by and between PAPA JOHN'S INTERNATIONAL, INC., a Delaware
corporation ("we", "us" or "Papa John's"), and PJ Utah, LLC, a Utah corporation
(you"). If you are a corporation, limited liability company or partnership
certain provisions of the Agreement also apply to your owners and will be noted.
RECITALS:
--------
A. We and our Affiliates (defined below) have expended time, money and
effort to develop a unique system for operating retail restaurants devoted
primarily to carry-out and delivery of pizza and other food items. The chain of
current and future Papa John's restaurants are referred to as the "Papa John's
Chain" or the "Chain".
B. The Chain is characterized by a unique system which includes special
recipes and menu items; distinctive design, decor, color scheme and furnishings;
software and programs; standards, specifications and procedures for operations;
procedures for quality control; training assistance; and advertising and
promotional programs all of which we may improve, amend and further develop from
time to time (the "System").
C. We identify our goods and services with certain service marks, trade
names and trademarks, including but not limited to, "Papa John's", "Papa John's
Pizza" and "Pizza Papa John's Delivering the Perfect Pizza!" as well as certain
other trademarks, service marks, slogans, logos and emblems which have been and
which we may designate for use in connection with the System from time to time
(the "Marks").
D. You desire to obtain certain rights to develop one or multiple Papa
John's Pizza restaurant(s) in the "Development Area" (as defined below) in
accordance with the terms of this Agreement.
<PAGE>
E. We have agreed to grant you such rights;
NOW, THEREFORE, the parties agree as follows:
1. Grant.
(a) Subject to the terms and conditions of this Agreement and your
continuing faithful performance, we hereby grant to you the right and obligation
to establish 30 Papa John's restaurant(s) (at specific locations we approve) in
the areas specified on attached Exhibit A. (The Papa John's restaurants you
develop pursuant to this Agreement are collectively referred to as the
"Restaurants" and individually as a "Restaurant", the areas specified on Exhibit
A are collectively referred to as the "Development Area").
(b). Each Restaurant shall be established and operated pursuant to a
separate "Franchise Agreement" to be entered into between you and us. As used
herein, the term "Franchise Agreement" shall mean the form of Papa John's
Franchise Agreement (for the initial Restaurant) or Short Form Franchise
Agreement (for each subsequent Restaurant) to be executed for each Restaurant
developed under this Agreement and all attachments and exhibits thereto.
(c) Except as may be otherwise provided herein or in the Franchise
Agreements, we shall not locate, nor license another to locate, a Papa John's
restaurant in the Development Area during the "Term" (as defined in Section 4).
(d) This Agreement is not a franchise agreement and we do not grant you
any franchise rights or other rights to use the Marks or System under this
Agreement.
(e) You have no right to license or subfranchise others to use the Marks
or the System, or to enter into any agreement with respect to the Marks or
System.
2. Development Fee. You have paid to us a development fee of One
Hundred Fifty Thousand Dollars ($150,000) ("Development Fee") (i.e. Five
Thousand Dollars ($5,000) for each
-2-
<PAGE>
Restaurant to be developed), receipt of which we acknowledge. The Development
Fee was fully earned by us when paid, is non-refundable and is not contingent
upon our rendering any further performance. The Development Fee is in
consideration of, among other things, the development rights granted to you, the
reservation of the Development Area, the development opportunities lost or
deferred as a result of the rights granted to you in this Agreement and the
administrative and other expenses we have incurred. However, $5,000 of the
Development Fee will be credited against each Initial Franchise Fee at the time
it is paid, as provided in Section 3.(f).
3. Development of Restaurant; Schedule for Completion.
(a) You shall have the number of Restaurants open and operating within
the time frame set forth in subsection 3.(e). below, and you shall exercise each
such development right only at locations within the Development Area which we
have approved.
(b) With respect to each proposed location, you shall submit a completed
site evaluation form, together with such other information and materials as we
may reasonably request. We shall have 30 days after receipt of such information
to accept or reject each proposed location. If we fail to respond within such 30
day period, the location submitted by you shall be deemed to be approved. We
will not unreasonably withhold our approval of a location. In approving or
disapproving any proposed site, we will consider such matters as we deem
material, including, without limitation, demographic characteristics of the
proposed site, traffic patterns, parking, the predominant character of the
neighborhood, competition from other businesses providing similar services
within the area (including other Papa John's Restaurants), the proximity to
other businesses the rights granted to our other franchisees, the nature of
other businesses in proximity to the site, and other commercial characteristics
(including the purchase price or rental obligations and other lease terms for
the proposed site) and the size of the premises, appearance, and other physical
characteristics of the proposed site. Approval of a site by us does not
constitute an assurance, representation or warranty of any kind, expressed or
implied, as to the successful operation of a Papa John's Restaurant, or for any
other purpose. Our approval of a site indicates only that we believe the site
complies with an acceptable minimum criteria we establish solely for our
purposes as of the time period encompassing the
-3-
<PAGE>
evaluation. You acknowledge that application of criteria that has been effective
with respect to other sites and premises may not be predictive of potential for
all sites. Further, demographic and/or economic factors included in our criteria
could change and other relevant factors may be excluded from our criteria, which
might alter the potential of a site. The uncertainty and instability of such
criteria are beyond our control. We are not responsible if a site we approve
fails to meet your expectations as to potential revenue or operational criteria
or for your failure to locate the required number of suitable sites in the
Development Area. You further acknowledge and agree that your acceptance of a
Franchise for the operation of a Papa John's Restaurant at a site is based on
your own independent investigation of the suitability of a site. Any proposed
lease shall include an addendum in the form of Exhibit A to the Franchise
Agreement, or shall contain terms and conditions substantially similar to those
contained in Exhibit A to the Franchise Agreement. Any changes in the language
set forth in Exhibit A must be approved by us in advance in writing.
(c) We shall deliver the Franchise Agreement to you within 20 days
after you provide the address and telephone number for an approved location
which you have leased or purchased. The Franchise Agreement for such location
must be signed by you and submitted to us along with the payment of the initial
franchise fee within ten days after it is delivered to you.
(d) The approval of a location and the delivery of a Franchise
Agreement by us shall be conditioned upon a determination by us, in our
reasonable judgment, that:
(i) You have the financial and operational capacity to
develop and operate the Restaurant;
(ii) the site which you propose for the Restaurant is
within the Development Area and is a suitable site based upon criteria we
establish from time to time; and
(iii) You and your owners are in compliance with this
Agreement and Franchise Agreements executed pursuant to this Agreement.
-4-
<PAGE>
(e) Notwithstanding any provision of any Franchise Agreement
entered into between us and you, you shall exercise each development right as
follows:
<TABLE>
<CAPTION>
DEVELOPMENT SCHEDULE
--------------------
Dates on Which Each Cumulative Number of Restaurants
Restaurant Sha11 be Open to be Open and Operating*
- ------------------------ -------------------------------
<S> <C>
November 15, 1996 1
November 15, 1996 2
February l, 1997 3
April 1, 1997 4
June l, l997 5
August 1, 1997 6
October 1, 1997 7
December 1, 1997 8
February 1, 1998 9
April 1, 1998 10
June 1, 1998 11
August 1, 1998 12
October 1, 1998 13
December 1, 1998 14
February 1, 1999 15
April 1, 1999 16
June 1, 1999 17
August 1, 1999 18
October l, 1999 19
December 1, 1999 20
February 1, 2000 21
April 1, 2000 22
June 1, 2000 23
August 1, 2000 24
October 1, 2000 25
December 1, 2000 26
February 1, 2001 27
April 1, 2001 28
June 1, 2001 29
August 1, 2001 30
</TABLE>
[* - Includes only those Restaurants to be developed pursuant to this
Development Agreement.]
-5-
<PAGE>
(f) The Initital Franchise Fee to be paid by you for each Restaurant
shall be $20,000; provided that $5,000 of the Development Fee shall be credited
against the Initial Franchise Fee. The net amount of Initial Franchise Fee
($15,000) shall be paid at the time each Franchise Agreement is executed.
(g) It shall be your responsibility to ensure that each Restaurant is
constructed or remodeled, and equipped and operated in compliance with all laws,
ordinances and governmental rules and regulations and the Franchise Agreement,
and you shall obtain all necessary permits and licenses relating thereto.
4. Term. Unless sooner terminated as provided in this Agreement, this
Agreement shall expire on the earlier to occur of: (i) the date on which all
the Restaurants have been developed, or (ii) 12:00 midnight on the last date set
forth on the Development Schedule (the "Term"). Upon the termination or
expiration of this Agreement, all unexercised development rights shall expire.
5. Construction or Remodeling. You shall, at your own expense, construct
or remodel the Restaurant at each location in accordance with specifications we
provide and the terms of the Franchise Agreement. You shall allow us and our
agents and employees access to all areas of the premises of each Restaurant at
such times as we or they may reasonably request and you shall cooperate fully
with us and our agents and employees in preparing specifications for each
Restaurant to be developed hereunder. However, it shall be your obligation to
have plans drawn showing the layout on all equipment, signs and leasehold
improvements, and such plans shall be subject to our approval. You shall not
begin construction or remodeling on any outlet until the Franchise Agreement has
been fully signed and we have approved the plans for such Restaurant.
6. Your Organization, Operation and Ownership. If you are a corporation,
partnership, limited liability company or other entity:
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(a) If we request from time to time, you shall furnish us with your
Articles of Incorporation, Articles of Organization, Operating Agreement,
By-Laws and other governing documents (and any amendments or modifications
thereof), minutes and resolutions and all agreements or other documents, records
and information pertaining to your existence and operation.
(b) You shall confine your business activities exclusively to the
establishment, management and operation of Papa John's restaurants pursuant to
agreements with us.
(c) You shall, at the same time you execute this Agreement, and at
such other times as we may request, disclose the name and address of each person
or entity owning a beneficial interest in you, and you shall not issue any
additional securities, nor allow the "transfer" (as defined in Section 10) of
any of your outstanding securities, except as provided in Section 10.
(d) You shall at all times comply with all laws, ordinances, rules
and regulations of governmental bodies.
(e) You shall cause all persons or entities owning any interest in
you to sign the Owner Agreement in the form we provide.
7. Your Covenants.
(a) Covenant Not-to-Compete. You covenant and agree that during the
Term and for a period of two years after the expiration or termination of this
Agreement, regardless of the cause for such expiration or termination (the
"Restricted Period"), you shall not, anywhere within either (i) the boundaries
of the Development Area or (ii) a 10-mile radius of any business location at
which you, us or our Affiliate or our franchisee then conducts a Papa John's
business, engage in any of the following activities:
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(i) directly or indirectly enter into the employ of, render any
service to or act in concert with any person, partnership, limited liability
company, corporation or other entity that owns, operates, manages, franchises or
licenses any business that sells pizza or other non-pizza products (excluding
soft drinks) that are the same as those sold by Papa John's restaurants on a
delivery basis, or sells pizza or any such other products primarily on a
carry-out basis, including, without limitation, business formats such as
Domino's, Pizza Hut, Mr. Gatti's, Sbarro and Little Caesar's (a "Competitive
Business"); or
(ii) directly or indirectly engage in any such Competitive
Business on your own account; or
(iii) become interested in any such Competitive Business directly
or indirectly as a partner, member, shareholder, principal, agent, consultant or
in any other relationship or capacity; provided, that the purchase of a publicly
traded security of a corporation engaged in such business or service shall not
in itself be deemed violative of this Agreement so long as you do not own
directly or indirectly, more than 1% of the securities of such corporation.
To the extent required by the laws of the state in which the Restaurants are to
be developed, the duration or the geographic areas included within the foregoing
covenants, or both, shall be deemed amended in accordance with Section 7.(f).
(b) Appropriation and Disclosure of Information. Except as permitted
by the Franchise Agreement, you will not at any time use, copy or duplicate the
System or any aspect thereof, or any of our trade secrets, recipes, methods of
operation, processes, formulas, advertising, marketing, designs, trade dress,
plans, know-how or other proprietary ideas or information, nor will you convey,
divulge, make available or communicate such information to any third party or
assist others in using, copying or duplicating any of the foregoing.
(c) Infringement. You will not at any time commit any act that would
infringe upon or impair the value of the System or the Marks, nor will you
engage in any busi-
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ness or market any product or service under a trade-name, trademark, service
mark, logo or design that is confusingly or deceptively similar to any of the
Marks.
(d) Solicitation of Employees. You agree that from and after the date
of this Agreement, you will not solicit, entice or induce, directly or
indirectly, any employee of us or an Affiliate or our franchisees to leave their
employment to work with you or with any person or entity with whom you are or
become affiliated.
(e) Reasonableness of Scope and Duration. You agree that the
covenants and agreements contained herein are, taken as a whole, reasonable with
respect to the activities covered and their geographic scope and duration, and
you shall not raise any issue of the reasonableness of the areas, activities or
duration of any such covenants in any proceeding to enforce any such covenants.
Each of you acknowledge and agree that you have other skills and resources and
that the restrictions contained in this Section 7 will not hinder your
activities or ability to make a living either under this Agreement or in
general.
(f) Enforceability. You agree that we may not be adequately
compensated by damages for a breach by you of any of the covenants and
agreements contained in this Section, and that we shall, in addition to all
other remedies, be entitled to injunctive relief and specific performance. The
covenants and agreements contained in this Section shall be construed as
separate covenants and agreements, and if any court shall finally determine that
the restraints provided for in any such covenants and agreements are too broad
as to the area, activity or time covered, said area, activity or time covered
may be reduced to whatever extent the court deems reasonable, and such covenants
and agreements shall be enforced as to such reduced area, activity or time.
8. Principal Operator. You shall designate an individual to serve as
your "Principal Operator." The Principal Operator shall meet the following
qualifications:
(a) The Principal Operator shall own at least a 5% equity interest in
you; provided that you shall not be in default of this requirement if the
Principal Operator is entitled
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to a bonus of not less than 5% of the net profit of the Restaurant, payable
after the end of each Penod (as defined in the Franchise Agreement), and also
has the right to acquire not less than 5% equity interest in you within 12
months of his or her hire date, which rights shall be evidenced by a written
agreement between the Principal Operator and you. You shall provide us with a
copy of any such agreement upon request. Once the Principal Operator has
acquired an equity interest in you, he or she must continue to own that interest
(or a greater interest) during the entire period he or she serves as the
Principal Operator and must comply with Section 6.(e) of this Agreement.
(b) The Principal Operator shall devote full time and best efforts to the
supervision and conduct of the development and operation of the Restaurants
contemplated under this Agreement and shall agree to be bound by the
confidentiality and non-competition provisions of the Owner Agreement. At such
time as the Principal Operator becomes an owner of an interest in you, he or she
must agree to be bound by all provisions of the Owner Agreement.
(c) The Principal Operator shall be a person we approve who shall complete
our initial training requirements and who shall participate in and complete to
our satisfaction all additional training as we may reasonably designate.
If, at any time or for any reason, the Principal Operator no longer
qualifies to act as such, you shall promptly designate another Principal
Operator subject to the same qualifications listed above. You shall immediately
notify us of the termination of the Principal Operator's employment with you,
whether voluntary or involuntary.
9. Default and Termination.
(a) Automatic Termination. You shall in default under this Agreement, and
this Agreement and all rights granted in it shall automatically terminate
without notice to you, (i) if you make a general assignment for the benefit of
creditors or if a petition in bankruptcy is filed by you; or (ii) such a
petition is filed against and not opposed by you; or (iii) if you are
adjudicated as bankrupt or insolvent; or (iv) if a bill in equity or other
proceeding
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is filed for the appointment of a receiver or other custodian for your business
or assets if filed and consented to by you; or (v) if a receiver or other
custodian (permanent or temporary) of your assets or property, or any party
thereof, is appointed by any court of competent jurisdiction; or (vi) if
proceedings for a composition with creditors under any state or federal law
should be instituted by or against you; or (vii) if a final judgment remains
unsatisfied or of record for thirty (30) days or longer (unless supersede as
bond is filed); or (viii) if you are dissolved; or (ix) if any portion of your
interest in any Papa John's franchise becomes subject to an attachment,
garnishment, levy or seizure by any creditor or any other person claiming
against or in your rights; or (x) if execution is levied against your business
or property or (xi) if the real or personal property of any Restaurant shall be
sold after levy thereupon by any sheriff, marshal, or constable.
(b) Without Notice. You shall be in default under this Agreement, and we
may, at our option, terminate this Agreement and all rights granted under it
without affording you any opportunity to cure such default, effective upon the
earlier of (i) receipt of the notice of termination by you, or (ii) five days
after mailing of such notice by us, upon the occurrence of any of the following
events;
(1) if you fail to strictly comply with the development schedule set forth
in Section 3;
(2) if any Franchise Agreement entered into pursuant to this Agreement or
otherwise is terminated as a result of your breach or default;
(3) if you make or attempt to make any transfer, whether voluntary or
involuntary, of this Agreement or any interest herein, or of any rights or
obligations arising under this Agreement, or of any interest in you, or of any
material portion of your assets, without our prior written consent, except as
otherwise provided under the Franchise Agreement; or
(4) if you fail to comply with any of your covenants set forth in Section 7
of this Agreement.
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(c) With Notice. For any other breach or default under this Agreement, we
will provide you with written notice of default and 15 days to cure or, if a
default cannot be reasonably cured within 15 days, to initiate within that time
substantial and continuing action to cure such default and to provide us with
evidence of such actions. If the defaults specified in such notice are not cured
within the 15 day period, or if substantial and continuing action to cure has
not been initiated, we may, at our option, terminate this Development Agreement
and all rights granted to you under it by giving written notice of such
termination to you. The notice of termination shall be effective on the earlier
of (i) the date of receipt of the notice by you or notice by you or (ii) five
days after the mailing of such notice by us.
(d) Effect of Termination. Upon termination of this Agreement, all your
rights under it shall terminate and you shall have no further right to establish
any Restaurants. In addition, upon termination of this Agreement, we shall have
the right to open and operate, or to franchise others to open and operate, Papa
John's restaurants anywhere within the Development Area, except that we may not
locate or franchise another to locate a Papa John's restaurant within the
"Territory" provided for in any Franchise Agreement that remains in effect after
the date of termination.
10. Assignment or Transfer.
(a) Transfer by Us. We may transfer this Agreement or any portion of it, or
any or all of our rights, obligations or interests under it, without
restriction. Upon any transfer or assignment of this Agreement by us, we shall
be released from all obligations and liabilities arising or accruing in
connection with this Agreement after the date of such transfer of assignment.
(b) Transfer by You. This Agreement, and your rights and obligations under
it, are and shall remain personal to you. Any proposed transfer by you or any of
your owners (regardless of the form of transfer) shall be subject to the same
terms and conditions contained in the Franchise Agreement. As used herein, the
term "transfer" shall mean any sale, assignment, gift, pledge, mortgage or any
other encumbrance, transfer by bankruptcy, transfer
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by judicial order, merger, consolidation, share exchange, transfer by operation
of law or otherwise, whether direct or indirect, voluntary or involuntary, of
this Agreement or any interest in it, or any rights or obligations arising under
it, or of any material portion of your assets, or of any interest in you.
11. No Grant of Franchise or Franchise Rights. This Agreement does not
grant you a franchise or any rights of a Papa John's franchisee. To the fullest
extent permissible by law, you waive the applicability of any law which would
constitute this Agreement or any rights granted under it as a franchise
agreement or as granting any franchise rights.
12. Notices. All notices, requests, demands and other communications
required or permitted to be given or made under this Agreement shall be in
writing and shall be given (i) by personal delivery or (ii) provided such
notice, request, demand or communication is actually received by the party to
which it is addressed in the ordinary course of delivery, by deposit in the
United States mail, postage prepaid, or (iii) by registered or certified mail,
return receipt requested, postage prepaid, or by delivery to a nationally-
recognized overnight courier service, in each case, addressed as follows, or to
such other person or entity as either party shall designate by notice to the
other in accordance herewith:
Papa John's: P.O. Box 99900
Louisville, Kentucky 40269-9990
ATTN: General Counsel
You: 9109 Parkway East
Birmingham, Alabama 35206
ATTN: Douglas Stephens
Except as otherwise provided herein, a notice shall be deemed to have been
given on the date of personal delivery to a party or the date deposited in the
United States mail or with a nationally-recognized overnight courier.
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13. Independent Contractor; Indemnification.
(a) Independent Contractor. It is understood and agreed by the parties that
this Agreement creates only a contract relationship between the parties subject
to the normal rule of contract law. This Agreement does not create a fiduciary
relationship between us and you and you are and shall remain an independent
contractor. Nothing in this Agreement is intended to constitute either party an
agent, legal representative, subsidiary, joint venturer, partner, employee, or
servant of the other for any purpose whatsoever. You agree to hold yourself out
to the public as an independent contractor, separate and apart from us. You
agree that you shall not make any contract, agreement, warranty, or
representation on our behalf without our prior written consent, and you agree
that you shall not incur any debt or other obligation in our name. This
Agreement shall not be deemed to confer any rights or benefits to any person or
entity not expressly named herein.
(b) Indemnification. We shall not be liable by reason of any act or
omission of you in your development, construction or conduct of the Restaurants
or for any claim, cause of action or judgement arising therefrom against you or
us. You agree to hold harmless, defend and indemnify us and our affiliates,
officers, directors, agents, and employees, from and against any and all losses,
expenses, judgments, claims, attorney fees and damages arising out of or in
connection with any claim or cause of action in which we shall be a named
defendant and which arises, directly or indirectly, out of the operation of, or
in connection with, your Restaurants, other than a claim resulting directly from
our negligence.
14. Enforcement.
(a) ARBITRATION. EXCEPT FOR CONTROVERSIES, DISPUTES OR CLAIMS RELATED TO OR
BASED ON (1) YOUR USE OF THE MARKS AFTER THE EXPIRATION OR TERMINATION OF THIS
AGREEMENT OR, AT OUR OPTION, YOUR VIOLATION OF ANY PROVISION OF SECTION 7
HEREOF; OR (2) ANY ACTION ARISING OUT OF OR RELATING TO ANY FINANCING PROVIDED
TO YOU BY US OR OUR AFFILIATES AND THE AGREEMENTS, NOTES, LIENS AND
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SECURITY INTERESTS RELATED THERETO AND THE ENFORCEMENT, INTERPRETATION OR
COLLECTION THEREOF, ALL CONTROVERSIES, DISPUTES OR CLAIMS BETWEEN US AND OUR
AFFILIATES, SHAREHOLDERS, OFFICERS, DIRECTORS, AGENTS AND EMPLOYEES AND YOU
(YOUR OWNERS, GUARANTORS, AFFILIATES AND EMPLOYEES, IF APPLICABLE) ARISING OUT
OF OR RELATED TO:
(i) THIS AGREEMENT OR ANY OTHER AGREEMENT BETWEEN YOU AND US OR ANY
PROVISION OF ANY SUCH AGREEMENT;
(ii) OUR RELATIONSHIP WITH YOU, INCLUDING ISSUES RELATING TO OUR DECISION
TO TERMINATE THAT RELATIONSHIP;
(iii) THE VALIDITY OF THIS AGREEMENT OR ANY OTHER AGREEMENT BETWEEN YOU AND
US OR ANY PROVISION OF ANY SUCH AGREEMENT; OR
(iv) ANY STANDARD, SPECIFICATION OR OPERATING PROCEDURE RELATING TO THE
DEVELOPMENT, ESTABLISHMENT OR OPERATION OF THE RESTAURANTS
WILL BE SUBMITTED FOR BINDING ARBITRATION TO THE LOUISVILLE, KENTUCKY
OFFICE OF THE AMERICAN ARBITRATION ASSOCIATION ON DEMAND OF EITHER PARTY. SUCH
ARBITRATION PROCEEDING WILL BE CONDUCTED IN LOUISVILLE, KENTUCKY AND, EXCEPT AS
OTHERWISE PROVIDED IN THIS AGREEMENT, WILL BE HEARD BY ONE ARBITRATOR IN
ACCORDANCE WITH THE THEN CURRENT FRANCHISING ARBITRATION RULES, IF ANY,
OTHERWISE THE THEN CURRENT COMMERCIAL ARBITRATION RULES OF THE AMERICAN
ARBITRATION ASSOCIATION. ALL MATTERS RELATING TO ARBITRATION WILL BE GOVERNED BY
THE FEDERAL ARBITRATION ACT (9 U.S.C. (S)(S) 1 ET SEQ.) AND NOT BY ANY STATE
ARBITRATION LAW.
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THE ARBITRATOR WILL HAVE THE RIGHT TO AWARD OR INCLUDE IN THE AWARD ANY
RELIEF WHICH THE ARBITRATOR DEEMS PROPER IN CIRCUMSTANCES, INCLUDING, WITHOUT
LIMITATION, MONEY DAMAGES (WITH INTEREST ON UNPAID AMOUNTS FROM THE DATE DUE),
SPECIFIC PERFORMANCE, INJUNCTIVE RELIEF AND ATTORNEYS' FEES AND COSTS, PROVIDED
THAT THE ARBITRATOR WILL NOT HAVE THE RIGHT TO DECLARE ANY MARK GENERIC OR
OTHERWISE INVALID OR, EXCEPT AS OTHERWISE PROVIDED IN THIS AGREEMENT, TO AWARD
EXEMPLARY OR PUNITIVE DAMAGES. THE AWARD AND DECISION OF THE ARBITRATOR WILL BE
CONCLUSIVE AND BINDING UPON ALL PARTIES HERETO, AND JUDGMENT UPON THE AWARD MAY
BE ENTERED IN ANY COURT OF COMPETENT JURISDICTION.
WE AND YOU AGREE TO BE BOUND BY THE PROVISIONS OF ANY LIMITATION ON THE
PERIOD OF TIME IN WHICH CLAIMS MUST BE BROUGHT UNDER APPLICABLE LAW OR THIS
AGREEMENT, WHICHEVER EXPIRES EARLIER. WE AND YOU FURTHER AGREE THAT, IN
CONNECTION WITH ANY SUCH ARBITRATION PROCEEDING, EACH PARTY MUST SUBMIT OR FILE
ANY CLAIM WHICH WOULD CONSTITUTE A COMPULSORY COUNTERCLAIM (AS DEFINED BY RULE
13 OF THE FEDERAL RULES OF CIVIL PROCEDURE) WITHIN THE SAME PROCEEDING AS THE
CLAIM TO WHICH IT RELATES. ANY SUCH CLAIM WHICH IS NOT SUBMITTED OR FILED AS
DESCRIBED ABOVE WILL BE FOREVER BARRED.
WE AND YOU AGREE THAT ARBITRATION WILL BE CONDUCTED ON AN INDIVIDUAL, NOT A
CLASS-WIDE, BASIS, AND THAT AN ARBITRATION PROCEEDING BETWEEN US AND OUR
AFFILIATES, SHAREHOLDERS, OFFICERS, DIRECTORS, AGENTS AND EMPLOYEES AND YOU
(AND/OR YOUR OWNERS, GUARANTORS, AFFILIATES AND EMPLOYEES, IF APPLICABLE) MAY
NOT BE CONSOLIDATED WITH ANY OTHER ARBITRATION PROCEEDING BETWEEN US
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AND ANY OTHER PERSON, CORPORATION, LIMITED LIABILITY COMPANY OR PARTNERSHIP.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS SECTION, WE AND
YOU EACH HAVE THE RIGHT IN A PROPER CASE TO OBTAIN TEMPORARY RESTRAINING ORDERS
AND PRELIMINARY INJUNCTIVE RELIEF FROM A COURT OF COMPETENT JURISDICTION;
PROVIDED, HOWEVER, THAT WE AND YOU MUST CONTEMPORANEOUSLY SUBMIT OUR DISPUTE FOR
ARBITRATION ON THE MERITS AS PROVIDED HEREIN EXCEPT AS OTHERWISE PROVIDED IN THE
FIRST PARAGRAPH OF THIS SECTION 14.(a).
THE PROVISIONS OF THIS SECTION ARE INTENDED TO BENEFIT AND BIND CERTAIN
THIRD PARTY NON-SIGNATORIES AND WILL CONTINUE IN FULL FORCE AND EFFECT
SUBSEQUENT TO AND NOTWITHSTANDlNG THE EXPIRATION OR TERMINATION OF THIS
AGREEMENT.
(b) GOVERNING LAW. ALL MATTERS RELATING TO ARBITRATION WILL BE GOVERNED BY
THE FEDERAL ARBITRATION ACT (9 U.S.C. (S)(S)1 ET SEO). EXCEPT TO THE EXTENT
GOVERNED BY THE FEDERAL ARBITRATION ACT, THE UNITED STATES TRADEMARK ACT OF 1946
(LANHAM ACT, 15 U.S.C. SECTIONS 1051 ET SEQ.) OR OTHER FEDERAL LAW, THIS
AGREEMENT AND ALL CLAIMS ARISING FROM THE RELATIONSHIP BETWEEN US AND YOU WILL
BE GOVERNED BY THE LAWS OF THE STATE OF KENTUCKY WITHOUT REGARD TO ITS CONFLICT
OF LAWS PRINCIPLES.
(c) CONSENT TO JURISDICTION AND VENUE. YOU AND YOUR OWNERS AGREE THAT ALL
JUDICIAL ACTIONS BROUGHT BY US AGAINST YOU OR YOUR OWNERS OR BY YOU OR YOUR
OWNERS AGAINST US OR OUR SUBSIDIARIES, SHAREHOLDERS, OFFICERS, DIRECTORS, AGENTS
OR EMPLOYEES MUST BE BROUGHT IN ANY COURT OF COMPETENT
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JURISDICTION IN JEFFERSON COUNTY, KENTUCKY OR FEDERAL DISTRICT COURT FOR THE
WESTERN DISTRICT OF KENTUCKY AND YOU (AND EACH OWNER) IRREVOCABLY SUBMIT TO THE
JURISDICTION OF SUCH COURTS AND WAIVE ANY OBJECTION YOU, HE OR SHE MAY HAVE TO
EITHER THE JURISDICTION OF OR VENUE IN SUCH COURTS. NOTWITHSTANDING THE
FOREGOING, WE MAY BRING AN ACTION TO OBTAIN A RESTRAINING ORDER OR TEMPORARY OR
PRELIMINARY INJUNCTION, OR ENFORCE AN ARBITRATION AWARD, IN ANY FEDERAL OR STATE
COURT OF GENERAL JURISDICTION IN THE STATE IN WHICH YOU RESIDE OR IN WHICH THE
RESTAURANTS ARE LOCATED.
(d) WAIVER OF PUNITIVE DAMAGES. EXCEPT WITH RESPECT TO YOUR OBLIGATION TO
INDEMNIFY US PURSUANT TO SECTION 13 AND CLAIMS WE BRING AGAINST YOU FOR YOUR
UNAUTHORIZED USE OR DISCLOSURE OF ANY CONFIDENTIAL INFORMATION, WE AND YOU AND
YOUR OWNERS WAIVE TO THE FULLEST EXTENT PERMITTED BY LAW ANY RIGHT TO OR CLAIM
FOR ANY PUNITIVE OR EXEMPLARY DAMAGES AGAINST THE OTHER AND AGREE THAT, IN THE
EVENT OF A DISPUTE BETWEEN US, THE PARTY MAKING A CLAIM WILL BE LIMITED TO
EQUITABLE RELIEF AND TO RECOVERY OF ANY ACTUAL DAMAGES IT SUSTAINS.
(e) WAIVER OF JURY TRIAL. WE AND YOU IRREVOCABLY WAIVE TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM, WHETHER AT LAW OR IN EQUITY, BROUGHT BY
EITHER OF US.
(f) LIMITATIONS OF CLAIMS. EXCEPT FOR CLAIMS BROUGHT BY US WITH REGARD TO
YOUR OBLIGATIONS UNDER SECTIONS 7.(a), 7.(b) AND 7.(c), AND TO INDEMNIFY US
PURSUANT TO SECTION 13, ANY AND ALL CLAIMS ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE RELATIONSHIP OF YOU AND US PURSUANT TO THIS AGREEMENT WILL BE
BARRED UNLESS AN ACTION IS COMMENCED WITHIN ONE (1) YEAR FROM THE DATE ON WHICH
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THE ACT OR EVENT GIVING RISE TO THE CLAIM OCCURRED, OR ONE (1) YEAR FROM THE
DATE ON WHICH YOU OR WE KNEW OR SHOULD HAVE KNOWN, IN THE EXERCISE OF REASONABLE
DILIGENCE, OF THE FACTS GIVING RISE TO SUCH CLAIMS, WHICHEVER OCCURS FIRST.
(g) Costs, Expenses and Attorneys' Fees. Except as provided in Section 13
each party shall pay its own costs, expenses and attorneys' fees in any action,
claim, suit or proceeding arising out of this Agreement or the franchise
relationship of the parties.
15. Acknowledgements.
Your Representations. You hereby acknowledge and represent that:
(a) all information submitted to us by you or those owning an interest in
you, including all applications, financial statements and other documents and
information, is true and correct in all respects and that it does not omit any
statement or item of fact material to make the statements made therein not false
or misleading;
(b) We have not represented (i) that the you will earn, can earn, or are
likely to earn a gross or net profit, (ii) that we have knowledge of the
relevant market, or (iii) that the market demand will enable the you to earn a
profit from the Franchise;
(c) You have read and understood this Agreement and the disclosure document
ended "Papa John's Franchise Offering Circular" (the "Offering Circular")
required by the Federal Trade Commission or the state in which the Development
Area will be located at least ten business days prior to the date on which this
Agreement was signed or any monies were paid to us by you. You understand that
we make no representation or warranty regarding your relevant market or the
profitability of business operations under the System and that no
representations have been made by us, or by our affiliate or ours or their
officers, directors, shareholders, employees or agents, that are contrary to or
inconsistent with the terms of this
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Agreement or with the statements made in Offering Circular that accompanied a
copy of this Agreement;
(d) You accept the terms, conditions and covenants contained in this
Agreement as being reasonable and necessary to maintain our standards of
quality, service and uniformity and in order to protect and preserve the
goodwill of the Marks. You acknowledge that other franchisees of ours have been
or will be granted franchises at different times and in different situations.
You further acknowledge that the provisions of the franchise agreements pursuant
to which such franchises were granted may vary materially from those contained
in this Agreement and that your obligation arising hereunder may differ
substantially from other franchisees; and
(e) You recognize that the System may evolve and change over time and
that the Franchise involves an investment of substantial risk and its success is
dependent primarily upon your business acumen and efforts and other factors
beyond our control. You have conducted an independent investigation of the
Franchise and have had ample time and opportunity to consult with independent
professional advisors (lawyers, accountants, etc.), and have not received or
relied upon any express or implied guarantee as to potential volumes, revenues,
profits or success of the business venture contemplated by the Franchise.
16. MISCELLANEOUS.
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(a) SEVERABILITY. You agree to be bound to the maximum extent
permitted by law which is subsumed within the terms of any provision hereof, as
though it were separately articulated in and made a part of this Agreement, that
may result from the striking of any provision hereof by a court, or which a
court holds to be unenforcable in a final decision to which we are a party, or
that may result from reducing the scope of any provision to the extent required
to comply with a court order or with any state or federal law, whether currently
in effect or subsequently enacted.
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(b) CONSTRUCTION. All references herein to the masculine, neuter, or
singular shall be construed to include the masculine, feminine, neuter, or
plural, as the case may require. All acknowledgements, warranties,
representations, covenants, agreements, and obligations herein made or
undertaken by you shall be deemed jointly and severally undertaken by all those
executing this Agreement as you. During any period in which any of the covenants
in Section 7 is being breached or violated, including any period in which either
of the parties seeks judicial enforcement, interpretation or modification of any
such covenant, and all appeals thereof, the restricted period set forth therein
shall toll and be suspended.
(c) ENTIRE AGREEMENT. This Agreement, the documents incorporated
herein by reference and the Exhibit attached hereto, comprise the entire
agreement between the parties, and all prior understandings or agreements
concerning the subject matter hereof are canceled and superseded by this
Agreement The Exhibit to this Agreement is incorporated herein by reference and
made a part hereof as if set out in full herein.
(d) AFFILIATE. As used in this Agreement, the term "Affiliate" shall
mean any person or entity that is owned or controlled by us or which owns and
controls us or is under common control with us.
(e) AMENDMENTS. Except for those permitted to be made unilaterally by
us, no supplement, amendment or variation of the terms of this Agreement shall
be valid unless made in writing and signed by the parties hereto.
(f) WAIVERS. No failure of us to exercise any right given to it
hereunder, or to insist upon strict compliance by you with any obligation,
agreement or undertaking hereunder, and no custom or practice of the parties at
variance with the terms hereof shall constitute a waiver of our right to demand
full and exact compliance by you with the terms thereof. Waiver by us of any
particular default by you shall not affect or impair our rights with respect to
any subsequent default of the same or of a different nature, nor shall any delay
or omission of us to exercise any right arising from such default affect or
impair our rights as to such default or any subsequent default.
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(g) Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
(h) Headings. The headings used in this Agreement are for
convenience only, and the paragraphs shall be interpreted as if such headings
were omitted.
(i) Time of Essence. You agree and acknowledge that time is of the
essence with regard to your obligations hereunder, and that all of your
obligations are material to us and this Agreement.
IN WITNESS WHEREOF, the parties have signed this Development Agreement as
of the date written above.
PAPA JOHN'S INTERNATIONAL, INC.
By:
------------------------------------
Richard J. Emmett, Vice President
UTAH CHEESE, INC.
By:
-------------------------------------
Douglas Stephens, President
-22-
<PAGE>
PAPA JOHN'S
DEVELOPMENT AGREEMENT
EXHIBIT A
DEVELOPMENT AREA
----------------
AUGUST __, 1996
The areas encompassed on the attached map entitled "Utah Cheese, Inc."
shall comprise the "Development Area," as defined in the Papa John's Development
Agreement of even date herewith, by and between PAPA JOHN'S INTERNATIONAL, INC.
and UTAH CHEESE, INC.
NUMBER OF RESTAURANTS TO BE DEVELOPED 30
PAPA JOHN'S INTERNATIONAL, INC.
By: /s/ Richard J. Emmett
----------------------------------
Richard J. Emmett, Vice President
PJ Utah, LLC [Utah Cheese, Inc.]
By:
----------------------------------
Douglas Stephens, President
<PAGE>
UTAH CHEESE, Inc. Papa John's International, Inc.
[MAP APPEARS HERE]
Logan
Ogden
Salt Lake City
West Valley City
Taylorsville-Bennion
Sandy
Orern
Provo
UTAH
Cedar City
St. George
LEGEND
[_] PLACES 50-500T
[_] PLACES 10-50T
[_] STATES, 1:3M
[_] COUNTIES, 1:3M
(c) 1994-95, Scan/US, Inc. All rights reserved. 8/19/96
The Development Area will consist of 30 stores to be built in the state of Utah.
<PAGE>
EXHIBIT 10.11
________________________________________________________________________________
PAPA JOHN'S
DEVELOPMENT AGREEMENT
EXTRA CHEESE, INC.
428 15TH STREET
TUSCALOOSA, ALABAMA 35401
[For the Development of Ten Outlets in
Birmingham, Tuscaloosa and Auburn, Alabama]
________________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. Grant............................................................ 2
2. Development Fee.................................................. 2
3. Development of Outlets; Schedule for Completion.................. 3
4. Term............................................................. 5
5. Right of Refusal; Additional Outlets............................. 5
6. Construction or Remodeling....................................... 6
7. Organization, Operation and Ownership of Developer............... 6
8. Covenants of the Developer....................................... 7
9. Reasonableness of Scope and Duration............................. 9
10. Enforceability................................................... 9
11. Principal Operator............................................... 9
12. Default and Termination.......................................... 10
13. Assignment or Transfer........................................... 13
14. Approval or Consent.............................................. 14
15. No Grant of Franchise or Franchise Rights........................ 14
16. Notices.......................................................... 14
17. Franchise Agreement Defined...................................... 15
18. Independent Contractor; Indemnification.......................... 15
19. Severability; Construction....................................... 16
20. Entire Agreement................................................. 16
21. Waivers.......................................................... 17
22. Headings......................................................... 17
23. Affiliate........................................................ 17
24. Governing Law, Jurisdiction and Venue............................ 17
25. Acknowledgements................................................. 18
26. Time of Essence.................................................. 19
COVENANTS OF PRINCIPAL OPERATOR....................................... 20
</TABLE>
<PAGE>
DEVELOPMENT AGREEMENT
---------------------
THIS DEVELOPMENT AGREEMENT ("Agreement") is made and entered into this
_____ day of August, 1991, by and between PAPA JOHN'S INTERNATIONAL, INC., an
Indiana corporation ("Franchisor"), and EXTRA CHEESE, INC., an Alabama
corporation ("Developer").
RECITALS:
--------
A. Franchisor has expended time, effort and money to develop a unique
system for the operation of retail outlets specializing in carry-out and
delivery of pizza and other food items (the "System").
B. Franchisor's System includes the trade name and trademark "Papa
John's" as well as the trademark "Papa John's Pizza" and certain other
trademarks, service marks, slogans, logos and emblems owned by Franchisor (the
"Marks").
C. Developer desires to obtain certain rights to develop Papa John's
Pizza outlets in the "Development Area" (as defined in Section 1) in accordance
with the terms of this Agreement.
AGREEMENT:
---------
NOW, THEREFORE, in consideration of the covenants and conditions
hereinafter set forth, the parties agree as follows:
<PAGE>
1. GRANT.
-----
(a) Subject to the terms and conditions of this Agreement and the
continuing faithful performance thereof by Developer, Franchisor hereby grants
to Developer the right to establish ten Papa John's Pizza outlets (at specific
locations approved by Franchisor as provided in section 3.(a)) in the areas
specified on Exhibit A attached hereto and incorporated herein by reference.
(The Papa John's Pizza outlets are collectively referred to as the "Outlets" and
individually as an "Outlet"; the areas specified on Exhibit A are collectively
referred to as the "Devel opment Area").
(b) Each Outlet shall be established and operated pursuant to a
separate "Franchise Agreement" (as defined in Section 17) to be entered into
between Developer and Franchisor. The Franchise Agreement for each Outlet shall
not be substantially different than the form of Franchise Agreement executed for
the Outlet to be located at 428 15th Street, Tuscaloosa, Alabama.
(c) Except as may be otherwise provided herein or in the Franchise
Agreements, Franchisor shall not locate, nor license another to locate, a Papa
John's Pizza outlet in the Development Area during the "Term" (as defined in
Section 4) and all extensions of the Term.
(d) This Agreement is not a franchise agreement and does not grant
Developer any franchise rights or other rights to use Franchisor's Marks or
System.
(e) Developer shall have no right to license others to use the Marks
or the System, or to enter into any agreement with respect thereto.
2. DEVELOPMENT FEE. Developer has paid to Franchisor a development fee
---------------
of Sixteen Thousand Seven Hundred Dollars ($16,700) ("Development Fee"), receipt
of which is hereby acknowledged and which Development Fee has been fully earned
by Franchisor, is non-refundable and is not contingent upon the rendering of any
further
<PAGE>
performance by Franchisor. The Development Fee is in consideration of, among
other things, the development rights granted herein, the reservation of the
Development Area, the development opportunities lost or deferred as a result of
the rights granted Developer herein and the administrative and other expenses
incurred by Franchisor.
3. DEVELOPMENT OF OUTLETS; SCHEDULE FOR COMPLETION.
-----------------------------------------------
(a) Developer shall have the number of Outlets open and operating
within the time frame set forth in subsection 3.(d), below, and Developer shall
exercise each such development right only at locations within the Development
Area which have been approved by Franchisor.
(b) Prior to the execution of any lease or contract for purchase of
any location for an Outlet, Developer shall submit to Franchisor for approval
one copy of the proposed contract or lease. If Developer owns the property where
the Outlet is proposed to be located, Developer shall submit one copy of the
deed conveying title to such property to Developer. If Developer intends to
lease the location, Developer shall also submit a letter of intent or other
evidence satisfactory to Franchisor which confirms the ability of Developer to
obtain the site, together with such other information and materials as
Franchisor may reasonably request. Franchisor shall have 15 days after receipt
of such information to accept or reject, in its sole discretion, each proposed
location, and no location shall be deemed approved unless it has been expressly
approved in writing by Franchisor. If Franchisor fails to respond within such 15
day period, the location submitted by Developer shall be deemed to be approved.
Franchisor will not unreasonably withhold its approval of a location. Any
proposed lease shall include an addendum in the form of Exhibit C to the
Franchise Agreement, or shall contain terms and conditions substantially similar
to those contained in Exhibit C to the Franchise Agreement which Franchisor
approves.
(c) Franchisor shall deliver the Franchise Agreement to Developer
within 15 days after Franchisor approves the lease, deed or contract for
purchase for the
<PAGE>
location. The Franchise Agreement for such location shall be executed by
Developer and submitted to Franchisor within ten days after Developer has
purchased the property or entered into a lease and has satisfied all conditions
to its obligations to construct an Outlet at such location.
(d) Notwithstanding any provision of any Franchise Agreement entered
into between Franchisor and Developer, Developer shall exercise each development
right as follows:
DEVELOPMENT SCHEDULE
--------------------
<TABLE>
<CAPTION>
Dates on Which Each Cumulative Number of Outlets
Outlet Shall be Open to be Open and Operating*
-------------------- ------------------------
<S> <C>
February 1, 1992 1
August 1, 1992 2
December 1, 1992 3
April 1, 1993 4
August 1, 1993 5
December 1, 1993 6
April 1, 1994 7
August 1, 1994 8
December 1, 1994 9
April 1, 1995 10
</TABLE>
[* - Includes only those Outlets to be developed pursuant to this
Development Agreement.]
Notwithstanding the foregoing, Developer shall have two (2) 60-day grace periods
which it may use at any time in the event that it fails to have the requisite
number of Outlets opened by the required date. Developer may use a grace period
by giving Franchisor written notice of its intent to do so on or before the date
being extended. Use of a 60-day grace period shall extend each subsequent
development date by 60 days.
(e) The Initial Franchise Fee to be paid by Developer for each Outlet
shall be $6,500, which amount shall be paid at the time each Franchise Agreement
is executed.
<PAGE>
(f) It shall be Developer's responsibility to ensure that each Outlet
is constructed or remodeled, and equipped and operated in compliance with all
laws, ordinances and governmental rules and regulations, and Developer shall
obtain all necessary permits and licenses relating thereto.
4. TERM. Unless sooner terminated as provided herein, or unless extended
----
by Developer's use of one or both grace periods, this Agreement shall expire at
12:00 midnight on the last date set forth on the Development Schedule (the
"Term"). Upon the termination or expiration of this Agreement, all unexercised
development rights shall expire.
5. RIGHT OF REFUSAL; ADDITIONAL OUTLETS.
------------------------------------
(A) RIGHT OF REFUSAL. For a period of four (4) years after the
----------------
expiration of this Agreement, Developer shall have a ten (10) day right of first
refusal before Franchisor grants the right to any third party to establish any
Papa John's restaurants anywhere in the Development Area. Such right of first
refusal shall include only the right of Developer to develop the number of
outlets on the same terms as agreed to by the third party.
(B) ADDITIONAL OUTLETS BY AGREEMENT. If during the Term or the first
-------------------------------
sixteen (16) months of the right of first refusal period, if applicable,
Franchisor and Developer mutually agree that Developer will establish one or
more outlets in the Development Area in addition to the ten required to be
developed hereunder, the Franchise Fee for each such outlet shall be $10,000.
If, during the remainder of the right of first refusal period, if applicable,
any additional outlets are established in the Development Area by mutual
agreement of the parties hereto, the Franchise Fee for each such outlet shall be
the lesser of (i) $15,000 or (ii) the initial franchise fee being charged by
Franchisor, regardless of any increases in such fees after the date hereof;
provided that in no event shall the Initial Franchise Fee be less than $10,000.
<PAGE>
6. CONSTRUCTION OR REMODELING. Developer shall, at its own expense,
--------------------------
construct or remodel the Outlet at each location in accordance with
specifications provided by Franchisor, including, but not limited to, those
contained in the Construction Agreement attached to the "Papa John's Offering
Circular" (as defined in Section 25). Developer shall allow Franchisor and its
agents and employees access to all areas of the premises of each Outlet at such
times as they may reasonably request and Developer shall cooperate fully with
Franchisor and its agents and employees in preparing specifications for each
Outlet to be developed hereunder. However, it shall be Developer's obligation
to have plans drawn showing the layout on all equipment, signs and leasehold
improvements, and such plans shall be subject to Franchisor's approval.
Developer shall not begin construction or remodeling on any Outlet until the
Franchise Agreement has been fully executed and Franchisor has approved the
plans for such Outlet.
7. ORGANIZATION, OPERATION AND OWNERSHIP OF DEVELOPER. If Developer is a
--------------------------------------------------
corporation or other entity:
(a) If requested by Franchisor from time to time, Developer shall
furnish Franchisor with its Articles of Incorporation, By-Laws and other
governing documents (and any amendments or modifications thereof), minutes and
resolutions and all agreements or other documents, records and information
pertaining to Developer's existence and operation.
(b) Developer shall confine its business activities exclusively to
the establishment, management and operation of Papa John's Pizza outlets
pursuant to agreements with Franchisor.
(c) Developer shall, concurrently with the execution of this
Agreement, and at such other times as may be requested by Franchisor, disclose
the name and address of each person or entity owning a beneficial interest in
Developer, and Developer shall not issue any additional securities, nor allow
the "transfer" (as defined in Section 13) of any of its outstanding securities,
except as provided in Section 13.
<PAGE>
(d) Developer shall at all times comply with all laws, ordinances,
rules and regulations of governmental bodies.
(e) Developer shall cause all persons or entities owning any interest
in Developer of 5% or more to execute the Guaranty and Non-Competition Agreement
attached hereto, guarantying certain obligations of Developer and agreeing to be
bound to certain covenants contained in this Agreement.
8. COVENANTS OF THE DEVELOPER.
--------------------------
(A) COVENANT NOT-TO-COMPETE. Developer covenants and agrees that
-----------------------
during the Term and for a period of two years thereafter (the "Restricted
Period"), Developer shall not, within a 50-mile radius of (i) any business
location at which the Developer, Franchisor or an "Affiliate" (as defined in
Section 23) then conducts a Papa John's Pizza business, or (ii) any area or
territory then known by Developer to be covered by an agreement providing for
the development of one or more Papa John's Pizza outlets, whether or not any
such outlet is then conducting business, engage in any of the following
activities:
(i) directly or indirectly render any service to, or act in
concert with, any person, partnership, corporation or other entity engaged in
any fast food business that sells, principally on a delivery and/or carry-out
basis, pizza or other non-pizza products that are the same as or substantially
similar to those sold by Papa John's Pizza outlets, which businesses shall
include by way of example and not by way of limitation, restaurant formats such
as Pizza Hut, Domino's, Little Caesars and Mr. Gatti's (a "Competitive
Business"), or
(ii) directly or indirectly engage in any such Competitive
Business on its own account, or
<PAGE>
(iii) become interested in any such Competitive Business
directly or indirectly as a partner, shareholder, principal, agent, consultant
or in any other relationship or capacity; provided, that the purchase of a
publicly traded security of a corporation engaged in such business or service
shall not in itself be deemed violative of this Agreement so long as Developer
does not own, directly or indirectly, more than 5% of the securities of such
corporation.
(B) APPROPRIATION AND DISCLOSURE OF INFORMATION. Except as permitted
-------------------------------------------
by the Franchise Agreement, Developer will not at any time use, copy or
duplicate the System or any aspect thereof, or any of the Franchisor's trade
secrets, recipes, processes, formulas, know-how or proprietary ideas or
information, nor will Developer convey, divulge, make available or communicate
such information to any third party or assist others in using, copying or
duplicating any of the foregoing.
(C) INFRINGEMENT. Developer will not at any time commit any act that
------------
would infringe upon or impair the value of the System or the Marks, nor will it
engage in any business or market any product or service under a trade-name,
trademark, service mark, logo or design that is confusingly or deceptively
similar to any of the Marks.
(D) SOLICITATION OF EMPLOYEES. Developer agrees that from and after
-------------------------
the date hereof, it will not solicit, entice or induce, directly or indirectly,
any employee of the Franchisor or an Affiliate to leave the employment of the
Fran chisor or an Affiliate to work with Developer or with any person or entity
with whom Developer is or becomes affiliated.
9. REASONABLENESS OF SCOPE AND DURATION. Developer agrees that the
------------------------------------
covenants and agreements contained herein are, taken as a whole, reasonable with
respect to the activities covered and their geographic scope and duration, and
it shall not raise any issue of the reasonableness of the areas, activities or
duration of any such covenants in any proceeding to enforce any such covenants.
<PAGE>
10. ENFORCEABILITY. Developer agrees that the Franchisor may not be
--------------
adequately compensated by damages for a breach by Developer of any of the coven
ants and agreements contained herein, and that the Franchisor shall, in addition
to all other remedies, be entitled to injunctive relief and specific
performance. The covenants and agreements contained in this Agreement shall be
construed as separate covenants and agreements, and if any court shall finally
determine that the restraints provided for in any such covenants and agreements
are too broad as to the area, activity or time covered, said area, activity or
time covered may be reduced to whatever extent the court deems reasonable, and
such covenants and agreements shall be enforced as to such reduced area,
activity or time.
11. PRINCIPAL OPERATOR. Developer shall designate an individual to serve
------------------
as the "Principal Operator" of Developer. The Principal Operator shall meet the
following qualifications:
(a) The Principal Operator shall own at least a five percent (5%)
equity interest (including profits and voting rights) in Developer during the
entire period he serves as Principal Operator.
(b) The Principal Operator shall devote full time and best efforts to
the supervision and conduct of the development and operation of the Outlets
contemplated hereunder and shall execute the Covenants of Principal Operator
attached hereto, agreeing to be individually bound by the obligations of this
Section 11.
(c) The Principal Operator shall be a person approved by Franchisor
who shall complete Franchisor's initial training requirements and who shall
participate in and complete to Franchisor's satisfaction all additional training
as may be reasonably designated by Franchisor.
If, at any time or for any reason, the Principal Operator no longer
qualifies to act as such, Developer shall promptly designate another Principal
Operator subject to the
<PAGE>
same qualifications listed above. Any sale, transfer or assignment of the
Principal Operator's interest in Developer, or any portion thereof, which would
reduce the Principal Operator's equity interest or voting rights in Developer to
less than five percent (5%) of the total (other than a transfer of the Principal
Operator's interest to Developer, another shareholder of Developer or a
successor Principal Operator), shall be deemed a transfer of an interest and
shall be subject to the terms and conditions of Section 13 hereof; and any
failure to comply with such terms and conditions shall be deemed a default by
Developer under Section 12 hereof. Developer shall immediately notify Franchisor
of the termination of the Principal Operator's employment with Developer,
whether voluntary or involuntary.
12. DEFAULT AND TERMINATION.
-----------------------
(A) AUTOMATIC TERMINATION. Developer shall be deemed to be in
---------------------
default hereunder, and this Development Agreement and all rights granted herein
shall automatically terminate without notice to Developer, (i) if Developer
becomes insolvent or makes a general assignment for the benefit of creditors; or
if a petition in bankruptcy is filed by Developer; or (ii) such a petition is
filed against and not opposed by Developer; or (iii) if Developer is adjudicated
as bankrupt or insolvent; or (iv) if a bill in equity or other proceeding is
filed for the appointment of a receiver or other custodian for Developer's
business or assets if filed and consented to by Developer; or (v) if a receiver
or other custodian (permanent or temporary) of substantially all Developer's
assets or property, or any part thereof, is appointed by any court of competent
jurisdiction; or (vi) if proceedings for a composition with creditors under any
state or federal law should be instituted by Developer; or (vii) if a final
judgment remains unsatisfied or of record for thirty (30) days or longer (unless
supersedeas bond is filed); or (viii) if Developer is dissolved; or (ix) if any
portion of Developer's interest in any Papa John's Pizza franchise becomes
subject to an attachment, garnishment, levy or seizure by any creditor or any
other person claiming against or in the rights of Developer and is not
discharged within 60 days after Developer learns of the same; or (x) if
execution is levied against Developer's business or property and is not
discharged within 60 days after
<PAGE>
Developer learns of the same; or (xi) if the real or personal property of any
Outlet shall be sold after levy thereupon by any sheriff, marshal, or constable.
(B) WITHOUT NOTICE. Developer shall be in default under this
--------------
Agreement, and Franchisor may, at its option, terminate this Agreement and all
rights granted hereunder without affording Developer any opportunity to cure
such default, effective upon the earlier of (i) receipt of the notice of
termination by Developer, or (ii) ten days after mailing of such notice by
Franchisor, upon the occurrence of any of the following events:
(i) if any Franchise Agreement entered into pursuant to this
Agreement or otherwise is terminated as a result of a breach or default
thereunder by Developer;
(ii) if Developer makes or attempts to make any transfer,
whether voluntary or involuntary, of this Agreement or any controlling interest
herein, or of any rights or obligations arising hereunder, or of any controlling
interest in Developer, without Franchisor's prior written consent; or
(iii) if Developer fails to comply with any of the covenants of
Developer set forth in Sections 8 and 9 of this Agreement.
(C) WITH NOTICE. For any other breach or default under this
-----------
Agreement, including the failure of Developer to comply with the Development
Schedule set forth in Section 3, Franchisor will provide Developer with written
notice of default and 15 days to cure or, if a default cannot be reasonably be
cured within 15 days, to initiate within that time substantial and continuing
action to cure such default and to provide Franchisor with evidence of such
actions. If the defaults specified in such notice are not cured within the 15
day period, or if substantial and continuing action to cure has not been
initiated, Franchisor may, at its option, terminate this Development Agreement
and all rights granted Developer hereunder by giving written notice of such
termination
<PAGE>
to Developer. The notice of termination shall be effective on the earlier of (i)
the date of receipt of the notice by Developer or (ii) five days after the
mailing of such notice by Franchisor.
(D) EFFECT OF TERMINATION. Upon termination of this Agreement, all
---------------------
rights of Developer hereunder shall terminate and Developer shall have no
further right to establish any additional Outlets. In addition, upon
termination of this Agreement, Franchisor shall have the right to open and
operate, or to franchise others to open and operate, Papa John's Pizza outlets
anywhere within the Development Area, except that Franchisor may not locate or
franchise another to locate a Papa John's Pizza Outlet within the "Territory"
provided for in any Franchise Agree ment that remains in effect after the date
of termination.
(E) FAILURE TO MEET DEVELOPMENT SCHEDULE. In the event Developer
------------------------------------
fails to meet the Development Schedule set forth in Section 3(d) hereof,
Franchisor's sole remedies shall be (i) to terminate this Agreement, (ii)
recover all amounts then due from Developer for commissary purchases and
Royalties and (iii) recover all reasonable out-of-pocket costs incurred as a
result of Developer's failure to meet such Schedule, including reasonable
attorneys' fees. The foregoing shall not limit or affect any rights or remedies
Franchisor may have for any other breach or violation by Developer of this
Agreement nor shall it limit or affect any rights or remedies of Franchisor
under any Franchise Agreement.
13. ASSIGNMENT OR TRANSFER.
----------------------
(A) TRANSFER BY FRANCHISOR. Franchisor shall be free to transfer
----------------------
this Agreement or any portion hereof, or any or all of its rights, obligations
or interests hereunder, without restriction. Upon any transfer or assignment of
this Agreement by Franchisor, Franchisor shall be released from all obligations
and liabilities arising or accruing in connection with this Agreement after the
date of such transfer of assignment.
<PAGE>
(B) TRANSFER BY DEVELOPER. This Agreement, and the rights and
---------------------
obligations of Developer herein, are and shall remain personal to Developer and
may not be transferred by Developer in any manner without the prior written
consent of Franchisor. As used herein, the term "transfer" shall mean any sale,
assignment, gift, pledge, mortgage or any other encumbrance, transfer by
bankruptcy, transfer by judicial order, merger, consolidation, share exchange,
transfer by operation of law or otherwise, whether direct or indirect, voluntary
or involuntary. Any transfer hereunder shall be subject to the same terms and
conditions contained in the Franchise Agreement. If more than one Outlet is to
be transferred (regardless of the form of transfer) Developer shall comply with
the terms and conditions of the Franchise Agreement for each such Outlet.
(C) DEATH, INCAPACITY OR DISSOLUTION. Upon the death or permanent
--------------------------------
incapacity of any individual Developer, or if Developer is a corporation,
partnership or other entity, upon the death, incapacity or dissolution of any
owner of any interest in Developer, the executor, administrator, conservator,
trustee or other representa tive of such person or entity shall assign such
interest in this Agreement, or such interest in Developer, to a third party
approved by Franchisor. Such assignment (including, without limitation,
transfer by bequest or inheritance) shall be completed within a reasonable time,
not to exceed eighteen (18) months from the date of death, permanent incapacity
or dissolution and shall be subject to the terms and conditions applicable to
inter vivos transfers contained in Section 14 of the Franchise Agreement,
- ----- -----
including Franchisor's right of first refusal (unless the transfer is to a
Permitted Transferee). However, if Developer is one or more individuals, and any
such person dies or becomes permanently incapacitated, and if the law of the
jurisdiction governing this Agreement so provides, nothing contained in this
Section shall deny the spouse, heirs or personal representative of such deceased
or per manently incapacitated person the opportunity to hold such interest for a
reasonable time after such death or incapacity, provided that: (i) this
Agreement is valid and in effect, (ii) the spouse, heirs or representative meets
all conditions and qualifications otherwise required of transferees, and (iii)
such spouse, heirs or representative maintains and complies with all standards
and obligations contained in this Agreement.
<PAGE>
14. APPROVAL OR CONSENT. With regard to any action or event which
-------------------
requires Franchisor's approval or consent, Franchisor shall be free to refuse to
grant such approval or consent for any valid reason which Franchisor, in its
---
reasonable discretion, deems sufficient, except as may otherwise be provided
herein.
15. NO GRANT OF FRANCHISE OR FRANCHISE RIGHTS. This Agreement does not
-----------------------------------------
grant Developer a franchise or any rights of a Papa John's franchisee. To the
fullest extent permissible by law, Developer waives the applicability of any law
which would constitute this Agreement or any rights granted hereunder as a
franchise agreement or as granting any franchise rights.
16. NOTICES. All notices, requests, demands and other communications
-------
required or permitted to be given or made under this Agreement shall be in
writing and shall be given (i) by personal delivery or (ii) provided such
notice, request, demand or communication is actually received by the party to
which it is addressed in the ordinary course of delivery, by deposit in the
United States mail, postage prepaid, or (iii) by registered or certified mail,
return receipt requested, postage prepaid, or by delivery to a nationally-
recognized overnight courier service, in each case, addressed as follows, or to
such other person or entity as either party shall designate by notice to the
other in accordance herewith:
Franchisor: 11492 Bluegrass Parkway
Louisville, Kentucky 40299
ATTN: President
Developer: 428 15th Street
Tuscaloosa, Alabama 35401
Attn: Doug Stephens
With a copy to: 3300 First National Tower
Louisville, Kentucky 40202
ATTN: Michael M. Fleishman
<PAGE>
Except as otherwise provided herein, a notice shall be deemed to have been
given on the date of personal delivery to a party or 3 days after the date
deposited in the United States mail or with a nationally-recognized overnight
courier.
17. FRANCHISE AGREEMENT DEFINED. As used herein, the term "Franchise
---------------------------
Agreement" shall mean the form of Papa John's Franchise Agreement to be
executed for each Outlet developed hereunder and all attachments and exhibits
thereto.
18. INDEPENDENT CONTRACTOR; INDEMNIFICATION.
---------------------------------------
(a) It is understood and agreed by the parties that this Agreement
creates only a contractual relationship between the parties subject to the
normal rules of contract law. This Agreement does not create a fiduciary
relationship between the parties. Developer is and shall remain an independent
contractor, and nothing in this Agreement is intended to constitute either party
an agent, legal representative, subsidiary, joint venturer, partner, employee or
servant of the other for any purpose whatsoever. Developer agrees to hold
itself out to the public as an independent contractor, separate and apart from
Franchisor.
(b) Developer agrees that it shall not make any contract, agreement,
warranty or representation on Franchisor's behalf without Franchisor's prior
written consent, and Developer agrees that it shall not incur any debt or other
obligation in Franchisor's name. Franchisor shall not be liable by reason of
any act or omission of Developer in connection with the development,
construction, remodeling or operation of any Outlet, or for any claim or
judgment arising therefrom against Developer or Franchisor.
(c) Developer agrees to hold harmless, defend and indemnify
Franchisor and its officers, directors, agents and employees from and against
all losses, expenses, judgments, claims and damages arising out of or in
connection with any claim
<PAGE>
or cause of action in which Franchisor shall be a named defendant and which
arises, directly or indirectly, out of the development, construction or remodel
ing of any Outlet by Developer.
19. SEVERABILITY; CONSTRUCTION. Developer agrees to be bound to the
--------------------------
maximum extent permitted by law which is subsumed within the terms of any
provision hereof, as though it were separately articulated herein and made a
part of this Agreement, that may result from the striking of any provision
hereof by a court, or which a court holds to be unenforceable in a final
decision to which Franchisor is a party, or that may result from reducing the
scope of any provision to the extent required to comply with a court order or
with any state or federal law, whether currently in effect or subsequently
enacted. During any period in which any of the covenants in Section 7(a), above,
is being breached or violated and either of the parties seeks judicial
enforcement, interpretation or modification of any such covenants, including all
appeals thereof, the Restricted Period shall toll and be suspended.
20. ENTIRE AGREEMENT. This Agreement, the Covenants of Principal Operator
----------------
attached hereto, and the documents incorporated herein by reference, comprise
the entire agreement between the parties and all prior understandings,
communications and agreements concerning the subject matter hereof are canceled
and superseded by this Agreement. No supplement, amendment or variation of the
terms of this Agreement shall be valid unless made in writing and signed by both
parties hereto.
21. WAIVERS. No failure of either party hereto to exercise any right
-------
given to it hereunder, or to insist upon strict compliance by the other with any
obligation, agreement or undertaking hereunder, and no custom or practice of the
parties at variance with the terms hereof shall constitute a waiver of such
party's right to demand full and exact compliance by the other with the terms
hereof. The waiver or excuse by Franchisor of any particular default of
Developer shall not affect or impair Franchisor's rights with respect to any
subsequent default of the same or of a different nature, nor shall any delay
<PAGE>
or omission of Franchisor to exercise any right arising from such default affect
or impair Franchisor's rights as to such default or any subsequent default.
22. HEADINGS. The headings used in this Agreement are for convenience
--------
only, and this Agreement shall be interpreted as if such headings were omitted.
23. AFFILIATE. As used herein, the term "Affiliate" shall mean any person
---------
or entity that is a Papa John's Pizza franchisee of Franchisor or any
sublicensor of Franchisor.
24. GOVERNING LAW, JURISDICTION AND VENUE.
-------------------------------------
(a) This Agreement shall be interpreted and construed under the laws
of the Commonwealth of Kentucky, which laws shall prevail in the event of any
conflict of law.
(b) The parties agree that any action, claim, suit or proceeding
arising under this Agreement or concerning the interpretation of this Agreement
shall be brought in the court of proper jurisdiction located in Jefferson
County, Kentucky. Developer hereby irrevocably consents and submits to personal
jurisdiction and venue in and by the state courts within Jefferson County,
Kentucky, and agrees that Developer may be served with process in any action in
accordance with the terms of the notice provision of this Agreement. Developer
does hereby waive all defenses of personal jurisdiction, venue and forum non
conveniens for the purpose of carrying out this provision.
(c) No right or remedy conferred upon or reserved to Franchisor by
this Agreement is intended to be, nor shall be deemed, exclusive of any other
right or remedy herein provided or permitted by law or equity, except as
otherwise specified in this Agreement but each shall be cumulative of every
other right or remedy. In any action, claim, suit or proceeding arising out of
this Agreement, each party shall pay its own costs, expenses and attorneys'
fees. Developer and Franchisor agree that, except
<PAGE>
as set forth in the Guaranty attached hereto, each will look only to the other
and its respective assets with respect to any claims it may have against such
other party, and neither shall being any claim whatsoever against the officers,
directors or shareholders of the other under any circumstances.
25. ACKNOWLEDGEMENTS.
----------------
(a) Developer acknowledges that the success of the businesses
contemplated by this Agreement involves substantial business risks and will be
dependent upon the ability of Developer or those controlling Developer as
independent businessmen. Franchisor expressly disclaims the making of, and
Developer acknowledges not having received, any warranty or guarantee, express
or implied, as to the potential volume, profits or success of the businesses
contemplated by this Agreement.
(b) Developer acknowledges that it received the "Papa John's
Franchise Offering Circular" (and all exhibits thereto) at least ten business
days prior to the date on which this Agreement was signed or any monies were
paid to Franchisor by Developer, and that it has read and understood this
Agreement and the attachments hereto. Developer further acknowledges that
Franchisor has accorded Developer ample time and opportunity to consult with
advisors of Developer's own choosing about the potential benefits and risks of
entering into this Agreement.
<PAGE>
26. TIME OF ESSENCE. Developer agrees and acknowledges that time is of
---------------
the essence with regard to Developer's obligations hereunder, and that all of
Developer's obligations are material to Franchisor and this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Development
Agreement as of the day, month and year first written above.
PAPA JOHN'S INTERNATIONAL, INC.
By: _________________________________________
J. Daniel Holland, President
("Franchisor")
EXTRA CHEESE, INC.
By: _________________________________________
Douglas Stephens, President
("Developer")
COVENANTS OF PRINCIPAL OPERATOR
-------------------------------
The undersigned shall be the Principal Operator referred to in Section 11
of the foregoing Development Agreement. The undersigned has read the Development
Agreement and agrees to be individually bound by the obligations set forth in
Section 11 thereof.
____________________, 199___ ______________________________________
DOUGLAS STEPHENS
<PAGE>
PAPA JOHN'S
DEVELOPMENT AGREEMENT
EXHIBIT A
---------
DEVELOPMENT AREA
----------------
August ___, 1991
The areas encompassed by the following listed zip codes in Birmingham,
Tuscaloosa and Auburn, Alabama shall comprise the "Development Area," as defined
in the foregoing Papa John's Development Agreement of even date herewith, by and
between PAPA JOHN'S INTERNATIONAL, INC. ("Franchisor") and EXTRA CHEESE, INC.
("Developer"):
Zip Codes:
----------
TUSCALOOSA
35401
35404
35405
35476
35706
AUBURN
36830
36831
BIRMINGHAM
See attached Marketfinder list dated May 17, 1991
TOTAL NUMBER OF OUTLETS 10
==
[* - The location of each Outlet is subject to the terms and conditions of the
Development Agreement, including Franchisor's approval.]
PAPA JOHN'S INTERNATIONAL, INC.
By: _________________________________________
J. Daniel Holland, President
EXTRA CHEESE, INC.
By: _________________________________________
Douglas Stephens, President
<PAGE>
EXHIBIT 10.12
________________________________________________________________________________
PAPA JOHN'S
FRANCHISE AGREEMENT
EXTRA CHEESE, INC.
2503 MCFARLAND BOULEVARD WEST
NORTHPORT, ALABAMA 35476
________________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
RECITALS .................................................................. 1
1. Grant ................................................................ 1
2. Term, Renewal and Expiration ......................................... 2
3. Franchise Fees and Payments .......................................... 4
4. Franchisor Services .................................................. 5
5. Territorial Provisions ............................................... 6
6. Premises ............................................................. 6
7. Proprietary Marks .................................................... 7
8. Advertising .......................................................... 8
9. Telephone Number ..................................................... 13
10. Construction, Design and Appearance; Equipment ....................... 13
11. Operations; Standards of Quality; Inspections ........................ 14
12. Products; Commissary; Menu ........................................... 17
13. Reports .............................................................. 18
14. Transfers; Franchisor's Right of First Refusal ....................... 19
15. Death, Incapacity or Dissolution ..................................... 22
16. Additional Covenants of Franchisee ................................... 23
17. Trade Secrets and Confidential Information ........................... 25
18. Insurance ............................................................ 25
19. Termination by Franchisor ............................................ 26
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
20. Obligations upon Termination or Expiration ........................... 28
21. Independent Contractor; Indemnification .............................. 30
22. Franchisee Representations ........................................... 30
23. Governing Law, Jurisdiction and Venue ................................ 31
24. Notices .............................................................. 32
25. Miscellaneous ........................................................ 33
GUARANTY OF FRANCHISEE'S OBLIGATIONS ...................................... 34
EXHIBIT A ................................................................. 37
EXHIBIT B ................................................................. 41
EXHIBIT C ................................................................. 44
</TABLE>
<PAGE>
PAPA JOHN'S
FRANCHISE AGREEMENT
-------------------
SINGLE LOCATION FRANCHISE
THIS FRANCHISE AGREEMENT ("Agreement") is made and entered into as of the
_____ day of January, 1992, by and between PAPA JOHN'S INTERNATIONAL, INC., a
Delaware corporation ("Franchisor"), and EXTRA CHEESE, INC., an Alabama
corporation ("Franchisee").
RECITALS:
--------
A. Franchisor has expended time, money and effort to develop a unique
system for operating retail outlets specializing in carry-out and delivery of
pizza and other food items. (The methods of operation are referred to herein as
the "System"; the chain of current and future Papa John's Pizza outlets are
referred to as the "Papa John's Pizza Chain" or the "Chain.")
B. The distinguishing characteristics of the System include the name
"Papa John's," special recipes for the making of pizza and other foods, unique
interior and exterior building design and appearance, the use of only top-
quality ingredients, and consistency and uniformity of products and services,
all of which may be improved, amended and further developed by Franchisor from
time to time.
C. Franchisor identifies its goods and services with certain service
marks, trade names and trademarks, including, but not limited to, "Papa John's,"
and "Papa John's Pizza," as well as certain other trademarks, service marks,
slogans, logos and emblems which have been and which may hereafter be designated
by Franchisor for use in connection with the System (the "Marks").
D. Franchisor and Franchisee now desire to enter into this Agreement
regarding the operation of one Papa John's Pizza outlet under the System and the
Marks at the location listed below (the "Outlet").
NOW, THEREFORE, the parties agree as follows:
1. GRANT. Subject to the terms and conditions of this Agreement and the
-----
continuing faithful performance thereof by the Franchisee, Franchisor hereby
grants to Franchisee the non-exclusive right and franchise (the "Franchise") to
operate one retail outlet under the System and the Marks which shall be located
at:
<PAGE>
2503 McFarland Boulevard West
Northport, Alabama 35476
(the "Location")
Pursuant to this grant, Franchisee, at its own expense, shall construct or
remodel, and equip, staff, open and operate the Outlet at the Location. Unless
otherwise agreed, the Franchisee shall commence operating the Outlet within 90
days after the execution of this Agreement, and shall diligently operate such
business in accordance with this Agreement for the Term stated herein.
2. TERM, RENEWAL AND EXPIRATION.
----------------------------
(A) INITIAL TERM. The Franchise shall be for a term of five (5)
------------
years from the date of this Agreement, unless sooner terminated as provided
herein (the "Initial Term").
(B) RENEWAL OF AGREEMENT. This Agreement shall automatically renew
--------------------
upon the expiration of the Initial Term for one additional five year term (the
"Renewal Term") if, and only if, each of the following conditions has been
satisfied:
(I) Franchisee shall be in material compliance with this
Agreement and there shall be no uncured default by Franchisee hereunder, nor any
series of material defaults occurring over a period of time, whether or not such
defaults were cured, and all debts and obligations of Franchisee under this
Agreement shall be current, including Franchisee's obligations to the Marketing
Fund and each Cooperative of which Franchisee is a member; and
(II) Franchisee secures the right to continue possession of the
Premises for a period at least equal to the Renewal Term, or alternatively
Franchisee secures premises at another location approved by Franchisor for the
same period.
Renewal of this Agreement shall constitute a release by Franchisee of all claims
that Franchisee may have against Franchisor and its affiliates and subsidiaries,
and their respective officers, directors, shareholders and employees in both
their corporate and individual capacities.
(C) TERM. As used in this Agreement, "Term" shall mean the Initial
----
Term or the Renewal Term, as the case may be.
(D) RENEWAL OF FRANCHISE. Following the Renewal Term, this Agreement
--------------------
shall not automatically renew and Franchisee shall not have an option to renew
this Agreement upon the expiration of the Renewal Term. Provided, however,
notwithstanding the preceding sentence Franchisee may, however, renew the
Franchise for four additional five-year periods following the Renewal Term (each
a "Subsequent
<PAGE>
Renewal Term") if, and only if, each and every one of the following conditions
has been satisfied:
(I) Franchisee has given Franchisor written notice of its
desire to renew the Franchise not less than three months nor more than six
months prior to the end of the Renewal Term; provided, that if Franchisor has
not received a notice of renewal within such period, it shall give written
notice to Franchisee and Franchisee shall have a period of thirty (30) days
thereafter in which to give notice of its desire to renew the Franchise;
(II) Franchisee shall be in full compliance with this Agreement
and there shall be no uncured default by Franchisee hereunder, nor any series of
material defaults occurring over a period of time, whether or not such defaults
were cured, and all debts and obligations of Franchisee under this Agreement
shall be current, including Franchisee's obligations to the Marketing Fund and
each Cooperative of which Franchisee is a member;
(III) Franchisee executes and delivers to Franchisor, within 30
days after delivery to Franchisee, the form of Papa John's Franchise Agreement
being offered to new franchisees on the date Franchisee gives the notice under
Section 2, above, including all exhibits and Franchisor's other then-current
ancillary agreements, which agreements shall supersede this Agreement in all
respects, and the terms and conditions of which may substantially differ from
this Agreement; provided that (i) such new Franchise Agreement shall provide for
an initial term of not less than five (5) years and for renewal terms
aggregating not less than twenty (20) years, (ii) the Royalty under such
agreement shall not be greater than five percent (5%) and (iii) such new
Franchise Agreement shall not reduce the Territory granted to Franchisee
hereunder.
(IV) Franchisee secures the right to continue possession of the
Premises for a period at least equal to the term of the Franchise Agreement to
be executed as provided in Section 2, above, or alternatively Franchisee
secures premises at another location approved by Franchisor for the same period;
(V) Franchisee has paid to Franchisor a renewal fee equal to
$3,000;
(VI) Franchisee executes and delivers to Franchisor a general
release, in the form prescribed by Franchisor, releasing all claims that
Franchisee may have against Franchisor and its affiliates and subsidiaries, and
their respective officers, directors, shareholders and employees in both their
corporate and individual capacities; and
(VII) Franchisee shall make, or provide for in a manner
satisfactory to Franchisor, such renovation and re-equipping of the Outlet as
Franchisor may reasonably require, including, without limitation, renovation or
replacement of signs, equipment, furnishings, fixtures and decor, to reflect the
then-current standards
<PAGE>
and image of the System; provided, however, that substantial renovation and re-
equipping shall not be required if Franchisee has substantially renovated the
Outlet within the two-year period immediately preceding the end of the Renewal
Term.
(E) EXPIRATION. Renewal of the Franchise after the Renewal Term
----------
shall not constitute a renewal or extension of this Agreement, but shall be
condi tioned upon satisfaction of the above provisions and shall, upon
expiration of the Renewal Term, be governed by the Franchise Agreement then
executed by Franchisee. If Franchisee fails to meet any of the conditions under
Section 2 above with respect to the renewal of this Agreement, or under
Section 2 above with respect to renewal of the Franchise, then the Franchise
shall automatically expire at the end of the Initial Term or the Renewal Term,
as the case may be.
3. FRANCHISE FEES AND PAYMENTS.
---------------------------
(A) INITIAL FRANCHISE FEE AND ROYALTIES. In consideration of the
-----------------------------------
grant of the Franchise, Franchisee agrees to pay Franchisor the following fees:
(I) An Initial Franchise Fee of $6,500 which shall be paid
upon the execution of this Agreement and which shall be deemed fully earned and
is non-refundable.
(II) A continuing monthly royalty (the "Royalty") of four
percent (4.0%) of the monthly "Net Sales" of the Outlet. In the event this
Agreement is renewed pursuant to Section 2.(d), the Royalty during the
Subsequent Renewal Term shall be the lesser of (iii) the Royalty provided in
Franchisor's form of Franchise Agreement being offered to new Papa John's
franchisees on the day Franchisee gives notice of its desire to renew this
Agreement, or (iv) five percent (5%) of "Net Sales." Net Sales shall mean the
gross sales of the Outlet (whether such sales are evidenced by cash, check,
credit, charge account or otherwise), less sales tax collected on such sales and
paid to the State. The Royalty is due on the tenth (10th) day after the end of
each month.
(B) PAYMENTS. Prior to the opening of the Outlet (and thereafter as
--------
necessary), Franchisee shall execute and deliver to Franchisor and Franchisee's
bank all forms and documents that may be required to permit Franchisor to debit
Franchisee's checking account (either by check or electronically) the amount of
all purchases from Franchisor's commissary and each month's Royalty. The
amounts due for each commissary delivery shall be debited on the day the
delivery is made to the Outlet, or if such day falls on a weekend or bank
holiday, then on the next business day. The Royalty shall be debited on the
10th of each month, or if the 10th falls on a weekend or bank holiday, then on
the next business day. Franchisee shall report its Net Sales for the
immediately preceding month by telephone or in writing on or before the seventh
(7th) day of each month. Such reporting shall be in addition to all other
reporting requirements under Section 13. Any increase or decrease to the amount
debited for a commissary delivery (whether by reason of credits, mistakes or
otherwise) shall be added
<PAGE>
to or deducted from the amount debited for the next commissary delivery or as
soon thereafter as possible. If Franchisee fails to report its Net Sales on a
timely basis, Franchisor may estimate the Net Sales of the Outlet for such month
and debit Franchisee's checking account the amount of the Royalty based on such
estimate. If an estimate results in an overpayment, Franchisor shall deduct the
amount of the overpayment from the next month's Royalty. Any deficiency
resulting from such estimate may be added to the next Royalty payment due and
debited against Franchisee's checking account. Franchisee shall notify
Franchisor at least 15 days prior to closing or making any change to the account
against which such debits are to be made. If such account is closed or ceases to
be used, Franchisee shall immediately provide all documents and information
necessary to permit Franchisor to debit the amounts due from an alternative
account. Franchisee acknowledges that the foregoing requirements are only a
method to facilitate prompt and timely payment of amounts due and shall not
affect any obligation or liability of the parties for amounts owed. If for any
reason Franchisee's account cannot be debited, Franchisee shall submit its
payments by check on or before the dates when due. Franchisee shall indemnify
and hold Franchisor harmless from and against all damages, losses, costs and
expenses resulting from any dishonored debit against Franchisee's account,
regardless whether resulting from Franchisee's act or omission or the act or
omission of Franchisee's bank.
4. FRANCHISOR SERVICES. During the Term, Franchisor agrees to provide to
-------------------
Franchisee the following services:
(A) specifications for the design of the Outlet and related
facilities to be used in the operation of the Outlet;
(B) specifications for fixtures, furnishings, decor, signs and
equipment;
(C) such pre-opening assistance as Franchisor may, in its discretion,
deem necessary;
(D) a pre-opening management training program for the "Principal
Operator" (as defined in Section 11) and one or more approved managers, and
such other persons as Franchisor may reasonably designate, and such other
training for employees of Franchisee at the locations and for such periods as
may be designated by Franchisor from time to time; provided that Franchisee
shall be responsible for all expenses incurred by such persons in connection
with training, including, without limitation, all costs of travel, lodging,
means and wages;
(E) Franchisor's supervision and periodic inspections and evaluations
of the Franchisee's operation as described more fully in Section 11, which
supervision, inspections and evaluations shall be conducted at such times and in
such manner as shall be reasonably determined by Franchisor; and
(F) Franchisor shall communicate to Franchisee information relating
to the operation of a Papa John's Pizza outlet, and to the extent necessary or
pertinent
<PAGE>
to the operation of the Outlet, Franchisor's know-how, new developments,
techniques and improvements in the areas of restaurant management, employee
training, marketing and food preparation and service.
5. TERRITORIAL PROVISIONS.
----------------------
(A) TERRITORY. Subject to the provisions of this Section 5,
---------
Franchisor agrees that during the Term, any Renewal Term or Subsequent Renewal
Term, it will not locate nor license another to locate a Papa John's Pizza
outlet within a three-mile radius of the Location (the "Territory"). Franchisor
does not warrant or represent that no other Papa John's Pizza outlet will
solicit or make any sales within the Territory, and Franchisor shall have no
duty to protect Franchisee from any such sales, solicitations, or attempted
sales. Franchisee recognizes and acknowledges that (i) it will compete with
other Papa John's Pizza outlets which are now, or which may in the future be,
located near or adjacent to Franchisee's Territory, and (ii) that such outlets
may be owned by Franchisor or third parties, or both.
(B) OTHER BUSINESSES. Franchisee understands and agrees that
----------------
Franchisor reserves the right, either directly or through affiliated entities,
to operate or franchise or license others to operate or franchise, restaurants,
food establish ments or businesses other than Papa John's Pizza outlets and
Franchisee agrees that Franchisor and its affiliates may do so within the
Territory; provided, that such restaurants or food establishments do not sell
pizza or other products (excluding beverages) that are the same as or
substantially similar to those sold in the Outlet.
(C) OTHER METHODS OF DISTRIBUTION. Franchisor also reserves the
-----------------------------
right, directly or through third parties, to manufacture or sell, or both,
within the Franchisee's Territory, frozen pizza and other non-pizza products
which are the same as or similar to those sold in Papa John's Pizza outlets
using brand names which are the same as, or similar to, the Marks, provided that
such items are sold through stores and other methods of distribution, and are
not sold through restaurant outlets and provided further that the method of
distribution does not involve delivering the product(s) to consumers.
6. PREMISES.
--------
(A) LEASED PREMISES. If Franchisee intends to lease the premises
---------------
where the Outlet will be operated (the "Premises"), Franchisee shall submit one
copy of all proposed leases to Franchisor for approval prior to the execution of
any such lease. Approval by Franchisor of any such lease means only that the
lease meets Franchisor's minimum requirements and is not a warranty as to the
success of the Franchise or the appropriateness of such lease or any of its
terms. Franchisee shall submit to Franchisor executed copies of all such leases
at such times as Franchisor may request. Franchisor and Franchisee recognize
that the lease may not extend for full Term. If such lease is not renewed,
Franchisee recognizes that the Franchise may be cancelled, unless another
approved replacement location is obtained by Franchisee. All leases pertaining
to the
<PAGE>
Premises shall also include an Addendum in the form of Exhibit C attached
hereto, or shall contain terms and conditions substantially similar to those
contained in Exhibit C which Franchisor approves.
(B) OWNED PREMISES. If the Franchisee intends to own the Premises,
--------------
Franchisee shall furnish to Franchisor proof of ownership prior to the date
Franchisee commences any construction or remodeling of the Premises. If
Franchisee has not done so within ten days after the expiration or termination
of the Franchise Agreement, Franchisor may enter the Premises, without being
guilty of trespass and without incurring any liability to Franchisee, to remove
all signs and other items identifying the Premises as a Papa John's Pizza outlet
and to make such other modifications as are reasonably necessary to protect the
Marks and the Papa John's System, and to distinguish the Premises from Papa
John's Pizza outlets. Provided, however, that this obligation of Franchisee
shall be conditioned upon Franchisor giving Franchisee prior notice of the
modifications to be made and the items removed.
(C) SUITABILITY OF PREMISES. Regardless of whether the Premises are
-----------------------
owned or leased, it shall be the responsibility of Franchisee to determine that
the Premises can be used, under all applicable laws and ordinances, for the
purposes provided herein and that they can be constructed or remodeled in
accordance with the terms of this Agreement and Franchisee shall obtain all
permits and licenses that may be required to construct, remodel and operate the
Outlet. Franchisee agrees that the Premises will not be used for any purpose
other than the operation of the Outlet in compliance with this Agreement.
(D) RELOCATION; ASSIGNMENTS. Franchisee shall not, without first
-----------------------
obtaining Franchisor's written consent: (i) relocate the Outlet; or (ii)
materially alter, amend or modify any lease, or make or allow any transfer,
sublease or assignment of its rights under any lease pertaining to the Premises.
Such consent shall not be unreasonably withheld by Franchisor.
7. PROPRIETARY MARKS.
-----------------
(A) OWNERSHIP; USE BY OTHERS. Franchisee agrees that Franchisor is
------------------------
the owner of the Marks and all goodwill associated with or generated by the use
of the Marks, and that Franchisee's use of the Marks does not vest Franchisee
with any interest in the Marks other than the non-exclusive license to use the
Marks granted herein. Franchisee shall execute any documents deemed necessary by
Franchisor or its counsel for the protection of the Marks or to maintain their
validity or enforceability, or to aid Franchisor in acquiring rights in or in
registering any of the Marks or any trademarks, trade names, service marks,
slogans, logos and emblems subsequently adopted by Franchisor. Franchisee shall
give notice to Franchisor of any knowledge that Franchisee acquires concerning
the use by others of the same or similar names or marks. Franchisee, at
Franchisor's expense, shall cooperate with Franchisor in any suit, claim or
proceeding involving the Marks or their use to protect Franchisor's rights and
interests in the Marks.
<PAGE>
(B) USE OF MARKS. Franchisee shall use the Marks only in connection
------------
with the operation of the Outlet at the Location specified herein, and shall use
them only in the manner authorized by Franchisor. Franchisee shall prominently
display the Marks in the manner prescribed by Franchisor on all signs, plastic
and paper products, and other supplies and packaging materials designated by
Franchisor. Franchisee shall not fail to perform any act required under this
Agreement, or commit any act which would impair the value of the Marks or the
goodwill associated with the Marks. Franchisee shall not at any time engage in
any business or market any product or service under any name or mark which is
confusingly or deceptively similar to any of Franchisor's Marks. Franchisee
shall not use any of the Marks as part of its corporate or trade name and shall
not use any trademark, trade name, service mark, logo, slogan or emblem in
connection with the Outlet that has not been authorized by Franchisor.
Franchisee shall obtain such fictitious or assumed name registrations as may be
required by Franchisor or applicable state law.
(C) DESIGNATION AS FRANCHISEE. Franchisee shall identify itself as
-------------------------
the owner of the Franchise in conjunction with the use of the Marks, including,
without limitation, on checks, invoices, receipts and contracts, as well as at
conspicuous locations on the Premises in a form which specifies Franchisee's
name, followed by the phrase "A franchisee of Papa John's International, Inc."
or such other phrase as Franchisor directs.
(D) DISCONTINUANCE OF USE; ADDITIONAL MARKS. In the event that a
---------------------------------------
court of competent jurisdiction should order, or if Franchisor in its sole
discretion should deem it necessary or advisable, Franchisee shall modify or
discontinue use of any Mark. Franchisee shall comply with the Franchisor's
directions regarding any such Mark within 30 days after receipt of notice from
Franchisor. Franchisor shall not be obligated to compensate Franchisee for any
costs or expenses incurred by Franchisee in connection with any such
modification or discontinuance. Franchisee shall also use such additional or
substitute Marks as Franchisor shall direct.
8. ADVERTISING.
-----------
(A) CONTRIBUTIONS AND EXPENDITURES. Recognizing the value of
------------------------------
advertising and the importance of the standardization of advertising to the
furtherance of the goodwill and public image of the System, Franchisor and
Franchisee agree as follows:
(I) GRAND-OPENING ADVERTISING. Franchisee shall expend for
-------------------------
grand-opening advertising to publicize the existence and opening of the Outlet
such amounts as Franchisor may reasonably require (not to exceed $2,000), which
advertising shall be in such form as designated or approved by Franchisor and
which shall be conducted prior to commencement of and during the first two
months of operation of the Outlet. Franchisee may expend additional amounts on
such advertising, provided the form and content is approved by Franchisor as
provided in Section 8.(e).
<PAGE>
(II) MONTHLY CONTRIBUTIONS AND EXPENDITURES. Each month during
--------------------------------------
the Term, Franchisee shall make the following contributions and expenditures for
advertising:
(A) Franchisee shall contribute to the "Marketing Fund,"
as defined in Section 8.(b), such amount as the Board of Directors of the
Marketing Fund (the "Board") may designate from time to time, which amount
shall not exceed one and one-half percent (1-1/2%) of the monthly Net Sales
of the Outlet, except as set forth in (iii), below. Provided, however, that
the required contribution may not exceed one percent (1%) of the Net Sales
until such time as there are 100 or more Papa John's Pizza outlets open and
operating (including both Franchisor-owned and franchised outlets).
(B) Franchisee shall contribute to the "Cooperative," as
defined in Section 8.(c), such amount as the governing body of the
Cooperative may designate from time to time, which amount shall not exceed
two and one-half percent (2-1/2%) of the monthly Net Sales of the Outlet,
except as set forth in (iii), below.
(C) Franchisee shall expend such amounts as Franchisor
may designate from time to time for local advertising as provided in
Section 8.(d); provided, that the aggregate amount that Franchisee may be
required to spend on local advertising together with Franchisee's Marketing
Fund contributions will not exceed four percent (4%) of the Net Sales of
the Outlet, and provided further that Franchisee's expenditures for grand-
opening advertising under (i), above, shall be credited against
Franchisee's local advertising obligations.
(III) INCREASES IN CONTRIBUTIONS.
--------------------------
(A) MARKETING FUND CONTRIBUTIONS. The Board may increase
----------------------------
the maximum required contribution to the Marketing Fund to two percent (2%)
of Net Sales, provided such increase is approved by the owners of not less
than sixty percent (60%) of the outlets required to contribute to the
Marketing Fund (including both Franchisor-owned and franchised outlets).
Any increase in the required contribution to the Marketing Fund in excess
of two percent (2%) of Net Sales must be approved by not less than two-
thirds (2/3) of the outlets required to contribute to the Marketing Fund
(including both Franchisor-owned and franchised outlets).
(B) COOPERATIVE CONTRIBUTIONS. The governing body of the
-------------------------
Cooperative may increase the maximum required contribution to the
Cooperative to a percentage of Net Sales in excess of two and one-half
percent (2 1/2%), provided that any such increase is approved by Franchisor
and is also approved by not less than two-thirds (2/3) of the outlets
required to contribute to the Cooperative (including both Franchisor-owned
and franchised outlets).
<PAGE>
Franchisor's decision to reject any proposed increase above two and one-
half percent of Net Sales shall be final.
(B) MARKETING FUND. Papa John's Marketing Fund, Inc., a Kentucky
--------------
nonstock, nonprofit corporation (the "Marketing Fund"), has been organized for
the purposes set forth in the Articles of Incorporation and By-Laws of the
Marketing Fund, as they may be amended from time to time. Franchisee shall
automatically become a non-voting member of the Marketing Fund upon the
execution of this Agreement, and prior to the opening of the Outlet, Franchisee
shall execute and deliver to the Marketing Fund an Advertising Agreement in the
form prescribed by the Board.
(i) Franchisee agrees and acknowledges that the Marketing Fund
is intended to increase recognition of the Marks and to further the public image
and acceptance of the System and that neither Franchisor nor the Marketing Fund
nor the directors the Marketing Fund undertake any obligation to ensure that
expenditures by the Marketing Fund in or affecting any geographic area are
proportionate or equivalent to contributions to the Marketing Fund by Papa
John's Pizza outlets operating in such geographic area or that the Franchisee or
the Outlet will benefit directly or in proportion to its contribution to the
Marketing Fund. Neither Franchisor nor any of its officers, directors, agents or
employees shall be deemed a fiduciary or trustee of the contributions to, or the
assets of, the Marketing Fund. Neither Franchisor nor the Marketing Fund, nor
any of their respective officers, directors, agents or employees, shall be
liable to Franchisee with respect to the maintenance, direction or
administration of the Marketing Fund, including without limitation, with respect
to contributions, expenditures, investments or borrowings, except for acts
constituting willful misconduct.
(ii) Franchisor shall make contributions to the Marketing Fund
for each outlet that it owns on the same basis as required of comparable
franchisees within the System.
(iii) As long as Franchisee is in compliance with the
Advertising Agreement and the Articles and By-Laws of the Marketing Fund, Fran
chisee will be furnished with advertising materials which were produced by or
for the Marketing Fund for System-wide distribution on the same terms and
conditions as such materials are furnished to other franchisees.
(iv) Franchisee shall make its monthly contribution to the
Marketing Fund on the date and in the manner provided for in the Advertising
Agreement and the By-Laws and shall submit such statements and reports as the
Board may designate from time to time. The Board may designate from time to time
one or more accounts to which such contributions shall be made, and Franchisee
shall make such payments by separate checks. Contributions to the Marketing Fund
may be used to defray expenses of Franchisor only to the extent of the
administrative costs and overhead that Franchisor may reasonably incur in
rendering services to the Marketing Fund.
<PAGE>
(v) The funds collected by the Marketing Fund, and any
earnings thereon, are not and shall not be an asset of Franchisor or any
franchisee.
(vi) Although the Marketing Fund is intended to be of perpetual
duration, the Board has the right to terminate the Marketing Fund. However, the
Marketing Fund shall not be terminated until all monies held by it have been
expended for the purposes set forth in its Articles of Incorporation and By-Laws
or distributed as permitted by law.
(C) REGIONAL COOPERATIVE ADVERTISING. Franchisee agrees that
--------------------------------
Franchisor shall have the right, in its sole discretion, to designate from time
to time a geographical area in which the Outlet is located for the purpose of
establishing an advertising cooperative (the "Cooperative"). If a Cooperative
has been established applicable to the Outlet at the time Franchisee commences
operations hereunder, Franchisee shall immediately become a member of such
Cooperative. If a Cooperative applicable to the Outlet is established at any
later time during the Term, Franchisee shall become a member of such Cooperative
no later than thirty (30) days after the date on which the Cooperative commences
operation. In no event shall the Outlet be required to contribute to more than
one Cooperative. The following provisions shall apply to each Cooperative:
(i) Each Cooperative shall be organized and governed in a form
and manner, and shall commence operation on a date, approved in advance by
Franchisor in writing.
(ii) Each Cooperative shall be organized for the purposes of
producing and conducting general advertising programs and activities for use in
and around the applicable geographic area and developing standardized
promotional materials for use by the members.
(iii) Franchisor shall make contributions to each Cooperative of
which it is a member on the same basis as required of comparable franchisees
within the System.
(iv) No advertising programs or materials may be used by the
Cooperative or furnished to its members, and no advertising or promotional
activities may be conducted by the Cooperative, without the prior written
approval of Franchisor. All such programs, materials and planned activities
shall be submitted to Franchisor for approval in accordance with the procedure
set forth in Section 8.(e), below.
(v) Subject to the provisions of Section 8.(a)(ii), above,
each Cooperative shall have the right to require its members to make
contributions to the Cooperative in such amounts as are determined by the
governing body of the Cooperative.
<PAGE>
(vi) Franchisee shall make its contributions to the Cooperative
on the date and in the manner designated by the Cooperative. Franchisee shall
also submit such statements and reports as may be designated from time to time
by the Cooperative. The Cooperative shall submit to Franchisor such statements
and reports as Franchisor may designate from time to time.
(vii) Franchisor, in its sole discretion, may, upon written
request of a franchisee stating reasons supporting such request, grant to any
franchisee an exemption from the requirement of membership in a Cooperative.
Such an exemption may be for any length of time and may apply to one or more
outlets owned by such franchisee. If an exemption is granted to a franchisee,
such franchisee may be required to expend on local advertising the full amount
that would otherwise be payable to the Cooperative. Franchisor may also exempt
one or more outlets owned or controlled by Franchisor from the requirement of
membership in a Cooperative for such periods as Franchisor deems appropriate.
Franchisor's decision concerning an exemption shall be final.
(D) LOCAL ADVERTISING. Subject to the limits set forth in Section
-----------------
8.(a)(ii), above, Franchisee agrees to spend for local advertising such
percentage of its monthly Net Sales as Franchisor may from time to time direct.
Franchisee shall submit verification of its local advertising expenditures at
such times and in such form as may be requested by Franchisor from time to time.
(I) SUPPLEMENTAL ADVERTISING. Franchisee shall have the right
------------------------
to conduct, at its separate expense, supplemental advertising in addition to the
expenditures specified herein. All such supplemental advertising shall either
have been prepared or previously approved by Franchisor within the 90-day period
preceding their intended use, or shall be approved by Franchisor as provided in
Section 8.(e).
(II) YELLOW PAGES ADVERTISING. Franchisee shall, at its own
------------------------
expense, obtain (or contribute to the cost of obtaining) a listing for the
Outlet in each "yellow pages" and other telephone directory serving the
Territory and each such listing shall be of the style, format and size, and in
such form, as may be reasonably specified by Franchisor from time to time.
(E) APPROVAL BY FRANCHISOR. Prior to their use by the Cooperative or
----------------------
by Franchisee, samples of all advertising and promotional materials not prepared
or previously approved by Franchisor within the 90-day period preceding their
intended use shall be submitted to Franchisor for approval. If disapproval is
not received within twenty (20) days from the date of receipt by Franchisor of
such materials, Franchisor shall be deemed to have given the required approval.
Neither the Cooperative nor Franchisee shall use, and shall cease using, any
advertising or promotional materials that Franchisor may at any time disapprove,
regardless whether any such items had been previously approved by Franchisor.
<PAGE>
(F) FRANCHISOR ADVERTISING. Franchisor may from time to time expend
----------------------
its own funds to produce such promotional materials and conduct such advertising
as it deems necessary or desirable. In any advertising conducted solely by or
for Franchisor, Franchisor shall have the sole discretion to determine the prod
ucts and geographical markets to be included, and the medium employed and Fran
chisor shall not have any duty or obligation to supply Franchisee with any
advertising or promotional materials produced by or for Franchisor at its sole
expense.
(G) OWNERSHIP OF ADVERTISING. Franchisor shall be the sole and
------------------------
exclusive owner of all materials and rights which result from advertising and
marketing programs produced and conducted, whether by Franchisee, Franchisor,
the Cooperative or the Marketing Fund. Any participation by Franchisee in any
advertising, whether by monetary contribution or otherwise, shall not vest
Franchisee with any rights in the Marks employed in such advertising or in any
tangible or intangible materials or rights, including copyrights, generated by
such advertising. If requested by Franchisor, Franchisee shall assign to
Franchisor any contractual rights or copyright it acquires in any advertising.
9. TELEPHONE NUMBER. The only telephone number assigned to the Outlet is
----------------
205/339-9200. Upon termination or expiration of the Franchise, Franchisee shall
either assign such telephone numbers to Franchisor, if so requested, or cease
using such telephone number. In no event shall Franchisee use such number for
any other business. Franchisee further covenants that in the event it obtains
any additional or substitute telephone service or telephone number at the
Outlet, it will promptly notify Franchisor and such additional or substitute
number shall be subject to this Agreement.
10. CONSTRUCTION, DESIGN AND APPEARANCE: EQUIPMENT.
----------------------------------------------
(A) CONSTRUCTION. Franchisee agrees that it will construct or
------------
remodel the Premises at the approved Location in accordance with Franchisor's
construction plans (if the Premises are to be constructed) and design, layout
and decor specifications. Such specifications will be provided by Franchisor.
Franchisee shall purchase or lease the pizza preparation, beverage dispensing,
storage and other equipment, displays, fixtures, and furnishings that Franchisor
designates. Franchisee shall make no material changes to any building plan,
design, layout or decor, or any equipment or signage without the prior written
consent of Franchisor, and shall maintain the interior and exterior decor in
such manner as may be prescribed from time to time by Franchisor. In connection
with these requirements, Franchisee shall have executed and delivered to
Franchisor, on or before the date hereof, a Papa John's Construction Agreement,
including all information required therein. A copy of the Construction Agreement
is incorporated herein by reference.
(B) SIGNS. Franchisee shall prominently display, at its own expense,
-----
both on the interior and exterior of the Premises, advertising signs in such
form, color, number, location and size, and containing such Marks, logos and
designs as Franchisor shall designate. Such signs shall be obtained from a
source designated or approved by
<PAGE>
Franchisor. Franchisee shall obtain all permits and licenses required for such
signs and shall also be responsible for ensuring that all signs comply with all
laws and ordinances. Franchisee shall not display in or upon the premises any
sign or advertising of any kind to which Franchisor objects.
(C) REMODELING AND RE-EQUIPPING. Franchisee agrees that it will,
---------------------------
within six (6) months from the date of written notice from Franchisor, remodel
or re-equip the Outlet in accordance with the specifications provided by the
Franchisor. Such remodeling and re-equipping may include, without limitation,
replacing worn out, obsolete, or dated equipment, fixtures, furnishings and
signs; structural modi fications; redecorating; or purchasing more efficient or
improved equipment. Fran chisor may require Franchisee to perform remodeling and
to purchase equipment at such times as Franchisor, in its sole discretion, deems
necessary and reasonable; provided, that Franchisor may not require any
significant remodeling of the Outlet during the first two years of the Initial
Term. FRANCHISEE ACKNOWLEDGES THAT EQUIPMENT, ALTERATIONS AND RENOVATIONS
REQUIRED BY FRANCHISOR MAY INVOLVE SUBSTANTIAL ADDITIONAL INVESTMENT BY
FRANCHISEE DURING THE TERM OF THIS AGREEMENT.
11. OPERATIONS; STANDARDS OF QUALITY; INSPECTIONS.
---------------------------------------------
(A) PRINCIPAL OPERATOR. Franchisee shall designate an individual to
------------------
serve as the "Principal Operator" the Outlet. The Principal Operator shall meet
the following qualifications:
(I) The Principal Operator shall own at least a five percent
(5%) equity interest (including profits and voting rights) in the Franchisee
during the entire period he serves as Principal Operator.
(II) The Principal Operator shall devote full time and best
efforts to the supervision and conduct of the development and operation of the
Outlet and shall execute the Guaranty and Exhibits A and B attached hereto.
(III) The Principal Operator shall be a person approved by
Franchisor who shall complete Franchisor's initial training requirements and who
shall participate in and complete to Franchisor's satisfaction all additional
training as may be reasonably designated by Franchisor.
If, at any time or for any reason, the Principal Operator no longer
qualifies to act as such, Franchisee shall promptly designate another Principal
Operator subject to the same qualifications listed above. Any sale or transfer
of the Principal Operator's interest in the Franchisee, or any portion thereof,
which would reduce the Principal Operator's equity interest or voting rights in
Franchisee to less than five percent (5%) of the total (other than a transfer of
the Principal Operator's interest to the Franchisee, another shareholder of
Franchisee or to a successor Principal Operator), shall be deemed a transfer of
a interest and shall be subject to the terms and conditions of Section 14
<PAGE>
hereof; and any failure to comply with such terms and conditions shall be deemed
a default by Franchisee under this Agreement.
(B) MANAGEMENT OF THE OUTLET. The Principal Operator and one or more
------------------------
competent managers approved by Franchisor (who shall have completed Franchisor's
initial training program to Franchisor's satisfaction) shall personally devote
their full time and best efforts to the management and operation of the Outlet
in order to ensure compliance with this Agreement and to maintain Franchisor's
high standards. Management responsibility shall include, without limitation,
presence of the Principal Operator or a manager at the Outlet during all
business hours; maintaining the highest standards of product quality and
consistency; maintaining the Outlet in the highest condition of sanitation,
cleanliness and appearance; and supervising employees to ensure that the highest
standard of service is provided and to ensure that Franchisee's employees deal
with customers, suppliers, Franchisor, and all other persons in a courteous and
polite manner.
(C) COMPLIANCE WITH FRANCHISOR'S STANDARDS. Franchisee shall operate
--------------------------------------
the Outlet through strict adherence to Franchisor's standards, specifications
and policies as they now exist, and as they may from time to time be modified.
Such standards and policies include, without limitation: (i) specifications and
preparation methods for food and beverages; (ii) hours of operation; (iii) menu
items and services offered; (iv) employee uniform requirements and
specifications; and (v) use of specified emblems and Marks on containers, bags,
boxes, napkins, and other products.
(D) TRAINING. Should any employee or prospective employee of
--------
Franchisee perform work which in Franchisor's judgment requires additional
training, skills or knowledge, such employee shall take part in such training
and instruction as shall be directed by Franchisor. Franchisee shall be solely
responsible for all wages, travel and living expenses, and all other costs
incurred by Franchisee and Franchisee's employees in connection with any
training or instruction provided by Franchisor. Franchisee shall also, at its
own expense, conduct at the Outlet such training and instruction, using such
materials, equipment and supplies, as Franchisor may require in the Manuals or
otherwise in writing.
(E) MANUALS. Franchisor will lend Franchisee one or more manuals
-------
which shall contain (i) the mandatory and suggested specifications, standards
and operating procedures prescribed from time to time by Franchisor and (ii)
information relative to other obligations of Franchisee hereunder and the
operation of the Outlet (the "Manuals"). The Manuals shall at all times remain
the sole property of Fran chisor. Franchisor may, from time to time, revise the
contents of the Manuals. To the extent that Franchisor shall deem it necessary
or appropriate, Franchisor will provide Franchisee with policy and procedure
statements or other written notice of specifications, standards and procedures.
Franchisee agrees to promptly adopt and use the formulas, methods, procedures,
policies, menus, recipes, food products and other standards and specifications
contained in the Manuals, policy and procedure statements and other written
notices as issued from time to time by Franchisor. Franchisee acknowledges and
<PAGE>
agrees that all information in the Manuals, policy and procedure statements and
other notices constitute confidential information and trade secrets, and shall
not be disclosed at any time by Franchisee. Franchisee shall not copy any part
of the Manuals or any other communication or information provided by Franchisor.
(F) VARIATIONS IN STANDARDS. Because complete and detailed
-----------------------
uniformity under varying conditions may not be possible or practical, Franchisor
specifically reserves the right, in its sole discretion and as it may deem in
the best interests of Franchisee or the Chain, to vary standards within the
Outlet or any other outlet in the Chain based upon peculiarities of a particular
location or circumstances, including, but not limited to, density of population
and other demographic factors, size of the franchisee's Territory, business
practices or customs, or any other condi tion which Franchisor deems to be of
importance to the operation of such outlet or the Papa John's Pizza Chain.
Franchisee acknowledges that because of these factors and others there may be
variations from standard specifications and practices throughout the Chain and
that Franchisee shall not be entitled to require Franchisor to grant like or
similar variations or privileges to Franchisee.
(G) FRANCHISEE DEVELOPMENTS. Franchisor shall have the right to use
-----------------------
and incorporate into the System for the benefit of other franchisees and
Franchisor any modifications, ideas or improvements, in whole or in part,
developed or discovered by Franchisee or Franchisee's employees or agents,
without any liability or obligation to Franchisee or the developer thereof.
(H) COMPLIANCE WITH LAWS. Franchisee shall at all times during the
--------------------
Term comply with all laws, ordinances, rules and regulations of all governmental
bodies.
(I) COURTESY: COOPERATION. At all times and under all circum
---------------------
stances, Franchisee and its employees and Franchisor and its employees shall
treat all customers and other persons, including each others' agents, officers,
and employees with the utmost respect and courtesy, and shall fully cooperate
with each other and its agents, officers, and employees in all aspects of the
franchise relationship.
(J) INSPECTIONS. An agent, officer or employee of Franchisor may
-----------
make inspections of the Outlet to insure compliance with all required standards,
specifications and procedures. The Franchisor's representative shall be allowed
to inspect the condition and operation of the Outlet and all areas of the Outlet
at any time during normal business hours. Such inspections may include, without
limitation, (i) reviewing sales and order forms, (ii) observing the Principal
Operator and all managers and other employees of the Franchisee, (iii)
interviewing any such persons, and (iv) interviewing customers of the Outlet in
order to evaluate Franchisee's performance and to ensure that the Outlet is
being operated in accordance with the requirements of this Agreement and the
Manuals. Franchisor may, from time to time, make suggestions and give mandatory
instructions with respect to Franchisee's operation of the Outlet.
12. PRODUCTS: COMMISSARY: MENU.
--------------------------
<PAGE>
(A) PRODUCTS. Franchisee agrees that it will use only those food
--------
items, ingredients, beverages, cooking materials, containers, boxes, cups,
packaging, menus, uniforms, and other products and materials in the operation of
the Outlet as Franchisor shall have specifically designated or approved.
Franchisee may be required to purchase from Franchisor certain products that
involve trade secrets or that have been specially prepared or that Franchisor
considers to be integral to the System. Franchisor may require that certain
products be purchased from one or more designated suppliers. Products other than
those required to be obtained from Franchisor or a designated supplier may be
purchased from any source provided that the particular supplier and products
have been approved by Franchisor. Franchisor may, from time to time, amend the
list of approved products and suppliers.
(B) FRANCHISOR'S COMMISSARY. Franchisor presently supplies approved
-----------------------
products to Franchisor-owned outlets and those of its franchisees from a
commissary operated by Franchisor (the "Commissary"). Franchisee may purchase
products from the Commissary in addition to those required to be purchased from
Franchisor. Franchisee understands and agrees that Franchisor has no obligation
to continue supplying Franchisee or to continue to operate the Commissary and
that Franchisor may cease operating the Commissary or modify its method of
operation at any time. All purchases by Franchisee from the Commissary shall be
on the terms specified from time to time by Franchisor. Franchisor reserves the
right to specify different terms for different franchisees. Franchisor agrees
that as long as it operates the Commissary it will use reasonable efforts to
provide competitive pricing to Franchisee on those items Franchisee is required
to purchase from Franchisor and at prices no greater than those charged to other
franchisees and that it will impose the same flat (not based on mileage)
delivery charge on Franchisee as it imposes on its other franchisees.
(C) MENU ITEMS. Franchisee shall offer for retail sale, and shall
----------
carry on its menu, only those types, sizes, styles and brands of pizza, pizza
dough, pizza sauce and toppings, beverages, and other products as from time to
time may be specified by Franchisor, and shall make all menu items available for
carry-out and delivery service from the Outlet. Franchisee agrees that it will
not sell or carry on its menu any food items or other products not specified or
approved by Franchisor.
(D) PRICING. Franchisee shall have the sole responsibility for esta
-------
blishing its prices, but Franchisee shall charge the same price for each product
whether sold in the Outlet or delivered unless otherwise approved by Franchisor.
13. REPORTS.
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(A) ACCOUNTING AND RECORD KEEPING. Franchisee shall establish and
-----------------------------
maintain accounting and record keeping systems in accordance with the
specifications and procedures provided by Franchisor and as amended from time to
time, and shall make all such records available to Franchisor upon request.
Franchisee shall maintain and preserve, for at least five years from the dates
of their preparation, full, complete and accurate books, records and accounts.
<PAGE>
(B) MONTHLY REPORTS. On or before the 20th day of each month,
---------------
Franchisee shall deliver to Franchisor: (i) a statement, in the form prescribed
by Franchisor, of the revenues and expenses of the Outlet for the immediately
preceding month, and (ii) such other records and reports as are requested by
Fran chisor, including but not limited to, sales and expense forms and reports,
and a current balance sheet and income statement.
(C) REVIEW BY FRANCHISOR. At all times during the Term, Franchisor,
--------------------
or its authorized agent, shall have the right to review all sales and expense
records and reports of the Franchisee which are located in the Outlet, and to
make photocopies of all such items.
(D) YEAR-END REPORTS. Within ninety (90) days following Franchisee's
----------------
fiscal year end, Franchisee shall provide Franchisor with copies of Franchisee's
financial statements, including an income statement for the fiscal year just
ended and a balance sheet as of the end of such fiscal year, which financial
statements shall have been prepared in accordance with (i) generally accepted
accounting principles applied on a consistent basis or (ii) on the cash basis of
accounting. Franchisee shall furnish Franchisor with copies of all its federal
and state income tax returns if requested by Franchisor, and, if requested by
Franchisor, copies of all state sales tax returns at the time all such returns
are filed. Franchisee shall promptly notify Franchisor if any such return is
not timely filed, or if any extension is filed, and the reasons therefore.
(E) EXAMINATIONS AND AUDITS. Franchisor or its designated agents
-----------------------
shall have the right, at all times and upon reasonable notice, to examine or
audit Franchisee's books and records, and to make photocopies thereof. If such
examination or audit should disclose any underpayment of the Royalty, Marketing
Fund payments, or any other sums or fees owed to Franchisor, Franchisee shall
immediately pay the deficient amount plus interest thereon from the date due
until paid at a rate equal to 12% per annum. All payments received will first be
credited against interest due and then against other payments due. If such an
examination or audit discloses an understatement in any statement or report of
5% or more, Franchisee shall, in addition to the above provision, reimburse
Franchisor for the cost of having Franchisee's books examined or audited. The
foregoing shall be in addition to any other rights or remedies Franchisor may
have, including the termina tion of the Franchise granted herein.
14. TRANSFERS: FRANCHISOR'S RIGHT OF FIRST REFUSAL.
----------------------------------------------
(A) TRANSFERS BY FRANCHISOR. Franchisor may transfer or assign this
-----------------------
Agreement or any all of its rights, interests, benefits or obligations arising
hereunder without restriction. Upon any transfer or assignment of this
Agreement by Franchisor, Franchisor shall be released from all obligations and
liabilities arising or accruing in connection with this Agreement first arising
after the date of such transfer or assignment.
(B) TRANSFERS BY FRANCHISEE. The rights and interests of Franchisee
-----------------------
under this Agreement are and shall remain personal to Franchisee. Franchisee
recognizes
<PAGE>
that Franchisor has granted the Franchise in reliance on the business and
financial capacity and other attributes of Franchisee and in reliance upon the
Guaranty of Franchisee's Obligations. Accordingly, neither Franchisee nor any
holder of any capital stock or other interest in a Franchisee that is a
corporation or other entity shall transfer (i) any interest in this Agreement,
(ii) substantially all the assets of the Franchisee or the Outlet, or (iii) any
stock or other interest in Franchisee, without obtaining the prior written
consent of Franchisor; provided, that a shareholder of Franchisee may transfer
all or a portion of his stock to another shareholder or to the Franchisee (such
person or entity being referred to as a "Permitted Transferee") and such
transfer shall not be subject to Franchisor's right of first refusal and no
transfer fee shall be required. However, Franchisee shall notify Franchisor of
any such transfer within ten days of its occurrence. Further, with respect to a
proposed transfer to a member of a shareholder's immediate family or to a trust
solely for the benefit of such family members, Franchisor agrees that it will
not unreasonably withhold its consent, and upon giving such consent no transfer
fee shall be payable. For purposes of this Agreement, the term "transfer" shall
mean any issuance, sale, assignment, gift, pledge, mortgage or any other
encumbrance (other than a lien against the Franchisee's assets to secure a loan
for the construc tion, remodeling, equipping or operation of the Outlet),
transfer by bankruptcy, transfer by judicial order, merger, consolidation, share
exchange, transfer by operation of law or otherwise, whether direct or indirect,
voluntary or involuntary. Franchisor's consent to a particular transfer shall
not be deemed as consent to any subsequent or different transfer.
(I) FRANCHISOR'S RIGHT OF FIRST REFUSAL. Franchisee shall
give Franchisor at least 30 days prior written notice of any intended transfer
of any of its rights or interest under this Agreement or of the proposed
transfer of any interest in Franchisee or substantially all of its assets, other
than to a Permitted Transferee. Such notice shall set forth the name of the
proposed transferee and a detailed statement of all of the terms and conditions
of such intended or proposed transfer. Franchisor will not unreasonably refuse
to give or withhold its consent to a proposed transfer. Irrespective of the
qualifications or acceptability of any prospective trans feree, Franchisor shall
have the first right and option to purchase the interest intended or proposed to
be transferred at the same price and on the same terms and conditions contained
in the notice. Should the proposed transfer not involve the payment of any
monetary consideration, Franchisor shall have the option to purchase the
interest at a price in cash equal to the fair market value of such non-monetary
consideration plus the amount, if any, of consideration paid in cash. Franchisor
shall determine such fair market value of the non-monetary consideration using
fair and reasonable methods. Franchisor shall make such determination as
promptly as possible, but in no event later than 30 days after it has received
the notice of the intended transfer. If Franchisee disagrees with the value as
determined by Franchisor, then Franchisee and Franchisor shall each hire an
appraiser (or a single appraiser, if they so agree) to value the non-monetary
consideration. If the appraisals are within 20% of each other, then the
difference between the two shall be equally divided to establish the price at
which Franchisor may exercise its first right and option. If the difference
between the appraisals is greater than 20%, then the issue of the fair market
value of such consideration shall be determined by a third appraiser selected by
the other two appraisers and whose decisions shall be final, except that it may
<PAGE>
not be lower or higher than the lowest appraisal and highest appraisal,
respectively, determined by the first two appraisers. Within 30 days after
Franchisor receives notice of a proposed transfer solely for cash, or if the
transfer will not be solely for cash, within 30 days after a determination is
made of the fair market value of the non-cash consideration, Franchisor will
notify Franchisee that it is (A) exercising its right of first refusal, (B)
approving the transfer or (C) denying approval of the transfer. Franchisor's
reasonable decision to deny approval shall be final.
(II) APPROVED TRANSFERS. If Franchisor fails to exercise its
------------------
option, and if Franchisor approves the transfer in writing, Franchisee (or the
transferor of an interest in Franchisee) may make the proposed transfer on
substantially the same economic terms and conditions specified in Franchisee's
notice to Franchisor within 60 days after the expiration of Franchisor's option.
If the transfer is not consummated within such 60-day period, Franchisee may not
thereafter transfer such interest without again complying with this Section.
(C) CONDITIONS ON TRANSFER. Subject to the provisions of Section 15,
----------------------
Franchisor may, without in any way limiting its discretion, condition its
consent to any transfer upon the satisfaction of and compliance with all of the
following requirements:
(I) Franchisor shall have failed to exercise its right of
first refusal as provided in Section 14;
(II) Franchisee shall be in material compliance with this
Agreement and there shall be no uncured default by Franchisee hereunder, and all
debts and financial obligations of Franchisee under this Agreement shall be
current, including Franchisee's obligations to the Marketing Fund and each
Cooperative of which Franchisee is a member;
(III) If required by Franchisor, the proposed transferee shall
execute, and in appropriate circumstances, cause such other parties as
Franchisor may require to execute, Franchisor's then-current form of, Guaranty,
Confidentiality and Non-Competition Agreement and Ownership Restriction
Agreement, and Franchisor's other then-current ancillary agreements, which
agreements may be substantially different than those attached to this Agreement.
(IV) The proposed transferee shall enter into an Advertising
Agreement with the Marketing Fund and shall also become a member of the
Cooperative to which the Outlet is required to contribute;
(V) Prior to the date of the proposed transfer, the proposed
transferee's Principal Operator and managers shall have undertaken and
completed, to the satisfaction of Franchisor, such training and instruction as
Franchisor shall deem necessary;
<PAGE>
(VI) Franchisor is satisfied that the proposed transferee (and
if the proposed transferee is an entity, all owners of any interest in such
entity) meet all of the requirements for Franchisor's new franchisees applicable
on the date Franchisor receives notice of the proposed transfer and including,
but not limited to, good reputation and character, business experience,
restaurant management experience, and financial strength and liquidity;
(VII) Franchisee and any owner transferring an interest in
Franchisee shall acknowledge and agree in writing that they are bound by the
non-competition and confidentiality provisions set forth herein (and any similar
provision in any other document which either of them have executed) to the
maximum extent allowed under applicable law;
(VIII) If the proposed transferee is a partnership, corporation
or other entity, the owners of all interests in the proposed transferee shall,
in the form and manner provided by Franchisor, guarantee to Franchisor the
obligations of the transferee but only to the extent that the stockholders of
the Franchisee have;
(IX) Franchisee and all owners of an interest in Franchisee
shall execute a general release, in the form prescribed by Franchisor, of all
claims that any of them may have against Franchisor and its affiliates and
subsidiaries, and their respective shareholders, officers, directors and
employees, in both their individual and corporate capacities and if Franchisee
is the transferor, it shall acknowledge in writing that Franchisee's interest
under this Agreement terminated;
(X) Franchisee shall pay Franchisor a transfer fee equal to
Franchisor's actual reasonable out-of-pocket expenses in reviewing the terms of
the transfer and the qualifications of the transferee; and
(XI) The proposed transferee and all owners of any interest in
a transferee that is an entity shall provide Franchisor, at least 45 days prior
to the proposed transfer date, copies of financial records and statements for
the preceding three years, and where applicable, its certificate of
incorporation and bylaws (and any amendments or modifications thereof), minutes
and resolutions and all agreements and other documents, records and information
pertaining to the transferee's existence and operation.
(D) OWNERSHIP AND STRUCTURAL CHANGES. Any ownership or structural
--------------------------------
changes in Franchisee including but not limited to, any merger, reorganiza tion,
issuance of additional shares or classes of stock or additional partnership
inter ests, shall constitute and be deemed a transfer of the Franchise and shall
be subject to prior written approval from Franchisor, not to be unreasonably
withheld.
<PAGE>
15. DEATH, INCAPACITY OR DISSOLUTION.
--------------------------------
(A) TRANSFER UPON DEATH, ETC. Upon the death or permanent incapacity
of any individual Franchisee, or if Franchisee is a corporation, partnership or
other entity, upon the death, incapacity or dissolution of any owner of any
interest in Franchisee, the executor, administrator, conservator, trustee or
other representa tive of such person or entity shall assign such interest in the
Franchise, or such interest in Franchisee, to a third party approved by
Franchisor; provided that if the assignee is a Permitted Transferee,
Franchisor's consent shall not be required. Such assignment of the Franchise or
such interest in Franchisee (including without limitation, transfer by bequest
or inheritance) shall be completed within a reasonable time, not to exceed
eighteen (18) months from the date of death, permanent incapacity or dissolution
and shall be subject to the terms and conditions applicable to inter vivos
transfers contained in Section 14, including Franchisor's right of first
refusal, unless the transfer is to a Permitted Transferee. However, if a
Franchisee is one or more individuals and any such person dies or becomes
permanently incapacitated, and if the law of the jurisdiction where the Outlet
is located so provides, nothing contained in this Section shall deny the spouse,
heirs or personal representative of such a Franchisee the opportunity to
participate in the ownership of the Franchise following the death or incapacity
of the Franchisee, provided that: (i) this Agreement is valid and in effect,
(ii) the spouse, heirs or representative meets all conditions and qualifications
otherwise required of transferees, and (iii) such spouse, heirs or
representative maintains and complies with all standards and obligations
contained in this Agreement.
(B) MANAGEMENT BY FRANCHISOR. Pending assignment, if the Principal
------------------------
Operator ceases managing the Outlet and another shareholder or partner of
Franchisee that qualifies as the Principal Operator does not assume such
obligations, Franchisor may, at its sole option, appoint a manager to operate
the Franchise for the account of Franchisee. All expenses of the Outlet,
including compensation, travel and living expenses, and other costs of the
appointed manager, and a reasonable per diem fee of Franchisor for its
administrative expenses, shall be charged to Franchisee. Operation of the
Outlet during any such period shall be for and on behalf of Franchisee. The
appointed manager shall only have a duty to utilize his best efforts in the
management of the Outlet and the appointed manager and Franchisor shall not be
liable to Franchisee or its owners for any debts, losses, liabilities or
obligations incurred by the Outlet, or to any creditor of Franchisee for any
merchandise, materials, supplies or services purchased by the Outlet during any
period in which it is managed by Franchisor's appointed manager.
16. ADDITIONAL COVENANTS OF FRANCHISEE.
----------------------------------
(A) LIMITATIONS ON ACTIVITIES. If Franchisee is a corporation,
-------------------------
partnership or other entity, it shall not at any time during the Term of this
Agree ment, own, operate or have any interest in any other business or business
activity other than the operation of Papa John's Pizza outlets pursuant to
agreements with Franchisor. If Franchisee is one or more individuals,
Franchisee has disclosed to Franchisor all
<PAGE>
businesses which they have interests in, or are engaged in, and covenant that
they will notify Franchisor of their intention to participate or engage,
directly or indirectly, in any other business activity at least thirty (30) days
before undertaking such activity or becoming a party to any agreement or
understanding relating to such activity. Franchisee shall provide Franchisor
with such information in regard thereto as Franchisor may reasonably request and
will not engage or participate in any such activity unless they receive written
consent to do so from Franchisor.
(B) EXECUTION OF ANCILLARY DOCUMENTS. Franchisee shall cause all
--------------------------------
persons or entities owning any interest in Franchisee to:
(I) execute the Guaranty of Franchisees Obligations written
on this Agreement and incorporated herein by reference;
(II) execute the Non-Competition and Confidentiality Agreement
in their individual capacity in the form attached hereto as Exhibit A; and
(III) execute the Ownership Restriction Agreement in the form
attached hereto as Exhibit B, individually and on behalf of Franchisee, agreeing
not to transfer any interest in such entity, except as provided therein and in
this Agreement.
(C) FRANCHISEE'S NON-COMPETE. Franchisee hereby covenants and agrees
------------------------
that during the Term of this Agreement and for a period of two years thereafter,
Franchisee shall not, within a 50-mile radius of (i) the Location, (ii) any
business location at which the Franchisor or an "Affiliate" (as defined in Sec
tion 25) then conducts a Papa John's Pizza business, or (iii) any area or
territory known by Franchisee to be covered by an agreement providing for the
development of one or more Papa John's Pizza outlets (whether or not any such
outlet is then conducting business), engage in any of the following activities:
(I) directly or indirectly enter into the employ of, or
render any service to, or act in concert with, any person, partnership,
corporation or other entity engaged in any fast food business that sells,
principally on a delivery and/or carry-out basis, pizza or other non-pizza
products that are the same as or substan tially similar to those sold by Papa
John's Pizza outlets, which businesses shall include by way of example and not
by way of limitation, restaurant formats such as Pizza Hut, Domino's, Little
Caesars and Mr. Gatti's (a "Competitive Business"), or
(II) directly or indirectly engage in any such Competitive
Business on its own account, or
(III) become interested in any such Competitive Business
directly or indirectly as an individual, partner, shareholder, director,
officer, principal, agent, employee, consultant or in any other relationship or
capacity; provided, that the purchase of a publicly traded security of a
corporation engaged in such business or service shall
<PAGE>
not in itself be deemed violative of this Section so long as Franchisee does not
own, directly or indirectly, more than 5% of the securities of such corporation.
Except as permitted or required by a this Agreement (or another written
agreement between the parties hereto), the Franchisee shall not at any time copy
or duplicate Franchisor's System or any aspect thereof, nor assist others in
doing so.
(D) MANAGERIAL AND SUPERVISORY EMPLOYEES. Franchisee covenants that
------------------------------------
it shall cause all persons who are involved in managerial or supervisory
positions in the Outlet to enter into a Confidentiality and Non-Competition
Agreement as provided by Franchisor. Franchisee agrees to provide Franchisor
with copies of such executed agreements upon request. If Franchisee has reason
to believe that any person has violated any such Confidentiality and Non-
Competition Agreement, Franchisee shall promptly notify Franchisor and cooperate
with Franchisor to protect it against unfair competition, infringement, or other
unlawful use of the Marks, trade secrets, recipes, or System of the Franchisor.
Franchisee further grants the Franchisor the right, but not the obligation, to
prosecute any such lawsuits at Franchisor's expense in the name of Franchisee,
but Franchisor shall indemnify Franchisee in connection therewith.
(E) FRANCHISEE NON-SOLICITATION. Franchisee covenants that it will
---------------------------
not, either during the Term or thereafter, employ or seek to employ any person
who is employed by Franchisor, its subsidiaries or Affiliates or by any other
franchisee of Franchisor, or otherwise directly or indirectly solicit, entice or
induce any such person to leave his employment thereat.
17. TRADE SECRETS AND CONFIDENTIAL INFORMATION. Franchisee understands
------------------------------------------
and agrees that Franchisor has disclosed or will hereafter disclose to
Franchisee cer tain confidential information and trade secrets. Except as
necessary in connection with the operation of the Outlet and as approved by
Franchisor, Franchisee shall not, during the Term or at any time after the
expiration or termination of the Franchise, regardless of the cause of
termination, directly or indirectly, use for its own benefit or communicate or
divulge to, or use for the benefit of any other person or entity, any trade
secrets, confidential information, knowledge or know-how concerning the recipes,
food products, advertising, marketing, designs, plans, or methods of opera tion
of the Outlet or the System. Franchisee shall disclose to its employees only
such confidential or secret information as is necessary to operate its business
hereunder and then only while this Agreement is in effect. Any and all
information, knowledge, or know-how, including without limitation, drawings,
materials, equipment, marketing, recipes, and other data, which Franchisor
designates as secret or confidential shall be deemed secret and confidential for
purposes of this Agreement.
18. INSURANCE.
---------
(A) TYPES AND EXTENT OF COVERAGE. Franchisee shall at all times
----------------------------
during the Term maintain in effect such insurance policies which are issued by
an insurance carrier rated A or better by A.M. Best Company and with such limits
as
<PAGE>
specified below (or such greater amounts of insurance as may be required by the
terms of any lease or mortgage relating to the Premises):
(I) fire, extended coverage, vandalism, malicious mischief
and special extended peril insurance at no less than 90 percent of the actual
replacement value of the building (if owned), the contents, and improvements;
(II) workers' compensation and other insurance required by
law;
(III) comprehensive general liability insurance on an
occurrence basis naming Franchisor and its officers, directors and employees as
an additional insureds as follows:
(A) bodily injury to or death of one or more persons -
minimum of $1,000,000;
(B) property damage or destruction - minimum of $500,000
per occurrence;
(C) public and product liability - $1,000,000;
(D) non-owned vehicle coverage - $350,000; and
(IV) an umbrella policy with a minimum limit of $1,000,000,
which policy must expressly provide coverage above the coverages listed above,
including the non-owned vehicle policy.
(B) OTHER INSURANCE REQUIREMENTS. Upon request, Franchisee shall
----------------------------
deliver to Franchisor copies of all such policies of insurance and proof of
payment therefor. All policies required hereunder shall provide that coverage
may not be canceled, altered, or permitted to lapse or expire without 30 days
advanced written notice to Franchisor and Franchisee. Franchisor may, from time
to time, increase the limits of any required policy of insurance.
19. TERMINATION BY FRANCHISOR.
-------------------------
(A) AUTOMATIC TERMINATION. Franchisee shall be in default under this
---------------------
Agreement, and the Franchise and all rights granted to the Franchisee herein
shall automatically terminate without notice to Franchisee, (i) if Franchisee
becomes insolvent or makes a general assignment for the benefit of creditors; or
if a petition in bankruptcy is filed by Franchisee or (ii) such a petition is
filed against and not opposed by Franchisee; or (iii) if Franchisee is
adjudicated as bankrupt or insolvent; or (iv) if a bill in equity or other
proceeding is filed for the appointment of a receiver or other custodian for
substantially all of Franchisee's business or assets if filed and consented to
by Franchisee; or (v) if a receiver or other custodian (perm anent or temporary)
of substantially all of Franchisee's assets or property, or any part thereof, is
appointed by
<PAGE>
any court of competent jurisdiction; or (vi) if proceedings for a composition
with creditors under any state or federal law should be instituted by
Franchisee; or (vii) if a final judgment remains unsatisfied or of record for
thirty (30) days or longer (unless supersedeas bond is filed); or (viii) if
Franchisee is dissolved; or (ix) if any portion of Franchisee's interest in the
Franchise becomes subject to an attachment, garnishment, levy or seizure by any
creditor or any other person claiming against or in the rights of Franchisee and
is not released within 30 days after Franchisee learns of same; or (x) if
execution is levied against Franchisee's business or property and is not
released with 30 days after Franchisee learns of same; or (xi) if the real or
personal property of Franchisee's Outlet shall be sold after levy thereupon by
any sheriff, marshal, or constable.
(B) WITHOUT NOTICE. Franchisee shall be in default and Franchisor
--------------
may, at its option, terminate the Franchise and all rights granted herein,
without affording Franchisee any opportunity to cure the default, effective
upon the earlier of receipt of notice of termination by Franchisee, or five
days after mailing of such notice by Franchisor, upon the occurrence of any of
the following events:
(I) Franchisee at any time ceases to operate or otherwise
abandons Outlet for ten or more consecutive days or forfeits the right to do or
transact business in the jurisdiction where the Outlet is located or loses the
right to possession of the Premises; provided, however, that if any such loss of
possession results from the governmental exercise of the power of eminent
domain, or if, through no fault of Franchisee the Premises are damaged or
destroyed, then Fran chisee shall have 45 days after either such event in which
to apply for Franchisor's approval to relocate or reconstruct the premises
(which approval shall not be unreasonably withheld), provided, that Franchisee
shall either relocate or commence and diligently pursue reconstruction of the
Outlet within 60 days after the event;
(II) Franchisee or any person or entity owning a controlling
interest in Franchisee engages in fraudulent conduct, or is convicted of, or
pleads guilty or no contest to a felony or a crime involving moral turpitude, or
any other crime or offense that is reasonably likely to have an adverse effect
on the Chain, the Marks or the goodwill associated therewith;
(III) Franchisee makes any intentional, unauthorized dis
closure or divulgence of the contents of any Manual or other confidential
informa tion provided to Franchisee by Franchisor that is materially adverse to
Franchisor;
(IV) Franchisee is repeatedly in material default for failure
to comply with any of the terms and requirements of this Agreement over a period
of time, whether or not cured after notice;
(V) Franchisee fails to comply with any of the covenants of
Franchisee set forth in Sections 16 and 17, or makes any material
misrepresentation to
<PAGE>
Franchisor or breaches any warranty or representation made to Franchisor,
whether in this Agreement or otherwise; or
(VI) Franchisee intentionally maintains false books or
records, or submits any intentionally false record, statement or report to
Franchisor.
(C) WITH NOTICE AND FAILURE TO CURE. Except for those defaults
-------------------------------
provided for under Sections 19.(a) or 19.(b), Franchisee shall be in default
hereunder for any failure to maintain or comply with any of the terms,
covenants, specifications, standards, procedures or requirements imposed by this
Agreement or in any Manual, policy and procedure statement or other written
document provided by Franchisor, or to carry out the terms of this Agreement in
good faith. For such defaults, Franchisor will provide Franchisee with written
notice and 15 days to cure or, if a default cannot reasonably be cured within 15
days, to initiate within that time sub stantial and continuing action to cure
such default and to provide Franchisor with evidence of such actions. If the
defaults specified in such notice are not cured within the 15-day period, or if
substantial and continuing action to cure has not been initiated, Franchisor
may, at its option, terminate the Franchise effective on the earlier of, the
date of receipt by Franchisee of notice of termination or five days after the
mailing of such notice by Franchisor. Such defaults shall include, without
limitation, the occurrence of any of the following events:
(I) Franchisee fails to construct or remodel, or to commence
operating the Outlet in accordance with this Agreement;
(II) Franchisee fails, refuses, or neglects to promptly to pay
any monies owing to Franchisor, its affiliates or the Marketing Fund when due,
or to submit the financial or other information required under this Agreement;
(III) A threat or danger to public health or safety results
from the construction, maintenance, or operation of the Outlet;
(IV) Franchisee materially misuses or makes any unauthorized
use of the Marks;
(V) Franchisee, by act or omission in connection with the
operation of the Outlet, permits a continued violation of any law, ordinance,
rule, or regulation of a governmental body; or
(VI) Franchisee, by act or omission materially impairs the
value of, or the goodwill associated with, the Chain, any of the Marks or the
System.
(D) MATERIALITY OF BREACHES. Franchisee acknowledges and agrees that
-----------------------
a breach or violation of any term, covenant, condition, warranty, representation
or other obligation by Franchisee (other than a breach or violation that may be
cured under Section 19.(c) and is in fact cured within 15 days after notice)
shall constitute a material breach and default under this Agreement. Any breach
or violation that may be cured
<PAGE>
under Section 19 and that is not in fact cured within the 15-day cure period
shall also constitute a material breach and default under this Agreement.
20. OBLIGATIONS UPON TERMINATION OR EXPIRATION. Upon termination or
------------------------------------------
expiration of the Franchise, all rights granted hereunder to Franchisee shall
terminate, the Franchise shall revert to Franchisor, and Franchisee shall have
the following obligations with respect to the Outlet franchised under this
Agreement:
(A) Franchisee shall immediately cease to operate the business
franchised under this Agreement, and shall not thereafter, directly or
indirectly, represent to the public or hold itself out as a Papa John's Pizza
franchisee with respect to such business;
(B) Franchisee shall immediately and permanently cease to use, in any
manner whatsoever, all confidential information, methods, procedures and
techniques used by or associated with the System, and the proprietary Marks
"Papa John's," "Papa John's Pizza," and all other Marks and distinctive forms,
slogans, signs, symbols, logos and devices associated with the Papa John's Pizza
Chain;
(C) Franchisee shall immediately return to Franchisor any property
held or used by Franchisee which is owned by Franchisor and shall either (i) use
at another location franchised by Franchisee, (ii) deliver to another party
authorized to use the Marks or (iii) convey to Franchisor, all signs,
advertising materials, displays, stationery, forms and any other materials that
bear or display the Marks;
(D) Franchisee shall take such actions as may be necessary to cancel
any assumed name or similar registration which contains the mark "Papa John's"
or "Papa John's Pizza" or any other Mark of Franchisor at the Location, and
Franchisee shall furnish Franchisor with evidence satisfactory to Franchisor of
compliance with this obligation within thirty (30) days after termination or
expiration of the Franchise;
(E) Franchisee shall, if Franchisor so requests, assign to Franchisor
any interest which Franchisee has in any lease for the Premises. In the event
Fran chisor does not elect to exercise its option to acquire any lease for the
Premises, and unless otherwise directed by Franchisor, Franchisee shall, within
ten days after termination or expiration of the Franchise, make such
modifications and alterations to the Premises as may be necessary to distinguish
the appearance of the Premises from that of other Papa John's Pizza outlets and
shall make such specific additional changes thereto as Franchisor may reasonably
request;
(F) Franchisee shall promptly pay all sums owed to Franchisor, and in
the event the Franchise terminated by reason of a default by Franchisee, such
sums shall include all damages, costs, and expenses, including reasonable
attorneys' fees, incurred by Franchisor as a result of the default and the
termination, which obligation shall give rise to and remain, until paid in full,
a lien in favor of Franchisor against any and all of
<PAGE>
the personal property, furnishings, equipment, signs, fixtures and inventory
owned by Franchisee located on the Premises on the date the Franchise
terminated;
(G) Franchisee shall pay to Franchisor all damages, costs and
expenses, including reasonable attorneys' fees, incurred by Franchisor
subsequent to the termination or expiration of the Franchise in obtaining
injunctive or other relief for the enforcement of any provision of this
Agreement;
(H) Franchisee shall immediately deliver to Franchisor all Manuals,
policy and procedure statements, instructions, and other materials related to
oper ating the Outlet, including, without limitation, brochures, charts and any
other materials provided by Franchisor and all copies thereof, and shall neither
retain nor convey to another any copy or record of any of the foregoing except
at other franchised outlets.
(I) If requested by Franchisor, Franchisee shall take all actions and
execute all documents necessary to convey and assign to Franchisor all telephone
numbers which have been used in the operation of the Outlet or if Franchisor
does not so request, Franchisee shall cease all use of such telephone numbers;
and
(J) Franchisee shall comply with the covenants contained in this
Agreement, including, but not limited to, the covenants not to compete and the
covenants not to disclose trade secrets or confidential information.
21. INDEPENDENT CONTRACTOR; INDEMNIFICATION.
---------------------------------------
(A) INDEPENDENT CONTRACTOR. It is understood and agreed by the
----------------------
parties that this Agreement creates only a contractual relationship between the
parties subject to the normal rule of contract law. This Agreement does not
create a fiduciary relationship between them and that Franchisee is and shall
remain an independent contractor. Nothing in this Agreement is intended to
constitute either party an agent, legal representative, subsidiary, joint
venturer, partner, employee, or servant of the other for any purpose whatsoever.
Franchisee agrees to hold itself out to the public as an independent contractor,
separate and apart from the Franchisor. Franchisee agrees that it shall not make
any contract, agreement, warranty, or representation on Franchisor's behalf
without Franchisor's prior written consent, and Franchisee agrees that it shall
not incur any debt or other obligation in Franchisor's name.
(B) INDEMNIFICATION. Franchisor shall not be liable by reason of any
---------------
act or omission of Franchisee in its conduct of the Outlet or for any claim,
cause of action or judgement arising therefrom against Franchisee or Franchisor.
Franchisee agrees to hold harmless, defend and indemnify Franchisor and its
officers, directors, agents, and employees, from and against any and all losses,
expenses, judgments, claims, attorney fees and damages arising out of or in
connection with any claim or cause of action in which Franchisor shall be a
named defendant and which arises, directly or indirectly, out of the operation
of, or in connection with, Franchisee's Outlet, other than a claim resulting
directly from Franchisor's negligence or misconduct.
<PAGE>
22. FRANCHISEE REPRESENTATIONS. Franchisee hereby acknowledges and
--------------------------
represents that:
(A) all information submitted to Franchisor by Franchisee or those
owning an interest in Franchisee, including all applications, financial
statements and other documents and information, is true and correct in all
respects and that it does not omit any statement or item of fact material to
make the statements made therein not false or misleading;
(B) Franchisor has not represented (i) that the Franchisee will earn,
can earn, or is likely to earn a gross or net profit, (ii) that Franchisor has
knowledge of the relevant market, or (iii) that the market demand will enable
the Franchisee to earn a profit from the Franchise;
(C) Franchisee has read and understood this Agreement and the
disclosure document entitled "Papa John's Franchise Offering Circular" (the
"Offering Circular") required by the Federal Trade Commission or the state in
which the Outlet will be located at least ten business days prior to the date on
which this Agreement was signed or any monies were paid to Franchisor by
Franchisee. Franchisee understands that Franchisor makes no representation or
warranty regarding Franchisee's relevant market or the profitability of business
operations under the System and that no representations have been made by
Franchisor, or by its officers, directors, shareholders, employees or agents,
that are contrary to or inconsistent with the terms of this Agreement or with
the statements made in the Offering Circular that accompanied a copy of this
Agreement;
(D) Franchisee accepts the terms, conditions and covenants contained
in this Agreement as being reasonable and necessary to maintain Franchisor's
standards of quality, service and uniformity and in order to protect and
preserve the goodwill of the Marks. Franchisee acknowledges that other
franchisees of Franchisor have been or will be granted franchises at different
times and in different situations. Franchisee further acknowledges that the
provisions of the fran chise agreements pursuant to which such franchises were
granted may vary materially from those contained in this Agreement and that
Franchisee's obligation arising hereunder may differ substantially from other
franchisees; and
(E) Franchisee recognizes that the System may evolve and change over
time and that the Franchise involves an investment of substantial risk and its
success is dependent primarily upon the business acumen and efforts of the Fran
chisee and other factors beyond Franchisor's control. Franchisee has conducted
an independent investigation of the Franchise and has had ample time and
opportunity to consult with independent professional advisors (lawyers,
accountants, etc.), and has not received or relied upon any express or implied
guarantee as to potential volumes, revenues, profits or success of the business
venture contemplated by the Franchise.
23. GOVERNING LAW, JURISDICTION AND VENUE.
-------------------------------------
<PAGE>
(A) GOVERNING LAW. This Agreement shall be interpreted and construed
-------------
under the laws of Kentucky, which laws shall prevail in the event of any
conflict of law.
(B) JURISDICTION; WAIVER OF DEFENSES. The parties agree that any
action, claim, suit or proceeding arising under this Agreement or concerning the
interpretation of this Agreement shall be brought in the court of proper subject
matter jurisdiction located in Jefferson County, Kentucky. Franchisee hereby
irrevocably consents and submits to personal jurisdiction and venue in and by
the state and federal courts within Jefferson County, Kentucky and agrees that
Franchisee may be served with process in any such action in accordance with the
terms of the notice provision of this Agreement. Franchisee does hereby waive
all defenses of personal jurisdiction, venue and forum non-convenience for the
purpose of carrying out this provision.
(C) NON-EXCLUSIVE RIGHTS. No right or remedy conferred upon or
--------------------
reserved to Franchisor by this Agreement is intended to be, nor shall be deemed,
exclusive of any other right or remedy herein or provided or permitted by law or
equity, but each shall be cumulative of every other right or remedy.
(D) INJUNCTIVE RELIEF. Franchisee acknowledges and agrees that the
-----------------
violation of any of Franchisee's covenants contained herein would be a material
breach of this Agreement and would cause irreparable harm to Franchisor in
addition to financial damages. Nothing herein contained shall bar Franchisor's
right to obtain injunctive relief against threatened conduct that will cause it
loss or damages, whether as provided in this Agreement or under the usual equity
rules, including the applicable rules for obtaining restraining orders and
preliminary injunctions.
(E) COSTS, EXPENSES AND ATTORNEYS' FEES. Except as provided in
-----------------------------------
Section 20, each party shall pay its own costs, expenses and attorneys' fees in
any action, claim, suit or proceeding arising out of this Agreement or the
franchise relationship of the parties. Franchisee and Franchisor agree that,
except as provided in the Guaranty and the Exhibits attached hereto, each will
look only to the other and its respective assets with respect to any claims it
may have against the other and neither shall bring any claim whatsoever against
the officers, directors or share holders of the other under any circumstances.
24. NOTICES. All notices, requests, demands and other communications
-------
required or permitted to be given or made under this Agreement shall be in
writing and shall be given (i) by personal delivery or (ii) provided such
notice, request, demand or communication is actually received by the party to
which it is addressed in the ordinary course of delivery, by deposit in the
United States mail, postage prepaid, or (iii) by registered or certified mail,
return receipt requested, postage prepared, or by delivery to a nationally-
recognized overnight courier service, in each case, addressed as follows, or to
such other person or entity as either party shall designate by notice to the
other in accordance herewith:
<PAGE>
Franchisor: 11492 Bluegrass Parkway
Louisville, Kentucky 40299
ATTN: General Counsel
Franchisee: 428 15th Street
Tuscaloosa, Alabama 35401
Attn: Doug Stephens
With a copy to: 3300 First National Tower
Louisville, Kentucky 40202
ATTN: Michael M. Fleishman
25. MISCELLANEOUS.
-------------
(A) SEVERABILITY. Franchisee agrees to be bound to the maximum
extent permitted by law which is subsumed within the terms of any provision
hereof, as though it were separately articulated in and made a part of this
Agreement, that may result from the striking of any provision hereof by a court,
or which a court holds to be unenforceable in a final decision to which
Franchisor is a party, or that may result from reducing the scope of any
provision to the extent required to comply with a court order or with any state
or federal law, whether currently in effect or subsequently enacted.
(B) CONSTRUCTION. All references herein to the masculine, neuter, or
------------
singular shall be construed to include the masculine, feminine, neuter, or
plural, as the case may require. All acknowledgements, warranties,
representations, covenants, agreements, and obligations herein made or
undertaken by Franchisee shall be deemed jointly and severally undertaken by all
those executing this Agreement as Franchisee. During any period in which any of
the covenants in Section 16 is being breached or violated and either of the
parties seeks judicial enforcement, interpretation or modification of any such
covenants, including all appeals thereof, the restricted period set forth
therein shall toll and be suspended.
(C) ENTIRE AGREEMENT. This Agreement, the documents incorpo rated
----------------
herein by reference and the Exhibits attached hereto, comprise the entire
agreement between the parties, and all prior understandings or agreements con
cerning the subject matter hereof are canceled and superseded by this Agreement.
All Exhibits to this Agreement are incorporated herein by reference and made a
part hereof as if set out in full herein.
(D) AFFILIATE. As used in this Agreement, the term "Affiliate" shall
---------
mean any person or entity that is a Papa John's Pizza franchisee of Franchisor
or any sublicensor of Franchisor.
(E) AMENDMENTS. Except for those permitted to be made unila terally
----------
by Franchisor, no supplement, amendment or variation of the terms of this
Agreement shall be valid unless made in writing and signed by the parties
hereto.
<PAGE>
(F) WAIVERS. No failure of Franchisor to exercise any right given to
-------
it hereunder, or to insist upon strict compliance by Franchisee with any
obligation, agreement or undertaking hereunder, and no custom or practice of the
parties at variance with the terms hereof shall constitute a waiver of
Franchisor's right to demand full and exact compliance by Franchisee with the
terms hereof. Waiver by Franchisor of any particular default by Franchisee shall
not affect or impair Franchisor's rights with respect to any subsequent default
of the same or of a different nature, nor shall any delay or omission of
Franchisor to exercise any right arising from such default affect or impair
Franchisor's rights as to such default or any subsequent default.
(G) COUNTERPARTS. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
(H) HEADINGS. The headings used in this Agreement are for
--------
convenience only, and the paragraphs shall be interpreted as if such headings
were omitted.
(I) TIME OF ESSENCE. Franchisee agrees and acknowledges that time is
---------------
of the essence with regard to Franchisee's obligations hereunder, and that all
of Franchisee's obligations are material to Franchisor and this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement on the day, month and year first written above.
PAPA JOHN'S INTERNATIONAL, INC.
By: ____________________________________
J. Daniel Holland, President
EXTRA CHEESE, INC.
By: ____________________________________
Douglas Stephens, President
<PAGE>
GUARANTY OF
FRANCHISEE'S OBLIGATIONS
------------------------
In consideration of, and as an inducement to the execution of the foregoing
Papa John's Franchise Agreement by Franchisor (the "Agreement"), each of the
undersigned, being the owners of all of the beneficial interests in Franchisee,
hereby personally and unconditionally guaranty to Franchisor, its successors and
assigns, the punctual payment to Franchisor of all sums which Franchisee may now
or in the future owe to Franchisor for purchases of goods from Franchisor,
including any late fees and delivery charges; provided that such guaranty is
limited to $20,000 in the aggregate.
Each of the undersigned covenant and agree that: (1) liability under this
Guaranty shall be proportionate in accordance with their respective
stockholdings in Franchisee, and not joint; (2) that this is a guaranty of
payment and not of collection and they shall render any payment or performance
required under the Agreement or this Guaranty upon demand of Franchisor if
Franchisee fails or refuses to punctually do so; (3) their liability hereunder
shall not be contingent or conditioned upon pursuit by Franchisor of any
remedies against Franchisee or any of the under signed; (4) their liability
hereunder shall not be diminished, relieved, or otherwise affected by any
extension of time, credit, or other indulgence or waiver which Franchisor may
from time to time grant Franchisee or to any of the undersigned, including,
without limitation, the acceptance of partial payment or performance, the
compromise or release of any claims, the release of any other guarantor, or
consent by Franchisor to any transfer or assignment of the franchise or any
interest therein and Franchisor expressly reserves all rights which it may have
against the undersigned.
The obligations of the undersigned under this Guaranty shall remain in full
force and effect without regard to, and shall not be released, discharged or in
any way modified or affected by, any circumstance or condition of Franchisee
(whether or not the undersigned shall have any knowledge or notice thereof),
including, without limitation, bankruptcy, insolvency, reorganization,
composition, liquidation or similar proceeding or any action taken by any
trustee or receiver or by any court in any such proceeding.
Each of the undersigned waives notice of demand, notice of protest,
nonpayment or default, and all other notices to which Franchisee or the
undersigned may be entitled, and all suretyship and guarantor's defenses
generally. The under signed further waive all exemptions to which the
undersigned may now or hereafter be entitled under the laws of this or any other
state or of the United States.
This Guaranty is personal to the undersigned and the obligations and duties
imposed herein may not be delegated or assigned; provided, however, that this
Guaranty shall be binding upon the successors, assigns, estates and personal
representatives of the undersigned. This Guaranty shall inure to the benefit of
Franchisor, its affiliates, successors and assigns.
<PAGE>
In the event that any one or more provisions contained herein shall for any
reason be held to be invalid, illegal, or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
hereof and this Guaranty shall be construed to bind the undersigned to the
maximum extent permitted by law which is subsumed within the terms of such
provision as though it were separately articulated herein.
This Guaranty shall be interpreted and construed under the laws of
Kentucky, which laws shall prevail in the event of any conflict of law. The
parties agree that any action, suit or proceeding arising under this Guaranty or
concerning the interpretation of this Guaranty shall be brought in the court of
proper subject matter jurisdiction located in Jefferson County, Kentucky. The
undersigned hereby irrevo cably consent and submit to personal jurisdiction and
venue in and by the courts within Jefferson County, Kentucky. The undersigned do
hereby waive all defenses of personal jurisdiction, venue and forum non-
convenience for the purpose of carrying out this provision.
This Guaranty does not grant or create in the undersigned any interest,
rights or privileges in the Franchise or in the Franchise Agreement.
IN WITNESS WHEREOF, each of the undersigned has hereunto affixed his
signature on the day and year as set forth below.
__________________________________________ DATE: ___________________
FRANK O. KEENER
__________________________________________ DATE: ___________________
STEVE LANGFORD
__________________________________________ DATE: ___________________
DOUGLAS STEPHENS
__________________________________________ DATE: ___________________
RICHARD F. SHERMAN
__________________________________________ DATE: ___________________
MICHAEL M. FLEISHMAN
<PAGE>
PAPA JOHN'S
FRANCHISE AGREEMENT
EXHIBIT A
---------
CONFIDENTIALITY AND NON-COMPETITION
AGREEMENT FOR OWNERS OF FRANCHISEE
KNOW ALL MEN BY THESE PRESENTS THAT:
Pursuant to the provisions of the Papa John's Franchise Agreement of even
date herewith and attached hereto (the "Agreement"), by and between PAPA JOHN'S
INTERNATIONAL, INC. ("Franchisor"), and EXTRA CHEESE, INC. ("Franchisee"), each
of the undersigned, who are the beneficial owners of all interests in the
Franchisee, in consideration of the execution by Franchisor of the Agreement and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, each of the undersigned who are the owners of all
equity, voting and other interests in Franchisee, hereby covenant and agree:
1. COVENANTS OF THE UNDERSIGNED.
----------------------------
(A) COVENANT NOT-TO-COMPETE. Each of the undersigned hereby
-----------------------
covenants and agrees that during the Term of the Agreement and for a period of
two years thereafter or two years after he ceases to be a stockholder in
Franchisee, whichever is shorter (the "Restricted Period"), the undersigned
shall not, within a 50-mile radius of (i) any business location in which the
Franchisor or an "Affiliate" (as defined below) then conducts a Papa John's
Pizza business, or (ii) any area or territory then covered by an agreement
providing for the development of one or more Papa John's Pizza outlets, whether
or not any such outlet is then conducting business (collectively, the
"Territories"), engage in any of the following activities:
(I) directly or indirectly enter into the employ of, or render
any service to, or act in concert with, any person, partnership, corporation or
other entity engaged in any fast food business that sells, principally on a
delivery and/or carry-out basis, pizza or other non-pizza products that are the
same as or substan tially similar to those sold by Papa John's Pizza outlets
which shall include by way of example and not by way of limitation, restaurant
formats such as Pizza Hut, Domino's, Little Caesars and Mr. Gatti's (a
"Competitive Business"), or
(II) directly or indirectly engage in any such Competitive
Business on his own account, or
(III) become interested in any such Competitive Business
directly or indirectly as an individual, partner, shareholder, director,
officer, principal, agent, employee, consultant or in any other relationship or
capacity; provided, that the purchase
<PAGE>
of a publicly traded security of a corporation engaged in such business or
service shall not in itself be deemed violative of this Agreement so long as the
undersigned does not own, directly or indirectly, more than 5% of the securities
of such corporation.
(B) APPROPRIATION AND DISCLOSURE OF INFORMATION. Except as permitted
-------------------------------------------
during the Term of the Agreement, the undersigned will not at any time use, copy
or duplicate the System or any aspect thereof, or any of the Franchisor's trade
secrets, recipes, methods of operation, processes, formulas, advertising,
marketing, designs, plans, know-how or other proprietary ideas or information,
nor will the undersigned convey, divulge, make available or communicate such
informa tion to any third party or assist others in using, copying or
duplicating any of the foregoing.
(C) INFRINGEMENT. The undersigned will not at any time commit any
------------
act which would infringe upon or impair the value of the System or the Marks,
nor will any of them engage in any business or market any product or service
under a trade name, trademark, service mark, logo or design that is confusingly
or deceptively similar to any of the Marks.
(D) SOLICITATION OF EMPLOYEES. Each of the undersigned agrees that
-------------------------
from and after the date hereof, he or she will not solicit, entice or induce,
directly or indirectly, any employee of the Franchisor or an Affiliate to leave
the employment of the Franchisor or an Affiliate to work with the undersigned,
or any of them, or with any person or entity with whom he or she is or becomes
affiliated.
2. REASONABLENESS OF SCOPE AND DURATION. Each of the undersigned agree
------------------------------------
that the covenants and agreements contained in Section 1 are, taken as a whole,
reasonable with respect to the activities covered and their geographic scope and
duration, and no party shall raise any issue of the reasonableness of the areas,
activities or duration of any such covenants in any proceeding to enforce any
such covenants.
3. ENFORCEABILITY. Each of the undersigned agrees that the Franchisor
--------------
may not be adequately compensated by damages for a breach of any of the
covenants and agreements contained herein, and that the Franchisor shall, in
addition to all other remedies, be entitled to injunctive relief and specific
performance. The coven ants and agreements contained in this Non-Competition
Agreement shall be construed as separate covenants and agreements, and if any
court shall finally determine that the restraints provided for in any such
covenants and agreements are too broad as to the area, activity or time covered,
said area, activity or time covered may be reduced to whatever extent the court
deems reasonable, and such covenants and agreements shall be enforced as to such
reduced area, activity or time.
4. ACKNOWLEDGEMENT. Each of the undersigned hereby acknowledge that (i)
---------------
it is a condition to the granting of the Franchise to Franchisee that each of
the undersigned execute and deliver a copy of this Non-Competition Agreement to
Franchisor on the date the Agreement is executed, and (ii) that Franchisor has
entered into the Agreement in reliance upon the agreement of the undersigned to
do so.
<PAGE>
5. MISCELLANEOUS.
-------------
(A) DEFINITIONS. Except as otherwise defined in this Non-Competition
-----------
Agreement, all capitalized terms shall have the same meaning given them in the
Agreement.
(B) AFFILIATE. As used herein, the term "Affiliate" means any person
---------
or entity that is a Papa John's Pizza franchisee of Franchisor or a sublicensor
of Franchisor. However, no one except Franchisor may enforce any provision of
this Agreement.
(C) SURVIVAL. This Non-Competition Agreement shall inure to the
--------
benefit of, and be binding upon the undersigned and the undersigned's legal
repres entatives, heirs, successors and assigns, and upon the Franchisor and its
successors and assigns. During any period in which any of the covenants in
Section 1, above is being breached or violated and either of the parties seeks
judicial enforcement, interpretation or modification of any such covenants,
including all appeals thereof, the Restricted Period shall toll and be
suspended.
(D) WAIVER OF BREACH. The waiver by the Franchisor of a breach of
----------------
any provision of this Non-Competition Agreement by any of the undersigned shall
not operate or be construed as a waiver of any subsequent breach of the same or
any other provision by any of the undersigned.
(E) AMENDMENTS. This Non-Competition Agreement may not be amended
----------
orally, but only by an amendment in writing signed by the party against whom
enforcement is sought.
(F) GOVERNING LAW. This Non-Competition Agreement shall be governed
-------------
by, and construed and enforced in accordance with, the laws of the Commonwealth
of Kentucky.
(G) COUNTERPARTS. This Non-Competition Agreement may be executed in
------------
several counterparts, each of which shall be deemed an original, and all of
which together shall constitute one and the same instrument.
(H) CONSTRUCTION. In the event this Non-Competition Agreement is
------------
executed by more than one person or entity, all of such persons or entities
shall be jointly and severally liable only for his own (and not any other
person's) breach of any representation, warranty, covenant or agreement
contained herein. All references to the
<PAGE>
masculine, singular or plural shall be equally applicable to the singular,
plural, masculine or feminine as the case may require.
IN WITNESS WHEREOF, each of the undersigned have executed this
Confidentiality and Non-Competition Agreement on the day, month, and year set
forth opposite their signature.
__________________________________________ DATE: ___________________
FRANK O. KEENER
__________________________________________ DATE: ___________________
STEVE LANGFORD
__________________________________________ DATE: ___________________
DOUGLAS STEPHENS
__________________________________________ DATE: ___________________
RICHARD F. SHERMAN
__________________________________________ DATE: ___________________
MICHAEL M. FLEISHMAN
<PAGE>
PAPA JOHN'S
FRANCHISE AGREEMENT
EXHIBIT B
---------
OWNERSHIP RESTRICTION AGREEMENT
In consideration of, and as an inducement to, the execution by PAPA JOHN'S
INTERNATIONAL, INC. ("Franchisor") of the Franchise Agreement of even date
herewith and attached hereto (the "Agreement"), by and between Franchisor and
EXTRA CHEESE, INC. ("Franchisee"), the undersigned, who are the beneficial
owners of all interests in Franchisee, hereby represent, warrant, covenant, and
agree:
1. REPRESENTATIONS OF THE UNDERSIGNED. Each of the undersigned, jointly
----------------------------------
and severally, represent and warrant to Franchisor:
(A) That they are the owners of all equity, voting and other
ownership interests in the Franchisee.
(B) That the Franchisee is a corporation, duly organized, validly
existing and in good standing under the laws of the State of Alabama, and that
Franchisee is qualified to do business in the state where the Franchise is to be
located.
2. COVENANT NOT TO TRANSFER INTERESTS. Each of the undersigned agrees
----------------------------------
that his interest in Franchisee is restricted in accordance with the terms of
the Agreement and covenants that he will not at any time during which Franchisee
is a Papa John's Pizza franchisee, directly or indirectly, voluntarily or
involuntarily, make any "transfer" (as defined in the Agreement) of all or any
portion of his interest in Franchisee, or any interest in the Franchise, or
offer or attempt or permit any of the same to be done, except as permitted by
the Agreement, unless he first obtains the written approval of Franchisor in
compliance with the same provisions applicable to a transfer by Franchisee as
set forth in the Agreement. The undersigned shall cause all stock certificates
issued by the Franchisee to bear a legend indicating that such stock is subject
to the restrictions provided for in the Agreement. Each of the undersigned shall
give Franchisor not less than 45 days prior written notice of any intended or
proposed transfer of his or her interest in Franchisee, and shall also cause the
Franchisee to give such notice as is required by the Agreement.
3. GOVERNING LAW; JURISDICTION AND VENUE. This Ownership Restriction
-------------------------------------
Agreement shall be governed by, and construed and enforced in accordance with
the laws of Kentucky, which laws shall prevail in the event of any conflict of
law; provided, however, that if any provision of this Ownership Restriction
Agreement would not be enforceable under the laws of Kentucky, then such
provision shall be interpreted and
<PAGE>
construed to bind the undersigned to the maximum extent permitted by law which
is subsumed within the terms of such provision as though it were separately
articulated herein and made a part hereof. The parties agree that any action,
suit or proceeding arising under this Agreement or concerning the interpreta
tion of this Ownership Restriction Agreement shall be brought in the court of
proper subject matter jurisdiction located in Jefferson County, Kentucky. The
undersigned hereby irrevocably consent and submit to personal jurisdiction and
venue in and by the courts within Jefferson County, Kentucky. The undersigned do
hereby waive all defenses of personal jurisdiction, venue and forum non-
convenience for the purpose of carrying out this provision.
4. WAIVERS. No failure of the Franchisor to exercise any right given to
-------
it, or to insist upon strict compliance by the undersigned with any obligation,
agreement or undertaking hereunder or under the Agreement, and no custom or
practice of the parties at variance with the terms hereof shall constitute a
waiver of Franchisor's right to demand full and exact compliance by the
undersigned with the terms hereof. Waiver by Franchisor of any particular
default by Franchisee shall not affect or impair Franchisor's rights with
respect to any of the undersigned, nor shall any delay or omission of Franchisor
to exercise any right arising from such default affect or impair the
Franchisor's rights with respect to any of the undersigned.
5. ACKNOWLEDGEMENT. Each of the undersigned hereby acknowledge that (a)
---------------
it is a condition to the granting of the Franchise to the Franchisee that the
undersigned enter into this Ownership Restriction Agreement, and (b) that
Franchisor has entered into the Agreement in reliance upon the agreement of the
undersigned to do so.
6. MISCELLANEOUS.
--------------
(A) SEVERABILITY. This Ownership Restriction Agreement may be
------------
executed in several counterparts, each of which shall be deemed an original, and
all of which together shall constitute one and the same instrument.
(B) DEFINITIONS. Except as otherwise defined in this Ownership
-----------
Restriction Agreement, all capitalized terms shall have the same meaning given
them in the Agreement.
(C) SURVIVAL. This Ownership Restriction Agreement shall inure to
--------
the benefit of, and be binding upon the undersigned and the undersigned's legal
representatives, heirs and assigns, and upon the Franchisor and its successors
and assigns.
(D) AMENDMENTS. This Ownership Restriction Agreement may not be
----------
amended orally, but only by an amendment in writing signed by the party against
whom enforcement is sought.
(E) COUNTERPARTS. This Ownership Restriction Agreement may be
------------
executed in several counterparts, each of which shall be deemed an original, and
all of which together shall constitute one and the same instrument.
<PAGE>
7. CONSTRUCTION. In the event this agreement is executed by more than
------------
one person or entity, each person or entity shall be liable only for his own
performance of all of the obligations hereunder. Any reference to the masculine
shall be construed to include the feminine, masculine, neuter, or plural as
applicable.
IN WITNESS WHEREOF, each of the undersigned have executed this Ownership
Restriction Agreement on the day, month, and year set forth opposite their
signature.
__________________________________________ DATE: ___________________
FRANK O. KEENER
__________________________________________ DATE: ___________________
STEVE LANGFORD
__________________________________________ DATE: ___________________
DOUGLAS STEPHENS
__________________________________________ DATE: ___________________
RICHARD F. SHERMAN
__________________________________________ DATE: ___________________
MICHAEL M. FLEISHMAN
<PAGE>
PAPA JOHN'S
FRANCHISE AGREEMENT
EXHIBIT C
---------
ADDENDUM TO LEASE
-----------------
THIS ADDENDUM TO LEASE, dated __________ __, 19__, is entered into by and
between ________________________ ("Lessor"), and _____________________
("Lessee").
RECITALS:
--------
A. The parties hereto have entered into a certain Lease Agreement, dated
__________ __, 19__, and pertaining to the premises located at
________________________________________ (the "Lease").
B. Lessor acknowledges that Lessee intends to operate a Papa John's Pizza
outlet in the leased premises (the "Premises") under a Papa John's Franchise
Agreement (the "Franchise Agreement") with Papa John's International, Inc.
("PJI").
C. The parties now desire to amend the Lease in accordance with the terms
and conditions contained herein.
AGREEMENT:
---------
NOW, THEREFORE, it is hereby mutually covenanted and agreed between Lessor
and Lessee as follows:
1. REMODELING AND DECOR. Lessor agrees that Lessee shall have the right
--------------------
to remodel, equip, paint and decorate the interior of the Premises and to
display such proprietary marks and signs on the interior and exterior of the
Premises as Lessee is reasonably required to do pursuant to the Franchise
Agreement and any successor Franchise Agreement under which Lessee may operate a
Papa John's Pizza business in the Premises.
2. ASSIGNMENT. Lessee shall have the right to assign all of its right,
----------
title and interest in the Lease to PJI at any time during the term of the Lease,
including any extensions or renewals thereof, without first obtaining Lessor's
consent. However, no assign-
<PAGE>
ment shall be effective until such time as PJI gives Lessor written notice of
its acceptance of such assignment, and nothing contained herein or in any other
document shall constitute PJI a party to the Lease, or guarantor thereof, and
shall not create any liability or obligation on PJI unless and until the Lease
is assigned to, and accepted by, PJI.
3. DEFAULT AND NOTICE.
------------------
(A) In the event there is a default or violation by Lessee under the
terms of the Lease, Lessor shall give Lessee and PJI notice of such default or
violation within a reasonable time after Lessor receives knowledge of its
occurrence.
(B) All notices to PJI shall be sent by registered or certified mail,
postage prepaid, to the following address:
Papa John's International, Inc.
11492 Bluegrass Parkway
Louisville, Kentucky 40299
Attn: General Counsel
PJI may change its address for receiving notices by giving Lessor written notice
of such new address. Lessor agrees that it will notify both Lessee and PJI of
any change in Lessor's mailing address to which notices should be sent.
4. TERMINATION OR EXPIRATION. Upon the expiration or termination of
-------------------------
either the Lease or the Franchise Agreement, Lessor will allow PJI to enter the
Premises, without being guilty of trespass and without incurring any liability
to Lessor, to remove all signs and other items identifying the Premises as a
Papa John's Pizza outlet and to make such other modifications as are reasonably
necessary to protect PJI's proprietary marks and the Papa John's System, and to
distinguish the Premises from Papa John's Pizza outlets. Provided, however, that
this obligation of Lessor shall be conditioned upon PJI giving Lessor prior
notice of the modifications to be made and the items removed.
5. CONSIDERATION; NO LIABILITY.
---------------------------
(A) Lessor hereby acknowledges that the provisions of this Addendum
to Lease are required pursuant to the Franchise Agreement under which Lessee
plans to operate its business and that Lessee would not lease the Premises
without this Addendum.
(B) Lessor further acknowledges that Lessee is not an agent or
employee of PJI and that Lessee has no authority or power to act for, or to
create any liability on behalf of, or to in any way bind PJI, and that Lessor
has entered into this Addendum to Lease with full understanding that it creates
no duties, obligations or liabilities on or against PJI.
<PAGE>
6. AMENDMENTS. No amendment or variation of the terms of this Addendum
----------
to Lease shall be valid unless made in writing and signed by the parties hereto.
7. REAFFIRMATION OF LEASE. Except as amended or modified herein, all of
----------------------
the terms, conditions and covenants of the Lease shall remain in full force and
effect and are incorporated herein by reference and made a part hereof as though
copied herein in full.
IN TESTIMONY WHEREOF, witness the signatures of the parties hereto as of
the day, month and year first written above.
______________________________________
By: __________________________________
Title: _______________________________
("Lessor")
______________________________________
By: __________________________________
Title: _______________________________
("Lessee")
<PAGE>
EXHIBIT 10.13
PAPA JOHN'S
DEVELOPMENT AGREEMENT
Developer: Extra Cheese, Inc.
Address: P.O. Box 61115
Birmingham, Alabama 35261
Number of Restaurants: Four (4)
Development Area: Cullman, Jasper, Sylacauga
and Talladega, Alabama
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. Grant................................................................... 2
2. Development Fee......................................................... 2
3. Development of Restaurants; Schedule for Completion..................... 3
4. Term.................................................................... 5
5. Construction or Remodeling.............................................. 6
6. Your Organization, Operation and Ownership.............................. 6
7. Your Covenants.......................................................... 7
8. Principal Operator...................................................... 9
9. Default and Termination................................................. 10
10. Assignment or Transfer.................................................. 12
11. No Grant of Franchise or Franchise Rights............................... 12
12. Notices................................................................. 12
13. Independent Contractor; Indemnification................................. 13
14. Enforcement............................................................. 14
15. Acknowledgements........................................................ 18
16. Miscellaneous........................................................... 19
</TABLE>
<PAGE>
DEVELOPMENT AGREEMENT
---------------------
THIS DEVELOPMENT AGREEMENT ("Agreement") is made and entered into this
_____ day of April, 1995, by and between PAPA JOHN'S INTERNATIONAL, INC., a
Delaware corporation ("we", "us" or "Papa John's"), and EXTRA CHEESE, INC., an
Alabama corporation ("you"). If you are a corporation, limited liability company
or partnership certain provisions of the Agreement also apply to your owners and
will be noted.
RECITALS:
--------
A. We and our Affiliates (defined below) have expended time, money and
effort to develop a unique system for operating retail restaurants devoted
primarily to carry-out and delivery of pizza and other food items. The chain of
current and future Papa John's restaurants are referred to as the "Papa John's
Chain" or the "Chain".
B. The Chain is characterized by a unique system which includes special
recipes and menu items; distinctive design, decor, color scheme and furnishings;
software and programs; standards, specifications and procedures for operations;
procedures for quality control; training assistance; and advertising and
promotional programs all of which we may improve, amend and further develop from
time to time (the "System").
C. We identify our goods and services with certain service marks, trade
names and trademarks, including but not limited to, "Papa John's", "Papa John's
Pizza" and "Pizza Papa John's Delivering the Perfect Pizza!" as well as certain
other trademarks, service marks, slogans, logos and emblems which have been and
which we may designate for use in connection with the System from time to time
(the "Marks").
D. You desire to obtain certain rights to develop one or multiple Papa
John's Pizza restaurant(s) in the "Development Area" (as defined below) in
accordance with the terms of this Agreement.
<PAGE>
E. We have agreed to grant you such rights;
NOW, THEREFORE, the parties agree as follows:
1. GRANT.
(a) Subject to the terms and conditions of this Agreement and your
continuing faithful performance, we hereby grant to you the right and obligation
to establish four Papa John's restaurant(s) (at specific locations we approve)
in the areas specified on attached Exhibit A. (The Papa John's restaurants you
develop pursuant to this Agreement are collectively referred to as the
"Restaurants" and individually as a "Restaurant"; the areas specified on Exhibit
A are collectively referred to as the "Development Area").
(b) Each Restaurant shall be established and operated pursuant to a
separate "Franchise Agreement" to be entered into between you and us. As used
herein, the term "Franchise Agreement" shall mean the form of Papa John's
Franchise Agreement (for the initial Restaurant) or Short Form Franchise
Agreement (for each subsequent Restaurant) to be executed for each Restaurant
developed under this Agreement and all attachments and exhibits thereto.
(c) Except as may be otherwise provided herein or in the Franchise
Agreements, we shall not locate, nor license another to locate, a Papa John's
restaurant in the Development Area during the "Term" (as defined in Section 4).
(d) This Agreement is not a franchise agreement and we do not grant
you any franchise rights or other rights to use the Marks or System under this
Agreement.
(e) You have no right to license or subfranchise others to use the
Marks or the System, or to enter into any agreement with respect to the Marks or
System.
2. DEVELOPMENT FEE. You have paid to us a development fee of
Fourteen Thousand Dollars ($14,000) ("Development Fee") (i.e Three Thousand Five
Hundred Dollars ($3,500) for
<PAGE>
each Restaurant to be developed), receipt of which we acknowledge. The
Development Fee was fully earned by us when paid, is non-refundable and is not
contingent upon our rendering any further performance. The Development Fee is
in consideration of, among other things, the development rights granted to you,
the reservation of the Development Area, the development opportunities lost or
deferred as a result of the rights granted to you in this Agreement and the
administrative and other expenses we have incurred. However, $3,500 of the
Development Fee will be credited against each Initial Franchise Fee at the time
it is paid, as provided in Section 3.(f).
3. DEVELOPMENT OF RESTAURANTS; SCHEDULE FOR COMPLETION.
(a) You shall have the number of Restaurants open and operating within
the time frame set forth in subsection 3.(e). below, and you shall exercise each
such development right only at locations within the Development Area which we
have approved.
(b) With respect to each proposed location, you shall submit a
completed site evaluation form, together with such other information and
materials as we may reasonably request. We shall have 30 days after receipt of
such information to accept or reject each proposed location. If we fail to
respond within such 30 day period, the location submitted by you shall be deemed
to be approved. We will not unreasonably withhold our approval of a location.
In approving or disapproving any proposed site, we will consider such matters as
we deem material, including, without limitation, demographic characteristics of
the proposed site, traffic patterns, parking, the predominant character of the
neighborhood, competition from other businesses providing similar services
within the area (including other Papa John's Restaurants), the proximity to
other businesses the rights granted to our other franchisees, the nature of
other businesses in proximity to the site, and other commercial characteristics
(including the purchase price or rental obligations and other lease terms for
the proposed site) and the size of the premises, appearance, and other physical
characteristics of the proposed site. Approval of a site by us does not
constitute an assurance, representation or warranty of any kind, expressed or
implied, as to the successful operation of a Papa John's Restaurant, or for any
other purpose. Our approval of a site indicates only that we believe the site
complies with an acceptable
<PAGE>
minimum criteria we establish solely for our purposes as of the time period
encompassing the evaluation. You acknowledge that application of criteria that
has been effective with respect to other sites and premises may not be
predictive of potential for all sites. Further, demographic and/or economic
factors included in our criteria could change and other relevant factors may be
excluded from our criteria, which might alter the potential of a site. The
uncertainty and instability of such criteria are beyond our control. We are not
responsible if a site we approve fails to meet your expectations as to potential
revenue or operational criteria or for your failure to locate the required
number of suitable sites in the Development Area. You further acknowledge and
agree that your acceptance of a Franchise for the operation of a Papa John's
Restaurant at a site is based on your own independent investigation of the
suitability of a site. Any proposed lease shall include an addendum in the form
of Exhibit A to the Franchise Agreement, or shall contain terms and conditions
substantially similar to those contained in Exhibit A to the Franchise
Agreement. Any changes in the language set forth in Exhibit A must be approved
by us in advance in writing.
(c) We shall deliver the Franchise Agreement to you within 20 days
after you provide the address and telephone number for an approved location
which you have leased or purchased. The Franchise Agreement for such location
must be signed by you and submitted to us along with the payment of the initial
franchise fee within ten days after it is delivered to you.
(d) The approval of a location and the delivery of a Franchise
Agreement by us shall be conditioned upon a determination by us, in our
reasonable judgment, that:
(i) You have the financial and operational capacity to develop
and operate the Restaurant;
(ii) the site which you propose for the Restaurant is within
the Development Area and is a suitable site based upon criteria we establish
from time to time; and
<PAGE>
(iii) You and your owners are in compliance with this Agreement
and all Franchise Agreements executed pursuant to this Agreement.
(e) Notwithstanding any provision of any Franchise Agreement entered
into between us and you, you shall exercise each development right as follows:
DEVELOPMENT SCHEDULE
<TABLE>
<CAPTION>
Dates on Which Each Cumulative Number of Restaurants
Restaurant Shall be Open to be Open and Operating*
------------------------ ------------------------
<S> <C>
August 31, 1995 1
February 28, 1996 2
August 31, 1996 3
February 28, 1997 4
</TABLE>
[* - Includes only those Restaurants to be developed pursuant to this
Development Agreement.]
(f) The Initial Franchise Fee to be paid by you for each Restaurant
shall be $18,500; provided that $3,500 of the Development Fee shall be credited
against the Initial Franchise Fee. The net amount of the Initial Franchise Fee
($15,000) shall be paid at the time each Franchise Agreement is executed.
(g) It shall be your responsibility to ensure that each Restaurant is
constructed or remodeled, and equipped and operated in compliance with all laws,
ordinances and governmental rules and regulations and the Franchise Agreement,
and you shall obtain all necessary permits and licenses relating thereto.
4. TERM. Unless sooner terminated as provided in this Agreement, this
Agreement shall expire on the earlier to occur of: (i) the date on which all
the Restaurants have been developed, or (ii) 12:00 midnight on the last date set
forth on the Development Schedule (the "Term"). Upon the termination or
expiration of this Agreement, all unexercised development rights shall expire.
<PAGE>
5. CONSTRUCTION OR REMODELING. You shall, at your own expense, construct
or remodel the Restaurant at each location in accordance with specifications we
provide and the terms of the Franchise Agreement. You shall allow us and our
agents and employees access to all areas of the premises of each Restaurant at
such times as we or they may reasonably request and you shall cooperate fully
with us and our agents and employees in preparing specifications for each
Restaurant to be developed hereunder. However, it shall be your obligation to
have plans drawn showing the layout on all equipment, signs and leasehold
improvements, and such plans shall be subject to our approval. You shall not
begin construction or remodeling on any outlet until the Franchise Agreement has
been fully signed and we have approved the plans for such Restaurant.
6. YOUR ORGANIZATION, OPERATION AND OWNERSHIP. If you are a corporation,
partnership, limited liability company or other entity:
(a) If we request from time to time, you shall furnish us with your
Articles of Incorporation, Articles of Organization, Operating Agreement,
By-Laws and other governing documents (and any amendments or modifications
thereof), minutes and resolutions and all agreements or other documents, records
and information pertaining to your existence and operation.
(b) You shall confine your business activities exclusively to the
establishment, management and operation of Papa John's restaurants pursuant to
agreements with us.
(c) You shall, at the same time you execute this Agreement, and at
such other times as we may request, disclose the name and address of each person
or entity owning a beneficial interest in you, and you shall not issue any
additional securities, nor allow the "transfer" (as defined in Section 10) of
any of your outstanding securities, except as provided in Section 10.
(d) You shall at all times comply with all laws, ordinances, rules and
regulations of governmental bodies.
<PAGE>
(e) You shall cause all persons or entities owning any interest in
you to sign the Owner Agreement in the form we provide.
7. YOUR COVENANTS.
(a) COVENANT NOT-TO-COMPETE. You covenant and agree that during the
Term and for a period of two years after the expiration or termination of this
Agreement, regardless of the cause for such expiration or termination (the
"Restricted Period"), you shall not, anywhere within either (i) the boundaries
of the Development Area or (ii) a 10-mile radius of any business location at
which you, us or our Affiliate or our franchisee then conducts a Papa John's
business, engage in any of the following activities:
(i) directly or indirectly enter into the employ of, render
any service to or act in concert with any person, partnership, limited liability
company, corporation or other entity that owns, operates, manages, franchises or
licenses any business that sells pizza or other non-pizza products (excluding
soft drinks) that are the same as those sold by Papa John's restaurants on a
delivery basis, or sells pizza or any such other products primarily on a carry-
out basis, including, without limitation, business formats such as Domino's,
Pizza Hut, Mr. Gatti's, Sbarro and Little Caesar's (a "Competitive Business");
or
(ii) directly or indirectly engage in any such Competitive
Business on your own account; or
(iii) become interested in any such Competitive Business
directly or indirectly as a partner, member, shareholder, principal, agent,
consultant or in any other relationship or capacity; provided, that the purchase
of a publicly traded security of a corporation engaged in such business or
service shall not in itself be deemed violative of this Agreement so long as you
do not own, directly or indirectly, more than 1% of the securities of such
corporation.
<PAGE>
To the extent required by the laws of the state in which the Restaurants are to
be developed, the duration or the geographic areas included within the foregoing
covenants, or both, shall be deemed amended in accordance with Section 7.(f).
(b) APPROPRIATION AND DISCLOSURE OF INFORMATION. Except as permitted
by the Franchise Agreement, you will not at any time use, copy or duplicate the
System or any aspect thereof, or any of our trade secrets, recipes, methods of
operation, processes, formulas, advertising, marketing, designs, trade dress,
plans, know-how or other proprietary ideas or information, nor will you convey,
divulge, make available or communicate such information to any third party or
assist others in using, copying or duplicating any of the foregoing.
(c) INFRINGEMENT. You will not at any time commit any act that would
infringe upon or impair the value of the System or the Marks, nor will you
engage in any business or market any product or service under a trade-name,
trademark, service mark, logo or design that is confusingly or deceptively
similar to any of the Marks.
(d) SOLICITATION OF EMPLOYEES. You agree that from and after the date
of this Agreement, you will not solicit, entice or induce, directly or
indirectly, any employee of us or an Affiliate or our franchisees to leave their
employment to work with you or with any person or entity with whom you are or
become affiliated.
(e) REASONABLENESS OF SCOPE AND DURATION. You agree that the
covenants and agreements contained herein are, taken as a whole, reasonable with
respect to the activities covered and their geographic scope and duration, and
you shall not raise any issue of the reasonableness of the areas, activities or
duration of any such covenants in any proceeding to enforce any such covenants.
Each of you acknowledge and agree that you have other skills and resources and
that the restrictions contained in this Section 7 will not hinder your
activities or ability to make a living either under this Agreement or in
general.
(f) ENFORCEABILITY. You agree that we may not be adequately
compensated by damages for a breach by you of any of the covenants and
agreements contained in this
<PAGE>
Section, and that we shall, in addition to all other remedies, be entitled to
injunctive relief and specific performance. The covenants and agreements
contained in this Section shall be construed as separate covenants and
agreements, and if any court shall finally determine that the restraints
provided for in any such covenants and agreements are too broad as to the area,
activity or time covered, said area, activity or time covered may be reduced to
whatever extent the court deems reasonable, and such covenants and agreements
shall be enforced as to such reduced area, activity or time.
8. PRINCIPAL OPERATOR. You shall designate an individual to serve as
your "Principal Operator." The Principal Operator shall meet the following
qualifications:
(a) The Principal Operator shall own at least a 5% equity interest
in you; provided that you shall not be in default of this requirement if the
Principal Operator is entitled to a bonus of not less than 5% of the net profits
of the Restaurant, payable after the end of each Period (as defined in the
Franchise Agreement), and also has the right to acquire not less than 5% equity
interest in you within 12 months of his or her hire date, which rights shall be
evidenced by a written agreement between the Principal Operator and you. You
shall provide us with a copy of any such agreement upon request. Once the
Principal Operator has acquired an equity interest in you, he or she must
continue to own that interest (or a greater interest) during the entire period
he or she serves as the Principal Operator and must comply with Section 6.(e)
of this Agreement.
(b) The Principal Operator shall devote full time and best efforts to
the supervision and conduct of the development and operation of the Restaurants
contemplated under this Agreement and shall agree to be bound by the
confidentiality and non-competition provisions of the Owner Agreement. At such
time as the Principal Operator becomes an owner of an interest in you, he or she
must agree to be bound by all provisions of the Owner Agreement.
(c) The Principal Operator shall be a person we approve who shall
complete our initial training requirements and who shall participate in and
complete to our satisfaction all additional training as we may reasonably
designate.
<PAGE>
If, at any time or for any reason, the Principal Operator no longer
qualifies to act as such, you shall promptly designate another Principal
Operator subject to the same qualifications listed above. You shall immediately
notify us of the termination of the Principal Operator's employment with you,
whether voluntary or involuntary.
9. DEFAULT AND TERMINATION.
(a) AUTOMATIC TERMINATION. You shall be in default under this
Agreement, and this Agreement and all rights granted in it shall automatically
terminate without notice to you, (i) if you make a general assignment for the
benefit of creditors or if a petition in bankruptcy is filed by you; or (ii)
such a petition is filed against and not opposed by you; or (iii) if you are
adjudicated as bankrupt or insolvent; or (iv) if a bill in equity or other
proceeding is filed for the appointment of a receiver or other custodian for
your business or assets if filed and consented to by you; or (v) if a receiver
or other custodian (permanent or temporary) of your assets or property, or any
part thereof, is appointed by any court of competent jurisdiction; or (vi) if
proceedings for a composition with creditors under any state or federal law
should be instituted by or against you; or (vii) if a final judgment remains
unsatisfied or of record for thirty (30) days or longer (unless supersedeas bond
is filed); or (viii) if you are dissolved; or (ix) if any portion of your
interest in any Papa John's franchise becomes subject to an attachment,
garnishment, levy or seizure by any creditor or any other person claiming
against or in your rights; or (x) if execution is levied against your business
or property; or (xi) if the real or personal property of any Restaurant shall be
sold after levy thereupon by any sheriff, marshal, or constable.
(b) WITHOUT NOTICE. You shall be in default under this Agreement, and
we may, at our option, terminate this Agreement and all rights granted under it
without affording you any opportunity to cure such default, effective upon the
earlier of (i) receipt of the notice of termination by you, or (ii) five days
after mailing of such notice by us, upon the occurrence of any of the following
events:
<PAGE>
(1) if you fail to strictly comply with the development schedule
set forth in Section 3;
(2) if any Franchise Agreement entered into pursuant to this
Agreement or otherwise is terminated as a result of your breach or default;
(3) if you make or attempt to make any transfer, whether
voluntary or involuntary, of this Agreement or any interest herein, or of any
rights or obligations arising under this Agreement, or of any interest in you,
or of any material portion of your assets, without our prior written consent,
except as otherwise provided under the Franchise Agreement; or
(4) if you fail to comply with any of your covenants set forth in
Section 7 of this Agreement.
(c) WITH NOTICE. For any other breach or default under this
Agreement, we will provide you with written notice of default and 15 days to
cure or, if a default cannot be reasonably be cured within 15 days, to initiate
within that time substantial and continuing action to cure such default and to
provide us with evidence of such actions. If the defaults specified in such
notice are not cured within the 15 day period, or if substantial and continuing
action to cure has not been initiated, we may, at our option, terminate this
Development Agreement and all rights granted to you under it by giving written
notice of such termination to you. The notice of termination shall be effective
on the earlier of (i) the date of receipt of the notice by you or (ii) five days
after the mailing of such notice by us.
(d) EFFECT OF TERMINATION. Upon termination of this Agreement, all
your rights under it shall terminate and you shall have no further right to
establish any Restaurants. In addition, upon termination of this Agreement, we
shall have the right to open and operate, or to franchise others to open and
operate, Papa John's restaurants anywhere within the Development Area, except
that we may not locate or franchise another to locate a Papa John's restaurant
within the "Territory" provided for in any Franchise Agreement that remains in
effect after the date of termination.
<PAGE>
10. ASSIGNMENT OR TRANSFER.
----------------------
(a) TRANSFER BY US. We may transfer this Agreement or any portion of
it, or any or all of our rights, obligations or interests under it, without
restriction. Upon any transfer or assignment of this Agreement by us, we shall
be released from all obligations and liabilities arising or accruing in
connection with this Agreement after the date of such transfer of assignment.
(b) TRANSFER BY YOU. This Agreement, and your rights and obligations
under it, are and shall remain personal to you. Any proposed transfer by you or
any of your owners (regardless of the form of transfer) shall be subject to the
same terms and conditions contained in the Franchise Agreement. As used herein,
the term "transfer" shall mean any sale, assignment, gift, pledge, mortgage or
any other encumbrance, transfer by bankruptcy, transfer by judicial order,
merger, consolidation, share exchange, transfer by operation of law or
otherwise, whether direct or indirect, voluntary or involuntary, of this
Agreement or any interest in it, or any rights or obligations arising under it,
or of any material portion of your assets, or of any interest in you.
11. NO GRANT OF FRANCHISE OR FRANCHISE RIGHTS. This Agreement does not
grant you a franchise or any rights of a Papa John's franchisee. To the fullest
extent permissible by law, you waive the applicability of any law which would
constitute this Agreement or any rights granted under it as a franchise
agreement or as granting any franchise rights.
12. NOTICES. All notices, requests, demands and other communications
required or permitted to be given or made under this Agreement shall be in
writing and shall be given (i) by personal delivery or (ii) provided such
notice, request, demand or communication is actually received by the party to
which it is addressed in the ordinary course of delivery, by deposit in the
United States mail, postage prepaid, or (iii) by registered or certified mail,
return receipt requested, postage prepaid, or by delivery to a nationally-
recognized overnight courier service, in each case, addressed as follows, or to
such other person or entity as either party shall designate by notice to the
other in accordance herewith:
<PAGE>
Papa John's: 11492 Bluegrass Parkway, Suite 175
Louisville, Kentucky 40299-2370
ATTN: General Counsel
You: P.O. Box 61115
Birmingham, Alabama 35261
ATTN: Douglas Stephens
Except as otherwise provided herein, a notice shall be deemed to have been
given on the date of personal delivery to a party or the date deposited in the
United States mail or with a nationally-recognized overnight courier.
13. INDEPENDENT CONTRACTOR; INDEMNIFICATION.
---------------------------------------
(a) INDEPENDENT CONTRACTOR. It is understood and agreed by the
parties that this Agreement creates only a contractual relationship between the
parties subject to the normal rule of contract law. This Agreement does not
create a fiduciary relationship between us and you and you are and shall remain
an independent contractor. Nothing in this Agreement is intended to constitute
either party an agent, legal representative, subsidiary, joint venturer,
partner, employee, or servant of the other for any purpose whatsoever. You
agree to hold yourself out to the public as an independent contractor, separate
and apart from us. You agree that you shall not make any contract, agreement,
warranty, or representation on our behalf without our prior written consent, and
you agree that you shall not incur any debt or other obligation in our name.
This Agreement shall not be deemed to confer any rights or benefits to any
person or entity not expressly named herein.
(b) INDEMNIFICATION. We shall not be liable by reason of any act or
omission of you in your development, construction or conduct of the Restaurants
or for any claim, cause of action or judgement arising therefrom against you or
us. You agree to hold harmless, defend and indemnify us and our affiliates,
officers, directors, agents, and employees, from and against any and all losses,
expenses, judgments, claims, attorney fees and damages arising out of or in
connection with any claim or cause of action in which we shall be a named
defendant and which
<PAGE>
arises, directly or indirectly, out of the operation of, or in connection with,
your Restaurants, other than a claim resulting directly from our negligence.
14. ENFORCEMENT.
-----------
(A) ARBITRATION. EXCEPT FOR CONTROVERSIES, DISPUTES OR CLAIMS RELATED
TO OR BASED ON YOUR USE OF THE MARKS AFTER THE EXPIRATION OR TERMINATION OF THIS
AGREEMENT OR, AT OUR OPTION, YOUR VIOLATION OF ANY PROVISION OF SECTION 7
HEREOF, ALL CONTROVERSIES, DISPUTES OR CLAIMS BETWEEN US AND OUR AFFILIATES,
SHAREHOLDERS, OFFICERS, DIRECTORS, AGENTS AND EMPLOYEES AND YOU (YOUR OWNERS,
GUARANTORS, AFFILIATES AND EMPLOYEES, IF APPLICABLE) ARISING OUT OF OR RELATED
TO:
(I) THIS AGREEMENT OR ANY OTHER AGREEMENT BETWEEN YOU AND US
OR ANY PROVISION OF ANY SUCH AGREEMENT;
(II) OUR RELATIONSHIP WITH YOU, INCLUDING ISSUES RELATING TO
OUR DECISION TO TERMINATE THAT RELATIONSHIP;
(III) THE VALIDITY OF THIS AGREEMENT OR ANY OTHER AGREEMENT
BETWEEN YOU AND US OR ANY PROVISION OF ANY SUCH AGREEMENT; OR
(IV) ANY STANDARD, SPECIFICATION OR OPERATING PROCEDURE
RELATING TO THE DEVELOPMENT, ESTABLISHMENT OR OPERATION OF THE RESTAURANTS
WILL BE SUBMITTED FOR BINDING ARBITRATION TO THE LOUISVILLE, KENTUCKY
OFFICE OF THE AMERICAN ARBITRATION ASSOCIATION ON DEMAND OF EITHER PARTY. SUCH
ARBITRATION PROCEEDING WILL BE
<PAGE>
CONDUCTED IN LOUISVILLE, KENTUCKY AND, EXCEPT AS OTHERWISE PROVIDED IN THIS
AGREEMENT, WILL BE HEARD BY ONE ARBITRATOR IN ACCORDANCE WITH THE THEN CURRENT
FRANCHISING ARBITRATION RULES, IF ANY, OTHERWISE THE THEN CURRENT COMMERCIAL
ARBITRATION RULES OF THE AMERICAN ARBITRATION ASSOCIATION. ALL MATTERS RELATING
TO ARBITRATION WILL BE GOVERNED BY THE FEDERAL ARBITRATION ACT (9 U.S.C. (S)(S)
1 ET SEQ.) AND NOT BY ANY STATE ARBITRATION LAW.
THE ARBITRATOR WILL HAVE THE RIGHT TO AWARD OR INCLUDE IN THE AWARD ANY
RELIEF WHICH THE ARBITRATOR DEEMS PROPER IN THE CIRCUMSTANCES, INCLUDING,
WITHOUT LIMITATION, MONEY DAMAGES (WITH INTEREST ON UNPAID AMOUNTS FROM THE DATE
DUE), SPECIFIC PERFORMANCE, INJUNCTIVE RELIEF AND ATTORNEYS' FEES AND COSTS,
PROVIDED THAT THE ARBITRATOR WILL NOT HAVE THE RIGHT TO DECLARE ANY MARK GENERIC
OR OTHERWISE INVALID OR, EXCEPT AS OTHERWISE PROVIDED IN THIS AGREEMENT, TO
AWARD EXEMPLARY OR PUNITIVE DAMAGES. THE AWARD AND DECISION OF THE ARBITRATOR
WILL BE CONCLUSIVE AND BINDING UPON ALL PARTIES HERETO, AND JUDGMENT UPON THE
AWARD MAY BE ENTERED IN ANY COURT OF COMPETENT JURISDICTION.
WE AND YOU AGREE TO BE BOUND BY THE PROVISIONS OF ANY LIMITATION ON THE
PERIOD OF TIME IN WHICH CLAIMS MUST BE BROUGHT UNDER APPLICABLE LAW OR THIS
AGREEMENT, WHICHEVER EXPIRES EARLIER. WE AND YOU FURTHER AGREE THAT, IN
CONNECTION WITH ANY SUCH ARBITRATION PROCEEDING, EACH PARTY MUST SUBMIT OR FILE
ANY CLAIM WHICH WOULD CONSTITUTE A COMPULSORY COUNTERCLAIM (AS DEFINED BY RULE
13 OF THE FEDERAL RULES OF CIVIL PROCEDURE) WITHIN THE SAME PROCEEDING AS THE
CLAIM TO WHICH IT RELATES. ANY SUCH CLAIM WHICH IS NOT SUBMITTED OR FILED AS
DESCRIBED ABOVE WILL BE FOREVER BARRED.
<PAGE>
WE AND YOU AGREE THAT ARBITRATION WILL BE CONDUCTED ON AN INDIVIDUAL, NOT A
CLASS-WIDE, BASIS, AND THAT AN ARBITRATION PROCEEDING BETWEEN US AND OUR
AFFILIATES, SHAREHOLDERS, OFFICERS, DIRECTORS, AGENTS AND EMPLOYEES AND YOU
(AND/OR YOUR OWNERS, GUARANTORS, AFFILIATES AND EMPLOYEES, IF APPLICABLE) MAY
NOT BE CONSOLIDATED WITH ANY OTHER ARBITRATION PROCEEDING BETWEEN US AND ANY
OTHER PERSON, CORPORATION, LIMITED LIABILITY COMPANY OR PARTNERSHIP.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS SECTION, WE AND
YOU EACH HAVE THE RIGHT IN A PROPER CASE TO OBTAIN TEMPORARY RESTRAINING ORDERS
AND TEMPORARY OR PRELIMINARY INJUNCTIVE RELIEF FROM A COURT OF COMPETENT
JURISDICTION; PROVIDED, HOWEVER, THAT WE AND YOU MUST CONTEMPORANEOUSLY SUBMIT
OUR DISPUTE FOR ARBITRATION ON THE MERITS AS PROVIDED HEREIN EXCEPT AS OTHERWISE
PROVIDED IN THE FIRST PARAGRAPH OF THIS SECTION 14.(A).
THE PROVISIONS OF THIS SECTION ARE INTENDED TO BENEFIT AND BIND CERTAIN
THIRD PARTY NON-SIGNATORIES AND WILL CONTINUE IN FULL FORCE AND EFFECT
SUBSEQUENT TO AND NOTWITHSTANDING THE EXPIRATION OR TERMINATION OF THIS
AGREEMENT.
(B) GOVERNING LAW. ALL MATTERS RELATING TO ARBITRATION WILL BE
GOVERNED BY THE FEDERAL ARBITRATION ACT (9 U.S.C. (S)(S)1 ET SEQ). EXCEPT TO THE
EXTENT GOVERNED BY THE FEDERAL ARBITRATION ACT, THE UNITED STATES TRADEMARK ACT
OF 1946 (LANHAM ACT, 15 U.S.C. SECTIONS 1051 ET SEQ.) OR OTHER FEDERAL LAW, THIS
AGREEMENT AND ALL CLAIMS ARISING FROM THE RELATIONSHIP BETWEEN US AND YOU WILL
BE GOVERNED BY THE LAWS OF THE STATE OF KENTUCKY WITHOUT REGARD TO ITS CONFLICT
OF LAWS PRINCIPLES.
<PAGE>
(C) CONSENT TO JURISDICTION AND VENUE. YOU AND YOUR OWNERS AGREE
THAT ALL JUDICIAL ACTIONS BROUGHT BY US AGAINST YOU OR YOUR OWNERS OR BY YOU OR
YOUR OWNERS AGAINST US OR OUR SUBSIDIARIES, SHAREHOLDERS, OFFICERS, DIRECTORS,
AGENTS OR EMPLOYEES MUST BE BROUGHT IN ANY COURT OF COMPETENT JURISDICTION IN
JEFFERSON COUNTY, KENTUCKY OR FEDERAL DISTRICT COURT FOR THE WESTERN DISTRICT OF
KENTUCKY AND YOU (AND EACH OWNER) IRREVOCABLY SUBMIT TO THE JURISDICTION OF SUCH
COURTS AND WAIVE ANY OBJECTION YOU, HE OR SHE MAY HAVE TO EITHER THE
JURISDICTION OF OR VENUE IN SUCH COURTS. NOTWITHSTANDING THE FOREGOING, WE MAY
BRING AN ACTION TO OBTAIN A RESTRAINING ORDER OR TEMPORARY OR PRELIMINARY
INJUNCTION, OR ENFORCE AN ARBITRATION AWARD, IN ANY FEDERAL OR STATE COURT OF
GENERAL JURISDICTION IN THE STATE IN WHICH YOU RESIDE OR IN WHICH THE
RESTAURANTS ARE LOCATED.
(D) WAIVER OF PUNITIVE DAMAGES. EXCEPT WITH RESPECT TO YOUR
OBLIGATION TO INDEMNIFY US PURSUANT TO SECTION 13 AND CLAIMS WE BRING AGAINST
YOU FOR YOUR UNAUTHORIZED USE OR DISCLOSURE OF ANY CONFIDENTIAL INFORMATION, WE
AND YOU AND YOUR OWNERS WAIVE TO THE FULLEST EXTENT PERMITTED BY LAW ANY RIGHT
TO OR CLAIM FOR ANY PUNITIVE OR EXEMPLARY DAMAGES AGAINST THE OTHER AND AGREE
THAT, IN THE EVENT OF A DISPUTE BETWEEN US, THE PARTY MAKING A CLAIM WILL BE
LIMITED TO EQUITABLE RELIEF AND TO RECOVERY OF ANY ACTUAL DAMAGES IT SUSTAINS.
(E) WAIVER OF JURY TRIAL. WE AND YOU IRREVOCABLY WAIVE TRIAL BY JURY
IN ANY ACTION, PROCEEDING OR COUNTERCLAIM, WHETHER AT LAW OR IN EQUITY, BROUGHT
BY EITHER OF US.
<PAGE>
(F) LIMITATIONS OF CLAIMS. EXCEPT FOR CLAIMS BROUGHT BY US WITH REGARD
TO YOUR OBLIGATIONS UNDER SECTIONS 7.(A), 7.(B), AND 7.(C), AND TO INDEMNIFY US
PURSUANT TO SECTION 13, ANY AND ALL CLAIMS ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE RELATIONSHIP OF YOU AND US PURSUANT TO THIS AGREEMENT WILL BE
BARRED UNLESS AN ACTION IS COMMENCED WITHIN ONE (1) YEAR FROM THE DATE ON WHICH
THE ACT OR EVENT GIVING RISE TO THE CLAIM OCCURRED, OR ONE (1) YEAR FROM THE
DATE ON WHICH YOU OR WE KNEW OR SHOULD HAVE KNOWN, IN THE EXERCISE OF REASONABLE
DILIGENCE, OF THE FACTS GIVING RISE TO SUCH CLAIMS, WHICHEVER OCCURS FIRST.
(g) COSTS, EXPENSES AND ATTORNEYS' FEES. Except as provided in
Section 13 each party shall pay its own costs, expenses and attorneys' fees in
any action, claim, suit or proceeding arising out of this Agreement or the
franchise relationship of the parties.
15. ACKNOWLEDGEMENTS.
YOUR REPRESENTATIONS. You hereby acknowledge and represent that:
(a) all information submitted to us by you or those owning an interest
in you, including all applications, financial statements and other documents and
information, is true and correct in all respects and that it does not omit any
statement or item of fact material to make the statements made therein not false
or misleading;
(b) We have not represented (i) that the you will earn, can earn, or
are likely to earn a gross or net profit, (ii) that we have knowledge of the
relevant market, or (iii) that the market demand will enable the you to earn a
profit from the Franchise;
(c) You have read and understood this Agreement and the disclosure
document entitled "Papa John's Franchise Offering Circular" (the "Offering
Circular") required by the Federal Trade Commission or the state in which the
Development Area will be located at least
<PAGE>
ten business days prior to the date on which this Agreement was signed or any
monies were paid to us by you. You understand that we make no representation or
warranty regarding your relevant market or the profitability of business
operations under the System and that no representations have been made by us, or
by our affiliate or ours or their officers, directors, shareholders, employees
or agents, that are contrary to or inconsistent with the terms of this Agreement
or with the statements made in the Offering Circular that accompanied a copy of
this Agreement;
(d) You accept the terms, conditions and covenants contained in this
Agreement as being reasonable and necessary to maintain our standards of
quality, service and uniformity and in order to protect and preserve the
goodwill of the Marks. You acknowledge that other franchisees of ours have been
or will be granted franchises at different times and in different situations.
You further acknowledges that the provisions of the franchise agreements
pursuant to which such franchises were granted may vary materially from those
contained in this Agreement and that your obligation arising hereunder may
differ substantially from other franchisees; and
(e) You recognize that the System may evolve and change over time and
that the Franchise involves an investment of substantial risk and its success is
dependent primarily upon your business acumen and efforts and other factors
beyond our control. You have conducted an independent investigation of the
Franchise and have had ample time and opportunity to consult with independent
professional advisors (lawyers, accountants, etc.), and have not received or
relied upon any express or implied guarantee as to potential volumes, revenues,
profits or success of the business venture contemplated by the Franchise.
16. MISCELLANEOUS.
(a) SEVERABILITY. You agree to be bound to the maximum extent
permitted by law which is subsumed within the terms of any provision hereof, as
though it were separately articulated in and made a part of this Agreement, that
may result from the striking of any provision hereof by a court, or which a
court holds to be unenforceable in a final decision to
<PAGE>
which we are a party, or that may result from reducing the scope of any
provision to the extent required to comply with a court order or with any state
or federal law, whether currently in effect or subsequently enacted.
(b) CONSTRUCTION. All references herein to the masculine, neuter, or
singular shall be construed to include the masculine, feminine, neuter, or
plural, as the case may require. All acknowledgements, warranties,
representations, covenants, agreements, and obligations herein made or
undertaken by you shall be deemed jointly and severally undertaken by all those
executing this Agreement as you. During any period in which any of the
covenants in Section 7 is being breached or violated, including any period in
which either of the parties seeks judicial enforcement, interpretation or
modification of any such covenant, and all appeals thereof, the restricted
period set forth therein shall toll and be suspended.
(c) ENTIRE AGREEMENT. This Agreement, the documents incorporated
herein by reference and the Exhibit attached hereto, comprise the entire
agreement between the parties, and all prior understandings or agreements
concerning the subject matter hereof are canceled and superseded by this
Agreement. The Exhibit to this Agreement is incorporated herein by reference
and made a part hereof as if set out in full herein.
(d) AFFILIATE. As used in this Agreement, the term "Affiliate" shall
mean any person or entity that is owned or controlled by us or which owns and
controls us or is under common control with us.
(e) AMENDMENTS. Except for those permitted to be made unilaterally by
us, no supplement, amendment or variation of the terms of this Agreement shall
be valid unless made in writing and signed by the parties hereto.
(f) WAIVERS. No failure of us to exercise any right given to it
hereunder, or to insist upon strict compliance by you with any obligation,
agreement or undertaking hereunder, and no custom or practice of the parties at
variance with the terms hereof shall constitute a waiver of our right to demand
full and exact compliance by you with the terms hereof. Waiver
<PAGE>
by us of any particular default by you shall not affect or impair our rights
with respect to any subsequent default of the same or of a different nature, nor
shall any delay or omission of us to exercise any right arising from such
default affect or impair our rights as to such default or any subsequent
default.
(g) COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
(h) HEADINGS. The headings used in this Agreement are for convenience
only, and the paragraphs shall be interpreted as if such headings were omitted.
(i) TIME OF ESSENCE. You agree and acknowledge that time is of the
essence with regard to your obligations hereunder, and that all of your
obligations are material to us and this Agreement.
IN WITNESS WHEREOF, the parties have signed this Development Agreement as
of the date written above.
PAPA JOHN'S INTERNATIONAL, INC.
By:
----------------------------------------
J. Daniel Holland, President
EXTRA CHEESE, INC.
By:
----------------------------------------
Douglas Stephens, President
<PAGE>
PAPA JOHN'S
DEVELOPMENT AGREEMENT
EXHIBIT A
DEVELOPMENT AREA
----------------
APRIL __, 1995
The areas encompassed by the following listed zip codes in Cullman, Jasper,
Sylacauga and Talladega, Alabama, shall comprise the "Development Area," as
defined in the Papa John's Development Agreement of even date herewith, by and
between PAPA JOHN'S INTERNATIONAL, INC. and EXTRA CHEESE, INC.:
Zip Code
--------
35055
35150
35160
35501
NUMBER OF RESTAURANTS TO BE DEVELOPED 4
PAPA JOHN'S INTERNATIONAL, INC.
By:
----------------------------------------
J. Daniel Holland, President
EXTRA CHEESE, INC.
By:
----------------------------------------
Douglas Stephens, President
<PAGE>
EXHIBIT 10.14
PAPA JOHN'S
FRANCHISE AGREEMENT
Franchisee: Extra Cheese, Inc.
Address: 680 Highway 78 West
Jasper, Alabama 35501
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
RECITALS................................................................... 1
1. Grant................................................................. 1
2. Term, Renewal and Expiration.......................................... 2
3. Franchise Fees and Payments........................................... 3
4. Franchisor Services................................................... 5
5. Territorial Provisions................................................ 5
6. Premises.............................................................. 6
7. Proprietary Marks; Copyright.......................................... 7
8. Advertising........................................................... 9
9. Telephone Number...................................................... 13
10. Construction, Design and Appearance; Equipment........................ 14
11. Operations; Standards of Quality; Inspections......................... 19
12. Products; Commissary; Menu............................................ 21
13. Accounting and Reports................................................ 22
14. Transfers; Our Right of First Refusal................................. 23
15. Death, Incapacity or Dissolution...................................... 26
16. Your Additional Covenants............................................. 27
17. Trade Secrets and Confidential Information............................ 29
18. Insurance............................................................. 29
19. Termination by Us..................................................... 30
</TABLE>
<PAGE>
<TABLE>
<S> <C>
20. Obligations upon Termination or Expiration............................. 33
21. Independent Contractor; Indemnification................................ 35
22. Your Representations................................................... 36
23. ENFORCEMENT............................................................ 37
24. Notices................................................................ 40
25. Miscellaneous.......................................................... 40
EXHIBIT A -- ADDENDUM TO LEASE.............................................. A-1
EXHIBIT B -- ASSIGNMENT OF TELEPHONE NUMBERS AND LISTINGS................... B-1
</TABLE>
<PAGE>
PAPA JOHN'S
-----------
FRANCHISE AGREEMENT
-------------------
SINGLE LOCATION FRANCHISE
-------------------------
THIS FRANCHISE AGREEMENT ("Agreement") is made this _____ day of August,
1995, by and between PAPA JOHN'S INTERNATIONAL, INC., a Delaware corporation
("we", "us" or "Papa John's"), and EXTRA CHEESE, INC., an Alabama corporation
("you"). If you are a corporation, certain provisions of the Agreement also
apply to your owners and will be noted.
RECITALS:
--------
A. We and our affiliates have expended time, money and effort to develop
a unique system for operating retail restaurants devoted primarily to carry-out
and delivery of pizza and other food items. The chain of current and future
Papa John's restaurants are referred to as the "Papa John's Chain" or the
"Chain.")
B. The Chain is characterized by a unique system which includes special
recipes and menu items; distinctive design, decor, color scheme and furnishings;
software and programs; standards, specifications and procedures for operations;
procedures for quality control; training assistance; and advertising and
promotional programs all of which we may improve, amend and further develop from
time to time (the "System").
C. We identify our goods and services with certain service marks, trade
names and trademarks, including, but not limited to, "Papa John's," "Papa John's
Pizza," and "Pizza Papa John's Delivering the Perfect Pizza!" as well as certain
-------
other trademarks, service marks, slogans, logos and emblems which have been and
which we may designate for use in connection with the System from time to time
(the "Marks").
D. You now desire to enter into this Agreement regarding the operation of
one Papa John's restaurant under the System and the Marks at the location listed
below (the "Restaurant").
E. We have agreed to grant you a franchise for the Restaurant;
NOW, THEREFORE, the parties agree as follows:
1. GRANT. Subject to the terms and conditions of this Agreement and your
-----
continuing faithful performance, we hereby grant to you the non-exclusive right
and franchise (the "Franchise") to operate a retail restaurant under the System
and the Marks to be located at:
<PAGE>
680 Highway 78 West
Jasper, Alabama 35501
(the "Location")
Pursuant to this grant, you, at your own expense, shall construct or
remodel, and equip, staff, open and operate the Restaurant at the Location.
Unless otherwise agreed, you shall commence operating the Restaurant within 60
days after the signing of this Agreement, and must diligently operate such
business in acc ordance with this Agreement for the Term (defined below).
Approval of the Location by us does not constitute an assurance, representation
or warranty of any kind, expressed or implied, as to (i) the suitability of the
Location for a Papa John's Restaurant, (ii) the successful operation of the
Restaurant, or (iii) for any other purpose. Our approval of the Location
indicates only that we believe it complies with acceptable minimum criteria we
establish solely for our purposes at the time of the evaluation.
2. TERM, RENEWAL AND EXPIRATION.
----------------------------
(A) INITIAL TERM. The Franchise shall be for a term of 10 years from
------------
the date of this Agreement, unless terminated earlier as provided in this
Agreement (the "Initial Term").
(B) TERM. As used in this Agreement, "Term" shall mean the Initial
----
Term or the Renewal Term, as the case may be.
(C) RENEWAL OF FRANCHISE. This Agreement shall not automatically
--------------------
renew upon the expiration of the Initial Term. You shall, however, have an
option to renew this Agreement upon the expiration of the Initial Term. You may
renew the Franchise for one additional 10 year term (the "Renewal Term") if, and
only if, each and every one of the following conditions has been satisfied:
(i) You have given us written notice of your desire to renew
the Franchise not less than 3 months nor more than 6 months prior to the end of
the Initial Term; provided that if we have not received notice from you of your
desire to renew within such period, we will notify you and you shall have a
period of 10 days thereafter within which to submit the renewal notice;
(ii) You shall be in full compliance with this Agreement and
there shall be no uncured default by you under this Agreement, and there shall
have been no series of defaults by you during the Initial Term (i.e., an
abnormal frequency of defaults or a default that has occurred repeatedly, or a
combination thereof), whether or not such defaults were cured, all your debts
and obligations to us and our Affiliates under this Agreement or otherwise shall
be current and your obligations to the Marketing Fund and each Cooperative
(defined below) of which you are a member shall be current;
(iii) You execute and deliver to us, within 10 days after
delivery to you, the form of Papa John's Franchise Agreement being offered to
new franchisees on the date you give the notice under this Section, including
all exhibits and our other then-current ancillary
<PAGE>
agreements, which agreements shall supersede this Agreement and all ancillary
agreements in all respects, and the terms and conditions of which may
substantially differ from this Agreement; provided that such Franchise Agreement
shall provide for a term of 10 years;
(iv) You secure the right to continue possession of the
Premises for a period at least equal to the Renewal Term, or alternatively you
secure premises at another location we approve for the same period;
(v) Your Principal Operator (defined below) and manager
attend and complete our training program for new franchisees to our
satisfaction;
(vi) We are then continuing to offer Papa John's Pizza
franchises in the state in which the Restaurant is located and have all required
documents filed and all necessary approvals to offer Papa John's franchises in
that state;
(vii) You have paid us a renewal fee of $3,000;
(viii) You execute and deliver to us a general release, in the
form we prescribe, releasing, to the fullest extent permitted under the laws of
the state where the Restaurant is located, all claims that you may have against
us and our affiliates and subsidiaries, and their respective officers,
directors, shareholders and employees in both their corporate and individual
capacities; and
(ix) You shall make, or provide for in a manner satisfactory
to us, such renovation and re-equipping of the Restaurant as we may require,
including, without limitation, renovation or replacement of signs, equipment,
furnishings, fixtures and decor, to reflect the then-current standards and image
of the System; provided, however, that substantial renovation and re-equipping
shall not be required if you have substantially renovated the Restaurant within
the 3-year period immediately preceding the end of the Initial Term.
(D) EXPIRATION. Renewal of the Franchise after the Initial Term
----------
shall not constitute a renewal or extension of this Agreement, but shall be
conditioned upon satisfaction of the above provisions. Upon expiration of
the Renewal Term, further renewal rights will be governed by the Franchise
Agreement executed by you upon expiration of the Initial Term. If you fail
to meet any of the conditions under Section 2.(c) above with respect to the
renewal of the Franchise, then the Franchise shall automatically expire at
the end of the Initial Term.
3. FRANCHISE FEES AND PAYMENTS.
---------------------------
(A) INITIAL FRANCHISE FEE AND ROYALTIES. In consideration of the
-----------------------------------
grant of the Franchise, you agree to pay us the following fees:
(i) An Initial Franchise Fee of $18,500 which shall be paid
upon the execution of this Agreement and which shall be deemed fully earned and
is non-refundable.
<PAGE>
(ii) A continuing royalty (the "Royalty") of 4% of the "Net
Sales" of the Restaurant for each "Period" (as defined in Section 13); provided
that any time after the 3rd anniversary date of this Agreement we may increase
the Royalty to as much as 5% of Net Sales for the remainder of the Initial Term
and the Renewal Term, if applicable. However, we may increase the Royalty only
if our form of Franchise Agreement being offered to new Papa John's franchisees
at the time of the increase provides for a Royalty of more than 4%. Net Sales
shall mean the gross sales of the Restaurant (whether such sales are evidenced
by cash, check, credit, charge account or otherwise), less sales tax collected
on such sales and paid to the State. The Royalty is due on the 10th day of the
month following each Period.
(B) PAYMENTS. Prior to the opening of the Restaurant (and thereafter
--------
as requested by us), you shall execute and deliver to us, our bank(s) and your
bank, as necessary, all forms and documents that we may request to permit us to
debit your bank account, either by check, via electronic funds transfer or other
means utilizing the "Information System" (as defined in Section 10) or such
alternative methods as we may designate ("Payment Methods"). You must comply
with all procedures specified by us from time to time, and/or take such
reasonable actions as we may request to assist in any of the Payment Methods.
We may use the Payment Methods to collect the amount of each Period's Royalty
and any other amounts due to us, our affiliates or the Papa John's Marketing
Fund, Inc. under this Agreement or otherwise, including, but not limited to,
"Marketing Fund" (as defined in Section 8) contributions, purchases from
"PJFS" (as defined in Section 12), Printing & Promotions, Inc. and all of our
other affiliates. The Royalty and Marketing Fund contributions shall be debited
on the 10th of each month, or if the 10th falls on a weekend or bank holiday,
then on the next business day. Commissary payments will be debited one business
day after products are delivered to the Restaurant. We will determine your Net
Sales for each Period via the Information System, or if we are unable to do so,
you shall report your Net Sales in writing on or before the 7th day of the month
following each Period. Such reporting shall be in addition to all other
reporting requirements under Section 13. If you fail to report Net Sales on a
timely basis, we may estimate the Net Sales of the Restaurant for such Period
and debit your bank account the amount of the Royalty and Marketing Fund
contribution based on such estimate. If an estimate results in an overpayment,
we shall deduct the amount of the overpayment from the next Period's Royalty.
Any deficiency resulting from such estimate may be added to the next Royalty
and/or Marketing Fund contribution payment(s) due and debited against your bank
account. If, at any time, we determine that you have underreported the
Restaurant's Net Sales, or underpaid any Period's Royalty, Marketing Fund
contributions or payments to any of our affiliates, we are authorized to
immediately debit your account for these amounts by any of the Payment Methods.
You shall notify us at least 20 days prior to closing or making any change to
the account against which such debits are to be made. If such account is closed
or ceases to be used, you shall immediately provide all documents and
information necessary to permit us to debit the amounts due from an alternative
account. You acknowledge that these requirements are only a method to
facilitate prompt and timely payment of amounts due and shall not affect any
obligation or liability for amounts owed. If for any reason your account cannot
be electronically debited, you shall submit payments by check (certified or
cashier's check if requested by us) on or before the dates when due. You shall
indemnify and hold us harmless from and against all damages, losses, costs and
expenses resulting from any dishonored debit against your account, regardless
whether resulting from the act or omission of you or your bank;
<PAGE>
provided that you shall not be obligated to indemnify us for any dishonored
debit caused by our negligence or mistake.
4. FRANCHISOR SERVICES. During the Term, we agree to provide to you the
-------------------
following services:
(A) specifications for the design of the Restaurant and related
facilities to be used in the operation of the Restaurant;
(B) specifications for fixtures, furnishings, decor, communications
and computer hardware and software, signs and equipment;
(C) the names and addresses of designated and approved suppliers, and
standards and specifications for (i) all food products, beverages, ingredients
and cooking materials sold from or used in the operation of the Restaurant, and
(ii) all containers, boxes, cups, packaging, menus, uniforms and other products
and materials used in connection with the operation of the Restaurant;
(D) a pre-opening management training program for the "Principal
Operator" (as defined in Section 11) and one or more approved managers, and
such other persons as we may reasonably designate, and such other training for
your employees at the locations and for such periods as we may designate from
time to time; provided that you shall be responsible for all expenses incurred
by such persons in connection with training, including, without limitation, all
costs of travel, lodging, means and wages;
(E) Our supervision and periodic inspections and evaluations of your
operation as described more fully in Section 11 which supervision, inspections
and evaluations shall be conducted at such times and in such manner as we shall
reasonably determine; and
(F) We shall communicate to you information relating to the operation
of a Papa John's restaurant to the extent we deem it necessary or pertinent.
5. TERRITORIAL PROVISIONS.
----------------------
(A) TERRITORY. Subject to the provisions of this Section 5, we agree
---------
that during the Term we will not locate nor license another to locate a Papa
John's restaurant within a one and one-half mile radius of the Location (the
"Territory"); provided that if this Agreement is signed pursuant to a
Development Agreement with us in no event shall this radius extend outside the
boundaries of the "Development Area" as defined in the Development Agreement and
neither termination nor expiration of the Development Agreement shall alter this
limitation. We do not warrant or represent that no other Papa John's restaurant
will solicit or make any sales within the Territory, and you expressly
acknowledge and agree that such solicitations or sales may occur within the
Territory. We shall have no duty to protect you from any such sales,
solicitations, or attempted sales. You recognize and acknowledge that (i) you
will compete with other Papa John's restaurants which are now, or which may in
the future be, located near or
<PAGE>
adjacent to your Territory, and (ii) that such restaurants may be owned by us,
our Affiliates, third parties, or both.
(B) OTHER BUSINESSES. You understand and agree that we reserve the
----------------
right, either directly or through affiliates, to operate or franchise or license
others to operate or franchise, restaurants or other food related establishments
or businesses other than Papa John's restaurants and you agree that we and our
Affiliates may do so within the Territory; provided, that such restaurants or
food establishments or businesses do not sell pizza on a delivery basis, or
primarily on a carry-out basis. We also reserve the right to develop, market
and conduct any other business under the Marks or any other trademark.
(C) OTHER METHODS OF DISTRIBUTION. We also reserve the right,
-----------------------------
directly or through third parties, to manufacture or sell, or both, within and
outside your Territory, pizza and other products which are the same as or
similar to those sold in Papa John's restaurants using brand names which are the
same as, or similar to, the Marks through any channel of distribution; provided
that such items are not sold through restaurants or on a pre-cooked, ready-to-
eat basis.
6. PREMISES.
--------
(A) LEASED PREMISES. If you intend to lease the premises where the
---------------
Restaurant will be operated (the "Premises"), you shall submit to us copies of
the executed signature pages of all such leases immediately after signing and
copies of the full leases and any exhibits and addendum at such other times as
we may request. The term of all leases plus all options for you to renew shall
together equal or exceed the Term. All leases pertaining to the Premises shall
also include an Addendum in the form of Exhibit A attached hereto, or shall
contain terms and conditions substantially similar to those contained in EXHIBIT
-------
A which we approve. A copy of the executed Addendum must also be submitted to
- -
us.
(B) OWNED PREMISES. If you intend to own the Premises, you shall
--------------
furnish to us proof of ownership prior to the date you begin any construction,
build-out or remodeling of the Premises. In the event you decide to sell the
Premises at any time prior to the expiration or termination of the Franchise
Agreement, you must notify us of your intention. We shall have a right of first
refusal to purchase the Premises on the same terms and conditions as set forth
in Section 14. If the sale will also involve a relocation of the Restaurant,
you shall submit to us for our approval your proposed plans (including copies of
any proposed lease or contract of purchase) for an alternate location.
(C) PREMISES IDENTIFICATION. Regardless of whether you own or lease
-----------------------
the Premises and have not within ten days after the expiration or termination of
the Franchise Agree ment removed all signs and other items and indicia which
serve, directly or indirectly, to identify the Premises as a Papa John's
restaurant, we may enter the Premises, without being guilty of trespass and
without incurring any liability to you, to remove all signs and other items
identifying the Premises as a Papa John's restaurant and to make such other
modifications as are reasonably necessary to protect the Marks and the Papa
John's System, and to distinguish the
<PAGE>
Premises from Papa John's restaurants. Your obligation shall be conditioned
upon our giving you prior notice of the modifications to be made and the items
removed.
(D) SUITABILITY OF PREMISES. Regardless of whether the Premises are
-----------------------
owned or leased, it shall be your responsibility to determine that the Premises
can be used, under all applicable laws and ordinances, for the purposes provided
herein and that they can be constructed or remodeled in accordance with the
terms of this Agreement and you shall obtain all permits and licenses that may
be required to construct, remodel and operate the Restaurant. You agree that
the Premises will not be used for any purpose other than the operation of the
Restaurant in compliance with this Agreement.
(E) RELOCATION; ASSIGNMENTS. You shall not, without first obtaining
-----------------------
our written consent: (i) relocate the Restaurant; or (ii) renew or materially
alter, amend or modify any lease, or make or allow any transfer, sublease or
assignment of your rights under any lease or owned location pertaining to the
Premises. Such consent shall not be unreasonably withheld. You agree to give
us notice not less than 30 days prior to any of the foregoing. We may require
you to relocate the Outlet to another location upon (A) expiration of the
original term or any extension or renewal of your lease, (B) expiration of the
Initial Term or Renewal Term of this Agreement, or (C) any significant damage to
the Premises or surrounding areas, or other event, that would provide you with
an option or right to terminate the lease. You agree to give us notice not less
than 60 days prior to the expiration of your lease, and to give us written
notice within five days after the occurrence of any event covered by (B) or (C),
above. Our right to require you to relocate shall not be exercisable during the
first two years of the Initial Term, and thereafter shall be conditioned upon
(1) there being a location approved by us for such relocation, (2) our offering
to extend the Term of this Agreement for not less than five years, or at our
option, offering to enter into our then-current form of franchise agreement
(which shall include an initial term of not less than 10 years), and (3) the
Territory (as measured from the new location) not extending into the "Territory"
of any other Papa John's Pizza franchisee. YOU ACKNOWLEDGE THAT SUCH
RELOCATION, IF REQUIRED, WOULD INVOLVE SUBSTANTIAL ADDITIONAL INVESTMENT BY YOU
DURING THE TERM OF THIS AGREEMENT, AND MAY INCLUDE, WITHOUT LIMITATION, AN
OBLIGATION TO LEASE OR BUY LAND, CONSTRUCT A FREE-STANDING BUILDING, INSTALL
LEASEHOLD IMPROVEMENTS AND/OR PURCHASE NEW EQUIPMENT AND SIGNAGE.
7. PROPRIETARY MARKS; COPYRIGHT.
----------------------------
(A) OWNERSHIP OF COPYRIGHTS. You acknowledge and agree that (i) we
-----------------------
may authorize you to use certain copyrighted or copyrightable works (the
"Copyrighted Works"), including the Manuals and the "Proprietary Programs" (as
defined in Section 10), (ii) the Copyrighted Works are the valuable property of
us, and (iii) your rights to use the Copyrighted Works are granted to you solely
on the condition that you comply with the terms of this Agreement. You
acknowledge and agree that we will further create, acquire or obtain licenses
for certain copyrights in various works of authorship used in connection with
the operation of the Restaurant, all of which shall be deemed to be Copyrighted
Works under this Agreement. Such Copyrighted Works include, but are not limited
to, the materials and
<PAGE>
information provided to you by us for use in the operation of the Proprietary
Programs. You shall not undertake to patent, copyright or otherwise assert
proprietary rights to the Proprietary Programs and any data generated by the use
of the Proprietary Programs or any portion thereof. Copyrighting of any
material by us shall not be construed as causing the material to be public
information. You will cause all copies of the Proprietary Programs and any data
generated by the use of the Proprietary Programs in your possession to contain
an appropriate copyright notice or other notice of proprietary rights specified
by us.
(B) OWNERSHIP; USE BY OTHERS. You agree that we are the owner of (i)
------------------------
the Marks and all goodwill associated with or generated by the use of the Marks,
and (ii) the Copyrighted Works and any data generated by use of the Copyrighted
Works. You agree that all works of authorship related to the System which are
created in the future will be owned by, or licensed to, us or our Affiliates.
Your use of the Copyrighted Works and the Marks does not vest you with any
interest therein other than the non-exclusive license to use the Copyrighted
Works and Marks granted in this Agreement. You shall execute any documents we
or our counsel deem necessary for the protection of the Copyrighted Works or the
Marks or to maintain their validity or enforceability, or to aid us in acquiring
rights in or in registering any of the Marks or any trademarks, trade names,
service marks, slogans, logos and emblems we subsequently adopt. You shall give
notice to us of any knowledge that you acquire concerning any actual or
threatened infringement of the Copyrighted Works or the Marks, or the use by
others of names, marks or logos that are the same as or similar to the Marks.
You shall cooperate with us in any suit, claim or proceeding involving the Marks
or the Copyrighted Works or their use to protect our rights and interests in the
Marks or the Copyrighted Works. We, in our sole discretion, shall control all
decisions concerning the Marks or the Copyrighted Works.
(C) USE OF MARKS. You shall use the Marks only in connection with the
------------
operation of the Restaurant at the Location specified herein, and shall use them
only in the manner we authorize. Your right to use the Marks is limited to use
during the Term of this Agreement and in compliance with specifications,
procedures and standards prescribed by us from time to time. You shall
prominently display the Marks in the manner we prescribe on all signs, plastic
and paper products, and other supplies and packaging materials we designate. You
shall not fail to perform any act required under this Agreement, or commit any
act which would impair the value of the Marks or the goodwill associated with
the Marks. You shall not at any time engage in any business or market any
product or service under any name or mark which is confusingly or deceptively
similar to any of our Marks. You shall not use any of the Marks as part of your
corporate or trade name and shall not use any trademark, trade name, service
mark, logo, slogan or emblem in connection with the Restaurant that we have not
authorized. You shall obtain such fictitious or assumed name registrations as
required by applicable state law and forward us copies of the same upon request.
(D) DESIGNATION AS YOU. You shall identify yourself as the owner of
------------------
the Franchise in conjunction with the use of the Marks, including, without
limitation, on checks, invoices, receipts, letterhead and contracts, as well as
at conspicuous locations on the Premises in a form which specifies your name,
followed by the phrase "An independently owned and operated franchise" or such
other phrase as we direct.
<PAGE>
(E) DISCONTINUANCE OF USE; ADDITIONAL MARKS AND/OR COPYRIGHTS. In the
---------------------------------------------------------
event that a court of competent jurisdiction should order, or if we in our sole
discretion should deem it necessary or advisable, you shall modify or
discontinue use of any Mark or Copyrighted Work. You shall comply with our
directions regarding any such Mark or Copyrighted Work within 30 days after
receipt of notice from us. You shall also use such additional or substitute
Marks or Copyrighted Works as we shall direct. We shall not be obligated to
compensate you for any costs or expenses incurred by you to modify or
discontinue using any Mark or Copyrighted Work or to adopt additional or
substitute Copyrighted Works or Marks.
8. ADVERTISING.
-----------
(A) CONTRIBUTIONS AND EXPENDITURES. Recognizing the value of
------------------------------
advertising and the importance of the standardization of advertising to the
furtherance of the goodwill and public image of the System, we and you agree as
follows:
(I) GRAND-OPENING ADVERTISING. You shall expend for grand-
-------------------------
opening advertising to publicize the existence and opening of the Restaurant
such amounts as we may reasonably require (not to exceed $2,000), which
advertising shall be in such form as we designate or approve and which shall be
conducted prior to commencement of and during the first two months of operation
of the Restaurant. You may expend additional amounts on such advertising,
provided the form and content is approved by us as provided below.
(II) MONTHLY CONTRIBUTIONS AND EXPENDITURES. Each month during
--------------------------------------
the Term, you shall make the following contributions and expenditures for
advertising:
(A) You shall contribute to the "Marketing Fund," as
defined below, such amount as the Board of Directors of the Marketing Fund
(the "Board") may designate from time to time, which amount shall not
exceed 1 1/2% of the monthly Net Sales of the Restaurant, except as set
forth in (iii), below.
(B) You shall contribute to the "Cooperative" (defined
below) that percentage of Net Sales which the governing body of the
Cooperative may designate from time to time, which amount shall not be less
than 2% nor more than 5% of the monthly Net Sales of the Restaurant, except
as set forth in (iii), below .
(C) You shall expend such amounts as we may designate
from time to time for local advertising as provided below; provided, that
the aggregate amount that you may be required to spend on local advertising
together with your Marketing Fund contributions will not exceed 4% of the
Net Sales of the Restaurant.
(III) INCREASES IN CONTRIBUTIONS.
--------------------------
(A) MARKETING FUND CONTRIBUTIONS. The Board may increase
----------------------------
the maximum required contribution to the Marketing Fund to 2 1/2% of Net
Sales, provided such increase is approved by the owners of not less than
60% of the restaurants required to contribute to the Marketing Fund
(including both Franchisor-owned and
<PAGE>
franchised restaurants). Any increase in the required contribution to the
Marketing Fund in excess of 2 1/2% of Net Sales must be approved by not
less than 2/3 of the restaurants required to contribute to the Marketing
Fund (including both restaurants we own and franchise).
(B) COOPERATIVE CONTRIBUTIONS. The governing body of the
-------------------------
Cooperative may increase the required contribution to the Cooperative to a
percentage of Net Sales in excess of 5%, provided that any such increase is
approved by not less than two-thirds of the restaurants required to
contribute to the Cooperative (including both Franchisor-owned and
franchised restaurants). We also have the right to authorize any
Cooperative to determine contributions on a different basis (fixed amount,
geographic location, etc.). Our decision on any issue concerning
Cooperative contributions shall be final.
(B) MARKETING FUND. Papa John's Marketing Fund, Inc., a
--------------
Kentucky nonstock, nonprofit corporation (the "Marketing Fund"), has been
organized for the purposes set forth in the Articles of Incorporation and By-
Laws of the Marketing Fund, as they may be amended from time to time. You
shall automatically become a non-voting member of the Marketing Fund upon
the execution of this Agreement, and prior to the opening of the Restaurant
you shall execute and deliver to the Marketing Fund an Advertising Agreement
in the form prescribed by the Board.
(i) You agree and acknowledge that the Marketing Fund is
intended to increase recognition of the Marks and to further the public image
and acceptance of the System and that neither we nor the Marketing Fund nor the
directors of the Marketing Fund undertake any obligation to ensure that
expenditures by the Marketing Fund in or affecting any geographic area are
proportionate or equivalent to contributions to the Marketing Fund by Papa
John's restaurants operating in such geographic area or that you or the
Restaurant will benefit directly or in proportion to its contribution to the
Marketing Fund. Neither we nor any of our officers, directors, agents or
employees shall be deemed a fiduciary or trustee of the contributions to, or the
assets of, the Marketing Fund. Neither we nor the Marketing Fund, nor any of
their respective officers, directors, agents or employees, shall be liable to
you with respect to the maintenance, direction or administration of the
Marketing Fund, including without limitation, with respect to contributions,
expenditures, investments or borrowings, except for acts constituting willful
misconduct.
(ii) We and our affiliates shall make contributions to the
Marketing Fund for each restaurant that we own on the same basis as required of
comparable franchisees within the System.
(iii) As long as you are in compliance with the Advertising
Agreement and the Articles and By-Laws of the Marketing Fund, you will be
furnished with advertising materials which were produced by or for the Marketing
Fund for System-wide distribution on the same terms and conditions as such
materials are furnished to other franchisees.
<PAGE>
(iv) You shall make your monthly contribution to the Marketing
Fund on the date and in the manner provided for in the Advertising Agreement and
the By-Laws and shall submit such statements and reports as the Board may
designate from time to time. From time to time the Board may designate one or
more accounts to which such contributions shall be made, and you shall make such
payments by separate checks. Contributions to the Marketing Fund may be used to
defray our expenses only to the extent of the administrative costs and overhead
that we may reasonably incur in rendering services to the Marketing Fund.
(v) The funds collected by the Marketing Fund, and any
earnings thereon, are not and shall not be our asset or the asset of any
franchisee.
(vi) Although the Marketing Fund is intended to be of
perpetual duration, the Board has the right to terminate the Marketing Fund.
However, the Marketing Fund shall not be terminated until all monies held by it
have been expended for the purposes set forth in its Articles of Incorporation
and By-Laws or distributed as permitted by law.
(C) REGIONAL COOPERATIVE ADVERTISING. You agree that we shall have
--------------------------------
the right, in our sole discretion, to designate from time to time a geographical
area in which the Restaurant is located for the purpose of establishing an
advertising cooperative (the "Cooperative"). If a Cooperative has been
established applicable to the Restaurant at the time you commence operations,
you shall immediately become a member of such Cooperative. If a Cooperative
applicable to the Restaurant is established at any later time during the Term,
you shall become a member of such Cooperative no later than 30 days after the
date on which the Cooperative commences operation. In no event shall the
Restaurant be required to contribute to more than one Cooperative. The
following provisions shall apply to each Cooperative:
(i) Each Cooperative shall be organized and governed in a
form and manner, and shall commence operation on a date, we designate in advance
in writing. Each member restaurant shall have one vote for each restaurant it
owns on all matters to be voted on by the Cooperative's membership.
(ii) Each Cooperative shall be organized for the purposes of
producing and conducting general advertising programs and activities for use in
and around the applicable geographic area and developing standardized
promotional materials for use by the members.
(iii) We shall make contributions to each Cooperative of which
we are a member on the same basis as required of comparable franchisees within
the System.
(iv) No advertising programs or materials may be used by the
Cooperative or furnished to its members, and no advertising or promotional
activities may be conducted by the Cooperative, without our prior written
approval. All such programs, materials and planned activities shall be submitted
to us for approval in accordance with the procedure set forth below. A
Cooperative may only employ advertising agencies that have been approved by us.
<PAGE>
(v) Subject to the provisions above, each Cooperative shall
have the right to require its members to make contributions to the Cooperative
in such amounts as are determined by the governing body of the Cooperative.
(vi) You shall make your contributions to the Cooperative on
the date and in the manner designated by the Cooperative. You shall also submit
such statements and reports as may be designated from time to time by us or the
Cooperative. The Cooperative shall submit to us such statements and reports as
we may designate from time to time.
(vii) Notwithstanding the foregoing, we, in our sole
discretion, may, upon written request of a franchisee stating reasons supporting
such request, grant to any franchisee an exemption from the requirement of
membership in a Cooperative. Such an exemption may be for any length of time and
may apply to one or more restaurants owned by such franchisee. If an exemption
is granted to a franchisee, such franchisee may be required to expend on local
advertising the full amount that would otherwise be payable to the Cooperative.
We may also exempt one or more restaurants owned or controlled by us from the
requirement of membership in a Cooperative for such periods as we reasonably
deem appropriate. Our decision concerning an exemption shall be final.
(D) LOCAL ADVERTISING. Subject to the limits set forth above, you
-----------------
agree to spend for local advertising such percentage of your Net Sales as we
from time to time direct. You shall submit verification of your local
advertising expenditures at such times and in such form as we request from time
to time.
(I) SUPPLEMENTAL ADVERTISING. You shall have the right to
------------------------
conduct, at your separate expense, supplemental advertising in addition to the
expenditures specified herein. All such supplemental advertising shall either
have been prepared or previously approved by us within the 90-day period
preceding their intended use, or shall be approved by us as provided below.
(II) YELLOW PAGES ADVERTISING. You shall, at your own expense,
------------------------
obtain (or contribute to the cost of obtaining) a listing for the Restaurant in
each "yellow pages" and other telephone directory serving the Territory and
each such listing shall be of the style, format and size, and in such form, as
we may specify from time to time.
(E) OUR APPROVAL. Prior to their use by the Cooperative or by you,
------------
samples of all advertising and promotional materials not prepared or previously
approved by us within the 90-day period preceding their intended use shall be
submitted to us (via commercial overnight courier or through the mail return
receipt requested) for approval. If disapproval is not received within 20 days
from the date of receipt by us of such materials, we shall be deemed to have
given the required approval. Neither the Cooperative nor you shall use, and
shall cease using, any advertising or promotional materials that we may at any
time disapprove, regardless whether we have previously approved any such items.
(F) OUR ADVERTISING. We may from time to time expend our own funds to
---------------
produce such promotional materials and conduct such advertising as we deem
necessary or
<PAGE>
desirable. In any advertising conducted solely by or for us, we shall have the
sole discretion to determine the products and geographical markets to be
included, and the medium employed and we shall not have any duty or obligation
to supply you with any advertising or promotional materials produced by or for
us at our sole expense.
(G) OWNERSHIP OF ADVERTISING. We shall be the sole and exclusive
------------------------
owner of all materials and rights which result from advertising and marketing
programs produced and conducted, whether by you, us, the Cooperative or the
Marketing Fund. Any participation by you in any advertising, whether by
monetary contribution or otherwise, shall not vest you with any rights in the
Marks employed in such advertising or in any tangible or intangible materials or
rights, including copyrights, generated by such advertising. If requested by
us, you shall assign to us any contractual rights or copyright you acquire in
any advertising.
9. TELEPHONE NUMBER. The only telephone number assigned to the
----------------
Restaurant is 205/221-7171. Upon termination or expiration of the Franchise,
you shall cease using such telephone number. In no event shall you use such
number for any other business. You further agree that in the event you obtain
any additional or substitute telephone service or telephone number at the
Restaurant, you will promptly notify us and such additional or substitute number
shall be subject to this Agreement. You shall immediately take all such actions
as may be necessary to transfer any telephone number and any telephone directory
listings associated with the Restaurants or the Marks to us. You acknowledge
that, as between us and you, we have the sole right to and interest in all
telephone numbers and directory listings associated with the Restaurants or the
Marks. Concurrently with the execution of this Agreement, you shall execute and
deliver the form of assignment of telephone numbers and listings (the "TELEPHONE
NUMBER ASSIGNMENT"), required by the applicable local telephone company or, if
the local telephone company has no form, our current blank assignment form
attached to this Agreement as Exhibit B. You acknowledge and agree that the
---------
telephone company and all listing agencies may accept this Agreement and/or the
Telephone Number Assignment as conclusive evidence of our exclusive right in
such telephone numbers and directory listings and its authority to direct their
transfer.
Upon termination or expiration of this Agreement (without renewal or
extension), we shall have the right and are hereby empowered to effectuate the
Telephone Numbers Assignment and, in such event, you shall have no further
right, title or interest in the telephone numbers and listings and shall remain
liable to the telephone company for all charges and fees owing to the telephone
company on or before the effective date of the assignment hereunder.
You agree and acknowledge that as between us and you, upon termination or
expiration of the Franchise Agreement, we shall have the sole right to and
interest in the telephone numbers and listings, and you appoint us as your true
and lawful attorney-in-fact to direct the telephone company to assign same to
us, and execute such documents and take such actions as may be necessary to
effectuate the assignment. Upon such event, you shall immediately notify the
telephone company to assign the telephone numbers and listings to us. If you
fail to promptly direct the telephone company to assign the telephone numbers
and listings to us, we shall direct the telephone company to effectuate the
Telephone Number Assignment. The parties agree that the telephone company may
accept our written direction, the Franchise Agreement or
<PAGE>
the Telephone Number Assignment as conclusive proof of our exclusive rights in
and to the telephone numbers and listings upon such termination or expiration
and that such assignment shall be made automatically and effective immediately
upon telephone company's receipt of such notice from us or you. The parties
further agree that if the telephone company requires that the parties execute
the telephone company's assignment forms or other documentation at the time of
termination or expiration of the Franchise Agreement, our execution of such
forms or documentation on your behalf shall effectuate your consent and
agreement to the assignment. The parties agree that at any time after the date
hereof, they will perform such acts and execute and deliver such documents as
may be necessary to assist in or accomplish the assignment described herein and
the Telephone Number Assignment upon termination or expiration of the Franchise
Agreement.
10. CONSTRUCTION, DESIGN AND APPEARANCE; EQUIPMENT.
----------------------------------------------
(A) CONSTRUCTION. You agree that you will construct or remodel the
------------
Premises at the approved Location in accordance with our construction or
remodeling plans and design, layout and decor specifications. We will provide
such specifications. You shall purchase or lease the pizza preparation,
beverage storage or dispensing, storage and other equipment, displays, fixtures,
and furnishings that we designate. You shall make no changes to any building
plan, design, layout or decor, or any equipment or signage without our prior
written consent, and shall maintain the interior and exterior decor in such
manner as may be prescribed from time to time by us.
(B) SIGNS. You shall prominently display, at your expense, both on
-----
the interior and exterior of the Premises, advertising signs in such form,
color, number, location and size, and containing such Marks, logos and designs
as we shall designate. Such signs shall be obtained from a source designated or
approved by us. You shall obtain all permits and licenses required for such
signs and shall also be responsible for ensuring that all signs comply with all
laws and ordinances. You shall not display in or upon the Premises any sign or
advertising of any kind to which we object.
(C) PAPA JOHN'S PROFIT SYSTEM(TM); PURCHASE AND INSTALLATION. You
-------------------------------------------------------
agree to (1) acquire the "Information System" (as defined below) for the
Restaurant. Currently, PJFS is the only approved supplier of the Information
System. You also agree to acquire the right to use, for the term of this
Agreement, the "Designated Software" (as defined below) in the manner specified
by us, (2) obtain any and all peripheral equipment and accessories, arrange for
any and all support services and take all other actions that may be necessary to
enable the "Information System" (as defined below) and the Designated Software
to operate as specified by us (including but not limited to installation of
electrical wiring and cabling, and temperature and humidity controls) that may
be necessary to prepare the Restaurant to enable the "Papa John's Profit
System(TM)" (as defined below) to operate as specified by us, and (3) install
and commence using the Designated Software on the Information System, and use
such items solely in the operation of the Restaurant in the manner specified by
us. You shall be responsible for all costs associated with the foregoing,
including but not limited to transportation, installation, sales, use, excise
and similar taxes, and site preparation. You agree to operate only Designated
Software on the Papa John's Profit System\TM. You acknowledge and agree that the
Designated
<PAGE>
Software, and all additions, modifications and enhancements thereto, shall be
deemed to be "confidential information" and shall be subject to Section 17 of
this Agreement.
(I) DEFINITIONS. For purposes of this Agreement, the terms
-----------
listed below shall have the meanings that follow them.
"DESIGNATED SOFTWARE" - Such software, programming and services as we may
-------------------
specify or require from time to time for use by you in the Restaurant. The
Designated Software does not include any data or data bases owned or compiled by
us for use with the Papa John's Profit System(TM) or otherwise or any data
generated by the use of the Designated Software. The Designated Software may
consist of either or both of the following:
(A) PACKAGED SOFTWARE. The Designated Software may
-----------------
consist of software purchased or licensed from us or a third party and/or
may contain third-party subcomponents which we have the authority to
license or sell to you ("Packaged Software") pursuant to and in accordance
with agreements we enter into with such third-party vendors (collectively,
the "Packaged Software Agreements").
(B) PROPRIETARY PROGRAMS. The Designated Software may
--------------------
consist of or contain proprietary computer software programs which we may
develop or cause to be developed and which are owned by us and which we
designate for use on the Papa John's Profit System(TM) in the operation of
a Restaurant, including any modifications, additions or enhancements to
such software programs ("Proprietary Programs").
"INFORMATION SYSTEM" - Those brands, types, makes, and/or models of
------------------
communications and computer systems or hardware specified or required by us for
use in the Restaurant or between or among Papa John's Restaurants and/or us.
This Information System may include point of sale systems, information storage,
retrieval, transmission systems and security systems.
"PAPA JOHN'S PROFIT SYSTEM(TM)" - The Designated Software and Information
-------------------------
System collectively.
(II) GRANT OF LICENSE. We agree to grant to you, and to cause
----------------
our Vendors (defined below) to grant to you, a nonexclusive, nontransferable,
nonassignable license to use the Designated Software, subject to the same terms
and conditions as the Designated Software is licensed to our other franchisees
in general. You agree to be bound by the terms of each Packaged Software
Agreement and, to the extent you purchase all or portions of the Designated
Software from or through us, agree that the vendors and licensors of all or
portions of the Designated Software (collectively, the "Vendors") are third-
party beneficiaries of this Agreement with full rights to enforce this Agreement
as it pertains to the Designated Software. You acknowledge and agree that the
Designated Software and any data generated by the use of the Designated Software
are the valuable, proprietary property and trade secret of us and/or our
Vendors, and you agree to use the utmost care to safeguard the Designated
Software and any data generated by the use of the Designated Software and to
maintain the copyright protection and the secrecy and confidentiality thereof.
<PAGE>
(III) ACCESS; ENHANCEMENTS AND CHANGES.
--------------------------------
(A) ACCESS TO SYSTEM. We shall have the right at all
times to access the Papa John's Profit System(TM) and to retrieve, analyze,
download and use the Designated Software, and all software, data and files
stored or used on the Papa John's Profit System(TM). We may access the Papa
John's Profit System(TM) in the Restaurant or from other locations,
including our headquarters and regional offices. You shall store all data
and information on the Papa John's Profit System(TM) that we designate from
time to time. No unauthorized data or information may be stored on the Papa
John's Profit Syste(TM).
(B) ENHANCEMENTS AND CHANGES. During the term of this
------------------------
Agreement, and provided that you are in compliance with the terms of this
Agreement, we shall provide to you, and you shall promptly implement, all
upgrades, modifications, enhancements, extensions, error corrections and
other changes to the Papa John's Profit System(TM) developed or adopted by
us for use in the operation of the Restaurant.
(C) INFORMATION SYSTEMS MAINTENANCE. You agree to
-------------------------------
maintain the Information System in accordance with our published
maintenance program, as amended from time to time (which will also be
adhered to by our restaurants). You also agree that if you fail to maintain
the Information System in accordance with our published maintenance
program, you shall reimburse any costs which we or our agents incur to
bring your Information System up to our standards. The published
maintenance program may include, but is not limited to, a hardware spares
program and a preventative maintenance program. You acknowledge that such
maintenance is necessary to help ensure the proper function of the Papa
John's Profit System(TM).
(D) IDEAS AND SUGGESTIONS. You shall promptly disclose
---------------------
to us all ideas and suggestions for modifications or enhancements of the
Papa John's Profit System(TM) or any component thereof which is conceived
or developed by or for you, and us and our Affiliates shall have the right
to use and license such ideas and suggestions. All modifications and
enhancements made to the Papa John's Profit System(TM) together with the
copyright therein shall be the property of us (or the appropriate Vendor if
we so designate), without regard to the source of the modification or
enhancement, and you hereby assign all of your right, title, and interest
in any ideas, modifications, and enhancements to us (or the appropriate
Vendor if we so designate). You agree to execute any documents, in the form
provided by us, which we determine are necessary to reflect such ownership.
(E) REMOVAL. Upon expiration or termination of this
-------
Agreement, you shall allow our employees or agents to remove the Designated
Software from the Information System, shall immediately return to us the
Designated Software, each component thereof, any data generated by the use
thereof, all documentation for the Designated Software and other materials
or information which relate to or reveal the Designated Software and its
operation. You shall immediately destroy any and all back-up or other
copies of the Designated Software or parts thereof, and any data generated
<PAGE>
by the use of the Designated Software (other than financial information
relating solely to you).
(IV) INSTALLATION FEE. You agree to pay to us upon
----------------
installation of the Designated Software on your Information System, an
installation fee (the "Installation Fee") in the amount of $750, plus all
reasonable travel, lodging and other expenses we incur in connection with the
installation. The Installation Fee shall be fully earned by us upon installation
of the Designated Software on the Information System in the Restaurant and such
fee is non-refundable in whole or in part. We may also charge additional
Installation Fees, not to exceed $750 plus expenses, each time an enhancement or
modification to the Papa John's Profit System(TM) is installed. The Installation
Fees do not include any hardware, supplies, data cabling, electrical wiring, or
cash drawer or shelving installation or other site work necessary to prepare the
Restaurant for the Papa John's Profit System(TM). These are your sole
responsibility. However, some or all of these materials and services may be
offered by us or our agent for an additional fee.
(V) TRAINING FEE. You agree to pay us a training fee
------------
("Software Training Fee") in the amount of $1,400. Such fee shall be paid at the
same time as the Initial Franchise Fee. Training on the Papa John's Profit
System(TM) will be conducted at a time and location determined by us, however,
such training will be scheduled at least 1 day prior to the opening of the
Restaurant. The Software Training Fee is non-refundable in whole or in part. If
you own and operate 2 or more Papa John's Pizza restaurants, we will offer a
trainer certification program. You may send 2 or more individuals through this
program at your expense. If you have at least 2 individuals who work for you
that have completed our trainer certification program to our satisfaction, and
such persons train all your Restaurant employees on the Papa John's Profit
System(TM), there will be no Training Fee charged.
(VI) SOFTWARE SUPPORT FEE. You agree to pay to us a recurring
--------------------
software support service fee ("Software Support Fee") in the amount of $70 per
Period. Such fee shall be payable in advance on the 7th day of each month (the
same day as the Royalty for the prior Period) commencing in the Period
immediately following the installation of the Designated Software on the Papa
John's Profit System(TM) and continuing through the Term. In exchange for this
fee, we will provide general assistance and support for your Papa John's Profit
System(TM). This fee entitles you to 3 telephone calls per Period. Additional
calls may be billed at $25 each.
(VII) SOFTWARE MAINTENANCE FEE. You agree to pay us a software
------------------------
maintenance fee which shall not be more than 20% of the license fees of the
Designated Software as published by Vendors or by us in any year ("Software
Maintenance Fee"). This fee shall be paid in semi-annual installments. This
Software Maintenance Fee includes software maintenance, research and
development, upgrades and enhancements and installation media, if any, which we
adopt, require or provide. Installation on the Papa John's Profit System(TM), if
required, will be charged as defined in Section 10.(c)(iv).
(VIII) INCREASES IN FEES. The Training Fee, Installation Fee,
-----------------
Software Support Fee and/or the Software Maintenance Fee may be increased from
time to time.
<PAGE>
(IX) WARRANTIES AND LIMITATION OF LIABILITY. We represent and
--------------------------------------
warrant to you that if we sell or license the Proprietary Programs to you: (A)
we will have all rights, licenses and authorizations necessary to license the
Proprietary Programs to you, subject only to nonexclusive licenses granted to
others; and (B) the Proprietary Programs will not, and as a result of any
enhancements, improvements or modifications provided by us will not, to the best
of our knowledge, infringe upon any United States patent, copyright or other
proprietary right of any third party. In the event your use of the Proprietary
Programs as provided by us is enjoined as a result of a claim by a third party
of patent or copyright infringement or violation of proprietary rights, we
shall, in our sole discretion, either (1) procure for you the right to continue
use of the Proprietary Programs as contemplated hereunder, or (2) replace the
Proprietary Programs or modify it such that there is no infringement of the
third party's rights; and such action by us shall be your sole and exclusive
remedy against us in such event. We do not represent or warrant to you, and
expressly disclaim any warranty that the Proprietary Programs are error-free or
that the operation and use of the Proprietary Programs by you will be
uninterrupted or error-free. We shall have no obligation or liability for any
expense or loss incurred by you arising from use of the Proprietary Program in
conjunction with any other computer program.
EXCEPT FOR THE ABOVE EXPRESS LIMITED WARRANTIES, WE MAKE NO WARRANTIES,
EXPRESS OR IMPLIED, ORAL OR WRITTEN, WITH RESPECT TO THE DESIGNATED SOFTWARE OR
ANY PORTION THEREOF, INCLUDING ANY PROGRAM DOCUMENTATION OR OTHER MATERIAL
FURNISHED HEREUNDER, OR ANY COMPONENT THEREOF, AND THERE ARE EXPRESSLY EXCLUDED
ALL WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE WITH
RESPECT THERETO. WE SHALL HAVE NO LIABILITY FOR CONSEQUENTIAL, EXEMPLARY
INCIDENTAL OR PUNITIVE DAMAGES.
(D) MAINTENANCE, REMODELING, RE-EQUIPPING, ENHANCEMENTS AND
-------------------------------------------------------
REPLACEMENTS. You agree at all times to maintain the Restaurant in accordance
- ------------
with our standards, and that you will, within 90 days from the date of written
notice from us, remodel or re-equip or perform such maintenance at the
Restaurant in accordance with the specifications we provide. Such maintenance,
remodeling and re-equipping may include, without limitation, replacing worn out,
obsolete, or dated equipment, fixtures, furnishings and signs; structural
modifications; painting and redecorating; or purchasing more efficient or
improved equipment. We may require you to perform maintenance and remodeling
and to purchase equipment at such times as we, in our sole discretion, deem
necessary and reasonable; provided, that we may not require any significant
remodeling of the Restaurant during the first 2 years of the Initial Term. We
may, during the term of this Agreement, require you to modify, enhance and/or
replace all or any part of the Information System and/or the Designated Software
at your expense, and you agree, within 120 days of receipt of written notice
from us, to acquire, or acquire the right to use for the remainder of the term
of this Agreement, the modified, enhanced or replacement version of the
Information System and/or Designated Software specified by us. You agree to
take all other actions as may be necessary to enable the modified, enhanced or
replacement Information System and Designated Software to operate as specified
by us. Any such modifications, enhancements, and replacements may require you
to incur costs to purchase, lease and/or license new or modified computer
hardware and/or software or other equipment and to
<PAGE>
obtain different and/or additional service and support services during the term
of this Agreement. You acknowledge that we cannot estimate the costs of future
maintenance, enhancements, modifications, and replacements to the Restaurant,
equipment, signage, Papa John's Profit System(TM) or other items. YOU
ACKNOWLEDGE THAT EQUIPMENT, ADDITIONS, ENHANCEMENTS, ALTERATIONS, MAINTENANCE
AND RENOVATIONS REQUIRED BY US MAY INVOLVE SUBSTANTIAL ADDITIONAL INVESTMENT BY
YOU DURING THE TERM OF THIS AGREEMENT.
11. OPERATIONS; STANDARDS OF QUALITY; INSPECTIONS.
---------------------------------------------
(A) PRINCIPAL OPERATOR. You shall designate an individual to serve
------------------
as the "Principal Operator" of the Restaurant. The Principal Operator shall meet
the following qualifications:
(i) The Principal Operator shall own at least a 5% equity
interest in you; provided that you shall not be in default of this requirement
if the Principal Operator is entitled to a bonus of not less than 5% of the net
profits of the Restaurant, payable after the end of each Period, and also has
the right to acquire not less than a 5% equity interest in you within 12 months
of his or her hire date, which rights shall be evidenced by a written agreement
between the Principal Operator and you. You shall provide us with a copy of any
such agreement upon request. Once the Principal Operator has acquired an equity
interest in you, he or she must continue to own that interest (or a greater
interest) during the entire period he or she serves as the Principal Operator.
(ii) The Principal Operator shall devote full time and best
efforts to the supervision and conduct of the development and operation of the
Restaurant and, as required in this Agreement, shall agree to be bound by
confidentiality and non-competition provisions of the Owner Agreement. At such
time as the Principal Operator becomes an owner of an interest in you, he or she
must agree to be bound by all the provisions of the Owner Agreement.
(iii) The Principal Operator shall be a person approved by us
who shall complete our initial training requirements and who shall participate
in and complete to our satisfaction all additional training as we may reasonably
designate.
If, at any time for any reason, the Principal Operator no longer qualifies
to act as such, you shall promptly designate another Principal Operator subject
to the same qualifications listed above. Any sale or transfer of any portion of
the Principal Operator's interest in you, if any, which would reduce the
Principal Operator's equity interest or voting rights in you to less than 5% of
the total shall be deemed a transfer of an interest and shall be subject to the
terms and conditions of Section 14 hereof; and any failure to comply with such
terms and conditions shall be deemed a default by you under this Agreement.
However, if the Principal Operator owns 5% or less of you, then a transfer of
the Principal Operator's interest to you, another shareholder or partner of you
or to a successor Principal Operator shall not require our consent, shall not be
subject to our right of first refusal and no transfer fee shall be required.
You shall promptly notify us in writing of any such transfer and provide all
information about the transferee and the terms of the transfer as we may
reasonable request.
<PAGE>
(B) MANAGEMENT OF THE RESTAURANT. The Principal Operator and one or
----------------------------
more competent managers approved by us (who shall have completed our initial
training program to our satisfaction) shall personally devote their full time
and best efforts to the management and operation of the Restaurant in order to
ensure compliance with this Agreement and to maintain our high standards.
Management responsibility shall include, without limitation, presence of the
Principal Operator or a manager at the Restaurant during all business hours;
maintaining the highest standards of product quality and consistency;
maintaining the Restaurant in the highest condition of sanitation, cleanliness
and appearance; and supervising employees to ensure that the highest standard of
service is provided and to ensure that your employees deal with customers,
suppliers, us, and all other persons in a courteous and polite manner.
(C) COMPLIANCE WITH OUR STANDARDS. You shall operate the Restaurant
-----------------------------
through strict adherence to our standards, specifications and policies as they
now exist, and as they may from time to time be modified. Such standards and
policies include, without limitation: (i) specifications and preparation
methods for food and beverages; (ii) hours of operation; (iii) menu items and
services offered; (iv) employee uniform requirements and specifications; and (v)
use of specified emblems and Marks on containers, bags, boxes, napkins, and
other products.
(D) TRAINING. Should any employee or prospective employee of you
--------
perform work which in our judgment requires additional training, skills or
knowledge, such employee shall take part in such training and instruction as we
shall direct. You shall be solely responsible for all wages, travel and living
expenses, and all other costs incurred by you and your employees in connection
with any training or instruction we provide. You shall also, at your own
expense, conduct at the Restaurant such training and instruction, using such
materials, equipment and supplies, as we may require from time to time.
(E) MANUALS. We will lend you one or more manuals which shall
-------
contain (i) the mandatory and suggested specifications, standards and operating
procedures prescribed from time to time by us and (ii) information relative to
other obligations hereunder and the operation of the Restaurant (the "Manuals").
The Manuals shall at all times remain our sole property. We may, from time to
time, revise the contents of the Manuals. To the extent that we shall deem it
necessary or appropriate, we will provide you with policy and procedure
statements or other written notice of specifications, standards and procedures.
You agree to promptly adopt and use the formulas, methods, procedures, policies,
menus, recipes, food products and other standards and specifications contained
in the Manuals, policy and procedure statements and other written notices as
issued from time to time by us. You acknowledge and agree that all infor mation
in the Manuals, policy and procedure statements and other notices constitute
confidential information and trade secrets, and shall not be disclosed at any
time by you. You shall not copy any part of the Manuals or any other
communication or information provided by us.
(F) VARIATIONS IN STANDARDS. You shall not implement any change to
-----------------------
the System without our prior written consent. However, because complete and
detailed uniformity under varying conditions may not be possible or practical,
we specifically reserve the right, in our sole discretion and as we may deem in
the best interests of you or the Chain, to vary the System, including specific
standards, policies and/or procedures, within the Restaurant or any
<PAGE>
other restaurant(s) in the Chain based upon peculiarities of a particular
location or circumstances, including, but not limited to, density of population
and other demographic factors, size of the Territory, business practices or
customs, or any other condition which we deem to be of importance to the
operation of such restaurant(s) or the Chain. You acknowledge that because of
these factors and others, there may be variations from standard specifications
and practices in the Chain and that you shall not be entitled to require us to
grant like or similar variations or privileges to you.
(G) YOUR DEVELOPMENTS. We shall have the right to use and
-----------------
incorporate into the System for the benefit of other franchisees and us any
modifications, ideas or improvements, in whole or in part, developed or
discovered by you or your employees or agents, without any liability or
obligation to you or the developer thereof.
(H) COMPLIANCE WITH LAWS. You shall at all times during the Term
--------------------
comply with all laws, ordinances, rules and regulations of all applicable
governmental bodies.
(I) COURTESY; COOPERATION. At all times and under all circumstances,
---------------------
you and your employees shall treat all customers and other persons, including
our agents, officers, and employees with the utmost respect and courtesy, and
shall fully cooperate with us and our agents, officers, and employees in all
aspects of the franchise relationship.
(J) INSPECTIONS. An agent, officer or employee of ours may make
-----------
inspections of the Restaurant to insure compliance with all required standards,
specifications and procedures. Our representative shall be allowed to inspect
the condition and operation of the Restaurant and all areas of the Restaurant at
any time during normal business hours. Such inspections may include, without
limitation, (i) reviewing sales and order forms, (ii) observing the Principal
Operator and all managers and your other employees, (iii) interviewing any such
persons, (iv) interviewing customers of the Restaurant in order to evaluate your
performance and to ensure that the Restaurant is being operated in accordance
with the requirements of this Agreement and the Manuals, and (v) conducting any
type of audit or review necessary to evaluate your compliance with all required
standards, specifications or procedures. We may, from time to time, make
suggestions and give mandatory instructions with respect to your operation of
the Restaurant.
12. PRODUCTS; COMMISSARY; MENU.
--------------------------
(A) PRODUCTS. You agree that you will use only those food items,
--------
ingredients, beverages, cooking materials, containers, boxes, cups, packaging,
menus, uniforms, and other products and materials in the operation of the
Restaurant as we shall have specifically designated or approved. You may be
required to purchase from us certain products that involve trade secrets or that
have been specially prepared by us or at your direction or that we consider to
be integral to the System. We may require that certain products be purchased
from one or more designated suppliers. Products other than those required to be
obtained from us or a designated supplier may be purchased from any source
provided that the particular supplier and products have been approved by us. We
may, from time to time, amend the list of approved products and suppliers.
<PAGE>
(B) COMMISSARIES. PJ Food Service, Inc. ("PJFS") and PJFS of
------------
Mississippi, Inc. ("PJFS of Mississippi") presently supply designated and
approved products to restaurants owned by us or our Affiliates and those of our
franchisees from commissaries which are either owned or operated by PJFS, PJFS
of Mississippi or us (the "Commissaries"). PJFS and PJFS of Mississippi are
currently the only designated manufacturers of dough, and you must purchase
dough from PJFS and PJFS of Mississippi or a designated representative unless
and until such time as a successor supplier of dough is designated. Neither
PJFS nor PJFS of Mississippi has any obligation to continue supplying you or to
continue to operate its Commissary. If either of them cease operating the
Commissaries or terminates service to you (other than as a result of the
termination or expiration of the Franchise) we shall provide you with the name,
address and phone number of an alternative approved supplier(s) and the products
to be purchased from such supplier(s). All purchases by you from the
Commissaries are on the terms specified from time to time by PJFS or PJFS of
Mississippi. PJFS and PJFS of Mississippi, through us, hereby reserve the right
to specify different terms for different franchisees. We make no
representations or warranties about any of the services performed by or any of
the products produced or sold by or through PJFS or PJFS of Mississippi.
(C) MENU ITEMS. You shall offer for retail sale, and shall carry on
----------
your menu, only those types, sizes, styles and brands of pizza, pizza dough,
pizza sauce, toppings, beverages, and other products as from time to time we may
specify, and shall make all menu items available for carry-out and delivery
service from the Restaurant. You agree that you will not sell or carry on your
menu any food items or other products we have not specified or approved.
(D) PRICING. You shall have the sole responsibility for establishing
-------
your prices, but you shall charge the same price for each product whether sold
in the Restaurant or delivered unless we otherwise approve.
13. ACCOUNTING AND REPORTS.
----------------------
(A) ACCOUNTING. We may lend you and/or the person(s) who will be
----------
preparing your reports and financial statements for each Period or year end with
one or more manuals, which manual(s) may contain mandatory and/or optional (i)
accounting procedures, (ii) forms, (iii) chart of accounts, and (iv) other items
deemed relevant or necessary by us. You agree to direct your
bookkeeper/accountant to follow all mandatory policies, procedures, forms,
formats and other items set forth in such manuals. The accounting manual(s)
shall be part of the "Manuals" as defined in this Agreement.
(B) RECORDKEEPING. You shall establish and maintain accounting and
-------------
record keeping systems in accordance with the specifications and procedures
provided by us and as amended from time to time, including, without limitation,
maintaining its accounting records on a basis of monthly or multi-week periods
(each such accounting period is referred to as "Period"). You shall make all
such records available to us upon request. You shall maintain and preserve, for
at least five years from the dates of their preparation, full, complete and accu
rate books, records and accounts.
<PAGE>
(C) PERIODIC REPORTS. On or before the 15th day of the month
----------------
following each Period, you shall deliver to us: (i) a statement, in the form
prescribed by us, of the revenues and expenses of the Restaurant for the
immediately preceding Period, and (ii) such other records and reports as are
requested by us, including but not limited to, bank statements, sales and
expense forms and reports, and a current balance sheet.
(D) REVIEW BY US. At all times during the Term, we, or our
------------
authorized agent, shall have the right to review all your sales and expense
records and reports which are located in or which relate to the Restaurant, and
to make photocopies of all such items.
(E) YEAR-END REPORTS. Within 120 days following your fiscal year
----------------
end, you shall provide us with copies of your financial statements, including an
income statement for the fiscal year just ended and a balance sheet as of the
end of such fiscal year, which financial statements shall have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis. You shall furnish us with copies of all of your federal and state income
tax returns and all state sales tax returns as we request from time to time. You
shall promptly notify us if any such return is not timely filed, or if any
extension is filed, and the reasons therefore.
(F) EXAMINATIONS AND AUDITS. We or our designated agents shall have
-----------------------
the right, at all times and upon reasonable notice, to examine or audit your
books and records, and to make photocopies thereof. If such examination or
audit should disclose any underpayment of the Royalty, Marketing Fund payments,
or any other sums or fees owed to us, you shall immediately pay the deficient
amount plus interest thereon from the date due until paid at a rate equal to 12%
per annum. All payments received will first be credited against interest due
and then against other payments due. If such an examination or audit discloses
an understatement in any statement or report of 5% or more, you shall, in
addition to the above provision, reim burse us for the cost of having your books
examined or audited. The foregoing shall be in addition to any other rights or
remedies we may have, including the termination of the Franchise granted herein.
14. TRANSFERS; OUR RIGHT OF FIRST REFUSAL.
-------------------------------------
(A) TRANSFERS BY US. We may transfer or assign this Agreement or any
---------------
or all of its rights, interests, benefits or obligations arising hereunder
without restriction. Upon any transfer or assignment of this Agreement by us,
we shall be released from all obligations and liabilities arising or accruing in
connection with this Agreement after the date of such transfer or assignment.
(B) TRANSFERS BY YOU. The rights and interests of you under this
----------------
Agreement are and shall remain personal to you. You recognize that we have
granted the Franchise in reliance on the business and financial capacity and
other attributes of you and in reliance upon the Guaranty of Obligations.
Accordingly, neither you nor any holder of any capital stock or other interest
in you that is a corporation or other entity shall transfer (i) any interest in
this Agreement, (ii) any material portion of the assets of you or the
Restaurant, or (iii) any stock or other interest in you, without obtaining our
prior written consent; provided that a partner or
<PAGE>
shareholder of you may transfer all or a portion of his interest in you to
another partner or shareholder or to you (such person or entity being referred
to as a "Permitted Transferee") and such a transfer shall not be subject to our
consent or right of first refusal and no transfer fee shall be required. You
shall promptly notify us of any such transfer. For purposes of this Agreement,
the term "transfer" shall mean any issuance, sale, assignment, gift, pledge,
mortgage or any other encumbrance (other than a lien against the your assets to
secure a loan for the construction, remodeling, equipping or operation of the
Restaurant), transfer by bank ruptcy, transfer by judicial order, merger,
consolidation, share exchange, transfer by operation of law or otherwise,
whether direct or indirect, voluntary or involuntary. Our consent to a
particular transfer shall not be deemed as consent to any subsequent or
different transfer. In the event you grant a security interest in your assets
to secure a loan for construction, leasehold or equipment costs, the secured
party shall agree in writing that upon (A) default by you, it shall notify us
and we shall have the right, but not the obligation, to be substituted as the
debtor and to cure the default, and (B) any acceleration of indebtedness
provisions of the loan documents shall not be exercisable if we cure the default
and assume the indebtedness. Upon the occurrence of a default and our election
to assume the indebtedness, the Franchise and this Agreement shall automatically
terminate and we shall have the right under Section 20 to purchase the assets
used in the Restaurant. The purchase price as determined under Section 20
shall be reduced by the amount of the debt we assumed.
(I) OUR RIGHT OF FIRST REFUSAL. You shall give us at least
--------------------------
45 days prior written notice of any intended transfer of any of your rights or
interest under this Agree ment or of the proposed transfer of any interest in
you or any material portion of your assets. Such notice shall set forth the name
of the proposed transferee and a detailed statement of all of the terms and
conditions of such intended or proposed transfer. Subject to subsection (c)
below, we will not unreasonably withhold our consent to a proposed transfer.
Irrespective of the qualifications or acceptability of any prospective
transferee, we shall have the first right and option to purchase the interest
intended or proposed to be transferred at the same price and on the same terms
and conditions contained in the notice. Should the proposed transfer involve the
payment of any non-cash consideration, we shall have the option to purchase the
interest at a price equal to the fair market value of such non-cash
consideration plus the amount, if any, of consideration paid in cash. We shall
determine the fair market value of the non-cash consideration using fair and
reasonable methods. We shall make such determination as promptly as practicable,
but in no event later than 30 days after we have received the notice of the
intended transfer. If you disagree with the value as we determine, then you and
Papa John's shall each hire an appraiser (or a single appraiser, if you and Papa
John's so agree) to value the non-cash consideration. If the appraisals are
within 20% of each other, then the difference between the two shall be equally
divided to establish the price at which we may exercise our first right and
option. If the difference between the appraisals is greater than 20%, then the
issue of the fair market value of such consideration shall be determined by a
third appraiser selected by the other two appraisers and whose decisions shall
be final, except that it may not be lower or higher than the lowest appraisal
and highest appraisal, respectively, determined by the first two appraisers.
Should a proposed transfer not involve the payment of any consideration, we have
the option to purchase the interest at a price equal to 1 1/2 times the Net
Profits of the Restaurant over the previous 12-month period (or the average
monthly Net Profit of the Restaurant if it has been operating less than 12
months multiplied by 12) multiplied by the percentage which the
<PAGE>
interest to be transferred bears to all interests in the Restaurant, or you, as
the case may be. As used in this Agreement, Net Profits means the amount of
profit, if any, determined from statements of profit and loss prepared by an
independent public accountant that we find acceptable. Within 30 days after we
receive notice of a proposed transfer for no consideration or solely for cash,
or if the proposed transfer will not be solely for cash, within 10 days after a
determination is made of the fair market value of the non-cash consideration, we
will notify you that we are exercising our right of first refusal or approving
the transfer or denying approval of the transfer. Our decision to deny approval
shall be final.
(II) APPROVED TRANSFERS. If we decide not to exercise our
------------------
right of refusal, and if we approve the transfer in writing, you (or the
transferor of an interest in you) may make the proposed transfer on the exact
terms and conditions specified in your notice to us within 60 days after the
expiration of our option. If the transfer is not consummated within such 60-day
period, you may not thereafter transfer such interest without again complying
with this Section.
(C) CONDITIONS ON TRANSFER. We agree that we will not unreasonably
----------------------
withhold our consent to a proposed transfer if all of the following conditions
are satisfied:
(i) We shall have decided not to exercise our right of first
refusal as provided above;
(ii) You are in full compliance with this Agreement and there
are no uncured defaults by you hereunder, and all your debts and financial
obligations to us and our Affiliates under this Agreement or otherwise are
current and your obligations to the Marketing Fund and each Cooperative of which
you are a member are current;
(iii) The proposed transferee executes such documents as we may
reasonably require to evidence that they have assumed the obligations of you
under this Agreement, and if required by us, the proposed transferee executes,
and in appropriate circumstances, causes such other parties as we may require to
execute, our then-current form of Owner Agreement, and other then-current
ancillary agreements, which documents may be substantially different than those
attached to this Agreement;
(iv) The proposed transferee enters into an Advertising
Agreement with the Marketing Fund and also becomes a member of the Cooperative
to which the Restaurant is required to contribute;
(v) Prior to the date of the proposed transfer, the proposed
transferee's Principal Operator and managers undertake and complete, to the
satisfaction of us, such training and instruction as we shall deem necessary;
(vi) We are satisfied that the proposed transferee (and if the
proposed transferee is an entity, all owners of any interest in such entity)
meets all of the requirements for our new franchisees applicable on the date we
receive notice of the proposed transfer and
<PAGE>
including, but not limited to, good reputation and character, business
experience, restaurant management experience, and financial strength and
liquidity;
(vii) You and any owner transferring an interest in you
acknowledge and agree in writing that they are bound by the non-competition and
confidentiality provisions set forth herein and in the Owner Agreement (and any
similar provision in any other document which either of them have executed) to
the maximum extent allowed under applicable law;
(viii) You and all owners of an interest in you execute a
general release, in the form prescribed by us, releasing, to the fullest extent
permitted under the laws of the state where the Restaurant to be transferred is
located, all claims that any of them may have against us and our affiliates and
subsidiaries, and their respective shareholders, officers, directors and
employees, in both their individual and corporate capacities and if you are the
transferor, you shall acknowledge in writing that your interest under this
Agreement terminated;
(ix) You shall pay us a transfer fee of $3,000; provided that
if the proposed transfer is of the Restaurant together with one or more other
Papa John's restaurants owned by you to a single transferee, then the total
transfer fee shall be an amount equal to the greater of $3,000 or our actual
costs and expenses incurred in approving and effecting the transfer, including,
without limitation, all "in-house" and outside personnel and professional costs;
and
(x) The proposed transferee and all owners of any interest in
a transferee that is an entity provide us, at least 45 days prior to the
proposed transfer date, copies of financial statements for the preceding three
years, and where applicable, its certificate of incorporation and bylaws (and
any amendments or modifications thereof), minutes and resolu tions and all other
documents, records and information pertaining to the transferee's existence and
ownership.
(D) OWNERSHIP AND STRUCTURAL CHANGES. Except for transfers between
--------------------------------
Permitted Transferees, any ownership or structural changes in you including but
not limited to, any merger, reorganization, issuance of additional shares or
classes of stock or additional partnership interests, shall constitute and be
deemed a transfer of the Franchise and shall be subject to our prior written
approval.
15. DEATH, INCAPACITY OR DISSOLUTION.
--------------------------------
(A) TRANSFER UPON DEATH, ETC. Upon the death or permanent incapacity
-------------------------
of you, or if you are a corporation, limited liability company, partnership or
other entity, upon the death, incapacity or dissolution of any owner of any
interest in you, the executor, administrator, conservator, trustee or other
representative of such person or entity shall assign such interest in the
Franchise, or such interest in you, to a third party approved by us; provided
that if the transferee is a Permitted Transferee, our right of first refusal
shall not apply and no transfer fee shall be payable. Further, if the
transferee is required to be approved and is approved, and the transfer involves
less than 25% of the ownership of you, no transfer fee shall be payable. If you
are one or more individuals and any such person dies or becomes permanently
incapacitated, and
<PAGE>
if the law of the jurisdiction where the Restaurant is located so provides,
nothing contained in this Section shall deny your spouse, heirs or personal
representative the opportunity to participate in the ownership of the Franchise
for a reasonable time after the death or incapacity of the you, provided that:
(i) this Agreement is valid and in effect, (ii) the spouse, heirs or
representative meets all conditions and qualifications otherwise required of
transferees, and (iii) such spouse, heirs or representative maintains and
complies with all standards and obligations contained in this Agreement. An
assignment under this Section 15 shall be completed within a reasonable time,
not to exceed 9 months from the date of death, permanent incapacity or
dissolution and shall (except as otherwise provided above) be subject to the
terms and conditions applicable to lifetime transfers contained in Section 14,
including our right of first refusal.
(B) MANAGEMENT BY US. Pending assignment, if the Principal Operator
----------------
ceases managing the Restaurant and another shareholder, member, partner or
employee of you that qualifies as the Principal Operator does not assume such
obligations, we may, at our sole option, appoint a manager to operate the
Franchise for your account. All expenses of the Restaurant, including
compensation, travel and living expenses, and other costs of the appointed
manager, and a reasonable per diem fee of us for our administrative expenses,
shall be charged to you. Operation of the Restaurant during any such period
shall be for and on your behalf. The appointed manager shall only have a duty
to utilize his or her best efforts in the management of the Restaurant and the
appointed manager and we shall not be liable to you or your owners for any
debts, losses, liabilities or obligations incurred by the Restaurant, or to any
of your creditors for any merchandise, materials, supplies or services purchased
by the Restaurant during any period in which it is managed by our appointed
manager.
16. YOUR ADDITIONAL COVENANTS.
-------------------------
(A) LIMITATIONS ON ACTIVITIES. If you are a corporation, limited
-------------------------
liability company, or partnership, you shall not at any time during the Term of
this Agreement, own, operate or have any interest in any other business or
business activity other than the operation of Papa John's restaurants pursuant
to agreements with us. If you are an individual and are also the Principal
Operator, you have disclosed to us all businesses in which you have an interest,
or are engaged in, and covenant that you will notify us of any intention to
participate or engage, directly or indirectly, in any other business activity at
least 30 days before undertaking such activity or becoming a party to any
agreement or understanding relating to such activity. You shall provide us with
such information in regard thereto as we may reasonably request and will not
engage or participate in any such activity unless you receive our written
consent.
(B) EXECUTION OF ANCILLARY DOCUMENTS. Simultaneously with the
--------------------------------
execution of this Agreement, you shall cause each person or entity owning any
beneficial interest in you to execute an Owner Agreement in the form provided by
us.
(C) YOUR NON-COMPETE. You covenant and agree that during the Term of
----------------
this Agreement (including the Renewal Term, if applicable) and for a period of
two years after the termination or expiration of the Franchise, regardless of
the reason for such termination or expiration, you shall not, within a 10-mile
radius of (i) the Restaurant, or (ii) any business
<PAGE>
location at which we or an "Affiliate" (as defined in Section 25) or our
franchisee then con ducts a Papa John's business, engage in any of the following
activities:
(i) directly or indirectly enter into the employ of, render
any service to or act in concert with any person, partnership, limited liability
company, corporation or other entity that owns, operates, manages, franchises or
licenses any business that (A) sells pizza or other non-pizza products
(excluding soft drinks) that are the same as those sold by Papa John's
restaurants on a delivery basis, or (B) sells pizza or any such other products
primarily on a carry-out basis, including, without limitation, business formats
such as Domino's, Pizza Hut, Mr. Gatti's, Sbarro and Little Caesars (a
"Competitive Business"), or
(ii) directly or indirectly engage in any such Competitive
Business on your own account, or
(iii) become interested in any such Competitive Business
directly or indirectly as an individual, partner, member, shareholder, director,
officer, principal, agent, employee, consultant or in any other relationship or
capacity; provided, that the purchase of a publicly traded security of a
corporation engaged in such business or service shall not in itself be deemed
violative of this Section so long as you do not own, directly or indirectly,
more than 1% of the securities of such corporation.
To the extent required by the laws of the state in which the Restaurant is
located, the duration or the geographic areas included within the foregoing
covenants, or both, shall be deemed amended in accordance with Section 25.
(D) MANAGERIAL AND SUPERVISORY EMPLOYEES. You covenant that you
------------------------------------
shall cause all persons who are involved in managerial or supervisory positions
with you to enter into a Confidentiality Agreement as provided by us. You agree
to provide us with copies of such executed agreements upon request. If you have
reason to believe that any person has violated any such Confidentiality
Agreement, you shall promptly notify us and cooperate with us to protect us
against unfair competition, infringement, or other unlawful use of the Marks,
our trade secrets, recipes, or System. You further grant us the right, but not
the obligation, to prosecute any such lawsuits at our expense in your name.
(E) COPYING; NON-SOLICITATION. You shall not copy or duplicate our
-------------------------
System or any aspect thereof, or any of our trade secrets, recipes, methods of
operation, processes, formulas, advertising, marketing, designs, trade dress,
plans, software, programs, know-how or other proprietary ideas or information
nor will you convey, divulge, make available or communicate any such information
to any third party nor assist others in doing so (except as permitted or
required by this Agreement). You covenant that you will not, either during the
Term or after it, employ or seek to employ any person who is employed by us, our
Affiliates or by any of our franchisees, or otherwise directly or indirectly
solicit, entice or induce any such person to leave their employment.
(F) VALIDITY OF MARKS AND COPYRIGHTS; REGISTRATIONS. You agree that
-----------------------------------------------
you will not, either during the Term or any time thereafter, directly or
indirectly challenge or contest
<PAGE>
the validity of, or take any action to jeopardize our rights in or ownership of,
any of the Marks or any registration of a Mark or any Copyrighted Work. In the
event you violate this provision, we shall be entitled to equitable, monetary,
punitive and any other relief to which we may be entitled, as well as the
recovery of all costs, expenses and attorneys' fees incurred by us as a result
of such violation.
(G) REASONABLENESS OF SCOPE AND DURATION. You agree that the
------------------------------------
covenants and agreements contained herein are, taken as a whole, reasonable with
respect to the activities covered and their geographic scope and duration, and
you shall not raise any issue of the reasonableness of the areas, activities or
duration of any such covenants in any proceeding to enforce any such covenants.
You acknowledge and agree that you have other skills and resources and that the
restrictions contained in this Section 16 will not hinder your activities or
ability to make a living either under this Agreement or in general.
(H) ENFORCEABILITY. You agree that we may not be adequately
--------------
compensated by damages for a breach by you of any of the covenants and
agreements contained in this Section, and that we shall, in addition to all
other remedies, be entitled to injunctive relief and specific performance. The
covenants and agreements contained in this Section shall be construed as
separate covenants and agreements, and if any court shall finally determine that
the restraints provided for in any such covenants and agreements are too broad
as to the area, activity or time covered, said area, activity or time covered
may be reduced to whatever extent the court deems reasonable, and such covenants
and agreements shall be enforced as to such reduced area, activity or time.
17. TRADE SECRETS AND CONFIDENTIAL INFORMATION. You understand and agree
------------------------------------------
that we have disclosed or will disclose to you certain confidential or
proprietary information and trade secrets. Except as necessary in connection
with the operation of the Restaurant and as approved by us, you shall not,
during the Term or at any time after the expiration or termination of the
Franchise, regardless of the cause of termination, directly or indirectly, use
for your own benefit or communicate or divulge to, or use for the benefit of any
other person or entity, any trade secrets, confidential information, knowledge
or know-how concerning the recipes, food products, advertising, marketing,
designs, plans, software, programs or methods of operation of the Restaurant or
the System. You shall disclose to your employees only such confidential,
proprietary or trade secret information as is necessary to operate your business
hereunder and then only while this Agreement is in effect. Any and all
information, knowledge, or know-how, including without limitation, drawings,
materials, equipment, marketing, recipes, and other data, which we designate as
secret or confidential shall be deemed secret and confidential for purposes of
this Agreement.
18. INSURANCE.
---------
(A) TYPES AND EXTENT OF COVERAGE. You shall obtain and maintain
----------------------------
throughout the Term such insurance coverages with such limits as specified below
(or such greater amounts of insurance as may be required by the terms of any
lease or mortgage relating to the Premises):
<PAGE>
(i) fire, extended coverage, vandalism, malicious mischief
and special extended peril insurance at no less than the actual replacement
value of the building (if owned), the contents, and improvements;
(ii) workers' compensation and other insurance required by
law;
(iii) comprehensive general liability and property damage
insurance on an occurrence basis naming us and our Affiliates, and our
respective officers, directors and employees, as additional insureds as follows:
(A) bodily injury to or death of one or more persons -
minimum of $1,000,000;
(B) property damage or destruction - minimum of $500,000 per
occurrence;
(C) public and product liability - $1,000,000;
(D) hired and non-owned vehicle coverage - $1,000,000 and
(iv) an umbrella policy with a minimum limit of $1,000,000,
which policy must expressly provide coverage above the coverages listed in (A)
through (C) above. The foregoing are only the minimum required coverages. We
make no representation or warranty that the foregoing types or amounts of
coverage will provide you with adequate protection. You should consult with a
qualified expert about your insurance needs.
(B) OTHER INSURANCE REQUIREMENTS. Upon request, you shall deliver to
----------------------------
us copies of all such policies of insurance and proof of payment therefor. All
policies required hereunder shall provide that the insurer shall endeavor to
give us written notice not less than 30 days prior to the date the coverage is
canceled, altered, or permitted to lapse or expire. We may, from time to time,
increase the limits of any required policy of insurance.
19. TERMINATION BY US.
-----------------
(A) AUTOMATIC TERMINATION. You shall be in default under this
---------------------
Agreement, and the Franchise and all rights granted to you in this Agreement
shall automatically terminate without notice to you, (i) if you make a general
assignment for the benefit of creditors; or if a petition in bankruptcy is filed
by you or (ii) such a petition is filed against and not opposed by you; or (iii)
if you are adjudicated as bankrupt or insolvent; or (iv) if a bill in equity or
other proceeding is filed for the appointment of a receiver or other custodian
for your business or assets if filed and consented to by you; or (v) if a
receiver or other custodian (permanent or temporary) of your assets or property,
or any part thereof, is appointed by any court of competent jurisdiction; or
(vi) if proceedings for a composition with creditors under any state or federal
law should be instituted by or against you; or (vii) if a final judgment against
you remains unsatisfied or of record for 30 days or longer (unless an appeal or
supersedeas bond is filed); or (viii) if you are dissolved; or (ix) if any
portion of your interest in the Franchise
<PAGE>
becomes subject to an attachment, garnishment, levy or seizure by any creditor
or any other person claiming against or in your rights; or (x) if execution is
levied against your business or property; or (xi) if the real or personal
property of your Restaurant shall be sold after levy thereupon by any sheriff,
marshal, or constable; or (xii) for the reasons described in Section 14 hereof.
(B) WITHOUT NOTICE. You shall be in default and we may, at our
--------------
option, terminate the Franchise and all rights granted in this Agreement,
without affording you any opportunity to cure the default, effective upon the
earlier of receipt of notice of termination by you, or five days after mailing
of such notice by us, upon the occurrence of any of the following events:
(i) You at any time cease to operate or otherwise abandon the
Restaurant or forfeit the right to do or transact business in the jurisdiction
where the Restaurant is located or lose the right to possession of the Premises;
provided, however, that if any such loss of possession results from the
governmental exercise of the power of eminent domain, or if, through no fault of
yours the Premises are damaged or destroyed, then you shall have 45 days after
either such event in which to apply for our approval to relocate or reconstruct
the premises (which approval shall not be unreasonably withheld), provided, that
you shall either relocate or begin and diligently pursue reconstruction of the
Restaurant within 60 days after the event;
(ii) Except as otherwise permitted in Sections 14 and 15, any
owner of more than a 5% interest in you transfers all or part of such interest
or you transfer any interest in the Franchise or a material portion of the
assets of the Restaurant or of you without our prior written consent;
(iii) You or any person or entity owning more than 5% of you is
proven to have engaged in fraudulent conduct, or is convicted of, or pleads
guilty or no contest to a felony or a crime involving moral turpitude, or any
other crime or offense that is reasonably likely to have an adverse effect on
the Chain, the Marks or the goodwill associated therewith; provided, that if the
act or conviction involves your owner, we will not terminate the Franchise if
you notify us promptly after you learn of the event constituting the default,
and within 15 days of the date of the notice, either (A) the person or entity
that committed the wrongful act divests his, her or its entire interest in you,
or (B) you obtain our consent for such owner to maintain his, her or its
ownership interest.
(iv) An approved transfer is not effected within 9 months of
your death or incapacity, or the death, incapacity or dissolution of any owner
of an interest in you;
(v) You make any intentional, unauthorized disclosure or
divulgence of the contents of any Manual or other confidential information
provided to you by us;
(vi) You are given 3 or more notices of being in material
violation of any the terms or requirements of this Agreement within any 12-month
period, whether or not such defaults are timely cured after notice;
<PAGE>
(vii) You fail to comply with any of your covenants set forth
in Sections 16 or 17, fail to maintain the insurance coverages under Section 18,
or make any material misrepresentation to us or breach any warranty or
representation made to us, whether in this Agreement or otherwise;
(viii) You knowingly or intentionally maintains false books or
records or submits any false record, statement or report to us; or
(ix) You, by act or omission, materially impair the value of,
or the goodwill associated with, the Chain, any of the Marks or the System.
(C) WITH NOTICE AND FAILURE TO CURE. Except for those defaults
-------------------------------
provided for under subsections (a) or (b) above, you shall be in default
hereunder for any failure to maintain or comply with any of the terms,
covenants, specifications, standards, procedures or require ments imposed by
this Agreement or in any Manual, policy and procedure statement or other written
document provided by us, or to carry out the terms of this Agreement in good
faith. For such defaults, we will provide you with written notice and 15 days
to cure or, if a default cannot reasonably be cured within 15 days, to begin
within that time substantial and continuing action to cure such default and to
provide us with evidence of such actions. If the defaults specified in such
notice are not cured within the 15-day period, or if substantial and continuing
action to cure has not been initiated, we may, at our option, terminate the
Franchise effective on the earlier of, the date of receipt by you of notice of
termination or 5 days after the mailing of such notice by us. Such defaults
shall include, without limitation, the occurrence of any of the following
events:
(i) You fail to construct or remodel, or to commence
operating the Restaurant in accordance with this Agreement;
(ii) You fail, refuse, or neglect to promptly to pay any
monies owing to us, our Affiliates or the Marketing Fund or a Cooperative when
due, or to submit the financial or other information required under this
Agreement;
(iii) Any person or entity owning 5% or less of you transfers
such interest in violation of this Agreement; provided, however, that your right
to cure such a default shall be conditioned upon you immediately notifying us of
the improper transfer and taking all actions necessary to either (A) obtain our
approval thereof or, (B) if approval is not desired or the transfer or
transferee is not approved by us, to re-acquire the interest so transferred;
(iv) A threat or danger to public health or safety results
from the construction, maintenance, or operation of the Restaurant;
(v) You misuse or make any unauthorized use of the Marks; or
(vi) You, by act or omission in connection with the operation
of the Restaurant, permit a continued violation of any law, ordinance, rule, or
regulation of a govern-mental body.
<PAGE>
(D) MATERIALITY OF BREACHES. You acknowledge and agree that a breach
-----------------------
or violation of any term, covenant, condition, warranty, representation or other
obligation by you (other than a breach or violation that may be cured under
Section 19 and is in fact cured within 15 days after notice) shall constitute a
material breach and default under this Agreement. Any breach or violation that
may be cured under Section 19 and that is not in fact cured within the 15-day
cure period shall also constitute a material breach and default under this
Agreement.
20. OBLIGATIONS UPON TERMINATION OR EXPIRATION.
------------------------------------------
(A) POST TERMINATION OBLIGATIONS. Upon termination or expiration of
----------------------------
the Franchise, all rights granted to you under this Agreement shall terminate,
the Franchise shall revert to us, and you shall have the following obligations
with respect to the Restaurant franchised under this Agreement:
(i) You shall immediately cease to operate the business
franchised under this Agreement, and shall not thereafter, directly or
indirectly, represent to the public or hold yourself out as a Papa John's
franchisee with respect to such business;
(ii) You shall immediately and permanently cease to use, in
any manner whatsoever, all confidential information, Designated Software,
methods, procedures and techniques used by or associated with the System, and
the proprietary Marks "Papa John's," "Papa John's Pizza," and all other Marks
and distinctive forms, slogans, signs, symbols, logos and devices associated
with the Papa John's Chain;
(iii) You shall immediately return to us any property held or
used by you which is owned by us and shall cease to use, and either destroy or
convey to us, all signs, advertising materials, displays, stationery, forms and
any other materials that bear or display the Marks;
(iv) You shall take such actions as may be necessary to cancel
any assumed name or similar registration which contains the mark "Papa John's"
or "Papa John's Pizza" or any other Mark, and you shall furnish us with evidence
satisfactory to us of compli ance with this obligation within thirty (30) days
after termination or expiration of the Franchise;
(v) You shall, if we so request, assign to us any interest
which you have in any lease for the Premises; provided we agree to use
reasonable efforts to effect a termination of the existing lease for the
Location and enter into a new lease on reasonable terms with the landlord. In
the event we are unable to negotiate an acceptable new lease we will indemnify
and hold you harmless from any ongoing liability under the lease from the date
we assume possession of the Location. The assignment of the lease shall be made
at the same time as we purchase the assets of the Restaurant pursuant to Section
20 below. If we do not purchase the assets you shall effectuate such assignment
immediately upon receipt of our notice.
<PAGE>
In the event we do not elect to exercise our option to acquire any lease for the
Premises, and unless otherwise directed by us, you shall, within 10 days after
termination or expiration of the Franchise, make such modifications and
alterations to the Premises as may be necessary to distinguish the appearance of
the Premises from that of other Papa John's restaurants and shall make such
specific additional changes thereto as we may reasonably request;
(vi) You shall promptly pay all sums owed to us, and in the
event the Franchise is terminated for any reason other than as a result of a
material breach of this Agreement by us that is not cured within 30 days or such
longer period as may be necessary after written notice thereof from you, such
sums shall include all damages, costs, and expenses, including reasonable
attorneys' fees, incurred by us as a result of the default and the termination,
which obligation shall give rise to and remain, until paid in full, a lien in
favor of us against any and all of the personal property, furnishings,
equipment, signs, fixtures and inventory owned by you located on the Premises on
the date the Franchise terminated;
(vii) You shall pay to us all damages, costs and expenses,
including reasonable attorneys' fees, incurred by us subsequent to the
termination or expiration of the Franchise in obtaining injunctive or other
relief for the enforcement of any term, covenant or provision of this Agreement;
(viii) You shall immediately deliver to us all Manuals, policy
and procedure statements, instructions, and other materials related to operating
the Restaurant, including, without limitation, brochures, charts and any other
materials provided by us and all copies thereof, and shall neither retain nor
convey to another any copy or record of any of the foregoing and shall allow us
to remove the Designated Software as described in Section 10;
(ix) If requested by us, you shall take all further action and
execute all documents necessary to convey and assign to us all telephone numbers
which have been used in the operation of the Restaurant or if we do not so
request, you shall cease all use of such telephone numbers; and
(x) You shall comply with the covenants contained in this
Agreement, including, but not limited to, the covenants not to compete and the
covenants not to disclose trade secrets or confidential information.
(B) ASSET PURCHASE OPTION. Upon termination of this Agreement by us,
---------------------
upon termination of this Agreement by you without cause or upon expiration of
this Agreement, we shall have the option, exercisable by giving written notice
thereof within 15 days from the date of such expiration or termination, to
purchase from you all the assets used in the Restaurant. Assets shall include,
without limitation, leasehold improvements, equipment (including the Information
System), furniture, fixtures, signs and inventory for the Location. We shall
have the unrestricted right to assign this option to purchase. We or our
assignee shall be entitled to all customary warranties and representations given
by the seller of a business including, without limitation, representations and
warranties as to (i) ownership, condition and title to assets; (ii) liens and
encumbrances relating to the assets; and (iii) validity of contracts and
liabilities,
<PAGE>
inuring to us or affecting the assets, contingent or otherwise. The purchase
price for the assets of the Restaurant shall be the fair market value,
determined as of the date of termination or expiration of this Agreement in a
manner consistent with reasonable depreciation of leasehold improvements owned
by you and the equipment, furniture, fixtures, signs and inventory of the
Restaurant, provided that the purchase price shall not contain any factor or
increment for any trademark, service mark or other commercial symbol used in
connection with the operation of the Restaurant, goodwill or "going concern"
value for the Restaurant and further provided that we may exclude from the
assets purchased hereunder any equipment, furniture, fixtures, signs and
inventory that are not approved as meeting quality standards for Papa John's
restaurants. If you and we are unable to agree on the fair market value of the
assets, the fair market value shall be determined by an independent appraiser
selected by us and you. If you and we are unable to agree on a single
appraiser, each party shall each select one appraiser, who shall select a third
appraiser, and the fair market value shall be deemed to be the average of the
three (3) independent appraisals. Except as provided above, nothing contained
herein shall restrict the manner in which the appraisers so selected value the
leasehold improvements, equipment, furniture, fixtures, signs and inventory.
The purchase price shall be paid in cash, a cash equivalent, or marketable
securities of equal value at the closing of the purchase, which shall take place
no later than 90 days after receipt by you of notice of exercise of this option
to purchase, at which time you shall deliver instruments transferring to us or
our assignee: (1) good and merchantable title to the assets purchased, free and
clear of all liens and encumbrances (other than liens and security interests
acceptable to us or our assignee), with all sales and other transfer taxes paid
by you; and (2) all licenses and permits of the Restaurant which may be assigned
or transferred. In the event that you cannot deliver clear title to all of the
purchased assets as aforesaid, or in the event there shall be other unresolved
issues, the closing of the sale shall be accomplished through an escrow.
Further, you and we shall, prior to closing, comply with all applicable legal
requirements, including the bulk sales provisions of the Uniform Commercial Code
of the state in which the Restaurant is located. We shall have the right to set
off against and reduce the purchase price by any and all amounts owed by you to
us, and the amount of any encumbrances or liens against the assets or any
obligations assumed by us. If we or our assignee exercises this option to
purchase, pending the closing of such purchase as hereinabove provided, we shall
have the right to appoint a manager to maintain the operation of the Restaurant
as set forth under Section 15. Alternatively, we may require you to close the
Restaurant during such time period without removing any assets from the
Restaurant. You shall maintain in force all insurance policies required
pursuant to this Agreement, until the date of closing on the sale.
21. INDEPENDENT CONTRACTOR; INDEMNIFICATION.
---------------------------------------
(A) INDEPENDENT CONTRACTOR. It is understood and agreed by the
----------------------
parties that this Agreement creates only a contractual relationship between the
parties subject to the normal rule of contract law. This Agreement does not
create a fiduciary relationship between them and that you are and shall remain
an independent contractor. Nothing in this Agreement is intended to constitute
either party an agent, legal representative, subsidiary, joint venturer,
partner, employee, or servant of the other for any purpose whatsoever. You
agree to hold yourself out to the public as an independent contractor, separate
and apart from us. You agree that you shall not make any contract, agreement,
warranty, or representation on our behalf without our prior
<PAGE>
written consent, and you agree that you shall not incur any debt or other
obligation in our name. This Agreement shall not be deemed to confer any rights
or benefits to any person or entity not expressly named herein.
(B) INDEMNIFICATION. We shall not be liable by reason of any act or
---------------
omission of you in your conduct of the Restaurant or for any claim, cause of
action or judgment arising therefrom against you or us. You agree to hold
harmless, defend and indemnify us and our affiliates, officers, directors,
agents, and employees, from and against any and all losses, expenses, judgments,
claims, attorney fees and damages arising out of or in connection with any claim
or cause of action in which we shall be a named defendant and which arises,
directly or indirectly, out of the operation of, or in connection with, your
Restaurant, other than a claim resulting directly from our negligence.
22. YOUR REPRESENTATIONS. You hereby acknowledge and represent that:
--------------------
(A) all information submitted to us by you or those owning an
interest in you, including all applications, financial statements and other
documents and information, is true and correct in all respects and that it does
not omit any statement or item of fact material to make the statements made
therein not false or misleading;
(B) We have not represented (i) that the you will earn, can earn, or
are likely to earn a gross or net profit, (ii) that we have knowledge of the
relevant market, or (iii) that the market demand will enable the you to earn a
profit from the Franchise;
(C) You have read and understood this Agreement and the disclosure
document entitled "Papa John's Franchise Offering Circular" (the "Offering
Circular") required by the Federal Trade Commission or the state in which the
Restaurant will be located at least 10 business days prior to the date on which
this Agreement was signed or any monies were paid to us by you. You understand
that we make no representation or warranty regarding your relevant market or the
profitability of business operations under the System and that no
representations have been made by us, or by our affiliate or ours or their
officers, directors, shareholders, employees or agents, that are contrary to or
inconsistent with the terms of this Agreement or with the statements made in the
Offering Circular that accompanied a copy of this Agreement;
(D) You accept the terms, conditions and covenants contained in this
Agreement as being reasonable and necessary to maintain our standards of
quality, service and uniformity and in order to protect and preserve the
goodwill of the Marks. You acknowledge that other franchisees of ours have been
or will be granted franchises at different times and in different situations.
You further acknowledge that the provisions of the franchise agreements pursuant
to which such franchises were granted may vary materially from those contained
in this Agreement and that your obligation arising hereunder may differ
substantially from other franchisees; and
(E) You recognize that the System may evolve and change over time and
that the Franchise involves an investment of substantial risk and its success is
dependent primarily
<PAGE>
upon your business acumen and your efforts and other factors beyond our control.
You have conducted an independent investigation of the Franchise and have had
ample time and opportunity to consult with independent professional advisors
(lawyers, accountants, etc.), and have not received or relied upon any express
or implied guarantee as to potential volumes, revenues, profits or success of
the business venture contemplated by the Franchise.
23. ENFORCEMENT.
-----------
(A) ARBITRATION. EXCEPT FOR CONTROVERSIES, DISPUTES OR CLAIMS RELATED
-----------
TO OR BASED ON (1) ANY ACTION BY US TO STOP OR PREVENT ANY THREAT OR DANGER TO
PUBLIC HEALTH OR SAFETY RESULTING FROM THE CONSTRUCTION, MAINTENANCE, OR
OPERATION OF THE RESTAURANT; OR, (2) AT OUR OPTION, YOUR VIOLATION OF ANY
PROVISION OF SECTION 16 OR 17 HEREOF, OR YOUR USE OF THE MARKS AFTER THE
EXPIRATION OR TERMINATION OF THIS AGREEMENT, ALL CONTROVERSIES, DISPUTES OR
CLAIMS BETWEEN US AND OUR AFFILIATES, SHAREHOLDERS, OFFICERS, DIRECTORS, AGENTS
AND EMPLOYEES AND YOU (AND YOUR OWNERS, GUARANTORS, AFFILIATES AND EMPLOYEES, IF
APPLICABLE) ARISING OUT OF OR RELATED TO:
(I) THIS AGREEMENT OR ANY OTHER AGREEMENT BETWEEN YOU AND US
OR ANY PROVISION OF ANY SUCH AGREEMENT;
(II) OUR RELATIONSHIP WITH YOU, INCLUDING ISSUES RELATING TO
OUR DECISION TO TERMINATE THAT RELATIONSHIP;
(III) THE VALIDITY OF THIS AGREEMENT OR ANY OTHER AGREEMENT
BETWEEN YOU AND US OR ANY PROVISION OF ANY SUCH AGREEMENT; OR
(IV) ANY STANDARD, SPECIFICATION OR OPERATING PROCEDURE
RELATING TO THE ESTABLISHMENT OR OPERATION OF THE RESTAURANT
WILL BE SUBMITTED FOR BINDING ARBITRATION TO THE LOUISVILLE, KENTUCKY
OFFICE OF THE AMERICAN ARBITRATION ASSOCIATION ON DEMAND OF EITHER PARTY. SUCH
ARBITRATION PROCEEDING WILL BE CONDUCTED IN LOUISVILLE, KENTUCKY AND, EXCEPT AS
OTHERWISE PROVIDED IN THIS AGREEMENT, WILL BE HEARD BY ONE ARBITRATOR IN
ACCORDANCE WITH THE THEN CURRENT FRANCHISING ARBITRATION RULES, IF ANY,
OTHERWISE THE THEN CURRENT COMMERCIAL ARBITRATION RULES OF THE AMERICAN
ARBITRATION ASSOCIATION. ALL MATTERS RELATING TO ARBITRATION WILL BE GOVERNED
BY THE FEDERAL ARBITRATION ACT (9 U.S.C. (S)(S) 1 ET SEQ.) AND NOT BY ANY STATE
-- ----
ARBITRATION LAW.
<PAGE>
THE ARBITRATOR WILL HAVE THE RIGHT TO AWARD OR INCLUDE IN THE AWARD ANY
RELIEF WHICH THE ARBITRATOR DEEMS PROPER IN THE CIRCUMSTANCES, INCLUDING,
WITHOUT LIMITATION, MONEY DAMAGES (WITH INTEREST ON UNPAID AMOUNTS FROM THE DATE
DUE), SPECIFIC PERFORMANCE, INJUNCTIVE RELIEF AND ATTORNEYS' FEES AND COSTS,
PROVIDED THAT THE ARBITRATOR WILL NOT HAVE THE RIGHT TO DECLARE ANY MARK GENERIC
OR OTHERWISE INVALID OR, EXCEPT AS OTHERWISE PROVIDED IN THIS AGREEMENT, TO
AWARD EXEMPLARY OR PUNITIVE DAMAGES. THE AWARD AND DECISION OF THE ARBITRATOR
WILL BE CONCLUSIVE AND BINDING UPON ALL PARTIES HERETO, AND JUDGMENT UPON THE
AWARD MAY BE ENTERED IN ANY COURT OF COMPETENT JURISDICTION.
WE AND YOU AGREE TO BE BOUND BY THE PROVISIONS OF ANY LIMITATION ON THE
PERIOD OF TIME IN WHICH CLAIMS MUST BE BROUGHT UNDER APPLICABLE LAW OR THIS
AGREEMENT, WHICHEVER EXPIRES EARLIER. WE AND YOU FURTHER AGREE THAT, IN
CONNECTION WITH ANY SUCH ARBITRATION PROCEEDING, EACH PARTY MUST SUBMIT OR FILE
ANY CLAIM WHICH WOULD CONSTITUTE A COMPULSORY COUNTERCLAIM (AS DEFINED BY RULE
13 OF THE FEDERAL RULES OF CIVIL PROCEDURE) WITHIN THE SAME PROCEEDING AS THE
CLAIM TO WHICH IT RELATES. ANY SUCH CLAIM WHICH IS NOT SUBMITTED OR FILED AS
DESCRIBED ABOVE WILL BE FOREVER BARRED.
WE AND YOU AGREE THAT ARBITRATION WILL BE CONDUCTED ON AN INDIVIDUAL, NOT A
CLASS-WIDE, BASIS, AND THAT AN ARBITRATION PROCEEDING BETWEEN US AND OUR
AFFILIATES, SHAREHOLDERS, OFFICERS, DIRECTORS, AGENTS AND EMPLOYEES AND YOU
(AND/OR YOUR OWNERS, GUARANTORS, AFFILIATES AND EMPLOYEES, IF APPLICABLE) MAY
NOT BE CONSOLIDATED WITH ANY OTHER ARBITRATION PROCEEDING BETWEEN US AND ANY
OTHER PERSON, CORPORATION, LIMITED LIABILITY COMPANY OR PARTNERSHIP.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS SECTION, WE AND
YOU EACH HAVE THE RIGHT IN A PROPER CASE TO OBTAIN TEMPORARY RESTRAINING ORDERS
AND TEMPORARY OR PRELIMINARY INJUNCTIVE RELIEF FROM A COURT OF COMPETENT
JURISDICTION; PROVIDED, HOWEVER, THAT WE AND YOU MUST CONTEMPORANEOUSLY SUBMIT
OUR DISPUTE FOR ARBITRATION ON THE MERITS AS PROVIDED HEREIN EXCEPT AS OTHERWISE
PROVIDED IN THE FIRST PARAGRAPH OF THIS SECTION 23.
THE PROVISIONS OF THIS SECTION ARE INTENDED TO BENEFIT AND BIND CERTAIN
THIRD PARTY NON-SIGNATORIES AND WILL CONTINUE IN FULL FORCE AND EFFECT
SUBSEQUENT TO AND NOTWITHSTANDING THE EXPIRA TION OR TERMINATION OF THIS
AGREEMENT.
<PAGE>
(B) GOVERNING LAW. ALL MATTERS RELATING TO ARBITRA TION WILL BE
-------------
GOVERNED BY THE FEDERAL ARBITRATION ACT (9 U.S.C. (S)(S)1 ET SEQ). EXCEPT TO
-- ---
THE EXTENT GOVERNED BY THE FEDERAL ARBITRA TION ACT, THE UNITED STATES TRADEMARK
ACT OF 1946 (LANHAM ACT, 15 U.S.C. SECTIONS 1051 ET SEQ.) OR OTHER FEDERAL LAW,
-- ----
THIS AGREEMENT AND ALL CLAIMS ARISING FROM THE RELATIONSHIP BETWEEN US AND YOU
WILL BE GOVERNED BY THE LAWS OF THE COMMONWEALTH OF KENTUCKY WITHOUT REGARD TO
ITS CONFLICT OF LAWS PRINCIPLES.
(C) CONSENT TO JURISDICTION AND VENUE. YOU AND YOUR OWNERS AGREE THAT
---------------------------------
ALL JUDICIAL ACTIONS BROUGHT BY US AGAINST YOU OR YOUR OWNERS OR BY YOU OR YOUR
OWNERS AGAINST US OR OUR SUBSIDIARIES, SHAREHOLDERS, OFFICERS, DIRECTORS, AGENTS
OR EMPLOYEES MUST BE BROUGHT IN ANY COURT OF COMPETENT JURISDIC TION IN
JEFFERSON COUNTY, KENTUCKY OR FEDERAL DISTRICT COURT FOR THE WESTERN DISTRICT OF
KENTUCKY AND YOU (AND EACH OWNER) IRREVOCABLY SUBMIT TO THE JURISDICTION OF SUCH
COURTS AND WAIVE ANY OBJECTION YOU, HE OR SHE MAY HAVE TO EITHER THE
JURISDICTION OF OR VENUE IN SUCH COURTS. NOTWITHSTANDING THE FOREGOING, WE MAY
BRING AN ACTION TO OBTAIN A RESTRAINING ORDER OR TEMPORARY OR PRELIMINARY
INJUNCTION, OR ENFORCE AN ARBITRATION AWARD, IN ANY FEDERAL OR STATE COURT OF
GENERAL JURISDICTION IN THE STATE IN WHICH YOU RESIDE OR IN WHICH THE RESTAURANT
IS LOCATED.
(D) WAIVER OF PUNITIVE DAMAGES. EXCEPT WITH RESPECT TO YOUR
--------------------------
OBLIGATION TO INDEMNIFY US PURSUANT TO SECTION 21 AND CLAIMS WE BRING AGAINST
YOU UNDER SECTIONS 16, 16 AND 17, WE AND YOU AND YOUR OWNERS WAIVE TO THE
FULLEST EXTENT PERMITTED BY LAW ANY RIGHT TO OR CLAIM FOR ANY PUNITIVE OR
EXEMPLARY DAMAGES AGAINST THE OTHER AND AGREE THAT, IN THE EVENT OF A DISPUTE
BETWEEN US, THE PARTY MAKING A CLAIM WILL BE LIMITED TO EQUITABLE RELIEF AND TO
RECOVERY OF ANY ACTUAL DAMAGES IT SUSTAINS.
(E) WAIVER OF JURY TRIAL. WE AND YOU IRREVOCABLY WAIVE TRIAL BY JURY
--------------------
IN ANY ACTION, PROCEEDING OR COUNTERCLAIM, WHETHER AT LAW OR IN EQUITY, BROUGHT
BY EITHER OF US.
(F) LIMITATIONS OF CLAIMS. EXCEPT FOR CLAIMS BROUGHT BY US WITH
---------------------
REGARD TO YOUR OBLIGATIONS UNDER SECTIONS 16 AND 17, AND YOUR OBLIGATION TO
INDEMNIFY US PURSUANT TO SECTION 21, ANY AND ALL CLAIMS ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE RELATIONSHIP OF YOU AND US PURSUANT TO THIS
AGREEMENT WILL BE BARRED UNLESS AN ACTION IS COMMENCED WITHIN ONE (1) YEAR FROM
THE DATE ON WHICH THE ACT OR EVENT GIVING RISE TO THE CLAIM OCCURRED, OR ONE (1)
YEAR FROM THE DATE ON WHICH YOU OR WE KNEW
<PAGE>
OR SHOULD HAVE KNOWN, IN THE EXERCISE OF REASONABLE DILIGENCE, OF THE FACTS
GIVING RISE TO SUCH CLAIMS, WHICHEVER OCCURS FIRST.
(G) COSTS, EXPENSES AND ATTORNEYS' FEES. Except as provided in
-----------------------------------
Sections 16, 20 and 21, each party shall pay its own costs, expenses and
attorneys' fees in any arbitration, claim, suit or proceeding arising out of
this Agreement or the franchise relationship of the parties.
24. NOTICES. All notices, requests, demands and other communications
-------
required or permitted to be given or made under this Agreement shall be in
writing and shall be given (i) by personal delivery or (ii) provided such
notice, request, demand or communication is actually received by the party to
which it is addressed in the ordinary course of delivery, by deposit in the
United States mail, postage prepaid, or (iii) by registered or certified mail,
return receipt requested, postage prepared, or by delivery to a nationally-
recognized overnight courier service, in each case, addressed as follows, or to
such other person or entity as either party shall designate by notice to the
other in accordance herewith:
Us: P.O. Box 99900
Louisville, Kentucky 40269-9990
ATTN: General Counsel
You: P.O. Box 61115
Birmingham, Alabama 35261-1165
ATTN: Doug Stephens
25. MISCELLANEOUS.
-------------
(A) TOLLING; SEVERABILITY. During any period in which any covenant in
---------------------
Section 16 or 17 is being breached by you, including any period in which we or
you are seeking administrative or judicial enforcement, interpretation or
modification of any such covenant, and all appeals thereof, the Restricted
Period shall toll and be suspended. You agree to be bound to the maximum extent
permitted by law which is subsumed within the terms of any provision hereof, as
though it were separately articulated in and made a part of this Agreement, that
may result from the striking of any provision hereof by a court, or which a
court holds to be unenforceable in a final decision to which we are a party, or
that may result from reducing the scope of any provision to the extent required
to comply with a court order or with any state or federal law, whether currently
in effect or subsequently enacted.
(B) CONSTRUCTION. All references herein to the masculine, neuter, or
------------
singular shall be construed to include the masculine, feminine, neuter, or
plural, as the case may require. All acknowledgements, warranties,
representations, covenants, agreements, and obligations herein made or
undertaken by you shall be deemed jointly and severally undertaken by all those
executing this Agreement as you. During any period in which any of the
covenants in Section 16 is being breached or violated, including any period in
which either of the parties seeks judicial enforcement, interpretation or
modification of any such covenant, and all appeals thereof, the restricted
period set forth therein shall toll and be suspended.
<PAGE>
(C) ENTIRE AGREEMENT. This Agreement, the documents incorporated
----------------
herein by reference and the Exhibits attached hereto, comprise the entire
agreement between the parties, and all prior understandings or agreements
concerning the subject matter hereof are canceled and superseded by this
Agreement. The Exhibits to this Agreement are incorporated herein by reference
and made a part hereof as if set out in full herein.
(D) AFFILIATE. As used in this Agreement, the term "Affiliate" shall
---------
mean any person or entity that is owned or controlled by us or which owns and
controls us or is under common control with us.
(E) AMENDMENTS. Except for those permitted to be made unilaterally by
----------
us, no supplement, amendment or variation of the terms of this Agreement shall
be valid unless made in writing and signed by the parties hereto.
(F) WAIVERS. No failure of us to exercise any right given to it
-------
hereunder, or to insist upon strict compliance by you with any obligation,
agreement or undertaking hereunder, and no custom or practice of the parties at
variance with the terms hereof shall constitute a waiver of our right to demand
full and exact compliance by you with the terms hereof. Waiver by us of any
particular default by you shall not affect or impair our rights with respect to
any subsequent default of the same or of a different nature, nor shall any delay
or omission of us to exercise any right arising from such default affect or
impair our rights as to such default or any subsequent default.
(G) COUNTERPARTS. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
(H) HEADINGS. The headings used in this Agreement are for convenience
--------
only, and the paragraphs shall be interpreted as if such headings were omitted.
<PAGE>
(I) TIME OF ESSENCE. You agree and acknowledge that time is of the
---------------
essence with regard to your obligations hereunder, and that all of your
obligations are material to us and this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on
the day, month and year first written above.
PAPA JOHN'S INTERNATIONAL, INC.
By: ____________________________________
Richard J. Emmett, Vice President
EXTRA CHEESE, INC.
By: ____________________________________
Douglas Stephens, President
<PAGE>
PAPA JOHN'S
FRANCHISE AGREEMENT
EXHIBIT A
---------
ADDENDUM TO LEASE
-----------------
THIS ADDENDUM TO LEASE, dated __________ __, 19__, is entered into by
and between ________________________ ("Lessor"), and _____________________
("Lessee").
RECITALS:
--------
A. The parties hereto have entered into a certain Lease Agreement,
dated __________ __, 19__, and pertaining to the premises located at
______________________________ (the "Lease").
B. Lessor acknowledges that Lessee intends to operate a Papa John's
restaurant in the leased premises (the "Premises") under a Papa John's Franchise
Agreement (the "Franchise Agreement") with Papa John's International, Inc.
("PJI").
C. The parties now desire to amend the Lease in accordance with the
terms and conditions contained herein.
AGREEMENT:
---------
NOW, THEREFORE, it is hereby mutually covenanted and agreed between
Lessor and Lessee as follows:
1. REMODELING AND DECOR. Lessor agrees that Lessee shall have the
--------------------
right to remodel, equip, paint and decorate the interior of the Premises and to
display such proprietary marks and signs on the interior and exterior of the
Premises as Lessee is reasonably required to do pursuant to the Franchise
Agreement and any successor Franchise Agreement under which Lessee may operate a
Papa John's business in the Premises.
2. ASSIGNMENT. Lessee shall have the right to assign all of its
----------
right, title and interest in the Lease to PJI or any affiliate of PJI at any
time during the term of the Lease, including any extensions or renewals thereof,
without first obtaining Lessor's consent. However, no assignment shall be
effective until such time as PJI or its designated affiliate gives Lessor
written notice of its acceptance of such assignment, and nothing contained
herein or in any other
<PAGE>
document shall constitute PJI or its designated affiliate a party to the Lease,
or guarantor thereof, and shall not create any liability or obligation on PJI
unless and until the Lease is assigned to, and accepted in writing by, PJI.
3. DEFAULT AND NOTICE.
------------------
(a) In the event there is a default or violation by Lessee
under the terms of the Lease, Lessor shall give Lessee and PJI notice of such
default or violation within a reasonable time after Lessor receives knowledge of
its occurrence.
(b) All notices to PJI shall be sent by registered or certified
mail, postage prepaid, to the following address:
Papa John's International, Inc.
P.O. Box 99900
Louisville, Kentucky 40269-9990
Attn: General Counsel
PJI may change its address for receiving notices by giving Lessor written notice
of such new address. Lessor agrees that it will notify both Lessee and PJI of
any change in Lessor's mailing address to which notices should be sent.
4. TERMINATION OR EXPIRATION. Upon the expiration or termination of
-------------------------
either the Lease or the Franchise Agreement, Lessor will allow PJI to enter the
Premises, without being guilty of trespass and without incurring any liability
to Lessor, to remove all signs and other items identifying the Premises as a
Papa John's restaurant and to make such other modifications as are reasonably
necessary to protect PJI's proprietary marks and the Papa John's System, and to
distinguish the Premises from Papa John's restaurants. Provided, however, that
this obligation of Lessor shall be conditioned upon PJI giving Lessor prior
notice of the modifications to be made and the items removed.
5. CONSIDERATION; NO LIABILITY.
---------------------------
(a) Lessor hereby acknowledges that the provisions of this
Addendum to Lease are required pursuant to the Franchise Agreement under which
Lessee plans to operate its busi ness and that Lessee would not lease the
Premises without this Addendum.
(b) Lessor further acknowledges that Lessee is not an agent or
employee of PJI and that Lessee has no authority or power to act for, or to
create any liability on behalf of, or to in any way bind PJI, and that Lessor
has entered into this Addendum to Lease with full understanding that it creates
no duties, obligations or liabilities on or against PJI.
6. AMENDMENTS. No amendment or variation of the terms of this
----------
Addendum to Lease shall be valid unless made in writing and signed by the
parties hereto.
<PAGE>
7. REAFFIRMATION OF LEASE. Except as amended or modified herein, all
----------------------
of the terms, conditions and covenants of the Lease shall remain in full force
and effect and are incorporated herein by reference and made a part hereof as
though copied herein in full.
8. AFFILIATE. As used in this Agreement, the term "Affiliate" shall
---------
mean any person or entity that is owned or controlled by us or which owns and
controls us or is under common control with us.
IN TESTIMONY WHEREOF, witness the signatures of the parties hereto as
of the day, month and year first written above.
______________________________________
By: __________________________________
Title: _______________________________
("Lessor")
______________________________________
By: __________________________________
Title: _______________________________
("Lessee")
<PAGE>
PAPA JOHN'S
FRANCHISE AGREEMENT
EXHIBIT B
---------
ASSIGNMENT OF TELEPHONE NUMBERS AND LISTINGS
--------------------------------------------
THIS ASSIGNMENT is entered into this ___ day of _____________, 19__,
in accordance with the terms of that certain Papa John's International, Inc.
Franchise Agreement (the "FRANCHISE AGREEMENT") between _______________________
("YOU") and Papa John's International, Inc., a Delaware corporation ("WE", "US"
or "PAPA JOHN'S"), executed concurrently with this Assignment, under which we
granted you the right to own and operate a Papa John's restaurant located at
_______________________________________ (the "RESTAURANT").
FOR VALUE RECEIVED, you hereby assign to us, all of your right, title
and interest in and to those certain telephone numbers listed below and regular,
classified or other telephone directory listings (collectively, the "TELEPHONE
NUMBERS AND LISTINGS") associated with our trademarks and service marks and used
from time to time in connection with the operation of the Restaurant at the
address provided above. Except as specified herein, we shall have no liability
or obligation of any kind whatsoever arising from or in connection with this
Assignment, unless we shall notify the telephone company and/or the listing
agencies with which you have placed telephone directory listings (all such
entities are collectively referred to herein as the "TELEPHONE COMPANY") to
effectuate the assignment pursuant to the terms hereof.
PAPA JOHN'S INTERNATIONAL, INC.: YOU:
By: ____________________________ By: ________________________________________
Title: _____________________ Title: _________________________________
Telephone Numbers:
____________________________________________
____________________________________________
____________________________________________
<PAGE>
Exhibit 10.15
----------------------------------------------------
PAPA JOHN'S
DEVELOPMENT AGREEMENT
TEXTRA CHEESE CORP.
P.O. BOX 611165
BIRMINGHAM, ALABAMA 35261-1165
[For the Development of Five Outlets in
Longview, Lufkin, Nacogdoches and Tyler, Texas]
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<C> <S> <C>
1. Grant................................................................... 2
2. Development Fee......................................................... 2
3. Development of Outlets; Schedule for Completion......................... 3
4. Term; Additional Outlets................................................ 5
5. Construction or Remodeling.............................................. 5
6. Organization, Operation and Ownership of Developer...................... 6
7. Covenants of the Developer.............................................. 7
8. Reasonableness of Scope and Duration.................................... 8
9. Enforceability.......................................................... 9
10. Principal Operator...................................................... 9
11. Default and Termination................................................. 10
12. Assignment or Transfer.................................................. 12
13. No Grant of Franchise or Franchise Rights............................... 13
14. Notices................................................................. 13
15. Franchise Agreement Defined............................................. 14
16. Independent Contractor; Indemnification................................. 14
17. Severability; Construction.............................................. 15
18. Entire Agreement........................................................ 15
19. Waivers................................................................. 15
20. Headings................................................................ 15
21. Affiliate............................................................... 16
22. Governing Law, Jurisdiction and Venue................................... 16
23. Acknowledgements........................................................ 17
24. Time of Essence......................................................... 17
COVENANTS OF PRINCIPAL OPERATOR.............................................. 18
</TABLE>
<PAGE>
DEVELOPMENT AGREEMENT
---------------------
THIS DEVELOPMENT AGREEMENT ("Agreement") is made and entered into this
_____ day of June, 1994, by and between PAPA JOHN'S INTERNATIONAL, INC., a
Delaware corporation ("Franchisor"), and TEXTRA CHEESE CORP., a Texas
corporation ("Developer").
RECITALS:
--------
A. Franchisor has expended time, effort and money to develop a unique
system for the operation of retail outlets specializing in carry-out and
delivery of pizza and other food items (the "System").
B. Franchisor's System includes the trade name and trademark "Papa
John's" as well as the trademark "Papa John's Pizza" and certain other
trademarks, service marks, slogans, logos and emblems owned by Franchisor (the
"Marks").
C. Developer desires to obtain certain rights to develop Papa John's
Pizza outlets in the "Development Area" (as defined in Section 1) in accordance
with the terms of this Agreement.
AGREEMENT:
---------
NOW, THEREFORE, in consideration of the covenants and conditions
hereinafter set forth, the parties agree as follows:
<PAGE>
1. GRANT.
(a) Subject to the terms and conditions of this Agreement and the
continuing faithful performance thereof by Developer, Franchisor hereby grants
to Developer the right and obligation to establish five Papa John's Pizza
outlets (at specific locations approved by Franchisor as provided in section
3.(a)). in the areas specified on Exhibit A attached hereto and incorporated
herein by reference. (The Papa John's Pizza outlets are collectively referred to
as the "Outlets" and individually as an "Outlet"; the areas specified on Exhibit
A are collectively referred to as the "Development Area").
(b) Each Outlet shall be established and operated pursuant to a
separate "Franchise Agreement" (as defined in Section 15) to be entered into
between Developer and Franchisor.
(c) Except as may be otherwise provided herein or in the Franchise
Agreements, Franchisor shall not locate, nor license another to locate, a Papa
John's Pizza outlet in the Development Area during the "Term" (as defined in
Section 4.(a)).
(d) This Agreement is not a franchise agreement and does not grant
Developer any franchise rights or other rights to use Franchisor's Marks or
System.
(e) Developer shall have no right to license others to use the Marks
or the System, or to enter into any agreement with respect thereto.
2. DEVELOPMENT FEE. Developer has paid to Franchisor a development fee of
Seventeen Thousand Five Hundred Dollars ($17,500) ("Development Fee") (i.e.
Three Thousand Five Hundred Dollars ($3,500) for each Outlet to be developed),
receipt of which is hereby acknowledged and which Development Fee has been fully
earned by Franchisor, is non-refundable and is not contingent upon the rendering
of any further performance by Franchisor. The Development Fee is in
consideration of, among other
-4-
<PAGE>
things, the development rights granted herein, the reservation of the
Development Area, the development opportunities lost or deferred as a result of
the rights granted Developer herein and the administrative and other expenses
incurred by Franchisor. However, $3,500 of the Development Fee will be credited
against each Initial Franchise Fee at the time it is paid, as provided in
Section 3.(f).
3. DEVELOPMENT OF OUTLETS; SCHEDULE FOR COMPLETION.
(a) Developer shall have the number of Outlets open and operating within
the time frame set forth in subsection 3.(e), below, and Developer shall
exercise each such development right only at locations within the Development
Area which have been approved by Franchisor.
(b) With respect to each proposed location, Developer shall submit a
completed site evaluation form, together with such other information and
materials as Franchisor may reasonably request. Franchisor shall have 30 days
after receipt of such information to accept or reject each proposed location. If
Franchisor fails to respond within such 30 day period, the location submitted by
Developer shall be deemed to be approved. Franchisor will not unreasonably
withhold its approval of a location. Any proposed lease shall include an
addendum in the form of Exhibit A to the Franchise Agreement, or shall contain
terms and conditions substantially similar to those contained in Exhibit A to
the Franchise Agreement which Franchisor approves.
(c) Franchisor shall deliver the Franchise Agreement to Developer within
15 days after Developer provides the address and telephone number for an
approved location. The Franchise Agreement for such location shall be executed
by Developer and submitted to Franchisor within ten days after it is delivered
to Developer.
-5-
<PAGE>
(d) The approval of a location and the delivery of a Franchise Agreement
by Franchisor shall be conditioned upon a determination by Franchisor, in its
reasonable judgment, that:
(i) Developer has the financial and operational capacity to
develop and operate the Outlet;
(ii) the site which Developer has proposed for the Outlet is within
the Development Area and is a suitable site based upon criteria established by
Franchisor from time to time; and
(iii) Developer and its owners are in compliance with this Agreement
and all Franchise Agreements executed pursuant to this Agreement.
(e) Notwithstanding any provision of any Franchise Agreement entered
into between Franchisor and Developer, Developer shall exercise each development
right as follows:
DEVELOPMENT SCHEDULE
<TABLE>
<CAPTION>
Dates on Which Each Cumulative Number of Outlets
Outlet Shall be Open to be Open and Operating*
-------------------- ----------------------------
<S> <C>
October 30, 1994 1
March 1, 1995 2
July 1, 1995 3
November 1, 1995 4
March 1, 1996 5
</TABLE>
[* - Includes only those Outlets to be developed pursuant to this
Development Agreement.]
(f) The Initial Franchise Fee to be paid by Developer for each
Outlet shall be $18,500; provided that $3,500 of the Development Fee shall be
credited against
-6-
<PAGE>
the Initial Franchise Fee. The net amount of the Initial Franchise Fee
($15,000) shall be paid at the time each Franchise Agreement is executed.
(g) It shall be Developer's responsibility to ensure that each Outlet is
constructed or remodeled, and equipped and operated in compliance with all laws,
ordinances and governmental rules and regulations, and Developer shall obtain
all necessary permits and licenses relating thereto.
4. TERM; ADDITIONAL OUTLETS.
(A) TERM. Unless sooner terminated as provided herein, this Agreement
shall expire on the earlier to occur of: (i) the date on which all the Outlets
have been developed, or (ii) 12:00 midnight on the last date set forth on the
Development Schedule (the "Term"). Upon the termination or expiration of this
Agreement, all unexercised development rights shall expire.
(B) ADDITIONAL OUTLETS. Provided this Agreement has not been terminated,
Franchisor shall have the right during the one-year period following the
expiration of the Term to request Developer to develop one additional Outlet in
the Development Area. Such decision shall be based on demographics and other
reasonable factors. If Franchisor determines Developer should develop such
additional Outlet, the parties shall enter into a development agreement in the
same form as this Agreement. Such Agreement shall provide: (i) for a
Development Fee of $3,500, and (ii) a Development Schedule requiring the Outlet
to be opened within one hundred fifty (150) days from the date of the
Development Agreement. The Outlet shall be operated pursuant to a franchise
agreement in the same form as the Franchise Agreement entered into pursuant to
this Agreement (including that the Franchise Fee shall be $18,500 against which
the $3,500 Development Fee shall be credited). However, notwithstanding the
foregoing, if Franchisor requests Developer to develop one additional outlet and
Developer decides not to do so, Franchisor shall have the right to develop such
Outlet or grant a third party a
-7-
<PAGE>
Development Agreement to develop the Outlet in the area where Franchisor
requested Developer to establish the additional Outlet, regardless of the
"Territory" under any Franchise Agreement between Franchisor and Developer.
5. CONSTRUCTION OR REMODELING. Developer shall, at its own expense,
construct or remodel the Outlet at each location in accordance with
specifications provided by Franchisor. Developer shall allow Franchisor and its
agents and employees access to all areas of the premises of each Outlet at such
times as they may reasonably request and Developer shall cooperate fully with
Franchisor and its agents and employees in preparing specifications for each
Outlet to be developed hereunder. However, it shall be Developer's obligation
to have plans drawn showing the layout on all equipment, signs and leasehold
improvements, and such plans shall be subject to Franchisor's approval.
Developer shall not begin construction or remodeling on any Outlet until the
Franchise Agreement has been fully executed and Franchisor has approved the
plans for such Outlet.
6. ORGANIZATION, OPERATION AND OWNERSHIP OF DEVELOPER. If Developer is a
corporation or other entity:
(a) If requested by Franchisor from time to time, Developer shall furnish
Franchisor with its Articles of Incorporation, By-Laws and other governing
documents (and any amendments or modifications thereof), minutes and resolutions
and all agreements or other documents, records and information pertaining to
Developer's existence and operation.
(b) Developer shall confine its business activities exclusively to the
establishment, management and operation of Papa John's Pizza outlets pursuant to
agreements with Franchisor.
(c) Developer shall, concurrently with the execution of this Agreement,
and at such other times as may be requested by Franchisor, disclose the name and
address
-8-
<PAGE>
of each person or entity owning a beneficial interest in Developer, and
Developer shall not issue any additional securities, nor allow the "transfer"
(as defined in Section 12) of any of its outstanding securities, except as
provided in Section 12.
(d) Developer shall at all times comply with all laws, ordinances, rules
and regulations of governmental bodies.
(e) Developer shall cause all persons or entities owning any interest in
Developer to execute the Guaranty of Franchisee's Obligations, Confidentiality
and Non-Competition Agreement and Ownership Restriction Agreement in the form
provided by Franchisor.
7. COVENANTS OF THE DEVELOPER.
(A) COVENANT NOT-TO-COMPETE. Developer covenants and agrees that during
the Term and for a period of two years after the expiration or termination of
this Agreement, regardless of the cause for such expiration or termination (the
"Restricted Period"), Developer shall not, anywhere within either (i) the
boundaries of the Development Area or (ii) a 10-mile radius of any business
location at which the Developer, Franchisor or an "Affiliate" (as defined in
Section 21) then conducts a Papa John's Pizza business, engage in any of the
following activities:
(i) directly or indirectly enter into the employ of, render any
service to or act in concert with any person, partnership, corporation or other
entity that owns, operates, manages, franchises or licenses any business that
(A) sells pizza or other non-pizza products (excluding soft drinks) that are the
same as those sold by Papa John's Pizza outlets on a delivery basis, or (B)
sells pizza or any such other products primarily on a carry-out basis,
including, without limitation, business formats such as Domino's, Pizza Hut, Mr.
Gatti's, Sbarro and Little Caesars (a "Competitive Business"), or
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<PAGE>
(ii) directly or indirectly engage in any such Competitive Business
on its own account, or
(iii) become interested in any such Competitive Business directly or
indirectly as a partner, shareholder, principal, agent, consultant or in any
other relationship or capacity; provided, that the purchase of a publicly traded
security of a corporation engaged in such business or service shall not in
itself be deemed violative of this Agreement so long as Developer does not own,
directly or indirectly, more than 1% of the securities of such corporation.
To the extent required by the laws of the state in which the Outlets are to be
developed, the duration or the geographic areas included within the foregoing
covenants, or both, shall be deemed amended in accordance with Section 17.
(B) APPROPRIATION AND DISCLOSURE OF INFORMATION. Except as permitted by
the Franchise Agreement, Developer will not at any time use, copy or duplicate
the System or any aspect thereof, or any of the Franchisor's trade secrets,
recipes, processes, formulas, know-how or proprietary ideas or information, nor
will Developer convey, divulge, make available or communicate such information
to any third party or assist others in using, copying or duplicating any of the
foregoing.
(C) INFRINGEMENT. Developer will not at any time commit any act that
would infringe upon or impair the value of the System or the Marks, nor will it
engage in any business or market any product or service under a trade-name,
trademark, service mark, logo or design that is confusingly or deceptively
similar to any of the Marks.
(D) SOLICITATION OF EMPLOYEES. Developer agrees that from and after the
date hereof, it will not solicit, entice or induce, directly or indirectly, any
employee of the Franchisor or an Affiliate to leave the employment of the
Franchisor or an Affiliate
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to work with Developer or with any person or entity with whom Developer is or
becomes affiliated.
8. REASONABLENESS OF SCOPE AND DURATION. Developer agrees that the
covenants and agreements contained herein are, taken as a whole, reasonable with
respect to the activities covered and their geographic scope and duration, and
it shall not raise any issue of the reasonableness of the areas, activities or
duration of any such covenants in any proceeding to enforce any such covenants.
9. ENFORCEABILITY. Developer agrees that the Franchisor may not be
adequately compensated by damages for a breach by Developer of any of the
covenants and agreements contained herein, and that the Franchisor shall, in
addition to all other remedies, be entitled to injunctive relief and specific
performance. The covenants and agreements contained in this Agreement shall be
construed as separate covenants and agreements, and if any court shall finally
determine that the restraints provided for in any such covenants and agreements
are too broad as to the area, activity or time covered, said area, activity or
time covered may be reduced to whatever extent the court deems reasonable, and
such covenants and agreements shall be enforced as to such reduced area,
activity or time.
10. PRINCIPAL OPERATOR. Developer shall designate an individual to serve as
the "Principal Operator" of Developer. The Principal Operator shall meet the
following qualifications:
(a) The Principal Operator shall own at least a five percent (5%) equity
interest in the Developer, provided that Developer shall not be in default if
the Principal Operator is entitled to a bonus of not less than five percent (5%)
of the net profits of the Outlet, payable after the end of each Period, and also
has the right to acquire not less than a five percent (5%) equity interest in
the Developer within 12 months of his or her hire date, which rights shall be
evidenced by a written agreement between the Principal
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Operator and the Developer. Developer shall provide Franchisor with a copy of
any such agreement upon request. Once the Principal Operator has acquired an
equity interest in Developer, he or she must continue to own that interest (or a
greater interest) during the entire period he or she serves as the Principal
Operator.
(b) The Principal Operator shall devote full time and best efforts to the
supervision and conduct of the development and operation of the Outlets
contemplated hereunder and shall execute the Covenants of Principal Operator
attached hereto.
(c) The Principal Operator shall be a person approved by Franchisor who
shall complete Franchisor's initial training requirements and who shall
participate in and complete to Franchisor's satisfaction all additional training
as may be reasonably designated by Franchisor.
If, at any time or for any reason, the Principal Operator no longer qualifies
to act as such, Developer shall promptly designate another Principal Operator
subject to the same qualifications listed above. Developer shall immediately
notify Franchisor of the termination of the Principal Operator's employment with
Developer, whether voluntary or involuntary.
11. DEFAULT AND TERMINATION.
(a) AUTOMATIC TERMINATION. Developer shall be deemed to be in default
hereunder, and this Development Agreement and all rights granted herein shall
automatically terminate without notice to Developer, (i) if Developer becomes
insolvent or makes a general assignment for the benefit of creditors; or if a
petition in bankruptcy is filed by Developer; or (ii) such a petition is filed
against and not opposed by Developer; or (iii) if Developer is adjudicated as
bankrupt or insolvent; or (iv) if a bill in equity or other proceeding is filed
for the appointment of a receiver or other custodian for Developer's business or
assets if filed and consented to by Developer; or (v) if a receiver or
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other custodian (permanent or temporary) of Developer's assets or property, or
any part thereof, is appointed by any court of competent jurisdiction; or (vi)
if proceedings for a composition with creditors under any state or federal law
should be instituted by or against Developer; or (vii) if a final judgment
remains unsatisfied or of record for thirty (30) days or longer (unless
supersedeas bond is filed); or (viii) if Developer is dissolved; or (ix) if any
portion of Developer's interest in any Papa John's Pizza franchise becomes
subject to an attachment, garnishment, levy or seizure by any creditor or any
other person claiming against or in the rights of Developer; or (x) if execution
is levied against Developer's business or property; or (xi) if the real or
personal property of any Outlet shall be sold after levy thereupon by any
sheriff, marshal, or constable.
(b) WITHOUT NOTICE. Developer shall be in default under this Agreement,
and Franchisor may, at its option, terminate this Agreement and all rights
granted hereunder without affording Developer any opportunity to cure such
default, effective upon the earlier of (i) receipt of the notice of termination
by Developer, or (ii) five days after mailing of such notice by Franchisor, upon
the occurrence of any of the following events:
(i) if Developer fails to strictly comply with the development
schedule set forth in Section 3;
(ii) if any Franchise Agreement entered into pursuant to this
Agreement or otherwise is terminated as a result of a breach or default
thereunder by Developer;
(iii) if Developer makes or attempts to make any transfer, whether
voluntary or involuntary, of this Agreement or any interest herein, or of any
rights or obligations arising hereunder, or of any interest in Developer, or of
any material portion of Developer's assets, without Franchisor's prior written
consent, except as otherwise provided under the Franchise Agreement; or
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(iv) if Developer fails to comply with any of the covenants of
Developer set forth in Sections 7 and 8 of this Agreement.
(c) WITH NOTICE. For any other breach or default under this Agreement,
Franchisor will provide Developer with written notice of default and 15 days to
cure or, if a default cannot be reasonably be cured within 15 days, to initiate
within that time substantial and continuing action to cure such default and to
provide Franchisor with evidence of such actions. If the defaults specified in
such notice are not cured within the 15 day period, or if substantial and
continuing action to cure has not been initiated, Franchisor may, at its option,
terminate this Development Agreement and all rights granted Developer hereunder
by giving written notice of such termination to Developer. The notice of
termination shall be effective on the earlier of (i) the date of receipt of the
notice by Developer or (ii) five days after the mailing of such notice by
Franchisor.
(d) EFFECT OF TERMINATION. Upon termination of this Agreement, all
rights of Developer hereunder shall terminate and Developer shall have no
further right to establish any Outlets. In addition, upon termination of this
Agreement, Franchisor shall have the right to open and operate, or to franchise
others to open and operate, Papa John's Pizza outlets anywhere within the
Development Area, except that Franchisor may not locate or franchise another to
locate a Papa John's Pizza Outlet within the "Territory" provided for in any
Franchise Agreement that remains in effect after the date of termination.
12. ASSIGNMENT OR TRANSFER.
(a) TRANSFER BY FRANCHISOR. Franchisor shall be free to transfer this
Agreement or any portion hereof, or any or all of its rights, obligations or
interests hereunder, without restriction. Upon any transfer or assignment of
this Agreement by Franchisor, Franchisor shall be released from all obligations
and liabilities arising or accruing in connection with this Agreement after the
date of such transfer of assignment.
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(b) TRANSFER BY DEVELOPER. This Agreement, and the rights and
obligations of Developer herein, are and shall remain personal to Developer. Any
proposed transfer by Developer or any owner of Developer (regardless of the form
of transfer) shall be subject to the same terms and conditions contained in the
Franchise Agreement. As used herein, the term "transfer" shall mean any sale,
assignment, gift, pledge, mortgage or any other encumbrance, transfer by
bankruptcy, transfer by judicial order, merger, consolidation, share exchange,
transfer by operation of law or otherwise, whether direct or indirect, voluntary
or involuntary, of this Agreement or any interest herein, or any rights or
obligations arising hereunder, or of any material portion of Developer's assets,
or of any interest in Developer.
13. NO GRANT OF FRANCHISE OR FRANCHISE RIGHTS. This Agreement does not grant
Developer a franchise or any rights of a Papa John's franchisee. To the fullest
extent permissible by law, Developer waives the applicability of any law which
would constitute this Agreement or any rights granted hereunder as a franchise
agreement or as granting any franchise rights.
14. NOTICES. All notices, requests, demands and other communications
required or permitted to be given or made under this Agreement shall be in
writing and shall be given (i) by personal delivery or (ii) provided such
notice, request, demand or communication is actually received by the party to
which it is addressed in the ordinary course of delivery, by deposit in the
United States mail, postage prepaid, or (iii) by registered or certified mail,
return receipt requested, postage prepaid, or by delivery to a nationally-
recognized overnight courier service, in each case, addressed as follows, or to
such other person or entity as either party shall designate by notice to the
other in accordance herewith:
Franchisor: 11492 Bluegrass Parkway, Suite 175
Louisville, Kentucky 40299-2370
ATTN: General Counsel
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Developer: P.O. Box 611165
Birmingham, Alabama 35261-1165
ATTN: Doug Stephens
Except as otherwise provided herein, a notice shall be deemed to have been
given on the date of personal delivery to a party or the date deposited in the
United States mail or with a nationally-recognized overnight courier.
15. FRANCHISE AGREEMENT DEFINED. As used herein, the term "Franchise
Agreement" shall mean the form of Papa John's Franchise Agreement (for the
initial Outlet) or Short Form Franchise Agreement (for each subsequent Outlet)
to be executed for each Outlet developed hereunder and all attachments and
exhibits thereto.
16. INDEPENDENT CONTRACTOR; INDEMNIFICATION.
(a) It is understood and agreed by the parties that this Agreement
creates only a contractual relationship between the parties subject to the
normal rules of contract law. This Agreement does not create a fiduciary
relationship between the parties. Developer is and shall remain an independent
contractor, and nothing in this Agreement is intended to constitute either party
an agent, legal representative, subsidiary, joint venturer, partner, employee or
servant of the other for any purpose whatsoever. Developer agrees to hold
itself out to the public as an independent contractor, separate and apart from
Franchisor. This Agreement shall not be deemed to confer any rights to any
person or entity not expressly named herein.
(b) Developer agrees that it shall not make any contract, agreement,
warranty or representation on Franchisor's behalf without Franchisor's prior
written consent, and Developer agrees that it shall not incur any debt or other
obligation in Franchisor's name. Franchisor shall not be liable by reason of
any act or omission of Developer in connection with the development,
construction, remodeling or operation of
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<PAGE>
any Outlet, or for any claim or judgment arising therefrom against Developer or
Franchisor.
(c) Developer agrees to hold harmless, defend and indemnify
Franchisor and its officers, directors, agents and employees from and against
all losses, expenses, judgments, claims and damages arising out of or in
connection with any claim or cause of action in which Franchisor shall be a
named defendant and which arises, directly or indirectly, out of the
development, construction, remodeling or operation of any Outlet by Developer.
17. SEVERABILITY; CONSTRUCTION. Developer agrees to be bound to the
maximum extent permitted by law which is subsumed within the terms of any
provision hereof, as though it were separately articulated herein and made a
part of this Agreement, that may result from the striking of any provision
hereof by a court, or which a court holds to be unenforceable in a final
decision to which Franchisor is a party, or that may result from reducing the
scope of any provision to the extent required to comply with a court order or
with any state or federal law, whether currently in effect or subsequently
enacted. During any period in which any of the covenants in Section 7.(a),
above, is being breached or violated, including any period in which either of
the parties seeks judicial enforcement, interpretation or modification of any
such covenant, and all appeals thereof, the Restricted Period shall toll and be
suspended.
18. ENTIRE AGREEMENT. This Agreement and the Covenants of Principal
Operator attached hereto, and the documents incorporated herein by reference,
comprise the entire agreement between the parties and all prior understandings,
communications and agreements concerning the subject matter hereof are canceled
and superseded by this Agreement. No supplement, amendment or variation of the
terms of this Agreement shall be valid unless made in writing and signed by both
parties hereto.
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19. WAIVERS. No failure of either party hereto to exercise any right given
to it hereunder, or to insist upon strict compliance by the other with any
obligation, agreement or undertaking hereunder, and no custom or practice of the
parties at variance with the terms hereof shall constitute a waiver of such
party's right to demand full and exact compliance by the other with the terms
hereof. The waiver or excuse by Franchisor of any particular default of
Developer shall not affect or impair Franchisor's rights with respect to any
subsequent default of the same or of a different nature, nor shall any delay or
omission of Franchisor to exercise any right arising from such default affect or
impair Franchisor's rights as to such default or any subsequent default.
20. HEADINGS. The headings used in this Agreement are for convenience
only, and this Agreement shall be interpreted as if such headings were omitted.
21. AFFILIATE. As used herein, the term "Affiliate" shall mean any person
or entity that is a Papa John's Pizza franchisee of Franchisor or any
sublicensor of Franchisor.
22. GOVERNING LAW, JURISDICTION AND VENUE.
(a) Unless expressly prohibited by the laws of the state in which the
Outlets are to be developed, this Agreement shall be interpreted and construed
under the laws of the Commonwealth of Kentucky, which laws shall prevail in the
event of any conflict of law.
(b) Unless expressly prohibited by the laws of the state in which the
Outlets are to be developed, the Franchisee agrees that any action, claim, suit
or proceeding brought by Franchisee and arising under this Agreement or
concerning the interpretation hereof shall be filed in the court of proper
jurisdiction located in Jefferson County, Kentucky, and Developer irrevocably
consents and submits to personal jurisdiction and venue in and by the state
courts within Jefferson County, Kentucky. With
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respect to any action, claim, suit or proceeding brought by Franchisor and
arising under this Agreement or concerning the interpretation hereof, such
action may be filed in state or federal court in Jefferson County, Kentucky or
any other court of competent jurisdiction, and in any such suit brought in
Kentucky, Developer does hereby waive all defenses of personal jurisdiction,
venue and forum non conveniens. Developer agrees that it may be served with
process in any action in accordance with the terms of the notice provision of
this Agreement.
(c) No right or remedy conferred upon or reserved to Franchisor by
this Agreement is intended to be, nor shall be deemed, exclusive of any other
right or remedy herein provided or permitted by law or equity, but each shall be
cumulative of every other right or remedy. In any action, claim, suit or
proceeding arising out of this Agreement, each party shall pay its own costs,
expenses and attorneys' fees.
23. ACKNOWLEDGEMENTS.
(a) Developer acknowledges that the success of the businesses
contemplated by this Agreement involves substantial business risks and will be
dependent upon the ability of Developer or those controlling Developer as
independent businessmen. Franchisor expressly disclaims the making of, and
Developer acknowledges not having received, any warranty or guarantee, express
or implied, as to the potential volume, profits or success of the businesses
contemplated by this Agreement.
(b) Developer acknowledges that it received the "Papa John's
Franchise Offering Circular" (and all attachments thereto) at least ten business
days prior to the date on which this Agreement was signed or any monies were
paid to Franchisor by Developer, and that it has read and understood this
Agreement and the attachments hereto. Developer further acknowledges that
Franchisor has accorded Developer ample time and opportunity to consult with
advisors of Developer's own choosing about the potential benefits and risks of
entering into this Agreement.
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24. TIME OF ESSENCE. Developer agrees and acknowledges that time is of the
essence with regard to Developer's obligations hereunder, and that all of
Developer's obligations are material to Franchisor and this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Development Agreement as of the day, month and year first written above.
PAPA JOHN'S INTERNATIONAL, INC.
By: _____________________________________
J. Daniel Holland, President
("Franchisor")
TEXTRA CHEESE CORP.
By: _____________________________________
Douglas Stephens, President
("Developer")
COVENANTS OF PRINCIPAL OPERATOR
-------------------------------
The undersigned shall be the Principal Operator referred to in Section 10 of
the foregoing Development Agreement. The undersigned has read the Development
Agreement and agrees to be individually bound by the obligations set forth in
Sections 7, 8, 9 and 10 thereof, and upon becoming an owner of the
Developer, to also be bound by Section 12.
____________________________________ DATE: _______________________
JAMES BRADSHAW
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<PAGE>
PAPA JOHN'S
DEVELOPMENT AGREEMENT
EXHIBIT A
---------
DEVELOPMENT AREA
----------------
June __, 1994
The areas encompassed by the following listed zip codes in Longview, Lufkin,
Nacogdoches and Tyler, Texas, shall comprise the "Development Area," as defined
in the foregoing Papa John's Development Agreement of even date herewith, by and
between PAPA JOHN'S INTERNATIONAL, INC. ("Franchisor") and TEXTRA CHEESE CORP.
("Developer"):
Zip Code
--------
75601 75702 75707
75602 75703 75708
75603 75704 75709
75604 75705 75901
75605 75706 75961
75701
NUMBER OF OUTLETS TO BE DEVELOPED 5
PAPA JOHN'S INTERNATIONAL, INC.
By: _____________________________________
J. Daniel Holland, President
TEXTRA CHEESE CORP.
By: _____________________________________
Douglas Stephens, President
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EXHIBIT 10.16
________________________________________________________________________________
PAPA JOHN'S
FRANCHISE AGREEMENT
TEXTRA CHEESE CORP.
2702 NORTH STREET
NACOGDOCHES, TEXAS 75961
________________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
RECITALS......................................................... 1
1. Grant....................................................... 1
2. Term, Renewal and Expiration................................ 2
3. Franchise Fees and Payments................................. 4
4. Franchisor Services......................................... 5
5. Territorial Provisions...................................... 6
6. Premises.................................................... 6
7. Proprietary Marks........................................... 8
8. Advertising................................................. 9
9. Telephone Number............................................ 13
10. Construction, Design and Appearance; Equipment.............. 13
11. Operations; Standards of Quality; Inspections............... 14
12. Products; Commissary; Menu.................................. 17
13. Accounting and Reports...................................... 18
14. Transfers; Franchisor's Right of First Refusal.............. 19
15. Death, Incapacity or Dissolution............................ 22
16. Additional Covenants of Franchisee.......................... 23
17. Trade Secrets and Confidential Information.................. 25
18. Insurance................................................... 25
19. Termination by Franchisor................................... 26
</TABLE>
<PAGE>
<TABLE>
<S> <C>
20. Obligations upon Termination or Expiration.................. 29
21. Independent Contractor; Indemnification..................... 30
22. Franchisee Representations.................................. 31
23. Governing Law, Jurisdiction and Venue....................... 32
24. Notices..................................................... 33
25. Miscellaneous............................................... 33
EXHIBIT A........................................................ 36
</TABLE>
<PAGE>
PAPA JOHN'S
FRANCHISE AGREEMENT
-------------------
SINGLE LOCATION FRANCHISE
THIS FRANCHISE AGREEMENT ("Agreement") is made and entered into as of the
_____ day of September, 1994, by and between PAPA JOHN'S INTERNATIONAL, INC., a
Delaware corporation ("Franchisor"), and TEXTRA CHEESE CORP., a Texas
corporation ("Franchisee").
RECITALS:
--------
A. Franchisor has expended time, money and effort to develop a unique
system for operating retail outlets specializing in carry-out and delivery of
pizza and other food items. (The methods of operation are referred to herein as
the "System"; the chain of current and future Papa John's Pizza outlets are
referred to as the "Papa John's Pizza Chain" or the "Chain.")
B. The distinguishing characteristics of the System include the name
"Papa John's," special recipes for the making of pizza and other foods, unique
interior and exterior building design and appearance, the use of only top-
quality ingredients, and consistency and uniformity of products and services,
all of which may be improved, amended and further developed by Franchisor from
time to time.
C. Franchisor identifies its goods and services with certain service
marks, trade names and trademarks, including, but not limited to, "Papa John's,"
"Papa John's Pizza," and "Pizza Papa John's Delivering the Perfect Pizza!" as
-------
well as certain other trademarks, service marks, slogans, logos and emblems
which have been and which may hereafter be designated by Franchisor for use in
connection with the System (the "Marks").
D. Franchisor and Franchisee now desire to enter into this Agreement
regarding the operation of one Papa John's Pizza outlet under the System and the
Marks at the location listed below (the "Outlet").
NOW, THEREFORE, the parties agree as follows:
1. GRANT. Subject to the terms and conditions of this Agreement and the
-----
continuing faithful performance thereof by the Franchisee, Franchisor hereby
grants to
<PAGE>
Franchisee the non-exclusive right and franchise (the "Franchise") to operate
one retail outlet under the System and the Marks which shall be located at:
2702 North Street
Nacogdoches, Texas 75961
(the "Location")
Pursuant to this grant, Franchisee, at its own expense, shall construct or
remodel, and equip, staff, open and operate the Outlet at the Location. Unless
otherwise agreed, the Franchisee shall commence operating the Outlet within 60
days after the execution of this Agreement, and shall diligently operate such
business in accordance with this Agreement for the Term stated herein.
2. TERM, RENEWAL AND EXPIRATION.
----------------------------
(A) INITIAL TERM. The Franchise shall be for a term of ten (10)
------------
years from the date of this Agreement, unless sooner terminated as provided
herein (the "Initial Term").
(B) RENEWAL OF AGREEMENT. This Agreement shall not automatically
--------------------
renew upon the expiration of the Initial Term. Franchisee may, however, renew
this Agreement for one additional five (5) year term ("Renewal Term") if, and
only if, each and every one of the following conditions has been satisfied:
(I) Franchisee has given Franchisor written notice of its
desire to renew the Franchise not less than three months nor more than six
months prior to the end of the Initial Term; provided that if Franchisor has not
received notice from Franchisee of its desire to renew within such period,
Franchisor will notify Franchisee and Franchisee shall have a period of 10 days
thereafter within which to submit the renewal notice;
(II) Franchisee shall be in full compliance with this Agreement
and there shall be no uncured default by Franchisee hereunder, and there shall
have been no series of defaults by Franchisee during the Initial Term (i.e., an
abnormal frequency of defaults or a default that has occurred repeatedly, or a
combination thereof), whether or not such defaults were cured, and all debts and
obligations of Franchisee under this Agreement shall be current, including
Franchisee's obligations to the Marketing Fund and each Cooperative of which
Franchisee is a member;
(III) Franchisee secures the right to continue possession of the
Premises for a period at least equal to the Renewal Term, or alternatively
Franchisee secures premises at another location approved by Franchisor for the
same period;
(IV) Franchisee executes and delivers to Franchisor a general
release, in the form prescribed by Franchisor, releasing, to the fullest extent
permitted
<PAGE>
under the laws of the state where the Outlet is located, all claims that
Franchisee may have against Franchisor and its affiliates and subsidiaries, and
their respective officers, directors, shareholders and employees in both their
corporate and individual capacities.
(C) TERM. As used in this Agreement, "Term" shall mean the Initial
----
Term or the Renewal Term, as the case may be.
(D) RENEWAL OF FRANCHISE. This Agreement shall not automatically
--------------------
renew and Franchisee shall not have an option to renew this Agreement upon the
expira tion of the Renewal Term, if applicable. Franchisee may, however, renew
the Franchise if, and only if, each and every one of the following conditions
has been satisfied:
(I) Franchisee has given Franchisor written notice of its
desire to renew the Franchise not less than three months nor more than six
months prior to the end of the Renewal Term; provided that if Franchisor has not
received notice from Franchisee of its desire to renew within such period,
Franchisor will notify Franchisee and Franchisee shall have a period of 10 days
thereafter within which to submit the renewal notice;
(II) Franchisee shall be in full compliance with this Agreement
and there shall be no uncured default by Franchisee hereunder, nor any series of
defaults by Franchisee during the Term whether or not such defaults were cured,
and all debts and obligations of Franchisee under this Agreement shall be
current, including Franchisee's obligations to the Marketing Fund and each
Cooperative of which Franchisee is a member;
(III) Franchisee executes and delivers to Franchisor, within 30
days after delivery to Franchisee, the form of Papa John's Franchise Agreement
being offered to new franchisees on the date Franchisee gives the notice under
Section 2.(d)(i), above, including all exhibits and Franchisor's other then-
current ancillary agreements, which agreements shall supersede this Agreement in
all respects, and the terms and conditions of which may substantially differ
from this Agreement; provided that such Franchise Agreement shall provide for a
term of not less than ten (10) years;
(IV) Franchisee secures the right to continue possession of the
Premises for a period at least equal to the term of the Franchise Agreement to
be executed as provided in Section 2.(d)(iii), above, or alternatively
Franchisee secures premises at another location approved by Franchisor for the
same period;
(V) Franchisee has paid to Franchisor a renewal fee equal to
$2,000;
(VI) Franchisee executes and delivers to Franchisor a general
release, in the form prescribed by Franchisor, releasing, to the fullest extent
permitted under the laws of the state where the Outlet is located, all claims
that Franchisee may have against Franchisor and its affiliates and subsidiaries,
and their respective officers,
<PAGE>
directors, shareholders and employees in both their corporate and individual
capacities; and
(VII) Franchisee shall make, or provide for in a manner
satisfactory to Franchisor, such renovation and re-equipping of the Outlet as
Franchisor may require, including, without limitation, renovation or replacement
of signs, equipment, furnishings, fixtures and decor, to reflect the then-
current standards and image of the System; provided, however, that substantial
renovation and re-equipping shall not be required if Franchisee has
substantially renovated the Outlet within the two-year period immediately
preceding the end of the Renewal Term.
(E) EXPIRATION. Renewal of the Franchise after the Renewal Term
----------
shall not constitute a renewal or extension of this Agreement, but shall be
conditioned upon satisfaction of the above provisions and shall, upon expiration
of the Renewal Term, be governed by the Franchise Agreement then executed by
Franchisee. If Franchisee fails to meet any of the conditions under
Section 2.(b) above with respect to the renewal of this Agreement, or under
Section 2.(d) above with respect to renewal of the Franchise, then the Franchise
shall automatically expire at the end of the Initial Term or the Renewal Term,
as the case may be.
3. FRANCHISE FEES AND PAYMENTS.
---------------------------
(A) INITIAL FRANCHISE FEE AND ROYALTIES. In consideration of the
-----------------------------------
grant of the Franchise, Franchisee agrees to pay Franchisor the following fees:
(I) An Initial Franchise Fee of $18,500 which shall be paid
upon the execution of this Agreement and which shall be deemed fully earned and
is non-refundable.
(II) A continuing royalty (the "Royalty") of four percent
(4.0%) of the "Net Sales" of the Outlet for each "Period" (as defined in Section
13); provided that any time after the fifth (5th) anniversary date of this
Agreement Franchisor may increase the Royalty to as much as five percent (5%) of
Net Sales for the remainder of the Initial Term and the Renewal Term, if
applicable. However, Franchisor may increase the Royalty only if Franchisor's
form of Franchise Agreement being offered to new Papa John's Pizza franchisees
at the time of the increase provides for a Royalty equal to or greater than five
percent (5%). Net Sales shall mean the gross sales of the Outlet (whether such
sales are evidenced by cash, check, credit, charge account or otherwise), less
sales tax collected on such sales and paid to the State. The Royalty is due on
the tenth (10th) day of the month following each Period.
(B) PAYMENTS. Prior to the opening of the Outlet (and thereafter as
--------
requested by Franchisor), Franchisee shall execute and deliver to Franchisor and
Franchisee's bank all forms and documents that may be required to permit
Franchisor to debit Franchisee's bank account (either by check or
electronically) the amount of each Period's Royalty. The Royalty shall be
debited on the 10th of each month, or if the 10th
<PAGE>
falls on a weekend or bank holiday, then on the next business day. Franchisee
shall report its Net Sales for each Period by telephone or in writing on or
before the seventh (7th) day of the month following each Period. Such reporting
shall be in addition to all other reporting requirements under Section 13. If
Franchisee fails to report its Net Sales on a timely basis, Franchisor may
estimate the Net Sales of the Outlet for such Period and debit Franchisee's bank
account the amount of the Royalty based on such estimate. If an estimate results
in an overpayment, Franchisor shall deduct the amount of the overpayment from
the next Period's Royalty. Any deficiency resulting from such estimate may be
added to the next Royalty payment due and debited against Franchisee's bank
account. Franchisee shall notify Franchisor at least 15 days prior to closing or
making any change to the account against which such debits are to be made. If
such account is closed or ceases to be used, Franchisee shall immediately
provide all documents and information necessary to permit Franchisor to debit
the amounts due from an alternative account. Franchisee acknowledges that the
foregoing requirements are only a method to facilitate prompt and timely payment
of amounts due and shall not affect any obligation or liability of the parties
for amounts owed. If for any reason Franchisee's account cannot be debited,
Franchisee shall submit its payments by check (certified or cashier's check if
requested by Franchisor) on or before the dates when due. Franchisee shall
indemnify and hold Franchisor harmless from and against all damages, losses,
costs and expenses resulting from any dishonored debit against Franchisee's
account, regardless whether resulting from the act or omission of Franchisee or
Franchisee's bank; provided that Franchisee shall not be obligated to indemnify
Franchisor for any dishonored debit caused by Franchisor's negligence or
mistake.
4. FRANCHISOR SERVICES. During the Term, Franchisor agrees to provide to
-------------------
Franchisee the following services:
(A) specifications for the design of the Outlet and related
facilities to be used in the operation of the Outlet;
(B) specifications for fixtures, furnishings, decor, signs and
equipment;
(C) the names and addresses of designated and approved suppliers, and
standards and specifications for (i) all food products, beverages, ingredients
and cooking materials sold from or used in the operation of the Outlet, and (ii)
all containers, boxes, cups, packaging, menus, uniforms and other products and
materials used in connection with the operation of the Outlet;
(D) a pre-opening management training program for the "Principal
Operator" (as defined in Section 11.(a)) and one or more approved managers, and
such other persons as Franchisor may reasonably designate, and such other
training for employees of Franchisee at the locations and for such periods as
may be designated by Franchisor from time to time; provided that Franchisee
shall be responsible for all expenses incurred by such persons in connection
with training, including, without limitation, all costs of travel, lodging,
means and wages;
<PAGE>
(E) Franchisor's supervision and periodic inspections and evaluations
of the Franchisee's operation as described more fully in Section 11.(j), which
supervision, inspections and evaluations shall be conducted at such times and in
such manner as shall be reasonably determined by Franchisor; and
(F) Franchisor shall communicate to Franchisee information relating
to the operation of a Papa John's Pizza outlet, and to the extent necessary or
pertinent to the operation of the Outlet, Franchisor's know-how, new
developments, techniques and improvements in the areas of restaurant management,
employee training, marketing and food preparation and service.
5. TERRITORIAL PROVISIONS.
----------------------
(A) TERRITORY. Subject to the provisions of this Section 5,
---------
Franchisor agrees that during the Term it will not locate nor license another to
locate a Papa John's Pizza outlet within a two-mile radius of the Location;
provided that in no event shall this radius extend outside the boundaries of the
"Development Area" as defined in the Development Agreement pursuant to which the
parties are entering into this Agreement (the "Territory"). Franchisor does not
warrant or represent that no other Papa John's Pizza outlet will solicit or make
any sales within the Territory, and Franchisee hereby expressly acknowledges and
agrees that such solicitations or sales may occur within the Territory.
Franchisor shall have no duty to protect Franchisee from any such sales,
solicitations, or attempted sales. Franchisee recognizes and acknowledges that
(i) it will compete with other Papa John's Pizza outlets which are now, or which
may in the future be, located near or adjacent to Franchisee's Territory, and
(ii) that such outlets may be owned by Franchisor or third parties, or both.
(B) OTHER BUSINESSES. Franchisee understands and agrees that
----------------
Franchisor reserves the right, either directly or through affiliated entities,
to operate or franchise or license others to operate or franchise, restaurants,
food establishments or businesses other than Papa John's Pizza outlets and
Franchisee agrees that Franchisor and its affiliates may do so within the
Territory; provided, that such restaurants or food establishments do not sell
pizza on a delivery basis, or primarily on a carry-out basis.
(C) OTHER METHODS OF DISTRIBUTION. Franchisor also reserves the
-----------------------------
right, directly or through third parties, to manufacture or sell, or both,
within the Franchisee's Territory, pizza and other products which are the same
as or similar to those sold in Papa John's Pizza outlets using brand names which
are the same as, or similar to, the Marks, provided that such items are not sold
through restaurant outlets or on a pre-cooked, ready-to-eat basis.
6. PREMISES.
--------
(A) LEASED PREMISES. If Franchisee intends to lease the premises
---------------
where the Outlet will be operated (the "Premises"), Franchisee shall submit to
Franchisor executed copies of all such leases immediately after execution and at
such other times as
<PAGE>
Franchisor may request. The term of all leases plus all options for the
Franchisee to renew shall together equal or exceed the Term. All leases
pertaining to the Premises shall also include an Addendum in the form of Exhibit
A attached hereto, or shall contain terms and conditions substantially similar
to those contained in Exhibit A which Franchisor approves.
(B) OWNED PREMISES. If the Franchisee intends to own the Premises,
--------------
Franchisee shall furnish to Franchisor proof of ownership prior to the date
Franchisee commences any construction, build-out or remodeling of the Premises.
In the event Franchisee decides to sell the Premises at any time prior to the
expiration or termination of the Franchise Agreement, Franchisee must notify
Franchisor of its intention in this regard. If the sale will also involve a
relocation of the Outlet, Franchisee shall submit to Franchisor for its approval
Franchisee's proposed plans (including copies of any proposed lease or contract
of purchase) for an alternate location.
(C) PREMISES IDENTIFICATION. Regardless of whether Franchisee owns
-----------------------
or leases the Premises and has not within ten days after the expiration or
termination of the Franchise Agreement removed all signs and other items and
indicia which serve, directly or indirectly, to identify the Premises as a Papa
John's Pizza outlet, Franchisor may enter the Premises, without being guilty of
trespass and without incurring any liability to Franchisee, to remove all signs
and other items identifying the Premises as a Papa John's Pizza outlet and to
make such other modifications as are reasonably necessary to protect the Marks
and the Papa John's System, and to distinguish the Prem ises from Papa John's
Pizza outlets. Provided, however, that this obligation of Franchisee shall be
conditioned upon Franchisor giving Franchisee prior notice of the modifications
to be made and the items removed.
(D) SUITABILITY OF PREMISES. Regardless of whether the Premises are
-----------------------
owned or leased, it shall be the responsibility of Franchisee to determine that
the Premises can be used, under all applicable laws and ordinances, for the
purposes provided herein and that they can be constructed or remodeled in
accordance with the terms of this Agreement and Franchisee shall obtain all
permits and licenses that may be required to construct, remodel and operate the
Outlet. Franchisee agrees that the Premises will not be used for any purpose
other than the operation of the Outlet in compliance with this Agreement.
(E) RELOCATION; ASSIGNMENTS. Franchisee shall not, without first
-----------------------
obtaining Franchisor's written consent: (i) relocate the Outlet; or (ii) renew
or materially alter, amend or modify any lease, or make or allow any transfer,
sublease or assignment of its rights under any lease or owned location
pertaining to the Premises. Such consent shall not be unreasonably withheld.
<PAGE>
7. PROPRIETARY MARKS.
-----------------
(A) OWNERSHIP; USE BY OTHERS. Franchisee agrees that Franchisor is
------------------------
the owner of the Marks and all goodwill associated with or generated by the use
of the Marks, and that Franchisee's use of the Marks does not vest Franchisee
with any interest in the Marks other than the non-exclusive license to use the
Marks granted herein. Franchisee shall execute any documents deemed necessary by
Franchisor or its counsel for the protection of the Marks or to maintain their
validity or enforceability, or to aid Franchisor in acquiring rights in or in
registering any of the Marks or any trademarks, trade names, service marks,
slogans, logos and emblems subsequently adopted by Franchisor. Franchisee shall
give notice to Franchisor of any knowledge that Franchisee acquires concerning
the use by others of the same or similar names or marks. Franchisee shall
cooperate with Franchisor in any suit, claim or proceeding involving the Marks
or their use to protect Franchisor's rights and interests in the Marks.
(B) USE OF MARKS. Franchisee shall use the Marks only in connection
------------
with the operation of the Outlet at the Location specified herein, and shall use
them only in the manner authorized by Franchisor. Franchisee shall prominently
display the Marks in the manner prescribed by Franchisor on all signs, plastic
and paper products, and other supplies and packaging materials designated by
Franchisor. Franchisee shall not fail to perform any act required under this
Agreement, or commit any act which would impair the value of the Marks or the
goodwill associated with the Marks. Franchisee shall not at any time engage in
any business or market any product or service under any name or mark which is
confusingly or deceptively similar to any of Franchisor's Marks. Franchisee
shall not use any of the Marks as part of its corporate or trade name and shall
not use any trademark, trade name, service mark, logo, slogan or emblem in
connection with the Outlet that has not been authorized by Franchisor.
Franchisee shall obtain such fictitious or assumed name registrations as may be
required by Franchisor or applicable state law.
(C) DESIGNATION AS FRANCHISEE. Franchisee shall identify itself as
-------------------------
the owner of the Franchise in conjunction with the use of the Marks, including,
without limitation, on checks, invoices, receipts, letterhead and contracts, as
well as at conspicuous locations on the Premises in a form which specifies
Franchisee's name, followed by the phrase "A franchisee of Papa John's
International, Inc." or such other phrase as Franchisor directs.
(D) DISCONTINUANCE OF USE; ADDITIONAL MARKS. In the event that a
---------------------------------------
court of competent jurisdiction should order, or if Franchisor in its sole
discretion should deem it necessary or advisable, Franchisee shall modify or
discontinue use of any Mark. Franchisee shall comply with the Franchisor's
directions regarding any such Mark within 30 days after receipt of notice from
Franchisor. Franchisor shall not be obligated to compensate Franchisee for any
costs or expenses incurred by Franchisee in connection with any such
modification or discontinuance. Franchisee shall also use such additional or
substitute Marks as Franchisor shall direct.
<PAGE>
8. ADVERTISING.
-----------
(A) CONTRIBUTIONS AND EXPENDITURES. Recognizing the value of
------------------------------
advertising and the importance of the standardization of advertising to the
furtherance of the goodwill and public image of the System, Franchisor and
Franchisee agree as follows:
(I) GRAND-OPENING ADVERTISING. Franchisee shall expend for
-------------------------
grand-opening advertising to publicize the existence and opening of the Outlet
such amounts as Franchisor may reasonably require (not to exceed $2,000), which
advertising shall be in such form as designated or approved by Franchisor and
which shall be conducted prior to commencement of and during the first two
months of operation of the Outlet. Franchisee may expend additional amounts on
such advertising, provided the form and content is approved by Franchisor as
provided in Section 8.(e).
(II) MONTHLY CONTRIBUTIONS AND EXPENDITURES. Each month during
--------------------------------------
the Term, Franchisee shall make the following contributions and expenditures for
advertising:
(A) Franchisee shall contribute to the "Marketing Fund,"
as defined in Section 8.(b), such amount as the Board of Directors of the
Marketing Fund (the "Board") may designate from time to time, which amount
shall not exceed one and one-half percent (1-1/2%) of the monthly Net Sales
of the Outlet, except as set forth in (iii), below.
(B) Franchisee shall contribute to the "Cooperative," as
defined in Section 8.(c), such amount as the governing body of the
Cooperative may designate from time to time, which amount shall not exceed
two and one-half percent (2-1/2%) of the monthly Net Sales of the Outlet,
except as set forth in (iii), below.
(C) Franchisee shall expend such amounts as Franchisor
may designate from time to time for local advertising as provided in
Section 8.(d); provided, that the aggregate amount that Franchisee may be
required to spend on local advertising together with Franchisee's Marketing
Fund contributions will not exceed four percent (4%) of the Net Sales of
the Outlet, and provided further that Franchisee's expenditures for grand-
opening advertising under (i), above, shall be credited against
Franchisee's local advertising obligations.
(III) INCREASES IN CONTRIBUTIONS.
--------------------------
(A) MARKETING FUND CONTRIBUTIONS. The Board may increase
----------------------------
the maximum required contribution to the Marketing Fund to two percent (2%)
of Net Sales, provided such increase is approved by the owners of not less
than sixty percent (60%) of the outlets required to contribute to the
Marketing
<PAGE>
Fund (including both Franchisor-owned and franchised outlets). Any increase
in the required contribution to the Marketing Fund in excess of two percent
(2%) of Net Sales must be approved by not less than two-thirds (2/3) of the
outlets required to contribute to the Marketing Fund (including both
Franchisor-owned and franchised outlets).
(B) COOPERATIVE CONTRIBUTIONS. The governing body of the
-------------------------
Cooperative may increase the maximum required contribution to the
Cooperative to a percentage of Net Sales in excess of two and one-half
percent (2 1/2%), provided that any such increase is approved by Franchisor
and is also approved by not less than two-thirds (2/3) of the outlets
required to contribute to the Cooperative (including both Franchisor-owned
and franchised outlets). Franchisor's decision on any proposed increase
above two and one-half percent of Net Sales shall be final.
(B) MARKETING FUND. Papa John's Marketing Fund, Inc., a Kentucky
--------------
nonstock, nonprofit corporation (the "Marketing Fund"), has been organized for
the purposes set forth in the Articles of Incorporation and By-Laws of the
Marketing Fund, as they may be amended from time to time. Franchisee shall
automatically become a non-voting member of the Marketing Fund upon the
execution of this Agreement, and prior to the opening of the Outlet Franchisee
shall execute and deliver to the Marketing Fund an Advertising Agreement in the
form prescribed by the Board.
(i) Franchisee agrees and acknowledges that the Marketing Fund
is intended to increase recognition of the Marks and to further the public image
and acceptance of the System and that neither Franchisor nor the Marketing Fund
nor the directors the Marketing Fund undertake any obligation to ensure that
expenditures by the Marketing Fund in or affecting any geographic area are
proportionate or equivalent to contributions to the Marketing Fund by Papa
John's Pizza outlets operating in such geographic area or that the Franchisee or
the Outlet will benefit directly or in proportion to its contribution to the
Marketing Fund. Neither Franchisor nor any of its officers, directors, agents or
employees shall be deemed a fiduciary or trustee of the contributions to, or the
assets of, the Marketing Fund. Neither Franchisor nor the Marketing Fund, nor
any of their respective officers, directors, agents or employees, shall be
liable to Franchisee with respect to the maintenance, direction or
administration of the Marketing Fund, including without limitation, with respect
to contributions, expenditures, investments or borrowings, except for acts
constituting willful misconduct.
(ii) Franchisor shall make contributions to the Marketing Fund
for each outlet that it owns on the same basis as required of comparable
franchisees within the System.
(iii) As long as Franchisee is in compliance with the
Advertising Agreement and the Articles and By-Laws of the Marketing Fund,
Franchisee will be furnished with advertising materials which were produced by
or for the Marketing Fund
<PAGE>
for System-wide distribution on the same terms and conditions as such materials
are furnished to other franchisees.
(iv) Franchisee shall make its monthly contribution to the
Marketing Fund on the date and in the manner provided for in the Advertising
Agreement and the By-Laws and shall submit such statements and reports as the
Board may designate from time to time. From time to time the Board may designate
one or more accounts to which such contributions shall be made, and Franchisee
shall make such payments by separate checks. Contributions to the Marketing Fund
may be used to defray expenses of Franchisor only to the extent of the
administrative costs and overhead that Franchisor may reasonably incur in
rendering services to the Marketing Fund.
(v) The funds collected by the Marketing Fund, and any
earnings thereon, are not and shall not be an asset of Franchisor or any
franchisee.
(vi) Although the Marketing Fund is intended to be of perpetual
duration, the Board has the right to terminate the Marketing Fund. However, the
Marketing Fund shall not be terminated until all monies held by it have been
expended for the purposes set forth in its Articles of Incorporation and By-Laws
or distributed as permitted by law.
(C) REGIONAL COOPERATIVE ADVERTISING. Franchisee agrees that
--------------------------------
Franchisor shall have the right, in its sole discretion, to designate from time
to time a geographical area in which the Outlet is located for the purpose of
establishing an advertising cooperative (the "Cooperative"). If a Cooperative
has been established applicable to the Outlet at the time Franchisee commences
operations hereunder, Franchisee shall immediately become a member of such
Cooperative. If a Cooperative applicable to the Outlet is established at any
later time during the Term, Franchisee shall become a member of such Cooperative
no later than thirty (30) days after the date on which the Cooperative commences
operation. In no event shall the Outlet be required to contribute to more than
one Cooperative. The following provisions shall apply to each Cooperative:
(i) Each Cooperative shall be organized and governed in a form
and manner, and shall commence operation on a date, approved in advance by
Franchisor in writing.
(ii) Each Cooperative shall be organized for the purposes of
producing and conducting general advertising programs and activities for use in
and around the applicable geographic area and developing standardized
promotional materials for use by the members.
(iii) Franchisor shall make contributions to each Cooperative of
which it is a member on the same basis as required of comparable franchisees
within the System.
<PAGE>
(iv) No advertising programs or materials may be used by the
Cooperative or furnished to its members, and no advertising or promotional
activities may be conducted by the Cooperative, without the prior written
approval of Franchisor. All such programs, materials and planned activities
shall be submitted to Franchisor for approval in accordance with the procedure
set forth in Section 8.(e), below.
(v) Subject to the provisions of Section 8.(a)(ii), above,
each Cooperative shall have the right to require its members to make
contributions to the Cooperative in such amounts as are determined by the
governing body of the Cooperative.
(vi) Franchisee shall make its contributions to the Cooperative
on the date and in the manner designated by the Cooperative. Franchisee shall
also submit such statements and reports as may be designated from time to time
by the Cooperative. The Cooperative shall submit to Franchisor such statements
and reports as Franchisor may designate from time to time.
(vii) Notwithstanding the foregoing, Franchisor, in its sole
discretion, may, upon written request of a franchisee stating reasons supporting
such request, grant to any franchisee an exemption from the requirement of
membership in a Cooperative. Such an exemption may be for any length of time
and may apply to one or more outlets owned by such franchisee. If an exemption
is granted to a franchisee, such franchisee may be required to expend on local
advertising the full amount that would otherwise be payable to the Cooperative.
Franchisor may also exempt one or more outlets owned or controlled by Franchisor
from the requirement of membership in a Cooperative for such periods as
Franchisor reasonably deems appropriate. Franchisor's decision concerning an
exemption shall be final.
(D) LOCAL ADVERTISING. Subject to the limits set forth in Section
-----------------
8.(a)(ii), above, Franchisee agrees to spend for local advertising such
percentage of its Net Sales as Franchisor may from time to time direct.
Franchisee shall submit verification of its local advertising expenditures at
such times and in such form as may be requested by Franchisor from time to time.
(I) SUPPLEMENTAL ADVERTISING. Franchisee shall have the right
------------------------
to conduct, at its separate expense, supplemental advertising in addition to the
expenditures specified herein. All such supplemental advertising shall either
have been prepared or previously approved by Franchisor within the 90-day period
preceding their intended use, or shall be approved by Franchisor as provided in
Section 8.(e).
(II) YELLOW PAGES ADVERTISING. Franchisee shall, at its own
------------------------
expense, obtain (or contribute to the cost of obtaining) a listing for the
Outlet in each "yellow pages" and other telephone directory serving the
Territory and each such listing shall be of the style, format and size, and in
such form, as may be specified by Franchisor from time to time.
<PAGE>
(E) APPROVAL BY FRANCHISOR. Prior to their use by the Cooperative or
----------------------
by Franchisee, samples of all advertising and promotional materials not prepared
or previously approved by Franchisor within the 90-day period preceding their
intended use shall be submitted to Franchisor for approval. If disapproval is
not received within twenty (20) days from the date of receipt by Franchisor of
such materials, Franchisor shall be deemed to have given the required approval.
Neither the Cooperative nor Franchisee shall use, and shall cease using, any
advertising or promotional materials that Franchisor may at any time disapprove,
regardless whether any such items had been previously approved by Franchisor.
(F) FRANCHISOR ADVERTISING. Franchisor may from time to time expend
----------------------
its own funds to produce such promotional materials and conduct such advertising
as it deems necessary or desirable. In any advertising conducted solely by or
for Franchisor, Franchisor shall have the sole discretion to determine the
products and geographical markets to be included, and the medium employed and
Franchisor shall not have any duty or obligation to supply Franchisee with any
advertising or promotional materials produced by or for Franchisor at its sole
expense.
(G) OWNERSHIP OF ADVERTISING. Franchisor shall be the sole and
------------------------
exclusive owner of all materials and rights which result from advertising and
marketing programs produced and conducted, whether by Franchisee, Franchisor,
the Cooperative or the Marketing Fund. Any participation by Franchisee in any
advertising, whether by monetary contribution or otherwise, shall not vest
Franchisee with any rights in the Marks employed in such advertising or in any
tangible or intangible materials or rights, including copyrights, generated by
such advertising. If requested by Franchisor, Franchisee shall assign to
Franchisor any contractual rights or copyright it acquires in any advertising.
9. TELEPHONE NUMBER. The only telephone number assigned to the Outlet is
----------------
409/569-6611. Upon termination or expiration of the Franchise, Franchisee shall
either assign such telephone numbers to Franchisor, if so requested, or cease
using such telephone number. In no event shall Franchisee use such number for
any other business. Franchisee further covenants that in the event it obtains
any additional or substitute telephone service or telephone number at the
Outlet, it will promptly notify Franchisor and such additional or substitute
number shall be subject to this Agreement.
10. CONSTRUCTION, DESIGN AND APPEARANCE; EQUIPMENT.
----------------------------------------------
(A) CONSTRUCTION. Franchisee agrees that it will construct or
------------
remodel the Premises at the approved Location in accordance with Franchisor's
construction or remodel plans and design, layout and decor specifications. Such
specifications will be provided by Franchisor. Franchisee shall purchase or
lease the pizza preparation, beverage storage or dispensing, storage and other
equipment, displays, fixtures, and furnishings that Franchisor designates.
Franchisee shall make no changes to any building plan, design, layout or decor,
or any equipment or signage without the prior written
<PAGE>
consent of Franchisor, and shall maintain the interior and exterior decor in
such manner as may be prescribed from time to time by Franchisor.
(B) SIGNS. Franchisee shall prominently display, at its own expense,
-----
both on the interior and exterior of the Premises, advertising signs in such
form, color, number, location and size, and containing such Marks, logos and
designs as Franchisor shall designate. Such signs shall be obtained from a
source designated or approved by Franchisor. Franchisee shall obtain all
permits and licenses required for such signs and shall also be responsible for
ensuring that all signs comply with all laws and ordinances. Franchisee shall
not display in or upon the premises any sign or advertising of any kind to which
Franchisor objects.
(C) REMODELING AND RE-EQUIPPING. Franchisee agrees that it will,
---------------------------
within three (3) months from the date of written notice from Franchisor,
remodel or re-equip the Outlet in accordance with the specifications provided
by the Franchisor. Such remodeling and re-equipping may include, without
limitation, replacing worn out, obsolete, or dated equipment, fixtures,
furnishings and signs; structural modifications; redecorating; or purchasing
more efficient or improved equipment. Franchisor may require Franchisee to
perform remodeling and to purchase equipment at such times as Franchisor, in
its sole discretion, deems necessary and reasonable; provided, that Franchisor
may not require any significant remodeling of the Outlet during the first two
years of the Initial Term. FRANCHISEE ACKNOWLEDGES THAT EQUIPMENT, ALTERATIONS
AND RENOVATIONS REQUIRED BY FRANCHISOR MAY INVOLVE SUBSTANTIAL ADDITIONAL
INVESTMENT BY FRANCHISEE DURING THE TERM OF THIS AGREEMENT.
11. OPERATIONS; STANDARDS OF QUALITY; INSPECTIONS.
---------------------------------------------
(A) PRINCIPAL OPERATOR. Franchisee shall designate an individual to
------------------
serve as the "Principal Operator" the Outlet. The Principal Operator shall meet
the following qualifications:
(I) The Principal Operator shall own at least a five percent
(5%) equity interest in the Franchisee, provided that Franchisee shall not be in
default if the Principal Operator is entitled to a bonus of not less than five
percent (5%) of the net profits of the Outlet, payable after the end of each
Period, and also has the right to acquire not less than a five percent (5%)
equity interest in the Franchisee within 12 months of his or her hire date,
which rights shall be evidenced by a written agreement between the Principal
Operator and the Franchisee. Franchisee shall provide Franchisor with a copy of
any such agreement upon request. Once the Principal Operator has acquired an
equity interest in the Franchisee, he or she must continue to own that interest
(or a greater interest) during the entire period he or she serves as the
Principal Operator.
(II) The Principal Operator shall devote full time and best
efforts to the supervision and conduct of the development and operation of the
Outlet and, as required under Section 16, shall execute the Guaranty of
Franchisee's Obligations,
<PAGE>
Confidentiality and Non-Competition Agreement and the Ownership Restriction
Agreement at such time he or she becomes an owner of an interest in the
Franchisee.
(III) The Principal Operator shall be a person approved by
Franchisor who shall complete Franchisor's initial training requirements and who
shall participate in and complete to Franchisor's satisfaction all additional
training as may be reasonably designated by Franchisor.
If, at any time for any reason, the Principal Operator no longer qualifies
to act as such, Franchisee shall promptly designate another Principal Operator
subject to the same qualifications listed above. Any sale or transfer of any
portion of the Principal Operator's interest in the Franchisee, if any, which
would reduce the Principal Operator's equity interest or voting rights in
Franchisee to less than five percent (5%) of the total shall be deemed a
transfer of an interest and shall be subject to the terms and conditions of
Section 14 hereof; and any failure to comply with such terms and conditions
shall be deemed a default by Franchisee under this Agreement. However, if the
Principal Operator owns five percent (5%) or less of the Franchisee, then a
transfer of the Principal Operator's interest to the Franchisee, another
shareholder or partner of Franchisee or to a successor Principal Operator shall
not require Franchisor's consent, shall not be subject to Franchisor's right of
first refusal and no transfer fee shall be required. Franchisee shall promptly
notify Franchisor in writing of any such transfer and provide all information
about the transferee and the terms of the transfer as Franchisor may reasonable
request.
(B) MANAGEMENT OF THE OUTLET. The Principal Operator and one or more
------------------------
competent managers approved by Franchisor (who shall have completed Franchisor's
initial training program to Franchisor's satisfaction) shall personally devote
their full time and best efforts to the management and operation of the Outlet
in order to ensure compliance with this Agreement and to maintain Franchisor's
high standards. Management responsibility shall include, without limitation,
presence of the Principal Operator or a manager at the Outlet during all
business hours; maintaining the highest standards of product quality and
consistency; maintaining the Outlet in the highest condition of sanitation,
cleanliness and appearance; and supervising employees to ensure that the highest
standard of service is provided and to ensure that Franchisee's employees deal
with customers, suppliers, Franchisor, and all other persons in a courteous and
polite manner.
(C) COMPLIANCE WITH FRANCHISOR'S STANDARDS. Franchisee shall operate
--------------------------------------
the Outlet through strict adherence to Franchisor's standards, specifications
and policies as they now exist, and as they may from time to time be modified.
Such standards and policies include, without limitation: (i) specifications and
preparation methods for food and beverages; (ii) hours of operation; (iii) menu
items and services offered; (iv) employee uniform requirements and
specifications; and (v) use of specified emblems and Marks on containers, bags,
boxes, napkins, and other products.
<PAGE>
(D) TRAINING. Should any employee or prospective employee of
--------
Franchisee perform work which in Franchisor's judgment requires additional
training, skills or knowledge, such employee shall take part in such training
and instruction as shall be directed by Franchisor. Franchisee shall be solely
responsible for all wages, travel and living expenses, and all other costs
incurred by Franchisee and Franchisee's employees in connection with any
training or instruction provided by Franchisor. Franchisee shall also, at its
own expense, conduct at the Outlet such training and instruction, using such
materials, equipment and supplies, as Franchisor may require from time to time.
(E) MANUALS. Franchisor will lend Franchisee one or more manuals
-------
which shall contain (i) the mandatory and suggested specifications, standards
and operating procedures prescribed from time to time by Franchisor and (ii)
information relative to other obligations of Franchisee hereunder and the
operation of the Outlet (the "Manuals"). The Manuals shall at all times remain
the sole property of Franchisor. Franchisor may, from time to time, revise the
contents of the Manuals. To the extent that Franchisor shall deem it necessary
or appropriate, Franchisor will provide Franchisee with policy and procedure
statements or other written notice of specifications, standards and procedures.
Franchisee agrees to promptly adopt and use the formulas, methods, procedures,
policies, menus, recipes, food products and other standards and specifications
contained in the Manuals, policy and procedure statements and other written
notices as issued from time to time by Franchisor. Franchisee acknowledges and
agrees that all information in the Manuals, policy and procedure statements and
other notices constitute confidential information and trade secrets, and shall
not be disclosed at any time by Franchisee. Franchisee shall not copy any part
of the Manuals or any other communication or information provided by Franchisor.
(F) VARIATIONS IN STANDARDS. Because complete and detailed
-----------------------
uniformity under varying conditions may not be possible or practical, Franchisor
specifi cally reserves the right, in its sole discretion and as it may deem in
the best interests of Franchisee or the Chain, to vary standards within the
Outlet or any other outlet in the Chain based upon peculiarities of a particular
location or circumstances, including, but not limited to, density of population
and other demographic factors, size of the franchisee's Territory, business
practices or customs, or any other condition which Franchisor deems to be of
importance to the operation of such outlet or the Chain. Franchisee acknowledges
that because of these factors and others, there may be variations from standard
specifications and practices throughout the Chain and that Franchisee shall not
be entitled to require Franchisor to grant like or similar variations or
privileges to Franchisee.
(G) FRANCHISEE DEVELOPMENTS. Franchisor shall have the right to use
-----------------------
and incorporate into the System for the benefit of other franchisees and
Franchisor any modifications, ideas or improvements, in whole or in part,
developed or discovered by Franchisee or Franchisee's employees or agents,
without any liability or obligation to Franchisee or the developer thereof.
<PAGE>
(H) COMPLIANCE WITH LAWS. Franchisee shall at all times during the
--------------------
Term comply with all laws, ordinances, rules and regulations of all applicable
governmental bodies.
(I) COURTESY; COOPERATION. At all times and under all circumstances,
---------------------
Franchisee and its employees shall treat all customers and other persons,
including Franchisor's agents, officers, and employees with the utmost respect
and courtesy, and shall fully cooperate with Franchisor and its agents,
officers, and employees in all aspects of the franchise relationship.
(J) INSPECTIONS. An agent, officer or employee of Franchisor may
-----------
make inspections of the Outlet to insure compliance with all required standards,
specifications and procedures. The Franchisor's representative shall be allowed
to inspect the condition and operation of the Outlet and all areas of the Outlet
at any time during normal business hours. Such inspections may include, without
limitation, (i) reviewing sales and order forms, (ii) observing the Principal
Operator and all managers and other employees of the Franchisee, (iii)
interviewing any such persons, (iv) interviewing customers of the Outlet in
order to evaluate Franchisee's performance and to ensure that the Outlet is
being operated in accordance with the requirements of this Agreement and the
Manuals, and (v) conducting any type of audit or review necessary to evaluate
Franchisee's compliance with all required standards, specifications or
procedures. Franchisor may, from time to time, make suggestions and give
mandatory instructions with respect to Franchisee's operation of the Outlet.
12. PRODUCTS; COMMISSARY; MENU.
--------------------------
(A) PRODUCTS. Franchisee agrees that it will use only those food
--------
items, ingredients, beverages, cooking materials, containers, boxes, cups,
packaging, menus, uniforms, and other products and materials in the operation of
the Outlet as Franchisor shall have specifically designated or approved.
Franchisee may be required to purchase from Franchisor certain products that
involve trade secrets or that have been specially prepared by Franchisor or at
Franchisor's direction or that Franchisor considers to be integral to the
System. Franchisor may require that certain products be purchased from one or
more designated suppliers. Products other than those required to be obtained
from Franchisor or a designated supplier may be purchased from any source
provided that the particular supplier and products have been approved by
Franchisor. Franchisor may, from time to time, amend the list of approved
products and suppliers.
(B) PJ FOOD SERVICE. PJ Food Service, Inc. ("PJFS") presently
---------------
supplies designated and approved products to Franchisor-owned outlets and those
of its franchisees from commissaries which are either owned or operated by PJFS
(the "Commissary"). PJFS is currently the only designated manufacturer of dough,
and Franchisee must purchase dough from PJFS or its designated representative
unless and until such time as a successor supplier of dough is designated. PJFS
has no obligation to continue supplying Franchisee or to continue to operate the
Commissary. If PJFS ceases operating the Commissary or terminates service to the
Franchisee (other than as
<PAGE>
a result of the termination or expiration of the Franchise) Franchisor shall
provide Franchisee with the name, address and phone number of an alternative
approved supplier(s) and the products to be purchased from such supplier(s). All
purchases by Franchisee from the Commissary are on the terms specified from time
to time by PJFS. PJFS, through Franchisor, hereby reserves the right to specify
different terms for different franchisees. Franchisor makes no representations
or warranties about any of the services performed by or any of the products
produced or sold by or through PJFS.
(C) MENU ITEMS. Franchisee shall offer for retail sale, and shall
----------
carry on its menu, only those types, sizes, styles and brands of pizza, pizza
dough, pizza sauce, toppings, beverages, and other products as from time to time
may be specified by Franchisor, and shall make all menu items available for
carry-out and delivery service from the Outlet. Franchisee agrees that it will
not sell or carry on its menu any food items or other products not specified or
approved by Franchisor.
(D) PRICING. Franchisee shall have the sole responsibility for esta
-------
blishing its prices, but Franchisee shall charge the same price for each product
whether sold in the Outlet or delivered unless otherwise approved by Franchisor.
13. ACCOUNTING AND REPORTS.
----------------------
(A) ACCOUNTING. Franchisor may lend the Franchisee and/or the
----------
person(s) who will be preparing Franchisee's reports and financial statements
for each Period or year end with one or more manuals, which manual(s) may
contain mandatory and/or optional (i) accounting procedures, (ii) forms, (iii)
chart of accounts, and (iv) other items deemed relevant or necessary by
Franchisor. Franchisee agrees to direct its bookkeeper/accountant to follow all
mandatory policies, procedures, forms, formats and other items set forth in such
manuals. The accounting manual(s) shall be part of the "Manuals" as defined in
Section 11.(e).
(B) RECORD KEEPING. Franchisee shall establish and maintain
--------------
accounting and record keeping systems in accordance with the specifications and
procedures provided by Franchisor and as amended from time to time, including,
without limitation, maintaining its accounting records on a basis of monthly or
multi-week periods (each such accounting period is referred to as "Period").
Franchisee shall make all such records available to Franchisor upon request.
Franchisee shall maintain and preserve, for at least five years from the dates
of their preparation, full, complete and accurate books, records and accounts.
(C) PERIODIC REPORTS. On or before the 15th day of the month
----------------
following each Period, Franchisee shall deliver to Franchisor: (i) a statement,
in the form prescribed by Franchisor, of the revenues and expenses of the Outlet
for the immediately preceding Period, and (ii) such other records and reports as
are requested by Franchisor, including but not limited to, bank statements,
sales and expense forms and reports, and a current balance sheet.
<PAGE>
(D) REVIEW BY FRANCHISOR. At all times during the Term, Franchisor,
--------------------
or its authorized agent, shall have the right to review all sales and expense
records and reports of the Franchisee which are located in or which relate to
the Outlet, and to make photocopies of all such items.
(E) YEAR-END REPORTS. Within one hundred twenty (120) days following
----------------
Franchisee's fiscal year end, Franchisee shall provide Franchisor with copies of
Franchisee's financial statements, including an income statement for the fiscal
year just ended and a balance sheet as of the end of such fiscal year, which
financial statements shall have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis. Franchisee shall
furnish Franchisor with copies of all its federal and state income tax returns
and, if requested by Franchisor, copies of all state sales tax returns at the
time all such returns are filed. Franchisee shall promptly notify Franchisor if
any such return is not timely filed, or if any extension is filed, and the
reasons therefore.
(F) EXAMINATIONS AND AUDITS. Franchisor or its designated agents
-----------------------
shall have the right, at all times and upon reasonable notice, to examine or
audit Fran chisee's books and records, and to make photocopies thereof. If such
examination or audit should disclose any underpayment of the Royalty, Marketing
Fund payments, or any other sums or fees owed to Franchisor, Franchisee shall
immediately pay the deficient amount plus interest thereon from the date due
until paid at a rate equal to 12% per annum. All payments received will first be
credited against interest due and then against other payments due. If such an
examination or audit discloses an understatement in any statement or report of
5% or more, Franchisee shall, in addition to the above provision, reimburse
Franchisor for the cost of having Franchisee's books examined or audited. The
foregoing shall be in addition to any other rights or remedies Franchisor may
have, including the termination of the Franchise granted herein.
14. TRANSFERS; FRANCHISOR'S RIGHT OF FIRST REFUSAL.
----------------------------------------------
(A) TRANSFERS BY FRANCHISOR. Franchisor may transfer or assign this
-----------------------
Agreement or any all of its rights, interests, benefits or obligations arising
hereunder without restriction. Upon any transfer or assignment of this
Agreement by Franchisor, Franchisor shall be released from all obligations and
liabilities arising or accruing in connection with this Agreement after the date
of such transfer or assignment.
(B) TRANSFERS BY FRANCHISEE. The rights and interests of Franchisee
-----------------------
under this Agreement are and shall remain personal to Franchisee. Franchisee
recognizes that Franchisor has granted the Franchise in reliance on the business
and financial capacity and other attributes of Franchisee and in reliance upon
the Guaranty of Franchisee's Obligations. Accordingly, neither Franchisee nor
any holder of any capital stock or other interest in a Franchisee that is a
corporation or other entity shall transfer (i) any interest in this Agreement,
(ii) any material portion of the assets of the Franchisee or the Outlet, or
(iii) any stock or other interest in Franchisee, without obtaining the prior
written consent of Franchisor; provided that a partner or shareholder of
Franchisee
<PAGE>
may transfer all or a portion of his interest in the Franchisee to another
partner or shareholder or to the Franchisee (such person or entity being
referred to as a "Permitted Transferee") and such a transfer shall not be
subject to Franchisor's consent or Franchisor's right of first refusal and no
transfer fee shall be required. Franchisee shall promptly notify Franchisor of
any such transfer. For purposes of this Agreement, the term "transfer" shall
mean any issuance, sale, assignment, gift, pledge, mortgage or any other
encumbrance (other than a lien against the Franchisee's assets to secure a loan
for the construction, remodeling, equipping or operation of the Outlet),
transfer by bank ruptcy, transfer by judicial order, merger, consolidation,
share exchange, transfer by operation of law or otherwise, whether direct or
indirect, voluntary or involuntary. Franchisor's consent to a particular
transfer shall not be deemed as consent to any subsequent or different transfer.
(I) FRANCHISOR'S RIGHT OF FIRST REFUSAL. Franchisee shall give
-----------------------------------
Franchisor at least 45 days prior written notice of any intended transfer of any
of its rights or interest under this Agreement or of the proposed transfer of
any interest in Franchisee or any material portion of its assets. Such notice
shall set forth the name of the proposed transferee and a detailed statement of
all of the terms and conditions of such intended or proposed transfer. Subject
to subsection (c) below, Franchisor will not unreasonably withhold its consent
to a proposed transfer. Irrespective of the qualifica tions or acceptability of
any prospective transferee, Franchisor shall have the first right and option to
purchase the interest intended or proposed to be transferred at the same price
and on the same terms and conditions contained in the notice. Should the
proposed transfer involve the payment of any non-cash consideration, Franchisor
shall have the option to purchase the interest at a price equal to the fair
market value of such non-cash consideration plus the amount, if any, of
consideration paid in cash. Franchisor shall determine the fair market value of
the non-cash consideration using fair and reasonable methods. Franchisor shall
make such determination as promptly as practicable, but in no event later than
30 days after it has received the notice of the intended transfer. If
Franchisee disagrees with the value as determined by Franchisor, then Franchisee
and Franchisor shall each hire an appraiser (or a single appraiser, if they so
agree) to value the non-cash consideration. If the appraisals are within 20% of
each other, then the difference between the two shall be equally divided to
establish the price at which Franchisor may exercise its first right and option.
If the difference between the appraisals is greater than 20%, then the issue of
the fair market value of such consideration shall be determined by a third
appraiser selected by the other two appraisers and whose decisions shall be
final, except that it may not be lower or higher than the lowest appraisal and
highest appraisal, respectively, determined by the first two appraisers. Should
a proposed transfer not involve the payment of any consideration, Franchisor has
the option to purchase the interest at a price equal to one and one-half (1-1/2)
times the Net Profits of the Outlet over the previous 12-month period (or the
average monthly Net Profit of the Outlet if it has been operating less than 12
months multiplied by 12) multiplied by the percentage which the interest to be
transferred bears to all interests in the Outlet, or the Franchisee, as the case
may be. As used in this Agreement, Net Profits means the amount of profit, if
any, determined from statements of profit and loss prepared by an independent
public accountant that the Franchisor finds
<PAGE>
acceptable. Within 30 days after Franchisor receives notice of a proposed
transfer for no consideration or solely for cash, or if the proposed transfer
will not be solely for cash, within 10 days after a determination is made of the
fair market value of the non-cash consideration, Franchisor will notify
Franchisee that it is (A) exercising its right of first refusal, (B) approving
the transfer or (C) denying approval of the transfer. Franchisor's decision to
deny approval shall be final.
(II) APPROVED TRANSFERS. If Franchisor decides not to
------------------
exercise its right of refusal, and if Franchisor approves the transfer in
writing, Franchisee (or the transferor of an interest in Franchisee) may make
the proposed transfer on the exact terms and conditions specified in
Franchisee's notice to Franchisor within 60 days after the expiration of
Franchisor's option. If the transfer is not consummated within such 60-day
period, Franchisee may not thereafter transfer such interest without again
complying with this Section.
(C) CONDITIONS ON TRANSFER. Franchisor agrees that it will not
----------------------
unreasonably withhold its consent to a proposed transfer if all of the following
conditions are satisfied:
(I) Franchisor shall have decided not to exercise its right
of first refusal as provided in Section 14;
(II) Franchisee is in full compliance with this Agreement and
there are no uncured defaults by Franchisee hereunder, and all debts and
financial obliga tions of Franchisee under this Agreement are current, including
Franchisee's obligations to the Marketing Fund and each Cooperative of which
Franchisee is a member;
(III) The proposed transferee executes such documents as
Franchisor may reasonably require to evidence that it has assumed the
obligations of Franchisee under this Agreement, and if required by Franchisor,
the proposed transferee executes, and in appropriate circumstances, causes such
other parties as Franchisor may require to execute, Franchisor's then-current
form of Guaranty, Non-Competition and Confidentiality Agreement and Ownership
Restriction Agreement, and other then-current ancillary agreements, which
documents may be substantially different than those attached to this Agreement;
(IV) The proposed transferee enters into an Advertising
Agreement with the Marketing Fund and also becomes a member of the Cooperative
to which the Outlet is required to contribute;
(V) Prior to the date of the proposed transfer, the proposed
transferee's Principal Operator and managers undertake and complete, to the
satisfaction of Franchisor, such training and instruction as Franchisor shall
deem necessary;
(VI) Franchisor is satisfied that the proposed transferee (and
if the proposed transferee is an entity, all owners of any interest in such
entity) meets all
<PAGE>
of the requirements for Franchisor's new franchisees applicable on the date
Franchisor receives notice of the proposed transfer and including, but not
limited to, good reputation and character, business experience, restaurant
management experience, and financial strength and liquidity;
(VII) Franchisee and any owner transferring an interest in
Franchisee acknowledge and agree in writing that they are bound by the non-
competition and confidentiality provisions set forth herein and in the
Confidentiality and Non-Competition Agreement (and any similar provision in any
other document which either of them have executed) to the maximum extent allowed
under applicable law;
(VIII) Franchisee and all owners of an interest in Franchisee
execute a general release, in the form prescribed by Franchisor, releasing, to
the fullest extent permitted under the laws of the state where the Outlet to be
transferred is located, all claims that any of them may have against Franchisor
and its affiliates and subsidi aries, and their respective shareholders,
officers, directors and employees, in both their individual and corporate
capacities and if Franchisee is the transferor, it shall acknowledge in writing
that Franchisee's interest under this Agreement terminated;
(IX) Franchisee shall pay Franchisor a transfer fee of three
thousand dollars ($3,000); provided that if the proposed transfer is of the
Outlet together with one or more other Papa John's Pizza outlets owned by
Franchisee to a single transferee, then the total transfer fee shall be an
amount equal to the greater of $3,000 or Franchisor's actual costs and expenses
incurred in approving and effecting the transfer, including, without limitation,
all "in-house" and outside personnel and professional costs; and
(X) The proposed transferee and all owners of any interest in
a transferee that is an entity provide Franchisor, at least 45 days prior to the
proposed transfer date, copies of financial statements for the preceding three
years, and where applicable, its certificate of incorporation and bylaws (and
any amendments or modifica tions thereof), minutes and resolutions and all other
documents, records and information pertaining to the transferee's existence and
ownership.
(D) OWNERSHIP AND STRUCTURAL CHANGES. Except for transfers between
--------------------------------
Permitted Transferees, any ownership or structural changes in Franchisee
including but not limited to, any merger, reorganization, issuance of additional
shares or classes of stock or additional partnership interests, shall constitute
and be deemed a transfer of the Franchise and shall be subject to prior written
approval from Franchisor.
15. DEATH, INCAPACITY OR DISSOLUTION.
--------------------------------
(A) TRANSFER UPON DEATH, ETC. Upon the death or permanent incapacity
------------------------
of any individual Franchisee, or if Franchisee is a corporation, partnership or
other entity, upon the death, incapacity or dissolution of any owner of any
interest in Franchisee, the executor, administrator, conservator, trustee or
other representative of
<PAGE>
such person or entity shall assign such interest in the Franchise, or such
interest in Franchisee, to a third party approved by Franchisor; provided that
if the transferee is a Permitted Transferee, Franchisor's right of first refusal
shall not apply and no transfer fee shall be payable. Further, if the transferee
is required to be approved and is approved, and the transfer involves less than
25% of the ownership of Franchisee, no transfer fee shall be payable. If a
Franchisee is one or more individuals and any such person dies or becomes
permanently incapacitated, and if the law of the jurisdiction where the Outlet
is located so provides, nothing contained in this Section shall deny the spouse,
heirs or personal representative of such a Franchisee the opportunity to
participate in the ownership of the Franchise for a reasonable time after the
death or incapacity of the Franchisee, provided that: (i) this Agreement is
valid and in effect, (ii) the spouse, heirs or representative meets all
conditions and qualifications otherwise required of transferees, and (iii) such
spouse, heirs or representative maintains and complies with all standards and
obligations contained in this Agreement. An assignment under this Section 15
shall be completed within a reasonable time, not to exceed nine (9) months from
the date of death, permanent incapacity or dissolution and shall (except as
otherwise provided above) be subject to the terms and conditions applicable to
inter vivos transfers contained in Section 14, including Franchisor's right of
first refusal.
(B) MANAGEMENT BY FRANCHISOR. Pending assignment, if the Principal
------------------------
Operator ceases managing the Outlet and another shareholder, partner or employee
of Franchisee that qualifies as the Principal Operator does not assume such
obligations, Franchisor may, at its sole option, appoint a manager to operate
the Franchise for the account of Franchisee. All expenses of the Outlet,
including compensation, travel and living expenses, and other costs of the
appointed manager, and a reasonable per diem fee of Franchisor for its
administrative expenses, shall be charged to Franchisee. Operation of the
Outlet during any such period shall be for and on behalf of Franchisee. The
appointed manager shall only have a duty to utilize his best efforts in the
management of the Outlet and the appointed manager and Franchisor shall not be
liable to Franchisee or its owners for any debts, losses, liabilities or
obligations incurred by the Outlet, or to any creditor of Franchisee for any
merchandise, materials, supplies or services purchased by the Outlet during any
period in which it is managed by Franchisor's appointed manager.
16. ADDITIONAL COVENANTS OF FRANCHISEE.
----------------------------------
(A) LIMITATIONS ON ACTIVITIES. If Franchisee is a corporation or
-------------------------
partnership, it shall not at any time during the Term of this Agreement, own,
operate or have any interest in any other business or business activity other
than the operation of Papa John's Pizza outlets pursuant to agreements with
Franchisor. If Franchisee is an individual and is also the Principal Operator,
Franchisee has disclosed to Franchisor all businesses which he/she has interests
in, or is engaged in, and covenants that he/she will notify Franchisor of any
intention to participate or engage, directly or indirectly, in any other
business activity at least thirty (30) days before undertaking such activity or
becoming a party to any agreement or understanding relating to such activity.
Franchisee shall provide Franchisor with such information in regard thereto as
Franchisor may
<PAGE>
reasonably request and will not engage or participate in any such activity
unless he/she receives written consent to do so from Franchisor.
(B) EXECUTION OF ANCILLARY DOCUMENTS. Simultaneously with the
--------------------------------
execution of this Agreement, Franchisee shall cause each person or entity owning
any beneficial interest in Franchisee to:
(I) execute a Guaranty of Franchisees Obligations in the form
provided by Franchisor;
(II) execute a Non-Competition and Confidentiality Agreement
in the form provided by Franchisor;
(III) execute a Ownership Restriction Agreement in the form
provided by Franchisor.
(C) FRANCHISEE'S NON-COMPETE. Franchisee covenants and agrees that
------------------------
during the Term of this Agreement (including the Renewal Term, if applicable)
and for a period of two years after the termination or expiration of the
Franchise, regardless of the reason for such termination or expiration,
Franchisee shall not, within a 10-mile radius of (i) the Outlet, or (ii) any
business location at which the Franchisor or an "Affil iate" (as defined in
Section 25) then conducts a Papa John's Pizza business, engage in any of the
following activities:
(I) directly or indirectly enter into the employ of, render
any service to or act in concert with any person, partnership, corporation or
other entity that owns, operates, manages, franchises or licenses any business
that (A) sells pizza or other non-pizza products (excluding soft drinks) that
are the same as those sold by Papa John's Pizza outlets on a delivery basis, or
(B) sells pizza or any such other products primarily on a carry-out basis,
including, without limitation, business formats such as Domino's, Pizza Hut, Mr.
Gatti's, Sbarro and Little Caesars (a "Competitive Business"), or
(II) directly or indirectly engage in any such Competitive
Busi ness on its own account, or
(III) become interested in any such Competitive Business
directly or indirectly as an individual, partner, shareholder, director,
officer, principal, agent, employee, consultant or in any other relationship or
capacity; provided, that the purchase of a publicly traded security of a
corporation engaged in such business or service shall not in itself be deemed
violative of this Section so long as Franchisee does not own, directly or
indirectly, more than 1% of the securities of such corporation.
To the extent required by the laws of the state in which the Outlet is located,
the duration or the geographic areas included within the foregoing covenants, or
both, shall be deemed amended in accordance with Section 25.
<PAGE>
(D) MANAGERIAL AND SUPERVISORY EMPLOYEES. Franchisee covenants that
------------------------------------
it shall cause all persons who are involved in managerial or supervisory
positions with Franchisee to enter into a Confidentiality Agreement as provided
by Franchisor. Franchisee agrees to provide Franchisor with copies of such
executed agreements upon request. If Franchisee has reason to believe that any
person has violated any such Confidentiality Agreement, Franchisee shall
promptly notify Franchisor and cooperate with Franchisor to protect it against
unfair competition, infringement, or other unlawful use of the Marks, trade
secrets, recipes, or System of the Franchisor. Franchisee further grants the
Franchisor the right, but not the obligation, to prosecute any such lawsuits at
Franchisor's expense in the name of Franchisee.
(E) COPYING; NON-SOLICITATION. Franchisee shall not copy or
-------------------------
duplicate Franchisor's System or any aspect thereof, nor assist others in doing
so (except as permitted or required by this Agreement). Franchisee covenants
that it will not, either during the Term or thereafter, employ or seek to employ
any person who is employed by Franchisor, its subsidiaries or Affiliates or by
any other franchisee of Franchisor, or otherwise directly or indirectly solicit,
entice or induce any such person to leave his/her employment thereat.
17. TRADE SECRETS AND CONFIDENTIAL INFORMATION. Franchisee understands
------------------------------------------
and agrees that Franchisor has disclosed or will hereafter disclose to
Franchisee certain confidential or proprietary information and trade secrets.
Except as necessary in connection with the operation of the Outlet and as
approved by Franchisor, Franchisee shall not, during the Term or at any time
after the expiration or termination of the Franchise, regardless of the cause of
termination, directly or indirectly, use for its own benefit or communicate or
divulge to, or use for the benefit of any other person or entity, any trade
secrets, confidential information, knowledge or know-how concerning the recipes,
food products, advertising, marketing, designs, plans, or methods of operation
of the Outlet or the System. Franchisee shall disclose to its employees only
such confi dential, proprietary or trade secret information as is necessary to
operate its business hereunder and then only while this Agreement is in effect.
Any and all information, knowledge, or know-how, including without limitation,
drawings, materials, equipment, marketing, recipes, and other data, which
Franchisor designates as secret or confidential shall be deemed secret and
confidential for purposes of this Agreement.
18. INSURANCE.
---------
(A) TYPES AND EXTENT OF COVERAGE. Franchisee shall obtain and
----------------------------
maintain throughout the Term such insurance coverages with such limits as
specified below (or such greater amounts of insurance as may be required by the
terms of any lease or mortgage relating to the Premises):
(I) fire, extended coverage, vandalism, malicious mischief
and special extended peril insurance at no less than 90 percent of the actual
replacement value of the building (if owned), the contents, and improvements;
<PAGE>
(II) workers' compensation and other insurance required by
law;
(III) comprehensive general liability insurance on an
occurrence basis naming Franchisor and its officers, directors and employees as
an additional insureds as follows (a portion of the following coverages may be
covered under the umbrella policy required under (iv), below):
(A) bodily injury to or death of one or more persons -
minimum of $1,000,000;
(B) property damage or destruction - minimum of $500,000
per occurrence;
(C) public and product liability - $1,000,000;
(D) non-owned vehicle coverage - $300,000; and
(IV) an umbrella policy with a minimum limit of $1,000,000,
which policy must expressly provide coverage above the coverages listed above,
including the non-owned vehicle policy.
(B) OTHER INSURANCE REQUIREMENTS. Upon request, Franchisee shall
----------------------------
deliver to Franchisor copies of all such policies of insurance and proof of
payment therefor. All policies required hereunder shall provide that the insurer
shall endeavor to give Franchisor written notice not less than 30 days prior to
the date the coverage is canceled, altered, or permitted to lapse or expire.
Franchisor may, from time to time, increase the limits of any required policy of
insurance.
19. TERMINATION BY FRANCHISOR.
-------------------------
(A) AUTOMATIC TERMINATION. Franchisee shall be in default under this
---------------------
Agreement, and the Franchise and all rights granted to the Franchisee herein
shall automatically terminate without notice to Franchisee, (i) if Franchisee
makes a general assignment for the benefit of creditors; or if a petition in
bankruptcy is filed by Fran chisee or (ii) such a petition is filed against and
not opposed by Franchisee; or (iii) if Franchisee is adjudicated as bankrupt or
insolvent; or (iv) if a bill in equity or other proceeding is filed for the
appointment of a receiver or other custodian for Franchisee's business or assets
if filed and consented to by Franchisee; or (v) if a receiver or other custodian
(permanent or temporary) of Franchisee's assets or property, or any part
thereof, is appointed by any court of competent jurisdiction; or (vi) if
proceedings for a composition with creditors under any state or federal law
should be instituted by or against Franchisee; or (vii) if a final judgment
remains unsatisfied or of record for thirty (30) days or longer (unless an
appeal or supersedeas bond is filed); or (viii) if Franchisee is dissolved; or
(ix) if any portion of Franchisee's interest in the Franchise becomes subject to
an attachment, garnishment, levy or seizure by any creditor or any other person
claiming against or in the rights of Franchisee; or (x) if execution is levied
against
<PAGE>
Franchisee's business or property; or (xi) if the real or personal property of
Franchisee's Outlet shall be sold after levy thereupon by any sheriff, marshal,
or constable.
(B) WITHOUT NOTICE. Franchisee shall be in default and Franchisor
--------------
may, at its option, terminate the Franchise and all rights granted herein,
without affording Franchisee any opportunity to cure the default, effective upon
the earlier of receipt of notice of termination by Franchisee, or five days
after mailing of such notice by Franchisor, upon the occurrence of any of the
following events:
(I) Franchisee at any time ceases to operate or otherwise
abandons the Outlet or forfeits the right to do or transact business in the
jurisdiction where the Outlet is located or loses the right to possession of the
Premises; provided, however, that if any such loss of possession results from
the governmental exercise of the power of eminent domain, or if, through no
fault of Franchisee the Premises are damaged or destroyed, then Franchisee shall
have 45 days after either such event in which to apply for Franchisor's approval
to relocate or reconstruct the premises (which approval shall not be
unreasonably withheld), provided, that Franchisee shall either relocate or
commence and diligently pursue reconstruction of the Outlet within 60 days after
the event;
(II) Except as otherwise permitted in Sections 11 and 14,
any owner of more than a five percent (5%) interest in Franchisee transfers all
or part of such interest or the Franchisee transfers any interest in the
Franchise or a material portion of the assets of the Outlet or of the Franchisee
without Franchisor's prior written consent;
(III) Franchisee or any person or entity owning more than five
percent (5%) of Franchisee is proven to have engaged in fraudulent conduct, or
is convicted of, or pleads guilty or no contest to a felony or a crime involving
moral turpitude, or any other crime or offense that is reasonably likely to have
an adverse effect on the Chain, the Marks or the goodwill associated therewith;
provided, that if the act or conviction involves an owner of Franchisee,
Franchisor will not terminate the Franchise if Franchisee notifies Franchisor
promptly after it learns of the event constituting the default, and within 15
days of the date of the notice, either (A) the person or entity that committed
the wrongful act divests his or its entire interest in Franchisee, or (B)
Franchisee obtains Franchisor's consent for such owner to maintain his or its
ownership interest.
(IV) An approved transfer is not effected within nine months
of the death or incapacity of any individual Franchisee, or the death,
incapacity or dissolution of any owner of an interest in the Franchisee;
(V) Franchisee makes any intentional, unauthorized disclosure
or divulgence of the contents of any Manual or other confidential information
provided to Franchisee by Franchisor;
<PAGE>
(VI) Franchisee is given three (3) or more notices of being in
material violation of any the terms or requirements of this Agreement within any
12-month period, whether or not such defaults are timely cured after notice;
(VII) Franchisee fails to comply with any of the covenants of
Franchisee set forth in Sections 16 and 17, or makes any material
misrepresentation to Franchisor or breaches any warranty or representation made
to Franchisor, whether in this Agreement or otherwise;
(VIII) Franchisee knowingly or intentionally maintains false
books or records or submits any false record, statement or report to Franchisor;
or
(IX) Franchisee, by act or omission, materially impairs the
value of, or the goodwill associated with, the Chain, any of the Marks or the
System.
(C) WITH NOTICE AND FAILURE TO CURE. Except for those defaults
-------------------------------
provided for under Sections 19.(a) or 19.(b), Franchisee shall be in default
hereunder for any failure to maintain or comply with any of the terms,
covenants, specifications, standards, procedures or requirements imposed by this
Agreement or in any Manual, policy and procedure statement or other written
document provided by Franchisor, or to carry out the terms of this Agreement in
good faith. For such defaults, Franchisor will provide Franchisee with written
notice and 15 days to cure or, if a default cannot reasonably be cured within 15
days, to initiate within that time substantial and continuing action to cure
such default and to provide Franchisor with evidence of such actions. If the
defaults specified in such notice are not cured within the 15-day period, or if
substantial and continuing action to cure has not been initiated, Franchisor
may, at its option, terminate the Franchise effective on the earlier of, the
date of receipt by Franchisee of notice of termination or five days after the
mailing of such notice by Franchisor. Such defaults shall include, without
limitation, the occurrence of any of the following events:
(I) Franchisee fails to construct or remodel, or to commence
operating the Outlet in accordance with this Agreement;
(II) Franchisee fails, refuses, or neglects to promptly to pay
any monies owing to Franchisor, its affiliates or the Marketing Fund when due,
or to submit the financial or other information required under this Agreement;
(III) Any person or entity owning five percent or less of the
Franchisee makes a transfer of such interest in violation of this Agreement;
provided, however, that Franchisee's right to cure such a default shall be
conditioned upon the Franchisee immediately notifying Franchisor of the improper
transfer and taking all actions necessary to either (A) obtain Franchisor's
approval thereof or, (B) if approval is not desired or the transfer or
transferee is not approved by Franchisor, to re-acquire the interest so
transferred;
<PAGE>
(IV) A threat or danger to public health or safety results
from the construction, maintenance, or operation of the Outlet;
(V) Franchisee misuses or makes any unauthorized use of the
Marks; or
(VI) Franchisee, by act or omission in connection with the
operation of the Outlet, permits a continued violation of any law, ordinance,
rule, or regulation of a governmental body.
(D) MATERIALITY OF BREACHES. Franchisee acknowledges and agrees that
-----------------------
a breach or violation of any term, covenant, condition, warranty, representation
or other obligation by Franchisee (other than a breach or violation that may be
cured under Section 19.(c) and is in fact cured within 15 days after notice)
shall constitute a material breach and default under this Agreement. Any breach
or violation that may be cured under Section 19.(c) and that is not in fact
cured within the 15-day cure period shall also constitute a material breach and
default under this Agreement.
20. OBLIGATIONS UPON TERMINATION OR EXPIRATION. Upon termination or
------------------------------------------
expiration of the Franchise, all rights granted hereunder to Franchisee shall
terminate, the Franchise shall revert to Franchisor, and Franchisee shall have
the following obligations with respect to the Outlet franchised under this
Agreement:
(A) Franchisee shall immediately cease to operate the business
franchised under this Agreement, and shall not thereafter, directly or
indirectly, represent to the public or hold itself out as a Papa John's Pizza
franchisee with respect to such business;
(B) Franchisee shall immediately and permanently cease to use, in any
manner whatsoever, all confidential information, methods, procedures and
techniques used by or associated with the System, and the proprietary Marks
"Papa John's," "Papa John's Pizza," and all other Marks and distinctive forms,
slogans, signs, symbols, logos and devices associated with the Papa John's Pizza
Chain;
(C) Franchisee shall immediately return to Franchisor any property
held or used by Franchisee which is owned by Franchisor and shall cease to use,
and either destroy or convey to Franchisor, all signs, advertising materials,
displays, stationery, forms and any other materials that bear or display the
Marks;
(D) Franchisee shall take such actions as may be necessary to cancel
any assumed name or similar registration which contains the mark "Papa John's"
or "Papa John's Pizza" or any other Mark of Franchisor, and Franchisee shall
furnish Franchisor with evidence satisfactory to Franchisor of compliance with
this obligation within thirty (30) days after termination or expiration of the
Franchise;
<PAGE>
(E) Franchisee shall, if Franchisor so requests, assign to Franchisor
any interest which Franchisee has in any lease for the Premises. In the event
Franchisor does not elect to exercise its option to acquire any lease for the
Premises, and unless otherwise directed by Franchisor, Franchisee shall, within
ten days after termination or expiration of the Franchise, make such
modifications and alterations to the Premises as may be necessary to distinguish
the appearance of the Premises from that of other Papa John's Pizza outlets and
shall make such specific additional changes thereto as Franchisor may reasonably
request;
(F) Franchisee shall promptly pay all sums owed to Franchisor, and in
the event the Franchise is terminated for any reason other than as a result of a
material breach of this Agreement by Franchisor that is not cured within 30 days
or such longer period as may be necessary after written notice thereof from
Franchisee, such sums shall include all damages, costs, and expenses, including
reasonable attorneys' fees, incurred by Franchisor as a result of the default
and the termination, which obligation shall give rise to and remain, until paid
in full, a lien in favor of Franchisor against any and all of the personal
property, furnishings, equipment, signs, fixtures and inventory owned by
Franchisee located on the Premises on the date the Franchise terminated;
(G) Franchisee shall pay to Franchisor all damages, costs and
expenses, including reasonable attorneys' fees, incurred by Franchisor
subsequent to the termination or expiration of the Franchise in obtaining
injunctive or other relief for the enforcement of any term, covenant or
provision of this Agreement;
(H) Franchisee shall immediately deliver to Franchisor all Manuals,
policy and procedure statements, instructions, and other materials related to
operating the Outlet, including, without limitation, brochures, charts and any
other materials provided by Franchisor and all copies thereof, and shall neither
retain nor convey to another any copy or record of any of the foregoing;
(I) If requested by Franchisor, Franchisee shall take all actions and
execute all documents necessary to convey and assign to Franchisor all telephone
numbers which have been used in the operation of the Outlet or if Franchisor
does not so request, Franchisee shall cease all use of such telephone numbers;
and
(J) Franchisee shall comply with the covenants contained in this
Agreement, including, but not limited to, the covenants not to compete and the
covenants not to disclose trade secrets or confidential information.
21. INDEPENDENT CONTRACTOR; INDEMNIFICATION.
---------------------------------------
(A) INDEPENDENT CONTRACTOR. It is understood and agreed by the
parties that this Agreement creates only a contractual relationship between the
parties subject to the normal rule of contract law. This Agreement does not
create a fiduciary relationship between them and that Franchisee is and shall
remain an independent contractor. Nothing in this Agreement is intended to
constitute either party an agent,
<PAGE>
legal representative, subsidiary, joint venturer, partner, employee, or servant
of the other for any purpose whatsoever. Franchisee agrees to hold itself out
to the public as an independent contractor, separate and apart from the
Franchisor. Franchisee agrees that it shall not make any contract, agreement,
warranty, or representation on Franchisor's behalf without Franchisor's prior
written consent, and Franchisee agrees that it shall not incur any debt or other
obligation in Franchisor's name. This Agreement shall not be deemed to confer
any rights or benefits to any person or entity not expressly named herein.
(B) INDEMNIFICATION. Franchisor shall not be liable by reason of any
---------------
act or omission of Franchisee in its conduct of the Outlet or for any claim,
cause of action or judgement arising therefrom against Franchisee or Franchisor.
Franchisee agrees to hold harmless, defend and indemnify Franchisor and its
officers, directors, agents, and employees, from and against any and all losses,
expenses, judgments, claims, attorney fees and damages arising out of or in
connection with any claim or cause of action in which Franchisor shall be a
named defendant and which arises, directly or indirectly, out of the operation
of, or in connection with, Franchisee's Outlet, other than a claim resulting
directly from Franchisor's negligence.
22. FRANCHISEE REPRESENTATIONS. Franchisee hereby acknowledges and
--------------------------
represents that:
(A) all information submitted to Franchisor by Franchisee or those
owning an interest in Franchisee, including all applications, financial
statements and other documents and information, is true and correct in all
respects and that it does not omit any statement or item of fact material to
make the statements made therein not false or misleading;
(B) Franchisor has not represented (i) that the Franchisee will earn,
can earn, or is likely to earn a gross or net profit, (ii) that Franchisor has
knowledge of the relevant market, or (iii) that the market demand will enable
the Franchisee to earn a profit from the Franchise;
(C) Franchisee has read and understood this Agreement and the
disclosure document entitled "Papa John's Franchise Offering Circular" (the
"Offering Circular") required by the Federal Trade Commission or the state in
which the Outlet will be located at least ten business days prior to the date on
which this Agreement was signed or any monies were paid to Franchisor by
Franchisee. Franchisee understands that Franchisor makes no representation or
warranty regarding Franchisee's relevant market or the profitability of business
operations under the System and that no representations have been made by
Franchisor, or by its officers, directors, shareholders, employees or agents,
that are contrary to or inconsistent with the terms of this Agreement or with
the statements made in the Offering Circular that accompanied a copy of this
Agreement;
<PAGE>
(D) Franchisee accepts the terms, conditions and covenants contained
in this Agreement as being reasonable and necessary to maintain Franchisor's
standards of quality, service and uniformity and in order to protect and
preserve the goodwill of the Marks. Franchisee acknowledges that other
franchisees of Franchisor have been or will be granted franchises at different
times and in different situations. Franchisee further acknowledges that the
provisions of the franchise agreements pursuant to which such franchises were
granted may vary materially from those contained in this Agreement and that
Franchisee's obligation arising hereunder may differ substantially from other
franchisees; and
(E) Franchisee recognizes that the System may evolve and change over
time and that the Franchise involves an investment of substantial risk and its
success is dependent primarily upon the business acumen and efforts of the
Franchisee and other factors beyond Franchisor's control. Franchisee has
conducted an independent investigation of the Franchise and has had ample time
and opportunity to consult with independent professional advisors (lawyers,
accountants, etc.), and has not received or relied upon any express or implied
guarantee as to potential volumes, revenues, profits or success of the business
venture contemplated by the Franchise.
23. GOVERNING LAW, JURISDICTION AND VENUE.
-------------------------------------
(A) GOVERNING LAW. Unless expressly prohibited by the laws of the
-------------
state in which the Outlet is located, this Agreement shall be interpreted and
construed under the laws of Kentucky, which laws shall prevail in the event of
any conflict of law.
(B) JURISDICTION; WAIVER OF DEFENSES. Unless expressly prohibited by
--------------------------------
the laws of the state in which the Outlet is located, the Franchisee agrees that
any action, claim, suit or proceeding brought by Franchisee and arising under
this Agreement or concerning the interpretation of this Agreement shall be filed
in the court of proper subject matter jurisdiction located in Jefferson County,
Kentucky, and Franchisee, on behalf of itself, its officers and directors,
hereby irrevocably consents and submits to personal jurisdiction and venue in
and by the state and federal courts within Jefferson County, Kentucky.
Franchisee agrees that it may be served with process in any such action in
accordance with the terms of the notice provision of this Agreement. With
respect to any action, claim, suit or proceeding brought by Franchisor and
arising under this Agreement or concerning the interpretation hereof, such
action may be filed in state or federal court in Jefferson County, Kentucky or
any other court of competent jurisdiction, and in any such action brought in
Kentucky, Franchisee does hereby waive all defenses of personal jurisdiction,
venue and forum non conveniens.
(C) NON-EXCLUSIVE RIGHTS. No right or remedy conferred upon or
--------------------
reserved to Franchisor by this Agreement is intended to be, nor shall be deemed,
exclusive of any other right or remedy herein or provided or permitted by law or
equity, but each shall be cumulative of every other right or remedy.
<PAGE>
(D) INJUNCTIVE RELIEF. Franchisee acknowledges and agrees that the
-----------------
violation of any of Franchisee's covenants contained herein would be a material
breach of this Agreement and would cause irreparable harm to Franchisor in
addition to financial damages. Nothing herein contained shall bar Franchisor's
right to obtain injunctive relief against threatened conduct that will cause it
loss or damages, whether as provided in this Agreement or under the usual equity
rules, including the applicable rules for obtaining restraining orders and
preliminary injunctions.
(E) COSTS, EXPENSES AND ATTORNEYS' FEES. Except as provided in
-----------------------------------
Section 20, each party shall pay its own costs, expenses and attorneys' fees in
any action, claim, suit or proceeding arising out of this Agreement or the
franchise relationship of the parties.
24. NOTICES. All notices, requests, demands and other communications
-------
required or permitted to be given or made under this Agreement shall be in
writing and shall be given (i) by personal delivery or (ii) provided such
notice, request, demand or communication is actually received by the party to
which it is addressed in the ordinary course of delivery, by deposit in the
United States mail, postage prepaid, or (iii) by registered or certified mail,
return receipt requested, postage prepared, or by delivery to a nationally-
recognized overnight courier service, in each case, addressed as follows, or to
such other person or entity as either party shall designate by notice to the
other in accordance herewith:
Franchisor: 11492 Bluegrass Parkway, Suite 175
Louisville, Kentucky 40299-2370
ATTN: General Counsel
Franchisee: P.O. Box 611165
Birmingham, Alabama 35261
ATTN: Doug Stephens
25. MISCELLANEOUS.
-------------
(A) SEVERABILITY. Franchisee agrees to be bound to the maximum extent
------------
permitted by law which is subsumed within the terms of any provision hereof, as
though it were separately articulated in and made a part of this Agreement, that
may result from the striking of any provision hereof by a court, or which a
court holds to be unenforceable in a final decision to which Franchisor is a
party, or that may result from reducing the scope of any provision to the extent
required to comply with a court order or with any state or federal law, whether
currently in effect or subsequently enacted.
(B) CONSTRUCTION. All references herein to the masculine, neuter, or
------------
singular shall be construed to include the masculine, feminine, neuter, or
plural, as the case may require. All acknowledgements, warranties,
representations, covenants, agreements, and obligations herein made or
undertaken by Franchisee shall be deemed jointly and severally undertaken by all
those executing this Agreement as Franchisee.
<PAGE>
During any period in which any of the covenants in Section 16 is being breached
or violated, including any period in which either of the parties seeks judicial
enforcement, interpretation or modification of any such covenant, and all
appeals thereof, the restricted period set forth therein shall toll and be
suspended.
(C) ENTIRE AGREEMENT. This Agreement, the documents incorporated
----------------
herein by reference and the Exhibit attached hereto, comprise the entire
agreement between the parties, and all prior understandings or agreements
concerning the subject matter hereof are canceled and superseded by this
Agreement. The Exhibit to this Agreement is incorporated herein by reference and
made a part hereof as if set out in full herein.
(D) AFFILIATE. As used in this Agreement, the term "Affiliate" shall
---------
mean any person or entity that is a Papa John's Pizza franchisee of Franchisor
or any sublicensor of Franchisor.
(E) AMENDMENTS. Except for those permitted to be made unilaterally by
----------
Franchisor, no supplement, amendment or variation of the terms of this Agreement
shall be valid unless made in writing and signed by the parties hereto.
(F) WAIVERS. No failure of Franchisor to exercise any right given to
-------
it hereunder, or to insist upon strict compliance by Franchisee with any
obligation, agreement or undertaking hereunder, and no custom or practice of the
parties at variance with the terms hereof shall constitute a waiver of
Franchisor's right to demand full and exact compliance by Franchisee with the
terms hereof. Waiver by Franchisor of any particular default by Franchisee shall
not affect or impair Franchisor's rights with respect to any subsequent default
of the same or of a different nature, nor shall any delay or omission of
Franchisor to exercise any right arising from such default affect or impair
Franchisor's rights as to such default or any subsequent default.
(G) COUNTERPARTS. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
(H) HEADINGS. The headings used in this Agreement are for convenience
--------
only, and the paragraphs shall be interpreted as if such headings were omitted.
<PAGE>
(I) TIME OF ESSENCE. Franchisee agrees and acknowledges that time is
---------------
of the essence with regard to Franchisee's obligations hereunder, and that all
of Franchisee's obligations are material to Franchisor and this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement on the day, month and year first written above.
PAPA JOHN'S INTERNATIONAL, INC.
By:________________________________________
J. Daniel Holland, President
TEXTRA CHEESE CORP.
By:________________________________________
Douglas Stephens, President
<PAGE>
PAPA JOHN'S
FRANCHISE AGREEMENT
EXHIBIT A
---------
ADDENDUM TO LEASE
-----------------
THIS ADDENDUM TO LEASE, dated __________ __, 19__, is entered into by and
between ________________________ ("Lessor"), and _____________________
("Lessee").
RECITALS:
--------
A. The parties hereto have entered into a certain Lease Agreement, dated
__________ __, 19__, and pertaining to the premises located at
________________________________________ (the "Lease").
B. Lessor acknowledges that Lessee intends to operate a Papa John's Pizza
outlet in the leased premises (the "Premises") under a Papa John's Franchise
Agreement (the "Franchise Agreement") with Papa John's International, Inc. or
any parent or wholly-owned subsidiary of Papa John's International, Inc.
("PJI").
C. The parties now desire to amend the Lease in accordance with the terms
and conditions contained herein.
AGREEMENT:
---------
NOW, THEREFORE, it is hereby mutually covenanted and agreed between Lessor
and Lessee as follows:
1. REMODELING AND DECOR. Lessor agrees that Lessee shall have the right
--------------------
to remodel, equip, paint and decorate the interior of the Premises and to
display such proprietary marks and signs on the interior and exterior of the
Premises as Lessee is reasonably required to do pursuant to the Franchise
Agreement and any successor Franchise Agreement under which Lessee may operate
a Papa John's Pizza business in the Premises.
2. ASSIGNMENT. Lessee shall have the right to assign all of its right,
----------
title and interest in the Lease to PJI at any time during the term of the Lease,
including any exten-
<PAGE>
sions or renewals thereof, without first obtaining Lessor's consent. However,
no assignment shall be effective until such time as PJI gives Lessor written
notice of its acceptance of such assignment, and nothing contained herein or in
any other document shall constitute PJI a party to the Lease, or guarantor
thereof, and shall not create any liability or obligation on PJI unless and
until the Lease is assigned to, and accepted by, PJI.
3. DEFAULT AND NOTICE.
------------------
(A) In the event there is a default or violation by Lessee under the
terms of the Lease, Lessor shall give Lessee and PJI notice of such default or
violation within a reasonable time after Lessor receives knowledge of its
occurrence.
(B) All notices to PJI shall be sent by registered or certified mail,
postage prepaid, to the following address:
Papa John's International, Inc.
11492 Bluegrass Parkway, Suite 175
Louisville, Kentucky 40299-2370
Attn: General Counsel
PJI may change its address for receiving notices by giving Lessor written notice
of such new address. Lessor agrees that it will notify both Lessee and PJI of
any change in Lessor's mailing address to which notices should be sent.
4. TERMINATION OR EXPIRATION. Upon the expiration or termination of
-------------------------
either the Lease or the Franchise Agreement, Lessor will allow PJI to enter the
Premises, without being guilty of trespass and without incurring any liability
to Lessor, to remove all signs and other items identifying the Premises as a
Papa John's Pizza outlet and to make such other modifications as are reasonably
necessary to protect PJI's proprietary marks and the Papa John's System, and to
distinguish the Premises from Papa John's Pizza outlets. Provided, however, that
this obligation of Lessor shall be conditioned upon PJI giving Lessor prior
notice of the modifications to be made and the items removed.
5. CONSIDERATION; NO LIABILITY.
---------------------------
(A) Lessor hereby acknowledges that the provisions of this Addendum
to Lease are required pursuant to the Franchise Agreement under which Lessee
plans to operate its business and that Lessee would not lease the Premises
without this Addendum.
(B) Lessor further acknowledges that Lessee is not an agent or
employee of PJI and that Lessee has no authority or power to act for, or to
create any liability on behalf of, or to in any way bind PJI, and that Lessor
has entered into this Addendum to Lease with full understanding that it creates
no duties, obligations or liabilities on or against PJI.
<PAGE>
6. AMENDMENTS. No amendment or variation of the terms of this Addendum to
----------
Lease shall be valid unless made in writing and signed by the parties hereto.
7. REAFFIRMATION OF LEASE. Except as amended or modified herein, all of
----------------------
the terms, conditions and covenants of the Lease shall remain in full force and
effect and are incorporated herein by reference and made a part hereof as though
copied herein in full.
IN TESTIMONY WHEREOF, witness the signatures of the parties hereto as of
the day, month and year first written above.
______________________________________
By:___________________________________
Title:________________________________
("Lessor")
______________________________________
By:___________________________________
Title:________________________________
("Lessee")
<PAGE>
EXHIBIT 10.17
________________________________________________________________________________
PAPA JOHN'S
DEVELOPMENT AGREEMENT
PJVA, INC.
1905 STONEGATE ROAD
P.O. BOX 23146
ANCHORAGE, KENTUCKY 40223
[For the Development of 47 Outlets in
Virginia Beach, Richmond and Norfolk, Virginia]
________________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. Grant................................................................. 2
2. Development Fee....................................................... 2
3. Development of Outlets; Schedule for Completion....................... 3
4. Term.................................................................. 5
5. Construction or Remodeling............................................ 5
6. Organization, Operation and Ownership of Developer.................... 5
7. Covenants of the Developer............................................ 6
8. Reasonableness of Scope and Duration.................................. 8
9. Enforceability........................................................ 8
10. Principal Operator.................................................... 9
11. Default and Termination............................................... 10
12. Assignment or Transfer................................................ 12
13. No Grant of Franchise or Franchise Rights............................. 12
14. Notices............................................................... 13
15. Franchise Agreement Defined........................................... 13
16. Independent Contractor; Indemnification............................... 14
17. Severability; Construction............................................ 14
18. Entire Agreement...................................................... 15
19. Waivers............................................................... 15
20. Headings.............................................................. 15
21. Affiliate............................................................. 16
22. Governing Law, Jurisdiction and Venue................................. 16
23. Acknowledgements...................................................... 17
24. Time of Essence....................................................... 17
NON-COMPETITION AGREEMENT.................................................. 18
COVENANTS OF PRINCIPAL OPERATOR............................................ 19
</TABLE>
<PAGE>
DEVELOPMENT AGREEMENT
---------------------
THIS DEVELOPMENT AGREEMENT ("Agreement") is made and entered into this 15th
day of March, 1992, by and between PAPA JOHN'S INTERNATIONAL, INC., a Delaware
corporation ("Franchisor"), and PJVA, INC., a Virginia corporation
("Developer").
RECITALS:
--------
A. Franchisor has expended time, effort and money to develop a unique
system for the operation of retail outlets specializing in carry-out and
delivery of pizza and other food items (the "System").
B. Franchisor's System includes the trade name and trademark "Papa
John's" as well as the trademark "Papa John's Pizza" and certain other
trademarks, service marks, slogans, logos and emblems owned by Franchisor (the
"Marks").
C. Developer desires to obtain certain rights to develop Papa John's
Pizza outlets in the "Development Area" (as defined in Section 1) in accordance
with the terms of this Agreement.
AGREEMENT:
---------
NOW, THEREFORE, in consideration of the covenants and conditions
hereinafter set forth, the parties agree as follows:
<PAGE>
1. GRANT.
-----
(a) Subject to the terms and conditions of this Agreement and the
continuing faithful performance thereof by Developer, Franchisor hereby grants
to Developer the right and obligation to establish 47 Papa John's Pizza outlets
(at specific locations approved by Franchisor as provided in section 3) in the
areas specified on Exhibit A attached hereto and incorporated herein by
reference. (The Papa John's Pizza outlets are collectively referred to as the
"Outlets" and individually as an "Outlet"; the areas specified on Exhibit A are
collectively referred to as the "Development Area").
(b) Each Outlet shall be established and operated pursuant to a
separate "Franchise Agreement" (as defined in Section 15) to be entered into
between Developer and Franchisor. The Franchise Agreement for each Outlet shall
not be substantially different than the form of Franchise Agreement executed for
the first Outlet developed hereunder.
(c) Except as may be otherwise provided herein or in the Franchise
Agreements, Franchisor shall not locate, nor license another to locate, a Papa
John's Pizza outlet in the Development Area during the "Term" (as defined in
Section 4).
(d) This Agreement is not a franchise agreement and does not grant
Developer any franchise rights or other rights to use Franchisor's Marks or
System.
(e) Developer shall have no right to license others to use the Marks
or the System, or to enter into any agreement with respect thereto.
2. DEVELOPMENT FEE. Developer has paid to Franchisor a development fee of
---------------
Seventy-seven Thousand Dollars ($77,000) ("Development Fee") (i.e Three Thousand
Five Hundred Dollars ($3,500) for each of the first 22 Outlets to be developed),
receipt of which is hereby acknowledged and which Development Fee has been fully
earned by Franchisor, is non-refundable and is not contingent upon the rendering
of any further
<PAGE>
performance by Franchisor. The Development Fee is in consideration of, among
other things, the development rights granted herein, the reservation of the
Development Area, the development opportunities lost or deferred as a result of
the rights granted Developer herein and the administrative and other expenses
incurred by Franchisor. However, $3,500 of the Development Fee will be credited
against each Initial Franchise Fee for each of the first 22 Outlets to be
developed at the time each such fee is paid, as provided in Section 3(e).
3. DEVELOPMENT OF OUTLETS; SCHEDULE FOR COMPLETION.
-----------------------------------------------
(a) Developer shall have the number of Outlets open and operating
within the time frame set forth in subsection 3, below, and Developer shall
exercise each such development right only at locations within the Development
Area which have been approved by Franchisor.
(b) Prior to the execution of any lease or contract for purchase of
any location for an Outlet, Developer shall submit to Franchisor for approval
two copies of the proposed contract or lease. If Developer owns the property
where the Outlet is proposed to be located, Developer shall submit two copies of
the deed conveying title to such property to Developer. If Developer intends to
lease the location, Developer shall also submit a letter of intent or other
evidence satisfactory to Franchisor which confirms the ability of Developer to
obtain the site, together with such other information and materials as
Franchisor may reasonably request. Franchisor shall have 30 days after receipt
of such information to accept or reject, in its sole discretion, each proposed
location, and no location shall be deemed approved unless it has been expressly
approved in writing by Franchisor. If Franchisor fails to respond within such 30
day period, the location submitted by Developer shall be deemed to be approved.
Franchisor will not unreasonably withhold its approval of a location. Any
proposed lease shall include an addendum in the form of Exhibit C to the
Franchise Agreement, or shall contain terms and conditions substantially similar
to those contained in Exhibit C to the Franchise Agreement which Franchisor
approves.
<PAGE>
(c) Franchisor shall deliver the Franchise Agreement to Developer
within 15 days after Franchisor approves the lease, deed or contract for
purchase for the location. The Franchise Agreement for such location shall be
executed by Developer and submitted to Franchisor within ten days after it is
delivered to Developer.
(d) Notwithstanding any provision of any Franchise Agreement entered
into between Franchisor and Developer, Developer shall exercise each development
right as follows:
DEVELOPMENT SCHEDULE
--------------------
.Three Outlets must be opened in the first year of the Term;
.Five Outlets must be opened in the second year of the Term;
.Six Outlets must be opened in the third year of the Term;
.Seven Outlets must be opened in the fourth year of the Term;
.Eight Outlets must be opened in the fifth year of the Term;
.Nine Outlets must be opened in the sixth year of the Term; and
.Nine Outlets must be opened in the seventh year of the Term.
[* - Includes only those Outlets to be developed pursuant to this
Development Agreement.]
(e) The Initial Franchise Fee to be paid by Developer for each Outlet
shall be $15,000; provided that $3,500 of the Development Fee shall be credited
against the Initial Franchise Fee. The net amount of the Initial Franchise Fee
($11,500) shall be paid at the time each such Franchise Agreement is executed
for each of the first 22 Outlets developed. The Initial Franchise Fee for the
23rd Outlet to be developed and each additional Outlet developed hereunder shall
be $15,000 with no credits or deductions.
<PAGE>
(f) It shall be Developer's responsibility to ensure that each Outlet
is constructed or remodeled, and equipped and operated in compliance with all
laws, ordinances and governmental rules and regulations, and Developer shall
obtain all necessary permits and licenses relating thereto.
4. TERM. Unless sooner terminated as provided herein, this Agreement
----
shall expire at 12:00 midnight on the last date set forth on the Development
Schedule (the "Term"). Upon the termination or expiration of this Agreement, all
unexercised development rights shall expire.
5. CONSTRUCTION OR REMODELING. Developer shall, at its own expense,
--------------------------
construct or remodel the Outlet at each location in accordance with
specifications provided by Franchisor, including, but not limited to, those
contained in the Construction Agreement attached to the "Papa John's Offering
Circular" (as defined in Section 23). Developer shall allow Franchisor and its
agents and employees access to all areas of the premises of each Outlet at such
times as they may reasonably request and Developer shall cooperate fully with
Franchisor and its agents and employees in preparing specifications for each
Outlet to be developed hereunder. However, it shall be Developer's obligation
to have plans drawn showing the layout on all equipment, signs and leasehold
improvements, and such plans shall be subject to Franchisor's approval.
Developer shall not begin construction or remodeling on any Outlet until the
Franchise Agreement has been fully executed and Franchisor has approved the
plans for such Outlet.
6. ORGANIZATION, OPERATION AND OWNERSHIP OF DEVELOPER. If Developer is a
--------------------------------------------------
corporation or other entity:
(a) If requested by Franchisor from time to time, Developer shall
furnish Franchisor with its Articles of Incorporation, By-Laws and other
governing documents (and any amendments or modifications thereof), minutes and
resolutions and all agreements or other documents, records and information
pertaining to Developer's existence and operation.
<PAGE>
(b) Developer shall confine its business activities exclusively to
the establishment, management and operation of Papa John's Pizza outlets
pursuant to agreements with Franchisor.
(c) Developer shall, concurrently with the execution of this
Agreement, and at such other times as may be requested by Franchisor, disclose
the name and address of each person or entity owning a beneficial interest in
Developer, and Developer shall not issue any additional securities, nor allow
the "transfer" (as defined in Section 12) of any of its outstanding securities,
except as provided in Section 12.
(d) Developer shall at all times comply with all laws, ordinances,
rules and regulations of governmental bodies.
(e) Developer shall cause all persons or entities owning any interest
in Developer to execute the Guaranty and Non-Competition Agreement attached
hereto, guarantying certain obligations of Developer and agreeing to be bound to
certain covenants contained in this Agreement.
7. COVENANTS OF THE DEVELOPER.
--------------------------
(A) COVENANT NOT-TO-COMPETE. Developer covenants and agrees that
-----------------------
during the Term and for a period of two years after the expiration or
termination of this Agreement, regardless of the cause for such expiration or
termination (the "Restricted Period"), Developer shall not, anywhere within
either (i) the boundaries of the Development Area or (ii) a 50-mile radius of
any business location at which the Developer, Franchisor or an "Affiliate" (as
defined in Section 21) then conducts a Papa John's Pizza business, engage in
any of the following activities:
(i) directly or indirectly enter into the employ of, render
any service to or act in concert with any person, partnership, corporation or
other entity that owns, operates, manages, franchises or licenses any business
that (A) sells pizza or other
<PAGE>
non-pizza products (excluding soft drinks) that are the same as those sold by
Papa John's Pizza outlets on a delivery basis, or (B) sells pizza or any such
other products primarily on a carry-out basis, including, without limitation,
business formats such as Domino's, Pizza Hut, Mr. Gatti's, Sbarro and Little
Caesars (a "Competitive Business"), or
(ii) directly or indirectly engage in any such Competitive
Business on its own account, or
(iii) become interested in any such Competitive Business
directly or indirectly as a partner, shareholder, principal, agent, consultant
or in any other relationship or capacity; provided, that the purchase of a
publicly traded security of a corporation engaged in such business or service
shall not in itself be deemed violative of this Agreement so long as Developer
does not own, directly or indirectly, more than 1% of the securities of such
corporation.
To the extent required by the laws of the state in which the Outlets are to be
developed, the duration or the geographic areas included within the foregoing
covenants, or both, shall be deemed amended in accordance with Section 17.
(B) APPROPRIATION AND DISCLOSURE OF INFORMATION. Except as permitted
-------------------------------------------
by the Franchise Agreement, Developer will not at any time use, copy or
duplicate the System or any aspect thereof, or any of the Franchisor's trade
secrets, recipes, processes, formulas, know-how or proprietary ideas or
information, nor will Developer convey, divulge, make available or communicate
such information to any third party or assist others in using, copying or
duplicating any of the foregoing.
(C) INFRINGEMENT. Developer will not at any time commit any act that
------------
would infringe upon or impair the value of the System or the Marks, nor will it
engage in any business or market any product or service under a trade-name,
trademark, service mark, logo or design that is confusingly or deceptively
similar to any of the Marks.
<PAGE>
(D) SOLICITATION OF EMPLOYEES. Developer agrees that from and after
-------------------------
the date hereof, it will not solicit, entice or induce, directly or indirectly,
any employee of the Franchisor or an Affiliate to leave the employment of the
Franchisor or an Affiliate to work with Developer or with any person or entity
with whom Developer is or becomes affiliated.
8. REASONABLENESS OF SCOPE AND DURATION. Developer agrees that the
------------------------------------
covenants and agreements contained herein are, taken as a whole, reasonable with
respect to the activities covered and their geographic scope and duration, and
it shall not raise any issue of the reasonableness of the areas, activities or
duration of any such covenants in any proceeding to enforce any such covenants.
9. ENFORCEABILITY. Developer agrees that the Franchisor may not be
--------------
adequately compensated by damages for a breach by Developer of any of the
covenants and agreements contained herein, and that the Franchisor shall, in
addition to all other remedies, be entitled to injunctive relief and specific
performance. The covenants and agreements contained in this Agreement shall be
construed as separate covenants and agreements, and if any court shall finally
determine that the restraints provided for in any such covenants and agreements
are too broad as to the area, activity or time covered, said area, activity or
time covered may be reduced to whatever extent the court deems reasonable, and
such covenants and agreements shall be enforced as to such reduced area,
activity or time.
10. PRINCIPAL OPERATOR. Developer shall designate an individual to serve
------------------
as the "Principal Operator" of Developer. The Principal Operator shall meet the
following qualifications:
(a) The Principal Operator shall own at least a five percent (5%)
equity interest in the Developer, provided that Developer shall not be in
default if the Principal Operator is entitled to a bonus of not less than five
percent (5%) of the net profits of the Outlet, payable after the end of each
Period, and also has the right to acquire not less
<PAGE>
than a five percent (5%) equity interest in the Developer within 12 months of
his or her hire date, which rights shall be evidenced by a written agreement
between the Principal Operator and the Developer. Developer shall provide
Franchisor with a copy of any such agreement upon request. Once the Principal
Operator has acquired an equity interest in Developer, he or she must continue
to own that interest (or a greater interest) during the entire period he or she
serves as the Principal Operator.
(b) The Principal Operator shall devote full time and best efforts to
the supervision and conduct of the development and operation of the Outlets
contemplated hereunder and shall execute the Covenants of Principal Operator
attached hereto, agreeing to be individually bound by the obligations of this
Section 10.
(c) The Principal Operator shall be a person approved by Franchisor
who shall complete Franchisor's initial training requirements and who shall
participate in and complete to Franchisor's satisfaction all additional training
as may be reasonably designated by Franchisor.
If, at any time or for any reason, the Principal Operator no longer
qualifies to act as such, Developer shall promptly designate another Principal
Operator subject to the same qualifications listed above. Developer shall
immediately notify Franchisor of the termination of the Principal Operator's
employment with Developer, whether voluntary or involuntary.
11. DEFAULT AND TERMINATION.
-----------------------
(A) AUTOMATIC TERMINATION. Developer shall be deemed to be in default
---------------------
hereunder, and this Development Agreement and all rights granted herein shall
automatically terminate without notice to Developer, (i) if Developer becomes
insolvent or makes a general assignment for the benefit of creditors; or if a
petition in bankruptcy is filed by Developer; or (ii) such a petition is filed
against and not opposed by Developer; or (iii) if Developer is adjudicated as
bankrupt or insolvent; or (iv) if a bill
<PAGE>
in equity or other proceeding is filed for the appointment of a receiver or
other custodian for Developer's business or assets if filed and consented to by
Developer; or (v) if a receiver or other custodian (permanent or temporary) of
Developer's assets or property, or any part thereof, is appointed by any court
of competent jurisdiction; or (vi) if proceedings for a composition with
creditors under any state or federal law should be instituted by or against
Developer; or (vii) if a final judgment remains unsatisfied or of record for
thirty (30) days or longer (unless supersedeas bond is filed); or (viii) if
Developer is dissolved; or (ix) if any portion of Developer's interest in any
Papa John's Pizza franchise becomes subject to an attachment, garnishment, levy
or seizure by any creditor or any other person claiming against or in the rights
of Developer; or (x) if execution is levied against Developer's business or
property; or (xi) if the real or personal property of any Outlet shall be sold
after levy thereupon by any sheriff, marshal, or constable.
(B) WITHOUT NOTICE. Developer shall be in default under this
--------------
Agreement, and Franchisor may, at its option, terminate this Agreement and all
rights granted hereunder without affording Developer any opportunity to cure
such default, effective upon the earlier of (i) receipt of the notice of
termination by Developer, or (ii) five days after mailing of such notice by
Franchisor, upon the occurrence of any of the following events:
(i) if Developer fails to strictly comply with the
development schedule set forth in Section 3;
(ii) if any Franchise Agreement entered into pursuant to this
Agreement or otherwise is terminated as a result of a breach or default
thereunder by Developer;
(iii) if Developer makes or attempts to make any transfer,
whether voluntary or involuntary, of this Agreement or any interest herein, or
of any rights or obligations arising hereunder, or of any interest in Developer,
or of any
<PAGE>
material portion of Developer's assets, without Franchisor's prior written
consent, except as otherwise provided under the Franchise Agreement; or
(iv) if Developer fails to comply with any of the covenants of
Developer set forth in Sections 7 and 8 of this Agreement.
(C) WITH NOTICE. For any other breach or default under this
-----------
Agreement, Franchisor will provide Developer with written notice of default and
15 days to cure or, if a default cannot be reasonably be cured within 15 days,
to initiate within that time substantial and continuing action to cure such
default and to provide Franchisor with evidence of such actions. If the defaults
specified in such notice are not cured within the 15 day period, or if
substantial and continuing action to cure has not been initiated, Franchisor
may, at its option, terminate this Development Agreement and all rights granted
Developer hereunder by giving written notice of such termination to Developer.
The notice of termination shall be effective on the earlier of (i) the date of
receipt of the notice by Developer or (ii) five days after the mailing of such
notice by Franchisor.
(D) EFFECT OF TERMINATION. Upon termination of this Agreement, all
---------------------
rights of Developer hereunder shall terminate and Developer shall have no
further right to establish any Outlets. In addition, upon termination of this
Agreement, Franchisor shall have the right to open and operate, or to franchise
others to open and operate, Papa John's Pizza outlets anywhere within the
Development Area, except that Franchisor may not locate or franchise another to
locate a Papa John's Pizza Outlet within the "Territory" provided for in any
Franchise Agreement that remains in effect after the date of termination.
12. ASSIGNMENT OR TRANSFER.
----------------------
(A) TRANSFER BY FRANCHISOR. Franchisor shall be free to transfer this
----------------------
Agreement or any portion hereof, or any or all of its rights, obligations or
interests here-
<PAGE>
under, without restriction. Upon any transfer or assignment of this Agreement by
Franchisor, Franchisor shall be released from all obligations and liabilities
arising or accruing in connection with this Agreement after the date of such
transfer of assignment.
(B) TRANSFER BY DEVELOPER. This Agreement, and the rights and
---------------------
obligations of Developer herein, are and shall remain personal to Developer.
Any proposed transfer by Developer or any owner of Developer (regardless of the
form of transfer) shall be subject to the same terms and conditions contained in
the Franchise Agreement. As used herein, the term "transfer" shall mean any
sale, assignment, gift, pledge, mortgage or any other encumbrance, transfer by
bankruptcy, transfer by judicial order, merger, consolidation, share exchange,
transfer by operation of law or otherwise, whether direct or indirect, voluntary
or involuntary, of this Agreement or any interest herein, or any rights or
obligations arising hereunder, or of any material portion of Developer's assets,
or of any interest in Developer.
13. NO GRANT OF FRANCHISE OR FRANCHISE RIGHTS. This Agreement does not
-----------------------------------------
grant Developer a franchise or any rights of a Papa John's franchisee. To the
fullest extent permissible by law, Developer waives the applicability of any law
which would constitute this Agreement or any rights granted hereunder as a
franchise agreement or as granting any franchise rights.
14. NOTICES. All notices, requests, demands and other communications
-------
required or permitted to be given or made under this Agreement shall be in
writing and shall be given (i) by personal delivery or (ii) provided such
notice, request, demand or communication is actually received by the party to
which it is addressed in the ordinary course of delivery, by deposit in the
United States mail, postage prepaid, or (iii) by registered or certified mail,
return receipt requested, postage prepaid, or by delivery to a nationally-
recognized overnight courier service, in each case, addressed as follows, or to
such other person or entity as either party shall designate by notice to the
other in accordance herewith:
<PAGE>
Franchisor: 11492 Bluegrass Parkway, Suite 175
Louisville, Kentucky 40299
ATTN: General Counsel
Developer: 1905 Stonegate Road
P.O. Box 23146
Anchorage, Kentucky 40223
ATTN: Richard F. Sherman
Except as otherwise provided herein, a notice shall be deemed to have been
given on the date of personal delivery to a party or the date deposited in the
United States mail or with a nationally-recognized overnight courier.
15. FRANCHISE AGREEMENT DEFINED. As used herein, the term "Franchise
---------------------------
Agreement" shall mean the form of Papa John's Franchise Agreement to be
executed for each Outlet developed hereunder and all attachments and exhibits
thereto.
16. INDEPENDENT CONTRACTOR; INDEMNIFICATION.
---------------------------------------
(a) It is understood and agreed by the parties that this Agreement
creates only a contractual relationship between the parties subject to the
normal rules of contract law. This Agreement does not create a fiduciary
relationship between the parties. Developer is and shall remain an independent
contractor, and nothing in this Agreement is intended to constitute either party
an agent, legal representative, subsidiary, joint venturer, partner, employee or
servant of the other for any purpose whatsoever. Developer agrees to hold
itself out to the public as an independent contractor, separate and apart from
Franchisor. This Agreement shall not be deemed to confer any rights to any
person or entity not expressly named herein.
(b) Developer agrees that it shall not make any contract, agreement,
warranty or representation on Franchisor's behalf without Franchisor's prior
written consent, and Developer agrees that it shall not incur any debt or other
obligation in Franchisor's name. Franchisor shall not be liable by reason of
any act or omission of
<PAGE>
Developer in connection with the development, construction, remodeling or
operation of any Outlet, or for any claim or judgment arising therefrom against
Developer or Franchisor.
(c) Developer agrees to hold harmless, defend and indemnify
Franchisor and its officers, directors, agents and employees from and against
all losses, expenses, judgments, claims and damages arising out of or in
connection with any claim or cause of action in which Franchisor shall be a
named defendant and which arises, directly or indirectly, out of the
development, construction or remodeling of any Outlet by Developer.
17. SEVERABILITY; CONSTRUCTION. Developer agrees to be bound to the
--------------------------
maximum extent permitted by law which is subsumed within the terms of any
provision hereof, as though it were separately articulated herein and made a
part of this Agreement, that may result from the striking of any provision
hereof by a court, or which a court holds to be unenforceable in a final
decision to which Franchisor is a party, or that may result from reducing the
scope of any provision to the extent required to comply with a court order or
with any state or federal law, whether currently in effect or subsequently
enacted. During any period in which any of the covenants in Section 7, above,
is being breached or violated, including any period in which either of the
parties seeks judicial enforcement, interpretation or modification of any such
covenant, and all appeals thereof, the Restricted Period shall toll and be
suspended.
18. ENTIRE AGREEMENT. This Agreement, the Guaranty and Non-Competition
----------------
Agreement and the Covenants of Principal Operator attached hereto, and the
documents incorporated herein by reference, comprise the entire agreement
between the parties and all prior understandings, communications and agreements
concerning the subject matter hereof are canceled and superseded by this
Agreement. No supplement, amendment or variation of the terms of this Agreement
shall be valid unless made in writing and signed by both parties hereto.
<PAGE>
19. WAIVERS. No failure of either party hereto to exercise any right given
-------
to it hereunder, or to insist upon strict compliance by the other with any
obligation, agreement or undertaking hereunder, and no custom or practice of the
parties at variance with the terms hereof shall constitute a waiver of such
party's right to demand full and exact compliance by the other with the terms
hereof. The waiver or excuse by Franchisor of any particular default of
Developer shall not affect or impair Franchisor's rights with respect to any
subsequent default of the same or of a different nature, nor shall any delay or
omission of Franchisor to exercise any right arising from such default affect or
impair Franchisor's rights as to such default or any subsequent default.
20. HEADINGS. The headings used in this Agreement are for convenience
--------
only, and this Agreement shall be interpreted as if such headings were omitted.
21. AFFILIATE. As used herein, the term "Affiliate" shall mean any person
---------
or entity that is a Papa John's Pizza franchisee of Franchisor or any
sublicensor of Franchisor.
22. GOVERNING LAW, JURISDICTION AND VENUE.
-------------------------------------
(a) Unless expressly prohibited by the laws of the state in which the
Outlets are to be developed, this Agreement shall be interpreted and construed
under the laws of the Commonwealth of Kentucky, which laws shall prevail in the
event of any conflict of law.
(b) Unless expressly prohibited by the laws of the state in which the
Outlets are to be developed, the parties agree that any action, claim, suit or
proceeding arising under this Agreement or concerning the interpretation of this
Agreement shall be brought in the court of proper jurisdiction located in
Jefferson County, Kentucky, and Developer irrevocably consents and submits to
personal jurisdiction and venue in and by the state courts within Jefferson
County, Kentucky, and agrees that Developer may be served with process in any
action in accordance with the terms of the notice provision
<PAGE>
of this Agreement. Developer does hereby waive all defenses of personal
jurisdiction, venue and forum non conveniens for the purpose of carrying out
this provision.
(c) No right or remedy conferred upon or reserved to Franchisor by
this Agreement is intended to be, nor shall be deemed, exclusive of any other
right or remedy herein provided or permitted by law or equity, but each shall be
cumulative of every other right or remedy. In any action, claim, suit or
proceeding arising out of this Agreement, each party shall pay its own costs,
expenses and attorneys' fees.
23. ACKNOWLEDGEMENTS.
----------------
(a) Developer acknowledges that the success of the businesses
contemplated by this Agreement involves substantial business risks and will be
dependent upon the ability of Developer or those controlling Developer as
independent businessmen. Franchisor expressly disclaims the making of, and
Developer acknowledges not having received, any warranty or guarantee, express
or implied, as to the potential volume, profits or success of the businesses
contemplated by this Agreement.
(b) Developer acknowledges that it received the "Papa John's
Franchise Offering Circular" (and all exhibits thereto) at least ten business
days prior to the date on which this Agreement was signed or any monies were
paid to Franchisor by Developer, and that it has read and understood this
Agreement and the attachments hereto. Developer further acknowledges that
Franchisor has accorded Developer ample time and opportunity to consult with
advisors of Developer's own choosing about the potential benefits and risks of
entering into this Agreement.
<PAGE>
24. TIME OF ESSENCE. Developer agrees and acknowledges that time is of the
---------------
essence with regard to Developer's obligations hereunder, and that all of
Developer's obligations are material to Franchisor and this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Development
Agreement as of the day, month and year first written above.
PAPA JOHN'S INTERNATIONAL, INC.
By:________________________________________
J. Daniel Holland, President
("Franchisor")
PJVA, INC.
By: _______________________________________
Title: ____________________________________
("Developer")
NON-COMPETITION AGREEMENT
-------------------------
Each of the undersigned agrees to be individually bound by the covenants of
Developer set forth in Sections 7, 8, 9 and 12 of the Development Agreement.
Each of the undersigned acknowledges that this Non-Competition Agreement does
not grant any rights to the undersigned in the Development Agreement. This Non-
Competition Agreement and each of the undersigned shall also be subject to, and
governed by, the provisions of Section 22 of the Development Agreement.
March 15, 1992 ______________________________________
RICHARD F. SHERMAN
<PAGE>
March 15, 1992 ______________________________________
MARTIN T. HART
March 15, 1992 ______________________________________
JACK A. LAUGHERY
March 15, 1992 ______________________________________
MICHAEL J. GRISANTI
COVENANTS OF PRINCIPAL OPERATOR
-------------------------------
The undersigned shall be the Principal Operator referred to in Section 10
of the foregoing Development Agreement. The undersigned has read the Development
Agreement and agrees to be individually bound by the obligations set forth in
Section 10 thereof.
March 15, 1992 ______________________________________
JACK A. LAUGHERY
<PAGE>
PAPA JOHN'S
DEVELOPMENT AGREEMENT
EXHIBIT A
---------
DEVELOPMENT AREA
----------------
March 15, 1992
The areas encompassed by the following listed counties in Virginia shall
comprise the "Development Area," as defined in the foregoing Papa John's
Development Agreement of even date herewith, by and between PAPA JOHN'S
INTERNATIONAL, INC. ("Franchisor") and PJVA, INC. ("Developer"):
Amelia, Brunswick, Buckingham, Caroline, Charles City,
Chesterfield, Cumberland, Dinwiddie, Essex, Fluvanna,
Goochland, Greene, Greensville, Hanover, Henrico,
King & Queen, King William, Lancaster, Louisa,
Lunenberg, Madison, Middlesex, New Kent,
Northumberland, Nottoway, Orange, Powhatan, Prince
Edward, Prince George, Richmond and Sussex
NUMBER OF OUTLETS TO BE DEVELOPED 47
Notwithstanding the foregoing, the Development Area shall not include the
following:
23090, 23127, 23168, 23185, 23601, 23602, 23603,
23604, 23605, 23606, 23607, 23651, 23661, 23662,
23663, 23664, 23665, 23666, 23667, 23668, 23669,
23690, 23691, 23692, 23694, 23696
PAPA JOHN'S INTERNATIONAL, INC.
By:________________________________________
J. Daniel Holland, President
PJVA, INC.
By:________________________________________
Richard F. Sherman, President
<PAGE>
Exhibit 10.18
________________________________________________________________________________
PAPA JOHN'S
FRANCHISE AGREEMENT
PJVA, INC.
10054 ROBIOUS ROAD
RICHMOND, VIRGINIA 23235
________________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
RECITALS.................................................... 1
1. Grant.................................................. 1
2. Term, Renewal and Expiration........................... 2
3. Franchise Fees and Payments............................ 4
4. Franchisor Services.................................... 5
5. Territorial Provisions................................. 6
6. Premises............................................... 7
7. Proprietary Marks...................................... 8
8. Advertising............................................ 9
9. Telephone Number....................................... 13
10. Construction, Design and Appearance; Equipment......... 14
11. Operations; Standards of Quality; Inspections.......... 15
12. Products; Commissary; Menu............................. 18
13. Reports................................................ 18
14. Transfers; Franchisor's Right of First Refusal......... 20
15. Death, Incapacity or Dissolution....................... 23
16. Additional Covenants of Franchisee..................... 24
17. Trade Secrets and Confidential Information............. 26
18. Insurance.............................................. 26
19. Termination by Franchisor.............................. 27
</TABLE>
<PAGE>
<TABLE>
<S> <C>
20. Obligations upon Termination or Expiration............. 30
21. Independent Contractor; Indemnification................ 31
22. Franchisee Representations............................. 32
23. Governing Law, Jurisdiction and Venue.................. 33
24. Notices................................................ 33
25. Miscellaneous.......................................... 34
GUARANTY OF FRANCHISEE'S OBLIGATIONS........................ 36
EXHIBIT A................................................... 38
EXHIBIT B................................................... 42
EXHIBIT C................................................... 45
</TABLE>
<PAGE>
PAPA JOHN'S
FRANCHISE AGREEMENT
-------------------
SINGLE LOCATION FRANCHISE
THIS FRANCHISE AGREEMENT ("Agreement") is made and entered into as of the
_____ day of August 1992, by and between PAPA JOHN'S INTERNATIONAL, INC., a
Delaware corporation ("Franchisor"), and PJVA, INC., a Virginia corporation
("Franchisee").
RECITALS:
--------
A. Franchisor has expended time, money and effort to develop a unique
system for operating retail outlets specializing in carry-out and delivery of
pizza and other food items. (The methods of operation are referred to herein as
the "System"; the chain of current and future Papa John's Pizza outlets are
referred to as the "Papa John's Pizza Chain" or the "Chain.")
B. The distinguishing characteristics of the System include the name
"Papa John's," special recipes for the making of pizza and other foods, unique
interior and exterior building design and appearance, the use of only top-
quality ingredients, and consistency and uniformity of products and services,
all of which may be improved, amended and further developed by Franchisor from
time to time.
C. Franchisor identifies its goods and services with certain service
marks, trade names and trademarks, including, but not limited to, "Papa John's,"
and "Papa John's Pizza," as well as certain other trademarks, service marks,
slogans, logos and emblems which have been and which may hereafter be designated
by Franchisor for use in connection with the System (the "Marks").
D. Franchisor and Franchisee now desire to enter into this Agreement
regarding the operation of one Papa John's Pizza outlet under the System and the
Marks at the location listed below (the "Outlet").
NOW, THEREFORE, the parties agree as follows:
1. GRANT. Subject to the terms and conditions of this Agreement and the
-----
continuing faithful performance thereof by the Franchisee, Franchisor hereby
grants to Franchisee the non-exclusive right and franchise (the "Franchise") to
operate one retail outlet under the System and the Marks which shall be located
at:
<PAGE>
10054 Robious Road
Richmond, Virginia 23235
(the "Location")
Pursuant to this grant, Franchisee, at its own expense, shall construct or
remodel, and equip, staff, open and operate the Outlet at the Location. Unless
otherwise agreed, the Franchisee shall commence operating the Outlet within 60
days after the execution of this Agreement, and shall diligently operate such
business in accordance with this Agreement for the Term stated herein.
2. TERM, RENEWAL AND EXPIRATION.
----------------------------
(A) INITIAL TERM. The Franchise shall be for a term of ten (10)
------------
years from the date of this Agreement, unless sooner terminated as provided
herein (the "Initial Term").
(B) RENEWAL OF AGREEMENT. This Agreement shall not automatically
--------------------
renew upon the expiration of the Initial Term. Franchisee may, however, renew
this Agreement for one additional five (5) year term ("Renewal Term") if, and
only if, each and every one of the following conditions has been satisfied:
(I) Franchisee has given Franchisor written notice of its
desire to renew the Franchise not less than three months nor more than six
months prior to the end of the Initial Term; provided that if Franchisor has not
received notice from Franchisee of its desire to renew within such period,
Franchisor will notify Franchisee and Franchisee shall have a period of 10 days
thereafter within which to submit the renewal notice;
(II) Franchisee shall be in full compliance with this Agreement
and there shall be no uncured default by Franchisee hereunder, and there shall
have been no series of material defaults by Franchisee during the Initial Term
(i.e., an abnormal frequency of defaults or a default that has occurred
repeatedly, or a combination thereof), whether or not such defaults were cured,
and all debts and obligations of Franchisee under this Agreement shall be
current, including Franchisee's obligations to the Marketing Fund and each
Cooperative of which Franchisee is a member;
(III) Franchisee secures the right to continue possession of the
Premises for a period at least equal to the Renewal Term, or alternatively
Franchisee secures premises at another location approved by Franchisor for the
same period;
(IV) Franchisee executes and delivers to Franchisor a general
release, in the form prescribed by Franchisor, releasing, to the fullest extent
permitted under the laws of the state where the Outlet is located, all claims
that Franchisee may have against Franchisor and its affiliates and subsidiaries,
and their respective officers, directors, shareholders and employees in both
their corporate and individual capacities.
<PAGE>
(C) TERM. As used in this Agreement, "Term" shall mean the Initial
----
Term or the Renewal Term, as the case may be.
(D) RENEWAL OF FRANCHISE. This Agreement shall not automatically
--------------------
renew and Franchisee shall not have an option to renew this Agreement upon the
expiration of the Renewal Term, if applicable. Franchisee may, however, renew
the Franchise if, and only if, each and every one of the following conditions
has been satisfied:
(I) Franchisee has given Franchisor written notice of its
desire to renew the Franchise not less than three months nor more than six
months prior to the end of the Renewal Term; provided that if Franchisor has not
received notice from Franchisee of its desire to renew within such period,
Franchisor will notify Franchisee and Franchisee shall have a period of 10 days
thereafter within which to submit the renewal notice;
(II) Franchisee shall be in full compliance with this Agreement
and there shall be no uncured default by Franchisee hereunder, nor any series of
defaults by Franchisee during the Term whether or not such defaults were cured,
and all debts and obligations of Franchisee under this Agreement shall be
current, including Franchisee's obligations to the Marketing Fund and each
Cooperative of which Franchisee is a member;
(III) Franchisee executes and delivers to Franchisor, within 30
days after delivery to Franchisee, the form of Papa John's Franchise Agreement
being offered to new franchisees on the date Franchisee gives the notice under
Section 2.(d)(i), above, including all exhibits and Franchisor's other then-
current ancillary agreements, which agreements shall supersede this Agreement in
all respects, and the terms and conditions of which may substantially differ
from this Agreement; provided that (A) such Franchise Agreement shall provide
for an initial term of not less than ten (10) years and a renewal term of not
less than five (5) years, and (B) that the Royalty under such agreement shall
not be greater than five percent (5%), and (C) such new Franchise Agreement
shall not reduce the Territory granted to Franchisee hereunder;
(IV) Franchisee secures the right to continue possession of the
Premises for a period at least equal to the term of the Franchise Agreement to
be executed as provided in Section 2.(d)(iii), above, or alternatively
Franchisee secures premises at another location approved by Franchisor for the
same period;
(V) Franchisee executes and delivers to Franchisor a general
release, in the form prescribed by Franchisor, releasing, to the fullest extent
permitted under the laws of the state where the Outlet is located, all claims
that Franchisee may have against Franchisor and its affiliates and subsidiaries,
and their respective officers, directors, shareholders and employees in both
their corporate and individual capacities; and
<PAGE>
(VI) Franchisee shall make, or provide for in a manner
satisfactory to Franchisor, such renovation and re-equipping of the Outlet as
Franchisor may require, including, without limitation, renovation or replacement
of signs, equipment, furnishings, fixtures and decor, to reflect the then-
current standards and image of the System; provided, however, that substantial
renovation and re-equipping shall not be required if Franchisee has
substantially renovated the Outlet within the two-year period immediately
preceding the end of the Renewal Term.
(E) EXPIRATION. Renewal of the Franchise after the Renewal Term
----------
shall not constitute a renewal or extension of this Agreement, but shall be
condi tioned upon satisfaction of the above provisions and shall, upon
expiration of the Renewal Term, be governed by the Franchise Agreement then
executed by Fran chisee. If Franchisee fails to meet any of the conditions under
Section 2.(b) above with respect to the renewal of this Agreement, or under
Section 2.(d) above with respect to renewal of the Franchise, then the Franchise
shall automatically expire at the end of the Initial Term or the Renewal Term,
as the case may be.
3. FRANCHISE FEES AND PAYMENTS.
---------------------------
(A) INITIAL FRANCHISE FEE AND ROYALTIES. In consideration of the
-----------------------------------
grant of the Franchise, Franchisee agrees to pay Franchisor the following fees:
(I) An Initial Franchise Fee of $15,000 which shall be paid
upon the execution of this Agreement and which shall be deemed fully earned and
is non-refundable.
(II) A continuing royalty (the "Royalty") of four percent
(4.0%) of the "Net Sales" of the Outlet for each "Period" (as defined in Section
13); provided that any time after the Initial Term of this Agreement Franchisor
may increase the Royalty to as much as five percent (5%) of Net Sales for the
remainder of the Initial Term and the Renewal Term, if applicable. However,
Franchisor may increase the Royalty only if Franchisor's form of Franchise
Agreement being offered to new Papa John's Pizza franchisees at the time of the
increase provides for a Royalty equal to or greater than five percent (5%). Net
Sales shall mean the gross sales of the Outlet (whether such sales are evidenced
by cash, check, credit, charge account or otherwise), less sales tax collected
on such sales and paid to the State. The Royalty is due on the tenth (10th) day
of the month following each Period.
(B) PAYMENTS. Prior to the opening of the Outlet (and thereafter as
--------
requested by Franchisor), Franchisee shall execute and deliver to Franchisor and
Franchisee's bank all forms and documents that may be required to permit
Franchisor to debit Franchisee's bank account (either by check or
electronically) the amount of each Period's Royalty. The Royalty shall be
debited on the 10th of each month, or if the 10th falls on a weekend or bank
holiday, then on the next business day. Franchisee shall report its Net Sales
for each Period by telephone or in writing on or before the seventh (7th) day of
the month following each Period. Such reporting shall be in addition to all
<PAGE>
other reporting requirements under Section 13. If Franchisee fails to report its
Net Sales on a timely basis, Franchisor may estimate the Net Sales of the Outlet
for such Period and debit Franchisee's bank account the amount of the Royalty
based on such estimate. If an estimate results in an overpayment, Franchisor
shall deduct the amount of the overpayment from the next Period's Royalty. Any
deficiency resulting from such estimate may be added to the next Royalty payment
due and debited against Franchisee's bank account. Franchisee shall notify
Franchisor at least 15 days prior to closing or making any change to the account
against which such debits are to be made. If such account is closed or ceases to
be used, Franchisee shall immediately provide all documents and information
necessary to permit Franchisor to debit the amounts due from an alternative
account. Franchisee acknowledges that the foregoing requirements are only a
method to facilitate prompt and timely payment of amounts due and shall not
affect any obligation or liability of the parties for amounts owed. If for any
reason Franchisee's account cannot be debited, Franchisee shall submit its
payments by check on or before the dates when due. Franchisee shall indemnify
and hold Franchisor harmless from and against all damages, losses, costs and
expenses resulting from any dishonored debit against Franchisee's account,
regardless whether resulting from the act or omission of Franchisee or
Franchisee's bank; provided that Franchisee shall not be obligated to indemnify
Franchisor for any dishonored debit caused by Franchisor's negligence or
mistake.
4. FRANCHISOR SERVICES. During the Term, Franchisor agrees to provide to
-------------------
Franchisee the following services:
(A) specifications for the design of the Outlet and related
facilities to be used in the operation of the Outlet;
(B) specifications for fixtures, furnishings, decor, signs and
equipment;
(C) the names and addresses of designated and approved suppliers, and
standards and specifications for (i) all food products, beverages, ingredients
and cooking materials sold from or used in the operation of the Outlet, and (ii)
all containers, boxes, cups, packaging, menus, uniforms and other products and
materials used in connection with the operation of the Outlet;
(D) a pre-opening management training program for the "Principal
Operator" (as defined in Section 11.(a)) and one or more approved managers, and
such other persons as Franchisor may reasonably designate, and such other
training for employees of Franchisee at the locations and for such periods as
may be designated by Franchisor from time to time; provided that Franchisee
shall be responsible for all expenses incurred by such persons in connection
with training, including, without limitation, all costs of travel, lodging,
means and wages;
(E) Franchisor's supervision and periodic inspections and evaluations
of the Franchisee's operation as described more fully in Section 11.(j), which
<PAGE>
supervision, inspections and evaluations shall be conducted at such times and in
such manner as shall be reasonably determined by Franchisor; and
(F) Franchisor shall communicate to Franchisee information relating
to the operation of a Papa John's Pizza outlet, and to the extent necessary or
pertinent to the operation of the Outlet, Franchisor's know-how, new
developments, techniques and improvements in the areas of restaurant management,
employee training, marketing and food preparation and service.
5. TERRITORIAL PROVISIONS.
----------------------
(A) TERRITORY. Subject to the provisions of this Section 5,
---------
Franchisor agrees that during the Term it will not locate nor license another to
locate a Papa John's Pizza outlet within a three-mile radius of the Location;
provided that in no event shall this radius extend outside the boundaries of the
"Development Area" as defined in the Development Agreement pursuant to which the
parties are entering into this Agreement (the "Territory"). Franchisor does not
warrant or represent that no other Papa John's Pizza outlet will solicit or make
any sales within the Territory, and Franchisor shall have no duty to protect
Franchisee from any such sales, solicitations, or attempted sales. Franchisee
recognizes and acknowledges that (i) it will compete with other Papa John's
Pizza outlets which are now, or which may in the future be, located near or
adjacent to Franchisee's Territory, and (ii) that such outlets may be owned by
Franchisor or third parties, or both.
(B) OTHER BUSINESSES. Franchisee understands and agrees that
----------------
Franchisor reserves the right, either directly or through affiliated entities,
to operate or franchise or license others to operate or franchise, restaurants,
food establish ments or businesses other than Papa John's Pizza outlets and
Franchisee agrees that Franchisor and its affiliates may do so within the
Territory; provided, that such restaurants or food establishments do not sell
pizza on a delivery basis, or primarily on a carry-out basis.
(C) OTHER METHODS OF DISTRIBUTION. Franchisor also reserves the
-----------------------------
right, directly or through third parties, to manufacture or sell, or both,
within the Franchisee's Territory, pizza and other products which are the same
as or similar to those sold in Papa John's Pizza outlets using brand names which
are the same as, or similar to, the Marks, provided that such items are not sold
through restaurant outlets or on a pre-cooked, ready-to-eat basis.
6. PREMISES.
--------
(A) LEASED PREMISES. If Franchisee intends to lease the premises
---------------
where the Outlet will be operated (the "Premises"), Franchisee shall submit one
copy of all proposed leases to Franchisor for approval prior to the execution of
any such lease. Approval by Franchisor of any such lease means only that the
lease meets Franchisor's minimum requirements and is not a warranty as to the
success of the Franchise or the appropriateness of such lease or any of its
terms. Franchisee shall submit to Franchisor
<PAGE>
executed copies of all such leases immediately after execution and at such other
times as Franchisor may request. The term of all leases plus all options for the
Franchisee to renew shall together equal or exceed the Term. All leases
pertaining to the Premises shall also include an Addendum in the form of Exhibit
C attached hereto, or shall contain terms and conditions substantially similar
to those contained in Exhibit C which Franchisor approves.
(B) OWNED PREMISES. If the Franchisee intends to own the Premises,
--------------
Franchisee shall furnish to Franchisor proof of ownership prior to the date
Franchisee commences any construction or remodeling of the Premises. If Fran
chisee has not done so within ten days after the expiration or termination of
the Franchise Agreement, Franchisor may enter the Premises, without being guilty
of trespass and without incurring any liability to Franchisee, to remove all
signs and other items identifying the Premises as a Papa John's Pizza outlet and
to make such other modifications as are reasonably necessary to protect the
Marks and the Papa John's System, and to distinguish the Premises from Papa
John's Pizza outlets. Provided, however, that this obligation of Franchisee
shall be conditioned upon Franchisor giving Franchisee prior notice of the
modifications to be made and the items removed.
(C) SUITABILITY OF PREMISES. Regardless of whether the Premises are
-----------------------
owned or leased, it shall be the responsibility of Franchisee to determine that
the Premises can be used, under all applicable laws and ordinances, for the
purposes provided herein and that they can be constructed or remodeled in
accordance with the terms of this Agreement and Franchisee shall obtain all
permits and licenses that may be required to construct, remodel and operate the
Outlet. Franchisee agrees that the Premises will not be used for any purpose
other than the operation of the Outlet in compliance with this Agreement.
(D) RELOCATION; ASSIGNMENTS. Franchisee shall not, without first
-----------------------
obtaining Franchisor's written consent: (i) relocate the Outlet; or (ii)
materially alter, amend or modify any lease, or make or allow any transfer,
sublease or assignment of its rights under any lease pertaining to the Premises.
Such consent shall not be unreasonably withheld.
7. PROPRIETARY MARKS.
-----------------
(A) OWNERSHIP; USE BY OTHERS. Franchisee agrees that Franchisor is
------------------------
the owner of the Marks and all goodwill associated with or generated by the use
of the Marks, and that Franchisee's use of the Marks does not vest Franchisee
with any interest in the Marks other than the non-exclusive license to use the
Marks granted herein. Franchisee shall execute any documents deemed necessary by
Franchisor or its counsel for the protection of the Marks or to maintain their
validity or enforceability, or to aid Franchisor in acquiring rights in or in
registering any of the Marks or any trademarks, trade names, service marks,
slogans, logos and emblems subsequently adopted by Franchisor. Franchisee shall
give notice to Franchisor of any knowledge that Franchisee acquires concerning
the use by others of the same or similar names or marks. Franchisee
<PAGE>
shall cooperate with Franchisor in any suit, claim or proceeding involving the
Marks or their use to protect Franchisor's rights and interests in the Marks.
(B) USE OF MARKS. Franchisee shall use the Marks only in connection
------------
with the operation of the Outlet at the Location specified herein, and shall use
them only in the manner authorized by Franchisor. Franchisee shall prominently
display the Marks in the manner prescribed by Franchisor on all signs, plastic
and paper products, and other supplies and packaging materials designated by
Franchisor. Franchisee shall not fail to perform any act required under this
Agreement, or commit any act which would impair the value of the Marks or the
goodwill associated with the Marks. Franchisee shall not at any time engage in
any business or market any product or service under any name or mark which is
confus ingly or deceptively similar to any of Franchisor's Marks. Franchisee
shall not use any of the Marks as part of its corporate or trade name and shall
not use any trademark, trade name, service mark, logo, slogan or emblem in
connection with the Outlet that has not been authorized by Franchisor.
Franchisee shall obtain such fictitious or assumed name registrations as may be
required by Franchisor or applicable state law.
(C) DESIGNATION AS FRANCHISEE. Franchisee shall identify itself as
-------------------------
the owner of the Franchise in conjunction with the use of the Marks, including,
without limitation, on checks, invoices, receipts and contracts, as well as at
conspicuous locations on the Premises in a form which specifies Franchisee's
name, followed by the phrase "A franchisee of Papa John's International, Inc."
or such other phrase as Franchisor directs.
(D) DISCONTINUANCE OF USE; ADDITIONAL MARKS. In the event that a
---------------------------------------
court of competent jurisdiction should order, or if Franchisor in its sole
discretion should deem it necessary or advisable, Franchisee shall modify or
discontinue use of any Mark. Franchisee shall comply with the Franchisor's
directions regarding any such Mark within 30 days after receipt of notice from
Franchisor. Franchisor shall not be obligated to compensate Franchisee for any
costs or expenses incurred by Franchisee in connection with any such
modification or discontinuance. Franchisee shall also use such additional or
substitute Marks as Franchisor shall direct.
8. ADVERTISING.
-----------
(A) CONTRIBUTIONS AND EXPENDITURES. Recognizing the value of
------------------------------
advertising and the importance of the standardization of advertising to the fur
therance of the goodwill and public image of the System, Franchisor and
Franchisee agree as follows:
(I) GRAND-OPENING ADVERTISING. Franchisee shall expend for
-------------------------
grand-opening advertising to publicize the existence and opening of the Outlet
such amounts as Franchisor may reasonably require (not to exceed $2,000), which
advertising shall be in such form as designated or approved by Franchisor and
which shall be conducted prior to commencement of and during the first two
months of operation of the
<PAGE>
Outlet. Franchisee may expend additional amounts on such advertising, provided
the form and content is approved by Franchisor as provided in Section 8.(e).
(II) MONTHLY CONTRIBUTIONS AND EXPENDITURES. Each month during
--------------------------------------
the Term, Franchisee shall make the following contributions and expenditures for
advertising:
(A) Franchisee shall contribute to the "Marketing Fund,"
as defined in Section 8.(b), such amount as the Board of Directors of the
Marketing Fund (the "Board") may designate from time to time, which amount
shall not exceed one and one-half percent (1-1/2%) of the monthly Net Sales
of the Outlet, except as set forth in (iii), below.
(B) Franchisee shall contribute to the "Cooperative," as
defined in Section 8.(c), such amount as the governing body of the
Cooperative may designate from time to time, which amount shall not exceed
two and one-half percent (2-1/2%) of the monthly Net Sales of the Outlet,
except as set forth in (iii), below.
(C) Franchisee shall expend such amounts as Franchisor
may designate from time to time for local advertising as provided in
Section 8.(d); provided, that the aggregate amount that Franchisee may be
required to spend on local advertising together with Franchisee's Marketing
Fund contributions will not exceed four percent (4%) of the Net Sales of
the Outlet, and provided further that Franchisee's expenditures for grand-
opening advertising under (i), above, shall be credited against
Franchisee's local advertising obligations.
(III) INCREASES IN CONTRIBUTIONS.
--------------------------
(A) MARKETING FUND CONTRIBUTIONS. The Board may increase
----------------------------
the maximum required contribution to the Marketing Fund to two percent (2%)
of Net Sales, provided such increase is approved by the owners of not less
than sixty percent (60%) of the outlets required to contribute to the
Marketing Fund (including both Franchisor-owned and franchised outlets).
Any increase in the required contribution to the Marketing Fund in excess
of two percent (2%) of Net Sales must be approved by not less than two-
thirds (2/3) of the outlets required to contribute to the Marketing Fund
(including both Franchisor-owned and franchised outlets).
(B) COOPERATIVE CONTRIBUTIONS. The governing body of the
-------------------------
Cooperative may increase the maximum required contribution to the
Cooperative to a percentage of Net Sales in excess of two and one-half
percent (2 1/2%), provided that any such increase is approved by Franchisor
and is also approved by not less than two-thirds (2/3) of the outlets
required to contribute to the Cooperative (including both Franchisor-owned
and franchised outlets).
<PAGE>
Franchisor's decision on any proposed increase above two and one-half
percent of Net Sales shall be final.
(B) MARKETING FUND. Papa John's Marketing Fund, Inc., a Kentucky
--------------
nonstock, nonprofit corporation (the "Marketing Fund"), has been organized for
the purposes set forth in the Articles of Incorporation and By-Laws of the
Marketing Fund, as they may be amended from time to time. Franchisee shall
automatically become a non-voting member of the Marketing Fund upon the
execution of this Agreement, and prior to the opening of the Outlet, Franchisee
shall execute and deliver to the Marketing Fund an Advertising Agreement in the
form prescribed by the Board.
(i) Franchisee agrees and acknowledges that the Marketing Fund
is intended to increase recognition of the Marks and to further the public image
and acceptance of the System and that neither Franchisor nor the Marketing Fund
nor the directors the Marketing Fund undertake any obligation to ensure that
expenditures by the Marketing Fund in or affecting any geographic area are pro
portionate or equivalent to contributions to the Marketing Fund by Papa John's
Pizza outlets operating in such geographic area or that the Franchisee or the
Outlet will benefit directly or in proportion to its contribution to the
Marketing Fund. Neither Franchisor nor any of its officers, directors, agents or
employees shall be deemed a fiduciary or trustee of the contributions to, or the
assets of, the Marketing Fund. Neither Franchisor nor the Marketing Fund, nor
any of their respective officers, directors, agents or employees, shall be
liable to Franchisee with respect to the maintenance, direction or
administration of the Marketing Fund, including without limitation, with respect
to contributions, expenditures, investments or borrowings, except for acts
constituting willful misconduct.
(ii) Franchisor shall make contributions to the Marketing Fund
for each outlet that it owns on the same basis as required of comparable
franchisees within the System.
(iii) As long as Franchisee is in compliance with the
Advertising Agreement and the Articles and By-Laws of the Marketing Fund,
Franchisee will be furnished with advertising materials which were produced by
or for the Marketing Fund for System-wide distribution on the same terms and
conditions as such materials are furnished to other franchisees.
(iv) Franchisee shall make its monthly contribution to the
Marketing Fund on the date and in the manner provided for in the Advertising
Agreement and the By-Laws and shall submit such statements and reports as the
Board may designate from time to time. The Board may designate from time to time
one or more accounts to which such contributions shall be made, and Franchisee
shall make such payments by separate checks. Contributions to the Marketing Fund
may be used to defray expenses of Franchisor only to the extent of the
administrative costs and overhead that Franchisor may reasonably incur in
rendering services to the Marketing Fund.
<PAGE>
(v) The funds collected by the Marketing Fund, and any
earnings thereon, are not and shall not be an asset of Franchisor or any
franchisee.
(vi) Although the Marketing Fund is intended to be of perpetual
duration, the Board has the right to terminate the Marketing Fund. However, the
Marketing Fund shall not be terminated until all monies held by it have been
expended for the purposes set forth in its Articles of Incorporation and By-Laws
or distributed as permitted by law.
(C) REGIONAL COOPERATIVE ADVERTISING. Franchisee agrees that
--------------------------------
Franchisor shall have the right, in its sole discretion, to designate from time
to time a geographical area in which the Outlet is located for the purpose of
establishing an advertising cooperative (the "Cooperative"). If a Cooperative
has been established applicable to the Outlet at the time Franchisee commences
operations hereunder, Franchisee shall immediately become a member of such
Cooperative. If a Cooperative applicable to the Outlet is established at any
later time during the Term, Franchisee shall become a member of such Cooperative
no later than thirty (30) days after the date on which the Cooperative commences
operation. In no event shall the Outlet be required to contribute to more than
one Cooperative. The following provisions shall apply to each Cooperative:
(i) Each Cooperative shall be organized and governed in a form
and manner, and shall commence operation on a date, approved in advance by
Franchisor in writing.
(ii) Each Cooperative shall be organized for the purposes of
producing and conducting general advertising programs and activities for use in
and around the applicable geographic area and developing standardized
promotional materials for use by the members.
(iii) Franchisor shall make contributions to each Cooperative of
which it is a member on the same basis as required of comparable franchisees
within the System.
(iv) No advertising programs or materials may be used by the
Cooperative or furnished to its members, and no advertising or promotional
activities may be conducted by the Cooperative, without the prior written
approval of Franchisor. All such programs, materials and planned activities
shall be submitted to Franchisor for approval in accordance with the procedure
set forth in Section 8.(e), below.
(v) Subject to the provisions of Section 8.(a)(ii), above, each
Cooperative shall have the right to require its members to make contributions to
the Cooperative in such amounts as are determined by the governing body of the
Cooperative.
<PAGE>
(vi) Franchisee shall make its contributions to the Cooperative
on the date and in the manner designated by the Cooperative. Franchisee shall
also submit such statements and reports as may be designated from time to time
by the Cooperative. The Cooperative shall submit to Franchisor such statements
and reports as Franchisor may designate from time to time.
(vii) Franchisor, in its sole discretion, may, upon written
request of a franchisee stating reasons supporting such request, grant to any
franchisee an exemption from the requirement of membership in a Cooperative.
Such an exemption may be for any length of time and may apply to one or more
outlets owned by such franchisee. If an exemption is granted to a franchisee,
such franchisee may be required to expend on local advertising the full amount
that would otherwise be payable to the Cooperative. Franchisor may also exempt
one or more outlets owned or controlled by Franchisor from the requirement of
membership in a Cooperative for such periods as Franchisor reasonably deems
appropriate. Franchisor's decision concerning an exemption shall be final.
(D) LOCAL ADVERTISING. Subject to the limits set forth in Section
-----------------
8.(a)(ii), above, Franchisee agrees to spend for local advertising such
percentage of its Net Sales as Franchisor may from time to time direct.
Franchisee shall submit verification of its local advertising expenditures at
such times and in such form as may be requested by Franchisor from time to time.
(I) SUPPLEMENTAL ADVERTISING. Franchisee shall have the right
------------------------
to conduct, at its separate expense, supplemental advertising in addition to the
expenditures specified herein. All such supplemental advertising shall either
have been prepared or previously approved by Franchisor within the 90-day period
preceding their intended use, or shall be approved by Franchisor as provided in
Section 8.(e).
(II) YELLOW PAGES ADVERTISING. Franchisee shall, at its own
------------------------
expense, obtain (or contribute to the cost of obtaining) a listing for the
Outlet in each "yellow pages" and other telephone directory serving the
Territory and each such listing shall be of the style, format and size, and in
such form, as may be specified by Franchisor from time to time.
(E) APPROVAL BY FRANCHISOR. Prior to their use by the Cooperative or
----------------------
by Franchisee, samples of all advertising and promotional materials not prepared
or previously approved by Franchisor within the 90-day period preceding their
intended use shall be submitted to Franchisor for approval. If disapproval is
not received within twenty (20) days from the date of receipt by Franchisor of
such materials, Franchisor shall be deemed to have given the required approval.
Neither the Cooperative nor Franchisee shall use, and shall cease using, any
advertising or promotional materials that Franchisor may at any time disapprove,
regardless whether any such items had been previously approved by Franchisor.
<PAGE>
(F) FRANCHISOR ADVERTISING. Franchisor may from time to time expend
----------------------
its own funds to produce such promotional materials and conduct such advertising
as it deems necessary or desirable. In any advertising conducted solely by or
for Franchisor, Franchisor shall have the sole discretion to determine the
products and geographical markets to be included, and the medium employed and
Franchisor shall not have any duty or obligation to supply Franchisee with any
advertising or promotional materials produced by or for Franchisor at its sole
expense.
(G) OWNERSHIP OF ADVERTISING. Franchisor shall be the sole and
------------------------
exclusive owner of all materials and rights which result from advertising and
marketing programs produced and conducted, whether by Franchisee, Franchisor,
the Cooperative or the Marketing Fund. Any participation by Franchisee in any
advertising, whether by monetary contribution or otherwise, shall not vest
Franchisee with any rights in the Marks employed in such advertising or in any
tangible or intangible materials or rights, including copyrights, generated by
such advertising. If requested by Franchisor, Franchisee shall assign to
Franchisor any contractual rights or copyright it acquires in any advertising.
9. TELEPHONE NUMBER. The only telephone number assigned to the Outlet is
----------------
804/330-9000. Upon termination or expiration of the Franchise, Franchisee shall
either assign such telephone numbers to Franchisor, if so requested, or cease
using such telephone number. In no event shall Franchisee use such number for
any other business. Franchisee further covenants that in the event it obtains
any additional or substitute telephone service or telephone number at the
Outlet, it will promptly notify Franchisor and such additional or substitute
number shall be subject to this Agreement.
10. CONSTRUCTION, DESIGN AND APPEARANCE; EQUIPMENT.
----------------------------------------------
(A) CONSTRUCTION. Franchisee agrees that it will construct or
------------
remodel the Premises at the approved Location in accordance with Franchisor's
construction plans (if the Premises are to be constructed) and design, layout
and decor specifications. Such specifications will be provided by Franchisor.
Franchisee shall purchase or lease the pizza preparation, beverage dispensing,
storage and other equipment, displays, fixtures, and furnishings that Franchisor
designates. Franchisee shall make no changes to any building plan, design,
layout or decor, or any equipment or signage without the prior written consent
of Franchisor, and shall maintain the interior and exterior decor in such manner
as may be prescribed from time to time by Franchisor. In connection with these
requirements, Franchisee shall have executed and delivered to Franchisor, on or
before the date hereof, a Papa John's Construction Agreement, including all
information required therein. A copy of the Construction Agreement is
incorporated herein by reference.
(B) SIGNS. Franchisee shall prominently display, at its own expense,
-----
both on the interior and exterior of the Premises, advertising signs in such
form, color, number, location and size, and containing such Marks, logos and
designs as Franchisor shall designate. Such signs shall be obtained from a
source designated or approved by
<PAGE>
Franchisor. Franchisee shall obtain all permits and licenses required for such
signs and shall also be responsible for ensuring that all signs comply with all
laws and ordinances. Franchisee shall not display in or upon the premises any
sign or advertising of any kind to which Franchisor objects.
(C) REMODELING AND RE-EQUIPPING. Franchisee agrees that it will,
---------------------------
within three (3) months from the date of written notice from Franchisor, remodel
or re-equip the Outlet in accordance with the specifications provided by the
Franchisor. Such remodeling and re-equipping may include, without limitation,
replacing worn out, obsolete, or dated equipment, fixtures, furnishings and
signs; structural modifications; redecorating; or purchasing more efficient or
improved equipment. Franchisor may require Franchisee to perform remodeling and
to purchase equipment at such times as Franchisor, in its sole discretion, deems
necessary and reasonable; provided, that Franchisor may not require any
significant remodeling of the Outlet during the first three years of the Initial
Term. FRANCHISEE ACKNOWLEDGES THAT EQUIPMENT, ALTERATIONS AND RENOVATIONS
REQUIRED BY FRANCHISOR MAY INVOLVE SUBSTANTIAL ADDITIONAL INVESTMENT BY
FRANCHISEE DURING THE TERM OF THIS AGREEMENT.
11. OPERATIONS; STANDARDS OF QUALITY; INSPECTIONS.
---------------------------------------------
(A) PRINCIPAL OPERATOR. Franchisee shall designate an individual to
------------------
serve as the "Principal Operator" the Outlet. The Principal Operator shall meet
the following qualifications:
(I) The Principal Operator shall own at least a five percent
(5%) equity interest in the Franchisee, provided that Franchisee shall not be in
default if the Principal Operator is entitled to a bonus of not less than five
percent (5%) of the net profits of the Outlet, payable after the end of each
Period, and also has the right to acquire not less than a five percent (5%)
equity interest in the Franchisee within 12 months of his or her hire date,
which rights shall be evidenced by a written agreement between the Principal
Operator and the Franchisee. Franchisee shall provide Franchisor with a copy of
any such agreement upon request. Once the Principal Operator has acquired an
equity interest in the Franchisee, he or she must continue to own that interest
(or a greater interest) during the entire period he or she serves as the
Principal Operator.
(II) The Principal Operator shall devote full time and best
efforts to the supervision and conduct of the development and operation of the
Outlet and shall execute Exhibit A attached hereto, and shall also execute the
Guaranty and Exhibit B at such time he or she becomes an owner of an interest in
the Franchisee.
(III) The Principal Operator shall be a person approved by
Franchisor who shall complete Franchisor's initial training requirements and who
shall participate in and complete to Franchisor's satisfaction all additional
training as may be reasonably designated by Franchisor.
<PAGE>
If, at any time for any reason, the Principal Operator no longer qualifies
to act as such, Franchisee shall promptly designate another Principal Operator
subject to the same qualifications listed above. Any sale or transfer of any
portion of the Principal Operator's interest in the Franchisee, if any, which
would reduce the Prin cipal Operator's equity interest or voting rights in
Franchisee to less than five percent (5%) of the total shall be deemed a
transfer of an interest and shall be subject to the terms and conditions of
Section 14 hereof; and any failure to comply with such terms and conditions
shall be deemed a default by Franchisee under this Agreement. However, if the
Principal Operator owns five percent (5%) or less of the Franchisee, then a
transfer of the Principal Operator's interest to the Franchisee, another
shareholder or partner of Franchisee or to a successor Principal Operator shall
not require Franchisor's consent, shall not be subject to Franchisor's right of
first refusal and no transfer fee shall be required. Franchisee shall promptly
notify Franchisor in writing of any such transfer and provide all information
about the transferee and the terms of the transfer as Franchisor may reasonable
request.
(B) MANAGEMENT OF THE OUTLET. The Principal Operator and one or more
------------------------
competent managers approved by Franchisor (who shall have completed Franchisor's
initial training program to Franchisor's satisfaction) shall personally devote
their full time and best efforts to the management and operation of the Outlet
in order to ensure compliance with this Agreement and to maintain Franchisor's
high standards. Management responsibility shall include, without limitation,
presence of the Principal Operator or a manager at the Outlet during all
business hours; maintaining the highest standards of product quality and
consistency; maintaining the Outlet in the highest condition of sanitation,
cleanliness and appearance; and supervising employees to ensure that the highest
standard of service is provided and to ensure that Franchisee's employees deal
with customers, suppliers, Franchisor, and all other persons in a courteous and
polite manner.
(C) COMPLIANCE WITH FRANCHISOR'S STANDARDS. Franchisee shall operate
--------------------------------------
the Outlet through strict adherence to Franchisor's standards, specifications
and policies as they now exist, and as they may from time to time be modified.
Such standards and policies include, without limitation: (i) specifications and
preparation methods for food and beverages; (ii) hours of operation; (iii) menu
items and services offered; (iv) employee uniform requirements and
specifications; and (v) use of specified emblems and Marks on containers, bags,
boxes, napkins, and other products.
(D) TRAINING. Should any employee or prospective employee of
--------
Franchisee perform work which in Franchisor's judgment requires additional
training, skills or knowledge, such employee shall take part in such training
and instruction as shall be directed by Franchisor. Franchisee shall be solely
responsible for all wages, travel and living expenses, and all other costs
incurred by Franchisee and Franchisee's employees in connection with any
training or instruction provided by Franchisor. Franchisee shall also, at its
own expense, conduct at the Outlet such training and instruction, using such
materials, equipment and supplies, as Franchisor may require in the Manuals or
otherwise in writing.
<PAGE>
(E) MANUALS. Franchisor will lend Franchisee one or more manuals
-------
which shall contain (i) the mandatory and suggested specifications, standards
and operating procedures prescribed from time to time by Franchisor and (ii)
information relative to other obligations of Franchisee hereunder and the
operation of the Outlet (the "Manuals"). The Manuals shall at all times remain
the sole property of Franchisor. Franchisor may, from time to time, revise the
contents of the Manuals. To the extent that Franchisor shall deem it necessary
or appropriate, Franchisor will provide Franchisee with policy and procedure
statements or other written notice of specifications, standards and procedures.
Franchisee agrees to promptly adopt and use the formulas, methods, procedures,
policies, menus, recipes, food products and other standards and specifications
contained in the Manuals, policy and procedure statements and other written
notices as issued from time to time by Franchisor. Franchisee acknowledges and
agrees that all information in the Manuals, policy and procedure statements and
other notices constitute confidential information and trade secrets, and shall
not be disclosed at any time by Franchisee. Franchisee shall not copy any part
of the Manuals or any other communication or information provided by Franchisor.
(F) VARIATIONS IN STANDARDS. Because complete and detailed
-----------------------
uniformity under varying conditions may not be possible or practical, Franchisor
specifically reserves the right, in its sole discretion and as it may deem in
the best interests of Franchisee or the Chain, to vary standards within the
Outlet or any other outlet in the Chain based upon peculiarities of a particular
location or circumstances, including, but not limited to, density of population
and other demographic factors, size of the franchisee's Territory, business
practices or customs, or any other condi tion which Franchisor deems to be of
importance to the operation of such outlet or the Papa John's Pizza Chain.
Franchisee acknowledges that because of these factors and others there may be
variations from standard specifications and practices throughout the Chain and
that Franchisee shall not be entitled to require Franchisor to grant like or
similar variations or privileges to Franchisee.
(G) FRANCHISEE DEVELOPMENTS. Franchisor shall have the right to use
-----------------------
and incorporate into the System for the benefit of other franchisees and
Franchisor any modifications, ideas or improvements, in whole or in part,
developed or discovered by Franchisee or Franchisee's employees or agents,
without any liability or obligation to Franchisee or the developer thereof.
(H) COMPLIANCE WITH LAWS. Franchisee shall at all times during the
--------------------
Term comply with all laws, ordinances, rules and regulations of all governmental
bodies.
(I) COURTESY; COOPERATION. At all times and under all circumstances,
---------------------
Franchisee and its employees shall treat all customers and other persons,
including Franchisor's agents, officers, and employees with the utmost respect
and courtesy, and shall fully cooperate with Franchisor and its agents,
officers, and employees in all aspects of the franchise relationship.
<PAGE>
(J) INSPECTIONS. An agent, officer or employee of Franchisor may
-----------
make inspections of the Outlet to insure compliance with all required standards,
specifications and procedures. The Franchisor's representative shall be allowed
to inspect the condition and operation of the Outlet and all areas of the Outlet
at any time during normal business hours. Such inspections may include, without
limitation, (i) reviewing sales and order forms, (ii) observing the Principal
Operator and all managers and other employees of the Franchisee, (iii)
interviewing any such persons, and (iv) interviewing customers of the Outlet in
order to evaluate Franchisee's performance and to ensure that the Outlet is
being operated in accordance with the requirements of this Agreement and the
Manuals. Franchisor may, from time to time, make suggestions and give mandatory
instructions with respect to Franchisee's operation of the Outlet.
12. PRODUCTS; COMMISSARY; MENU.
--------------------------
(A) PRODUCTS. Franchisee agrees that it will use only those food
--------
items, ingredients, beverages, cooking materials, containers, boxes, cups,
packaging, menus, uniforms, and other products and materials in the operation of
the Outlet as Franchisor shall have specifically designated or approved.
Franchisee may be required to purchase from Franchisor certain products that
involve trade secrets or that have been specially prepared or that Franchisor
considers to be integral to the System. Franchisor may require that certain
products be purchased from one or more designated suppliers. Products other than
those required to be obtained from Franchisor or a designated supplier may be
purchased from any source provided that the particular supplier and products
have been approved by Franchisor. Franchisor may, from time to time, amend the
list of approved products and suppliers.
(B) PJ FOOD SERVICE. PJ Food Service, Inc. ("PJFS") presently
---------------
supplies designated and approved products to Franchisor-owned outlets and those
of its franchisees from a commissary owned and operated by PJFS (the
"Commissary"). PJFS is currently the only designated supplier of dough, and
Franchisee must purchase dough from PJFS until such time as a successor supplier
of dough is designated. PJFS has no obligation to continue supplying Franchisee
or to continue to operate the Commissary. If PJFS ceases operating the
Commissary or terminates service to the Franchisee (other than as a result of
the termination or expiration of the Franchise) Franchisor shall, not less than
30 days prior to such cessation, provide Franchisee with the name, address and
phone number of an alternative approved supplier(s) and the products to be
purchased from such supplier(s). All purchases by Franchisee from the Commissary
are on the terms specified from time to time by PJFS and that company reserves
the right to specify different terms for different franchisees. Franchisor makes
no representations or warranties about any of the services performed by or any
of the products produced or sold by PJFS.
(C) MENU ITEMS. Franchisee shall offer for retail sale, and shall
----------
carry on its menu, only those types, sizes, styles and brands of pizza, pizza
dough, pizza sauce and toppings, beverages, and other products as from time to
time may be specified by Franchisor, and shall make all menu items available for
carry-out and delivery service
<PAGE>
from the Outlet. Franchisee agrees that it will not sell or carry on its menu
any food items or other products not specified or approved by Franchisor.
(D) PRICING. Franchisee shall have the sole responsibility for esta
-------
blishing its prices, but Franchisee shall charge the same price for each product
whether sold in the Outlet or delivered unless otherwise approved by Franchisor.
13. REPORTS.
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(A) ACCOUNTING AND RECORD KEEPING. Franchisee shall establish and
-----------------------------
maintain accounting and record keeping systems in accordance with the
specifications and procedures provided by Franchisor and as amended from time to
time, including, without limitation, maintaining its accounting records on a
basis of monthly or multi-week periods (each such accounting period is referred
to as "Period"). Franchisee shall make all such records available to Franchisor
upon request. Franchisee shall maintain and preserve, for at least five years
from the dates of their preparation, full, complete and accurate books, records
and accounts.
(B) PERIODIC REPORTS. On or before the 15th day of the month
----------------
following each Period, Franchisee shall deliver to Franchisor: (i) a statement,
in the form prescribed by Franchisor, of the revenues and expenses of the Outlet
for the immediately preceding Period, and (ii) such other records and reports as
are requested by Franchisor, including but not limited to, bank statements,
sales and expense forms and reports, and a current balance sheet.
(C) REVIEW BY FRANCHISOR. At all times during the Term, Franchisor,
--------------------
or its authorized agent, shall have the right to review all sales and expense
records and reports of the Franchisee which are located in the Outlet, and to
make photocopies of all such items.
(D) YEAR-END REPORTS. Within one hundred twenty (120) days following
----------------
Franchisee's fiscal year end, Franchisee shall provide Franchisor with copies of
Franchisee's financial statements, including an income statement for the fiscal
year just ended and a balance sheet as of the end of such fiscal year, which
financial statements shall have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis. Franchisee shall
upon request furnish Franchisor with copies of all its federal and state income
tax returns and, if requested by Franchisor, copies of all state sales tax
returns at the time all such returns are filed. Franchisee shall promptly
notify Franchisor if any such return is not timely filed, or if any extension is
filed, and the reasons therefore.
(E) EXAMINATIONS AND AUDITS. Franchisor or its designated agents
-----------------------
shall have the right, at all times and upon reasonable notice, to examine or
audit Franchisee's books and records, and to make photocopies thereof. If such
examination or audit should disclose any underpayment of the Royalty, Marketing
Fund payments, or any other sums or fees owed to Franchisor, Franchisee shall
immediately pay the
<PAGE>
deficient amount plus interest thereon from the date due until paid at a rate
equal to 12% per annum. All payments received will first be credited against
interest due and then against other payments due. If such an examination or
audit discloses an understatement in any statement or report of 5% or more,
Franchisee shall, in addition to the above provision, reimburse Franchisor for
the cost of having Franchisee's books examined or audited. The foregoing shall
be in addition to any other rights or remedies Franchisor may have, including
the termination of the Franchise granted herein.
14. TRANSFERS; FRANCHISOR'S RIGHT OF FIRST REFUSAL.
----------------------------------------------
(A) TRANSFERS BY FRANCHISOR. Franchisor may transfer or assign this
-----------------------
Agreement or any all of its rights, interests, benefits or obligations arising
hereunder without restriction. Upon any transfer or assignment of this
Agreement by Franchisor, Franchisor shall be released from all obligations and
liabilities arising or accruing in connection with this Agreement after the date
of such transfer or assignment.
(B) TRANSFERS BY FRANCHISEE. The rights and interests of Franchisee
-----------------------
under this Agreement are and shall remain personal to Franchisee. Franchisee
recognizes that Franchisor has granted the Franchise in reliance on the business
and financial capacity and other attributes of Franchisee and in reliance upon
the Guaranty of Franchisee's Obligations. Accordingly, neither Franchisee nor
any holder of any capital stock or other interest in a Franchisee that is a
corporation or other entity shall transfer (i) any interest in this Agreement,
(ii) any material portion of the assets of the Franchisee or the Outlet, or
(iii) any stock or other interest in Franchisee, without obtaining the prior
written consent of Franchisor; provided that a partner or shareholder of
Franchisee may transfer all or a portion of his interest in the Franchisee to
another partner or shareholder listed on Exhibit B or to the Franchisee (such
person or entity being referred to as a "Permitted Transferee") and such a
transfer shall not be subject to Franchisor's consent or Franchisor's right of
first refusal and no transfer fee shall be required. Franchisee shall promptly
notify Franchisor of any such transfer. For purposes of this Agreement, the
term "transfer" shall mean any issuance, sale, assignment, gift, pledge,
mortgage or any other encum brance (other than a lien against the Franchisee's
assets to secure a loan for the construction, remodeling, equipping or operation
of the Outlet), transfer by bank ruptcy, transfer by judicial order, merger,
consolidation, share exchange, transfer by operation of law or otherwise,
whether direct or indirect, voluntary or involuntary. Franchisor's consent to a
particular transfer shall not be deemed as consent to any subsequent or
different transfer.
(I) FRANCHISOR'S RIGHT OF FIRST REFUSAL. Franchisee shall give
-----------------------------------
Franchisor at least 45 days prior written notice of any intended transfer of any
of its rights or interest under this Agreement or of the proposed transfer of
any interest in Franchisee or any material portion of its assets. Such notice
shall set forth the name of the proposed transferee and a detailed statement of
all of the terms and conditions of such intended or proposed transfer. Subject
to subsection (c) below, Franchisor will not unreasonably withhold its consent
to a proposed transfer. Irrespective of the qualifications or acceptability of
any prospective transferee, Franchisor shall have the first right
<PAGE>
and option to purchase the interest intended or proposed to be transferred at
the same price and on the same terms and conditions contained in the notice.
Should the proposed transfer involve the payment of any non-cash consideration,
Franchisor shall have the option to purchase the interest at a price equal to
the fair market value of such non-cash consideration plus the amount, if any, of
consideration paid in cash. Franchisor shall determine the fair market value of
the non-cash consideration using fair and reasonable methods. Franchisor shall
make such determination as promptly as practicable, but in no event later than
30 days after it has received the notice of the intended transfer. If Franchisee
disagrees with the value as determined by Franchisor, then Franchisee and
Franchisor shall each hire an appraiser (or a single appraiser, if they so
agree) to value the non-cash consideration. If the appraisals are within 20% of
each other, then the difference between the two shall be equally divided to
establish the price at which Franchisor may exercise its first right and option.
If the difference between the appraisals is greater than 20%, then the issue of
the fair market value of such consideration shall be determined by a third
appraiser selected by the other two appraisers and whose decisions shall be
final, except that it may not be lower or higher than the lowest appraisal and
highest appraisal, respectively, determined by the first two appraisers. Should
a proposed transfer not involve the payment of any consideration, Franchisor has
the option to purchase the interest at a price equal to one and one-half (1-1/2)
times the Net Profits of the Outlet over the previous 12-month period (or the
average monthly Net Profit of the Outlet if it has been operating less than 12
months multiplied by 12) multiplied by the percentage which the interest to be
transferred bears to all interests in the Outlet, or the Franchisee, as the case
may be. As used in this Agreement, Net Profits means the amount of profit, if
any, determined from statements of profit and loss prepared by an independent
public accountant that the Franchisor finds acceptable. Within 30 days after
Franchisor receives notice of a proposed transfer for no consideration or solely
for cash, or if the proposed transfer will not be solely for cash, within 10
days after a determination is made of the fair market value of the non-cash
consideration, Franchisor will notify Franchisee that it is (A) exercising its
right of first refusal, (B) approving the transfer or (C) denying approval of
the transfer. Franchisor's reasonable decision to deny approval shall be final.
(II) APPROVED TRANSFERS. If Franchisor fails to exercise its
------------------
right of refusal, and if Franchisor approves the transfer in writing, Franchisee
(or the transferor of an interest in Franchisee) may make the proposed transfer
on the exact terms and conditions specified in Franchisee's notice to Franchisor
within 60 days after the expiration of Franchisor's option. If the transfer is
not consummated within such 60-day period, Franchisee may not thereafter
transfer such interest without again complying with this Section.
(C) CONDITIONS ON TRANSFER. Franchisor agrees that it will not
----------------------
unreasonably withhold its consent to a proposed transfer if all of the following
conditions are satisfied:
(I) Franchisor shall have failed to exercise its right of
first refusal as provided in Section 14 (b);
<PAGE>
(II) Franchisee is in full compliance with this Agreement and
there are no uncured defaults by Franchisee hereunder, and all debts and
financial obligations of Franchisee under this Agreement are current, including
Franchisee's obligations to the Marketing Fund and each Cooperative of which
Franchisee is a member;
(III) The proposed transferee executes such documents as
Franchisor may reasonably require to evidence that it has assumed the
obligations of Franchisee under this Agreement, and if required by Franchisor,
the proposed transferee executes, and in appropriate circumstances, causes such
other parties as Franchisor may require to execute, Franchisor's then-current
form of Guaranty, Non-Competition and Confidentiality Agreement and Ownership
Restriction Agreement, and other then-current ancillary agreements, which
documents may be substantially different than those attached to this Agreement;
(IV) The proposed transferee enters into an Advertising
Agreement with the Marketing Fund and also becomes a member of the Cooperative
to which the Outlet is required to contribute;
(V) Prior to the date of the proposed transfer, the proposed
transferee's Principal Operator and managers undertake and complete, to the
satisfaction of Franchisor, such training and instruction as Franchisor shall
deem necessary;
(VI) Franchisor is satisfied that the proposed transferee (and
if the proposed transferee is an entity, all owners of any interest in such
entity) meet all of the requirements for Franchisor's new franchisees applicable
on the date Franchisor receives notice of the proposed transfer and including,
but not limited to, good reputation and character, business experience,
restaurant management experience, and financial strength and liquidity;
(VII) Franchisee and any owner transferring an interest in
Franchisee acknowledge and agree in writing that they are bound by the non-
competition and confidentiality provisions set forth herein and in Exhibit A
attached hereto (and any similar provision in any other document which either of
them have executed) to the maximum extent allowed under applicable law;
(VIII) Franchisee and all owners of an interest in Franchisee
execute a general release, in the form prescribed by Franchisor, releasing, to
the fullest extent permitted under the laws of the state where the Outlet to be
transferred is located, all claims that any of them may have against Franchisor
and its affiliates and subsidiaries, and their respective shareholders,
officers, directors and employees, in both their individual and corporate
capacities and if Franchisee is the transferor, it shall acknowledge in writing
that Franchisee's interest under this Agreement terminated;
(IX) Franchisee shall pay Franchisor a transfer fee of three
thousand dollars ($3,000); provided that if the proposed transfer is of the
Outlet together with one or more other Papa John's Pizza outlets owned by
Franchisee to a single
<PAGE>
transferee, then the total transfer fee shall be an amount equal to the greater
of $3,000 or Franchisor's actual costs and expenses incurred in approving and
effecting the transfer, including, without limitation, all "in-house" and
outside personnel and professional costs; and
(X) The proposed transferee and all owners of any interest in
a transferee that is an entity provide Franchisor, at least 45 days prior to the
proposed transfer date, copies of financial statements for the preceding three
years, and where applicable, its certificate of incorporation and bylaws (and
any amendments or modifications thereof), minutes and resolutions and all other
documents, records and information pertaining to the transferee's existence and
ownership.
(D) OWNERSHIP AND STRUCTURAL CHANGES. Except for transfers between
--------------------------------
Permitted Transferees, any ownership or structural changes in Franchisee
including but not limited to, any merger, reorganization, issuance of additional
shares or classes of stock or additional partnership interests, shall constitute
and be deemed a transfer of the Franchise and shall be subject to prior written
approval from Franchisor.
15. DEATH, INCAPACITY OR DISSOLUTION.
--------------------------------
(A) TRANSFER UPON DEATH, ETC. Upon the death or permanent incapacity
-------------------------
of any individual Franchisee, or if Franchisee is a corporation, partnership or
other entity, upon the death, incapacity or dissolution of any owner of any
interest in Franchisee, the executor, administrator, conservator, trustee or
other representative of such person or entity shall assign such interest in the
Franchise, or such interest in Franchisee, to a third party approved by
Franchisor; provided that if the transferee is a Permitted Transferee,
Franchisor's right of first refusal shall not apply and no transfer fee shall be
payable. Further, if the transferee is required to be approved and is approved,
and the transfer involves less than 25% of the ownership of Franchisee, no
transfer fee shall be payable. Nothing contained in this Section shall deny the
spouse, heirs or personal representative of a shareholder of the Franchisee the
opportunity to participate in the ownership of the Franchisee after the death or
incapacity of such shareholder, provided that: (i) this Agreement is valid and
in effect, (ii) the spouse, heirs or representative meets all conditions and
qualifications otherwise required of transferees, and (iii) such spouse, heirs
or representative maintains and complies with all standards and obligations
contained in this Agreement. An assignment under this Section 15 shall be
completed within a reasonable time, not to exceed nine (9) months from the date
of death, permanent incapacity or dissolution and shall (except as otherwise
provided above) be subject to the terms and conditions applicable to inter vivos
transfers contained in Section 14, including Franchisor's right of first
refusal.
(B) MANAGEMENT BY FRANCHISOR. Pending assignment, if the Principal
------------------------
Operator ceases managing the Outlet and another shareholder, partner or employee
of Franchisee that qualifies as the Principal Operator does not assume such
obligations, Franchisor may, at its sole option, appoint a manager to operate
the Franchise for the account of Franchisee. All expenses of the Outlet,
including compensation, travel and
<PAGE>
living expenses, and other costs of the appointed manager, and a reasonable per
diem fee of Franchisor for its administrative expenses, shall be charged to
Franchisee. Operation of the Outlet during any such period shall be for and on
behalf of Franchisee. The appointed manager shall only have a duty to utilize
his best efforts in the management of the Outlet and the appointed manager and
Franchisor shall not be liable to Franchisee or its owners for any debts,
losses, liabilities or obligations incurred by the Outlet, or to any creditor of
Franchisee for any merchandise, materials, supplies or services purchased by the
Outlet during any period in which it is managed by Franchisor's appointed
manager.
16. ADDITIONAL COVENANTS OF FRANCHISEE.
----------------------------------
(A) LIMITATIONS ON ACTIVITIES. If Franchisee is a corporation or
-------------------------
partnership, it shall not at any time during the Term of this Agreement, own,
operate or have any interest in any other business or business activity other
than the operation of Papa John's Pizza outlets pursuant to agreements with
Franchisor. If Franchisee is an individual and is also the Principal Operator,
Franchisee has disclosed to Franchisor all businesses which he/she has interests
in, or is engaged in, and covenants that he/she will notify Franchisor of any
intention to participate or engage, directly or indirectly, in any other
business activity at least thirty (30) days before undertaking such activity or
becoming a party to any agreement or understanding relating to such activity.
Franchisee shall provide Franchisor with such information in regard thereto as
Franchisor may reasonably request and will not engage or participate in any such
activity unless he/she receives written consent to do so from Franchisor.
(B) EXECUTION OF ANCILLARY DOCUMENTS. Franchisee shall cause all
--------------------------------
persons or entities owning any interest in Franchisee to:
(I) execute the Guaranty of Franchisees Obligations written on
this Agreement and incorporated herein by reference;
(II) execute the Non-Competition and Confidentiality Agreement
in their individual capacity in the form attached hereto as Exhibit A; and
(III) execute the Ownership Restriction Agreement in the form
attached hereto as Exhibit B, individually and on behalf of Franchisee, agreeing
not to transfer any interest in such entity, except as provided therein and in
this Agreement.
(C) FRANCHISEE'S NON-COMPETE. Franchisee covenants and agrees that
------------------------
during the Term of this Agreement (including the Renewal Term, if applicable)
and for a period of two years after the termination or expiration of the
Franchise, regardless of the reason for such termination or expiration,
Franchisee shall not, within a 50-mile radius of (i) the Outlet, or (ii) any
business location at which the Franchisor or an "Affiliate" (as defined in
Section 25) then conducts a Papa John's Pizza business, engage in any of the
following activities:
<PAGE>
(I) directly or indirectly enter into the employ of, render
any service to or act in concert with any person, partnership, corporation or
other entity that owns, operates, manages, franchises or licenses any business
that (A) sells pizza or other non-pizza products (excluding soft drinks) that
are the same as those sold by Papa John's Pizza outlets on a delivery basis, or
(B) sells pizza or any such other products primarily on a carry-out basis,
including, without limitation, business formats such as Domino's, Pizza Hut, Mr.
Gatti's, Sbarro and Little Caesars (a "Competitive Business"), or
(II) directly or indirectly engage in any such Competitive
Business on its own account, or
(III) become interested in any such Competitive Business
directly or indirectly as an individual, partner, shareholder, director,
officer, principal, agent, employee, consultant or in any other relationship or
capacity; provided, that the purchase of a publicly traded security of a
corporation engaged in such business or service shall not in itself be deemed
violative of this Section so long as Franchisee does not own, directly or
indirectly, more than 1% of the securities of such corporation, or
(IV) copy or duplicate Franchisor's System or any aspect
thereof, nor assist others in doing so (except as permitted or required by this
Agreement);
To the extent required by the laws of the state in which the Outlet is located,
the duration or the geographic areas included within the foregoing covenants, or
both, shall be deemed amended in accordance with Section 25.
(D) MANAGERIAL AND SUPERVISORY EMPLOYEES. Franchisee covenants that
------------------------------------
it shall cause all persons who are involved in managerial or supervisory
positions with Franchisee to enter into a Confidentiality Agreement as provided
by Franchisor. Franchisee agrees to provide Franchisor with copies of such
executed agreements upon request. If Franchisee has reason to believe that any
person has violated any such Confidentiality Agreement, Franchisee shall
promptly notify Franchisor and cooperate with Franchisor to protect it against
unfair competition, infringement, or other unlawful use of the Marks, trade
secrets, recipes, or System of the Franchisor. Franchisee further grants the
Franchisor the right, but not the obligation, to prosecute any such lawsuits at
Franchisor's expense in the name of Franchisee.
(E) FRANCHISEE NON-SOLICITATION. Franchisee covenants that it will
---------------------------
not, either during the Term or thereafter, employ or seek to employ any person
who is employed by Franchisor, its subsidiaries or Affiliates or by any other
franchisee of Franchisor, or otherwise directly or indirectly solicit, entice or
induce any such person to leave his employment thereat.
17. TRADE SECRETS AND CONFIDENTIAL INFORMATION. Franchisee understands
------------------------------------------
and agrees that Franchisor has disclosed or will hereafter disclose to
Franchisee certain confidential information and trade secrets. Except as
necessary in connection with the operation of the Outlet and as approved by
Franchisor, Franchisee shall not, during the
<PAGE>
Term or at any time after the expiration or termination of the Franchise,
regardless of the cause of termination, directly or indirectly, use for its own
benefit or communicate or divulge to, or use for the benefit of any other person
or entity, any trade secrets, confidential information, knowledge or know-how
concerning the recipes, food products, advertising, marketing, designs, plans,
or methods of opera tion of the Outlet or the System. Franchisee shall disclose
to its employees only such confidential or secret information as is necessary to
operate its business hereunder and then only while this Agreement is in effect.
Any and all information, knowledge, or know-how, including without limitation,
drawings, materials, equipment, marketing, recipes, and other data, which
Franchisor designates as secret or confidential shall be deemed secret and
confidential for purposes of this Agreement.
18. INSURANCE.
---------
(A) TYPES AND EXTENT OF COVERAGE. Franchisee shall use its best
----------------------------
efforts to obtain and maintain throughout the Term such insurance coverages with
such limits as specified below (or such greater amounts of insurance as may be
required by the terms of any lease or mortgage relating to the Premises):
(I) fire, extended coverage, vandalism, malicious mischief and
special extended peril insurance at no less than 90 percent of the actual
replacement value of the building (if owned), the contents, and improvements;
(II) workers' compensation and other insurance required by law;
(III) comprehensive general liability insurance on an occurrence
basis naming Franchisor and its officers, directors and employees as an
additional insureds as follows (a portion of the following coverages may be
covered under the umbrella policy required under (iv), below):
(A) bodily injury to or death of one or more persons -
minimum of $1,000,000;
(B) property damage or destruction - minimum of $500,000
per occurrence;
(C) public and product liability - $1,000,000;
(D) non-owned vehicle coverage - $500,000; and
(IV) an umbrella policy with a minimum limit of $1,000,000,
which policy must expressly provide coverage above the coverages listed above,
including the non-owned vehicle policy.
(B) OTHER INSURANCE REQUIREMENTS. Upon request, Franchisee shall
----------------------------
deliver to Franchisor copies of all such policies of insurance and proof of
payment
<PAGE>
therefor. All policies required hereunder shall provide that the insurer shall
endeavor to give Franchisor written notice not less than 30 days prior to the
date the coverage is canceled, altered, or permitted to lapse or expire.
Franchisor may, from time to time, increase the limits of any required policy of
insurance.
19. TERMINATION BY FRANCHISOR.
-------------------------
(A) AUTOMATIC TERMINATION. Franchisee shall be in default under this
---------------------
Agreement, and the Franchise and all rights granted to the Franchisee herein
shall automatically terminate without notice to Franchisee, (i) if Franchisee
makes a general assignment for the benefit of creditors; or if a petition in
bankruptcy is filed by Franchisee or (ii) such a petition is filed against and
not opposed by Franchisee; or (iii) if Franchisee is adjudicated as bankrupt or
insolvent; or (iv) if a bill in equity or other proceeding is filed for the
appointment of a receiver or other custodian for Franchisee's business or assets
if filed and consented to by Franchisee; or (v) if a receiver or other custodian
(permanent or temporary) of Franchisee's assets or property, or any part
thereof, is appointed by any court of competent jurisdiction; or (vi) if
proceedings for a composition with creditors under any state or federal law
should be instituted by or against Franchisee; or (vii) if a final judgment
remains unsatisfied or of record for thirty (30) days or longer (unless an
appeal or supersedeas bond is filed); or (viii) if Franchisee is dissolved; or
(ix) if any portion of Franchisee's interest in the Franchise becomes subject to
an attachment, garnishment, levy or seizure by any creditor or any other person
claiming against or in the rights of Franchisee; or (x) if execution is levied
against Franchisee's business or property; or (xi) if the real or personal
property of Franchisee's Outlet shall be sold after levy thereupon by any
sheriff, marshal, or constable.
(B) WITHOUT NOTICE. Franchisee shall be in default and Franchisor
--------------
may, at its option, terminate the Franchise and all rights granted herein,
without affording Franchisee any opportunity to cure the default, effective upon
the earlier of receipt of notice of termination by Franchisee, or five days
after mailing of such notice by Franchisor, upon the occurrence of any of the
following events:
(I) Franchisee at any time ceases to operate or otherwise
abandons the Outlet or forfeits the right to do or transact business in the
jurisdiction where the Outlet is located or loses the right to possession of the
Premises; provided, however, that if any such loss of possession results from
the governmental exercise of the power of eminent domain, or if, through no
fault of Franchisee the Premises are damaged or destroyed, then Franchisee shall
have 45 days after either such event in which to apply for Franchisor's approval
to relocate or reconstruct the premises (which approval shall not be
unreasonably withheld), provided, that Franchisee shall either relocate or
commence and diligently pursue reconstruction of the Outlet within 60 days after
the event;
(II) Except as otherwise permitted in Sections 11.(a) and
14.(b) any owner of more than a five percent (5%) interest in Franchisee
transfers all or part of such interest or the Franchisee transfers any interest
in the Franchise or a material
<PAGE>
portion of the assets of the Outlet or of the Franchisee without Franchisor's
prior written consent;
(III) Franchisee or any person or entity owning more than five
percent (5%) of Franchisee is proven to have engaged in fraudulent conduct, or
is convicted of, or pleads guilty or no contest to a felony or a crime involving
moral turpitude, or any other crime or offense that is reasonably likely to have
an adverse effect on the Chain, the Marks or the goodwill associated therewith;
provided, that if the act or conviction involves an owner of Franchisee,
Franchisor will not terminate the Franchise if Franchisee notifies Franchisor
promptly after it learns of the event constituting the default, and within 15
days of the date of the notice, either (A) the person or entity that committed
the wrongful act divests his or its entire interest in Franchisee, or (B)
Franchisee obtains Franchisor's consent for such owner to maintain his or its
ownership interest.
(IV) An approved transfer is not effected within nine months of
the death or incapacity of any individual Franchisee, or the death, incapacity
or dissolution of any owner of an interest in the Franchisee;
(V) Franchisee makes any intentional, unauthorized dis closure
or divulgence of the contents of any Manual or other confidential informa tion
provided to Franchisee by Franchisor;
(VI) Franchisee is given three (3) or more notices of being in
material violation of any the terms or requirements of this Agreement within any
12-month period, whether or not such defaults are timely cured after notice;
(VII) Franchisee fails to comply with any of the covenants of
Franchisee set forth in Sections 16 and 17, or makes any material
misrepresentation to Franchisor or breaches any warranty or representation made
to Franchisor, whether in this Agreement or otherwise;
(VIII) Franchisee knowingly or intentionally maintains false
books or records or submits any false record, statement or report to Franchisor;
or
(IX) Franchisee, by act or omission, materially impairs the
value of, or the goodwill associated with, the Chain, any of the Marks or the
System.
(C) WITH NOTICE AND FAILURE TO CURE. Except for those defaults
-------------------------------
provided for under Sections 19.(a) or 19.(b), Franchisee shall be in default
hereunder for any failure to maintain or comply with any of the terms,
covenants, specifications, standards, procedures or requirements imposed by this
Agreement or in any Manual, policy and procedure statement or other written
document provided by Franchisor, or to carry out the terms of this Agreement in
good faith. For such defaults, Franchisor will provide Franchisee with written
notice and 15 days to cure or, if a default cannot reasonably be cured within 15
days, to initiate within that time sub stantial and continuing action to cure
such default and to provide Franchisor with evidence of such actions. If the
defaults specified in such notice are not cured within the 15-day period, or if
substantial and continuing
<PAGE>
action to cure such default and to provide Franchisor with evidence of such
actions. If the defaults specified in such notice are not cured within the 15-
day period, or if substantial and continuing action to cure has not been
initiated, Franchisor may, at its option, terminate the Franchise effective on
the earlier of, the date of receipt by Franchisee of notice of termination or
five days after the mailing of such notice by Franchisor. Such defaults shall
include, without limitation, the occurrence of any of the following events:
(I) Franchisee fails to construct or remodel, or to commence
operating the Outlet in accordance with this Agreement;
(II) Franchisee fails, refuses, or neglects to promptly to pay
any monies owing to Franchisor, its affiliates or the Marketing Fund when due,
or to submit the financial or other information required under this Agreement;
(III) Any person or entity owning five percent or less of the
Franchisee makes a transfer of such interest in violation of this Agreement;
provided, however, that Franchisee's right to cure such a default shall be
conditioned upon the Franchisee immediately notifying Franchisor of the improper
transfer and taking all actions necessary to either (A) obtain Franchisor's
approval thereof or, (B) if approval is not desired or the transfer or
transferee is not approved by Franchisor, to re-acquire the interest so
transferred;
(IV) A threat or danger to public health or safety results from
the construction, maintenance, or operation of the Outlet;
(V) Franchisee misuses or makes any unauthorized use of the
Marks; or
(VI) Franchisee, by act or omission in connection with the
operation of the Outlet, permits a continued violation of any law, ordinance,
rule, or regulation of a governmental body.
(D) MATERIALITY OF BREACHES. Franchisee acknowledges and agrees that
-----------------------
a breach or violation of any term, covenant, condition, warranty, representation
or other obligation by Franchisee (other than a breach or violation that may be
cured under Section 19 and is in fact cured within 15 days after notice) shall
constitute a material breach and default under this Agreement. Any breach or
violation that may be cured under Section 19 and that is not in fact cured
within the 15-day cure period shall also constitute a material breach and
default under this Agreement.
20. OBLIGATIONS UPON TERMINATION OR EXPIRATION. Upon termination or
------------------------------------------
expiration of the Franchise, all rights granted hereunder to Franchisee shall
terminate, the Franchise shall revert to Franchisor, and Franchisee shall have
the following obligations with respect to the Outlet franchised under this
Agreement:
<PAGE>
(A) Franchisee shall immediately cease to operate the business
franchised under this Agreement, and shall not thereafter, directly or
indirectly, represent to the public or hold itself out as a Papa John's Pizza
franchisee with respect to such business;
(B) Franchisee shall immediately and permanently cease to use, in any
manner whatsoever, all confidential information, methods, procedures and
techniques used by or associated with the System, and the proprietary Marks
"Papa John's," "Papa John's Pizza," and all other Marks and distinctive forms,
slogans, signs, symbols, logos and devices associated with the Papa John's Pizza
Chain;
(C) Franchisee shall immediately return to Franchisor any property
held or used by Franchisee which is owned by Franchisor and shall cease to use,
and either destroy or convey to Franchisor, all signs, advertising materials,
displays, sta tionery, forms and any other materials that bear or display the
Marks;
(D) Franchisee shall take such actions as may be necessary to cancel
any assumed name or similar registration which contains the mark "Papa John's"
or "Papa John's Pizza" or any other Mark of Franchisor, and Franchisee shall
furnish Franchisor with evidence satisfactory to Franchisor of compliance with
this obligation within thirty (30) days after termination or expiration of the
Franchise;
(E) Franchisee shall, if Franchisor so requests, assign to Franchisor
any interest which Franchisee has in any lease for the Premises. In the event
Fran chisor does not elect to exercise its option to acquire any lease for the
Premises, and unless otherwise directed by Franchisor, Franchisee shall, within
ten days after termination or expiration of the Franchise, make such
modifications and alterations to the Premises as may be necessary to distinguish
the appearance of the Premises from that of other Papa John's Pizza outlets and
shall make such specific additional changes thereto as Franchisor may reasonably
request;
(F) Franchisee shall promptly pay all sums owed to Franchisor, and in
the event the Franchise is terminated for any reason other than as a result of a
material breach of this Agreement by Franchisor that is not cured within 30 days
or such longer period as may be necessary after written notice thereof from
Franchisee, such sums shall include all damages, costs, and expenses, including
reasonable attorneys' fees, incurred by Franchisor as a result of the default
and the termination, which obligation shall give rise to and remain, until paid
in full, a lien in favor of Franchisor against any and all of the personal
property, furnishings, equipment, signs, fixtures and inventory owned by
Franchisee located on the Premises on the date the Franchise terminated;
(G) Franchisee shall pay to Franchisor all damages, costs and
expenses, including reasonable attorneys' fees, incurred by Franchisor
subsequent to the termination or expiration of the Franchise in obtaining
injunctive or other relief for the enforcement of any term, covenant or
provision of this Agreement;
<PAGE>
(H) Franchisee shall immediately deliver to Franchisor all Manuals,
policy and procedure statements, instructions, and other materials related to
oper ating the Outlet, including, without limitation, brochures, charts and any
other materials provided by Franchisor and all copies thereof, and shall neither
retain nor convey to another any copy or record of any of the foregoing;
(I) If requested by Franchisor, Franchisee shall take all actions and
execute all documents necessary to convey and assign to Franchisor all telephone
numbers which have been used in the operation of the Outlet or if Franchisor
does not so request, Franchisee shall cease all use of such telephone numbers;
and
(J) Franchisee shall comply with the covenants contained in this
Agreement, including, but not limited to, the covenants not to compete and the
covenants not to disclose trade secrets or confidential information.
21. INDEPENDENT CONTRACTOR; INDEMNIFICATION.
---------------------------------------
(A) INDEPENDENT CONTRACTOR. It is understood and agreed by the
----------------------
parties that this Agreement creates only a contractual relationship between the
parties subject to the normal rule of contract law. This Agreement does not
create a fiduciary relationship between them and that Franchisee is and shall
remain an independent contractor. Nothing in this Agreement is intended to
constitute either party an agent, legal representative, subsidiary, joint
venturer, partner, employee, or servant of the other for any purpose whatsoever.
Franchisee agrees to hold itself out to the public as an independent contractor,
separate and apart from the Franchisor. Franchisee agrees that it shall not make
any contract, agreement, warranty, or representation on Franchisor's behalf
without Franchisor's prior written consent, and Franchisee agrees that it shall
not incur any debt or other obligation in Franchisor's name. This Agreement
shall not be deemed to confer any rights or benefits to any person or entity not
expressly named herein.
(B) INDEMNIFICATION. Franchisor shall not be liable by reason of any
---------------
act or omission of Franchisee in its conduct of the Outlet or for any claim,
cause of action or judgement arising therefrom against Franchisee or Franchisor.
Franchisee agrees to hold harmless, defend and indemnify Franchisor and its
officers, directors, agents, and employees, from and against any and all losses,
expenses, judgments, claims, attorney fees and damages arising out of or in
connection with any claim or cause of action in which Franchisor shall be a
named defendant and which arises, directly or indirectly, out of the operation
of, or in connection with, Franchisee's Outlet, other than a claim resulting
directly from Franchisor's negligence.
22. FRANCHISEE REPRESENTATIONS. Franchisee hereby acknowledges and
--------------------------
represents that:
(A) all information submitted to Franchisor by Franchisee or those
owning an interest in Franchisee, including all applications, financial
statements and other
<PAGE>
documents and information, is true and correct in all respects and that it does
not omit any statement or item of fact material to make the statements made
therein not false or misleading;
(B) Franchisor has not represented (i) that the Franchisee will earn,
can earn, or is likely to earn a gross or net profit, (ii) that Franchisor has
knowledge of the relevant market, or (iii) that the market demand will enable
the Franchisee to earn a profit from the Franchise;
(C) Franchisee has read and understood this Agreement and the
disclosure document entitled "Papa John's Franchise Offering Circular" (the
"Offering Circular") required by the Federal Trade Commission or the state in
which the Outlet will be located at least ten business days prior to the date on
which this Agreement was signed or any monies were paid to Franchisor by
Franchisee. Franchisee understands that Franchisor makes no representation or
warranty regarding Franchisee's relevant market or the profitability of business
operations under the System and that no representations have been made by
Franchisor, or by its officers, directors, shareholders, employees or agents,
that are contrary to or inconsistent with the terms of this Agreement or with
the statements made in the Offering Circular that accompanied a copy of this
Agreement;
(D) Franchisee accepts the terms, conditions and covenants contained
in this Agreement as being reasonable and necessary to maintain Franchisor's
standards of quality, service and uniformity and in order to protect and
preserve the goodwill of the Marks. Franchisee acknowledges that other
franchisees of Franchisor have been or will be granted franchises at different
times and in different situations. Franchisee further acknowledges that the
provisions of the fran chise agreements pursuant to which such franchises were
granted may vary materially from those contained in this Agreement and that
Franchisee's obligation arising hereunder may differ substantially from other
franchisees; and
(E) Franchisee recognizes that the System may evolve and change over
time and that the Franchise involves an investment of substantial risk and its
success is dependent primarily upon the business acumen and efforts of the Fran
chisee and other factors beyond Franchisor's control. Franchisee has conducted
an independent investigation of the Franchise and has had ample time and
opportunity to consult with independent professional advisors (lawyers,
accountants, etc.), and has not received or relied upon any express or implied
guarantee as to potential volumes, revenues, profits or success of the business
venture contemplated by the Franchise.
23. GOVERNING LAW, JURISDICTION AND VENUE.
-------------------------------------
(A) GOVERNING LAW. Unless expressly prohibited by the laws of the
-------------
state in which the Outlet is located, this Agreement shall be interpreted and
construed under the laws of Kentucky, which laws shall prevail in the event of
any conflict of law.
<PAGE>
(B) JURISDICTION; WAIVER OF DEFENSES. Unless expressly prohibited by
--------------------------------
the laws of the state in which the Outlet is located, the parties agree that any
action, claim, suit or proceeding arising under this Agreement or concerning the
interpretation of this Agreement shall be brought in the court of proper subject
matter jurisdiction located in Jefferson County, Kentucky, and Franchisee
irrevocably consents and submits to personal jurisdiction and venue in and by
the state and federal courts within Jefferson County, Kentucky and agrees that
Franchisee may be served with process in any such action in accordance with the
terms of the notice provision of this Agreement. Franchisee does hereby waive
all defenses of personal jurisdiction, venue and forum non-convenience for the
purpose of carrying out this provision.
(C) NON-EXCLUSIVE RIGHTS. No right or remedy conferred upon or
--------------------
reserved to Franchisor by this Agreement is intended to be, nor shall be deemed,
exclusive of any other right or remedy herein or provided or permitted by law or
equity, but each shall be cumulative of every other right or remedy.
(D) INJUNCTIVE RELIEF. Franchisee acknowledges and agrees that the
-----------------
violation of any of Franchisee's covenants contained herein would be a material
breach of this Agreement and would cause irreparable harm to Franchisor in
addition to financial damages. Nothing herein contained shall bar Franchisor's
right to obtain injunctive relief against threatened conduct that will cause it
loss or damages, whether as provided in this Agreement or under the usual equity
rules, including the applicable rules for obtaining restraining orders and
preliminary injunctions.
(E) COSTS, EXPENSES AND ATTORNEYS' FEES. Except as provided in
-----------------------------------
Section 20, each party shall pay its own costs, expenses and attorneys' fees in
any action, claim, suit or proceeding arising out of this Agreement or the
franchise relationship of the parties.
24. NOTICES. All notices, requests, demands and other communications
-------
required or permitted to be given or made under this Agreement shall be in
writing and shall be given (i) by personal delivery or (ii) provided such
notice, request, demand or communication is actually received by the party to
which it is addressed in the ordinary course of delivery, by deposit in the
United States mail, postage prepaid, or (iii) by registered or certified mail,
return receipt requested, postage prepared, or by delivery to a nationally-
recognized overnight courier service, in each case, addressed as follows, or to
such other person or entity as either party shall designate by notice to the
other in accordance herewith:
Franchisor: 11492 Bluegrass Parkway, Suite 175
Louisville, Kentucky 40299
ATTN: General Counsel
Franchisee: P.O. Box 23146
Anchorage, Kentucky 40223
ATTN: Richard F. Sherman
<PAGE>
25. MISCELLANEOUS.
-------------
(A) SEVERABILITY. Franchisee agrees to be bound to the maximum
------------
extent permitted by law which is subsumed within the terms of any provision
hereof, as though it were separately articulated in and made a part of this
Agreement, that may result from the striking of any provision hereof by a court,
or which a court holds to be unenforceable in a final decision to which
Franchisor is a party, or that may result from reducing the scope of any
provision to the extent required to comply with a court order or with any state
or federal law, whether currently in effect or subsequently enacted.
(B) CONSTRUCTION. All references herein to the masculine, neuter, or
------------
singular shall be construed to include the masculine, feminine, neuter, or
plural, as the case may require. All acknowledgements, warranties,
representations, covenants, agreements, and obligations herein made or
undertaken by Franchisee shall be deemed jointly and severally undertaken by all
those executing this Agreement as Franchisee. During any period in which any of
the covenants in Section 16 is being breached or violated, including any period
in which either of the parties seeks judicial enforcement, interpretation or
modification of any such covenant, and all appeals thereof, the restricted
period set forth therein shall toll and be suspended.
(C) ENTIRE AGREEMENT. This Agreement, the documents incorpo rated
----------------
herein by reference and the Exhibits attached hereto, comprise the entire
agreement between the parties, and all prior understandings or agreements con
cerning the subject matter hereof are canceled and superseded by this Agreement.
All Exhibits to this Agreement are incorporated herein by reference and made a
part hereof as if set out in full herein.
(D) AFFILIATE. As used in this Agreement, the term "Affiliate" shall
---------
mean any person or entity that is a Papa John's Pizza franchisee of Franchisor
or any sublicensor of Franchisor.
(E) AMENDMENTS. Except for those permitted to be made unila terally
----------
by Franchisor, no supplement, amendment or variation of the terms of this
Agreement shall be valid unless made in writing and signed by the parties
hereto.
(F) WAIVERS. No failure of Franchisor to exercise any right given to
-------
it hereunder, or to insist upon strict compliance by Franchisee with any
obligation, agreement or undertaking hereunder, and no custom or practice of the
parties at variance with the terms hereof shall constitute a waiver of
Franchisor's right to demand full and exact compliance by Franchisee with the
terms hereof. Waiver by Franchisor of any particular default by Franchisee shall
not affect or impair Franchisor's rights with respect to any subsequent default
of the same or of a different nature, nor shall any delay or omission of
Franchisor to exercise any right arising from such default affect or impair
Franchisor's rights as to such default or any subsequent default.
<PAGE>
(G) COUNTERPARTS. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
(H) HEADINGS. The headings used in this Agreement are for
--------
convenience only, and the paragraphs shall be interpreted as if such headings
were omitted.
(I) TIME OF ESSENCE. Franchisee agrees and acknowledges that time is
---------------
of the essence with regard to Franchisee's obligations hereunder, and that all
of Franchisee's obligations are material to Franchisor and this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement on the day, month and year first written above.
PAPA JOHN'S INTERNATIONAL, INC.
By: ________________________________________
J. Daniel Holland, President
PJVA, INC.
By: ________________________________________
Richard F. Sherman, President
<PAGE>
GUARANTY OF
FRANCHISEE'S OBLIGATIONS
------------------------
In consideration of, and as an inducement to the execution of the foregoing
Papa John's Franchise Agreement by Franchisor (the "Agreement"), each of the
undersigned, being the owners of all of the beneficial interests in Franchisee,
hereby personally and unconditionally guaranty to Franchisor, its successors and
assigns, the punctual payment of, and agree to pay to Franchisor, all sums which
Franchisee may now or in the future owe to Franchisor whether arising out of the
Agreement or any breach thereof, or otherwise. Notwithstanding the foregoing,
the liability of each of the undersigned guarantors shall be limited to $25,000.
Each of the undersigned covenant and agree that: (1) liability under this
Guaranty shall be proportionate in accordance with their respective stock
holdings in Franchisee and not joint; (2) that this is a guaranty of payment and
not of collection and they shall render any payment required under the Agreement
or this Guaranty upon demand of Franchisor if Franchisee fails or refuses to
punctually do so; (3) their liability hereunder shall not be contingent or
conditioned upon pursuit by Franchisor of any remedies against Franchisee or any
of the undersigned; (4) their liability hereunder shall not be diminished,
relieved, or otherwise affected by any extension of time, credit, or other
indulgence or waiver which Franchisor may from time to time grant Franchisee or
to any of the undersigned, including, without lim itation, the acceptance of
partial payment or performance, the compromise or release of any claims, the
release of any other guarantor, or consent by Franchisor to any transfer or
assignment of the franchise or any interest therein and Franchisor expressly
reserves all rights which it may have against the undersigned.
The obligations of the undersigned under this Guaranty shall remain in full
force and effect without regard to, and shall not be released, discharged or in
any way modified or affected by, any circumstance or condition of Franchisee
(whether or not the undersigned shall have any knowledge or notice thereof),
including, without limitation, bankruptcy, insolvency, reorganization,
composition, liquidation or similar proceeding or any action taken by any
trustee or receiver or by any court in any such proceeding.
Each of the undersigned waives notice of demand, notice of protest,
nonpayment or default, and all other notices to which Franchisee or the
undersigned may be entitled, and all suretyship and guarantor's defenses
generally. The under signed further waive all exemptions to which the
undersigned may now or hereafter be entitled under the laws of this or any other
state or of the United States.
This Guaranty is personal to the undersigned and the obligations and duties
imposed herein may not be delegated or assigned; provided, however, that this
Guaranty shall be binding upon the successors, assigns, estates and personal
representatives of the undersigned. This Guaranty shall inure to the benefit of
Franchisor, its affiliates, successors and assigns.
<PAGE>
In the event that any one or more provisions contained herein shall for any
reason be held to be invalid, illegal, or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
hereof and this Guaranty shall be construed to bind the undersigned to the
maximum extent permitted by law which is subsumed within the terms of such
provision as though it were separately articulated herein.
This Guaranty shall be interpreted and construed under the laws of
Kentucky, which laws shall prevail in the event of any conflict of law. The
parties agree that any action, suit or proceeding arising under this Guaranty or
concerning the interpretation of this Guaranty shall be brought in the court of
proper subject matter jurisdiction located in Jefferson County, Kentucky. The
undersigned hereby irrevo cably consent and submit to personal jurisdiction and
venue in and by the courts within Jefferson County, Kentucky. The undersigned do
hereby waive all defenses of personal jurisdiction, venue and forum non-
convenience for the purpose of carrying out this provision.
This Guaranty does not grant or create in the undersigned any interest,
rights or privileges in the Franchise or in the Franchise Agreement.
IN WITNESS WHEREOF, each of the undersigned has hereunto affixed his
signature on the day and year as set forth below.
__________________________________________ DATE: ___________________
RICHARD F. SHERMAN
__________________________________________ DATE: ___________________
MARTIN T. HART
__________________________________________ DATE: ___________________
JACK A. LAUGHERY
__________________________________________ DATE: ___________________
MICHAEL J. GRISANTI
<PAGE>
PAPA JOHN'S
FRANCHISE AGREEMENT
EXHIBIT A
---------
CONFIDENTIALITY AND NON-COMPETITION
AGREEMENT FOR OWNERS OF FRANCHISEE
KNOW ALL MEN BY THESE PRESENTS THAT:
Pursuant to the provisions of the Papa John's Franchise Agreement of even
date herewith and attached hereto (the "Agreement"), by and between PAPA JOHN'S
INTERNATIONAL, INC. ("Franchisor"), and PJVA, INC. ("Franchisee"), each of the
undersigned, who are the beneficial owners of all interests in the Franchisee,
in consideration of the execution by Franchisor of the Agreement and for other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, each of the undersigned who are the owners of all equity, voting
and other interests in Franchisee, hereby covenant and agree:
1. COVENANTS OF THE UNDERSIGNED.
----------------------------
(A) COVENANT NOT-TO-COMPETE. Each of the undersigned hereby
-----------------------
covenants and agrees that during the Term of the Agreement (including the
Renewal Term, if applicable) and for a period of two years after the termination
or expiration of the Agreement, regardless of the reasons for such termination
or expiration (the "Restricted Period"), the undersigned shall not, within a 50-
mile radius of (i) the Location, or (ii) any business location in which the
Franchisor or an "Affiliate" (as defined below) then conducts a Papa John's
Pizza business (collectively, the "Terr itories"), engage in any of the
following activities:
(I) directly or indirectly enter into the employ of, render
any service to or act in concert with any person, partnership, corporation or
other entity that owns, operates, manages, franchises or licenses any business
that (A) sells pizza or other non-pizza products (excluding soft drinks) that
are the same as those sold by Papa John's Pizza outlets on a delivery basis, or
(B) sells pizza or any such other products primarily on a carry-out basis,
including, without limitation, business formats such as Domino's, Pizza Hut, Mr.
Gatti's, Sbarro and Little Caesars (a "Competitive Business"), or
(II) directly or indirectly engage in any such Competitive
Business on his or her own account, or
(III) become interested in any such Competitive Business
directly or indirectly as an individual, partner, shareholder, director,
officer, principal, agent, employee, consultant or in any other relationship or
capacity; provided, that the purchase
<PAGE>
of a publicly traded security of a corporation engaged in such business or
service shall not in itself be deemed violative of this Agreement so long as the
undersigned does not own, directly or indirectly, more than 1% of the securities
of such corporation.
To the extent required by the laws of the state in which the Outlet is located,
the duration or the geographic areas included within the foregoing covenants, or
both, shall be deemed amended in accordance with Section 3.
(B) APPROPRIATION AND DISCLOSURE OF INFORMATION. Except as permitted
-------------------------------------------
during the Term of the Agreement, the undersigned will not at any time use, copy
or duplicate the System or any aspect thereof, or any of the Franchisor's trade
secrets, recipes, methods of operation, processes, formulas, advertising,
marketing, designs, plans, know-how or other proprietary ideas or information,
nor will the undersigned convey, divulge, make available or communicate such
informa tion to any third party or assist others in using, copying or
duplicating any of the foregoing.
(C) INFRINGEMENT. The undersigned will not at any time commit any
------------
act which would infringe upon or impair the value of the System or the Marks,
nor will any of them engage in any business or market any product or service
under a trade name, trademark, service mark, logo or design that is confusingly
or deceptively similar to any of the Marks.
(D) SOLICITATION OF EMPLOYEES. Each of the undersigned agrees that
-------------------------
from and after the date hereof, he or she will not solicit, entice or induce,
directly or indirectly, any employee of the Franchisor or an Affiliate to leave
the employment of the Franchisor or an Affiliate to work with the undersigned,
or any of them, or with any person or entity with whom he or she is or becomes
affiliated.
2. REASONABLENESS OF SCOPE AND DURATION. Each of the undersigned agree
------------------------------------
that the covenants and agreements contained in Section 1 are, taken as a whole,
reasonable with respect to the activities covered and their geographic scope and
duration, and no party shall raise any issue of the reasonableness of the areas,
activities or duration of any such covenants in any proceeding to enforce any
such covenants.
3. ENFORCEABILITY. Each of the undersigned agrees that the Franchisor
--------------
may not be adequately compensated by damages for a breach of any of the
covenants and agreements contained herein, and that the Franchisor shall, in
addition to all other remedies, be entitled to injunctive relief and specific
performance. The coven ants and agreements contained in this Non-Competition
Agreement shall be construed as separate covenants and agreements, and if any
court shall finally determine that the restraints provided for in any such
covenants and agreements are too broad as to the area, activity or time covered,
said area, activity or time covered may be reduced to whatever extent the court
deems reasonable, and such covenants and agreements shall be enforced as to such
reduced area, activity or time.
<PAGE>
4. ACKNOWLEDGEMENT. Each of the undersigned hereby acknowledge that (i)
---------------
it is a condition to the granting of the Franchise to Franchisee that each of
the undersigned execute and deliver a copy of this Non-Competition Agreement to
Franchisor on the date the Agreement is executed, and (ii) that Franchisor has
entered into the Agreement in reliance upon the agreement of the undersigned to
do so.
5. MISCELLANEOUS.
-------------
(A) DEFINITIONS. Except as otherwise defined in this Non-Competition
-----------
Agreement, all capitalized terms shall have the same meaning given them in the
Agreement.
(B) AFFILIATE. As used herein, the term "Affiliate" means any person
---------
or entity that is a Papa John's Pizza franchisee of Franchisor or a sublicensor
of Franchisor.
(C) SURVIVAL. This Non-Competition Agreement shall inure to the
--------
benefit of, and be binding upon the undersigned and the undersigned's legal
repres entatives, heirs, successors and assigns, and upon the Franchisor and its
successors and assigns. During any period in which any of the covenants in
Section 1, above is being breached or violated, including any period in which
any of the parties hereto seeks judicial enforcement, interpretation or
modification of any such covenant, and all appeals thereof, the Restricted
Period shall toll and be suspended.
(D) WAIVER OF BREACH. The waiver by the Franchisor of a breach of
----------------
any provision of this Non-Competition Agreement by any of the undersigned shall
not operate or be construed as a waiver of any subsequent breach of the same or
any other provision by any of the undersigned.
(E) AMENDMENTS. This Non-Competition Agreement may not be amended
----------
orally, but only by an amendment in writing signed by the party against whom
enforcement is sought.
(F) GOVERNING LAW; JURISDICTION AND VENUE. Unless expressly
-------------------------------------
prohibited by the laws of the state in which the Outlet is located, (i) this
Non-Competition Agreement shall be governed by, and construed and enforced in
accordance with the laws of Kentucky; provided, however, that if any provision
of this Non-Competition Agreement would not be enforceable under the laws of
Kentucky (or the state where the Outlet is located, if applicable), then such
provision shall be interpreted and construed to bind the undersigned to the
maximum extent permitted by law which is subsumed within the terms of such
provision as though it were separately articulated herein and made a part
hereof; (ii) any action, suit or proceeding arising hereunder or concerning the
interpretation of this Non-Competition Agreement shall be brought in the court
of proper subject matter jurisdiction located in Jefferson County, Kentucky; and
(iii) the undersigned hereby irrevocably consent and submit to personal
jurisdiction and venue in and by the courts within Jefferson County, Kentucky.
<PAGE>
(G) COUNTERPARTS. This Non-Competition Agreement may be executed in
------------
several counterparts, each of which shall be deemed an original, and all of
which together shall constitute one and the same instrument.
(H) CONSTRUCTION. In the event this Non-Competition Agreement is
------------
executed by more than one person or entity, all of such persons or entities
shall be severally, not jointly, liable for the breach of any representation,
warranty, covenant or agreement contained herein. All references to the
masculine, singular or plural shall be equally applicable to the singular,
plural, masculine or feminine as the case may require.
IN WITNESS WHEREOF, each of the undersigned have executed this
Confidentiality and Non-Competition Agreement on the day, month, and year set
forth opposite their signature.
__________________________________________ DATE: ___________________
RICHARD F. SHERMAN
__________________________________________ DATE: ___________________
MARTIN T. HART
__________________________________________ DATE: ___________________
JACK A. LAUGHERY
__________________________________________ DATE: ___________________
MICHAEL J. GRISANTI
<PAGE>
PAPA JOHN'S
FRANCHISE AGREEMENT
EXHIBIT B
---------
OWNERSHIP RESTRICTION AGREEMENT
In consideration of, and as an inducement to, the execution by PAPA JOHN'S
INTERNATIONAL, INC. ("Franchisor") of the Franchise Agreement of even date
herewith and attached hereto (the "Agreement"), by and between Franchisor and
PJVA, INC. ("Franchisee"), the undersigned, who are the beneficial owners of all
interests in Franchisee, hereby represent, warrant, covenant, and agree:
1. REPRESENTATIONS OF THE UNDERSIGNED. Each of the undersigned, jointly
----------------------------------
and severally, represent and warrant to Franchisor:
(A) That they are the owners of all equity, voting and other
ownership interests in the Franchisee.
(B) That the Franchisee is a corporation, duly organized, validly
existing and in good standing under the laws of the State of Virginia, and that
Franchisee is qualified to do business in the state where the Franchise is to be
located.
2. COVENANT NOT TO TRANSFER INTERESTS. Each of the undersigned agrees
----------------------------------
that his interest in Franchisee is restricted in accordance with the terms of
the Agreement and covenants that he will not at any time during which Franchisee
is a Papa John's Pizza franchisee, directly or indirectly, voluntarily or
involuntarily, make any "transfer" (as defined in the Agreement) of all or any
portion of his interest in Franchisee, or any interest in the Franchise, or
offer or attempt or permit any of the same to be done, unless he first obtains
the written approval of Franchisor in compliance with the same provisions
applicable to a transfer by Franchisee as set forth in the Agreement. The
undersigned shall cause all stock certificates issued by the Franchisee to bear
a legend indicating that such stock is subject to the restrictions provided for
in the Agreement. Each of the undersigned shall give Franchisor not less than 45
days prior written notice of any intended or proposed transfer of his or her
interest in Franchisee, and shall also cause the Franchisee to give such notice
as is required by the Agreement.
3. GOVERNING LAW; JURISDICTION AND VENUE. Unless expressly prohibited by
-------------------------------------
the laws of the state in which the Outlet is located, (a) this Ownership
Restriction Agreement shall be governed by, and construed and enforced in
accordance with the laws of Kentucky; provided, however, that if any provision
of this Ownership Restriction Agreement would not be enforceable under the laws
of Kentucky (or the state where the Outlet is located, if applicable), then such
provision shall be interpreted and construed
<PAGE>
to bind the undersigned to the maximum extent permitted by law which is subsumed
within the terms of such provision as though it were separately articulated
herein and made a part hereof; (b) any action, suit or proceeding arising
hereunder or concerning the interpretation of this Ownership Restriction
Agreement shall be brought in the court of proper subject matter jurisdiction
located in Jefferson County, Kentucky; and (c) the undersigned hereby
irrevocably consent and submit to personal jurisdiction and venue in and by the
courts within Jefferson County, Kentucky.
4. WAIVERS. No failure of the Franchisor to exercise any right given to
-------
it, or to insist upon strict compliance by the undersigned with any obligation,
agreement or undertaking hereunder or under the Agreement, and no custom or
practice of the parties at variance with the terms hereof shall constitute a
waiver of Franchisor's right to demand full and exact compliance by the
undersigned with the terms hereof. Waiver by Franchisor of any particular
default by Franchisee shall not affect or impair Franchisor's rights with
respect to any of the undersigned, nor shall any delay or omission of Franchisor
to exercise any right arising from such default affect or impair the
Franchisor's rights with respect to any of the undersigned.
5. ACKNOWLEDGEMENT. Each of the undersigned hereby acknowledge that (a)
---------------
it is a condition to the granting of the Franchise to the Franchisee that the
undersigned enter into this Ownership Restriction Agreement, and (b) that
Franchisor has entered into the Agreement in reliance upon the agreement of the
undersigned to do so.
6. MISCELLANEOUS.
-------------
(A) SEVERABILITY. This Ownership Restriction Agreement may be
------------
executed in several counterparts, each of which shall be deemed an original, and
all of which together shall constitute one and the same instrument.
(B) DEFINITIONS. Except as otherwise defined in this Ownership
-----------
Restriction Agreement, all capitalized terms shall have the same meaning given
them in the Agreement.
(C) SURVIVAL. This Ownership Restriction Agreement shall inure to
--------
the benefit of, and be binding upon the undersigned and the undersigned's legal
representatives, heirs and assigns, and upon the Franchisor and its successors
and assigns.
(D) AMENDMENTS. This Ownership Restriction Agreement may not be
----------
amended orally, but only by an amendment in writing signed by the party against
whom enforcement is sought.
(E) COUNTERPARTS. This Ownership Restriction Agreement may be
------------
executed in several counterparts, each of which shall be deemed an original, and
all of which together shall constitute one and the same instrument.
<PAGE>
7. CONSTRUCTION. In the event this agreement is executed by more than
------------
one person or entity, all such persons or entities shall be severally, not
jointly, liable for the performance of all of the obligations hereunder. Any
reference to the masculine shall be construed to include the feminine,
masculine, neuter, or plural as applicable.
IN WITNESS WHEREOF, each of the undersigned represents that he or she owns
that percentage of the Franchisee and has executed this Ownership Restriction
Agreement on the day, month, and year set forth opposite their signature.
Ownership
Signature Date Percentage
--------- ---- ----------
________________________ ______________________ _______
RICHARD F. SHERMAN
________________________ ______________________ _______
MARTIN T. HART
________________________ ______________________ _______
JACK A. LAUGHERY
________________________ ______________________ _______
MICHAEL J. GRISANTI
<PAGE>
PAPA JOHN'S
FRANCHISE AGREEMENT
EXHIBIT C
---------
ADDENDUM TO LEASE
-----------------
THIS ADDENDUM TO LEASE, dated __________ __, 19__, is entered into by and
between ________________________ ("Lessor"), and _____________________
("Lessee").
RECITALS:
--------
A. The parties hereto have entered into a certain Lease Agreement, dated
__________ __, 19__, and pertaining to the premises located at
________________________________________ (the "Lease").
B. Lessor acknowledges that Lessee intends to operate a Papa John's Pizza
outlet in the leased premises (the "Premises") under a Papa John's Franchise
Agreement (the "Franchise Agreement") with Papa John's International, Inc.
("PJI").
C. The parties now desire to amend the Lease in accordance with the terms
and conditions contained herein.
AGREEMENT:
---------
NOW, THEREFORE, it is hereby mutually covenanted and agreed between Lessor
and Lessee as follows:
1. REMODELING AND DECOR. Lessor agrees that Lessee shall have the right
--------------------
to remodel, equip, paint and decorate the interior of the Premises and to
display such proprietary marks and signs on the interior and exterior of the
Premises as Lessee is reasonably required to do pursuant to the Franchise
Agreement and any successor Franchise Agreement under which Lessee may operate a
Papa John's Pizza business in the Premises.
2. ASSIGNMENT. Lessee shall have the right to assign all of its right,
----------
title and interest in the Lease to PJI at any time during the term of the Lease,
including any extensions or renewals thereof, without first obtaining Lessor's
consent. However, no assign-
<PAGE>
ment shall be effective until such time as PJI gives Lessor written notice of
its acceptance of such assignment, and nothing contained herein or in any other
document shall constitute PJI a party to the Lease, or guarantor thereof, and
shall not create any liability or obligation on PJI unless and until the Lease
is assigned to, and accepted by, PJI.
3. DEFAULT AND NOTICE.
------------------
(A) In the event there is a default or violation by Lessee under the
terms of the Lease, Lessor shall give Lessee and PJI notice of such default or
violation within a reasonable time after Lessor receives knowledge of its
occurrence.
(B) All notices to PJI shall be sent by registered or certified mail,
postage prepaid, to the following address:
Papa John's International, Inc.
11492 Bluegrass Parkway, Suite 175
Louisville, Kentucky 40299
Attn: General Counsel
PJI may change its address for receiving notices by giving Lessor written notice
of such new address. Lessor agrees that it will notify both Lessee and PJI of
any change in Lessor's mailing address to which notices should be sent.
4. TERMINATION OR EXPIRATION. Upon the expiration or termination of
-------------------------
either the Lease or the Franchise Agreement, Lessor will allow PJI to enter the
Premises, without being guilty of trespass and without incurring any liability
to Lessor, to remove all signs and other items identifying the Premises as a
Papa John's Pizza outlet and to make such other modifications as are reasonably
necessary to protect PJI's proprietary marks and the Papa John's System, and to
distinguish the Premises from Papa John's Pizza outlets. Provided, however, that
this obligation of Lessor shall be conditioned upon PJI giving Lessor prior
notice of the modifications to be made and the items removed.
5. CONSIDERATION; NO LIABILITY.
---------------------------
(A) Lessor hereby acknowledges that the provisions of this Addendum
to Lease are required pursuant to the Franchise Agreement under which Lessee
plans to operate its business and that Lessee would not lease the Premises
without this Addendum.
(B) Lessor further acknowledges that Lessee is not an agent or
employee of PJI and that Lessee has no authority or power to act for, or to
create any liability on behalf of, or to in any way bind PJI, and that Lessor
has entered into this Addendum to Lease with full understanding that it creates
no duties, obligations or liabilities on or against PJI.
<PAGE>
6. AMENDMENTS. No amendment or variation of the terms of this Addendum
----------
to Lease shall be valid unless made in writing and signed by the parties hereto.
7. REAFFIRMATION OF LEASE. Except as amended or modified herein, all of
----------------------
the terms, conditions and covenants of the Lease shall remain in full force and
effect and are incorporated herein by reference and made a part hereof as though
copied herein in full.
IN TESTIMONY WHEREOF, witness the signatures of the parties hereto as of
the day, month and year first written above.
______________________________________
By: __________________________________
Title: _______________________________
("Lessor")
______________________________________
By: __________________________________
Title: _______________________________
("Lessee")
<PAGE>
Exhibit 10.19
May 20, 1996
All Parties on Attached
Distribution List:
Papa John's International, Inc. ("PJI") hereby waives, with respect to each
of the companies listed on Exhibit A attached hereto and made a part hereof
(collectively, the "Extra Cheese Affiliates"), all of which have at least one
common shareholder or owner with Extra Cheese, Inc., the right of first refusal
that PJI has to acquire the stock or other ownership interests or assets of each
of the Extra Cheese Affiliates, but only so as to allow the acquisition of the
stock or ownership interests or assets of each such Extra Cheese Affiliate by
Extra Cheese, Inc., PJ America, Inc. or one of its other affiliates, free of
PJI's right of first refusal. PJI will waive all transfer fees ($3,000 per
transaction) with respect to any acquisition of any Extra Cheese Affiliate by
Extra Cheese, Inc. or PJ America, Inc. or one of its affiliates prior to or
within 12 months after Extra Cheese, Inc. or PJ America, Inc. completes its IPO.
Very truly yours,
Papa John's International, Inc.
By: ________________________________
Title: _____________________________
<PAGE>
7
EXHIBIT A
---------
MARKET ENTITY
- ------ ------
Alabama Extra Cheese, Inc.
Birmingham Twice the Cheese, Inc.
East Texas Textra Cheese Corp.
Louisiana Easy Cheese, L.L.C.
Easy Cheese Corp.
Birmingham EC Corp.
South Carolina Lottsa Cheese, Corp.
Virginia P.J.V., Inc.
P.J.Va., Inc.
Eastern Ohio Sherfiz, Inc.
Sherfiz II Corp.
P.J. Cambridge, Inc.
SPJ Operating Corp.
Bowling Green, Ohio BG Cheese Corp.
Michigan BG Cheese Corp. (a separate Michigan corporation is to
be formed in the immediate future)
Mobile, Alabama Say Cheese, Inc.
Iowa PJIowa, L.C.
Utah PJ Utah, L.L.C.
8
<PAGE>
EXHIBIT 10.20
RIGHT OF FIRST REFUSAL
----------------------
THIS RIGHT OF FIRST REFUSAL ("Agreement") is made and entered into
this ____ day of August, 1996, by and among PJ AMERICA, INC., a Delaware
corporation ("PJ America"), PJ IOWA LLC, a ______________ limited liability
company ("PJ Iowa") and the members of PJ Iowa identified on the signature page
attached hereto (the "Members").
A G R E E M E N T
-----------------
In consideration of the payment of $100 and for other good and
valuable consideration, the receipt and sufficiency of which the parties hereby
acknowledge, the parties hereby agree as follows:
1. RIGHT OF FIRST REFUSAL.
----------------------
1.1 GRANT OF RIGHT OF FIRST REFUSAL. For a period commencing on
the date hereof and ending on August 31, 2001 ("Term"), neither PJ Iowa nor any
Member shall transfer (i) any membership interest in PJ Iowa ("Company
Interest"), or (ii) any material portion of the assets of the PJ Iowa, which
shall include any Papa John's restaurant located in Iowa or any right or
interest in and to a Papa John's franchise for a restaurant located in Iowa,
without PJ America's written consent and without giving PJ America the first
right and option to purchase the interest or assets intended or proposed to be
transferred, at the price and on the terms and conditions of this Agreement.
Notwithstanding anything herein to the contrary, a Member may transfer all or a
portion of such Member's Company Interest to another Member, to PJ Iowa, to an
immediate family member of the Member or to a trust established for the benefit
of such immediate family member, or to a person or entity for whom or which the
consent of PJ America is obtained (such person or entity being referred to as a
"Permitted Transferee") without such transfer being subject to PJ America's
right of first refusal provided for herein, subject, however, to the Permitted
Transferee signing consents and agreements, in form and substance satisfactory
to PJ America, as PJ America shall require to evidence the Permitted
Transferee's agreement to be bound by the terms and restrictions of this
Agreement.
1.2 TRANSFER DEFINED. For purposes of this Agreement, the term
"transfer" shall mean any issuance, conveyance, sale, exchange, assignment,
gift, pledge, mortgage, or any other encumbrance (other than a lien against PJ
Iowa's assets to secure a loan for the construction, remodeling, equipping or
operation of a Papa John's outlet), transfer by bankruptcy, transfer by judicial
order, merger, consolidation, share exchange, transfer by operation of law or
otherwise, or agreement to do any of the forgoing, whether direct or indirect,
voluntary or involuntary. Except for transfers between Permitted Transferees,
any ownership or structural changes in PJ Iowa, including, but not limited to,
any merger, reorganization, issuance of additional shares or classes of stock or
additional membership or partnership interests, shall constitute and be deemed a
transfer of PJ Iowa and subject to the terms and conditions of this Agreement.
<PAGE>
1.3 NOTICE OF PROPOSED TRANSFER. During the Term, PJ Iowa or any
Member (the "Transferring Party"), as the case may be, shall give PJ America at
least 45 days prior written notice of any intended transfer of any of its
Company Interest or interest in any material portion of the assets of PJ Iowa.
Such notice shall set forth the name of the proposed transferee and a detailed
statement of all of the terms and conditions of such intended or proposed
transfer.
1.4 OPTION TO CORPORATION.
a. For a period of 45 days following receipt of the notice (the
"Option Period"), PJ America shall have the right to purchase any Company
Interest or material portion of the assets of PJ Iowa that the Transferring
Party desires to transfer at the purchase price and on the terms of payment set
forth in the notice. Notwithstanding the foregoing, PJ America, in its sole
discretion, may tender payment of the purchase price to the Transferring Party
in any combination of cash or registered common shares of PJ America having a
value (as determined in accordance with Section 1.4.b) equal to the purchase
price set forth in the notice. Should the proposed transfer involve the payment
of any non-cash consideration, PJ America shall have the option to purchase the
Company Interest or assets at a price equal to the fair market value (as
determined in accordance with Section 1.4.c) of such non-cash consideration plus
the amount, if any, of consideration paid in cash.
b. For purposes hereof, the value of a registered common share of
PJ America shall equal, as applicable, (i) the average of the closing bid prices
for the common stock of PJ America stock as listed on the NASDAQ System or such
other system on which the common stock of PJ America is traded for the five
trading days immediately preceding the date on which the purchase price is
required to be tendered, or (ii) the average of the closing prices listed for
the common stock of PJ America on the exchange on which the common stock of PJ
America is listed for the five trading days immediately preceding the date on
which the purchase price is required to be tendered.
c. PJ America shall determine the fair market value of the non-
cash consideration using fair and reasonable methods. PJ America shall make such
determination, and provide written notice to the Transferring Party, as promptly
as practicable, but in no event later than 30 days after it has received the
notice of the intended transfer. If the Transferring Party disagrees with the
value as determined by PJ America, then PJ Iowa and the Transferring Party shall
each hire an appraiser (or a single appraiser, if they so agree) to value the
non-cash consideration. If the appraisals are within 20% of each other, then the
difference between the two shall be equally divided to establish the price at
which PJ America may exercise its first right and option. If the difference
between the appraisals is greater than 20%, then the issue of the fair market
value of such consideration shall be determined by a third appraiser selected by
the other two appraisers and whose decisions shall be final, except that it may
not be lower or higher than the lowest appraisal and highest appraisal,
respectively, determined by the first two appraisers.
-2-
<PAGE>
1.5 EXERCISE OF OPTION. If PJ America elects to exercise its option
hereunder, it shall give written notice, within the Option Period, to the
Transferring Party of PJ America's election to exercise such option.
1.6 FAILURE TO EXERCISE OPTION. If PJ America fails to exercise its
right of refusal, the Transferring Party may make the proposed transfer on the
exact terms and conditions specified in the notice of proposed transfer to PJ
America within 60 days after the expiration of PJ America's option, provided,
that the transferee consents in form and substance satisfactory to PJ America to
be bound by the terms and restrictions of this Agreement. If the transfer is
not consummated within such 60-day period, the Transferring Party may not
thereafter transfer such interest or asset without again complying with this
Section.
2. MISCELLANEOUS.
-------------
2.1 FURTHER ASSURANCES. Each of the parties hereto agrees that the
party will at any time, and from time to time, upon the request of the
appropriate party, do, execute, acknowledge and deliver, or will cause to be
done, executed, acknowledged and delivered, all such further acts, deeds,
assignments, transfers, conveyances, powers of attorney and assurances as may be
required to complete the transactions contemplated by this Agreement.
2.2 ASSIGNMENT. No party shall assign or delegate this Agreement or
any rights, interests or obligations hereunder without the prior written consent
of the other parties, except that PJ America may assign in its sole discretion,
any or all of its rights and interests, without the prior written consent of the
other parties, to any subsidiary of PJ America. This Agreement will be binding
upon, inure to the benefit of and be enforceable by the parties and their
respective successors and assigns.
2.3 AMENDMENTS, SUPPLEMENTS, ETC. This Agreement may not be amended
or supplemented by the parties except by an instrument in writing signed by all
of the parties hereto.
2.4 GOVERNING LAW. The terms of this Agreement shall be governed by
and construed and interpreted in accordance with the laws of the State of
Alabama.
PJ AMERICA, INC.
By:
------------------------------------
Title:
---------------------------------
("PJ America")
-3-
<PAGE>
PJ IOWA, LLC
By:
------------------------------------
Title:
---------------------------------
("PJ Iowa")
-----------------------------------------
JAMES S. RIEKEL
-----------------------------------------
RICHARD F. SHERMAN
-----------------------------------------
JACK A. LAUGHERY
-----------------------------------------
MARTIN T. HART
-----------------------------------------
MICHAEL J. GRISANTI
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
By:
---------------------------------------
Title:
------------------------------------
("Members")
-4-
<PAGE>
EXHIBIT 10.21
RIGHT OF FIRST REFUSAL
----------------------
THIS RIGHT OF FIRST REFUSAL ("Agreement") is made and entered into
this ____ day of August, 1996, by and among PJ AMERICA, INC., a Delaware
corporation ("PJ America"), PJ LOUISIANA, INC., a Louisiana corporation ("PJ
Louisiana") and the shareholders of PJ Louisiana identified on the signature
page attached hereto (the "Shareholders").
A G R E E M E N T
-----------------
In consideration of the payment of $100 and for other good and
valuable consideration, the receipt and sufficiency of which the parties hereby
acknowledge, the parties hereby agree as follows:
1. RIGHT OF FIRST REFUSAL.
----------------------
1.1 GRANT OF RIGHT OF FIRST REFUSAL. For a period commencing on
the date hereof and ending on August 31, 2001 ("Term"), neither PJ Louisiana nor
any Shareholder shall transfer (i) any interest in PJ Louisiana ("Company
Interest"), or (ii) any material portion of the assets of the PJ Louisiana,
which shall include any Papa John's restaurant located in Baton Rouge, Lafayette
or Lake Charles, Louisiana or any right or interest in and to a Papa John's
franchise for a restaurant located in Baton Rogue, Lafayette or Lake Charles,
Louisiana, without PJ America's written consent and without giving PJ America
the first right and option to purchase the interest or assets intended or
proposed to be transferred, at the price and on the terms and conditions of this
Agreement. Notwithstanding anything herein to the contrary, a Shareholder may
transfer all or a portion of such Shareholder's Company Interest to another
Shareholder, to PJ Louisiana, to an immediate family member of the Shareholder
or to a trust established for the benefit of such immediate family member, or to
a person or entity for whom or which the consent of PJ America is obtained (such
person or entity being referred to as a "Permitted Transferee") without such
transfer being subject to PJ America's right of first refusal provided for
herein, subject, however, to the Permitted Transferee signing consents and
agreements, in form and substance satisfactory to PJ America, as PJ America
shall require to evidence the Permitted Transferee's agreement to be bound by
the terms and restrictions of this Agreement.
1.2 TRANSFER DEFINED. For purposes of this Agreement, the term
"transfer" shall mean any issuance, conveyance, sale, exchange, assignment,
gift, pledge, mortgage, or any other encumbrance (other than a lien against PJ
Louisiana's assets to secure a loan for the construction, remodeling, equipping
or operation of a Papa John's outlet), transfer by bankruptcy, transfer by
judicial order, merger, consolidation, share exchange, transfer by operation of
law or otherwise, or agreement to do any of the forgoing, whether direct or
indirect, voluntary or involuntary. Except for transfers between Permitted
Transferees, any ownership or structural changes in PJ Louisiana, including, but
not limited to, any merger, reorganization, issuance of additional shares or
classes of stock or additional partnership interests, shall constitute and be
deemed a transfer of PJ Louisiana and subject to the terms and conditions of
this Agreement.
<PAGE>
1.3 NOTICE OF PROPOSED TRANSFER. During the Term, PJ Louisiana or
any Shareholder (the "Transferring Party"), as the case may be, shall give PJ
America at least 45 days prior written notice of any intended transfer of any of
its Company Interest or interest in any material portion of the assets of PJ
Louisiana. Such notice shall set forth the name of the proposed transferee and a
detailed statement of all of the terms and conditions of such intended or
proposed transfer.
1.4 OPTION TO CORPORATION.
---------------------
A. For a period of 45 days following receipt of the notice
(the "Option Period"), PJ America shall have the right to purchase any Company
Interest or material portion of the assets of PJ Louisiana that the Transferring
Party desires to transfer at the purchase price and on the terms of payment set
forth in the notice. Notwithstanding the foregoing, PJ America, in its sole
discretion, may tender payment of the purchase price to the Transferring Party
in any combination of cash or registered common shares of PJ America having a
value (as determined in accordance with Section 1.4.b) equal to the purchase
price set forth in the notice. Should the proposed transfer involve the payment
of any non-cash consideration, PJ America shall have the option to purchase the
Company Interest or assets at a price equal to the fair market value (as
determined in accordance with Section 1,4.b) of such non-cash consideration plus
the amount, if any, of consideration paid in cash.
B. For purposes hereof, the value of a registered common
share of PJ America shall equal, as applicable, (i) the average of the closing
bid prices for the common stock of PJ America stock as listed on the NASDAQ
System or such other system on which the common stock of PJ America is traded
for the five trading days immediately preceding the date on which the purchase
price is required to be tendered, or (ii) the average of the closing prices
listed for the common stock of PJ America on the exchange on which the common
stock of PJ America is listed for the five trading days immediately preceding
the date on which the purchase price is required to be tendered.
C. PJ America shall determine the fair market value of the
non-cash consideration using fair and reasonable methods. PJ America shall make
such determination, and provide written notice to the Transferring Party, as
promptly as practicable, but in no event later than 30 days after it has
received the notice of the intended transfer. If the Transferring Party
disagrees with the value as determined by PJ America, then PJ Louisiana and the
Transferring Party shall each hire an appraiser (or a single appraiser, if they
so agree) to value the non-cash consideration. If the appraisals are within 20%
of each other, then the difference between the two shall be equally divided to
establish the price at which PJ America may exercise its first right and option.
If the difference between the appraisals is greater than 20%, then the issue of
the fair market value of such consideration shall be determined by a third
appraiser selected by the other two appraisers and whose decisions shall be
final, except that it may not be lower or higher than the lowest appraisal and
highest appraisal, respectively, determined by the first two appraisers.
-2-
<PAGE>
1.5 EXERCISE OF OPTION. If PJ America elects to exercise its
option hereunder, it shall give written notice, within the Option Period, to the
Transferring Party of PJ America's election to exercise such option.
1.6 FAILURE TO EXERCISE OPTION. If PJ America fails to exercise
its right of refusal, the Transferring Party may make the proposed transfer on
the exact terms and conditions specified in the notice of proposed transfer to
PJ America within 60 days after the expiration of PJ America's option, provided,
that the transferee consents in form and substance satisfactory to PJ America to
be bound by the terms and restrictions of this Agreement. If the transfer is not
consummated within such 60-day period, the Transferring Party may not thereafter
transfer such interest or asset without again complying with this Section.
2. MISCELLANEOUS.
-------------
2.1 FURTHER ASSURANCES. Each of the parties hereto agrees that the
party will at any time, and from time to time, upon the request of the
appropriate party, do, execute, acknowledge and deliver, or will cause to be
done, executed, acknowledged and delivered, all such further acts, deeds,
assignments, transfers, conveyances, powers of attorney and assurances as may be
required to complete the transactions contemplated by this Agreement.
2.2 ASSIGNMENT. No party shall assign or delegate this Agreement
or any rights, interests or obligations hereunder without the prior written
consent of the other parties, except that PJ America may assign in its sole
discretion, any or all of its rights and interests, without the prior written
consent of the other parties, to any subsidiary of PJ America. This Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.
2.3 AMENDMENTS, SUPPLEMENTS, ETC. This Agreement may not be
amended or supplemented by the parties except by an instrument in writing signed
by all of the parties hereto.
2.4 GOVERNING LAW. The terms of this Agreement shall be governed
by and construed and interpreted in accordance with the laws of the State of
Alabama.
PJ AMERICA, INC.
By:
-------------------------
Title:
----------------------
("PJ America")
-3-
<PAGE>
PJ AMERICA, INC.
By:
-------------------------
Title:
----------------------
("PJ Louisiana")
-----------------------------
RICHARD F. SHERMAN
-----------------------------
MICHAEL M. FLEISHMAN
-----------------------------
FRANK O. KEENER
-----------------------------
STEPHEN P. LANGFORD
-----------------------------
DOUGLAS S. STEPHENS
-----------------------------
ROBERT W. CURTIS, JR.
-----------------------------
LARRY BEST
("Shareholders")
-4-
<PAGE>
Exhibit 10.22
OPTION AGREEMENT
----------------
THIS OPTION AGREEMENT is made and entered into this 26th day of August,
1996, by and among PJ AMERICA, INC., a Delaware corporation ("PJ America"), PJ
UTAH, LLC, a Utah limited liability company ("PJ Utah") and the members of PJ
Utah identified on the signature page attached hereto (the "Members").
RECITALS:
A. PJ America is a franchisee of Papa John's International, Inc., a
Delaware corporation ("Papa John's"), engaged in the pizza delivery and carryout
restaurant business in the States of Alabama, Texas and Virginia.
B. PJ Utah is a franchisee of Papa John's having the right pursuant to a
Development Agreement to develop and open Papa John's pizza delivery and
carryout restaurants in the State of Utah.
C. The parties desire to enter into this Agreement to set forth the terms
by which PJ America shall have the right and option, but not the obligation, to
purchase all of the issued and outstanding membership interests in PJ Utah, to
set forth the terms by which PJ America will manage PJ Utah, and to set forth
certain other agreements between the parties, all upon the terms and conditions
of this Agreement.
AGREEMENT:
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements of the parties set forth herein, the parties hereby agree as
follows:
1. Option to Purchase Membership Interest.
1.1 Option Grant; Exercise. Each of the Members of PJ Utah,
individually, hereby grant to PJ America the right and option to purchase all
their respective rights, title and interest in and to the membership interest
owned or held by such members in PJ Utah (the "Company Interest"), free and
clear of all claims, liens, charges and encumbrances of any nature whatsoever,
at the purchase price and upon the additional terms and conditions of this
Agreement (the "Option"). PJ America may exercise the Option at any time during
the 12-month period commencing January 1, 1998 and expiring December 31, 1998
(the "Exercise Period"), by giving written notice to the Members of its election
to do so. The Members shall not be required to sell any of their shares to PJ
America unless PJ America has elected to acquire all of the Members' Company
Interests.
1.2 Purchase Price. The purchase price ("Purchase Price") for the
Company Interests of each of the Members shall be an amount which equals the sum
of (a) all cash or other property now or hereafter contributed or lent by such
Member to the capital
<PAGE>
of PJ Utah, with any property contributed to be valued at the fair market value
as determined in good faith by the Members (the "Invested Capital"), plus (b)
the "Return on the Invested Capital" (defined below), plus (c) an amount equal
to (i) $10,000 per Papa John's pizza delivery and carryout restaurant that is
being operated in Utah by PJ Utah at the time of closing, multiplied by (ii)
such Member's "Proportionate Share" (defined below). For purposes hereof, the
"Return on Invested Capital" shall mean an amount, determined from each of the
respective dates such Invested Capital is contributed or lent to PJ Utah, which
equals the product of the (a) Invested Capital multiplied by (b) a yield per
annum equal to the prime rate of interest as published in the Money Rates Column
of The Wall Street Journal, as adjusted on the first day of each calendar
quarter, from and after the date such Invested Capital was or is hereafter
invested by the Member. For purposes of this Agreement, a Member's
"Proportionate Share" shall mean the proportion which the Invested Capital of
such Member bears to the total Invested Capital of all the Members of PJ Utah at
the time of Closing.
1.3 Development Debt. PJ America, upon exercise of the Option, shall
assume and pay off at Closing all of the "Development Debt" of PJ America (as
defined herein). For purposes of this Agreement, "Development Debt:" shall mean
any loans or credit extended to PJ Utah to be used by PJ Utah to fund (i) the
start-up expenses of PJ Utah,(ii) PJ Utah's expenses of building and developing
Papa John's pizza delivery and carryout restaurants, and (iii) any operating
losses of PJ Utah and all other costs and expenses associated with operation of
PJ Utah. PJ America hereby expressly acknowledges that PJ Utah will incur debts
of approximately $2.5 million to $4.5 million for payment of start-up expenses,
expenses to open and build Papa John's pizza delivery and carryout restaurants,
and funding its initial operating losses. It is a condition to the Closing of
the exercise of the Option that PJ America secure the release of all members of
PJ Utah from any personal guarantees on the Development Debt by paying the full
amount of the Development Debt at Closing. PJ America further acknowledges that
all debts and obligations of PJ Utah, except to the extent paid at closing by PJ
America, will remain with PJ Utah after the Closing of the Option and, as a
further condition to the Closing, PJ America will agree to idemnify and hold
each of the Members harmless from and against any and all such costs,
liabilities, expenses and obligations of PJ Utah, including, without limitation,
the Development Debt.
1.4 Closing. The consummation of the option transactions contemplated
in this Agreement (the "Closing") shall occur on or before 30 days following the
exercise of the Option. At the Closing, each Member shall execute such
instruments of assignment as shall be requested by PJ America, and hereby agrees
to execute and deliver all other agreements, documents and instruments, and to
take such additional actions, as may reasonably be requested by PJ America, to
assign, transfer and vest title in or to PJ America in all the Company Interests
and to effectuate the transactions otherwise contemplated by this Agreement.
-2-
<PAGE>
1.5 PAYMENT OF PURCHASE PRICE. PJ America shall pay the purchase price
at closing by delivery of the following:
a. PJ America shall deliver to each of the Members cashiers' or
certified checks, or immediately available funds to a bank account designated by
the respective Members for receipt thereof, in an amount equal to the Purchase
Price.
b. PJ America shall delivery to the financial institutions or
other creditors of PJ Utah, on behalf of PJ Utah, payment of the Development
Debt in full.
2. MANAGEMENT BY PJ AMERICA.
2.1 ENGAGEMENT. PJ Utah hereby engages PJ America to provide PJ Utah
with the services described herein, and PJ America hereby agrees to provide such
services to PJ Utah, on the terms and conditions set forth in this Agreement.
2.2 DESCRIPTION OF MANAGEMENT SERVICES. PJ America shall provide PJ
Utah the following services relating to its operations: (a) oversight of the
management of the operations of the Papa John's restaurants owned and operated
by PJ Utah; (b) development of policies, operating plans and budgets for review
and consideration of PJ Utah; (c) oversight of the development and opening of
Papa John's restaurants within the State of Utah, in furtherance of PJ Utah's
obligations under the development schedules (the "Development Schedules") set
forth in its Area Development Agreement(s) with Papa John's; (d) implementation
of accounting services and controls for store level operations, and accounting
services and controls for company level operations of PJ Utah; (e) oversight
over persons and firms employed, at the expense of PJ Utah, to perform legal,
accounting, advertising and other professional services in connection with the
operations and management of PJ Utah and its restaurants, including, without
limitation, the preparation of and filing of tax returns and the preparation of
financial statements and any other reports (including financial information
required of PJ Utah by Papa John's) that present the financial condition and
results of operations of PJ Utah; (f) negotiation of the terms of agreements,
contracts, documents and instruments necessary for operation of PJ Utah and
development and opening of Papa John's restaurants in furtherance of PJ Utah's
Development Schedules subject, however, to review, approval and execution by PJ
Utah, it being expressly acknowledged by the parties hereto that PJ America
shall have no authority to bind or commit PJ Utah to any such agreement,
contract, document or instrument without the express written approval of PJ
Utah; (g) providing advice to and supervision over PJ Utah's executive and
management personnel, including hiring, termination and employment policies
affecting such personnel and all other related employment matters; and (h)
providing such other services related to the foregoing that PJ Utah may
reasonably request from time to time.
2.3 TERM. The management services to be provided by PJ America
pursuant to this Agreement shall commence on the date hereof and shall terminate
December 31, 1998 (the "Terms"), unless sooner terminated by PJ Utah or PJ
America upon 90 days advance notice to the other, without impairing in any
manner the Option to PJ America set forth in Section 1.
-3-
<PAGE>
2.4 SCOPE OF DUTIES. PJ America shall devote such of its time,
attention and energy to the affairs and operations of PJ Utah as necessary to
perform its obligations to PJ Utah hereunder to the best of its ability and at a
level of competency and effectiveness consistent with its engagement as a
professional management company. Nothing herein shall preclude PJ America from
managing or engaging in, or possessing an interest in, any other business
ventures of any nature and description, independently or with others, including,
without limitation, the ownership, development and operation by PJ America or
its affiliates of any Papa John's restaurants or other restaurants or activities
competitive with those of PJ Utah. PJ America shall be an independent contractor
and no employee of PJ America shall be deemed, merely because he or she performs
work on behalf of PJ Utah, an employee of PJ Utah for any purposes whatsoever.
PJ America shall be permitted to employ any reasonable means and methods which
PJ America, in its sole discretion, deems necessary and appropriate to
accomplish the services required of it hereunder. Notwithstanding the foregoing,
PJ Utah shall at all times maintain control over the results to be accomplished
by PJ America and the satisfactory performance by PJ America of its obligations
hereunder. Nothing contained in this Agreement shall be deemed to create a
relationship between the parties as partners, joint venturers, co-owners or that
of an employer-employee.
2.5 COMPENSATION FOR MANAGEMENT SERVICES. For the services rendered by
PJ America hereunder, during the Term, PJ America shall receive a fee of $20,000
per month, payable by PJ Utah in arrears, retroactive to August 1, 1996. In
addition, PJ Utah shall pay or reimburse PJ America for the direct expenses
which PJ America incurs in performing services on behalf of PJ Utah, including,
without limitation, cost for travel, entertainment, telephone, legal, accounting
and any other costs or expenses incurred by PJ America or its employees in
connection with the performances of its services under this Agreement, but
excluding compensation paid to such employees and PJ America's corporate
overhead. PJ America shall properly itemize and account for all such costs and
expenditures to PJ Utah in accordance with PJ Utah's procedures in effect from
time to time during the term. PJ America shall promptly forward to PJ Utah for
payment all bills, invoices and receipts received by it for obligations arising
out of goods or services contracted for or on behalf of PJ Utah.
3. REPRESENTATIONS AND WARRANTIES OF THE PARTIES.
3.1 REPRESENTATIONS AND WARRANTIES OF PJ UTAH MEMBERS. Each of the
Members hereby severally represents and warrants to PJ America with respect to
themselves as follows:
a. Such Member is the sole record, lawful and beneficial owner
of a Company Interest in PJ Utah which such Member has received in exchange for
its contribution to the initial capital of PJ Utah of the sum set forth opposite
such Member's name on Exhibit A attached hereto. Such Member has a Percentage
Interest in PJ Utah set forth opposite such member's name on Exhibit A attached
hereto. Such member has good and valid title to such Company Interest in PJ
Utah.
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<PAGE>
b. The Member has full right, power, authority and capacity to
execute, deliver and perform this Agreement in accordance with its terms. This
Agreement and each and every agreement, document and instrument to be executed,
delivered and performed by the Member in connection herewith constitutes, or
will, when executed and delivered, constitute, the valid and binding obligation
of the Member, enforceable against the Member in accordance with their
respective terms.
c. The Company Interest in PJ Utah of the member is, and will be on
the closing date, free and clear of all claims, liens, pledges, restrictions and
encumbrances.
3.2 Representations and Warranties of PJ America. PJ America hereby
represents and warrants to the Members and PJ Utah as follows:
a. PJ America is a corporation duly organized and validly existing
under the laws of the State of Delaware.
b. PJ America has the full corporate power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. This Agreement and each and every agreement, document or instrument to
be executed, delivered and performed by PJ America in connection herewith,
constitutes, or will when executed and delivered, constitute, the valid and
binding obligation of PJ America, enforceable in accordance with their
respective terms, except that the Option shall not be binding on PJ America
unless, and until, exercised by PJ America.
3.3 Representations and Warranties of PJ Utah. PJ Utah hereby represents
and warrants to PJ America as follows:
a. PJ Utah is a limited liability company duly organized and validly
existing under the laws of the State of Utah.
b. PJ Utah has full power and authority, corporate and otherwise, to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. This Agreement and each and every agreement, document or
instrument to be executed, delivered and performed by PJ Utah in connection
herewith constitutes, or will when executed and delivered, constitute, the valid
and binding obligation of PJ Utah, enforceable against PJ Utah in accordance
with their respective terms.
4. Additional Covenants of the Parties.
4.1 Restrictions on Company Interest Transfers. From the date hereof
through the Closing Date, or the earlier expiration of the Option, no Member
shall sell, transfer, convey, exchange, assign or otherwise transfer any Company
Interest in PJ Utah, or enter into any agreement for the sale or transfer of any
Company Interest in PJ Utah, nor will any Member subject any Company Interest to
any security interest, claim, equity, restriction, pledge, lien, charge or
encumbrance of any nature whatsoever other than those
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<PAGE>
provided to a financial institution or other creditor in relation to the
Development Debt. Notwithstanding the foregoing, nothing herein shall restrict
the transfer of a Company Interest to an immediate family member of the Member
or to a trust established for the benefit of such immediate family member;
provided, that the transferee consents in form and substance satisfactory to PJ
America to be bound by the terms and restrictions of this Agreement.
4.2 Negotiations With Others. During the period from the date hereof
through the Closing Date, or earlier expiration of the Option, neither PJ Utah
nor any of the Members shall, directly or indirectly, solicit or initiate
discussions or engage in negotiations with, or provide any information (other
than publicly available information) to, or authorize any financial advisor or
other person to solicit or initiate discussions or engage in negotiations with,
or provide any information to any person, entity or group (other than parties to
this Agreement) concerning any proposal regarding a merger, consolidation,
reorganization, sale of all or substantially all of the assets, sale of the
outstanding capital stock or any other sale of PJ Utah in any form whatsoever.
4.3 Actions During Option Period. From the date hereof to the expiration
of the Exercise Period, unless otherwise agreed to by PJ America, PJ Utah will:
a. not undertake any franchises for a restaurant other than a Papa
John's restaurant.
b. not admit any additional members without the prior consent and
approval of such person or entity to the terms and conditions of this Agreement,
in form and substance satisfactory to PJ America.
c. not enter into any business, nor make any investment in any other
corporation, association, partnership, joint venture or other business
organization engaged in any business, which does not involve franchising of Papa
John's restaurant; and
d. not dispose of or encumber, or agree to dispose of or encumber,
any of its properties or assets other than in the ordinary course of business;
4.4 Notifications Pending Exercise. From the date hereof through the
Closing, the parties to this Agreement will promptly notify each other party in
writing if any of the representations or warranties made by such party in this
Agreement becomes inaccurate or is breached, or may become inaccurate or be
breached, or such party is unable to perform any agreement, covenant or
condition required of such party under the terms of this Agreement.
4.5 Access to Information. PJ Utah will provide to PJ America, and its
officers, employees, attorneys, accountants and other representatives and
agents, free access to all records and information relating to the business,
assets, liabilities and operations of PJ Utah during the ordinary business hours
of PJ Utah in order that PJ America may have full opportunity to make such
investigations as it shall desire of PJ Utah to make an informed decision on the
exercise of the Option granted hereby.
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<PAGE>
4.6 FURTHER ACTIONS. Each of the parties hereto agrees that
the party will at any time, and from time to time, either before or after the
Closing for the purchase of the Company Interest, upon the request of the
appropriate party, do execute, acknowledge and deliver, or will cause to be
done, executed, acknowledged and delivered, all such further acts, deeds,
assignments, transfers, conveyances, powers of attorney and assurances as may be
required to complete the transactions contemplated by this Agreement. Each of
the parties hereto agrees that, during the Exercise Period, such party will not,
directly or indirectly, for itself or through any other person or entity, own or
operate Papa John's restaurants in the State of Utah (except through PJ Utah) or
engage in any other pizza delivery and carry out restaurant business in the
State of Utah. Each Member agrees that, at the Closing, to provide PJ America a
non-competition agreement which will restrict competition by such Member with PJ
America in any restaurant business which is competitive with the Papa John's
pizza delivery and carry out restaurant business conducted by PJ Utah at the
time of the Closing, for a period of five years from the Closing.
4.7 COVENANT NOT TO COMPETE. Any Member who at Closing is not
subject to a covenant not to compete with PJ America shall execute and deliver
at Closing a covenant not to compete, in form and substance satisfactory to PJ
America, restricting competition by such Member with PJ America in the State of
Utah (but in no event shall the scope or duration of the covenant be greater
than the scope and duration in the covenant that Papa John's customarily
requires or individual investors in any of its franchises).
5. MISCELLANEOUS.
5.1 CONFIDENTIALITY. All information furnished by one party
to any of the others in connection with this Agreement or the transactions
contemplated hereby shall be kept confidential by such other party (and shall be
used by it only in connection with this Agreement and the transactions
contemplated hereby and thereby) except to the extent that such information (i)
already is known to such other party when received, (ii) thereafter becomes
lawfully obtainable from other sources, or (iii) is required to be disclosed in
any document filed with the SEC or any other agency of any government. In the
event that the transactions contemplated by this Agreement shall fail to be
consummated, each party shall have access to such confidential information other
than those who have been informed of the confidential nature of such information
and the covenants set forth in this Section 5.1 and who needs such access to
assist the party in fulfilling its obligations under this Agreement. None of
the parties to this Agreement, nor any of the officers, directors, employees,
agents or representatives of any party to this Agreement, shall disclose either
the terms or the existence of this Agreement to any person or entity, other than
to their respective attorneys and other representatives, or to those parties.
5.2 SEVERABILITY OF PROVISIONS. If any provisions of this
Agreement or the applications thereof to any person or circumstance shall to any
extent be held in any proceeding to be invalid or unenforceable, the remainder
of this Agreement, or the applica-
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<PAGE>
tion of such provisions to persons or circumstances other than those to which it
was held to be invalid or unenforceable, shall not be affected thereby, and
shall be valid and be enforceable to the fullest extent permitted by law, but
only if and to the extent such enforcement would not materially and adversely
frustrate the parties' essential objectives as expressed herein.
5.3 ASSIGNMENT. No party shall assign or delegate this
Agreement or any rights, interests or obligations hereunder without the prior
written consent of the other parties, except that PJ America may assign, in its
sole discretion, any or all of its rights and interests, without the prior
written consent of the other parties, to any subsidiary of PJ America. This
Agreement shall be binding upon, and should inure to the benefit of and be
enforceable by, the parties and their respective successors and assigns.
5.4 WAIVER. Any party hereto may, by written notice to the
other parties hereto, (i) extend the time for the performance of any of the
obligations or other actions of the other parties under this Agreement; (ii)
waive any inaccuracies in the representations or warranties of the other parties
contained in this Agreement or in any document delivered pursuant to this
Agreement; (iii) waive compliance with any of the conditions or convents of the
other parties contained in this Agreement; or (iv) waive or modify performance
of any of the obligations of the other parties under this Agreement, including,
without limitation, any investigation by or on behalf of any party, shall be
deemed to constitute a waiver by the party taking such action of compliance with
any of the representations, warranties, covenants, conditions or agreements
contained in this Agreement. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach, nor shall it.
5.5 EXHIBITS. All Exhibits to this Agreement shall be deemed
to be incorporated herein by reference and made a part hereof as if set out in
full at the place where first mentioned. The Letter Agreement pursuant to which
this Agreement is adopted and executed, the Agreement and the documents,
Exhibits and Schedules incorporated herein, embody the entire agreement and
understanding of the parties hereto regarding its subject matter and supersedes
all prior agreements.
5.6 AMENDMENTS, SUPPLEMENTS, ETC. This Agreement may not be
amended or supplemented by the parties except by an instrument in writing signed
by all of the parties hereto.
5.7 CAPTIONS; COUNTERPARTS. The captions in this Agreement
are for purposes of convenience only and shall not be considered a part of or
affect the construction or interpretation of any provision of this Agreement.
This Agreement may be executed in one or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and the
same instrument.
5.8 GOVERNING LAW. The terms of this Agreement shall be
governed by and construed and interpreted in accordance with the laws of the
State of Alabama.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
PJ AMERICA, INC.
By:_____________________________
Title:__________________________
("PJ America")
PJ UTAH, LLC
By:_____________________________
Title:__________________________
("PJ Utah")
________________________________
RICHARD F. SHERMAN
________________________________
FRANK M. KEENER
________________________________
STEPHEN P. LANGFORD
________________________________
DOUGLAS S. STEPHENS
________________________________
MARTIN T. HART
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<PAGE>
________________________________
JACK A. LAUGHERY
________________________________
MICHAEL J. GRISANTI
________________________________
MICHAEL M. FLEISHMAN
________________________________
DWAYNE HUNT
________________________________
JAMES S. RIEKEL
________________________________
D. ROSS DAVISON
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<PAGE>
EXHIBIT 10.23
COMMERCIAL INSTALLMENT NOTE (with Financial Covenants)
(Kentucky version) 00776-5 (10/93)
Amount $1,200,000.00
City, State Louisville, KY
Date December 1, 1994
Debtor Name PJVA, Inc. and PJVA, Inc.
Debtor # _____________________________
Obligation # _________________________
Office 313108109 Lou/Regional
FOR VALUE RECEIVED, the undersigned ("Debtor") promises to pay to the order of
NATIONAL CITY BANK KENTUCKY ("Bank), which has its principal place of business
in Louisville, Kentucky, at any office of Bank, ONE MILLION TWO HUNDRED THOUSAND
AND 00/100 DOLLARS in lawful money of the United States together with interest,
in 42 consecutive monthly installments, commencing the 1st day of June, 1995.
Each installment shall consist of
(XX) principal in the amount of twenty-eight thousand five hundred seventy-one
and 43/100 dollars ($28,571.43) plus the unpaid interest accrued on this
note. ** SEE ADDENDUM TO NOTE **
( ) principal and the unpaid interest accrued on this note in the aggregate
amount of dollars ($ ),
provided that in no event shall any installment be less than the unpaid
interest accrued on this note
except that the final installment shall be in such amount as will pay all of the
unpaid principal of and unpaid interest accrued on this note in full.
Prior to maturity, principal and any overdue interest shall bear interest
computed daily (on the basis of a 360-day year and actual days elapsed) at a
rate which shall be
( ) the rate of percent ( %) per annum.
Debtor may not prepay the principal of this note in part at any time.
However, Debtor may prepay the principal of this note in whole at any time
upon one (1) Business Day's prior written notice to Bank if, concurrently
with the prepayment, Debtor pays to Bank a premium based upon the
principal amount prepaid and computed (on the basis of a 360-day year and
actual days elapsed) at a rate per annum equal to the excess, if any, of
the interest rate stated in this paragraph over the Reinvestment Rate, for
the period from the date of prepayment to the date on which the final
installment is payable.
(XX) a fluctuating rate which is one quarter percent (1/4%) per annum above the
Prime Rate. Debtor may prepay the principal of this note in whole or in
part at any time without premium or penalty.
Concurrently with each prepayment of the principal of this note, Debtor shall
pay the unpaid interest accrued on the principal being prepaid, and each
prepayment shall be applied to the outstanding installments of this note in the
inverse order of their respective due dates.
Debtor authorizes Bank to share all credit and financial information relating to
Debtor with Bank's parent company, and with any subsidiary or affiliate company
of Bank or of Bank's parent company.
If Debtor fails to pay an installment in full within ten (10) days after its due
date, Debtor, in each case, will incur and shall pay a late charge equal to the
greater of twenty dollars ($20.00) or five percent (5%) of the unpaid amount.
The payment of late charge will not cure or constitute a waiver of any Event of
Default under this note.
Except as otherwise provided in writing, payments will be applied first to
installments in the order of their respective due dates and then to late charges
in the order of their respective due dates; provided, however, that if a payment
so applied would pay the principal of this note in full, but leave late charges
outstanding, such payment will instead be applied to late charges prior to being
applied to the principal portion of the final installment. Each payment of an
installment shall be applied first to accrued but unpaid interest and then to
principal.
In its discretion, Bank may, from time to time, unilaterally change any
provision for the application of payments and installments by giving written
notice to Debtor of the change. The notice shall be mailed to the address
indicated herein or such other address that Debtor may furnish in writing to an
appropriate officer of Bank and shall be mailed not less than fifteen (15) days
prior to the effective date of such change.
If this note is not paid in full at maturity (whether by lapse of time,
acceleration of maturity or otherwise), the interest rate otherwise in effect
hereunder shall be increased by three percent (3%) per annum, provided that in
no event shall the principal of and interest on this note bear interest after
maturity at a rate less than the interest rate actually in effect hereunder
immediately after maturity.
In consideration of Bank's granting the loan evidenced by this note, Debtor
further agrees with Bank as follows:
(WARRANTIES) Debtor represents and warrants to Bank as follows:
[X] corporation
1.1 (ORGANIZATION) Debtor is a [_] partnership organized and in good standing
under VIRGINIA law having its chief executive office at the address set forth
opposite Debtor's signature below. Debtor has only the following Subsidiaries,
if any: N/A. Debtor is duly qualified to transact business in each state or
other jurisdiction in which Debtor owns or leases any real property or in which
Debtor's counsel reasonably believes such qualification is necessary.
1.2 (AUTHORITY) Debtor has requisite power and authority to enter into this
note. No registration with or approval of any governmental agency of any kind
is required on the part of Debtor for the due execution and delivery or for the
enforceability of this note. Each officer executing and delivering this note on
behalf of Debtor has been duly authorized to do so. Neither the execution and
delivery of this note by Debtor nor its performance and observance of the
respective provisions hereof will violate any existing provision in its
articles of incorporation, regulations or by-laws or any applicable law or
violate or otherwise constitute a default under any contract or other
obligation now existing and binding upon it. Upon the execution and delivery
hereof, this note will become a valid and binding obligation of Debtor.
1.3 (LITIGATION) No litigation or proceeding is pending against Debtor before
any court or any administrative agency which in the opinion of Debtor's
officers might, if successful, have a material, adverse effect on Debtor.
1.4 (TAXES) Debtor has filed all federal, state and local tax returns which are
required to be filed by it and paid all taxes due as shown thereon (except to
the extent, if any, permitted by subsection 2.2). Neither the Internal Revenue
Service nor any other federal, state or local taxing authority has alleged any
material default by Debtor in the payment of any tax material in amount or
threatened to make any assessment in respect thereof which has not been
reflected in the financial statements referred to in subsection 1.7.
<PAGE>
1.5 (ASSETS) Debtor has good and marketable title to all assets reflected in its
September, 1994, balance sheet except for changes resulting from transactions in
the ordinary course of business. All such assets are clear of any mortgage,
security interest or other lien of any kind other than any permitted by
subsection 4.3.
1.6 (COMPLIANCE WITH LAW) Debtor's operations are in full compliance with all
material requirements imposed by law, whether federal or state, including,
without limitation, the Occupational Safety and Health Act, federal and state
environmental protection laws and zoning ordinances.
1.7 (FINANCIAL STATEMENTS) All financial statements and credit applications
delivered by Debtor to Bank accurately reflect Debtor's financial condition and
operations at the times and for the periods therein stated.
2. (AFFIRMATIVE COVENANTS) Debtor agrees that so long as any Bank Debt remains
outstanding, Debtor shall perform and observe each of the following:
2.1 (FINANCIAL STATEMENTS) Debtor will furnish each of the following to Bank (a)
as soon as available and in any event within ninety (90) days after the end of
each of Debtor's fiscal years, an annual report of Debtor for that year.
If this box [ ] is checked, then Debtor's annual report shall be [ ] audited [ ]
reviewed [x] complied by a certified public accountant selected by Debtor and
reasonably acceptable to Bank.
(b)if this box [x] is checked, then as soon as available and in any event within
fifteen (15) days after the end of each of the quarterly periods of each of
Debtor's fiscal years.
(1) Debtor's balance sheet as at the end of the period and its income
statement and surplus reconciliation for Debtor's current fiscal year to
date certified by an appropriate officer of Debtor to be true and complete to
the best of his knowledge and belief, and
(2) that officer's certification that he knows of no Potential Event of
Default that is then existing or if any does, a brief description thereof and
of Debtor's intentions in respect thereof,
(c) forthwith upon Bank's written request, such other information in writing
about Debtor's financial condition, properties and operations as Bank may from
time to time reasonably request.
All of Debtor's financial statements shall be prepared in accordance with GAAP
consistently applied except as disclosed therein and in form and detail
satisfactory to Bank.
2.2 (TAXES) Debtor will pay in full, prior in each case to the date when
penalties for the nonpayment thereof would attach, all taxes, assessments and
governmental charges and levies for which it may be or become subject and all
lawful claims which, if unpaid, might become a lien or charge upon its property;
PROVIDED, that no item need be paid so long as and to the extent that it is
contested in good faith and by timely and appropriate proceedings effective to
stay the enforcement thereof.
2.3 (RECORDKEEPING) Debtor will at all times keep true and complete financial
records in accordance with GAAP and, without limiting the generality of the
foregoing, make appropriate accruals to reserves for estimated and contingent
losses and liabilities. Debtor will permit Bank at all reasonable times to
examine Debtor's properties and records and to make copies of and extracts from
such records at Bank's expense.
2.4 (INSURANCE) Debtor will keep itself and all of its insurable properties
insured at all times to such extent, by such insurers and against such hazards
and liabilities as is generally and prudently done by like businesses, and
further in accordance with the provisions of the Related Writings.
2.5 (EXISTENCE) Debtor will at all times maintain its existence, rights and
franchises.
2.6 (COMPLIANCE WITH LAW) Debtor will comply with all applicable provisions of
the Occupational Safety and Health Act, federal and state environmental
protection laws and every other law (whether statutory, administrative, judicial
or other and whether federal, state or local) and every lawful governmental
order if non-compliance with such law or order would have a material, adverse
effect on Debtor's business or credit; PROVIDED, that any alleged noncompliance
shall not be an Event of Default if and to the extent
(a) appropriate corrective measures are commenced within thirty (30) days
after the non-compliance becomes apparent or is alleged, and thereafter are
diligently pursued to the satisfaction of or being corrected by procedures
satisfactory to the court, agency or other governmental authority in question,
or
(b) the alleged non-compliance is contested in good faith by timely and
appropriate proceedings effective to stay the enforcement thereof.
2.7 (MAINTENANCE) Debtor will maintain all of its fixed assets in good working
order and condition, ordinary wear and tear excepted.
2.8 (NOTICES) Debtor will cause its chief financial officer, or in his absence
another officer designated by him, to give Bank prompt written notice whenever
(a) Debtor receives notice from any ERISA regulator that a default under ERISA
exists. (b) Debtor receives notice from any court, agency or other government
authority of any alleged non-compliance with any law or order of the kind
referred to in subsection 2.6 (c) the Internal Revenue Service or any other
federal, state or local taxing authority shall allege any material default by
Debtor in the payment of any tax material in amount or shall threaten or make
any assessment in respect thereof, (d) any litigation or proceeding shall be
brought against Debtor before any court or administrative agency which, if
successful, might have a material, adverse effect on Debtor, (e) there shall be
filed any application for a determination of the qualified status of any
employee benefit plan, or (f) he reasonably believes that any Potential Event of
Default has occurred or that any other representation or warranty made in
section 1 shall for any reason have ceased in any material respect to be true
and complete.
2.9 (BUSINESS PURPOSE) All funds disbursed under this note will be used for
business or commercial purposes.
3. (FINANCIAL COVENANTS) Debtor will comply with the following financial
covenants with Bank as follows (applicable subsections must be initialed by
Debtor):
** SEE ADDENDUM TO NOTE**
____ 3.1 (TANGIBLE NET WORTH) Debtor's Tangible Net Worth shall at no time be
less than __________________________________________ dollars
($_______________).
____ 3.2 (EFFECTIVE TANGIBLE NET WORTH) Debtor's Tangible Net Worth plus its
Subordinated Debt, if any, shall at no time be. less than
______________________ dollars ($__________________________).
____ 3.3 (WORKING CAPITAL) Debtor will not at any time suffer or permit its
current assets less its current liabilities to be less than
____________________ dollars ($__________________________).
____ 3.4 (PRETAX INTEREST COVERAGE) Debtor will not, during any fiscal year of
Debtor (commencing with the present fiscal year), suffer or permit the
ratio of (a) the aggregate of its net income for that year plus its
interest expense for that year plus its federal, state and local income
taxes for that year to (b) its interest expense for that year, to be less
than _________________ :1.
<PAGE>
________ 3.5 (DEBT TO TANGIBLE NET WORTH RATIO) The total of all of Debtor's
INITIALS Debt shall not exceed an amount equal to ____________________________
_____________________________________________________________________
percent (________%) of Debtor's Tangible Net Worth.
________ 3.6 (DEBT TO EFFECTIVE NET WORTH RATIO) The total of all of Debtor's
INITIALS Debt less its Subordinated Debt shall not exceed an amount equal to
_____________________________________________________________ percent
(_________%) the sum of Debtor's Tangible Net Worth plus its,
Subordinated Debt, if any.
4. (NEGATIVE COVENANTS) Debtor further covenants with Bank as follows:
4.1 (MERGERS) Debtor will not
(a) be a party of any merger or consolidation,
(b) purchase or otherwise acquire the business or all or substantially
all of the assets of another corporation or business, or
(c) lease as lessor, sell, sell-leaseback or otherwise transfer (whether
in one transaction or a series of transactions) all or any
substantial part of its fixed assets (other than chattels that shall
have become obsolete or no longer useful in its present business).
4.2 (BORROWINGS) Debtor will not create, assume or have outstanding at any
time any Debt; provided, that this subsection shall not apply to any Bank
Debt or any Subordinated Debt or any existing or future Debt secured by a
purchase money security interest permitted by subsection 4.3 or incurred
under a lease permitted by subsection 4.3 or any existing Debt fully
disclosed in Debtor's most recent financial statements, and any renewal or
extension thereof in whole or in part.
4.3 (LIENS; LEASES) Debtor will not (a) acquire or hold any property subject
to any land contract, inventory consignment, lease or other title retention
contract, (b) sell or otherwise transfer any Receivables, whether with or
without recourse, or (c) suffer or permit any property now owned or
hereafter acquired by it to be or become encumbered by any mortgage,
security interest, lien or financing statement; provided, that this
subsection shall not apply to (i) any lien for a tax, assessment or
government charge or levy, (ii) any lien securing only workers'
compensation, unemployment insurance or similar obligations, (iii) any
mechanic's, carrier's, landlord's or similar common law or statutory lien
incurred in the normal course of business, (iv) zoning or deed restrictions,
public utility easements, minor title irregularities and similar matters
having no adverse effect as a practical matter on the ownership or use of
any of the property in question, (v) any lien securing or given in lieu of
surety, stay, appeal or performance bonds, or securing performance of
contracts or bids (other than contracts for payment of money borrowed), or
deposits required by law or governmental regulations or by any court order,
decree, judgment or rule or as a condition to the transaction of business or
the exercise of any right, privilege or license, (vi) any existing lien
fully disclosed in Debtor's most recent financial statements delivered to
Bank, (vii) any mortgage, security interest or other lien which is created
or assumed in purchasing, constructing or improving any real property or to
which any real property is subject when purchased, provided, that (A)
mortgage, security interest or other lien is confined to the property in
question and (B) the Debt secured thereby does not exceed the total cost of
the purchase, construction or improvement, (viii) any lease as lessee, (ix)
any transfer of a check or other medium of payment deposit or collection, or
any similar transaction in the normal course of business, or (x) any
financing statement perfecting a security interest that would be permissible
under this subsection.
5. (DEFAULT; REMEDIES) The occurrence of any of the following shall constitute
an Event of Default hereunder: (a) Debtor's Bank Debt or any part thereof shall
not be paid in full promptly when due (whether by lapse of time, acceleration of
maturity or otherwise); (b) any Obligor shall die or be dissolved; (c) any
representation or warranty by any Obligor in this note or any Related Writing
shall be false or erroneous in any material respect; (d) any Obligor shall fail
or omit to perform or observe any agreement made by that Obligor in this note or
in any Related Writing; (e) a judgement shall be entered against any Obligor in
any court of record; (f) any deposit account of any Obligor is attached or
levied upon; (g) any voluntary petition by or involuntary petition against any
Obligor shall be filed pursuant to any chapter of any bankruptcy code or any
Obligor shall make an assignment for the benefit of creditors, or there shall be
any other marshalling of the assets and liabilities of any Obligor for the
benefit of the Obligor's creditors; or (h) any Obligor's Bank Debt or any part
thereof shall not be paid in full immediately when due (whether due by lapse of
time, or acceleration or otherwise). Upon the occurrence of an Event of Default,
the holder of this note may, in its sole discretion, declare this note to be due
and payable, and the principal of and interest on this note shall thereupon
become immediately payable in full, without any presentment, demand, or notice
of any kind, which Debtor hereby waives. Debtor will pay to bank all costs and
expenses of collection of the note, including, without limitation, attorneys'
fees.
6. (DEFINITIONS) In addition to the words and terms elsewhere defined in this
note, any accounting term used in this note shall have the meaning ascribed
thereto by GAAP, and the following words and terms shall have the following
meanings:
Account Officer means that officer who at the time in question is designated
by Bank as the officer having primary responsibility for giving
consideration to Debtor's requests for credit or, in that officer's absence,
that officer's immediate superior or any other officer who reports directly
to that superior officer;
Bank Debt means Debt payable to Bank, whether initially payable to Bank or
acquired by Bank by purchase, pledge or otherwise and whether assigned or
participated to or from Bank in whole or in part;
Business Day means a day on which Bank's main office is open to the public
for carrying on substantially all of its banking functions, but should not
include Saturdays, Sundays or legal holidays;
Debt means, collectively, all monetary liabilities, and any charges and
expenses incurred in connection therewith, now or hereafter owing by the
Person or Persons in question, including, without limitation, every such
liability whether owing by such Person or one (1) of such Person alone or
jointly, severally or jointly and severally, whether created by loan,
overdraft, guaranty or other contract or by quasi-contract, tort statute or
other operation of law;
ERISA means the Employee Retirement Income Security Act of 1974, as amended
from time to time;
ERISA Regulator means any governmental agency having any regulatory
authority over any of Debtor's pension plans, including, without limitation,
the Department of Labor, the Internal Revenue Service and the Pension
Benefit Guaranty Corporation;
GAAP refers to generally accepted accounting principals, applied on a basis
consistent with Debtor's accounting procedures in effect on the date hereof;
Obligor means any Person who is or shall become obligated or whose property
is or shall serve as collateral for the payment of Debtor's Bar Debt or any
part thereof in any manner, and in addition to Debtor, includes, without
limitation, any maker, endorser, guarantor, subordinating creditor,
assignor, pledgor, mortgagor or hypothecator of property;
Person means a natural person or entity of any kind, including, without
limitation, any corporation, partnership, trust, governmental body, or any
other form or kind of entity;
Potential Event of Default means an event which constitutes, or which with
the lapse of time or the giving of notice or both would constitute an Event
of Default;
<PAGE>
Prime Rate means the fluctuating rate of interest which is publicly
announced from time to time by Bank at its principal place of business as
being its "prime rate" or "base rate" thereafter in effect, with each
change in the Prime Rate automatically, immediately and without notice
changing the fluctuating interest rate thereafter applicable hereunder, it
being agreed that the Prime Rate is not necessarily the lowest rate of
interest then available from Bank on fluctuating rate loans;
Receivable means a claim for money due or to become due to Debtor, whether
classified as an account, instrument, chattel paper, generally intangible,
incorporeal hereditament or otherwise, and all proceeds of the foregoing;
Reinvestment Rate means a rate of interest equal to the "bond equivalent
yield" for the most actively traded issues of U.S. Treasury Bills, U.S.
Treasury Notes or U.S. Treasury Bonds for a term similar to the period from
the date of prepayment to the due date of the final installment of this
note and in a principal amount comparable to the principal amount being
prepaid, all as reasonably determined by Bank;
Related Writing means a writing of any form or substance signed by any
Obligor (whether as principal or agent) or by any attorney accountant or
other representative of any Obligor and received by Bank in respect of
Debtor's Bank Debt or any part thereof, including, without limitation, any
credit application, credit agreement, reimbursement agreement, financial
statement, promissory note, guaranty, indenture, mortgage, security
agreement, authorization, subordination agreement, certificate, opinion or
any similar writing, but shall not include any commitment letter issued by
Bank, without regard to whether Debtor or any other Person signed or
acknowledged receipt thereof;
Subordinated Debt, means any Debt the payment of which has been
subordinated to the payment in full of Bank Debt, whether by its terms or
by separate written instrument, in either case in form and substance
satisfactory to Bank;
Subsidiary means a Person, other than a natural person, of which a majority
of the outstanding capital stock (or other form of ownership) or a majority
of the voting power in any election of directors is (or upon the exercise
of any outstanding warrants, options or other rights would be) owned
directly, or indirectly through one or more Subsidiaries, by another
Person, other than a natural person; and
Tangible Net Worth means net worth less intangible assets, including,
without limitation, patents, trademarks, goodwill and treasury stock.
7. (SHARING INFORMATION) Debtor authorizes Bank to share all credit and
financial information relating to Debtor with Bank's parent company, and with
any subsidiary or affiliate company of Bank, or of Bank's parent company.
8. (NOTICES) Except as otherwise provided in this note, a notice to or request
of Debtor shall be deemed to have been given or made hereunder when a writing to
that effect shall have been delivered to an officer of Debtor of five (5) days
after a writing to that effect shall have been deposited in the United States
mail and sent, with postage prepaid by registered or certified mail, to Debtor
at the address of Debtor's chief executive office (or to such other address as
Debtor may hereafter furnish to Bank in writing for that purpose), irrespective
of whether the writing is actually received by Debtor. No other method of
giving actual notice to or making a request of Debtor is hereby precluded.
Every notice required to be given to Bank pursuant to this note shall be
delivered to an Account Officer.
9. (INTERPRETATION) Any holder's delay or omission in the exercise of any
right under this note shall not operate as a waiver of that right or of any
other right under this note. Bank may from time to time in its discretion grant
Debtor waivers and consents in respect of this note or any Related Writing, but
no such waiver or consent shall bind Bank unless specifically granted by Bank in
writing, which writing shall be strictly construed. Each right, power or
privilege specified or referred to in this note or any Related Writing is in
addition to and not in limitation of any other rights, powers and privileges
that Bank may otherwise have or acquire by operation of law, by other contract
or otherwise. The provisions of this note and the Related Writings shall bind
and benefit Debtor and Bank and their respective successors and assigns,
including each subsequent holder, if any, of this note. If more than one person
or entity has signed this note then the term "Debtor" means each of them, they
are jointly and severally liable on this note and on the warrant of attorney
below and each shall be the agent of the others for all purposes relating to
this note. If any provision of this note is determined by a court of component
jurisdiction to be invalid, illegal or unenforceable, that determination shall
not affect any other provision of this note, and each such other provision shall
be construed and enforced as if the invalid, illegal or unenforceable provision
were not contained herein. The captions to the various sections and subsections
of this note are for convenience of reference only and shall be disregarded in
the interpretation of this note. This note shall be governed by the law of the
Commonwealth of Kentucky.
10. (ENTIRE AGREEMENT) This note and the Related Writings set forth the entire
agreement between the parties regarding the transactions contemplated hereby,
and supercede all prior agreements, discussions, representations and
understandings, whether written or oral, and any and all contemporaneous oral
agreements, commitments, discussions, representations and understandings between
the parties relating to the subject matter hereof.
11. (AMENDMENTS) No amendment, modification or supplement to this note or any
Related Writing shall be binding unless executed in writing by all parties
thereto, and this provision shall not be subject to waiver by any party and
shall be strictly enforced.
12. (WAIVER OF JURY TRIAL) IN ORDER TO AVOID DELAYS AND MINIMIZE EXPENSE, BANK,
BY ITS ACCEPTANCE OF THIS NOTE, AND DEBTOR EACH HEREBY KNOWINGLY, VOLUNTARILY
AND INTENTIONALLY WAIVE ANY RIGHT TO TRIAL BY JURY IN RESPECT OF ANY CLAIM,
DEMAND, ACTION OR CAUSE OR ACTION ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS NOTE OR ANY RELATED WRITING OR ANY AMENDMENT THERETO, WHETHER NOW EXISTING
OR HEREINAFTER ARISING AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE;
AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION SHALL BE DECIDED BY A COURT TRIAL WITHOUT A JURY, AND A COPY OF
THIS NOTE OR OF THIS PROVISION OF THIS NOTE MAY BE FILED WITH ANY COURT AS
EVIDENCE OF THE CONSENT OF EACH OF THE PARTIES HERETO TO THE WAIVER OF ITS RIGHT
TO TRIAL BY JURY.
Address: 9038 West Broad Street PJV, INC.
-------------------------------- --------------------------------
Debtor
Richmond, Virginia 23294
- ---------------------------------------- By /s/ , President
------------------------------
By /s/ , Secretary
------------------------------
Address: 9038 West Broad Street PJVA, INC.
-------------------------------- --------------------------------
Debtor
Richmond, Virginia 23294
- ----------------------------------------
By /s/ , President
------------------------------
<PAGE>
ADDENDUM TO NOTE
----------------
1. DRAW PERIOD.
A. Debtor may, during the first six (6) months (the "Advance Period"),
after the execution of this Note, request principal advances, orally or in
writing, up to the total principal amount available hereunder. After the last
day of the 6th month following the execution of this Note, Debtor's right to
request advances hereunder shall terminate and no further advances will be made.
It is understood and agreed that Debtor may orally or in writing request
principal advances hereunder from time to time until Debtor's right to request
advances hereunder shall cease, and that Bank may in its discretion honor any
such request provided that (i) the amount of the request will not cause the
aggregate principal amount owed under the terms hereof to exceed the amount
indicated hereunder and (ii) any conditions precedent, as set forth herein
below, shall have met to the satisfaction of Bank. Debtor shall immediately
confirm all oral instructions in writing. All such requests or confirmations
shall be in form and substance satisfactory to Bank. Debtor's principal
indebtedness to Bank at any time shall be the total of all such advances, less
any principal payments received.
B. During the Advance Period, the Debtor shall pay interest accrued on the
outstanding principal balance monthly, on the 1st day of each month beginning
January 1, 1995.
C. Conditions Precedent to Advances: Advances to be in a minimum amount of
$25,000.
2. ADDITIONAL COVENANTS.
A. Debtor's Tangible Net Worth shall increase annually by no less than
fifty percent (50%) of that fiscal year's net income.
B. Notwithstanding Paragraph 4.2 of this Commercial Installment Note,
debtor shall not incur any additional debt (excluding trade payables and
accruals) or pledge any of its assets to secure such debt in excess of $250,000
for any given fiscal year, without prior written consent of National City Bank,
Kentucky.
DEBTOR:
PJV, INC.
By: /s/ Richard F. Sherman By: /s/ Jack A. Laughery
------------------------------- --------------------------------------
Title: President Title: Secretary
---------------------------- -----------------------------------
PJVA, INC.
By: /s/ Richard F. Sherman By: /s/ Jack A. Laughery
------------------------------- --------------------------------------
Title: President Title: Secretary
---------------------------- -----------------------------------
BANK: NATIONAL CITY BANK, KENTUCKY
By: /s/ Thomas P. Crockett
-------------------------------
Thomas P. Crockett
Title: Assistant Vice President
----------------------------
<PAGE>
SECURITY AGREEMENT
TANGIBLE PERSONAL PROPERTY
(EXCEPT INVENTORY AND RECEIVABLES)
The undersigned borrower, jointly and severally if more than one,
(hereinafter called "Borrower") does hereby sell, mortgage and grant a security
interest to National City Bank, Kentucky (hereinafter called "Secured Party"),
a national banking association having its principal place of business at 101
South Fifth Street. Louisville, Kentucky, in all of the Borrower's machinery,
equipment, furniture and fixtures, including but not limited to the property
described below.
together with all accessories, attachments, parts, accessions and repairs, all
substitutions, replacements and additions thereto, all right, title and interest
of the Borrower in and to any of the foregoing which may be subject to any title
retention or other security agreement the lien of which may be or become
superior to the lien herein created, and all proceeds (including, without
limitation, insurance proceeds) from any of the foregoing (all of which property
is hereinafter collectively called "Collateral"), as security for the payment of
the sum of $ 1,200,000.00 evidenced by and subject to the provisions of
Borrower's promissory note and/or loan agreement (hereinafter collectively
called the "Note") date 12/01/94 (including any renewals, extensions,
substitutions or modifications thereof), and for the payment of any and all
liabilities and obligations of Borrower to Secured Party whether arising under
this Agreement or not, now existing or hereafter incurred, created by loan,
overdraft, guaranty, or operation of law, originally contracted with Secured
Party or with any other or others and acquired by Secured Party by purchase,
pledge, participation or otherwise, absolute or contingent, secured or
unsecured, and matured or unmatured, including without limitation all interest,
fees, charges expenses and attorney's fees, to the extent permitted by law,
incurred to enforce Secured Party's rights against Borrower under this Agreement
or otherwise, or arising out of the defense or prosecution of any matter growing
out of this Agreement or any security interest granted hereby. The indebtedness
evidenced by the Note and any other indebtedness and obligations secured hereby
are hereinafter called the Borrower's "Obligations."
The Borrower represents and warrants to the Secured Party, its successors
and assigns, that (1) the Borrower is the true and lawful owner of the
Collateral, has full right and power to enter into this Agreement and if the
Borrower is not an individual, that all necessary action has been taken
authorizing it to enter into this Agreement, that the entering into and
performance of the Agreement serves a valid and lawful business purpose of
Borrower and that it does not contravene the provisions of any document or
writing pursuant to which Borrower is organized or the provisions of any
agreement by which it is bound. (2) the Collateral is free and clear of all
liens, charges and encumbrances other than any security interest in favor of
Secured Party, and that no financing statement is on file with respect to the
Collateral; (3) Borrower's principal place of business is at
9038 W. Broad Street
Richmond, VA 23294
the Borrower has (no) other places of business at
_____________________
_____________________
if a corporation, Borrower has its registered office at
P.O. Box Drawer O. 1200 Old Colony Lane
---------------------------------------
Williamsburg, Virginia 23187
-----------------------------
, and that Borrower will promptly notify the Secured Party of any change in any
of the foregoing; (4) Borrower will forever defend the Collateral against any
claim by any person or entity except the Secured Party; and (5) that the
Collateral is now and will hereafter be kept at premises located at
County of Richmond Independent City
------------------------
State of Virginia
--------
unless it is of the type which in the normal course of business is ordinarily
used at more than one location, such as trucks, construction or road building
equipment, etc.
Borrower shall have the possession and use of the Collateral in any lawful
manner not inconsistent with this Agreement or with the terms and conditions of
any insurance policy until default hereunder.
The proceeds of the Note will ( ) will not ( ) be used to acquire all or
any part of the Collateral. If all or any part thereof are so used, this is a
purchase money security interest with respect thereto. Borrower represents that
the property will be used for commercial or business purposes only.
AND IT IS EXPRESSLY AGREED AS FOLLOWS.
1. EVENTS OF DEFAULT The occurrence of any of the following events shall
constitute a default, as such term is used herein; (a) failure to pay, when due,
any amount payable on the Note or any other of the Obligations, (b) if any
statement, representation or warranty made herein or in any related credit
application or in any supporting financial statement furnished by or on behalf
of Borrower shall be false or misleading in any material respect; (c) failure to
observe or perform any covenant or agreement herein or in the Note or other
instrument between the parties; (d) death (if a natural person) or dissolution
(if a corporation or a partnership) of Borrower or of any partner of Borrower
(if borrower is a partnership) or of any guarantor or endorser of any of the
Obligations; (e) should Borrower, or any of them if more than one, or any such
guarantor or endorser, become insolvent (whether on a net worth basis or by
reason of inability to pay debts as they mature, or otherwise), commit any act
of bankruptcy, call a meeting of creditors, make an assignment for the benefit
of creditors, or if any proceeding is instituted by or against any of them for
any relief under any bankruptcy or insolvency laws, or if a receiver is
appointed for any of them, (f) termination or suspension of the transaction of
the usual business of Borrower, (g) failure to pay any tax or failing to
withhold, collect or remit
<PAGE>
any tax or tax deficiency when assessed or due or is a tax assessment is made by
the United States or any State; (h) any circumstance which constitutes, or which
upon the lapse of any applicable grace period or the giving of notice (or both)
would constitute, a default which accelerates or gives any creditor of Borrower
the right to accelerate the maturity of any debt outstanding; (i) an
"accumulated funding deficiency" or a "reportable event" shall occur under
ERISA; (j) failure to pay any judgment or cause any attachment or garnishment to
be released, if such failure shall have a material adverse effect on Borrower's
operation or financial condition; (k) the substantial damage or destruction of a
sufficient portion of the Collateral such that Secured Party in good faith
believes its position is impaired; (l) Borrower's violation of any federal,
state or local statute, law, ordinance, code, rule, regulation, order or decree
("Applicable Law") now or hereafter in effect regulating, relating to or
imposing liability or standards of conduct concerning any hazardous, toxic or
dangerous waste, substance, pollutant or material, or any solid waste, as any
of the foregoing may be now or hereafter defined by any Applicable Law; or (m)
Secured Party shall, in its reasonable discretion exercised in good faith, deem
itself insecure in respect of the Obligations or any security therefor,
provided, however, that this subsection (m) shall not constitute a default until
Secured Party shall have given written notice to Borrower thereof, specifying in
reasonable detail is reasons for such belief and (unless Secured Party believes
in good faith that its risk of loss is imminent, or that under no circumstances
could Borrower alleviate Secured Party's insecurity, or that any delay would
adversely affect its ability to collect the Obligations) setting forth the
actions Borrower may take to alleviate Secured Party's insecurity and allowing a
reasonable time for Borrower to do so.
2. REMEDIES ON DEFAULT. Borrower agrees that whenever a default shall be
existing Secured Party shall have the following rights and remedies to the
extent permitted by applicable law; (a) to declare the entire unpaid principal
balance on the Note and to declare all Obligations, due and payable at the
option of the Secured Party without notice or demand; (b) to enter the foregoing
premises to such place or places where any of the Collateral may be located and
take and carry away the same, by any of its representatives, with or without
legal process, to Secured Party's place of storage; (c) to sell the Collateral
at public or private sale without advertisement, notice or demand, except as the
same shall be required by law, whether or not the Collateral is present at such
sale and whether or not the Collateral is in constructive possession of Secured
Party or the person conducting the sale, in one or more sales, as an entirety or
in parcels, and upon such terms as Secured Party may deem desirable; (d) to be
the purchaser at any such sale; (e) to require Borrower to pay all expenses of
such sale, including taking, keeping and storing of the Collateral, and
attorneys' fees; (f) to apply the proceeds of such sale to all expenses in
connection with the taking and sale of the Collateral, including attorneys'
fees, and any balance of such proceeds toward the payment of the Obligations in
such order of application as Secured Party may from time to time elect; and (g)
to exercise any one or more rights or remedies accorded by the Uniform
Commercial Code. If the proceeds of any such sale are insufficient to pay the
expenses as aforesaid and the Obligations. Borrower agrees to pay any
deficiency plus attorney's fees to Secured Party upon demand and if such
proceeds are more than sufficient to pay such expenses and Obligations. Secured
Party agrees to pay the surplus to Borrower.
3. In the event that any co-maker, endorser, acceptor, accommodation party,
surety, guarantor, indemnitor or any other person or entity shall make any
payment or assume any liability or responsibility of Borrower herein or on
account of any Obligations hereunder, Secured Party may assign to such person or
entity (whether a co-maker accommodation party or otherwise) the whole or any
part of, or any participation in, this Agreement and any right or Collateral
hereunder. Borrower (and each of them if more than one) hereby irrevocably
consents to such assignment and agrees that such assignee may enforce all
rights, liabilities and obligations so assigned and that any payment by such
person or entity shall not discharge the Obligations, terminate this Agreement
or release any Collateral.
4. If the Collateral consists of motor vehicles, mobile homes, trailers, or
any other property now or hereafter required to be evidenced by a certificate of
title, Borrower will cause the certificate of title evidencing the ownership of
such vehicle to be endorsed so as to show Secured Party's interest in all states
where such endorsements are required or permitted.
5. Borrower agrees to (a) keep the Collateral in good repair, making all
necessary repairs and replacements; whenever, in Secured Party's sole judgment,
the Collateral or any part thereof shall require any repairs or replacements in
order to maintain it in a first class and marketable condition or to preserve it
from excessive depreciation in value or wear, Borrower will make such repairs or
replacements immediately upon written demand by Secured Party or will cause the
same to be made; (b) not assign, transfer, dispose of, sell, encumber or grant a
security interest in the Collateral to any person or entity; (c) not secrete or
abandon any of the Collateral or the records relating thereto or remove them
from their present location without the consent of Secured Party, or, if the
Collateral is of the type which in the normal course of business is ordinarily
used in more than one location such as trucks, construction and road building
equipment, etc., will not permit the same to leave this State without the prior
written consent of Secured Party; (d) promptly send notice to the Secured Party
of any damage or loss of any part of the Collateral, or the records relating
thereto; (e) allow Secured Party full access to the Collateral and any premises
where they may be stored from time to time, complying with any landlord's
requirement at Borrower's expense if the Collateral is stored on leased
premises; (f) indemnify Secured Party against all claims arising out of or
connected with the ownership or use of the Collateral; (g) reimburse Secured
Party upon demand for all expenses incurred in connection with perfecting the
security interest granted herein or the satisfaction thereof; (h) not use or
permit the Collateral to be used for any unlawful purpose or in violation of any
federal, state or municipal law, statute or ordinance or any rules, decrees, or
regulations issued thereunder, or for hire, unless the consent of Secured Party
is first obtained; (i) not permit the Collateral to become a part of or to be
affixed to any real property of any person or entity (including, without
limitation, Borrower) without first making arrangements satisfactory to Secured
Party to protect its security interest; (j) upon demand, furnish Secured Party
with any financial information that it may require and permit it to examine
Borrower's books and records; and (k) assemble the Collateral and make it
available to Secured Party in case of default.
6. Borrower will keep the Collateral insured against all risks including loss
by fire, theft, collision and against such other risks of loss as are
customarily insured by business and persons similar to Borrower by insurers and
in form, amount and coverage satisfactory to Secured Party, naming Secured Party
as insured thereunder and will assign and deliver the policies and certificates
thereof to Secured Party and in default thereof, it shall be lawful for Secured
Party to
<PAGE>
effect such insurance. In the event any of the aforesaid policies procured by
Borrower shall fail to provide that all losses thereunder shall be payable to
Secured Party, Borrower hereby assigns to Secured Party all of the proceeds or
avails of any and all of said policies and agrees to accept said proceeds or
avails in trust for Secured Party, and to forthwith deliver the same to Secured
Party in the exact form received (with the indorsement of Borrower where
necessary). Secured Party is irrevocably appointed attorney for the Borrower,
with full power of substitution and revocation, to compromise, settle or release
any claims pertaining to or arising out of said policies, and to take possession
of and endorse in the name of Borrower any check or other instrument for the
payment of money representing the proceeds or avails of said policies. Borrower
shall not effect any settlement, compromise or release without Secured Party's
prior written consent. Borrower will pay all taxes, assessments and charges
levied against the Collateral, or for the use, storage, maintenance or repair
thereof, and upon Borrower's failure to do so, Secured Party may pay them. Any
premiums, taxes, assessments and charges so paid shall be part of the
Obligations secured by this Agreement and shall be payable, on demand, with
interest at the rate designated in the Note, if permitted by law and, if not, at
the maximum legal rate.
7. In the event that Borrower shall fail to pay any sum or perform any act or
keep any promise, warranty or covenant hereunder, Secured Party may, in its sole
discretion, pay the sum, or perform the said act, or remedy the said breach of
promise, warranty or covenant, for the Borrower and on its behalf, and in the
event that Secured Party shall do so, Borrower will immediately upon written
demand therefore, reimburse Secured Party for all its expenses, disbursements,
fees and costs in connection therewith, together with interest thereon at the
rate designated in the Note if permitted by law and, if not, at the maximum
legal rate. It is expressly understood that Borrower's obligations hereunder are
"Obligations" as defined above. In the event that Borrower shall fail to make
any payment due hereunder or under the Note or upon any of the Obligations.
Secured Party may charge such penalty(ies) as set forth in the Note.
8. Borrower recognizes that Secured Party will incur additional administrative
expense in handling loans, and accordingly agrees that it will pay Secured Party
an annual Collateral monitoring fee of ________ % of the approved line of
credit, to be assessed in the first billing period succeeding the Secured
Party's request for collateral reporting.
9. Borrower agrees that nothing contained in this Agreement shall impair,
modify, limit, abolish or in any manner whatsoever affect Secured Party's
unrestricted and absolute right contained in any demand note secured hereby to
demand payment in accordance therewith, irrespective of whether Borrower shall
be in default hereunder or thereunder.
10. Borrower waives a trial by jury, and the right to interpose any defense,
counterclaim, or offset of any nature and description in any litigation between
Borrower and Secured Party with respect to this Agreement or any claim arising
out of, relating to or connected with the loan secured thereby, the Collateral
or the repossession thereof, to the full extent permitted by applicable law.
11. Whenever an attorney is used to collect on or enforce this Agreement or to
enforce, defend, declare or adjudicate any of Secured Party's rights or
interests hereunder or with respect to any Collateral and/or the Note, whether
by suit, negotiations or otherwise, and regardless of the forum, such attorney's
fees shall be payable by the Borrower to the full extent permitted by law.
12. This Agreement may nor be modified, amended or rescinded except in
writing. The rights of Secured Party under this Agreement are in addition to and
not in limitation of any other rights and remedies Secured Party may have by
virtue of any other instrument or agreement heretofore, contemporaneously
herewith or hereafter executed by Borrower or by law or otherwise. If any
provision of this Agreement is contrary to applicable law, such provision shall
be deemed ineffective without invalidating the remaining provisions hereof. If
and to the extent that applicable law confers any rights or imposes any duties
inconsistent with or in addition to any of the provisions of this Agreement, the
affected provision shall be considered amended to conform thereto. Secured Party
shall not by any act, delay, omission or otherwise be deemed to have waived any
of its rights or remedies hereunder. A waiver by Secured Party of any right or
remedy hereunder on any one occasion, shall not be construed as a bar to or
waiver of any such right or remedy which Secured Party would have had on any
future occasion nor shall Secured Party be liable for exercising or failing to
exercise any such right or remedy.
13. Borrower hereby waives all notices except such notices as are required
herein or are required by law and cannot be waived. It is expressly understood
and agreed that whenever the service of any notice to Borrower is required
hereby or is otherwise required such notice may be sent to Borrower by ordinary
mail to Borrower's principal place of business and, if so mailed at least five
days in advance, such notice shall be deemed sufficient and reasonable notice.
14. Secured Party shall not be liable to Borrower for any damages by reason of
delays, temporary withdrawals of the Collateral from service or other causes.
15. Borrower agrees to join Secured Party in signing and filing, at Borrower's
expense, such financing statements, and title lien statements, if applicable, as
Secured Party may from time to time require in such public offices as Secured
Party may from time to time require. Borrower agrees that whenever Secured Party
hereafter makes a written request Borrower will, in each case, execute and
deliver to Secured Party such additional writings (including, without
limitation, affidavits, assignments and endorsements of specific items of
collateral, security agreements and financing statements) and make and do all
such further and other acts and things (including, without limitation, the
delivery to Secured Party of any instrument, documents, chattel paper or other
writing of any kind the possession of which perfects a security interest
therein) as Secured Party may from time to time require for the better evidence,
validation, perfection, enforcement or other protection of its security
interest. Borrower shall pay the expense of all record searches and public
filings which Secured Party may reasonably require. Borrower hereby appoints
Secured Party as its true and lawful attorney, with powers of substitution, to
prepare, sign and file of record for, Borrower, in Borrower's name, any
financing statements, title lien statements, assignments, or take any other
action deemed necessary by Secured Party in order to perfect the security
interests of Security Party hereunder.
16. Secured Party's security interest in the Collateral shall remain in effect
in accordance with this Agreement until Borrower's Obligations to Secured Party
shall have been fully satisfied and shall not be affected by the lapse of time
or by the fact that there may be a time or times when no
<PAGE>
Obligations shall be outstanding. If and when Secured Party's security shall
have terminated in accordance with the provisions of this Agreement, Secured
Party shall, on request of and at the expense of Borrower, release its security
interest of record.
17. This Agreement shall be binding upon and inure to the benefit of the
parties hereto, their successors and assigns, executors, administrators, heirs
and legal representatives. It shall be binding, jointly and severally, upon all
parties described as Borrower. This Agreement and all rights and obligations
hereunder, including matters of construction, validity and performance, shall be
governed by the laws of Kentucky.
National City Bank, Kentucky
(Secured Party)
By: /s/ Thomas P. Crockett
----------------------------------------------
Thomas P. Crockett
Title: Assistant Vice President
-------------------------------------------
18. Supplemental Provisions:
----------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IN WITNESS WHEREOF, the parties have duly executed this Security Agreement
the 1st day of December 1994.
BORROWER: PJV, INC.
----------------------------------------
By: /s/ ?????????????
----------------------------------------------
Title: President
-------------------------------------------
9038 W. Broad Street
- -------------------------------------------------
Street Address
Richmond, Richmond Independent City, Virginia
- -------------------------------------------------
City, County and State
By: /s/ ?????????????
----------------------------------------------
Title: Secretary
-------------------------------------------
If debtor/borrower and owner of collateral are not the same (i.e. Individual
Borrower with Corporate owner) then have both Borrower and Owner sign Security
Agreement.
<PAGE>
SECURITY AGREEMENT
TANGIBLE PERSONAL PROPERTY
(EXCEPT INVENTORY AND RECEIVABLES)
The undersigned borrower, jointly and severally if more than one,
(hereinafter called "Borrower") does hereby sell, mortgage and grant a security
interest to National City Bank, Kentucky (hereinafter called "Secured Party"), a
national banking association having its principal place of business at 101 South
Fifth Street, Louisville, Kentucky, in all of the Borrower's machinery,
equipment, furniture and fixtures, including but not limited to the property
described below,
together with all accessories, attachments, parts, accessions and repairs, all
substitutions, replacements and additions thereto, all right, title and interest
of the Borrower in and to any of the foregoing which may be subject to any title
retention or other security agreement the lien of which may be or become
superior to the lien herein created, and all proceeds (including, without
limitation, insurance proceeds) from any of the foregoing (all of which property
is hereinafter collectively called the "Collateral"), as security for the
payment of the sum of $1,200,000.00 evidenced by and subject to the provisions
of Borrower's promissory note and/or loan agreement (hereinafter collectively
called the "Note") dated 12/01/94 (including any renewals, extensions,
substitutions or modifications thereof), and for the payment of any and all
liabilities and obligations of Borrower to Secured Party whether arising under
this Agreement or not, now existing or hereafter incurred, created by loan,
overdraft, guaranty, or operation of law, originally contracted with Secured
Party or with any other or others and acquired by Secured Party by purchase,
pledge, participation or otherwise, absolute or contingent, secured or
unsecured, and matured or unmatured, including without limitation all interest,
fees, charges, expenses and attorney's fees, to the extent permitted by law,
incurred to enforce Secured Party's rights against Borrower under this Agreement
or otherwise, or arising out of the defense or prosecution of any matter growing
out of this Agreement or any security interest granted hereby. The indebtedness
evidenced by the Note and any other indebtedness and obligations secured hereby
are hereinafter called the Borrower's "Obligations."
The Borrower represents and warrants to the Secured Party, its successors
and assigns, that (1) the Borrower is the true and lawful owner of the
Collateral, has full right and power to enter into this Agreement and if the
Borrower is not an individual, that all necessary action has been taken
authorizing it to enter into this Agreement, that the entering into and
performance of this Agreement serves a valid and lawful business purpose of
Borrower and that it does not contravene the provisions of any document or
writing pursuant to which Borrower is organized or the provisions of any
agreement by which it is bound, (2) the Collateral is free and clear of all
liens, charges and encumbrances other than any security interest in favor of
Secured Party, and that no financing statement is on file with respect to the
Collateral, (3) Borrower's principal place of business is at 9038 W. Broad
Street, Richmond, VA 23294, the Borrower has (no) other places of business at
,
if a corporation, Borrower has its registered office at P.O. Box Drawer Q, 1200
Old Colony Lane, Williamsburg, Virginia 23187, and that Borrower will promptly
notify the Secured Party of any change in any of the foregoing; (4) Borrower
will forever defend the Collateral against any claim by any person or entity
except the Secured Party; and (5) that the Collateral is now and will hereafter
be kept at premises located at
County of Richmond Independent City, State of Virginia, unless it is of the type
which in the normal course of business is ordinarily used at more than one
location, such as trucks, construction or road building equipment, etc.
Borrower shall have the possession and use of the Collateral in any lawful
manner not inconsistent with this Agreement or with the terms and conditions of
any insurance policy until default hereunder.
The proceeds of the Note will ( ) will not ( ) be used to acquire all
or any part of the Collateral. If all or any part thereof are so used, this is a
purchase money security interest with respect thereto. Borrower represents that
the property will be used for commercial or business purposes only.
AND IT IS EXPRESSLY AGREED AS FOLLOWS
1 EVENTS OF DEFAULT. The occurrence of any of the following events shall
constitute a default, as such term is used herein: (a) failure to pay, when due,
any amount payable on the Note or any other of the Obligations, (b) if any
statement, representation or warranty made herein or in any related credit
application, or in any supporting financial statement furnished by or on behalf
of Borrower shall be false or misleading in any material respect; (c) failure to
observe or perform any covenant or agreement herein or in the Note or other
instrument between the parties; (d) death (if a natural person) or dissolution
(if a corporation or a partnership) of Borrower or of any partner of Borrower
(if borrower is a partnership) or of any guarantor or endorser of any of the
Obligations; (e) should Borrower, or any of them if more than one, or any such
guarantor or endorser, become insolvent (whether on a net worth basis or by
reason of inability to pay debts as they mature, or otherwise), commit any act
of bankruptcy, call a meeting of creditors, make an assignment for the benefit
of creditors or if any proceeding is instituted by or against any of them for
any relief under any bankruptcy or insolvency laws or if a receiver is appointed
for any of them, (f) termination or suspension of the transaction of the usual
business of Borrower; (g) failure to pay any tax or failing to withhold, collect
or remit
<PAGE>
any tax or tax deficiency when assessed or due or if a tax assessment is made by
the United States or any State; (h) any circumstance which constitutes, or which
upon the lapse of any applicable grace period or the giving of notice (or both)
would constitute, a default which accelerates or gives any creditor of Borrower
the right to accelerate the maturity of any debt outstanding; (i) an
"accumulated funding deficiency" or a "reportable event" shall occur under
ERISA; (j) failure to pay any judgment or cause any attachment or garnishment to
be released, if such failure shall have a material adverse effect on Borrower's
operation or financial condition; (k) the substantial damage or destruction of
a sufficient portion of the Collateral such that Secured Party in good faith
believes its position is impaired; (l) Borrower's violation of any federal,
state or local statute, law, ordinance, code, rule, regulation, order or decree
("Applicable Law") now or hereafter in effect regulating, relating to or
imposing liability or standards of conduct concerning any hazardous, toxic or
dangerous waste, substance, pollutant or material, or any solid waste, as any of
the foregoing may be now or hereafter defined by any Applicable Law; or (m)
Secured Party shall, in its reasonable discretion exercised in good faith, deem
itself insecure in respect of the Obligations or any security therefor,
provided, however, that this subsection (m) shall not constitute a default until
Secured Party shall have given written notice to Borrower thereof, specifying in
reasonable detail its reasons for such belief and (unless Secured Party believes
in good faith that its risk of loss is imminent, or that under no circumstances
could Borrower alleviate Secured Party's insecurity, or that any delay would
adversely affect its ability to collect the Obligations) setting forth the
actions Borrower may take to alleviate Secured Party's insecurity and allowing a
reasonable time for Borrower to do so.
2. REMEDIES ON DEFAULT. Borrower agrees that whenever a default shall be
existing Secured Party shall have the following rights and remedies to the
extent permitted by applicable law: (a) to declare the entire unpaid principal
balance of the Note and to declare all Obligations, due and payable at the
option of the Secured Party without notice or demand; (b) to enter the foregoing
premises or such place or places where any of the Collateral may be located and
take and carry away the same, by any of its representatives, with or without
legal process, to Secured Party's place of storage; (c) to sell the Collateral
at public or private sale without advertisement, notice or demand, except as the
same shall be required by law, whether or not the Collateral is present at such
sale and whether or not the Collateral is in constructive possession of Secured
Party or the person conducting the sale, in one or more sales, as an entirety or
in parcels, and upon such terms as Secured Party may deem desirable; (d) to be
the purchaser at any such sale; (e) to require Borrower to pay all expenses of
such sale, including taking, keeping and storing of the Collateral, and
attorneys' fees; (f) to apply the proceeds of such sale to all expenses in
connection with the taking and sale of the Collateral, including attorneys'
fees, and any balance of such proceeds toward the payment of the Obligations in
such order of application as Secured Party may from time to time elect; and (g)
to exercise any one or more rights or remedies accorded by the Uniform
Commercial Code. If the proceeds of any such sale are insufficient to pay the
expenses as aforesaid and the Obligations. Borrower agrees to pay any deficiency
plus attorneys' fees to Secured Party upon demand and if such proceeds are more
than sufficient to pay such expenses and Obligations, Secured Party agrees to
pay the surplus to Borrower.
3. In the event that any co-maker, endorser, acceptor, accommodation party,
surety, guarantor, indemnitor or any [?????] any liability or responsibility of
Borrower herein or on account of any Obligations hereunder, Secured Party may
assign to such person or entity (whether a co-maker, accommodation party or
otherwise) the whole or any part of, or any participation in, this Agreement and
any right or Collateral hereunder. Borrower (and each of them if more than one)
hereby irrevocably consents to such assignment and agrees that such assignee may
enforce all rights, liabilities and obligations so assigned and that any
payment by such person or entity shall not discharge the Obligations, terminate
this Agreement or release any Collateral.
4. If the Collateral consists of motor vehicles, mobile homes, trailers, or
any other property now or hereafter required to be evidenced by a certificate of
title, Borrower will cause the certificate of title evidencing the ownership
of such vehicle to be endorsed so as to show Secured Party's interest in all
states where such endorsements are required or permitted.
5. Borrower agree to (a) keep the Collateral in good repair, making all
necessary repairs and replacements; whenever, in Secured Party's sole judgment,
the Collateral or any part thereof shall require any repairs or replacements in
order to maintain it in a first class and marketable condition or to preserve it
from excessive depreciation in value or wear, Borrower will make such repairs or
replacements immediately upon written demand by Secured Party or will cause the
same to be made; (b) not assign, transfer, dispose of, sell, encumber or grant a
security interest in the Collateral to any person or entity; (c) not secrete or
abandon any of the Collateral or the records relating thereto or remove them
from their present location without the consent of Secured Party, or, if the
Collateral is of the type which in the normal course of business is ordinarily
used in more than one location such as trucks, construction and road building
equipment, etc., will not permit the same to leave this State without the prior
written consent of Secured Party; (d) promptly sent notice to the Secured Party
of any damage or loss of any part of the Collateral, or the records relating
thereto; (e) allow Secured Party full access to the Collateral and any premises
where they may be stored from time to time, complying with any landlord's
requirement at Borrower's expense if the Collateral is stored on leased
premises; (f) indemnify Secured Party against all claims arising out of or
connected with the ownership or use of the Collateral; (g) reimburse Secured
Party upon demand for all expenses incurred in connection with perfecting the
security interest granted herein or the satisfaction thereof; (h) not use or
permit the Collateral to be used for any unlawful purpose or in violation of any
federal, state or municipal law, statute or ordinance or any rules, decrees, or
regulations issued thereunder, or for hire, unless the consent of Secured Party
is first obtained; (i) not permit the Collateral to become a part of or to be
affixed to any real property of any person or entity (including, without
limitation, Borrower) without first making arrangements satisfactory to Secured
Party to protect its security interest; (j) upon demand, furnish Secured Party
with any financial information that it may require and permit it to examine
Borrower's books and records; and (k) assemble the Collateral and make it
available to Secured Party in case of default.
6. Borrower will keep the Collateral insured against all risks including loss
by fire, theft, collision and against such other risks of loss as are
customarily insured by business and persons similar to Borrower by insurers and
in form, amount and coverage satisfactory to Secured Party, naming Secured Party
as insured thereunder and will assign and deliver the policies and certificates
thereof to Secured Party and in default thereof it shall be lawful for Secured
Party to
<PAGE>
effect such insurance. In the event any of the aforesaid policies procured by
Borrower shall fail to provide that all losses thereunder shall be payable to
Secured Party, Borrower hereby assigns to Secured Party all of the proceeds or
avails of any and all of said policies and agrees to accept said proceeds or
avails in trust for Secured Party, and to forthwith deliver the same to Secured
Party in the exact form received (with the indorsement of Borrower where
necessary). Secured Party is irrevocably appointed attorney for the Borrower,
with full power of substitution and revocation, to compromise, settle or release
any claims pertaining to or arising out of said policies, and to take possession
of and endorse in the name of Borrower any check or other instrument for the
payment of money representing the proceeds or avails of said policies. Borrower
shall not effect any settlement, compromise or release without Secured Party's
prior written consent. Borrower will pay all taxes, assessments and charges
levied against the Collateral, or for the use, storage, maintenance or repair
thereof, and upon Borrower's failure to do so, Secured Party may pay them. Any
premiums, taxes assessments and charges so paid shall be part of the Obligations
secured by this Agreement and shall be payable, on demand, with interest at the
rate designated in the Note if permitted by law and, if not, at the maximum
legal rate.
7. In the event that Borrower shall fail to pay any sum or perform any act or
keep any promise, warranty or covenant hereunder, Secured Party may, in its sole
discretion, pay the sum, or perform the said act, or remedy the said breach of
promise, warranty or covenant, for Borrower and on its behalf, and in the event
that Secured Party shall do so, Borrower will immediately upon written demand
therefore, reimburse Secured Party for all its expenses, disbursements, fees and
costs in connection therewith, together with interest thereon at the rate
designated in the Note if permitted by law and, if not, at the maximum legal
rate. It is expressly understood that Borrower's obligations hereunder are
"Obligations" as defined above. In the event that Borrower shall fail to make
any payment due hereunder or under the Note or upon any of the Obligations.
Secured Party may charge such penalty(ies) as set forth in the Note.
8. Borrower recognizes that Secured Party will incur additional administrative
expense in handling loans, and accordingly agrees that it will pay Secured Party
an annual Collateral monitoring fee of _______% of the approved line of credit,
to be assessed in the first billing period succeeding the Secured Party's
request for collateral reporting.
9. Borrower agrees that nothing contained in this Agreement shall impair,
modify, limit, abolish or in any manner whatsoever affect Secured Party's
unrestricted and absolute right contained in any demand note secured hereby to
demand payment in accordance therewith, irrespective of whether Borrower shall
be in default hereunder or thereunder.
10. Borrower waives a trial by jury, and the right to interpose any defense,
counterclaim, or offset of any nature and description in any litigation between
Borrower and Secured Party with respect to this Agreement or any claim arising
out of, relating to or connected with the loan secured thereby, the Collateral
or the repossession thereof, to the full extent permitted by applicable law.
11. Whenever an attorney is used to collect on or enforce this Agreement or to
enforce, defend, declare or adjudicate any of Secured Party's rights or
interests hereunder or with respect to any Collateral and/or the Note, whether
by suit, negotiation or otherwise, and regardless of the forum, such attorney's
fees shall be payable by the Borrower to the full extent permitted by law.
12. This Agreement may not be modified, amended or rescinded except in
writing. The rights of Secured Party under this Agreement are in addition to and
not in limitation of any other rights and remedies Secured Party may have by
virtue of any other instrument or agreement heretofore, contemporaneously
herewith executed by Borrower or by law or otherwise. If any provision of this
Agreement is contrary to applicable law, such provision shall be deemed
ineffective without invalidating the remaining provisions hereof. If and to the
extent that applicable law confers any rights or imposes any duties inconsistent
with or in addition to any of the provisions of this Agreement, the affected
provision shall be considered amended to conform thereto. Secured Party shall
not by any act, delay, omission or otherwise be deemed to have waived any of its
rights or remedies hereunder. A waiver by Secured Party of any right or remedy
hereunder on any one occasion, shall not be construed as a bar to or waiver of
any such right or remedy which Secured Party would have had on any future
occasion nor shall Secured Party be liable for exercising or failing to exercise
any such right or remedy.
13. Borrower hereby waives all notices except such notices as are required
herein or are required by law and cannot be waived. It is expressly understood
and agreed that whenever the service of any notice to Borrower is required
hereby or is otherwise required, such notice may be sent to Borrower by ordinary
mail to Borrower's principal place of business and, if so mailed at least five
days in advance, such notice shall be deemed sufficient and reasonable notice.
14. Secured Party shall not be liable to Borrower for any damages by reason of
delays, temporary withdrawals of the Collateral from service or other causes.
15. Borrower agrees to join Secured Party in signing and filing, at Borrower's
expense, such financing statements, and title lien statements, if applicable, as
Secured Party may from time to time require in such public offices as Secured
Party may from time to time require. Borrower agrees that whenever Secured Party
hereafter makes a written request Borrower will, in each case, execute and
deliver to Secured Party such additional writings (including, without
limitation, affidavits, assignments and endorsements of specific items of
collateral, security agreements and financing statements) and make and do all
such further and other acts and things (including, without limitation, the
delivery to Secured Party of any instrument, documents, chattel paper or other
writing of any kind the possession of which perfects a security interest
therein) as Secured Party may from time to time require for the better evidence,
validation, perfection, enforcement or other protection of its security
interest. Borrower shall pay the expense of all record searches and public
filings which Secured Party may reasonably require. Borrower hereby appoints
Secured Party as its true and lawful attorney, with powers of substitution, to
prepare, sign and file of record for, Borrower, in Borrower's name, any
financing statements, title lien statements, assignments, or take any other
action deemed necessary by Secured Party in order to perfect the security
interests of Secured Party hereunder.
16. Secured Party's security interest in the Collateral shall remain in effect
in accordance with this Agreement until Borrower's Obligations to Secured Party
shall have been fully satisfied and shall not be affected by the lapse of time
or by the fact that there may be a time or times when no
<PAGE>
Obligations shall be outstanding. If and when Secured Party's security interest
shall have terminated in accordance with the provisions of this Agreement,
Secured Party shall, on request of and at the expense of Borrower, release its
security interest of record.
17. This Agreement shall be binding upon and inure to the benefit of the
parties hereto, their successors and assigns, executors, administrators, heirs
and legal representatives. It shall be binding, jointly and severally, upon all
parties described as Borrower. This Agreement and all rights and obligations
hereunder, including matters of construction, validity and performance, shall be
governed by the laws of Kentucky.
18. Supplemental Provisions:
--------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IN WITNESS WHEREOF, the parties have duly executed this Security Agreement the
1st day of December 1994.
National City Bank, Kentucky BORROWER PJVA, INC.
(Secured Party) ---------------------------------
By /s/ Thomas P. Crockett By /s/ Richard F. Sherman
--------------------------------- ---------------------------------------
Thomas P. Crockett
Title: Assistant Vice President Title: President
---------------------------- -----------------------------------
9038 W. Broad Street
-----------------------------------------
Street Address
Richmond, Richmond Independent City,
Virginia
-----------------------------------------
City, County and State
By /s/ Jack A. Laughery
---------------------------------------
Title: Secretary
-----------------------------------
If debtor/borrower and owner of
collateral are not the same (i.e.
Individual Borrower with Corporate owner)
then have both Borrower and Owner sign
Security Agreement
<PAGE>
GUARANTY AGREEMENT
------------------
WHEREAS, PJV, Inc. and PJVA, Inc. (collectively herein, "Borrowers" and,
individually, "Borrower") may from time to time be granted loans and discounts
by National City Bank, Kentucky ("Bank") or may otherwise become indebted to or
incur liabilities to Bank,
NOW THEREFORE, in consideration of and as inducement to Bank to extend one or
more loans or discounts to Borrowers or otherwise permit Borrowers to become or
to continue to be indebted to Bank, the undersigned Guarantors (the term
"Guarantors" herein shall mean each, some or all of the undersigned), for
themselves, their heirs, personal representatives, successors and assigns,
hereby unconditionally guarantee to Bank, its successors and assigns, including
each and every holder or owner of any indebtedness or liabilities of Borrowers
guaranteed hereby (each reference to Bank shall be construed to refer to each
such holder or owner), the prompt payment when due and at all times thereafter
of any and all existing and future indebtedness and liabilities of Borrowers of
every kind, nature, and character (including all renewals, extensions and
modifications thereof) to Bank, including interest thereon, attorneys' fees, and
costs and expenses of collection incurred by Bank (hereinafter referred to as
the "Indebtedness"). Notwithstanding the foregoing, the amount payable under
this Guaranty shall not exceed in the aggregate the principal amount of ONE
MILLION TWO HUNDRED THOUSAND AND NO/DOLLARS ($1,200,000.00), plus interest,
attorneys' fees, and costs and expenses of collection. If the Bank holds one or
more guaranties executed by Guarantors to Bank, the liability of Guarantors to
Bank imposed by such other guaranty or guaranties shall be added to Guarantors'
maximum liability under this Guaranty. All rights, powers and remedies of Bank
hereunder and under any other guaranties now or at any time hereafter in force
between Bank and Guarantors shall be cumulative and not alternative and shall be
in addition to all rights, powers and remedies given to Bank by law.
Notwithstanding anything to the contrary contained herein, the maximum
liability hereunder of each undersigned shall be that percentage of the
Indebtedness, plus interest, attorneys' fees and costs and expenses of
collection, as is set forth below opposite such undersigned's name; also shown
below is the maximum principal amount guaranteed by each respective
undersigned:
<PAGE>
<TABLE>
<CAPTION>
Maximum
Name of Percentage of Principal
Undersigned Indebtedness Guaranteed Guaranteed
----------- ------------------------- ----------
<S> <C> <C>
Richard F. Sherman Twenty Five Percent (25%) $300,000
Jack A. Laughery Twenty Five Percent (25%) $300,000
Martin T. Hart Twenty Five Percent (25%) $300,000
Michael J. Grisanti Twenty Five Percent (25%) $300,000
</TABLE>
The Bank hereby agrees that on December lst, 1995, if each borrower has
achieved positive equity as identified by debt to tangible net worth of 3.00 to
1 or less, and positive earnings, as identified by interest coverage, which is
determined by quantifying earnings before interest and taxes divided by total
interest expense, of 2.00 to 1 or greater, and provided that there is no default
by either Borrower, the amount of the Indebtedness guaranteed hereunder by each
Guarantor shall decrease to an amount equal to twenty five percent (25%) of two-
thirds of the then outstanding balance of principal plus accrued interest under
the Note guaranteed hereby. Further, on December 1st, 1996, if each Borrower has
achieved positive equity as identified by debt to tangible net worth of 2.75 to
1 or less, and positive earnings, as identified by interest coverage, which is
determined by quantifying earnings before interest and taxes divided by total
interest expense, of 2.50 to 1 or greater, and provided that there is no default
by either Borrower, the amount of the Indebtedness guaranteed hereunder by each
Guarantor shall decrease to an amount equal to twenty five percent (25%) of one-
third of the then outstanding balance of principal and interest under the Note
guaranteed hereby. Borrowers' compliance with the foregoing shall be determined
from information supplied to Bank by Borrowers, and acceptable to Bank in its
sole discretion, which information shall be prepared in accordance with
generally accepted accounting principles applied on a consistent basis.
This Guaranty shall terminate on December 1st, 1998, provided that such
termination shall not affect the liability of the Guarantors with respect to:
(1) obligations created or incurred prior to such date, or (2) extensions or
renewals of, interest accruing on, or fees, costs or expenses incurred with
respect to, such obligations on or after such date.
The Indebtedness guaranteed hereby shall include all liabilities, direct or
contingent, joint, several or independent, now or hereafter existing, to Bank
for its own account or as % agent for another or others, whether created
directly or acquired by assignment or otherwise.
<PAGE>
Bank shall have the right of immediate recourse against Guarantors for full
and immediate payment of the Indebtedness at any time after the Indebtedness, or
any part thereof, has not been paid in full under the terms of the instrument
governing such Indebtedness whether on demand, at fixed maturity or maturity
accelerated by reason of a default.
This is a guaranty of payment, not of collection, and Guarantors therefore
agree that Bank shall not be obligated prior to seeking recourse against or
receiving payment from Guarantors to do any of the following (although Bank may
do so, in whole or in part, at its sole option) all of which are hereby
unconditionally waived by Guarantors:
(i) take any steps whatsoever to collect from Borrowers or to file
any claim of any kind against Borrowers;
(ii) take any steps whatsoever to accept, perfect Bank's interest in,
foreclose or realize on collateral security, if any, for the payment of the
Indebtedness, or any other guaranty of the Indebtedness; or
(iii) in any other respect exercise any diligence whatever in
collecting or attempting to collect any of the Indebtedness by any means.
The liability of Guarantors for payment of the Indebtedness shall be absolute
and unconditional, and nothing whatever except actual full payment to the Bank
of all the Indebtedness shall operate to discharge Guarantors' liability
hereunder. Accordingly, Guarantors unconditionally and irrevocably waive each
and every defense which, under principles of guarantee or suretyship law, would
otherwise operate to impair or diminish the liability of Guarantors. Without
limiting the generality of the foregoing, Guarantors agree that none of the
following shall diminish or impair the liability of Guarantors in any respect
(all of which may be done without notice to Guarantors of any kind):
(i) any extension, modification, indulgence, compromise, settlement
or variation of the terms of any of the Indebtedness;
(ii) the voluntary or involuntary discharge or release of any of the
Indebtedness, or of any other person liable therefor, by reason of
bankruptcy or insolvency laws or otherwise;
<PAGE>
(iii) the acceptance or release, with or without substitution, by
Bank of any collateral security or other guaranty, or any settlement,
compromise or extension with respect to any collateral security or other
guaranty;
(iv) the application or allocation by Bank of payments, collections
or credits on any portion of the Indebtedness, regardless of what portion
of the Indebtedness remains unpaid;
(v) the creation of any new Indebtedness covered by this Guaranty;
or
(vi) the making of a demand, or absence of demand, for payment of
the Indebtedness or giving, or failing to give, any notice of dishonor or
protest or any other notice.
Guarantors unconditionally waive:
(i) any subrogation to the rights of Bank against Borrowers, until
all of the Indebtedness has been satisfied in full;
(ii) any acceptance of this Guaranty; and
(iii) any set-offs or counterclaims against Bank which would
otherwise impair Bank's rights against the Guarantors hereunder.
This Guaranty shall inure to the benefit of Bank, its successors and assigns,
including each and every holder or owner of any of the Indebtedness guaranteed
hereby and this Guaranty shall be deemed a separate contract with each such
holder and owner.
It is expressly understood and agreed that Bank shall have the right to
select, in its absolute discretion, the portion of the Indebtedness to which
this Guaranty will apply, regardless of what portion of the Indebtedness remains
unpaid; may, at its sole option, release one or more Guarantors without
impairing its rights against any other Guarantors, and may proceed against any
one or more Guarantors hereunder without impairing the liability, which shall be
absolute, of the remaining Guarantors. Guarantors consent to personal
jurisdiction in any court in which enforcement of this Guaranty may be sought.
No invalidity, irregularity or unenforceability of all or any part of the
Indebtedness hereby guaranteed or of any security
<PAGE>
therefor shall affect, impair or be a defense to this Guaranty, and this
Guaranty is a primary obligation of Guarantors.
During the existence of the Guaranty Agreement, Guarantor will provide Bank
with annual financial information including updated annual personal financial
statements and copies of personal income tax returns.
No amendment, modification or waiver shall be deemed to be made by Bank
unless in a writing signed by an officer of Bank. No waiver by Bank shall be
construed or deemed to be a waiver of any other provision or condition of this
Guaranty or a waiver of a subsequent breach of the same provision or condition.
This Guaranty, and all rights and obligations hereunder, including matters of
construction, validity and performance, shall be governed by the internal laws
of the Commonwealth of Kentucky.
IN WITNESS WHEREOF, Guarantors have executed this Guaranty Agreement, as of
this 8th day of December, 1994.
/s/ /s/ Richard F. Sherman
- ------------------- ----------------------
Witness Richard F. Sherman
/s/ /s/ Jack A. Laughery
- ------------------- --------------------
Witness Jack A. Laughery
/s/ /s/ Martin T. Hart
- ------------------- ------------------
Witness Martin T. Hart
/s/ /s/ Michael J. Grisanti
- ------------------- -----------------------
Witness Michael J. Grisanti
<PAGE>
SUBORDINATION AGREEMENT
TO: NATIONAL CITY BANK, KENTUCKY ("You")
101 South Fifth Street
Louisville, Kentucky 40202
GENTLEMEN:
Undersigned Richard F. Sherman (herein called "Creditor") is a creditor of
PJV, Inc., (herein called "Debtor"). Creditor understands that Debtor has
requested you to extend credit to Debtor, but that you are unwilling to do so
unless you first receive Creditor's subordination agreement as herein contained.
In consideration of and as an inducement to you to, at any time or from time
to time at your option, make loans or extend credit upon an instrument or
writing in respect of which the Debtor may be liable in any capacity, or to
grant such renewals, extensions or modifications of any thereof as you may deem
advisable, it is agreed as follows:
(1) Creditor and Debtor represent and warrant to you that:
(a) At the date hereof the total indebtedness owing by Debtor to
Creditor is $183,750.00. "Indebtedness" as used herein shall mean one-half
($91,875.00) of the current total indebtedness plus any future indebtedness of
Debtor to Creditor of every kind, nature and character, which may be from time
to time directly or indirectly incurred, including any negotiable instruments
evidencing the same, all debts, demands, monies, indebtedness, liabilities and
obligations owed or to become owing including interest, principal, costs and
other charges, and all claims, rights, causes of action, judgments, decrees or
other obligations of any kind whatsoever.
(b) At your option, either the instruments evidencing said
Indebtedness shall be delivered to you or the face of said instruments shall be
permanently marked with the following legend:
"Subject to that certain Subordination Agreement executed by Richard F.
Sherman on the 8th day of December, addressed to National City Bank,
Kentucky" and after being so marked the said instruments shall be exhibited
to you.
(c) There is no default in the Indebtedness from Debtor or Creditor
or, to the knowledge of the undersigned, under any other agreements between
Debtor and third parties.
<PAGE>
(2) Creditor agrees with you that:
(a) The Indebtedness, except interest payments on the amount of
Indebtedness existing as of the date hereof (which amount is shown above) shall
be and hereby is subordinated and the payment therefor shall be deferred until
the full and final payment in cash or its equivalent of any and all obligations
directly or indirectly incurred (including all interest accruing before or after
the date of filing of a petition by or against Debtor under any bankruptcy law)
of any nature whatsoever now due to you from Debtor or which may hereafter be
incurred and become due to you from Debtor (including all renewals, extensions
or modifications thereof), together with your costs and expenses of collection,
including attorneys' fees (all of which obligations are hereinafter called the
Obligations").
(b) Creditor will not, without your prior written consent, assert,
collect, enforce or release the Indebtedness or any part thereof or realize upon
or release any collateral securing the Indebtedness or enforce any security
agreement, real estate mortgage, lien instrument, or other encumbrance securing
the Indebtedness or any part thereof.
(c) Creditor will hold in trust and immediately pay to you in the same
form of payment received, for application upon the amount now or hereafter owing
to you by Debtor, any amount Debtor pays to Creditor on the principal amount of
Indebtedness.
(d) Creditor will forthwith deliver or cause to be delivered to you
any collateral for the Indebtedness now held by Creditor or anyone on its
behalf, or in the future received by it or anyone on its behalf.
(e) Creditor agrees that it will not, without your prior written
consent, commence, prosecute or participate in any administrative, legal or
equitable action against the Debtor or in any administrative, legal or equitable
action that might adversely affect the Debtor or its interest.
(3) If Creditor, in violation of this Agreement, shall commence, prosecute or
participate in suit, action or proceeding against Debtor, Debtor may interpose
as a defense or plea the making of this Agreement and you may intervene and
interpose such defense or plea in your name or in the name of Debtor. If
Creditor shall attempt to enforce any security agreement, real estate mortgage,
lien instrument or other encumbrance, you or Debtor may by virtue of this
Agreement restrain the enforcement thereof in your name or in the name of
Debtor. If Creditor obtains any asset of the Debtor as a result of any
administrative, legal or equitable action, or otherwise, Creditor agrees to
forthwith pay, deliver and assign to you any such assets for application upon
the Obligations.
(4) As additional security for the Obligations and in furtherance hereof,
Creditor does hereby assign and transfer to you the Indebtedness as security for
any and all amounts now or hereafter owing by Debtor to you, and Creditor
irrevocably authorizes you or any person you may designate to collect and
receive the proceeds of the Indebtedness, to do any
<PAGE>
and all things with the same power and authority that Creditor might or could
have done if this Agreement had not been executed, including the filing and
proving of claims in the name of you or Creditor in receiverships, and
proceedings under any bankruptcy law from time to time in effect. Creditor
agrees that upon your demand it will execute all documents necessary or
desirable to effectuate the foregoing assignment. The net amount received by you
from the Indebtedness shall be applied to the payment of the amounts due and to
become due from Debtor to you, and the excess, if any, shall be returned to
Creditor.
(5) Debtor agrees with you that it will not, without your prior written
consent, pay to Creditor any sum on account of the Indebtedness or execute or
deliver any negotiable instrument as evidence of the Indebtedness or
any part thereof.
(6) Creditor agrees that you may grant extensions of the time of payment or
performance, make compromises, including releases of collateral, and settlements
with Debtor and all other persons, and take or omit to take or waive any action
you deem appropriate with respect to the Obligations without the consent of
Debtor or Creditor and without affecting the agreements of Creditor or Debtor
hereunder.
(7) If at any time hereafter you shall, in your own judgment, determine to
discontinue the extension of credit to Debtor, you may do so. This Agreement
shall continue in full force and effect until Debtor shall have satisfied all
the Obligations and you shall have been paid in full on all indebtedness of any
nature whatsoever that may be due to you from Debtor at present or in the
future. Notwithstanding the foregoing, this Agreement shall nevertheless
continue in force in the Obligations to you arising out of a revolving credit
agreement or similar type arrangement shall be paid in full and subsequently
additional Obligations to you shall be incurred under the same agreement or
arrangement, unless Creditor, prior to Debtor's incurring of additional
Obligations to you, shall have notified you in writing that its subordination is
no longer effective.
(8) Debtor agrees that it will render to you, upon demand from time to
time, a statement of Debtor's account with Creditor, and that you will have the
right through your designees to inspect the books of the Debtor at reasonable
times.
(9) This Agreement shall be binding upon the heirs, administrators,
personal representatives, successors and assigns of Creditor and Debtor, and
shall inure to the benefit of your successors and assigns.
(10) This Agreement and the obligations which it secures and all rights and
liabilities of the parties shall be governed as to validity, interpretation,
enforcement and effect by the laws of the Commonwealth of Kentucky.
<PAGE>
IN WITNESS WHEREOF, Creditor and Debtor have severally duly executed this
Agreement to be effective as of the 8th of December, 1994.
Accepted By:
NATIONAL CITY BANK, KENTUCKY PJV, INC.
(Debtor) (SEAL)
By: /s/ Thomas P. Crockett By: /s/ Richard F. Sherman
--------------------------- -------------------------
Thomas P. Crockett
Title: Assistant Vice President Title: President
------------------------ ----------------------
9038 West Broad Street
Richmond, Virginia 23294
RICHARD F. SHERMAN
(Creditor) (SEAL)
By: /s/ Richard F. Sherman
-------------------------
P. O. Box 23146
Anchorage, Kentucky 40223
State of Kentucky
County of Jefferson
Personally came before me this 8th day of December, l994 the above named
Richard F. Sherman, President of PJV, Inc. to me personally known to be the
Debtor who executed the foregoing Subordination Agreement and who after being by
me duly sworn, stated and acknowledged under oath that he executed and delivered
same as his free and voluntary act and deed.
Charlotte L. Hendrick
------------------------------
Notary Public
10/27/96
------------------------------
My commission expires
<PAGE>
State of Kentucky
County of Jefferson
Personally came before me this 8th day of December, 1994 the above named
Richard F. Sherman to me personally known to be the Creditor who executed the
foregoing Subordination Agreement and who after being by me duly sworn, stated
and acknowledged under oath that he executed and delivered same as his free and
voluntary act and deed.
/s/ Charlotte Hendrick
-------------------------------
Notary Public
10-27-96
-------------------------------
My commission expires
CFI385/16-20
11/30/94
<PAGE>
SUBORDINATION AGREEMENT
TO: NATIONAL CITY BANK, KENTUCKY ("You")
101 South Fifth Street
Louisville, Kentucky 40202
GENTLEMEN:
Undersigned Richard F. Sherman (herein called "Creditor") is a creditor of
PJVA, Inc., (herein called "Debtor"). Creditor understands that Debtor has
requested you to extend credit to Debtor, but that you are unwilling to do so
unless you first receive Creditor's subordination agreement as herein contained.
In consideration of and as an inducement to you to, at any time or from time
to time at your option, make loans or extend credit upon an instrument or
writing in respect of which the Debtor may be liable in any capacity, or to
grant such renewals, extensions or modifications of any thereof as you may deem
advisable, it is agreed as follows:
(1) Creditor and Debtor represent and warrant to you that:
(a) At the date hereof the total indebtedness owing by Debtor to
Creditor is $192,500.00. "Indebtedness" as used herein shall mean one-half
($96,250.00) of the current total indebtedness plus any future indebtedness of
Debtor to Creditor of every kind, nature and character, which may be from time
to time directly or indirectly incurred, including any negotiable instruments
evidencing the same, all debts, demands, monies, indebtedness, liabilities and
obligations owed or to become owing including interest, principal, costs and
other charges, and all claims, rights, causes of action, judgments, decrees or
other obligations of any kind whatsoever.
(b) At your option, either the instruments evidencing said
Indebtedness shall be delivered to you or the face of said instruments shall be
permanently marked with the following legend:
"Subject to that certain Subordination Agreement executed by Richard F.
Sherman on the 8th day of December, addressed to National City Bank,
Kentucky" and after being so marked the said instruments shall be exhibited
to you.
(c) There is no default in the Indebtedness from Debtor or Creditor
or, to the knowledge of the undersigned, under any other agreements between
Debtor and third parties.
<PAGE>
(2) Creditor agrees with you that:
(a) The Indebtedness, except interest payments on the amount of
Indebtedness existing as of the date hereof (which amount is shown above) shall
be and hereby is subordinated and the payment therefor shall be deferred until
the full and final payment in cash or its equivalent of any and all obligations
directly or indirectly incurred (including all interest accruing before or after
the date of filing of a petition by or against Debtor under any bankruptcy law)
of any nature whatsoever now due to you from Debtor or which may hereafter be
incurred and become due to you from Debtor (including all renewals, extensions
or modifications thereof), together with your costs and expenses of collection,
including attorneys' fees (all of which obligations are hereinafter called the
"Obligations").
(b) Creditor will not, without your prior written consent, assert,
collect, enforce or release the Indebtedness or any part thereof or realize upon
or release any collateral securing the Indebtedness or enforce any security
agreement, real estate mortgage, lien instrument, or other encumbrance securing
the Indebtedness or any part thereof.
(c) Creditor will hold in trust and immediately pay to you in the same
form of payment received, for application upon the amount now or hereafter owing
to you by Debtor, any amount Debtor pays to Creditor on the principal amount of
Indebtedness.
(d) Creditor will forthwith deliver or cause to be delivered to you
any collateral for the Indebtedness now held by Creditor or anyone on its
behalf, or in the future received by it or anyone on its behalf.
(e) Creditor agrees that it will not, without your prior written
consent, commence, prosecute or participate in any administrative, legal or
equitable action against the Debtor or in any administrative, legal or equitable
action that might adversely affect the Debtor or its interest.
(3) If Creditor, in violation of this Agreement, shall commence, prosecute or
participate in suit, action or proceeding against Debtor, Debtor may interpose
as a defense or plea the making of this Agreement and you may intervene and
interpose such defense or plea in your name or in the name of Debtor. If
Creditor shall attempt to enforce any security agreement, real estate mortgage,
lien instrument or other encumbrance, you or Debtor may by virtue of this
Agreement restrain the enforcement thereof in your name or in the name of
Debtor. If Creditor obtains any asset of the Debtor as a result of any
administrative, legal or equitable action, or otherwise, Creditor agrees to
forthwith pay, deliver and assign to you any such assets for application upon
the Obligations.
(4) As additional security for the Obligations and in furtherance hereof,
Creditor does hereby assign and transfer to you the Indebtedness as security for
any and all amounts now or hereafter owing by Debtor to you, and Creditor
irrevocably authorizes you or any person you may designate to collect and
receive the proceeds of the Indebtedness, to do any
<PAGE>
and all things with the same power and authority that Creditor might or could
have done if this Agreement had not been executed, including the filing and
proving of claims in the name of you or Creditor in receiverships, and
proceedings under any bankruptcy law from time to time in effect. Creditor
agrees that upon your demand it will execute all documents necessary or
desirable to effectuate the foregoing assignment. The net amount received by you
from the Indebtedness shall be applied to the payment of the amounts due and to
become due from Debtor to you, and the excess, if any, shall be returned to
Creditor.
(5) Debtor agrees with you that it will not, without your prior written
consent, pay to Creditor any sum on account of the Indebtedness or execute or
deliver any negotiable instrument as evidence of the Indebtedness or any part
thereof.
(6) Creditor agrees that you may grant extensions of the time of payment or
performance, make compromises, including releases of collateral, and
settlements with Debtor and all other persons, and take or omit to take or waive
any action you deem appropriate with respect to the Obligations without the
consent of Debtor or Creditor and without affecting the agreements of Creditor
or Debtor hereunder.
(7) If at any time hereafter you shall, in your own judgment, determine to
discontinue the extension of credit to Debtor, you may do so. This Agreement
shall continue in full force and effect until Debtor shall have satisfied all
the Obligations and you shall have been paid in full on all indebtedness of any
nature whatsoever that may be due to you from Debtor at present or in the
future. Notwithstanding the foregoing, this Agreement shall nevertheless
continue in force in the Obligations to you arising out of a revolving credit
agreement or similar type arrangement shall be paid in full and subsequently
additional Obligations to you shall be incurred under the same agreement or
arrangement, unless Creditor, prior to Debtor's incurring of additional
Obligations to you, shall have notified you in writing that its subordination is
no longer effective.
(8) Debtor agrees that it will render to you, upon demand from time to time,
a statement of Debtor's account with Creditor, and that you will have the right
through your designees to inspect the books of the Debtor at reasonable times.
(9) This Agreement shall be binding upon the heirs, administrators, personal
representatives, successors and assigns of Creditor and Debtor, and shall inure
to the benefit of your successors and assigns.
(10) This Agreement and the obligations which it secures and all rights and
liabilities of the parties shall be governed as to validity, interpretation,
enforcement and effect by the laws of the Commonwealth of Kentucky.
<PAGE>
IN WITNESS WHEREOF, Creditor and Debtor have severally duly executed this
Agreement to be effective as of the 8 day of December, 1994.
Accepted By:
NATIONAL CITY BANK, KENTUCKY PJVA, INC.
(Debtor) (SEAL)
By: Thomas P. Crockett By: Richard F. Sherman
------------------------- --------------------------
Thomas P. Crockett
Title: Assistant Vice President Title: President
------------------------ -----------------------
9038 West Broad Street
Richmond, Virginia 23294
RICHARD F. SHERMAN
(Creditor) (SEAL)
By: Richard F. Sherman
--------------------------
P. O. Box 23146
Anchorage, Kentucky 40223
State of Kentucky
County of Jefferson
Personally came before me this 8th day of December, 1994 the above named
Richard F. Sherman, President of PJVA, Inc. to me personally known to be the
Debtor who executed the foregoing Subordination Agreement and who after being by
me duly sworn, stated and acknowledged under oath that he executed and delivered
same as his free and voluntary act and deed.
Charlotte L. Hendrick
--------------------------
Notary Public
10/27/96
--------------------------
My commission expires
<PAGE>
State of Kentucky
County of Jefferson
Personally came before me this 8th day of December, 1994 the above named
Richard F. Sherman to me personally known to be the Creditor who executed the
foregoing Subordination Agreement and who after being by me duly sworn, stated
and acknowledged under oath that he executed and delivered same as his free and
voluntary act and deed.
/s/ Charlotte L. Hendrick
-------------------------------------
Notary Public
10/27/96
-------------------------------------
My commission expires
CFI386/16-20
11/30/94
<PAGE>
SUBORDINATION AGREEMENT
TO: NATIONAL CITY BANK, KENTUCKY ("You")
101 South Fifth Street
Louisville, Kentucky 40202
GENTLEMEN:
Undersigned Jack A. Laughery (herein called "Creditor") is a creditor of
PJV, Inc., (herein called "Debtor"). Creditor understands that Debtor has
requested you to extend credit to Debtor, but that you are unwilling to do so
unless you first receive Creditor's subordination agreement as herein contained.
In consideration of and as an inducement to you to, at any time or from
time to time at your option, make loans or extend credit upon an instrument or
writing in respect of which the Debtor may be liable in any capacity, or to
grant such renewals, extensions or modifications of any thereof as you may deem
advisable, it is agreed as follows:
(1) Creditor and Debtor represent and warrant to you that:
(a) At the date hereof the total indebtedness owing by Debtor to
Creditor is $183,750.00. "Indebtedness" as used herein shall mean one-half
($91,875.00) of the current total indebtedness plus any future indebtedness of
Debtor to Creditor of every kind, nature and character, which may be from time
to time directly or indirectly incurred, including any negotiable instruments
evidencing the same, all debts, demands, monies, indebtedness, liabilities and
obligations owed or to become owing including interest, principal, costs and
other charges, and all claims, rights, causes of action, judgments, decrees or
other obligations of any kind whatsoever.
(b) At your option, either the instruments evidencing said
Indebtedness shall be delivered to you or the face of said instruments shall be
permanently marked with the following legend:
"Subject to that certain Subordination Agreement executed by Jack A.
Laughery on the 6th day of December, addressed to National City Bank,
Kentucky" and after being so marked the said instruments shall be exhibited
to you.
(c) There is no default in the Indebtedness from Debtor or Creditor
or, to the knowledge of the undersigned, under any other agreements between
Debtor and third parties.
<PAGE>
(2) Creditor agrees with you that:
(a) The Indebtedness, except interest payments on the amount of
Indebtedness existing as of the date hereof (which amount is shown above) shall
be and hereby is subordinated and the payment therefor shall be deferred until
the full and final payment in cash or its equivalent of any and all obligations
directly or indirectly incurred (including all interest accruing before or after
the date of filing of a petition by or against Debtor under any bankruptcy law)
of any nature whatsoever now due to you from Debtor or which may hereafter be
incurred and become due to you from Debtor (including all renewals, extensions
or modifications thereof), together with your costs and expenses of collection,
including attorneys' fees (all of which obligations are hereinafter called the
"Obligations").
(b) Creditor will not, without your prior written consent, assert,
collect, enforce or release the Indebtedness or any part thereof or realize upon
or release any collateral securing the Indebtedness or enforce any security
agreement, real estate mortgage, lien instrument, or other encumbrance securing
the Indebtedness or any part thereof.
(c) Creditor will hold in trust and immediately pay to you in the
same form of payment received, for application upon the amount now or hereafter
owing to you by Debtor, any amount Debtor pays to Creditor on the principal
amount of Indebtedness.
(d) Creditor will forthwith deliver or cause to be delivered to you
any collateral for the Indebtedness now held by Creditor or anyone on its
behalf, or in the future received by it or anyone on its behalf.
(e) Creditor agrees that it will not, without your prior written
consent, commence, prosecute or participate in any administrative, legal or
equitable action against the Debtor or in any administrative, legal or equitable
action that might adversely affect the Debtor or its interest.
(3) If Creditor, in violation of this Agreement, shall commence, prosecute or
participate in suit, action or proceeding against Debtor, Debtor may interpose
as a defense or plea the making of this Agreement and you may intervene and
interpose such defense or plea in your name or in the name of Debtor. If
Creditor shall attempt to enforce any security agreement, real estate mortgage,
lien instrument or other encumbrance, you or Debtor may by virtue of this
Agreement restrain the enforcement thereof in your name or in the name of
Debtor. If Creditor obtains any asset of the Debtor as a result of any
administrative, legal or equitable action, or otherwise, Creditor agrees to
forthwith pay, deliver and assign to you any such assets for application upon
the Obligations.
(4) As additional security for the Obligations and in furtherance hereof,
Creditor does hereby assign and transfer to you the Indebtedness as security for
any and all amounts now or hereafter owing by Debtor to you, and Creditor
irrevocably authorizes you or any person you may designate to collect and
receive the proceeds of the Indebtedness, to do any
<PAGE>
and all things with the same power and authority that Creditor might or could
have done if this Agreement had not been executed, including the filing and
proving of claims in the name of you or Creditor in receiverships, and
proceedings under any bankruptcy law from time to time in effect. Creditor
agrees that upon your demand it will execute all documents necessary or
desirable to effectuate the foregoing assignment. The net amount received by you
from the Indebtedness shall be applied to the payment of the amounts due and to
become due from Debtor to you, and the excess, if any, shall be returned to
Creditor.
(5) Debtor agrees with you that it will not, without your prior written
consent, pay to Creditor any sum on account of the Indebtedness or execute or
deliver any negotiable instrument as evidence of the Indebtedness or any part
thereof.
(6) Creditor agrees that you may grant extensions of the time of payment or
performance, make compromises, including releases of collateral, and settlements
with Debtor and all other persons, and take or omit to take or waive any action
you deem appropriate with respect to the Obligations without the consent of
Debtor or Creditor and without affecting the agreements of Creditor or Debtor
hereunder.
(7) If at any time hereafter you shall, in your own judgment, determine to
discontinue the extension of credit to Debtor, you may do so. This Agreement
shall continue in full force and effect until Debtor shall have satisfied all
the Obligations and you shall have been paid in full on all indebtedness of any
nature whatsoever that may be due to you from Debtor at present or in the
future. Notwithstanding the foregoing, this Agreement shall nevertheless
continue in force in the Obligations to you arising out of a revolving credit
agreement or similar type arrangement shall be paid in full and subsequently
additional Obligations to you shall be incurred under the same agreement or
arrangement, unless Creditor, prior to Debtor's incurring of additional
Obligations to you, shall have notified you in writing that its subordination is
no longer effective.
(8) Debtor agrees that it will render to you, upon demand from time to time,
a statement of Debtor's account with Creditor, and that you will have the right
through your designees to inspect the books of the Debtor at reasonable times.
(9) This Agreement shall be binding upon the heirs, administrators, personal
representatives, successors and assigns of Creditor and Debtor, and shall inure
to the benefit of your successors and assigns.
(10) This Agreement and the obligations which it secures and all rights and
liabilities of the parties shall be governed as to validity, interpretation,
enforcement and effect by the laws of the Commonwealth of Kentucky.
<PAGE>
IN WITNESS WHEREOF, Creditor and Debtor have severally duly executed this
Agreement to be effective as of the _________________ day of December, 1994.
Accepted By:
NATIONAL CITY BANK, KENTUCKY PJV, INC.
(Debtor) (SEAL)
By: /s/ Thomas P. Crockett By: /s/ ????
--------------------------- -------------------------------
Thomas P. Crockett
Title: Assistant Vice President Title: President
------------------------ ----------------------------
9038 West Broad Street
Richmond, Virginia 23294
JACK A. LAUGHERY
(Creditor) (SEAL)
By: /s/ Jack A. Laughery
-------------------------------
1730 Hunter Hill Road
Rocky Mount, North Carolina 27804
State of
County of
Personally came before me this 8th day of December 1994 the above named
Richard F. Sherman , President of PJV, Inc. to me personally known to be the
Debtor who executed the foregoing Subordination Agreement and who after being by
me duly sworn, stated and acknowledged under oath that he executed and delivered
same as his free and voluntary act and deed.
Charlotte L. Hendrick
---------------------------------
Notary Public
10/27/96
---------------------------------
My commission expires
<PAGE>
State of North Carolina
County of Nash
Personally came before me this 6th day of December, 1994 the above named
Jack A. Laughery to me personally known to be the Creditor who executed the
foregoing Subordination Agreement and who after being by me duly sworn, stated
and acknowledged under oath that he executed and delivered same as his free and
voluntary act and deed.
/S/ Trina D. Kline
--------------- ---------------------------------------
TRINA D. KLINE Notary Public
Notary Public
Nash County, NC
--------------- 8-2-98
---------------------------------------
My commission expires
CFI385/1-5
11/30/94
<PAGE>
SUBORDINATION AGREEMENT
TO: NATIONAL CITY BANK, KENTUCKY ("You")
101 South Fifth Street
Louisville, Kentucky 40202
GENTLEMEN:
Undersigned Jack A. Laughery (herein called "Creditor") is a creditor of
PJVA, Inc., (herein called "Debtor"). Creditor understands that Debtor has
requested you to extend credit to Debtor, but that you are unwilling to do so
unless you first receive Creditor's subordination agreement as herein contained.
In consideration of and as an inducement to you to, at any time or from
time to time at your option, make loans or extend credit upon an instrument or
writing in respect of which the Debtor may be liable in any capacity, or to
grant such renewals, extensions or modifications of any thereof as you may deem
advisable, it is agreed as follows:
(1) Creditor and Debtor represent and warrant to you that:
(a) At the date hereof the total indebtedness owing by Debtor to
Creditor is $192,500.00. "Indebtedness" as used herein shall mean one-half
($96,250.00) of the current total indebtedness plus any future indebtedness of
Debtor to Creditor of every kind, nature and character, which may be from time
to time directly or indirectly incurred, including any negotiable instruments
evidencing the same, all debts, demands, monies, indebtedness, liabilities and
obligations owed or to become owing including interest, principal, costs and
other charges, and all claims, rights, causes of action, judgments, decrees or
other obligations of any kind whatsoever.
(b) At your option, either the instruments evidencing said
Indebtedness shall be delivered to you or the face of said instruments shall be
permanently marked with the following legend:
"Subject to that certain Subordination Agreement executed by Jack A.
Laughery on the 6th day of December, addressed to National City Bank,
Kentucky" and after being so marked the said instruments shall be exhibited
to you.
(c) There is no default in the Indebtedness from Debtor or Creditor
or, to the knowledge of the undersigned, under any other agreements between
Debtor and third parties.
<PAGE>
(2) Creditor agrees with you that:
(a) The Indebtedness, except interest payments on the amount of
Indebtedness existing as of the date hereof (which amount is shown above) shall
be and hereby is subordinated and the payment therefor shall be deferred until
the full and final payment in cash or its equivalent of any and all obligations
directly or indirectly incurred (including all interest accruing before or after
the date of filing of a petition by or against Debtor under any bankruptcy law)
of any nature whatsoever now due to you from Debtor or which may hereafter be
incurred and become due to you from Debtor (including all renewals extensions or
modifications thereof), together with your costs and expenses of collection,
including attorneys' fees (all of which obligations are hereinafter called the
"Obligations").
(b) Creditor will not, without your prior written consent, assert,
collect, enforce or release the Indebtedness or any part thereof or realize upon
or release any collateral securing the Indebtedness or enforce any security
agreement, real estate mortgage, lien instrument, or other encumbrance securing
the Indebtedness or any part thereof.
(c) Creditor will hold in trust and immediately pay to you in the same
form of payment received, for application upon the amount now or hereafter owing
to you by Debtor, any amount Debtor pays to Creditor on the principal amount of
Indebtedness.
(d) Creditor will forthwith deliver or cause to be delivered to you
any collateral for the Indebtedness now held by Creditor or anyone on its
behalf, or in the future received by it or anyone on its behalf.
(e) Creditor agrees that it will not, without your prior written
consent, commence, prosecute or participate in any administrative, legal or
equitable action against the Debtor or in any administrative, legal or equitable
action that might adversely affect the Debtor or its interest.
(3) If Creditor, in violation of this Agreement, shall commence, prosecute
or participate in suit, action or proceeding against Debtor, Debtor may
interpose as a defense or plea the making of this Agreement and you may
intervene and interpose such defense or plea in your name or in the name of
Debtor. If Creditor shall attempt to enforce any security agreement, real estate
mortgage, lien instrument or other encumbrance, you or Debtor may by virtue of
this Agreement restrain the enforcement thereof in your name or in the name of
Debtor. If Creditor obtains any asset of the Debtor as a result of any
administrative, legal or equitable action, or otherwise, Creditor agrees to
forthwith pay, deliver and assign to you any such assets for application upon
the Obligations.
(4) As additional security for the Obligations and in furtherance hereof,
Creditor does hereby assign and transfer to you the Indebtedness as security for
any and all amounts now or hereafter owing by Debtor to you, and Creditor
irrevocably authorizes you or any person you may designate to collect and
receive the proceeds of the Indebtedness, to do any
<PAGE>
and all things with the same power and authority that Creditor might or could
have done if this Agreement had not been executed, including the filing and
proving of claims in the name of you or Creditor in receiverships, and
proceedings under any bankruptcy law from time to time in effect. Creditor
agrees that upon your demand it will execute all documents necessary or
desirable to effectuate the foregoing assignment. The net amount received by you
from the Indebtedness shall be applied to the payment of the amounts due and to
become due from Debtor to you, and the excess, if any, shall be returned to
Creditor.
(5) Debtor agrees with you that it will not, without your prior written
consent, pay to Creditor any sum on account of the Indebtedness or execute or
deliver any negotiable instrument as evidence of the Indebtedness or any part
thereof.
(6) Creditor agrees that you may grant extensions of the time of payment or
performance, make compromises, including releases of collateral, and settlements
with Debtor and all other persons, and take or omit to take or waive any action
you deem appropriate with respect to the Obligations without the consent of
Debtor or Creditor and without affecting the agreements of Creditor or Debtor
hereunder.
(7) If at any time hereafter you shall, in your own judgment, determine to
discontinue the extension of credit to Debtor, you may do so. This Agreement
shall continue in full force and effect until Debtor shall have satisfied all
the Obligations and you shall have been paid in full on all indebtedness of any
nature whatsoever that may be due to you from Debtor at present or in the
future. Notwithstanding the foregoing, this Agreement shall nevertheless
continue in force in the Obligations to you arising out of a revolving credit
agreement or similar type arrangement shall be paid in full and subsequently
additional Obligations to you shall be incurred under the same agreement or
arrangement, unless Creditor, prior to Debtor's incurring of additional
Obligations to you, shall have notified you in writing that its subordination is
no longer effective.
(8) Debtor agrees that it will render to you, upon demand from time to
time, a statement of Debtor's account with Creditor, and that you will have the
right through your designees to inspect the books of the Debtor at reasonable
times.
(9) This Agreement shall be binding upon the heirs, administrators,
personal representatives, successors and assigns of Creditor and Debtor, and
shall inure to the benefit of your successors and assigns.
(10) This Agreement and the obligations which it secures and all rights and
liabilities of the parties shall be governed as to validity, interpretation,
enforcement and effect by the laws of the Commonwealth of Kentucky.
<PAGE>
IN WITNESS WHEREOF, Creditor and Debtor have severally duly executed this
Agreement to be effective as of the _______ day of December, 1994.
Accepted By:
NATIONAL CITY BANK, KENTUCKY PJVA, INC.
(Debtor) (SEAL)
By: /s/ Thomas P. Crockett By: /s/ Richard F. Sherman
----------------------------- -----------------------------
Thomas P. Crockett
Title: Assistant Vice President Title: President
-------------------------- --------------------------
9038 West Broad Street
Richmond, Virginia 23294
JACK A. LAUGHERY
(Creditor) (SEAL)
By: /s/ Jack A. Laughery
-----------------------------
1730 Hunter Hill Road
Rocky Mount, North Carolina 27804
State of Kentucky
County of Jefferson
Personally came before me this 8th day of December, 1994 the above named
Richard F. Sherman, President of PJVA, Inc. to me personally known to be the
Debtor who executed the foregoing Subordination Agreement and who after being by
me duly sworn, stated and acknowledged under oath that he executed and delivered
same as his free and voluntary act and deed.
/s/ Charlotte L. Hendrick
-----------------------------------------
Notary Public
10/27/96
-----------------------------------------
My commission expires
<PAGE>
State of North Carolina
County of Nash
Personally came before me this 6th day of December, 1994 the above named Jack
A. Laughery to me personally known to be the Creditor who executed the foregoing
Subordination Agreement and who after being by me duly sworn, stated and
acknowledged under oath that he executed and delivered same as his free and
voluntary act and deed.
/s/ Trina D. Kline
---------------------------------
Notary Public
8-2-98
---------------------------------
My commission expires
-------------------
TRINA D. KLINE
Notary Public
Nash County, NC
-------------------
CFI386/1-5
11/30/94
<PAGE>
Exhibit 10.24
[AMSOUTH LOGO]
NOTE FOR BUSINESS AND COMMERCIAL LOANS
Tuscaloosa, Alabama
-------------------
$1,000,000.00 April 4, 1996
- ------------- -------------
FOR VALUE RECEIVED, the undersigned (hereinafter called, whether one or more,
the "Borrower"), jointly and severally (if more than one), promises to pay to
the order of AmSouth Bank of Alabama, its successors and assigns (hereinafter
sometimes, together with any other holder of this note, called "Holder") at any
office of Holder or at such other place as Holder may from time to time
designate
the sum of One Million and No/100
Dollars, plus interest from the date hereof until maturity (the "Loan") at the
rate of [check (1), (2) or (3)]
[X] (1) 8.00% per annum. [ ] (3)
--------------------------
--------------------------
[ ] (2) % per annum in excess of the Prime
Rate of AmSouth Bank of Alabama in effect from --------------------------
time to time as designated by AmSouth Bank of
Alabama (the "Prime Rate") --------------------------
[ ] (3)
Interest will be computed on the basis of the actual number of days elapsed over
[X] an assumed 360-day year [ ] a 365- (or 366, if leap year) day year.
If none of the foregoing provisions for a rate of interest is checked, the rate
of interest payable on the Loan shall be the Prime Rate or such lesser rate as
shall be the maximum permitted by law nothwithstanding anything to the contrary
contained in this Note, the amount paid or agreed to be paid as interest on the
principal amount of the Loan shall never exceed the highest lawful rate allowed
under applicable law. If at any time, interest is due to be paid in an amount
that exceeds such highest lawful rate, then the obligation to pay interest
hereunder shall be reduced to such highest lawful rate, if at any time, interest
is paid in an amount that is greater than such highest lawful rate, then the
amount that exceeds such highest lawful rate shall be deemed to have been a
prepayment of principal of the Loan and applied to principal in the manner
hereinafter provided, or if such excessive amount of interest exceeds the
unpaid principal balance, such excess shall be refunded to the Borrower.
The Borrower hereby agrees to repay principal and interest as follows [check
(a), (b), or (c)]
[ ] [a] The Borrower will pay the principal amount of the Loan (check one):
[ ] on demand, [ ] days after date, or
[ ]
---------------------------------
---------------------------------
and the interest on the Loan (check one).
[ ] at maturity. [ ] in monthly installment.
[ ] in quarterly installments, or
[ ]
---------------------------------
---------------------------------
[X] (b) The Borrower will pay the principal of and interest on the Loan in 49
consecutive principal installments of $20,000.00 each, plus interest and
a final installment equal to all of the principal of and interest on the
Loan then remaining unpaid.
[ ] (c) The Borrower will pay the principal of and interest on the Loan in
________ consecutive installments of principal and interest in the
amount of $________ each and a final installment equal to all of the
principal of and interest on the Loan then remaining unpaid.
If interest, or principal and interest, are payable in installments, the first
installment will be due and payable on June 1, 1996, and the be remaining
installments will be due and payable on the same day of every (check one)
[X] month
[ ] quarter (___________ and __________________) thereafter until both the
principal of and interest on the Loan have been paid in full (except as
different payment terms are stated in (a) above).
For purposes of sending periodic billing statements in advance of each interest
payment date at the Holder's option, the Prime Rate in effect 15 days prior to
each interest payment date shall be deemed to be the Prime Rate that continues
in effect until the date prior to such interest payment date for purposes of
computing the amount of interest payable on such interest payment date, the
Prime Rate changes during such 15-day period, the difference between the amount
of interest that in fact accrues during such period and the amount of interest
actually paid will be added or subtracted from as the case may be, the interest
otherwise payable in preparing the periodic billing statement for the next
suceeding interest payment date. In determining the amount of interest payable
at the final maturity or upon full prepayment of this Note, all changes in the
Prime Rate occurring on or prior to the date before the final maturity date or
the date of such full prepayment will be taken into account.
If none of the foregoing provisions for the repayment of principal and/or
interest is checked, then principal, if not checked, and interest, if not
checked, due hereunder shall be payable on demand to the Holder:
[_] Unless this block is checked the Borrower agrees to pay the Holder, on
demand, a late charge computed as follows to cover the extra expense
involved in handing late payments.
If interest or principal and interest are payable in installments, the
late charge will be equal to 5% of any payment that is not paid within 12
days after it is due.
If principal and interest are payable at maturity, the late charge will be
equal to 5% of the interest portion of the payment that is not paid within
12 days after it is due.
This late charge will never be less than $10 nor more than $250 on each payment.
The provision shall not be deemed to excuse a late payment or be deemed a waiver
of any other right Holder may have including, without limitation, the right to
declare the entire unpaid principal and interest immediatelyu due and payable.
All payments coming due on this note shall be made in cash or immediately
available funds at the Holder's office at which the payment is made. At its
option, the Holder may elect to give the Borrower credit for any payment made by
check or other instrument in accordance with the Holder's availability schedule
in effect from time to time for such items and instruments, which the Holder
will make available to the Borrower on request. Each payment on the Loan will
first reduce charges owed by the Borrower that are neither principal nor
interest. The remainder of each such payment to be applied first to accrued but
unpaid interest and then to unpaid principal. Any partial prepayments of
principal will be applied to installments due in the inverse order of their
maturity and no such partial prepayment of principal will have the effect of
postponing, satisfying, reducing, or otherwise affecting any scheduled
installment before the Loan is paid in full.
<PAGE>
If the Loan is payable on demand, this paragraph is inoperative and not
applicable; otherwise this paragraph is operative and shall apply to the Loan in
accordance with its terms. In the event of default in the payment of any one or
more installments of principal or interest that may become due hereunder, when
and as the same fall due, or default in the payment of all principal and
interest due hereunder at maturity, or the failure of any marker, endorser,
surety or guarantor hereof (herein after called the "Obligors") to pay when due
or perform any of the Obligations (meaning thereby this note and any and all
renewals and extensions thereof and all other liabilities and indebtedness of
the Borrower to Holder, now existing or hereafter incurred or arising, direct or
indirect, and however incurred) or any part thereof or the failure of any
Obligor to pay when due any other liability to Holder, in the event a default
occurs under the terms of any loan agreement or other instrument (other than
this note) or other document evidencing, securing, guaranteeing, or executed in
connection with all or any part of the Obligations (herein, together with this
note, called the "Loan Documents"), or in the event Holder shall in good faith
deem itself insecure for any reason, or on the happening of any one or more of
said events. Holder shall have the right at its election and without notice to
any Obligor to declare the Obligations immediately due and payable with interest
to date. No delay in making such election shall be construed to waive the right
to make such election. Holder may note the fact of acceleration hereon without
stating the ground therefor, and where or not noted hereon such election to
accelerate shall be effective.
In the event of death of, insolvency of, general assignment by, judgment
against, filing of a petition in bankruptcy by or against filing a petition for
the reorganization of, filing of application in any court for receiver for, or
issuance of a writ of garnishment or attachment in a suit or action against any
Obligor or against any of the assets of any Obligor, or on the happening of any
one or more of said events, the Obligations shall immediately become due and
payable with interest to date unless Holder shall on notice of such event elect
to waive such acceleration by written notation hereon. Upon any such
acceleration, whether automatic or at the election of Holder, both principal and
accrued interest shall bear interest from the accelerated date of maturity at a
rate of interest equal to 2% in excess of the rate of interest this note would
bear if it were not in default, unless such rate would be usurious, in which
case the note will continue to bear interest at the rate hereinabove provided.
Each of the Obligors hereby severally (a) waives as to the Loan or any
renewal or extension thereof all rights of exemption under the Constitution or
laws of Alabama or any other state as to personal property; (b) waives demand,
presentment, protest, notice of protest, notice of dishonor, suit against any
party and all other requirements necessary to hold any Obligor liable; (c)
agrees that time of payment may be extended or renewal notes taken or other
indulgence granted without notice of or consent to such action and without
release of liability as to any Obligor; (d) as to all or any part of the
Obligations, consents to Holder's releasing, agreeing not to sue, suspending the
right to enforce this instrument against or otherwise discharging or
compromising any Obligation of any Obligor or other person against whom any
Obligor has or may have a right to recourse, all without notice to or further
reservations of rights against any Obligor, and all without in any way affecting
or releasing the liability of any Obligor; (e) consents to Holder's releasing,
exchanging or otherwise dealing in any manner with all or any portion of any
collateral, lien, or right of set-off that may now or hereafter secure this
note, all without notice to, or further reservations of rights against, any
Obligor, and all without in any way affecting or releasing the liability of any
Obligor, even though such release, exchange or other dealing may in any manner
and to any extent impair any such collateral, lien or right of set-off; (f)
agrees to pay all costs of collecting or securing or attempting to collect or
secure this note or defending any unsuccessful claim asserted against the Holder
in connection with this note including reasonable attorneys' fees; provided,
however, that if this note is subject to [S]5.19.10 of the Code of Alabama 1975,
attorneys' fees shall be limited to 15% of the unpaid balance of the debt after
default and referral to an attorney not a salaried employee of the Holder, and
no attorneys' fees shall be payable if the original amount financed does not
exceed $300; and (g) warrants that this Loan is for business, commercial or
agricultural purposes, and not for personal, family, or household purposes.
In addition to all liens upon, and rights of setoff against, any moneys,
securities, or other property of any of the Obligors given to Holder by law.
Holder shall have a lien upon and a right of setoff against all moneys,
securities and other property of any of the Obligors now or hereafter in the
possession of, or on deposit with, Holder, whether held in a general or special
account or deposit, for safekeeping or otherwise; and every such lien and right
of setoff may be exercised without demand upon or notice to any Obligor, and
the Bank shall have no liability with respect to any of Obligor's checks or
other items that may be returned or other funds transfers that may not be made
due to insufficient funds thereafter.
The Borrower understands that the Bank may from time to time enter into a
participation agreement or agreements with one or more participants pursuant to
which such participant or participants shall be given participations in the Loan
and that such participation may from time to time similarly grant to other
participants sub-participations in the Loan. The Borrower agrees that any
participant and any subparticipant may exercise any and all rights of banker's
lien or set-off, whether arising by operation of law or given to Holder by the
provisions of this note with respect to the Borrower as fully as if such
participant or subparticipant had made the Loan directly to the Borrower. For
the purposes of this paragraph only, the Borrower shall be deemed to be directly
obligated to each participant or subparticipant in the amount of its
participating interest in the principal of, and interest on, the Loan.
No failure or delay on the part of Holder in exercising any right, power or
privilege under this note shall operate as a waiver thereof, nor shall a single
or partial exercise thereof preclude any other or further exercise or the
exercise of any other right, power or privilege. No modification, amendment or
waiver of any provisions of this note shall be effective unless in writing and
signed by a duly authorized officer of Holder, and then the same shall be
effective only in the specific instance and for the purpose for which given. No
notice to or demand on any Obligor in any case shall entitle any Obligor to
any other or further notice or demand in the same, similar or other
circumstances.
Any provision of this note that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof or affecting the validity or enforceability of such provision
in any other jurisdiction.
The provisions of this note shall inure to the benefit of the Holder, its
successors and assigns, and shall be binding upon the heirs, successors and
assigns of each Obligor except that no Obligor may assign or transfer his,
her or its obligation hereunder without the written consent of Holder.
All rights, powers and remedies of Holder under this note and now or
hereafter existing at law, in equity or otherwise shall be cumulative and
may be exercised successively or concurrently.
The Loan Documents contain the entire understanding and agreement between
the Borrower and the Holder with respect to the Loan and supersede any and all
prior agreements, understandings, promises and statements with respect to the
Loan. The note may not be modified, amended, or supplemented in any manner
except by a written agreement executed by both the Borrower and the Holder.
This note shall be construed in accordance with and governed by the laws
of the State of Alabama.
This agreement is executed under seal by the Borrower or each of them.
CAUTION--IT IS IMPORTANT THAT YOU THOROUGHLY READ THE CONTRACT BEFORE YOU SIGN
IT.
No. 0500 415868-- EXTRA CHEESE, Inc. (SEAL)
- ----------------------------- -------------------------------------
Due May 1, 2000 d/b/a PAPA JOHN'S PIZZA (SEAL)
- ----------------------------- -------------------------------------
BY: /s/ ???? (SEAL)
-------------------------------------
its President (SEAL)
-------------------------------------
Form 500759 (bkF1; Rev. 3/95) P. O. Box 611165, Birmingham, Al. 35261-1165
================================================================================
<PAGE>
[LOGO FOR AMSOUTH}
April 3, 1996
Mr. Douglas S. Stephens, President
Extra Cheese, Inc.
P.O. Box 611165
Birmingham, Alabama 35261-1165
Dear Doug:
I am pleased to inform you that AmSouth Bank of Alabama (The Bank) has approved
and commits to Extra Cheese, Inc. (The Borrower) a credit facility subject to
the following terms and conditions:
<TABLE>
<CAPTION>
<S> <C>
Borrower: Extra Cheese, Inc. d/b/a Papa John's Pizza
Principal Amount: $1,000,000
Purpose: Refinance existing debt with AmSouth Bank currently
in the amount of $275,062.14 and expansion of Papa
John's franchise in Texas and Louisiana.
Rate: AmSouth prime plus 1/4% or a fixed rate of 8.00%
(please note that this fixed rate will remain
effective for a period of 30 days).
Maturity: May 1, 2000
Principal & Interest
Payments: Principal payments of $20,000 plus interest shall
be due and payable monthly. The final installment
of any unpaid principal and interest will be due
May 1, 2000.
Prepayment: The loan will be subject to prepayment at any time
without premium or penalty.
Collateral: First priority lien on all assets now owned or
hereinafter acquired by Borrower.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Guarantors: Bank shall require the guarantees of the Borrower's stockholders
as follows:
Guarantor Maximum Guarantee
--------- -----------------
<S> <C>
Douglas S. Stephens $300,000
Stephen P. Langford $300,000
Richard F. Sherman $300,000
Michael M. Fleishman $300,000
Frank O. Keener $300,000
</TABLE>
In addition, Bank shall also require the corporate guarantees
of the following entities:
. Textra Cheese Corp.
. Twice the Cheese, Inc.
. Easy Cheese, LLC
Furthermore, the above corporate entities shall be required to
execute an agreement subordinating all stockholder loans to the
Bank. Repayment of the principal portion of said stockholder
loans shall be permitted without prior written consent of Bank,
so long as Borrower is not in default of any one or more of its
covenants as defined below.
Covenants: 1) Borrower to demonstrate, by December 31, 1995, and at all
times thereafter, a minimum tangible net worth of at least
$500,000; provided, however, that Borrower's tangible net worth
shall be allowed to fall below $500,000 for a 90-day period
between April 15, 1996, and July 15, 1996, in order to
facilitate shareholder tax distributions. Tangible net worth
shall be defined as total assets less intangibles, stockholder
notes, or accounts receivable, affiliated company notes or
accounts receivable minus total liabilities.
2) Borrower shall demonstrate at its fiscal year-end a debt
service coverage ratio of at least 2.5 times. Debt service
coverage shall be defined as profit before tax plus depreciation
and amortization divided by prior period end current maturities
of long-term debt.
3) Borrower shall not incur or otherwise become liable for any
debt other than that incurred in the ordinary course of
business, provided, however, that Borrower may incur up to
$250,000 in debt provided that such debt is used exclusively for
the acquisition of real estate parcels which will be used for
development of Papa John's restaurants.
<PAGE>
4) Borrower shall not guarantee, endorse, become
surety for or otherwise in any way become or be
responsible for the indebtedness or obligations
of any other person or entity, provided however
that Borrower may endorse or guarantee the
leasehold obligations of affiliated companies.
OTHER TERMS AND
CONDITIONS: 1) Effective with the Borrower's next fiscal
year-end, on or about 12/31/95. Borrower shall
provided Bank with CPA compiled financial
statements prepared by a firm acceptable to the
Bank. In addition, Borrower to provide Bank with
its quarterly company prepared financial state-
ment within 30 days of quarter-end; its annual
CPA compiled statements within 90 days of fiscal
year-end and its federal tax return within 30
days of filing.
2) Borrower shall require guarantors to provide
Bank with annual financial statements. Such
statement shall include contingent liabilities
and income information.
3) Borrower shall agree to maintain all operating
and payroll accounts with Bank.
4) Borrower agrees that any change in ownership,
control, or key management without Bank's prior
written consent shall, at Bank's sole discretion,
constitute an event of default.
CONDITIONS TO
FUNDING: Prior to funding, the Bank shall have received
duly executed all commitment letters, promissory
notes, security agreements, financing statements,
corporate resolutions, guarantees, and any other
documentation required in connection with the
loan.
NO MATERIAL
ADVERSE CHANGE: This commitment is subject to the accuracy of all
information, representations, and materials
submitted with or in support of the application for
this loan. The commitment will no longer be valid
if, in the Bank's sole judgement, there is any
material adverse change in the condition or
operations of the Borrower or any guarantor. This
commitment contains the complete agreement between
Bank and the Borrower with respect to the loan.
COST & EXPENSES: Borrower shall pay all costs and expenses incurred
in connection with this loan including, without
limitation, legal fees and expenses and recording
costs.
<PAGE>
Deadline to Closing: If the terms and conditions of this commitment
letter are acceptable to you, please indicate so by
signing and returning the original to us. This
commitment shall expire on April 15, 1996, unless
extended in writing by the Bank.
Sincerely,
AmSouth Bank of Alabama
By:
--------------------------
Its: Vice President
--------------------------
Borrower understands and agrees that the covenants and other terms and
conditions shall survive the execution of the promissory note contemplated
hereby and shall continue throughout the duration of the indebtedness. Borrower
further understands and agrees that a breach of a covenant or any other term or
condition contained herein shall constitute an event of default authorizing the
Bank to pursue its remedies under the promissory note contemplated herein.
The terms and conditions of this commitment letter are hereby agreed to and
accepted this 5th day of April, 1996.
Extra Cheese, Inc.
By: Doug Stevens
---------------------------------
Its: President
---------------------------------
KDM/pm
<PAGE>
EXHIBIT 10.25
EXTRA CHEESE, INC.
P.O. Box 611165
Birmingham, Alabama 35261-1165
June 28, 1996
Mr. Ross Davison
Louisville, Kentucky
Re: Terms of Employment with Extra Cheese, Inc.
-------------------------------------------
Dear Ross:
The purpose of this letter is to set forth in a formal manner and as a
binding contract between Extra Cheese, Inc. and you the terms of your employment
by Extra Cheese, Inc. Upon your acceptance of this letter, the terms of your
employment will be as follows:
1. You shall become Vice President/Chief Financial Officer of Extra Cheese,
Inc. Your employment and duties shall commence as soon as possible.
2. Your base salary shall be $75,000 per annum and shall be reviewed
annually. Your compensation shall be paid bi-monthly.
3. You shall be entitled to participate in the bonus plan of Extra Cheese,
Inc., which, as you know, has not yet been formulated. However, Extra Cheese,
Inc. guarantees you a bonus of at least $15,000 for the first full 12-month
period of your employment, of which $7,500 shall be charged against your 1997
Bonus if Extra Cheese, Inc. elects to administer its bonus plan on a calendar
year basis).
4. You will receive a grant of stock options at the time that Extra Cheese,
Inc. "goes public" at the same price shares of Extra Cheese, Inc. are offered to
the public (the "IPO Price"). If the IPO Price is $10.00, then it is anticipated
that you would receive options on 33,333 shares. If the IPO Price is $15 per
share, then it is anticipated that you would receive options on approximately
22,222 shares. This initial grant of options would vest over a four year period,
as determined by the Board of Directors of Extra Cheese, Inc., with the first
25% of such shares vesting one year after the date of grant, the second 25%
vesting two years after the date of the grant, the third 25% vesting three years
after the date of the grant and the last 25% vesting four years after the date
of the grant. The Board of Directors, however, reserves the right to change this
to a five year vesting schedule. In addition, the Board of Directors of Extra
Cheese, Inc., in its sole discretion, may award you a subsequent grant of
options annually. In the event there is a "change of control," as defined in the
Option Plan to be approved by the Board of Directors of Extra Cheese, Inc., all
of your options shall vest at the time of such "change of control." All terms of
such options and Option Plan shall be determined by the Board of Directors of
Extra Cheese, Inc. in its sole discretion. Notwithstanding the foregoing, the
Board of Directors of Extra Cheese, Inc. shall agree that the initial options
granted to you shall vest upon your death or disability (such that you are
prevented from working permanently) provided that either (i) such
<PAGE>
Mr. Ross Davison
June 28, 1996
Page -2-
treatment (which probably will not be extended to other employees) will not
prevent a portion of such option shares from being treated as incentive stock
options or (ii) you agree to accept all non-incentive stock options. Further, if
you are discharged without cause, all stock options that would have vested in
accordance with the normal annual vesting schedule within the 12 month period
immediately following the date of your discharge without cause, shall vest at
the time of your discharge (this sentence shall not apply if you are discharged
with cause, as defined by the Board of Directors or if you terminate your
employment with Extra Cheese, Inc.).
5. Extra Cheese, Inc. will provide at its expense full medical insurance
coverage for you and your wife and children.
6. Extra Cheese, Inc. has not yet determined where you will be located. It is
possible that you would remain in Louisville or that you would be requested to
relocate to Birmingham, Richmond or Utah or elsewhere. You agree to this. In the
event that you move at Extra Cheese, Inc.'s request, then it would provide
relocation benefits to you generally as outlined on Exhibit A attached hereto
and made a part hereof.
7. This letter, when accepted by you, shall constitute a formal contract of
employment and shall be for a term of two years from June 28, 1996. However,
Extra Cheese, Inc. retains the right to discharge you at any time with cause, in
which event only your salary shall be paid to the date of termination of your
employment. Further, Extra Cheese, Inc. retains the right to discharge you
without cause, in which event it will agree to pay to you one year's salary as
severance pay. All of your options that have not then fully vested will be
cancelled at the time of termination of your employment (subject to the 12 month
vesting period discussed in Paragraph 4. above). In the event there is a "change
of control," as hereafter defined, by the Board of Directors of Extra Cheese,
Inc., and if your employment is terminated within six months after such "change
in control" without cause, you shall be entitled to severance pay equal to one
year's salary at the rate that you are then being paid.
If you are in agreement with the foregoing terms, please sign this letter
where indicated below.
Very truly yours,
EXTRA CHEESE, INC.
By: /s/ Douglas Stephens
----------------------------
Douglas Stephens, President
<PAGE>
Mr. Ross Davison
June 28, 1996
Page -3-
Agreed to as a binding legal
contract:
/s/ Ross Davison
- ---------------------------------
Ross Davison
Date: June 28, 1996
<PAGE>
Exhibit A
---------
Relocation Benefits
1. Realtor's Commission on the sale of your house in Louisville, not to
exceed $12,600.
2. Points paid in connection with any mortgage loan on any new house you
purchase in the city to which you relocate, not to exceed 2% (and not to
include any buy-down of the interest rate on your loan), as well as legal,
title insurance and other closing costs on the purchase of your new house
in the city to which you relocate at Extra Cheese, Inc.'s request, not to
exceed 1% of the cost of your new house.
3. Until you sell your house in Louisville, Extra Cheese, Inc. will pay any
lodging or other duplicate living costs you incur in Louisville and such
other city.
4. Moving costs, limited to reasonable costs of moving your household and up
to $1,000 for travel by your spouse/house-hunting.
Those of the foregoing items which are not deductible by Ross Davison on
his Federal income tax return shall be "grossed-up" so that Ross Davison
may receive the foregoing benefits free of Federal and state income tax.
<PAGE>
EXHIBIT 10.26
PJ UTAH, L.L.C.
May 20, 1996
Papa John's International, Inc.
11492 Bluegrass Parkway
Louisville, Kentucky 40299
Attention: Charles W. Schnatter
Senior Vice President and General Counsel
Gentlemen:
This letter shall constitute a binding letter agreement between (i) Papa
John's International, Inc., a Delaware corporation ("PJI") and (ii) PJ Utah,
L.L.C. (a limited liability company, to be formed and owned principally by the
shareholders of Extra Cheese, Inc., PJV, Inc. and PJVA, Inc. ("PJ Utah")).
PJI hereby grants to PJ Utah the right to develop the State of Utah for
approximately thirty (30) Papa John's restaurants, at the fees charged and on
the same terms as those presently being offered to other PJI franchisees, with
the development schedule for restaurants in Utah being as set forth below in
this paragraph. PJI will agree to accept delayed payment of the normal up-front
Development Fees for new restaurants opened under the new Development Agreement
for Utah until the earliest of (i) thirty (30) days after completion of the IPO
of PJ America, Inc., a Delaware corporation, (ii) thirty (30) days after the
opening of the tenth (10th) new restaurant under the Utah Development Agreement,
or (iii) one (1) year from the date the new Utah Development Agreement is
signed. The initial Franchise Fee for each of the Utah restaurants shall be
Twenty Thousand Dollars ($20,000). For the first ten (10) new restaurants
opened in Utah the Franchise Fee of Twenty Thousand Dollars ($20,000) will be
payable at the time each restaurant is opened; after the opening of the tenth
(10th) Utah restaurant, PJ Utah shall pay a Development Fee of Five Thousand
Dollars ($5,000) per remaining restaurant to be developed in Utah unless such
fee has already been paid pursuant to the above provisions of this paragraph,
that will apply against the Twenty Thousand Dollar ($20,000) Franchise Fee when
subsequent Papa John's restaurants are opened by PJ Utah in Utah.
The Development Schedule for Utah shall be as follows: three (3)
restaurants shall be opened by the end of calendar year 1996. Beginning in
1997, PJ Utah will open two (2) restaurants by the end of each three (3) month
period until Utah is built-out in its entirety. However, with respect to each
of the last calendar quarter of 1996 and the first calendar quarter of 1997, the
purchase of land for construction of a Papa John's restaurant in Utah will
satisfy the requirement of opening one of the restaurants in each such calendar
quarter, provided that such restaurant does in fact open within 90 days after
the end of each such respective calendar quarter. PJI agrees to have its
Development Department immediately begin work in laying out the approximate
location of all the restaurants in Salt Lake City, Utah, and to visit Salt Lake
City and locate restaurant sites and to negotiate leases of those sites on
behalf of PJ Utah with each
<PAGE>
Papa John's International, Inc.
May 20,1996
Page -2-
such lease being subject to final approval by PJ Utah, and to have PJI's
Construction Department negotiate construction contracts for the development of
each of such restaurants, again subject to PJ Utah's final approval. PJI cannot
sacrifice the interests of its shareholders to those of PJ Utah. Accordingly,
PJ Utah shall pay to PJI a fee of $750 per site, selected by PJI and accepted by
PJ Utah, plus reasonable out-of-pocket expenses of PJI's employees. PJI's
obligations and rights to perform the services contemplated by this paragraph
shall expire on December 31, 1996, and on that date PJ Utah shall take over such
responsibilities.
PJI, or an affiliate of PJI, will provide financing to PJ Utah in the
amount of $2.5 Million at seven and one-half percent (7-1/2%) interest for the
construction costs, equipment and signage (but not franchise fees and soft
costs) for new restaurants opened by PJ Utah. From the date of such loan until
December 25, 1997, interest only will be due and payable under such loan. If PJ
Utah is in compliance with all provisions of the loan documents, the balance of
such loan will roll into a four-year note payable in 48 approximately equal
monthly installments of principal and interest at seven and one-half percent (7-
1/2%) per annum. The financing provided by PJI will be closed within
approximately thirty (30) days of PJI's acceptance of this letter and will be
the sole financing of PJ Utah, and PJI will be the sole lienholder on all the
assets and capital stock of PJ Utah (i.e., no other bank loans, equipment
leases, etc.). No personal guarantees will be required of the shareholders of
PJ Utah, provided that if such loan from PJI is not paid off in full within one
(1) year from the date of such loan, each of the shareholders of PJ Utah shall,
severally in accordance with his/her proportionate ownership interest in PJ
Utah, guarantee payment of his/her proportionate share of such loan. PJ Utah
will be entitled to draw down the loan proceeds on a monthly basis as it needs
them. Until such loan has been paid in full, PJ Utah agrees that it shall
purchase dough, cheese, pizza sauce and other store products for all its Papa
John's stores from PJI's commissaries, and PJI agrees to sell and deliver such
products to PJ Utah and/or its Affiliates at the same price (and on the same
terms) at which it sells such products to franchisees elsewhere.
If the foregoing is acceptable to you, please execute the same where
indicated below to acknowledge our agreement in principle.
Very truly yours,
PJ UTAH, L.L.C.
By: ________________________________
Title: _____________________________
5
<PAGE>
Papa John's International, Inc.
May 20, 1996
Page -3-
Agreed to:
PAPA JOHN'S INTERNATIONAL, INC.
By:____________________________
Title:_________________________
Date:__________________________
6
<PAGE>
EXHIBIT 21
SUBSIDIARY LIST
PJ CHEESE, INC.
1
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our reports dated August 2,
1996, with respect to the combined financial statements of Extra Cheese, Inc.,
Textra Cheese Corp. and Twice the Cheese, Inc. and the combined financial
statements of PJVA, Inc. and PJV, Inc., included in the Registration Statement
on Form S-1 and related Prospectus of PJ America, Inc. for the registration of
1,800,000 shares of its common stock.
Ernst & Young LLP
Louisville, Kentucky
August 26, 1996
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<PAGE>
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<FISCAL-YEAR-END> JUN-30-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 DEC-26-1994
<PERIOD-END> JUN-30-1996 DEC-31-1995
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<PP&E> 6,344,376 5,984,999
<DEPRECIATION> (1,607,044) (1,195,583)
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<CGS> 4,751,811 7,827,113
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<INTEREST-EXPENSE> 201,737 234,798
<INCOME-PRETAX> 978,913 1,813,242
<INCOME-TAX> 357,303 661,833
<INCOME-CONTINUING> 621,610 1,151,409
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