<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 4, 1996.
REGISTRATION NO. 333-11253
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
PJ AMERICA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
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. [_]
---------------
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 OCTOBER 4, 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."
At the request of the Company, up to approximately 132,000 shares of the
Common Stock offered hereby have been reserved for sale to certain individuals,
including directors and employees of the Company and Papa John's International,
Inc., and members of their families.
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.
-----------
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
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share...................... $ $ $ $
Total(3)....................... $ $ $ $
- -------------------------------------------------------------------------------------------
</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>
[Front Exterior of free- [Papa John's International,
standing PJ America Papa Inc. "1994 Franchisee of the
John's Restaurant] Year" plaque awarded to
Extra Cheese, Inc.]
[Portion of "Pizza Papa [Large Papa John's [Portion of "Pizza Papa
John's" exterior sign] Pizza with "The John's" exterior sign]
Works"]
[Papa John's delivery] ["Pizza Papa John's" [Pizza Papa John's exterior
Logo] Sign with Papa John's
Restaurant]
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. ("PJI") franchisees, Extra Cheese, Inc. (the
accounting acquiror), Twice the Cheese, Inc., Textra Cheese Corp.
(collectively, the "Alabama Group," which are entities under common control),
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." PJI has consented to and
approved the Reorganization as required by the Company's development and
franchise agreements. 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 September 30, 1996, the Company owned and operated 44 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 September 30,
1996, PJI and its franchisees (including the Company) operated 1,080 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
3
<PAGE>
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
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 (five of which had been opened as of September
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
be issued to PJI to purchase 225,000 shares of Common Stock at the lesser
of $1.00 below the initial public offering price per share or 90% of the
initial public offering price per share; (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. There are no outstanding options or warrants other than noted above.
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 stockholders 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 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 September
30, 1996, 19 restaurants (43.2%) 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."
UNCERTAINTIES OF EXPANSION STRATEGY
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 two additional
restaurants during the remainder of fiscal 1996 and approximately ten
additional restaurants during fiscal 1997. The development agreements with PJI
with respect to its existing territories provide that the Company will open
two, nine and five Papa John's restaurants in such territories in the
remainder of fiscal 1996, and in fiscal 1997 and fiscal 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 to approve and 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. Timely development of new territories by all Papa John's
franchisees, including the Company, also is dependent upon their ability to
obtain adequate food supplies for their 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 inability of PJI or the
Company, or both, to achieve their respective growth plans could have a
material adverse effect on the Company's 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."
DEPENDENCE ON PJI; FRANCHISEE STATUS
The success of the Company will, in large 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 Company's
right to use PJI's trademarks and service marks are significant to the
Company's business. 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 Company's right to open additional
restaurants in such territories. PJI's consent is 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" and "--Trademarks."
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 elects, but is not
required, to purchase advertising, promotional and other materials from PJI.
The Company is required to spend at least 6.0% of restaurant sales on
advertising. 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 and the ability of such commissaries to
adequately service the Company's and PJI's restaurants. 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." and "--
Marketing Programs."
8
<PAGE>
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 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; EASE OF ENTRY INTO BUSINESS
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. Due primarily to the relatively low start-up
cost of pizza delivery and carry-out restaurants, there are no major barriers
to entry into the pizza delivery and carry-out restaurant business. See
"Business--Competition."
BENEFITS TO OFFICERS, DIRECTORS AND EXISTING STOCKHOLDERS
Approximately $1.6 million of the net proceeds of this offering will be used
to repay indebtedness of the Company to certain officers, directors and
existing stockholders of the Company. The Company expects to use approximately
$2.2 million of the net proceeds to fund the payment of Undistributed S
Corporation Earnings to officers, directors and existing stockholders. The
Company also expects to use approximately $2.2 million of the net proceeds to
repay two term notes which have been guaranteed by certain officers, directors
and existing stockholders of the Company. Such guarantees will be released in
connection with the repayment of the outstanding loans. See "Prior S
Corporation Status of Predecessor Companies," "Use of Proceeds" and "Certain
Transactions."
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. An
agreement between the Company and PJI provides that a representative of PJI
will serve on the Board of Directors of the Company for three years. Charles W.
Schnatter serves as the representative of PJI on the Board. Such directors and
officers may have conflicts of
9
<PAGE>
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 Company maintains $250,000 in key man life insurance on Mr.
Stephens. 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."
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 the rights to enter into development agreements
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,
trademark rights, 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
10
<PAGE>
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.
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 intends to use approximately $2.2 million ($400,000 and $1.8
million in 1996 and 1997, respectively) of the net proceeds to fund new
restaurant development. 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. The remaining net proceeds of approximately $6.8 million
will be used 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 is not
currently in any negotiations, nor does it have any pending agreements or
understandings, concerning any acquisition at the date of this Prospectus.
However, the Company has an option and rights of first refusals to acquire the
operations and development rights for certain Papa John's restaurants owned by
affiliates. Pending such uses, the Company will invest the net proceeds in
short-term, investment grade, interest-bearing securities. See "Prior S
Corporation Status of Predecessor Companies" and "Certain Transactions--Other
Transactions and Agreements."
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 the 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 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
be issued to PJI to purchase 225,000 shares of Common Stock at the lesser
of $1.00 below the initial public offering price per share or 90% of the
initial public offering price per share; (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
1996 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."
14
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INTRODUCTION
The following table sets forth selected financial data of the Alabama Group
and the Virginia Group.
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 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
</TABLE>
- --------
(1) The Alabama Group and the Virginia Group operate 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.
16
<PAGE>
PRO FORMA INFORMATION--THE COMPANY
The following unaudited pro forma balance sheet and income statement data
should be read in conjunction with other information contained elsewhere in
this Prospectus under the headings "Summary Financial and Restaurant Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "The Reorganization" and the historical financial statements and
related notes of the Alabama Group, the Virginia Group and PJ America, Inc.
See "Index to Financial Statements."
The unaudited pro forma balance sheet and income statement data present the
Alabama Group (Extra Cheese (the accounting acquiror), Twice the Cheese, Inc.
and Textra Cheese Corp.) and the Virginia Group (PJVA, Inc. and PJV Inc.) on a
combined basis and give effect to the following pro forma adjustments as if
the Reorganization had occurred at the beginning of fiscal 1995: (i) a
provision for income taxes assuming that the Predecessor Companies were C
corporations rather than S corporations for each period, (ii) an adjustment to
record the deferred tax asset attributable to temporary differences between
financial reporting and income tax basis of S corporation assets and
liabilities, and (iii) the payment of Undistributed S Corporation Earnings at
June 30, 1996. The pro forma balance sheet data as of June 30, 1996 and the
pro forma income statement data as of June 25, 1995, December 31, 1995, and
June 30, 1996 are unaudited.
The pro forma financial data do not purport to represent what the Company's
financial position or results of operations would actually have been if such
transaction in fact had occurred on those dates or to project the Company's
financial position or results of operations for any future period. See "Risk
Factors--Absence of Combined Operating History; Geographic Concentration"
included elsewhere herein.
PJ AMERICA, INC.
PRO FORMA COMBINED BALANCE SHEET (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, 1996
--------------------------------------
ALABAMA VIRGINIA PRO FORMA PRO
ASSETS GROUP GROUP ADJUSTMENTS FORMA
------ ------- -------- ----------- ------
<S> <C> <C> <C> <C>
Current assets:
Cash......................................... $ 310 $ 724 $1,034
Accounts receivable.......................... 51 22 73
Inventories.................................. 74 97 171
Advances to related parties.................. -- 42 42
Prepaid expenses and other current assets.... 37 214 $ 75(1) 326
------ ------ ------ ------
Total current assets..................... 472 1,099 75 1,646
Net property and equipment..................... 1,848 2,890 4,738
Deferred franchise and development costs, net
of amortization............................... 249 342 591
------ ------ ------ ------
Total assets............................. $2,569 $4,331 $ 75 $6,975
====== ====== ====== ======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C> <C>
Current liabilities:
Accounts payable............................. $ 10 $ 119 $ 129
Accrued expenses............................. 632 498 1,130
Current maturities of bank debt.............. 240 514 754
Notes payable to stockholders................ 712 753 1,465
Pro Forma distribution to Predecessor
Companies' stockholders..................... -- -- $1,400(2) 1,400
------ ------ ------ ------
Total current liabilities.................. 1,594 1,884 1,400 4,878
Notes payable to bank, less current maturities. 740 714 1,454
Stockholders' equity:
Common stock, 3,000,000 equivalent shares
outstanding................................. 3 2 5
Additional paid-in capital................... 446 301 (119)(2) 638
Retained earnings............................ (214) 1,430 75 (1) --
(1,291)(2)
------ ------ ------ ------
Total stockholders' equity................. 235 1,733 (1,325) 643
------ ------ ------ ------
Total liabilities and stockholders' equity. $2,569 $4,331 $ 75 $6,975
====== ====== ====== ======
</TABLE>
- --------
(1) Reflects the deferred tax asset attributable to temporary differences
between financial reporting and income tax basis of assets and liabilities
currently held in S corporations.
(2) Reflects the liability for the distribution of Undistributed S corporation
earnings at June 30, 1996.
17
<PAGE>
PJ AMERICA, INC.
PRO FORMA COMBINED STATEMENT OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, 1995
--------------------------------------
ALABAMA VIRGINIA PRO FORMA PRO
GROUP GROUP ADJUSTMENTS FORMA
------- -------- ----------- -------
<S> <C> <C> <C> <C>
Restaurant sales......................... $10,457 $12,642 $23,099
Costs and expenses:
Cost of sales........................... 3,511 4,316 7,827
Salaries and benefits................... 2,647 3,148 5,795
Other operating expenses................ 2,393 3,350 5,743
General and administrative expenses..... 557 486 1,043
Depreciation and amortization........... 275 382 657
------- ------- -------
Total costs and expenses.............. 9,383 11,682 21,065
------- ------- -------
Operating income......................... 1,074 960 2,034
Other expense, net....................... (65) (156) (221)
------- ------- ----- -------
Income before income taxes............... 1,009 804 1,813
Income tax benefit (expense)(1).......... -- -- $(662) (662)
------- ------- ----- -------
Net income............................ $ 1,009 $ 804 $(662) $ 1,151
======= ======= ===== =======
Net income per share.................................................. $ 0.37
Weighted average shares(2)............................................ 3,133
Supplemental pro forma net income per share(3)........................ $ 0.37
<CAPTION>
26 WEEKS ENDED JUNE 25, 1995
--------------------------------------
ALABAMA VIRGINIA PRO FORMA PRO
GROUP GROUP ADJUSTMENTS FORMA
------- -------- ----------- -------
<S> <C> <C> <C> <C>
Restaurant sales......................... $ 4,626 $ 5,569 $10,195
Costs and expenses:
Cost of sales........................... 1,527 1,871 3,398
Salaries and benefits................... 1,193 1,391 2,584
Other operating expenses................ 1,053 1,476 2,529
General and administrative expenses..... 248 217 465
Depreciation and amortization........... 125 175 300
------- ------- -------
Total costs and expenses.............. 4,146 5,130 9,276
------- ------- -------
Operating income......................... 480 439 919
Other expense, net....................... (23) (72) (95)
------- ------- ----- -------
Income before income taxes............... 457 367 824
Income tax benefit (expense)(1).......... -- -- $(301) (301)
------- ------- ----- -------
Net income............................ $ 457 $ 367 $(301) $ 523
======= ======= ===== =======
Net income per share.................................................. $ 0.17
Weighted average shares(2)............................................ 3,148
Supplemental pro forma net income per share(3)........................ $ 0.17
<CAPTION>
26 WEEKS ENDED JUNE 30, 1996
--------------------------------------
ALABAMA VIRGINIA PRO FORMA PRO
GROUP GROUP ADJUSTMENTS FORMA
------- -------- ----------- -------
<S> <C> <C> <C> <C>
Restaurant sales......................... $ 6,197 $ 7,900 $14,097
Costs and expenses:
Cost of sales........................... 2,068 2,684 4,752
Salaries and benefits................... 1,563 1,925 3,488
Other operating expenses................ 1,400 2,081 3,481
General and administrative expenses..... 495 352 847
Depreciation and amortization........... 174 252 426
------- ------- -------
Total costs and expenses.............. 5,700 7,294 12,994
------- ------- -------
Operating income......................... 497 606 1,103
Other expense, net....................... (39) (85) (124)
------- ------- ----- -------
Income before income taxes............... 458 521 979
Income tax benefit (expense)(1).......... -- -- $(357) (357)
------- ------- ----- -------
Net income............................ $ 458 $ 521 $(357) $ 622
======= ======= ===== =======
Net income per share.................................................. $ 0.20
Weighted average shares(2)............................................ 3,143
Supplemental pro forma net income per share(3)........................ $ 0.20
</TABLE>
18
<PAGE>
- --------
(1) 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."
(2) 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).
(3) 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 stockholders 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.
19
<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 September 30, 1996, the Company owned and operated 44 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 September 30, 1996, PJI and its franchisees (including the
Company) operated 1,080 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."
In connection with the offering, the Company's business operations will
change. Following the final S corporation distributions made in connection
with this offering, the Company will no longer make S corporation
distributions, although the Company will be subject to corporate income taxes
and costs related to being a public company.
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.
20
<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 $541,000, and 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 increased $370,000, but 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 increased $347,000, but 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
two new executives relocating to the Company's offices in Birmingham, Alabama,
and the addition of restaurant supervisory and corporate support personnel.
21
<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 $1.4 million, and 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 increased $970,000, but 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 increased $912,000, but 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 increased $1.0 million, but 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 increased $789,000, but 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 increased $709,000, but 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.
22
<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 $813,000, and 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 increased $534,000, but 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 increased $605,000, but 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.
23
<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 $1.7 million, and increased
slightly as a percentage of restaurant sales to 34.2% in 1995 from 34.1% in
1994.
Salaries and benefits increased $1.1 million, but 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 $1.4 million, and 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 increased $1.6 million, but decreased as a
percentage of restaurant sales to 34.1% in 1994 from 34.2% in 1993.
Salaries and benefits increased $1.2 million, but 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.
24
<PAGE>
Other operating expenses increased $1.1 million, but 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, $2.3 million and $1.8 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.
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<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 ($800,000 for new restaurant development and $100,000
for corporate purposes) for the second half of 1996 and approximately $2.8
million ($2.5 million for new restaurant development and existing restaurant
improvements, and $300,000 for corporate purposes) 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. In connection with this offering, the Company will
repay the entire balances of the existing term notes. The Company has not
sought and does not have any commitments for any credit facilities.
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."
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<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 September 30, 1996, the Company owned and operated 44 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 rights to enter into development agreements to open 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 September
30, 1996, PJI and its franchisees (including the Company) operated 1,080 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 September 30, 1996, the Papa John's
restaurant system consisted of 1,080 restaurants in 28 states, including 285
restaurants operated by PJI, 44 restaurants operated by the Company and 751
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 pizza in certain PJI-owned and franchised
markets. On October 1, 1996, PJI and its franchisees began offering thin crust
pizza in substantially all of their markets. The Company is offering thin
crust pizza in all of its markets.
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; Garner, 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
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<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. Although most Papa John's restaurants are
designed primarily for carry-out and delivery service, certain of the
Company's restaurants have seating areas which may accommodate up to 30
customers. 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 September 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............................................................... 5
---
Total restaurants.................................................... 44
===
</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 (five of which had been
opened as of September 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.
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<PAGE>
In addition to developing its existing territories, the Company has been
granted by PJI the rights to enter into development agreements to open 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. 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 franchise agreements require that not less than 6.0% of sales
be spent on advertising programs approved by PJI. The Company has restaurant-
level marketing programs which 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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<PAGE>
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 existing 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 upgrade its point-of-sale
systems to The Papa John's PROFIT SystemSM in all of the Company's restaurants
by March 1998. All new restaurants are required to be opened with The Papa
John's PROFIT SystemSM. 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
development agreements with PJI for the 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 non-refundable,
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<PAGE>
development fee of $16,700 to PJI. Under the second Alabama development
agreement and under the development agreement for its Texas territory, the
Company paid a non-refundable fee of $3,500 for each of the restaurants
covered by development agreements. Under the Virginia development agreement,
the Company paid development fees of $84,000. 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 Company's restaurants range between $10,000 and $18,500,
depending upon the date of execution of the development agreement. With
respect to the California Counties and the Vancouver and Puerto Rico
territories, the Company expects to pay PJI's standard franchisee fee 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, Schnatter
and Hart) 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 two, nine and five stores during the remainder of fiscal 1996,
and in fiscal 1997 and fiscal 1998, respectively. Once the Company completes
this development schedule, it may open additional restaurants in these
territories subject to PJI's consent.
31
<PAGE>
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. Each regional operations director and area
supervisor must satisfactorily complete PJI's two-week training program and
must also devote his or her full business time and efforts to the operation of
the Company's restaurants. Each of the Company's restaurant managers report to
an area supervisor and 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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<PAGE>
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 the California Counties, 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
significant to the Company's 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 "Pizza Papa John's Better Ingredients, Better
Pizza" and design, "Better Ingredients, Better Pizza," "Delivering the Perfect
Pizza!," "We Deliver Perfection," "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
will not have a material adverse effect on the Company's business, financial
condition or results of operations.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND CERTAIN KEY EMPLOYEES
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.
35
<PAGE>
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. Mr.
Langford has been involved in the television industry since 1979 and has been
the General Sales Manager of WAVE TV, an NBC affiliate, since 1987. Mr.
Langford currently serves on the Executive Board of the Sales Advisory Council
of the Television Bureau of Advertising and as Chairman of the fifth district
of the American Advertising Federation.
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.
36
<PAGE>
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
37
<PAGE>
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, any combination of cash and shares, or such
other consideration as the Board of Directors deems reasonable. 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
38
<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, $141,541; Keener, $147,911; Langford, $138,258; Sherman, $327,194;
Stephens, $138,944; Laughery, $188,250; Hart, $188,250; Grisanti, $188,250;
Curtis, $3,108; and Owens, $3,108. 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, PJV, Inc. 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,
Hart, Keener, Langford, Laughery, Sherman and Stephens.
PJI Warrant. In connection with the Company's initial public offering, the
Company issued 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 was issued in consideration for,
among other things, the rights to enter into development agreements for the
California Counties; Vancouver, Canada and the surrounding area; and Puerto
Rico; as well
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as PJI's $3,000 per market transfer fee with respect to the 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 $20,000
per month. The Predecessor Companies began providing such services on August
1, 1996 and expect 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). PJIowa, LC 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 PJIowa, LC or its stockholders for
the Company to acquire such entity or any of its assets. PJIowa, LC 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 PJIowa, LC at a cost of approximately $5,000 per
month depending on the services rendered.
Right of First Refusal; Management Services (Louisiana markets). PJ
Louisiana, Inc. 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, Inc. or its stockholders for the Company
to acquire such entity or any of its assets. PJ Louisiana, Inc. 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, Inc. 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)(6).. 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(7). * * -- * *
Richard F.
Sherman(2)(8)........... 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) Includes 20,000 shares held by his wife, and 3,000 shares held by his wife
as custodian for their minor child. The address for Mr. Fleishman is 3300
National City Tower, Louisville, Kentucky 40202-3197.
42
<PAGE>
(4) The address for Messrs. Grisanti, Keener, Langford, Riekel and Stephens is
9109 Parkway East, Birmingham, Alabama 35206.
(5) Includes an aggregate of 160,880 shares held by family members. The
address for Mr. Hart is 875 Race Street, Denver, CO 80206.
(6) The address for Mr. Laughery is 800 Tiffany Blvd., Suite 305, Rocky Mount,
North Carolina 27804.
(7) The address for Mr. Schnatter is 11492 Bluegrass Parkway, Suite 175,
Louisville, Kentucky 40299.
(8) Includes 418,327 shares held by Mr. Sherman, as trustee of the Richard
Sherman trust, and 72,352 shares held by his family members. The address
for Mr. Sherman and the Trust 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.
43
<PAGE>
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
44
<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 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.
45
<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.
46
<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.
At the request of the Company, up to approximately 132,000 shares of Common
Stock offered hereby have been reserved for sale to certain individuals,
including directors and employees of the Company, PJI and other entities with
whom directors and stockholders of the Company are affiliated, and members of
their families. The price of such shares to such persons will be the initial
public offering price set forth on the cover of this Prospectus. The number of
shares available to the general public will be reduced to the extent those
persons purchase reserved shares. Any shares not so purchased will be offered
hereby at the initial public offering price set forth on the cover of this
Prospectus.
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 balance sheet of PJ America, Inc. as of August 31, 1996, and 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
47
<PAGE>
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.
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.
48
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PJ AMERICA, INC.
Report of Independent Auditors......................................... F-2
Balance Sheet.......................................................... F-3
Notes to Balance Sheet................................................. F-4
EXTRA CHEESE, INC., TEXTRA CHEESE CORP. AND TWICE THE CHEESE, INC.
(ALABAMA GROUP)
Report of Independent Auditors......................................... F-5
Combined Balance Sheets................................................ F-6
Combined Statements of Income.......................................... F-7
Combined Statements of Changes in Stockholders' Equity................. F-8
Combined Statements of Cash Flows...................................... F-9
Notes to Combined Financial Statements................................. F-10
PJVA, INC. AND PJV, INC. (VIRGINIA GROUP)
Report of Independent Auditors......................................... F-14
Combined Balance Sheets................................................ F-15
Combined Statements of Income.......................................... F-16
Combined Statements of Changes in Stockholders' Equity................. F-17
Combined Statements of Cash Flows...................................... F-18
Notes to Combined Financial Statements................................. F-19
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To PJ America, Inc.
We have audited the accompanying balance sheet of PJ America, Inc. as of
August 31, 1996. This financial statement is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. 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 audit provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of PJ America, Inc. as of August 31,
1996, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Louisville, Kentucky
October 1, 1996
F-2
<PAGE>
PJ AMERICA, INC.
BALANCE SHEET
AUGUST 31, 1996
<TABLE>
<S> <C>
ASSETS
Cash.................................................................... $11,791
Deferred offerings costs................................................ 8,209
-------
Total assets............................................................ $20,000
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Advance from related party............................................ $20,000
-------
Total liabilities....................................................... 20,000
Stockholders' equity:
Preferred stock ($1.00 par value per share;
authorized 1,000,000 shares, no shares issued)....................... --
Common stock ($.01 par value per share;
authorized 20,000,000 shares, no shares issued)...................... --
-------
Total stockholders' equity.............................................. --
-------
Total liabilities and stockholders' equity.............................. $20,000
=======
</TABLE>
See accompanying notes.
F-3
<PAGE>
PJ AMERICA, INC.
NOTES TO BALANCE SHEET
AUGUST 31, 1996
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
DESCRIPTION OF BUSINESS
PJ America, Inc. (PJA) was formed in August 1996 to succeed to the business
of Extra Cheese, Inc., Textra Cheese Corp. and Twice the Cheese, Inc. (the
Alabama Group) and PJVA, Inc. and PJV, Inc. (the Virginia Group). The Alabama
Group and the Virginia Group are collectively referred to as the Predecessor
Companies. The Predecessor Companies operate 42 Papa John's Pizza delivery and
carry-out restaurants principally in Alabama and Virginia. The Predecessor
Companies and their shareholders have entered into an agreement to be merged
into PJA concurrent with the consummation of an initial public offering (IPO)
of the common stock of PJA.
BASIS OF PRESENTATION
PJA's assets at August 31, 1996 consist solely of cash and deferred offering
costs. PJA has not conducted any operations and all activities to date have
related to the IPO and the anticipated merger with the Predecessor Companies.
A non-interest bearing advance of $20,000 was received from Extra Cheese, Inc.
to provide PJA working capital. Other than a filing fee paid to the Securities
and Exchange Commission by PJA, all expenditures related to the IPO have been
funded and recorded by Extra Cheese, Inc. Accordingly, statements of
operations, changes in stockholders' equity and cash flows would not provide
meaningful information and have been omitted. There is no assurance that the
anticipated IPO will be completed which would allow PJA to generate future
operating revenues and repay the advance to Extra Cheese, Inc.
2. REGISTRATION STATEMENT FILING
On August 30, 1996, PJA filed a Registration Statement on Form S-1 with the
Securities and Exchange Commission for the initial public offering of its
common stock.
F-4
<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-5
<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-6
<PAGE>
EXTRA CHEESE, INC., TEXTRA CHEESE CORP. AND TWICE THE CHEESE, INC.
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FISCAL YEARS ENDED 26 WEEKS ENDED
------------------------------------- -----------------------
DECEMBER
DECEMBER 26, DECEMBER 25, 31, JUNE 25, JUNE 30,
1993 1994 1995 1995 1996
------------ ------------ ----------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Restaurant sales........ $3,126,695 $6,414,651 $10,456,893 $4,625,823 $6,197,272
Restaurant operating
expenses:
Cost of sales......... 1,054,368 2,097,613 3,511,245 1,527,008 2,067,649
Salaries and benefits. 888,101 1,676,627 2,646,602 1,192,534 1,563,471
Depreciation and
amortization......... 77,263 172,230 274,875 125,000 173,563
Other operating
expenses............. 772,417 1,481,175 2,392,575 1,053,425 1,400,362
---------- ---------- ----------- ---------- ----------
2,792,149 5,427,645 8,825,297 3,897,967 5,205,045
---------- ---------- ----------- ---------- ----------
Restaurant operating
income................. 334,546 987,006 1,631,596 727,856 992,227
General and
administrative
expenses............... 229,394 433,222 557,143 247,567 494,966
---------- ---------- ----------- ---------- ----------
Operating income........ 105,152 553,784 1,074,453 480,289 497,261
Interest expense
(related party)........ (9,005) (34,036) (47,000) (19,000) (25,000)
Interest expense
(other)................ -- -- (31,846) (9,301) (20,875)
Other income............ 2,866 12,115 13,242 5,507 6,600
---------- ---------- ----------- ---------- ----------
Net income.............. $ 99,013 $ 531,863 $ 1,008,849 $ 457,495 $ 457,986
========== ========== =========== ========== ==========
Historical net income... $ 1,008,849 $ 457,495 $ 457,986
Unaudited pro forma
income tax expense..... (368,230) (166,986) (167,165)
----------- ---------- ----------
Unaudited pro forma net
income................. $ 640,619 $ 290,509 $ 290,821
=========== ========== ==========
</TABLE>
See accompanying notes.
F-7
<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-8
<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 25, JUNE 30,
1993 1994 1995 1995 1996
------------ ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income.............. $ 99,013 $ 531,863 $1,008,849 $ 457,495 $ 457,986
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization......... 77,263 172,230 274,875 125,000 173,563
Changes in operating
assets and
liabilities:
Accounts receivable. (6,259) (7,357) (9,869) (12,149) (26,708)
Inventories......... (14,553) (29,851) 57 9,234 (15,685)
Changes in advances
to related parties. -- -- (132,725) -- 132,725
Prepaid expenses and
other.............. 10,389 27,370 2,307 (22,810) (32,143)
Deferred franchise
and development
costs.............. (26,500) (75,771) (104,147) (79,435) (31,226)
Accounts payable.... (1,387) 1,143 5,353 (4,743) 831
Accrued expenses.... 13,712 99,312 113,866 76,984 288,539
--------- --------- ---------- --------- -----------
Net cash provided by
operating activities... 151,678 718,939 1,158,566 549,576 947,882
INVESTING ACTIVITIES
Purchases of property
and equipment.......... (473,482) (738,660) (797,513) (286,768) (200,867)
Other................... (4,665) (8,961) 596 -- 7,445
--------- --------- ---------- --------- -----------
Net cash used by
investing activities... (478,147) (747,621) (796,737) (286,768) (193,422)
FINANCING ACTIVITIES
Proceeds from bank
borrowings............. -- -- 450,000 450,000 1,000,000
Payments on bank
borrowings............. -- -- (126,975) (57,693) (343,025)
Issuance of (payments
on) stockholder notes.. 300,000 127,200 315,646 261,221 (31,032)
Distributions paid...... -- (8,662) (932,234) (915,000) (1,295,179)
Capital contributions... 22,300 36,430 1,000 1,000 --
--------- --------- ---------- --------- -----------
Net cash provided (used)
by financing
activities............. 322,300 154,968 (292,563) (260,472) (669,236)
--------- --------- ---------- --------- -----------
Net increase (decrease)
in cash................ (4,169) 126,286 69,086 2,336 85,224
Cash at beginning of
period................. 33,176 29,007 155,293 155,293 224,379
--------- --------- ---------- --------- -----------
Cash at end of period... $ 29,007 $ 155,293 $ 224,379 $ 157,629 $ 309,603
========= ========= ========== ========= ===========
</TABLE>
See accompanying notes.
F-9
<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. Management believes the
combined financial statement presentation of Extra, Textra, and Twice to be
more meaningful than separate company financial statements.
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-10
<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. Advertising expense was $244,141 for the
unaudited 26 weeks ended June 25, 1995.
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-11
<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. Interest expense and
interest payments for the unaudited 26 weeks ended June 25, 1995 were $19,000
and $5,000, respectively.
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-12
<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. Rent expense was $66,260 for the unaudited 26 weeks ended
June 25, 1995.
8. STOCKHOLDERS' EQUITY
At June 30, 1996, Extra, Textra and Twice had 108.5, 1.00 and 1,000 shares,
respectively, of 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-13
<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-14
<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
Prepaid expenses........................ 120,388 64,706 122,261
Other current assets.................... 90,088 86,662 91,897
---------- ---------- ----------
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-15
<PAGE>
PJVA, INC. AND PJV, INC.
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FISCAL YEARS ENDED 26 WEEKS ENDED
-------------------------------------- -----------------------
DECEMBER 26, DECEMBER 25, DECEMBER 31, JUNE 25, JUNE 30,
1993 1994 1995 1995 1996
------------ ------------ ------------ ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Restaurant sales........ $2,907,634 $7,695,375 $12,642,157 $5,569,687 $7,900,050
Restaurant operating
expenses:
Cost of sales......... 993,589 2,621,146 4,315,868 1,871,326 2,684,162
Salaries and benefits. 854,934 2,092,973 3,148,381 1,390,779 1,924,565
Depreciation and
amortization......... 86,034 219,836 381,757 175,000 251,637
Other operating
expenses............. 772,528 1,914,865 3,350,325 1,476,035 2,080,836
---------- ---------- ----------- ---------- ----------
2,707,085 6,848,820 11,196,331 4,913,140 6,941,200
---------- ---------- ----------- ---------- ----------
Restaurant operating
income................. 200,549 846,555 1,445,826 656,547 958,850
General and
administrative
expenses............... 190,075 429,305 485,571 217,282 352,819
---------- ---------- ----------- ---------- ----------
Operating income........ 10,474 417,250 960,255 439,265 606,031
Interest expense
(related party)........ (38,759) (76,270) (54,000) (27,000) (27,000)
Interest expense
(other)................ -- -- (101,862) (45,664) (64,462)
Other income............ 2,423 6,056 -- -- 6,358
---------- ---------- ----------- ---------- ----------
Income (loss) before
taxes.................. (25,862) 347,036 804,393 366,601 520,927
Income tax benefit
(expense).............. 7,719 (145,159) -- -- --
---------- ---------- ----------- ---------- ----------
Net income (loss)... $ (18,143) $ 201,877 $ 804,393 $ 366,601 $ 520,927
========== ========== =========== ========== ==========
Historical net income... $ 804,393 $ 366,601 $ 520,927
Unaudited pro forma
income tax expense..... (293,603) (133,809) (190,138)
----------- ---------- ----------
Unaudited pro forma net
income................. $ 510,790 $ 232,792 $ 330,789
=========== ========== ==========
</TABLE>
See accompanying notes.
F-16
<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-17
<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 25, JUNE 30,
1993 1994 1995 1995 1996
------------ ------------ ------------ ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)....... $ (18,143) $ 201,877 $ 804,393 $ 366,601 $ 520,927
Adjustments to reconcile
net income (loss) to
net cash provided by
operating activities:
Depreciation and
amortization......... 86,034 219,836 381,757 175,000 251,637
Deferred income taxes. (7,719) 54,228 -- -- --
Changes in operating
assets and
liabilities:
Accounts receivable. (5,040) (3,251) (6,007) (27,445) (13,365)
Inventories......... (31,931) (33,124) (5,781) 14,037 (18,563)
Prepaid expenses.... (28,191) (87,197) 55,682 (15,248) (57,555)
Other current assets
................... (39,964) (25,781) 3,426 (16) (5,235)
Deferred franchise
and development
costs.............. (98,000) (105,000) (120,000) (37,000) 43,500
Accounts payable ... 148,452 (53,765) 126,198 (17,294) (116,517)
Accrued expenses ... 119,522 177,948 (86,391) 17,836 220,322
--------- ----------- ----------- --------- ---------
Net cash provided by
operating activities... 125,020 345,771 1,153,277 476,471 825,151
INVESTING ACTIVITIES
Purchases of property
and equipment.......... (685,650) (1,035,221) (1,656,681) (461,660) (164,404)
Advances to related
parties................ -- -- -- -- (41,703)
--------- ----------- ----------- --------- ---------
Net cash used by
investing activities... (685,650) (1,035,221) (1,656,681) (461,660) (206,107)
FINANCING ACTIVITIES
Proceeds from bank
borrowings............. -- 902,000 798,000 400,000 100,000
Proceeds from
stockholder notes...... 640,000 765,000 -- -- --
Payments on bank
borrowings............. -- -- (314,285) (159,143) (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............. 640,000 910,000 483,715 240,857 (149,173)
--------- ----------- ----------- --------- ---------
Net increase (decrease)
in cash................ 79,370 220,550 (19,689) 255,668 469,901
Cash at beginning of
period................. (26,151) 53,219 273,769 273,769 254,080
--------- ----------- ----------- --------- ---------
Cash at end of period... $ 53,219 $ 273,769 $ 254,080 $ 529,437 $ 723,981
========= =========== =========== ========= =========
</TABLE>
See accompanying notes.
F-18
<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. Management believes the combined financial statement presentation
of PJVA and PJV to be more meaningful than separate company financial
statements.
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-19
<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. Advertising expense for the unaudited 26 weeks ended June 25, 1995
was $424,804.
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>
JUNE
DECEMBER 25, DECEMBER 31, 30,
1994 1995 1996
------------ ------------ -------
<S> <C> <C> <C>
Other current assets.................... $90,088 $86,662 $91,897
======= ======= =======
</TABLE>
F-20
<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). Interest expense and interest
payments were $27,000 each for the unaudited 26 weeks ended June 25, 1995.
F-21
<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. Rent expense was $110,400 for the unaudited 26 weeks ended
June 25, 1995.
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-22
<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-23
<PAGE>
[Papa John's employee [Papa John's restaurant
on the telephone] Pizza preparation area
with employees]
[Portion of "Pizza Papa [Large Papa John's [Portion of "Pizza
John's" exterior sign] Pizza surrounded by Papa John's
fresh ingredients] exterior sign]
[Papa John's restaurant ["Pizza Papa John's" [Papa John's delivery
pizza preparation area Logo] person with pizza]
with employees]
<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............................................................... 20
Business.................................................................. 27
Management................................................................ 35
Certain Transactions...................................................... 39
Principal and Selling Stockholders........................................ 42
Description of Capital Stock.............................................. 43
Shares Eligible for Future Sale........................................... 45
Underwriting.............................................................. 46
Legal Matters............................................................. 47
Experts................................................................... 47
Available Information..................................................... 47
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................................. 75,000
Blue Sky Registration Fees and Expenses......................... 10,000
Transfer Agent's Fees........................................... 10,000
Stock Exchange Listing Fees..................................... 31,712
NASD Filing Fees................................................ 2,880
Miscellaneous Expenses.......................................... 72,199
Consulting Fees................................................. 260,000
--------
Total....................................................... $800,000
========
</TABLE>
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
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<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 le-
gality 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
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S> <C>
10.10+ Development Agreement relating to the Utah territory
10.11+ Development Agreement relating to the development of an
aggregate of ten restaurants in Birmingham, Tuscaloosa and
Auburn, Alabama (the "Alabama Development Agreement")
10.11(a) First Amendment to the Alabama Development Agreement.
10.11(b) Second Amendment to the Alabama Development Agreement.
10.11(c) Third Amendment to the Alabama Development Agreement.
10.12+ Form of Franchise Agreement relating to the Birmingham,
Tuscaloosa and Auburn, Alabama restaurants (e.g., Fran-
chise 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
aggregate of four restaurants in Cullman, Jasper,
Sylacauga and Talladega, Alabama
10.14+ Form of Franchise Agreement relating to the Cullman, Jas-
per, 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
aggregate of five restaurants in Longview, Lufkin and Na-
cogdoches, Texas
10.16+ Form of Franchise Agreement relating to the East Texas
restaurants (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 development of an
aggregate of 47 restaurants in Virginia Beach, Richmond
and Norfolk, Virginia (the "Virginia Development Agree-
ment")
10.17(a) First Amendment to the Virginia Development Agreement.
10.17(b) Second Amendment to the Virginia Development Agreement.
10.17(c) Third Amendment to the Virginia Development Agreement.
10.17(d) Fourth Amendment to the Virginia Development Agreement.
10.18+ Form of Franchise Agreement relating to the Virginia res-
taurants (e.g. Franchise Agreement dated March, 31, 1994,
by and between PJVA and PJI at 10054 Robious Road, Rich-
mond, Virginia 23235)
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
Louisiana 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 devel-
opment rights to be granted with respect to the Utah ter-
ritory
21+ Subsidiaries of the Registrant
23.1 Consent of Greenebaum Doll & McDonald PLLC (included in
Exhibit 5)
23.2 Consent of Ernst & Young LLP
24+ Power of Attorney (included on Signature Page of the Reg-
istration Statement)
27**+ Financial Data Schedule
</TABLE>
- --------
+ Previously filed.
** Included only in the EDGAR version.
II-4
<PAGE>
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-5
<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 OCTOBER 4,
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman of the Board October 4, 1996
____________________________________
Richard F. Sherman
* Chief Executive Officer, October 4, 1996
____________________________________ President and Director
Douglas S. Stephens
/s/ D. Ross Davison Vice President--Chief October 4, 1996
____________________________________ Financial Officer and
D. Ross Davison Treasurer
(Chief Financial and
Accounting Officer)
* Director October 4, 1996
____________________________________
Michael M. Fleishman
* Director October 4, 1996
____________________________________
Martin T. Hart
* Director October 4, 1996
____________________________________
Frank O. Keener
* Director October 4, 1996
____________________________________
Stephen P. Langford
* Director October 4, 1996
____________________________________
Charles W. Schnatter
</TABLE>
/s/ Douglas S.
Stephens
*By: _____________________
Douglas S. Stephens
Attorney-in-fact
II-6
<PAGE>
EXHIBIT 4
Number Shares
------ ------
CU *XXX*
------ ------
THIS CERTIFICATE IS TRANSFERABLE CUSIP
IN CLEVELAND, OHIO, OR IN ----------
NEW YORK, NEW YORK SEE REVERSE FOR CERTAIN DEFINITIONS
Incorporated under the Laws of the State of Delaware
PJ AMERICA, INC.
[LOGO]
SEE REVERSE SIDE FOR RESTRICTIONS ON TRANSFER
THIS CERTIFIES THAT ________________ is the owner of ________________ ( )
fully paid and non-assessable shares of Common Stock, $0.01 par value per
share, of PJ America, Inc. transferable on the books of the Corporation by the
holder hereof in person or by duly authorized attorney upon surrender of this
certificate properly endorsed. This certificate is not valid unless so
countersigned and registered by the Transfer Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of the duly authorized officers of the Corporation.
Dated
Countersigned and Registered:
NATIONAL CITY BANK
(Cleveland, Ohio) Transfer Agent
and Registrar,
By Secretary President
Authorized Signature (SEAL)
<PAGE>
PJ AMERICA, INC.
TERMS AND PROVISIONS OF AUTHORIZED STOCK
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF
OF THE CORPORATION AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH
PREFERENCES AND/OR RIGHTS. SUCH REQUEST MAY BE MADE TO THE OFFICE OF THE
SECRETARY OF THE CORPORATION OR TO THE TRANSFER AGENT.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to application laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - ______ Custodian ______
TEN ENT - as tenants by the entireties (Cust) (Minor)
JTTEN - as joint tenants with under Uniform Gifts to
right of survivorship Minor Act
and not as tenants in _______________________
common (State)
Additional abbreviations may also be used though not in the above list.
For value received,_______________________hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- -------------------------------------
- -------------------------------------
________________________________________________________________________________
________________________________________________________________________________
Please print or typewrite name and address including postal zip code of
assignee.
________________________________________________________________________________
________________________________________________________________________________
Shares of the capital stock represented by the within certificate, and do hereby
irrevocably constitute and appoint
________________________________________________________________________________
attorney to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.
Dated:____________________________
____________________________________________
NOTICE: The signature to this assignment must
correspond with the name as written upon the
face of the certificate in every particular,
without alteration or enlargement, or any
change whatever.
_____________________________________________
The signature should be guaranteed by an
eligible guarantor institution pursuant to
S.E.C. Rule 17Ad-15.
<PAGE>
Exhibit 5
October 4, 1996
PJ America, Inc.
9109 Parkway East
Birmingham, Alabama 35206
Ladies and Gentlemen:
We have acted as legal counsel in connection with the preparation of a
Registration Statement on Form S-1 under the Securities Act of 1933, as
amended (the "Registration Statement"), covering an aggregate of 2,070,000
shares (including 270,000 shares subject to an over-allotment option granted
by the Underwriters) of common stock, par value $.01 per share (the "Common
Stock") of PJ America, Inc., a Delaware corporation (the "Company"), of which
1,620,000 shares (135,000 shares subject to the Underwriters' over-allotment
option) are being offered by the Company (the "Company Shares"), and 180,000
shares (135,000 shares subject to the Underwriters' over-allotment option) are
being offered by the Selling Stockholders (the "Selling Stockholders Shares").
We have examined and are familiar with the Certificate of Incorporation and
By-Laws of the Company, and the various corporate records and proceedings
relating to the organization of the Company and the proposed issuance of the
Common Stock. We have also examined such other documents and proceedings as we
have considered necessary for the purpose of this opinion.
Based on the foregoing, it is our opinion that the (i) Common Shares have
been duly authorized and, when issued and paid for in accordance with the
terms of the Registration Statement, will be validly issued, fully paid and
non-assessable, and (ii) the Selling Stockholders Shares have been duly
authorized and, when issued and paid for in accordance with the terms of the
Registration Statement, will be validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, and with such state securities administrators as may
require such opinion of counsel for the registration of the Common Stock, and
to the reference to this firm under the heading "Legal Matters" in the
Prospectus. In giving this consent, we do not thereby admit that we are within
the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
Very truly yours,
Greenebaum Doll & McDonald pllc
GD&M/llb
<PAGE>
Exhibit 10.11(a)
AMENDMENT TO DEVELOPMENT AGREEMENT
----------------------------------
June 6, 1995
THIS AMENDMENT TO DEVELOPMENT AGREEMENT ("Amendment") is entered into
between PAPA JOHN'S INTERNATIONAL, INC. ("Franchisor") and EXTRA CHEESE, INC.
("Developer").
RECITALS:
---------
A. The parties hereto are parties to a Papa John's Development Agreement
dated August 20, 1991, for the development of 10 Papa John's Pizza outlets in
Birmingham, Tuscaloosa and Auburn, Alabama (the "Development Agreement").
B. The parties now desire to amend the Development Agreement as set forth
herein.
AGREEMENT
---------
NOW, THEREFORE, the parties agree as follows:
1. Additional Outlets. Franchisor hereby grants Developer the right to
development seven additional Outlets (i.e. a total of 17) in the Development
Area (as amended below), and Developer shall exercise such development rights
only at locations approved by Franchisor as provided in the Development
Agreement.
2. Development Fee. In consideration of the grant by Franchisor of the
rights to develop the additional Outlets, Developer shall pay Franchisor an
additional Development Fee of Twenty-four Thousand Five Hundred Dollars
($24,500) upon execution of this Amendment. Developer shall pay a Franchise Fee
of Ten Thousand Dollars ($10,000) for each of the additional Outlets opened in
the Development Area prior to August 1, 1996, and Fifteen
<PAGE>
Thousand Dollars ($15,000) for each Outlet opened in the Development Area after
August 1, 1996. The Franchise Fee is in addition to the Development Fee and
shall be paid at the time each Franchise Agreement is executed.
3. DEVELOPMENT SCHEDULE. The "Development Schedule," as set forth in
Section 3 of the Development Agreement, is amended to add the following:
"DEVELOPMENT SCHEDULE
---------------------
Dates on Which Each Cumulative Number of Outlets
Outlet Shall be Open to be Open and Operating*
-------------------- ----------------------------
November 30, 1995 11
May 31, 1996 12
November 30, 1996 13
May 31, 1997 14
November 30, 1997 15
December 30, 1998 16
December 30, 1999 17
[* - Includes original ten Outlets and the additional Outlets
to be developed pursuant to this Amendment.]"
4. RIGHT OF REFUSAL; ADDITIONAL OUTLETS. All rights of Developer under
Sections 5.(a) and 5.(b), entitled "Right of Refusal" and "Additional Outlets by
Agreement," are hereby terminated, and such provisions shall be of no further
force or effect.
5. INCENTIVE PLAN. Developer shall not be eligible to participate in the
Papa John's Franchisee Incentive Plan with respect to any restaurants opened by
Developer under the original Development Agreement or this Amendment.
6. NEW DEVELOPMENT AGREEMENT. Concurrently with the execution of this
Amendment, the parties are entering into a new Development Agreement for four
outlets. Franchisor agrees that if Developer opens one or more additional
Outlets under this Amendment ahead of schedule, these outlets will be counted
towards the
-2-
<PAGE>
Development Schedule under the New Development Agreement. Conversely, any
outlets opened ahead of the Development Schedule under the New Development
Agreement will be counted towards the amended Development Schedule as set forth
in Section 3, above.
7. REAFFIRMATION. Except as amended herein, the Development Agreement
shall remain in effect according to its terms.
IN WITNESS WHEREOF, witness the signatures of the parties as of the day,
month and year first above written.
PAPA JOHN'S INTERNATIONAL, INC.
By: /s/ Charles W. Schnatter
-----------------------------
Charles W. Schnatter, Senior
Vice President, Secretary
and General Counsel
EXTRA CHEESE, INC.
By: /s/ Douglas Stephens
-----------------------------
Douglas Stephens, President
-3-
<PAGE>
Exhibit 10.11(b)
June 1, 1993
PAPA JOHN'S INTERNATIONAL, INC.
PJ FOOD SERVICE, INC.
11492 Bluegrass Parkway
Suite 175
Louisville, KY 40299
Gentlemen:
Extra Cheese, Inc. hereby requests that the Franchise Fee for future
outlets opened pursuant to its Development Agreement(s) be increased by $3500.
In exchange, the $5,000 Dough Tray Fee payable under the Payment Agreement with
PJ Food Service, Inc. will be eliminated. (PJ Food Service, Inc. will become a
wholly owned subsidiary of Papa John's International, Inc. on June 15, 1993).
Therefore, an additional $3,500 will be payable when each Franchise Fee is
paid and the $5,000 Dough Tray Fee will no longer be payable. This change in
fees shall be effective for all Franchise Agreements entered into after May 31,
1993, pursuant to existing Development Agreements.
Very truly yours,
Extra Cheese, Inc.
-----------------------------------------
By: /s/ Douglas Stephens
--------------------------------------
Title: President
-----------------------------------
<PAGE>
EXHIBIT 10.11(c)
[LOGO OF PAPA JOHN'S]
August 19, 1996
Mr. Doug Stephens
EXTRA CHEESE, Inc.
P.O. Box 611165
Birmingham, Alabama 35261
Dear Doug:
This letter will recap our conversation regarding the amendment of the
development schedule in your Development Agreement (hereinafter referred to as
"Agreement") with Papa John's International, Inc., dated June 6, 1995. This
Development Agreement is for the general area of Cullman, Jasper, Sylacauga and
Talladega, Alabama.
Extra Cheese, Inc. has done a very good job working with Papa John's and
has exceeded its obligations to develop Papa John's outlets as set forth in the
development schedule of its Agreement. As of the result of this performance and
to assist Extra Cheese, Inc., we will amend your development schedule of the
Development Agreement as follows:
STORE # PRESENT DATE AMENDED DATE
------- ------------ ------------
3 08-31-96 02-28-97
4 02-28-97 06-30-97
Charlotte Hendrick, our Senior Paralegal, will contact you and have you
complete the necessary documents to finalize the amendment to the Agreement.
Please contact me if you have any questions.
Very truly yours,
PAPA JOHN'S INTERNATIONAL, INC.
/s/ Thomas C. Ragan
Vice President of Franchise Development
cc: Richard J. Emmett, Esq.
Charlotte Hendrick
Tim O'Horn
<PAGE>
Exhibit 10.17(a)
AMENDMENT TO DEVELOPMENT AGREEMENT
----------------------------------
December 8, 1993
THIS AMENDMENT TO DEVELOPMENT AGREEMENT ("Amendment") is entered into
between PAPA JOHN'S INTERNATIONAL, INC., a Delaware corporation ("Franchisor")
and PJVA, INC., a Virginia corporation ("Developer").
RECITALS:
A. The parties hereto are parties to a Papa John's Development Agreement
dated March 15, 1992, for the development of 47 Papa John's Pizza outlets in
Norfolk, Richmond and Virginia Beach, Virginia (the "Development Agreement").
B. The parties now desire to amend the Development Agreement as set forth
herein.
NOW, THEREFORE, the parties agree as follows:
1. ADDITIONAL OUTLETS. Franchisor hereby grants Developer the right to
development two additional Outlets (i.e. a total of 49) in the Development Area
(as amended below), and Developer shall exercise such development right only at
locations approved by Franchisor as provided in the Development Agreement.
2. DEVELOPMENT AREA. The "Development Area," as defined on Exhibit A of
the Development Agreement, is hereby amended to include Danville and
Martinsville, Virginia, which area is encompassed by the zip codes 24112, 24540
and 24541 and shall be in addition to the area encompassed by the zip codes
currently set forth on Exhibit A.
<PAGE>
3. DEVELOPMENT FEE. In consideration of the grant by Franchisor of the
additional area and the rights to develop the additional Outlets, Developer
shall pay Franchisor a Development Fee of Seven Thousand Dollars ($7,000) upon
execution of this Amendment and a Franchise Fee of Fifteen Thousand Dollars
($15,000) for each additional Outlet at the time each additional Outlet is
opened.
4. DEVELOPMENT SCHEDULE. The "Development Schedule," as set forth in
Section 3 of the Development Agreement, is amended in its entirety to provide
for the following:
"DEVELOPMENT SCHEDULE
---------------------
Dates on Which Each Cumulative Number of Outlets
Outlet Shall be Open to be Open and Operating*
-------------------- ----------------------------
December 31, 1992 1*
December 31, 1992 2*
December 31, 1992 3*
December 31, 1993 4*
December 31, 1993 5*
December 31, 1993 6*
December 31, 1993 7*
December 31, 1993 8*
December 1, 1994 9
December 31, 1994 10
December 31, 1994 11
December 31, 1994 12
December 31, 1994 13
December 31, 1994 14
December 31, 1994 15
October 1, 1995 16
December 31, 1995 17
December 31, 1995 18
December 31, 1995 19
December 31, 1995 20
December 31, 1995 21
December 31, 1995 22
December 31, 1995 23
December 31, 1996 24
December 31, 1996 25
December 31, 1996 26
December 31, 1996 27
December 31, 1996 28
December 31, 1996 29
December 31, 1996 30
December 31, 1996 31
-2-
<PAGE>
December 31, 1997 32
December 31, 1997 33
December 31, 1997 34
December 31, 1997 35
December 31, 1997 36
December 31, 1997 37
December 31, 1997 38
December 31, 1997 39
December 31, 1997 40
December 31, 1998 41
December 31, 1998 42
December 31, 1998 43
December 31, 1998 44
December 31, 1998 45
December 31, 1998 46
December 31, 1998 47
December 31, 1998 48
December 31, 1998 49
[* - Includes only those Outlets to be developed pursuant to this
Development Agreement; Outlets at 10054 Robious Road, Richmond Virginia;
5646 Brook Road, Richmond, Virginia; 2901 Park Avenue, Richmond, Virginia;
13544 Genito Road, Unit 14, Midlothian, Virginia; 8903 Patterson Avenue,
Richmond, Virginia; 6910 Midlothian Turnpike, Richmond, Virginia; 6603
Mechanicsville Pike, Mechanicsville, Virginia; and 9038 West Broad Street,
Richmond, Virginia are already open and operating.]"
5. REAFFIRMATION. Except as amended herein, the Development Agreement
shall remain in effect according to its terms.
IN WITNESS WHEREOF, witness the signature of the parties as of the day,
month and year first above written.
PAPA JOHN'S INTERNATIONAL, INC.
By: /s/ J. Daniel Holland
------------------------------
J. Daniel Holland, President
PJVA, INC.
By: /s/ Richard F. Sherman
------------------------------
Richard F. Sherman, President
-3-
<PAGE>
EXHIBIT 10.17(b)
AMENDMENT TO DEVELOPMENT AGREEMENT
----------------------------------
December 6, 1994
THIS AMENDMENT TO DEVELOPMENT AGREEMENT ("Amendment") is entered into
between PAPA JOHN'S INTERNATIONAL, INC., a Delaware corporation ("Franchisor")
and PJVA, INC., a Virginia corporation ("Developer").
RECITALS:
--------
A. The parties hereto are parties to a Papa John's Development Agreement
dated March 15, 1992, as amended by Amendment to Development Agreement dated
December 8, 1993, for the development of 47 Papa John's Pizza outlets in
Norfolk, Richmond and Virginia Beach, Virginia (the "Development Agreement").
B. The parties now desire to amend the Development Agreement as set forth
herein.
NOW, THEREFORE, the parties agree as follows:
1. DEVELOPMENT AREA. The "Development Area," as defined on Exhibit A of
the Development Agreement, is hereby amended in its entirety as set forth on the
attached Exhibit A.
2. REAFFIRMATION. Except as amended herein, the Development Agreement
shall remain in effect according to its terms.
IN WITNESS WHEREOF, witness the signatures of the parties as of the day,
month and year first above written.
PAPA JOHN'S INTERNATIONAL, INC.
/s/ J. Daniel Holland
By: -------------------------------------
J. Daniel Holland, President
PJVA, INC.
/s/ Richard F. Sherman
By: -------------------------------------
Richard F. Sherman, President
<PAGE>
[MAP OF COVERED TERRITORY]
<PAGE>
[MAP OF COVERED TERRITORY]
<PAGE>
EXHIBIT 10.17(c)
June 1, 1993
PAPA JOHN'S INTERNATIONAL, INC.
PJ FOOD SERVICE, INC.
11492 Bluegrass Parkway
Suite 175
Louisville, KY 40299
Gentlemen:
PJVA, Inc. hereby requests that the Franchise Fee for future outlets opened
pursuant to its Development Agreement(s) be increased by $3500. In exchange,
the $5,000 Dough Tray Fee payable under the Payment Agreement with PJ Food
Service, Inc. will be eliminated. (PJ Food Service, Inc. will become a wholly
owned subsidiary of Papa John's International, Inc. on June 15, 1993).
Therefore, an additional $3,500 will payable when each Franchise Fee is
paid and the $5,000 Dough Tray Fee will no longer be payable. This change in
fees shall be effective for all Franchise Agreements entered into after May 31,
1993, pursuant to existing Development Agreements.
Very truly yours,
PJVA, Inc.
/s/ Richard F. Sherman
By: -------------------------------------
Title: President
-----------------------------------
<PAGE>
Exhibit 10.17(d)
[LOGO OF PAPA JOHN'S]
August 19, 1996
Mr. Richard Sherman
PJVA, Inc.
4909 Augusta Avenue
Richmond, Virginia 23230
Dear Rick:
This letter will recap our conversations regarding the amendment of the
development schedule in your Development Agreement (hereinafter referred to as
"Agreement") with Papa John's International, Inc., dated March 15, 1992.
PJVA, Inc. has done a very good job working with Papa John's and has
exceeded its obligations to develop Papa John's outlets as set forth in the
development schedule of its Agreement. As of the result of this performance and
to assist PJVA, Inc., we will amend your development schedule of the Development
Agreement as follows:
STORE # PRESENT DATE AMENDED DATE
------- ------------ ------------
26 12-31-96 Same
27 12-31-96 Same
28 12-31-96 03-31-97
29 12-31-96 07-01-97
30 12-31-97 09-01-97
31 12-31-97 11-01-97
32 12-31-97 04-01-98
33 12-31-97 07-01-98
34 12-31-97 09-01-98
35 12-31-97 11-01-98
Stores 36 through 40 will be removed from the Development Agreement.
Charlotte Hendrick, our Senior Paralegal, will contact you and have you
complete the necessary documents to finalize the amendment to the Agreement.
Please contact me if you have any questions.
Very truly yours,
PAPA JOHN'S INTERNATIONAL, INC.
/s/ Thomas C. Ragan
-----------------------------------------
Thomas C. Ragan
Vice-President of Franchise Development
cc: Richard J. Emmett, Esq.
Charlotte Hendrick
Tim O'Hern
<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. and our report dated October 1, 1996
with respect to the balance sheet of PJ America, 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
October 1, 1996
