<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 28, 1999
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 0-21660
PAPA JOHN'S INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 61-1203323
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) number)
11492 Bluegrass Parkway, Suite 175
Louisville, Kentucky 40299-2334
(Address of principal executive offices)
(502) 266-5200
(Registrant's telephone number, including area code)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes X No
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At May 3, 1999, there were outstanding 30,142,253 shares of the
registrant's common stock, par value $.01 per share.
<PAGE>
<TABLE>
<CAPTION>
INDEX
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets --
March 28, 1999 and December 27, 1998 2
Condensed Consolidated Statements of Income --
Three Months Ended March 28, 1999 and March 29, 1998 3
Condensed Consolidated Statements of Stockholders'
Equity -- Three Months Ended March 28, 1999 and
March 29, 1998 4
Condensed Consolidated Statements of Cash Flows --
Three Months Ended March 28, 1999 and March 29, 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 6. Exhibits and Reports on Form 8-K 12
</TABLE>
1
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Papa John's International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
March 28, 1999 December 27, 1998
(In thousands) (Unaudited) (Restated - see note)
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<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 37,400 $ 33,814
Accounts receivable 18,931 17,420
Inventories 8,951 9,808
Prepaid expenses and other current assets 5,426 4,891
Deferred income taxes 2,090 2,090
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Total current assets 72,798 68,023
Investments 47,120 47,355
Net property and equipment 191,408 172,872
Notes receivable from franchisees 9,096 8,990
Other assets 22,908 22,484
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Total assets $343,330 $319,724
===================================================================================================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 19,680 $ 18,389
Accrued expenses 28,635 27,106
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Total current liabilities 48,315 45,495
Unearned franchise and development fees 6,350 6,561
Long-term debt 8,375 8,230
Deferred income taxes 258 5,066
Other long-term liabilities 203 202
Stockholders' equity:
Preferred stock - -
Common stock 301 298
Additional paid-in capital 180,058 166,209
Accumulated other comprehensive income (unrealized
gain on investments, net of tax) 1,112 688
Retained earnings 98,839 87,456
Treasury stock (481) (481)
- ---------------------------------------------------------------------------------------------------
Total stockholders' equity 279,829 254,170
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Total liabilities and stockholders' equity $343,330 $319,724
===================================================================================================
</TABLE>
Note: The Condensed Consolidated Balance Sheet at December 27, 1998 has been
derived from the audited financial statements at that date restated to
reflect the acquisition of Minnesota Pizza Company, LLC, a business
combination accounted for as a pooling of interests (see note 3).
See accompanying notes.
2
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Papa John's International, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 28, 1999 March 29, 1998
(In thousands, except per share amounts) (Restated - see note)
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<S> <C> <C>
Revenues:
Restaurant sales $ 94,452 $ 79,909
Franchise royalties 9,418 7,213
Franchise and development fees 1,470 1,102
Commissary sales 70,004 56,335
Equipment and other sales 12,007 10,934
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Total revenues 187,351 155,493
Costs and expenses:
Restaurant expenses:
Cost of sales 23,227 21,216
Salaries and benefits 25,318 21,326
Advertising and related costs 8,137 7,069
Occupancy costs 4,590 3,823
Other operating expenses 12,724 10,523
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73,996 63,957
Commissary, equipment and other expenses:
Cost of sales 62,354 52,674
Salaries and benefits 5,610 3,882
Other operating expenses 6,849 5,232
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74,813 61,788
General and administrative expenses 14,095 12,570
Pre-opening and other general expenses 1,416 1,182
Depreciation and amortization expense 5,531 4,622
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Total costs and expenses 169,851 144,119
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Operating income 17,500 11,374
Investment income 792 976
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Income before income taxes and cumulative effect of a
change in accounting principle 18,292 12,350
Income tax expense 6,909 4,841
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Income before cumulative effect of a change in accounting principle 11,383 7,509
Cumulative effect of accounting change, net of tax - (2,603)
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Net income $ 11,383 $ 4,906
====================================================================================================================================
Basic earnings per share:
Income before cumulative effect of a change in accounting principle $ 0.38 $ 0.26
Cumulative effect of accounting change, net of tax - (0.09)
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Basic earnings per share $ 0.38 $ 0.17
====================================================================================================================================
Diluted earnings per share:
Income before cumulative effect of a change in accounting principle $ 0.37 $ 0.25
Cumulative effect of accounting change, net of tax - (0.09)
- ------------------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share $ 0.37 $ 0.16
====================================================================================================================================
Basic weighted average shares outstanding 29,966 29,290
====================================================================================================================================
Diluted weighted average shares outstanding 31,099 30,111
====================================================================================================================================
</TABLE>
Note: The Condensed Consolidated Statement of Income for the three months ended
March 29, 1998, has been restated to reflect the adoption of SOP 98-5 and
the acquisition of Minnesota Pizza Company, LLC, a business combination
accounted for as a pooling of interests (see note 2 and note 3).
See accompanying notes.
3
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Papa John's International, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders' Equity
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Common Paid-In Comprehensive Retained Treasury Stockholders'
(In thousands) Stock Capital Income Earnings Stock Equity
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<S> <C> <C> <C> <C> <C> <C>
Balance at December 28, 1997
as previously reported $291 $149,850 $ 321 $62,752 $(481) $212,733
Restatement for acquisition 1 1,499 - (7,237) - (5,737)
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Balance at December 28, 1997
as restated 292 151,349 321 55,515 (481) 206,996
Comprehensive income:
Net income - - - 4,906 - 4,906
Unrealized gain on investments,
net of tax of $314 - - 486 - - 486
--------
Comprehensive income 5,392
Exercise of stock options 2 2,915 - - - 2,917
Tax benefit related to exercise of
non-qualified stock options - 563 - - - 563
Other - - - 1 - 1
- ----------------------------------------------------------------------------------------------------------------------------
Balance at March 29, 1998 $294 $154,827 $ 807 $60,422 $(481) $215,869
============================================================================================================================
Balance at December 27, 1997
as restated $298 $166,209 $ 688 $87,456 $(481) $254,170
Comprehensive income:
Net income - - - 11,383 - 11,383
Unrealized gain on investments, -
net of tax of $187 - - 424 - - 424
--------
Comprehensive income 11,807
Exercise of stock options 3 6,406 - - - 6,409
Tax benefit related to exercise of
non-qualified stock options - 2,129 - - - 2,129
Deferred tax asset - acquisition - 5,245 - - - 5,245
Other - 69 - - - 69
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Balance at March 28, 1999 $301 $180,058 $1,112 $98,839 $(481) $279,829
============================================================================================================================
Note: The Condensed Consolidated Statements of Stockholders' Equity for all prior periods presented have been restated to
reflect the adoption of SOP 98-5 and the acquisition of Minnesota Pizza Company, LLC, a business combination
accounted for as a pooling of interests (see note 2 and note 3).
See accompanying notes.
</TABLE>
4
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Papa John's International, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 28, 1999 March 29, 1998
(In thousands) (Restated - see note)
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<S> <C> <C>
Operating activities
Net cash provided by operating activities $ 20,278 $ 17,212
Investing activities
Purchase of property and equipment (25,232) (12,362)
Purchase of investments (9,765) (4,924)
Proceeds from sale or maturity of investments 10,515 4,584
Loans to franchisees (183) (2,444)
Loan repayments from franchisees 77 1,664
Deferred systems development costs (298) (274)
Acquisitions (825) (228)
Other 263 12
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (25,448) (13,972)
Financing activities
Payments on long-term debt (2,365) (625)
Proceeds from issuance of long-term debt 2,510 1,440
Proceeds from exercise of stock options 6,409 2,917
Tax benefit related to exercise of non-qualified
stock options 2,129 563
Other 73 (3)
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Net cash provided by financing activities 8,756 4,292
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Net increase in cash and cash equivalents 3,586 7,532
Cash and cash equivalents at beginning of period 33,814 18,835
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Cash and cash equivalents at end of period $ 37,400 $ 26,367
==================================================================================================================================
</TABLE>
Note: The Condensed Consolidated Statement of Cash Flow for the three months
ended March 29, 1998, has been restated to reflect the adoption of SOP
98-5 and the acquisition of Minnesota Pizza Company, LLC, a business
combination accounted for as a pooling of interests (see note 2 and note
3).
See accompanying notes.
5
<PAGE>
Papa John's International, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
March 28, 1999
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S - X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments, consisting
of normal recurring accruals, considered necessary for a fair presentation have
been included. Operating results for the three months ended March 28, 1999, are
not necessarily indicative of the results that may be expected for the year
ended December 26, 1999. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Annual Report on Form
10-K for Papa John's International, Inc. (referred to as the "Company," "Papa
John's" or in the first person notations of "we," "us" and "our"), for the year
ended December 27, 1998.
2. Accounting Change
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, "Reporting the Costs of Start-Up Activities" (the
"SOP"), which requires that costs related to start-up activities be expensed as
incurred. Prior to 1998, we capitalized our start-up costs incurred primarily in
connection with opening new restaurant and commissary locations and amortized
these costs on a straight line basis over a period of one year from the
facility's opening date. We adopted the provisions of the SOP at the time we
issued our financial statements for the year ended December 27, 1998 and have
restated all previously reported interim financial statements. The adoption
resulted in a charge in the first quarter of 1998 for the cumulative effect of
an accounting change of $2.6 million, net of taxes of $1.5 million, to expense
costs that had been previously capitalized prior to 1998. Excluding the one-time
cumulative effect, the adoption of the new accounting standard did not have a
material impact on 1998 operating results.
3. Business Combinations
On March 28, 1999, we acquired Minnesota Pizza Company, LLC ("Minnesota Pizza"),
a franchisee which operated 37 Papa John's restaurants in the Minneapolis/St.
Paul, Minnesota market. We issued 128,119 shares of our common stock valued at
$5.4 million in exchange for all of the issued and outstanding ownership
interests of Minnesota Pizza. The transaction was accounted for as a pooling of
interests. Our operating results for the first quarter of 1999, and previously
reported results of operations and balance sheets, have been restated to include
Minnesota Pizza. Intercompany transactions between the Company and Minnesota
Pizza have been eliminated in the accompanying restated condensed consolidated
financial statements. The operating results previously reported by the Company
and Minnesota Pizza separately are summarized below:
<TABLE>
<CAPTION>
Three Months Ended March 28, 1999 Three Months Ended March 29, 1998
(In thousands) Papa John's Minnesota Pizza Papa John's Minnesota Pizza
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<S> <C> <C> <C> <C>
Total revenues $182,978 $6,465 $152,928 $3,991
Eliminations (2,092) - (1,426) -
------------ --------------- ------------ ---------------
Net combined revenue 180,886 6,465 151,502 3,991
Net income (loss) 11,516 (133) 5,640 (734)
Pro forma net income
(loss) 11,516 (82) 5,640 (455)
</TABLE>
The Minnesota Pizza pro forma net income (loss) includes an income tax benefit
for the treatment of Minnesota Pizza as a C Corporation rather than a limited
liability company taxed as a partnership, with an assumed effective income tax
rate of 38%.
6
<PAGE>
Notes to Condensed Consolidated Financial Statements (continued)
<TABLE>
<CAPTION>
4. Segment Information
Three Months Ended
March 28, 1999 March 29, 1998
(in thousands) (Restated - see notes 2 and 3)
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<S> <C> <C>
Revenues from external customers:
Restaurants $ 94,452 $ 79,909
Commissaries 70,004 56,335
Franchising 10,888 8,315
All others 12,007 10,934
- -----------------------------------------------------------------------------------------
Total revenues from external customers $187,351 $155,493
=========================================================================================
Intersegment revenues:
Commissaries $ 26,856 $ 24,668
Franchising 34 31
All others 3,273 3,814
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Total intersegment revenues $ 30,163 $ 28,513
=========================================================================================
Income before income taxes:
Restaurants $ 5,364 $ 3,261
Commissaries 5,400 3,659
Franchising 9,357 7,064
All others 1,131 1,034
Unallocated corporate expenses (2,982) (2,581)
Elimination of intersegment profits 22 (87)
- -----------------------------------------------------------------------------------------
Total income before income taxes $ 18,292 $ 12,350 (1)
=========================================================================================
Gross fixed assets:
Restaurants $131,926
Commissaries 49,501
All others 4,671
Unallocated corporate assets 59,145
Accumulated depreciation (53,835)
- ------------------------------------------------------
Net fixed assets $191,408
======================================================
</TABLE>
(1) Excludes the cumulative effect of a change in accounting principle.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Restaurant Progression (1)
<TABLE>
<CAPTION>
Three Months Ended
March 28, March 29,
1999 1998
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<S> <C> <C>
U.S. Company-owned:
Beginning of period 514 427
Opened 4 20
Closed (1) -
Sold to franchisees (5) -
Acquired from franchisees 2 1
- ---------------------------------------------------------------------
End of period 514 448
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U.S. franchised:
Beginning of period 1,365 1,090
Opened 69 61
Closed (2) -
Sold to Company (2) (1)
Acquired from Company 5 -
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End of period 1,435 1,150
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International franchised:
Beginning of period 6 -
Opened 3 -
- ---------------------------------------------------------------------
End of period 9 -
- ---------------------------------------------------------------------
Total at end of period 1,958 1,598
=====================================================================
</TABLE>
(1) Restated for the acquisition of Minnesota Pizza (see Note 3 of Notes to
Condensed Consolidated Financial Statements).
Results of Operations
On March 28, 1999, we acquired Minnesota Pizza Company, LLC ("Minnesota Pizza"),
a franchisee which operated 37 Papa John's restaurants in the Minneapolis/St.
Paul, Minnesota market. The transaction was accounted for as a pooling of
interests. Our operating results for the first quarter of 1999 and previously
reported results of operations and balance sheets have been restated to include
Minnesota Pizza.
Revenues. Total revenues increased 20.5% to $187.4 million for the three months
ended March 28, 1999, from $155.5 million for the comparable period in 1998.
Restaurant sales increased 18.2% to $94.5 million for the three months ended
March 28, 1999, from $79.9 million for the comparable period in 1998. This
increase was primarily due to an increase of 17.5% in the number of equivalent
Company-owned restaurants open during the three months ended March 28, 1999,
compared to the same period in the prior year. "Equivalent restaurants"
represent the number of restaurants open at the beginning of a given period,
adjusted for restaurants opened or acquired during the period on a weighted
average basis. Also, sales increased 2.9% for the three months ended March 28,
1999, over the comparable period in 1998 for Company-owned restaurants open
throughout both periods due to reduced price discounting during the 1999
quarter.
8
<PAGE>
Franchise royalties increased 30.6% to $9.4 million for the three months ended
March 28, 1999, from $7.2 million for the comparable period in 1998. This
increase was primarily due to an increase of 25.3% in the number of equivalent
franchised restaurants open during the three months ended March 28, 1999,
compared to the same period in the prior year. Also, sales increased 9.2% for
the three months ended March 28, 1999, over the comparable period in 1998 for
franchised restaurants open throughout both periods.
Franchise and development fees increased 33.4% to $1.5 million for the three
months ended March 28, 1999, from $1.1 million for the comparable period in
1998. This increase was primarily due to the 72 franchised restaurants opened
during the quarter, versus the 61 opened during the comparable period in 1998
and the mix of development agreements under which the restaurants were opened.
The average dollar amount of fees per franchised restaurant opening may vary
from period to period, as restaurants opened pursuant to older development
agreements and certain "Hometown restaurants" generally have lower required fees
than restaurants opened pursuant to more recent development agreements.
"Hometown restaurants" are generally located in smaller markets with fewer than
9,000 households. Hometown restaurant development agreements entered into
subsequent to March 1998, generally provide for fees equivalent to those under
standard development agreements.
Commissary sales increased 24.3% to $70.0 million for the three months ended
March 28, 1999, from $56.3 million for the comparable period in 1998. This
increase was primarily the result of the increases in equivalent franchised
restaurants previously noted.
Equipment and other sales increased 9.8% to $12.0 million for the three months
ended March 28, 1999, from $10.9 million for the comparable period in 1998. This
increase was primarily due to ongoing equipment and smallwares orders related to
the previously noted increase in equivalent franchised restaurants and the
increase in the number of new restaurant equipment packages sold to franchisees
that opened restaurants during the first quarter of 1999 as compared to the same
period in 1998. The increase was partially offset by the decrease in sales of
the Papa John's PROFIT System, a proprietary point of sale system, for the three
months ended March 28, 1999, compared to the same period in 1998. Substantially
all franchisees had installed the Papa John's PROFIT System by March 29, 1998.
Costs and Expenses. Restaurant cost of sales, which consists of food, beverage
and paper costs, decreased as a percentage of restaurant sales to 24.6% for the
three months ended March 28, 1999, from 26.6% for the comparable period in 1998.
This decrease is primarily attributable to reduced restaurant menu price
discounting during the 1999 quarter.
Restaurant salaries and benefits (26.8% and 26.7%), occupancy costs (4.9% and
4.8%) and advertising and related costs (8.6% and 8.8%) were relatively
consistent as a percentage of restaurant sales for the three months ended March
28, 1999 and March 29, 1998.
Other restaurant operating expenses increased as a percentage of restaurant
sales to 13.5% for the three months ended March 28, 1999, from 13.2% for the
comparable period in 1998. The increase in other operating expenses as a
percentage of restaurant sales was primarily due to costs related to preparation
for the 14th anniversary promotion in April 1999. Other operating expenses
include an allocation of commissary operating expenses equal to 3% of Company-
owned restaurant sales in order to assess a portion of the costs of dough
production and food and equipment purchasing and storage to Company-owned
restaurants.
Commissary, equipment and other expenses include cost of sales and operating
expenses associated with sales of food, paper, equipment, information systems,
and printing and promotional items to franchisees and other customers. These
costs decreased as a percentage of combined commissary sales and equipment and
other sales to 91.2% for the three months ended March 28, 1999, as compared to
91.9% for the same period in 1998. Cost of sales as a percentage of combined
commissary sales and equipment and other sales decreased to 76.0% for the three
months ended March 28, 1999, from 78.3% for the comparable period in 1998. This
decrease is due primarily to the timing of certain favorable commodity price
changes and the change in classification of certain expenses to salaries and
benefits previously reported as cost of sales. Salaries and benefits increased
to 6.8% for the three months ended March 28, 1999, from 5.8% for the comparable
period in 1998 due primarily to the change in classification of certain expenses
previously reported in cost of sales and general and administrative expenses.
Other operating expenses increased to 8.4% for the three months ended March 28,
1999, from 7.8% for the comparable period in 1998, due primarily to higher
delivery costs related to the transition to a new distribution vendor and costs
related to preparation for the 14th anniversary promotion in April 1999.
9
<PAGE>
General and administrative expenses as a percentage of total revenues decreased
to 7.5% for the three months ended March 28, 1999, from 8.1% for the comparable
period in 1998 due to leveraging expenses on a higher sales base and the
classification of certain expenses to commissary, equipment and other salaries
and benefits previously reported as general and administrative expenses.
Pre-opening and other general expenses increased slightly to $1.4 million for
the three months ended March 28, 1999, from $1.2 million for the comparable
period in 1998. The increase was primarily due to losses related to the
divestiture of five stores and closure of one store, partially offset by lower
restaurant pre-opening expenses. Restaurant pre-opening costs decreased due to
the lower number of corporate restaurant openings in the first quarter of 1999
compared to the same period in 1998.
Depreciation and amortization was consistent as a percentage of total revenues
at 3.0% in both quarters.
Investment Income. Investment income decreased to $792,000 at March 28, 1999,
compared to $976,000 for the comparable period in 1998 primarily due to a lower
average balance of franchise loans in the first quarter of 1999 as compared to
the same period in 1998.
Income Tax Expense. Income tax expense, exclusive of Minnesota Pizza operating
results, reflects a combined federal, state and local effective tax rate of
37.5% for the three months ended March 28, 1999, compared to 37.0% for the
comparable period in 1998 (see note 3). The effective tax rate in 1999 increased
as a result of a relative decrease in the level of tax-exempt investment income
to total pre-tax income.
Liquidity and Capital Resources
We require capital primarily for the development and acquisition of restaurants,
the addition of new commissary and support services facilities and equipment,
the enhancement of corporate systems and facilities and the funding of
franchisee loans. Capital expenditures of $25.2 million for the three months
ended March 28, 1999, were funded by cash flow from operations and cash
generated from the exercise of stock options. Subsequent to March 28, 1999, we
have also retired $7.5 million of debt assumed in connection with our
acquisition of Minnesota Pizza.
Cash flow from operations increased to $20.3 million for the three months ended
March 28, 1999, from $17.2 million for the comparable period in 1998, due
primarily to the higher level of net income for the first quarter of 1999
partially offset by increases in other components of working capital.
In addition to restaurant development and potential acquisitions, significant
capital projects for the next 12 months are expected to include a full-service
commissary in Dallas, Texas by mid-1999. In mid-1999, we also expect to open a
247,000 square foot facility in Louisville, Kentucky, approximately 30-40% of
which will accommodate relocation and expansion of the Louisville commissary
operations and Support Services promotional division, and the remainder of which
will accommodate relocation and consolidation of corporate offices. In early-
2000, we expect to open a full-service commissary in Pittsburgh, Pennsylvania
and complete the expansion and relocation of the Phoenix, Arizona distribution
center to a full-service commissary.
We have been approved to receive up to $21.0 million in incentives under the
Kentucky Jobs Development Act in connection with the relocation of our corporate
offices. Based upon the expected timing of completion of the facility, we expect
to earn approximately $14.0 million of such incentives through 2007.
Capital resources available at March 28, 1999, include $37.4 million of cash and
cash equivalents, $47.1 million of investments and $18.5 million under a line of
credit expiring in June 1999. We expect to fund planned capital expenditures for
the next twelve months from these resources and operating cash flows.
Impact of Year 2000
Some of our older purchased software programs were written using two digits
rather than four to define the applicable year. As a result, time-sensitive
software or hardware recognizes a date using "00" as the year 1900 rather than
the year 2000. This could cause a system failure or miscalculations resulting in
disruptions of important administrative and operational processes, including,
among other things, a temporary inability to process transactions, send
invoices, or engage in similar normal business activities.
10
<PAGE>
Our year 2000 evaluation has been ongoing since late 1997 and became more
formalized in January 1999 with the formation of a committee comprised of senior
management from various departments within the Company. The primary goal of the
committee is to assess and mitigate risk associated with year 2000 issues by
September 1999. The committee developed a three-phased approach to accomplish
this goal consisting of the following: (1) identifying and documenting the
business components impacted by the year 2000, both internally and externally,
assigning priority to those components identified based on the level of risk,
and determining year 2000 compliance; (2) performing tests for year 2000
compliance; and (3) developing contingency plans based upon the results of the
risk analysis and testing phases. We completed the first phase of our assessment
in April 1999 and are currently in the second phase with a target completion
date of July 1999. The third phase is targeted for completion in September 1999.
As part of the first phase, we completed an assessment of our internal
information technology and will have to modify or replace certain software and
hardware to function properly in the year 2000 and thereafter. Such
modifications started during phase one and will continue through phase two of
our project. Based on our assessment or representations from software suppliers,
or both, we believe the total year 2000 project cost is immaterial to our
financial position, net income and liquidity. Much of the cost related to year
2000 changes coincides with company plans to replace certain systems, including
the financial accounting and payroll/human resource systems, which was upgraded
in January 1999, in order to accommodate our planned growth. About 70% of the
new financial accounting system has been implemented and the remaining portion
is expected to be implemented by June 1999. Based upon the representations from
the manufacturers of these systems, we believe the systems are year 2000
compliant. The timing of implementation was not materially affected by year 2000
concerns.
We have taken action to ensure that our restaurant system is year 2000 compliant
by implementing a single point of sale operating system (Papa John's PROFIT
System) in all Company-owned and substantially all franchised restaurants.
Additionally, we have notified our franchisees of our year 2000 process and have
requested their assistance in ensuring year 2000 compliance with regard to their
business.
We believe that with the planned modifications to existing software and/or
conversions to new software and hardware as described above, the year 2000 issue
will not pose significant operational problems. However, if such modifications
and conversions are not made, or are not completed timely, the year 2000 issue
could have a material impact on certain administrative and operational
processes.
We have queried our significant vendors with respect to year 2000 issues and
have received responses from approximately 95% of the vendors, including our
cheese and tomato sauce vendors. We are not aware of any vendors with a year
2000 issue that would materially impact results of operations, liquidity, or
capital resources. However, we have no means of ensuring that vendors will be
year 2000 ready. The inability of vendors to complete their year 2000 resolution
process in a timely fashion could materially impact us, although the actual
impact of non-compliance by vendors is not determinable.
There can be no assurance that we will be completely successful in our efforts
to address year 2000 issues. We have no contingency plans in place in the event
we do not complete all phases of the year 2000 program. We plan to evaluate the
status of completion in July 1999 to determine whether such contingency plans
are necessary, although at this time we know of no reason our year 2000 program
will not be completed in a timely manner.
Forward Looking Statements
Certain information contained in this quarterly report, particularly information
regarding future financial performance and plans and objectives of management,
is forward looking. Certain factors could cause actual results to differ
materially from those expressed in forward looking statements. These factors
include, but are not limited to, our ability and the ability of our franchisees
to obtain suitable locations and financing for new restaurant development; the
hiring, training, and retention of management and other personnel; competition
in the industry with respect to price, service, location and food quality; an
increase in food cost due to seasonal fluctuations, weather or demand; changes
in consumer tastes or demographic trends; changes in federal or state laws, such
as increases in minimum wage; risks inherent to international development; and
factors associated with the year 2000 evaluation and modifications.
11
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On August 12, 1998, Pizza Hut, Inc. filed suit against us in the United States
District Court for the Northern District of Texas under the federal Lanham Act
(the "Lawsuit") claiming, among other things, that we engaged in acts of unfair
competition through dissemination of "false, misleading and disparaging
advertising", including without limitation, the use of our "Better Ingredients.
Better Pizza." trademark. Pizza Hut is seeking injunctive relief and damages in
an amount of not less than $12.5 million, attorneys' fees, as well as other
relief. We have filed counterclaims against Pizza Hut (the "Counterclaims")
claiming, among other things, that the Lawsuit was filed primarily, if not
solely, as a competitive ploy and that Pizza Hut had engaged in false,
misleading and disparaging advertising aimed at us. We have asked the court for
an award of our reasonable attorneys' fees, as well as for other relief to which
we may be entitled. This Lawsuit and Counterclaims are in the mid-stages of
pleading and discovery. A trial has been scheduled for October 25, 1999. We do
not believe the Lawsuit has merit and intend to vigorously defend the claims
asserted against us. It is too early to assess the likelihood of success on the
merits of the parties' respective claims.
We are also subject to claims and legal actions in the ordinary course of our
business. We believe that all such claims and actions currently pending against
us are either adequately covered by insurance or would not have a material
adverse effect on us if decided in a manner unfavorable to us.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
10.1 Acquisition Agreement dated March 29, 1999, with
the Minnesota Pizza Company
10.2 Discretionary Line of Credit Letter Agreement with
PNC Bank
10.3 Discretionary Line of Credit Note with PNC Bank
11 Calculation of Earnings per Share
27.1 Financial Data Schedule for the quarter ended March
28, 1999, which is submitted electronically to the
Securities and Exchange Commission for information
only and not deemed to be filed with the
Commission.
27.2 Restated Financial Data Schedule including columns
for the quarters ended September 27, 1998, June 28,
1998 and March 29, 1998 and fiscal year ended
December 27, 1998. The schedule is submitted
electronically to the Securities and Exchange
Commission for information only and is not deemed
to be filed with the Commission.
99.1 Cautionary Statements. Exhibit 99.1 to our Annual
Report on Form 10-K for the fiscal year ended
December 27, 1998 (Commission File No. 0-21660) is
incorporated herein by reference.
</TABLE>
b. Current Reports on Form 8-K.
There were no reports filed on Form 8-K during the quarterly period ended
March 28, 1999.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PAPA JOHN'S INTERNATIONAL, INC.
(Registrant)
Date: May 11, 1999 /s/ E. Drucilla Milby
----------------- -----------------------------------
E. Drucilla Milby, Senior Vice
President, Chief Financial Officer
and Treasurer
13
<PAGE>
ACQUISITION AGREEMENT
---------------------
THIS ACQUISITION AGREEMENT (the "Agreement") is made this 29th day of March
1999, by and among (i) all the members of the Minnesota Pizza Company LLC, a
Delaware limited liability company ("MPC"), as listed on the signature page
hereto (the "Members"), (ii) PAPA JOHN'S USA, INC., a Kentucky corporation
(Acquiror"), and (iii) PAPA JOHN'S INTERNATIONAL, INC., a Delaware CORPORATION
("Papa John's").
RECITALS:
--------
A. MPC is engaged in the operation of 37 traditional John's Pizza outlets,
one non-traditional outlet and a mobile kitchen located in the Minneapolis
metropolitan area (the "Outlets").
B. MPC, the Members and Acquiror are parties to that certain Put/Call
Agreement dated September 26, 1995 (the "Put Agreement"). MPC, the Members and
Acquiror have agreed to terminate the Put Agreement.
C. The Members and Acquiror desire to combine their ownership interests in
Acquiror and MPC. The Members and Acquiror desire the transaction to qualify
for the pooling-of-interests method of accounting.
D. Papa John's is the parent company of Acquiror.
AGREEMENT:
---------
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereby agree as follows:
1. EXCHANGE OF INTERESTS. Upon the terms and subject to the conditions
---------------------
set forth herein, all of the Members hereby agree to transfer, convey, assign
and deliver to Acquiror, and Acquiror hereby agrees to acquire from the Members,
all of the ownership interests of MPC (the "Acquired Interests") in exchange for
ownership interests in Papa John's, as follows:
(a) VALUATION OF OWNERSHIP INTERESTS. Subject to subsection 1(b), Papa
--------------------------------
John's agrees to deliver to the Members on the Closing Date (as defined in
Section 2) in exchange for the Acquired Interests that number of shares of Papa
John's Common Stock, par value, $.01 per share (the "Common Stock"), having an
aggregate value equal to the "Preliminary Ownership Value" (the "Shares"). For
purposes of this calculation, the Preliminary Ownership Value is defined as
$17,526,000 minus the "Preliminary Net Liabilities" of MPC. The Preliminary Net
Liabilities are based upon the unaudited balance sheet of MPC as of February 21,
1999, prepared in accordance with generally accepted accounting principles
("GAAP"), excluding treatment of subscriptions receivable, attached as part of
Schedule 1 (the "Preliminary Balance Sheet"), and are calculated as total assets
- ----------
minus net fixed assets minus
<PAGE>
intangible assets minus total liabilities. The parties agree that the
Preliminary Ownership Value is $5,380,000. The Shares will be issued by Papa
John's on the Closing Date pursuant to the terms of its Registration Statement
on Form S-4 (Reg. No. 33-96577), which was declared effective by the Securities
and Exchange Commission on September 12, 1995 and which registers the issuance
and sale from time to time of up to 750,000 shares of the Common Stock (as
amended to date, the "Registration Statement"). The number of Shares shall be
determined by dividing the Preliminary Ownership Value by $42.00 (the
"Settlement Stock Price"). Each Member shall receive a percentage of the total
number of Shares equal to the percentage set forth opposite such Member's name
on Schedule 2; provided that, no fractional shares of Common Stock shall be
----------
issued to any Member, and, in lieu thereof, cash equal to such fraction
multiplied by the Settlement Stock Price shall be paid to any Member who would
otherwise receive a fractional share of Common Stock hereunder.
(b) RESERVE AND SETTLEMENT. At the Closing, Acquiror shall cause its
----------------------
transfer agent to retain in escrow that number of Shares having an aggregate
value at the Settlement Stock Price equal to $100,000 (the "Reserve Shares").
The Reserve Shares shall be held in escrow for 120 days following the Closing
("Reserve Period"), and may be used by Papa John's or Acquiror to satisfy any
"Settlement Adjustment" or indemnification obligations of the Members under this
Agreement. The Settlement Adjustment, if any, will be calculated no later than
120 days after the Closing Date to reflect any differences between the
Preliminary Ownership Value and the "Settlement Ownership Value." The
Settlement Ownership Value will be calculated in the same manner as the
Preliminary Ownership Value except that Net Liabilities will be determined based
upon the Closing Balance Sheet (as defined in Section 1(c)). If the difference
between the Settlement Ownership Value and the Preliminary Ownership Value is
less than $50,000 (whether positive or negative), then no further adjustment
shall be made. If the Preliminary Ownership Value exceeds the Settlement
Ownership Value by more than $50,000 but less than $100,000, Acquiror and Papa
John's shall be entitled to retain that number of the Reserve Shares having an
aggregate value (determined on the basis of the Settlement Stock Price) equal to
the difference between the Settlement Ownership Value and the Preliminary
Ownership Value. Any Reserve Shares not applied against any Settlement
Adjustment or indemnification obligations shall be delivered by the transfer
agent to the Members pro rata in accordance with Schedule 2 following the
expiration of the Reserve Period. If the Settlement Ownership Value exceeds the
Preliminary Ownership Value by more than $50,000, Acquiror and Papa John's shall
deliver to the Members a number of shares of Common Stock (the "Settlement
Adjustment Shares") having an aggregate value (determined on the basis of the
Settlement Stock Price) equal to the difference between the Settlement Ownership
Value and the Preliminary Ownership Value; provided that, no fractional shares
of Common Stock shall be issued to any Member, and, in lieu thereof, cash equal
to such fraction multiplied by the Settlement Stock Price shall be paid to any
Member who would otherwise receive a fractional share of Common Stock hereunder.
The Settlement Adjustment Shares (plus any cash paid in lieu of fractional
shares) shall be allocated among the Members in accordance with Section 1(a).
If the Preliminary Ownership Value exceeds the Settlement Ownership Value by
more than $100,000, Acquiror and Papa John's shall be entitled to retain all of
the Reserve Shares. Additionally, the Members will be required to deliver to
Acquiror and Papa John's a number of shares of Common
-2-
<PAGE>
Stock (the "Members' Settlement Adjustment Shares") having an aggregate value
(determined on the basis of the Settlement Stock Price) equal to the excess of
the Preliminary Ownership Value over the Settlement Ownership Value, less
$100,000. At their election, the Members may choose to deliver the value of the
Members' Settlement Adjustment Shares in cash rather than in Common Stock.
(c) CLOSING BALANCE SHEET. Within 30 days after the Closing Date,
---------------------
Michael T. Sweeney and W. Patrick Kranz (the "Management Team") shall deliver to
Acquiror an unaudited balance sheet for MPC as of the Closing Date (the "Closing
Balance Sheet") prepared in accordance with GAAP, excluding treatment of
subscriptions receivable, from the books and records of MPC, together with its
calculation of the Net Liabilities and the Settlement Ownership Value based on
such Closing Balance Sheet. Any dispute over the accuracy of the Closing
Balance Sheet or the amount of the Settlement Ownership Value must be raised by
Acquiror in writing within 40 days of receipt of the Closing Balance Sheet from
the Management Team or Acquiror shall be deemed to have accepted the Closing
Balance Sheet, the Net Liabilities and the Settlement Ownership Value derived
from such balance sheet. If there is a dispute regarding the accuracy of the
Closing Balance Sheet or the amount of the Net Liabilities or the Settlement
Ownership Value which cannot be resolved by good faith negotiations between the
parties within 20 days after the Management Team's receipt of the written notice
of dispute, such dispute shall be submitted to a single arbitrator with
knowledge of accountancy and employed by the Chicago office of a mutually
agreeable "Big Five" accounting firm (the "Adjustment Arbitrator") who shall be
instructed to make a final, binding determination of the Settlement Ownership
Value within 30 days of being appointed. The Adjustment Arbitrator shall
calculate the amount of the Net Liabilities and the Settlement Ownership Value
in a manner consistent with the provisions of this Agreement and in accordance
with the Commercial Arbitration Rules of the American Arbitration Association.
The Members collectively, on the one hand, and Acquiror and Papa John's
collectively, on the other, shall bear their own fees and expenses in connection
with such arbitration and shall bear 50% of the fees and expenses of the
Adjustment Arbitrator. The determination of the Adjustment Arbitrator regarding
the Closing Balance Sheet, the Net Liabilities and the Settlement Ownership
Value shall be final and binding on all parties and judgment to enforce such
determination may be entered in any court having proper jurisdiction over the
party obligated to pay hereunder.
(d) SPECIFIC OBLIGATIONS. The only obligations of any nature of MPC
--------------------
being assumed by Acquiror are (a) the obligations of MPC under the terms of the
Leases arising after the Closing Date, (b) the obligations of MPC for telephone
listings for each of the Outlets arising after the date hereof, (c) the
obligations incurred with respect to the operation of the Outlets arising after
the Closing, (d) any other obligations that are prorated pursuant to the
remaining provisions of this Agreement and (e) any other obligations expressly
set forth on the Closing Balance Sheet including, without limitation, the total
liabilities of MPC on the Closing Balance Sheet (collectively, the "Specific
Obligations").
(e) ALLOCATION OF PURCHASE PRICE. For state and federal income tax
----------------------------
purposes, the parties have allocated the Preliminary Ownership Value to the
assets of the Company in the
-3-
<PAGE>
manner set forth on Exhibit A hereto, and shall update such Exhibit A as of the
Closing Date with respect to the Settlement Ownership Value in a manner
consistent with such Exhibit A. The parties hereto shall prepare for filing all
returns, declarations, reports, estimates, information returns and statements
required to be filed or sent by such party to any applicable taxing authority
with respect to the transactions contemplated by this Agreement in a manner
consistent with such agreed allocation. The parties hereto agree to provide each
other with such information as may be reasonably required by the other party for
the purpose of preparing such returns and other documents filed by such other
party.
2. CLOSING. The deliveries and actions to be completed pursuant to
-------
Section 11 of this Agreement ("Closing") shall be held at the offices of
Acquiror at 9:00 A.M. on March 29, 1999, or such later date and time as the
parties shall mutually agree. Notwithstanding the date or time of the Closing,
the effective date and time of the acquisition shall be 11:59 p.m. E.S.T. on
March 28, 1999 ("Closing Date").
3. REPRESENTATIONS AND WARRANTIES OF MEMBERS. The Members, jointly and
-----------------------------------------
severally, represent and warrant to Acquiror that except as described on
Schedule 3 (the "Disclosure Schedule"):
- ----------
(a) ORGANIZATION AND STANDING OF MPC. MPC is a limited liability
--------------------------------
company duly organized, validly existing and in good standing under the laws of
the State of Delaware. The Members own 100% of the issued and outstanding
ownership interests of MPC. There are no outstanding options, warrants or other
rights of any nature to acquire any ownership interest in MPC. MPC has the
requisite power and authority to own and lease its properties as such properties
are now owned and leased and to conduct this business as and where such business
is now being conducted.
(b) FINANCIAL STATEMENTS. MPC has delivered to Acquiror the
--------------------
Preliminary Balance Sheet and an unaudited Statement of Income ("Preliminary
Income Statement") of MPC for the five months ended February 21, 1999, both of
which were prepared from the books and records of MPC. The Preliminary Balance
Sheet and Preliminary Income Statement and notes thereto are referred to as the
"Preliminary Financial Statements." Copies of the Preliminary Financial
Statements are attached hereto as Schedule 1. The Preliminary Balance Sheet
----------
fairly presents in all material respects the financial condition of MPC as of
its date and was prepared in accordance with GAAP (excluding treatment of
subscriptions receivable) applicable to unaudited interim financial statements
(and thus may not contain all notes and may not contain prior period comparative
data which are required to be prepared in accordance with GAAP). The
Preliminary Income Statement represents actual, bona fide transactions and
accurately reflects, in all material respects, all revenues and expenses of MPC
for the period covered.
(c) ABSENCE OF UNDISCLOSED LIABILITIES. As of the Closing Date, MPC
----------------------------------
will have no debts, obligations (including, but not limited to, obligations as a
guarantor) or liabilities of any nature, whether fixed, absolute, accrued,
contingent or otherwise (and whether known or unknown to MPC) that would
encumber or affect MPC's assets or business, other than (i) debts,
-4-
<PAGE>
obligations and liabilities incurred in the ordinary course of business
consistent with past practices, all of which have been paid or would be paid by
MPC in full in the ordinary course of business, and (ii) the Specific
Obligations.
(d) AUTHORIZATION; NO VIOLATION; COMPLIANCE WITH LAWS.
-------------------------------------------------
(i) The Board of Managers of MPC has duly approved the
execution, delivery and performance of this Agreement. This Agreement has been
duly executed and delivered by MPC and constitutes the legal, valid and binding
obligation of MPC, enforceable against MPC in accordance with its terms, SUBJECT
TO APPLICABLE BANKRUPTCY, INSOLVENCY, REORGANIZATION, MORATORIUM OR OTHER
SIMILAR LAWS NOW OR HEREAFTER IN EFFECT RELATING TO CREDITORS' RIGHTS AND
REMEDIES GENERALLY AND SUBJECT, AS TO ENFORCEABILITY, TO GENERAL PRINCIPLES OF
EQUITY (REGARDLESS OF WHETHER ENFORCEABILITY IS CONSIDERED IN A PROCEEDING AT
LAW OR IN EQUITY).
(ii) All consents, approvals, resolutions, authorizations,
actions or orders, including, without limitation, those which must be obtained
from the landlords of the Outlets, required of MPC for the authorization,
execution and delivery of, and for the consummation of the transactions
contemplated by, this Agreement have been or will (prior to Closing) be
obtained.
(iii) MPC is in compliance, and in each case, in all material
respects, with all the laws, regulations, rules and orders affecting its
business and operations, and neither member of the Management Team has actual
knowledge of any facts or circumstances which would constitute or result in any
such non-compliance.
(e) MPC'S EMPLOYEES; EMPLOYEE WITHHOLDING. MPC has paid all amounts
-------------------------------------
due to its employees, including all overtime required by law. MPC has withheld
proper and accurate amounts from its employees in compliance with the tax
withholding provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), and other applicable, federal, state or local laws, and has filed
proper and accurate federal, state and local returns and reports (or appropriate
filings for extension) for all years and periods (and portions thereof) for
which any such returns and reports were due with respect to employee income,
income tax withholding, withholding taxes, social security taxes and
unemployment taxes. All payments due from MPC on account of employee income tax
withholding, withholding taxes, social security taxes and unemployment taxes and
amounts owed for workers' compensation in respect of years and periods (and
portions thereof) ended on or prior to the date hereof have been paid prior to
such date or have been properly reserved for payment (and will be so reflected
on the Closing Balance Sheet).
(f) LEASES. MPC has paid all amounts due under each of the
------
Timberwolves/Target Center contracts and leases listed on Schedule 4 (the
----------
"Leases") through the end of the month of March 1999. Each of the Leases for
the Outlets is valid, binding and in full force and effect. MPC is not in
default under any Lease, there is no material dispute between
-5-
<PAGE>
MPC and the landlord to any such Lease, nor, to the knowledge of either member
of the Management Team, is the landlord under any of the Leases in default
thereunder. To the knowledge of the Management Team, no event has occurred which
could give the landlord under any of the Leases the right to claim a default and
the consummation of the transactions contemplated by this Agreement will not
cause a default under any such Lease. Schedule 4 includes a complete list of all
----------
the Leases. A true and complete summary of each Lease has been delivered to
Acquiror on or prior to the date hereof.
(g) TAX RETURNS. MPC has prepared, signed and filed all federal,
-----------
state and other tax returns and reports (or appropriate filings for extension)
required to be filed by all applicable laws and regulations on or before the
date hereof, and has timely paid or accrued all taxes or installments thereof,
interest, penalties, assessments and deficiencies of every kind and nature
whatsoever which were due and owing on such tax returns and reports or which
were or are otherwise due and owing under all applicable laws and regulations
for any periods for which returns or reports were due, whether or not reflected
on such returns and reports. There are no actions, suits, proceedings,
investigations or claims now pending, nor, to the knowledge of either member of
the Management Team, proposed, against MPC, nor are there any matters under
discussion with the Internal Revenue Service, or other governmental authority,
relating to any taxes or assessments, or any claims of deficiencies with respect
thereto.
(h) TITLE TO PROPERTIES; CONDITION OF PROPERTIES. MPC has good and
--------------------------------------------
marketable title to all of the assets and properties identified as owned on the
Preliminary Balance Sheet, free and clear of all claims, mortgages, security
interests, equities, restrictions, liens, pledges, charges or encumbrances of
any nature whatsoever, except for (i) liens reflected on the Preliminary Balance
Sheet, (ii) liens set forth in the Disclosure Schedule under the caption
referencing this Section 3(h), (iii) liens for taxes and assessments or
governmental charges or levies not at the time due or the validity of which is
being currently contested in good faith in appropriate proceedings, (iv) liens
in respect of pledges or deposits or deposits under worker's compensation laws
or similar legislation, carriers', warehousemen's mechanics', laborers',
materialmen's and other statutory and similar liens, (v) the Specific
Obligations and any liens existing in connection therewith and (vi) assets
disposed of since the date of the Preliminary Balance Sheet in the ordinary
course of business.
(i) ENVIRONMENTAL. MPC has complied in all material respects with all
-------------
state, federal and local laws and ordinances pertaining to use, storage and
disposal of hazardous materials.
(j) STATEMENTS. THE REPRESENTATIONS SET FORTH IN THIS SECTION 3, WHEN
----------
TAKEN TOGETHER WITH THE DISCLOSURES SET FORTH IN THE DISCLOSURE SCHEDULE AND THE
INFORMATION CONTAINED IN THE PRELIMINARY FINANCIAL STATEMENTS, TAKEN AS A WHOLE,
DO NOT CONTAIN AN UNTRUE STATEMENT OF A MATERIAL FACT OR OMIT TO STATE A
MATERIAL FACT REQUIRED TO BE STATED IN CONNECTION THEREWITH OR NECESSARY IN
ORDER TO MAKE SUCH STATEMENTS (WHEN TAKEN AS A WHOLE) NOT MISLEADING.
-6-
<PAGE>
4. REPRESENTATIONS AND WARRANTIES OF EACH MEMBER. Each Member, for
---------------------------------------------
himself or herself alone, represents and warrants to Acquiror:
(a) OWNERSHIP OF INTERESTS. Such Member owns the percentage interest
----------------------
in MPC set forth opposite such Member's name on Schedule 2 hereto, and will
----------
transfer and convey such interest(s) to Acquiror at the Closing, free of all
claims, liens and encumbrances of any nature whatsoever. Such Member holds no
ownership interest in MPC, nor any option, warrant or other right to acquire any
ownership interest in MPC, except as set forth on Schedule 2.
----------
(b) AUTHORIZATION. This Agreement has been duly executed and
-------------
delivered by such Member and constitutes the legal, valid and biding obligation
of such Member, enforceable against such Member in accordance with its terms,
SUBJECT TO APPLICABLE BANKRUPTCY, INSOLVENCY, REORGANIZATION, MORATORIUM OR
OTHER SIMILAR LAWS NOW OR HEREAFTER IN EFFECT RELATING TO CREDITORS' RIGHTS AND
REMEDIES GENERALLY AND SUBJECT, AS TO ENFORCEABILITY, TO GENERAL PRINCIPLES OF
EQUITY (REGARDLESS OF WHETHER ENFORCEABILITY IS CONSIDERED IN A PROCEEDING AT
LAW OR IN EQUITY).
(c) SECURITIES REPRESENTATIONS. Such Member acknowledges receipt of
--------------------------
(i) the Prospectus dated September 12, 1995, as updated to November 5, 1998
(the "Prospectus"), which forms a part of the Registration Statement, and (ii)
Papa John's Annual Form 10-K for the year ended December 27, 1998.
5. REPRESENTATIONS AND WARRANTIES OF ACQUIROR. Acquiror hereby
------------------------------------------
represents and warrants to each of the Members as follows:
(a) ORGANIZATION AND STANDING OF ACQUIROR. Acquiror is a corporation
-------------------------------------
duly organized, validly existing and in good standing under the laws of the
Commonwealth of Kentucky. Acquiror has the requisite corporate power and
authority to own and lease its properties as such properties are now owned and
leased and to conduct its business as and where such business is now being
conducted.
(b) AUTHORIZATION; NO VIOLATIONS; COMPLIANCE WITH LAWS.
--------------------------------------------------
(i) The Board of Directors of Acquiror has duly approved the
execution, delivery and performance of this Agreement. This Agreement has been
duly executed and delivered by Acquiror and constitutes the legal, valid and
binding obligation of Acquiror, enforceable against Acquiror in accordance with
its terms, SUBJECT TO APPLICABLE BANKRUPTCY, INSOLVENCY, REORGANIZATION,
MORATORIUM OR OTHER SIMILAR LAWS NOW OR HEREAFTER IN EFFECT RELATING TO
CREDITORS' RIGHTS AND REMEDIES GENERALLY AND SUBJECT, AS TO ENFORCEABILITY, TO
GENERAL PRINCIPLES OF EQUITY (REGARDLESS OF WHETHER ENFORCEABILITY IS CONSIDERED
IN A PROCEEDING AT LAW OR IN EQUITY).
-7-
<PAGE>
(ii) All consents, approvals, resolutions, authorizations,
actions or orders required of Acquiror for the authorization, execution and
delivery of, and for the consummation of the transactions contemplated by, this
Agreement have been obtained.
(iii) Acquiror is in compliance, in each case, in all material
respects, with all laws, regulations, rules and orders affecting its business
and operations.
6. REPRESENTATIONS AND WARRANTIES OF PAPA JOHN'S. Papa John's hereby
---------------------------------------------
represents and warrants to each of the Members as follows:
(a) ORGANIZATION AND STANDING OF PAPA JOHN'S. PAPA JOHN'S IS A
----------------------------------------
CORPORATION DULY ORGANIZED, VALIDLY EXISTING AND IN GOOD STANDING UNDER THE LAWS
OF THE STATE OF DELAWARE. PAPA JOHN'S HAS THE REQUISITE POWER AND AUTHORITY TO
OWN AND LEASE ITS PROPERTIES AS SUCH PROPERTIES ARE NOW OWNED AND LEASED AND TO
CONDUCT ITS BUSINESS AS AND WHERE SUCH BUSINESS IS NOW BEING CONDUCTED.
(B) AUTHORIZATIONS; NO VIOLATIONS; COMPLIANCE WITH LAWS.
---------------------------------------------------
(I) PAPA JOHN'S HAS DULY APPROVED THE EXECUTION, DELIVERY AND
PERFORMANCE OF THIS AGREEMENT. THIS AGREEMENT HAS BEEN DULY EXECUTED AND
DELIVERED BY PAPA JOHN'S AND CONSTITUTES THE LEGAL, VALID AND BINDING
OBLIGATIONS OF PAPA JOHN'S, ENFORCEABLE AGAINST PAPA JOHN'S IN ACCORDANCE WITH
ITS TERMS, SUBJECT TO APPLICABLE BANKRUPTCY, INSOLVENCY, REORGANIZATION,
MORATORIUM OR OTHER SIMILAR LAWS NOW OR HEREAFTER IN EFFECT RELATING TO
CREDITORS' RIGHTS AND REMEDIES GENERALLY AND SUBJECT, AS TO ENFORCEABILITY, TO
GENERAL PRINCIPLES OF EQUITY (REGARDLESS OF WHETHER ENFORCEABILITY IS CONSIDERED
IN A PROCEEDING AT LAW OR IN EQUITY).
(II) ALL CONSENTS, APPROVALS, RESOLUTIONS, AUTHORIZATIONS,
ACTIONS OR ORDERS, REQUIRED OF PAPA JOHN'S FOR THE AUTHORIZATION, EXECUTION AND
DELIVERY OF, AND FOR THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED BY, THIS
AGREEMENT HAVE BEEN OBTAINED, INCLUDING, WITHOUT LIMITATION, ALL ACTIONS
REQUIRED BY THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES OR "BLUE SKY"
LAWS WITH RESPECT TO THE OFFER AND ISSUANCE OF THE SHARES AND THE SETTLEMENT
ADJUSTMENT SHARES.
(iii) Papa John's is in compliance, in each case, in all material
respects, with all laws, regulations, rules and orders affecting its business
and operations.
(C) SEC REPORTS.
-----------
(I) SINCE JANUARY 1, 1995, PAPA JOHN'S HAS FILED ALL FORMS,
REPORTS AND DOCUMENTS WITH THE SECURITIES AND EXCHANGE
-8-
<PAGE>
COMMISSION (THE "SEC") REQUIRED TO BE FILED BY IT PURSUANT TO THE FEDERAL
SECURITIES LAWS AND THE SEC RULES AND REGULATIONS THEREUNDER, ALL OF WHICH HAVE
COMPLIED AS OF THEIR RESPECTIVE FILING DATES, OR IN THE CASE OF REGISTRATION
STATEMENTS (INCLUDING THE REGISTRATION STATEMENT), THEIR RESPECTIVE EFFECTIVE
DATES, IN ALL MATERIAL RESPECTS WITH ALL APPLICABLE REQUIREMENTS OF THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"), AND THE RULES AND
REGULATIONS PROMULGATED THEREUNDER (COLLECTIVELY, THE "SEC REPORTS"). NONE OF
SUCH SEC REPORTS, INCLUDING, WITHOUT LIMITATION, ANY EXHIBITS, FINANCIAL
STATEMENTS OR SCHEDULES INCLUDED THEREIN, AT THE TIME FILED, OR IN THE CASE OF
REGISTRATION STATEMENTS, THEIR RESPECTIVE EFFECTIVE DATES, CONTAINED ANY UNTRUE
STATEMENT OF A MATERIAL FACT OR OMITTED TO STATE A MATERIAL FACT REQUIRED TO BE
STATED THEREIN OR NECESSARY IN ORDER TO MAKE THE STATEMENTS THEREIN, IN LIGHT OF
THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING.
(II) THE CONSOLIDATED BALANCE SHEETS AND RELATED CONSOLIDATED
STATEMENTS OF INCOME, STOCKHOLDERS' EQUITY AND CASH FLOWS (INCLUDING THE RELATED
NOTES AND SCHEDULES THERETO) OF PAPA JOHN'S INCLUDED IN THE SEC REPORTS COMPLIED
AS TO FORM, AT THE TIME FILED, IN ALL MATERIAL RESPECTS WITH THE PUBLISHED RULES
AND REGULATIONS OF THE SEC WITH RESPECT THERETO AT THE TIME FILED, WERE PREPARED
IN ACCORDANCE WITH GAAP APPLIED ON A CONSISTENT BASIS DURING THE PERIODS
INVOLVED (EXCEPT AS DISCLOSED) AND INCLUDE ALL ADJUSTMENTS CONSISTING OF NORMAL
RECURRING ACCRUALS NECESSARY (IN THE CASE OF UNAUDITED INTERIM FINANCIAL
STATEMENTS) AND PRESENT FAIRLY THE CONSOLIDATED FINANCIAL POSITION OF PAPA
JOHN'S AS OF THEIR RESPECTIVE DATES, AND THE CONSOLIDATED INCOME AND CASH FLOWS
FOR THE PERIODS PRESENTED THEREIN, ALL IN CONFORMITY WITH GAAP APPLIED ON A
CONSISTENT BASIS, EXCEPT AS OTHERWISE NOTED THEREIN OR AS PERMITTED UNDER THE
EXCHANGE ACT.
(D) ABSENCE OF CERTAIN CHANGES OR EVENTS. EXCEPT AS DISCLOSED IN THE
------------------------------------
SEC REPORTS, OR AS CONTEMPLATED BY THIS AGREEMENT, SINCE DECEMBER 27, 1998, THE
BUSINESS OF PAPA JOHN'S HAS BEEN CARRIED ON ONLY IN THE ORDINARY AND USUAL
COURSE AND THERE HAS NOT BEEN ANY MATERIAL ADVERSE CHANGE IN ITS BUSINESS,
PROPERTIES, OPERATIONS OR FINANCIAL CONDITION WHICH HAS RESULTED IN OR COULD
REASONABLY BE EXPECTED TO RESULT IN A MATERIAL ADVERSE EFFECT ON PAPA JOHN'S
BUSINESS, OPERATIONS OR FINANCIAL CONDITION.
(E) SHARES. THE SHARES AND ANY SETTLEMENT ADJUSTMENT SHARES, UPON
------
DELIVERY THEREOF TO THE MEMBERS, WILL BE (I) VALIDLY ISSUED, FULLY PAID AND
NONASSESSABLE, (II) FREE AND CLEAR OF ANY AND ALL LIENS, CLAIMS AND OTHER
RESTRICTIONS (OTHER THAN THE RESTRICTIONS CONTAINED IN SECTION 7(B)), (III)
issued pursuant to an effective registration statement under the Securities Act
and in
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accordance with the requirements of the Securities Act, (iv) issued in
accordance with any applicable state securities or "blue sky" laws, (v)
registered under the Exchange Act and (vi) listed for trading on the Nasdaq
National Market, subject to official notice of issuance.
7. ADDITIONAL COVENANTS OF THE PARTIES.
-----------------------------------
(a) PAYMENT OF TAXES. Each Member shall pay when due all taxes
----------------
incurred by such Member as the result of the transactions contemplated by this
Agreement. Any taxes relating to events, transactions or periods through the
Closing Date and not properly paid or accounted for on the Preliminary Balance
Sheet shall be addressed through the Settlement Adjustment.
(b) ACCOUNTING TREATMENT; RESTRICTION ON TRANSFER OF SHARES.
-------------------------------------------------------
Acquiror, Papa John's and the Members intend that this acquisition shall be
treated for accounting purposes as a pooling-of-interests. Accordingly each of
Acquiror, Papa John's and the Members shall refrain from taking any action or
engaging in any transaction or arrangement as reasonably requested by another
party to this Agreement that would result in the acquisition not being accounted
for as pooling-of- interests. Each Member specifically agrees that the Shares
to be received by such Member at the Closing shall not be sold, pledged,
hypothecated or otherwise transferred or disposed of by such Member until such
time as financial results covering at least 30 days of combined operations of
Acquiror and MPC have been published within the meaning of Section 201.01 of the
SEC's Codification of Financial Reporting Policies (the "Publication Date"),
except as permitted by Staff Accounting Bulletin No. 76 issued by the SEC. All
certificates representing Shares shall bear the legend set forth on Exhibit B,
Restrictive Legend. Papa John's hereby agrees to publish such financial results
on or before July 28, 1999. Following the Publication Date, upon request from
any Member, Papa John's shall remove the legend referenced above from all
certificates representing the Shares and any Settlement Adjustment Shares issued
to such Member and shall issue to such Member replacement certificate or
certificates without such legend.
(c) SPECIFIC OBLIGATIONS. Acquiror shall promptly pay when due all of
--------------------
the Specific Obligations.
(d) UTILITIES. Acquiror will promptly arrange for all utilities
---------
servicing the Outlets that are to be paid directly by the tenant to be billed to
Acquiror as soon as possible after the Closing. Any utilities expense for
periods through the Closing Date not paid or properly accrued on the Preliminary
Balance Sheet shall be addressed through the Settlement Adjustment.
(e) COVENANT AND AGREEMENT NOT-TO-COMPETE. Each Member acknowledges
-------------------------------------
the Franchise Documents (as defined in Section 7(f)) impose certain obligations
upon such Member which by their express terms, continue for a period of time
after termination of the Franchise Agreements (the "Post-Termination
Restrictions"). Such Member hereby reaffirms such Member's agreement to be
bound by the restrictions as and to the extent set forth in the Owner Agreement.
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<PAGE>
(f) TERMINATION OF EXISTING AGREEMENTS. Contemporaneously with the
----------------------------------
Closing, MPC, Acquiror, Papa John's, the Members, and each of the appropriate
affiliates of each of the foregoing shall enter into the Termination Agreement
in the form of Exhibit C (the "Termination Agreement") which acknowledges that
---------
(i) the Put/Call Agreement is terminated in its entirety as of the Closing Date;
(ii) all obligations and liabilities of the respective parties pursuant to the
Development Agreement, the Franchise Agreements, the Owner Agreement, the
Put/Call Agreement, the Advertising Agreement, and all other agreements between
or among any of such parties (collectively, the "Franchise Documents") have been
fully satisfied by all of the parties thereto with all appropriate adjustments
thereunder having been made as of the Closing Date; (iii) all further
obligations of the parties under the Franchise Documents other than the Post-
Termination Restrictions of the Owner Agreement are and shall be terminated
effective as of the Closing; and (iv) without limitation of the generality of
the foregoing, any and all guarantee obligations of the Management Team under
the Owner Agreement are and shall be terminated as of the Closing.
(g) FURTHER ACTIONS. Between the date hereof and the Closing Date,
---------------
the Management Team shall use commercially reasonable efforts to protect the
business and assets of MPC. Each of the parties hereto agrees that it will, at
any time, and from time to time, after the date hereof, upon the request of the
appropriate party, do, execute, acknowledge and deliver, or will cause to be
done, executed, acknowledged and delivered, all such further acts, deeds,
assignments, transfers, conveyances, powers of attorney and assurances as may be
reasonably required to complete the transactions described in this Agreement.
(h) COMPLIANCE WITH CONDITIONS. All parties hereto agree to cooperate
--------------------------
with each other in order to meet the conditions set forth in Section 8. All
parties further agree to use their respective best efforts, and to act in good
faith to consummate the transactions described in this Agreement as promptly as
possible, in accordance with this Agreement.
(i) RESIGNATION OF MEMBERS. At or before the Closing, any Member who
----------------------
serves as an officer, director, consultant or employee of MPC shall resign and
any consulting or similar agreement between MPC and any Member shall be
terminated. Following the Closing, neither MPC nor Acquiror shall have any
obligation to employ, nor any liability for compensation to, any Member (except
to the extent any Member provides services to MPC or Acquiror after the
Closing); provided that Acquiror and Richard Blankenship anticipate discussing
the terms of his potential continued employment.
(j) FILING OF SEC REPORTS. Between the date hereof and the date on
---------------------
which it has been finally determined whether or not any Settlement Adjustment
Shares will be issued pursuant to Section 1(b), Papa John's shall file all
forms, reports and documents with the SEC required to be filed by it pursuant to
the federal securities laws and the SEC rules and regulations thereunder, all of
which shall comply as of their RESPECTIVE FILING DATES, OR IN THE CASE OF
REGISTRATION STATEMENTS (INCLUDING ANY AMENDMENTS TO THE REGISTRATION
STATEMENT), THEIR RESPECTIVE EFFECTIVE DATES, IN ALL MATERIAL RESPECTS WITH
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<PAGE>
ALL APPLICABLE REQUIREMENTS OF THE SECURITIES ACT AND THE EXCHANGE ACT, AND THE
RULES AND REGULATIONS PROMULGATED THEREUNDER. NONE OF SUCH SEC REPORTS,
INCLUDING, WITHOUT LIMITATION, ANY EXHIBITS, FINANCIAL STATEMENTS OR SCHEDULES
INCLUDED THEREIN, AT THE TIME FILED, OR IN THE CASE OF REGISTRATION STATEMENTS,
THEIR RESPECTIVE EFFECTIVE DATES, SHALL CONTAIN ANY UNTRUE STATEMENT OF A
MATERIAL FACT OR OMIT TO STATE A MATERIAL FACT REQUIRED TO BE STATED THEREIN OR
NECESSARY IN ORDER TO MAKE THE STATEMENTS THEREIN, IN LIGHT OF THE CIRCUMSTANCES
UNDER WHICH THEY WERE MADE, NOT MISLEADING.
8. CONDITIONS TO THE ACQUISITION.
-----------------------------
(a) CONDITIONS TO THE OBLIGATIONS OF ACQUIROR AND PAPA JOHN'S. The
---------------------------------------------------------
obligations of Acquiror and Papa John's to consummate the transactions described
in this Agreement are subject to the fulfillment, prior to or at the Closing, of
the conditions precedent that:
(i) All representations and warranties of the Members in this
Agreement shall be true and correct in all material respects on and as of the
Closing Date as though made on such date, except for (A) such changes that are
contemplated or permitted by this Agreement and (B) those representations and
warranties made as of a specific date. The Management Team specifically agrees
to update Acquiror on the occurrence of any event known to the Management Team
that would make the representations and warranties, if made on the Closing Date,
untrue in any material respect.
(ii) The Members shall have performed and complied in all
material respects with all the covenants, agreements and conditions required by
this Agreement to be performed or complied with by them prior to or at the
Closing.
(iii) No action or proceeding before any court or any governmental
body will be pending against the Members or MPC since the date of this Agreement
pursuant to which an unfavorable judgment, decree, injunction or order would (A)
prevent the carrying out of this Agreement or any of the transactions
contemplated hereby, (B) declare unlawful the transactions described in this
Agreement, (C) cause such transactions to be rescinded or (D) materially
adversely affect the right of Acquiror to operate or control the business,
operations or assets of MPC.
(b) CONDITIONS TO THE OBLIGATIONS OF THE MEMBERS. The obligations of
--------------------------------------------
the Members to consummate of the transactions contemplated by this Agreement
shall be subject to the fulfillment at or prior to the Closing Date of the
following conditions:
(i) All representations and warranties of Acquiror and Papa
John's in this Agreement shall be true and correct in all material respects on
and as of the Closing Date as though made on such date except for such changes
that are contemplated or permitted by this
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<PAGE>
Agreement.
(ii) Acquiror and Papa John's shall have performed and complied
in all material respects with all the covenants, agreements and conditions
required by this Agreement to be performed or compiled with by them prior to or
at the Closing.
(iii) No action or proceeding before any court or any governmental
body will be pending against the Acquiror or Papa John's since the date of this
Agreement pursuant to which an unfavorable judgment, decree, injunction or order
would (A) prevent the carrying out of this Agreement or any of the transactions
contemplated hereby, (B) declare unlawful the transactions described in this
Agreement or (C) cause such transactions to be rescinded.
9. TERMINATION BY ACQUIROR. Acquiror shall have the right to terminate
-----------------------
this Agreement and all rights and obligations hereunder, upon the occurrence of
the following:
(a) The comparable store sales of the Outlets, taken as a whole, for
the month of March 1999 are more than 10% less than for the month of March 1998;
or
(b) Since the date of this Agreement, there has been a material
adverse change to the business or assets of MPC, taken as a whole.
10. MPC'S EMPLOYEES. Acquiror agrees to offer employment and/or make
---------------
payments to those employees of MPC for the periods and in the amounts listed on
Exhibit D.
11. DELIVERIES AND ACTIONS AT CLOSING.
---------------------------------
(a) DELIVERIES BY MPC AT THE CLOSING. At the Closing, MPC shall
--------------------------------
deliver the following documents to Acquiror (fully executed where appropriate):
(i) A Certificate of Good Standing for MPC issued by the
Minnesota Secretary of State;
(ii) The minute books, tax returns and other records of MPC;
(iii) Possession of the Outlets, including all keys thereto and
the combination to any safes; and
(iv) Such other documents as are reasonably necessary to effect
the closing of the transactions contemplated herein.
(b) DELIVERIES BY EACH MEMBER AT THE CLOSING. At the Closing, each
----------------------------------------
Member shall deliver or cause to be delivered the following documents to
Acquiror:
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<PAGE>
(i) All certificates representing such Member's ownership
interests in MPC;
(ii) A copy of the Termination Agreement executed by such
Member; and
(iii) Such other documents as are reasonably necessary to
effect the closing of the transaction contemplated herein.
(c) DELIVERIES BY ACQUIROR AND PAPA JOHN'S AT THE CLOSING. At the
-----------------------------------------------------
Closing, Acquiror or Papa John's (as appropriate) shall:
(i) Deliver certificates representing the Shares (reduced
by the number of the Reserve Shares) in appropriate names and numbers as
determined pursuant to Section 1(a);
(ii) Execute and deliver the Termination Agreement;
(iii) Deliver certificates representing the Reserve Shares,
in appropriate names and numbers as determined pursuant to Section 1(a), to Papa
John's transfer agent;
(iv) Pay the amounts of cash in lieu of fractional shares
due to the Members pursuant to Section 1(a);
(v) Pay all amounts due from MPC to U.S. Bank, Minneapolis,
or provide evidence satisfactory to each of the Management Team that Papa John's
will do so and will indemnify in full each of the Management Team against
personal liability with respect to such amounts; and
(vi) Deliver such other documents as are reasonably
necessary to effect the closing of the transaction contemplated herein.
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
------------------------------------------
representations and warranties set forth in this Agreement shall survive the
closing of this Agreement and the consummation of any and all transactions
contemplated hereby, regardless of any investigation made by any party hereto,
but shall expire at the earlier of (i) the date fourteen (14) months from the
Closing Date and (ii) the date on which Papa John's publicly releases its
audited financial statements for fiscal year 1999 (the "Claim Termination
Date").
13. INDEMNITY AGAINST CLAIMS.
------------------------
(a) INDEMNIFICATION BY MEMBERS. Subject to the limitations below, the
--------------------------
Members shall indemnify and hold Acquiror harmless from and against any and all
losses, costs, liabilities, damages or deficiencies resulting from any
misrepresentation by the Members contained herein or from the breach or non-
fulfillment of any agreements, covenants or
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<PAGE>
undertakings on the part of the Members contained in this Agreement, and any and
all actions, suits, proceedings, demands, assessments or judgments incident to
any of the foregoing. Such indemnification shall include, without limitation,
any suits, actions, legal or administrative proceedings, claims, demands, actual
damages, fines, punitive damages, losses, costs, liabilities or other
obligations, whether legal or equitable, resulting from, arising out of or in
any way connected with any release to the environment prior to the Closing Date
including, without limitation, any migration or any release from one
environmental medium to another environmental medium, if the release or
migration involves hazardous or toxic substances or any contamination or illegal
release of substances released to the environment by MPC or involves any such
substances generated or used by MPC and shipped off-site for recycling,
treatment, storage, disposal, use or reuse.
(b) INDEMNIFICATION BY ACQUIROR AND PAPA JOHN'S. Acquiror and Papa
-------------------------------------------
John's, jointly and severally, shall indemnify and hold each Member harmless
from and against any and all losses, costs, liabilities, damages or deficiencies
resulting from (i) any misrepresentation by Acquiror or Papa John's contained
herein, (ii) the breach or non-fulfillment of any agreements, covenants or
undertakings on the part of Acquiror or Papa John's contained in this Agreement,
(iii) the operation of MPC and the Outlets from and after the Closing Date, (iv)
Papa John's failure to register or otherwise qualify the issuance of all of the
Shares and Settlement Adjustment Shares as required by the Securities Act and
any applicable state securities or "blue sky" laws and (v) any untrue statement
or alleged untrue statement, or omission or alleged omission, made in any of the
SEC Reports, the Registration Statement or the Prospectus (including, in the
case of Settlement Adjustment Shares, any SEC Reports or any applicable
registration statement or prospectus filed after the Closing Date but before the
date of issuance of such Settlement Adjustment Shares), and any and all actions,
suits, proceedings, demands, assessments or judgments incident to any of the
foregoing. Such indemnification shall include, without limitations, any suits,
actions, legal or administrative proceedings, claims, demands, actual damages,
fines, punitive damages, losses, costs, liabilities or other obligations,
whether legal or equitable, resulting from, arising out of or in any way
connected with any release to the environment after the Closing Date, including,
without limitation, any migration or any release from one environmental medium
to another environmental medium, if the release or migration involves hazardous
or toxic substances or any contamination or illegal release of substances
released to the environment by Acquiror or in connection with the operation of
the Outlets by Acquiror or involves any such substances generated or used by
Acquiror or in connection with the operation of the Outlets by Acquiror and
shipped off-site for recycling, treatment, storage, disposal, use or reuse.
(c) EXCLUSIVITY. The settlement procedure and Reserve under Section
-----------
1(b) together with indemnification rights granted to the parties under this
Section 13 constitute the sole and exclusive remedies available to any party
hereto in the event of any misrepresentation herein or any breach or non-
fulfillment of any agreement, covenant or undertaking on the part of any party
contained in this Agreement; provided, however, that the foregoing shall not
limit or restrict the ability of Acquiror or its affiliates to enforce any of
the Post-Termination Restrictions, as described in Section 7.(f), and shall not
limit or restrict the ability of either
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<PAGE>
member of the Management Team to enforce Papa John's obligations to indemnify in
full and hold such member of the Management Team harmless from any liability
with respect to such member of the Management Team's personal guarantees to U.S.
Bank and to Papa John's with respect to any indebtedness of MPC (the "Guarantee
Indemnity").
(d) CLAIM PERIOD. Claims for indemnification under this Section 13
------------
must be asserted in writing against the party from whom indemnification is
sought on or prior to the Claim Termination Date. Any claims for indemnification
not so asserted on or prior to the Claim Termination Date shall be barred, and
no party to this Agreement shall have any obligation to provide any
indemnification under this Section 13 with respect to claims not so asserted on
or prior to the Claim Termination Date.
(e) LIMITATION OF LIABILITY. The obligation of each Member to provide
-----------------------
indemnification under this Section 13 shall not exceed, in the aggregate, (i)
the value of the Shares delivered to such Member hereunder which have been
actually received by such Member prior to the assertion of an indemnification
claim by the Buyer under this Section 13, and (ii) the legal fees, costs and
expenses incurred by Papa John's or Acquiror in connection with any action to
obtain indemnification to which Papa John's or Acquiror is entitled hereunder
from such Member. The liability of each of the Members other than the Management
Team shall be several and not joint. Subject to the limitation on liability set
forth above, each member of the Management Team shall be jointly and severally
liable with respect to their respective indemnification obligations under this
Section 13. The obligation of Papa John's or Acquiror to provide indemnification
under this Agreement shall not exceed, in the aggregate, $1.0 million.
(f) RESERVE SHARES. In accordance with Section 1(b), prior to the
--------------
expiration of the Reserve Period, Acquiror or Papa John's shall use Reserve
Shares to satisfy any indemnification claims that it may have against the
Members. The number of Reserve Shares subject to such use shall be that number
that has an aggregate value (determined on the basis of the Settlement Stock
Price) equal to the amount of such indemnification claim.
(g) TENDER OF SHARES. Any Member may satisfy its indemnification
----------------
obligations under this Section 13, in whole or in part, by delivering to
Acquiror or Papa John's that number of Shares (or Settlement Adjustment Shares)
having an aggregate value equal to the indemnification obligation of such
Member. For purposes of this Section 13.(g), any Shares (or Settlement
Adjustment Shares) so delivered to Acquiror or Papa John's shall have a per
share value equal to the Settlement Stock Price.
(h) MEMBERS' REPRESENTATIVE.
-----------------------
(i) During the period ending on the date when all obligations
under this Agreement have been discharged (including all indemnification
obligations pursuant to this Section 13), there shall be a representative for
the Members who (A) is authorized to act in accordance with Section 13(h)(ii)
and (B) shall be selected in accordance with Section 13(h)(iv) (the "Members'
Representative").
-16-
<PAGE>
(ii) The Members' Representative shall be authorized to take
any action required or permitted to be taken by the Members under this Agreement
(including any action with respect to indemnification obligations pursuant to
this Section 13) and in connection therewith to deliver any certificate, notice,
consent or instrument (an "Instrument") which the Members' Representative
determines in his discretion to be necessary, appropriate or desirable. In
connection with the taking of any such action or the delivery of any such
Instrument, the Members' Representative is authorized to hire or retain, at the
sole expense of the Members, such counsel, investment bankers, accountants,
representatives and other professional advisors as he determines in his sole and
absolute discretion to be necessary, advisable or appropriate.
(iii) Any party receiving an Instrument from the Members'
Representative shall have the right to rely in good faith upon such Instrument
and to act in accordance with it without independent investigation.
(iv) W. Patrick Kranz is hereby appointed as the initial
Members' Representative. From the date of this Agreement through the date when
all obligations under this Agreement have been discharged (including all
indemnification obligations pursuant to this Section 13), the Members who held
at least 51% of the total Units (as such term is defined in the Limited
Liability Company Agreement, dated September 26, 1995, of MPC, as amended to
date) issued and outstanding as of the date of this Agreement (a "Majority") may
from time to time upon written notice to the Members' Representative, any
Members who were not part of the Majority, Acquiror and Papa John's, remove the
Members' Representative or appoint a new Members' Representative to fill any
vacancy created by the death, incapacitation, resignation or removal of the
Members' Representative, and if the Members' Representative dies, becomes
incapacitated, resigns or is removed by a Majority, the Majority shall appoint a
successor Members' Representative to fill the vacancy so created. A copy of any
appointment by the Majority of any successor Members' Representative shall be
provided to Acquiror, Papa John's and any Members who were not part of the
Majority promptly after it shall have been effected.
(v) If the Members' Representative determines that it is
necessary or desirable to have the Members advance funds to cover out-of-pocket
costs or expenses incurred or to be incurred by the Members' Representative, he
may notify each of the Members in writing and request that they participate
ratably in accordance with their respective interests in MPC in such costs and
expenses. The notice shall contain such other terms and conditions as the
Members' Representative determines to be necessary or desirable, and shall set
forth the amount with the Members' Representative has reasonably determined to
be necessary to cover such costs and expenses and such Member's allocable share
of such amount. Each Member will then be required to deliver a check to the
Members' Representative for such Member's allocable share of the amount required
within 10 business days of the date of the request. Any unused funds shall be
returned, ratably, by the Members' Representative to the Members.
(vi) In no case shall the Members' Representative have any
liability to the Members for any act or omission to act in his capacity as
Members' Representative unless the
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<PAGE>
Member asserting such liability is able to prove that the Members'
Representative was guilty of willful misconduct or bad faith.
(h) THIRD PARTY CLAIMS. In the event that any third party asserts a
------------------
claim against a party (the "Indemnified Party") for which such Indemnified Party
intends to seek indemnity from another party hereto (the "Indemnifying Party"),
the Indemnified Party shall promptly notify each Indemnifying Party of such
claim or demand and the amount thereof (the "Claim Notice"); provided, however,
that an Indemnified Party's failure to so provide a Claim Notice shall not
relieve any Indemnifying Party from liability under this Section 13 except to
the extent such failure prejudices such Indemnifying Party. The Indemnifying
Party or all Indemnifying Parties, jointly, shall have 30 days from actual
receipt of the Claim Notice to undertake, conduct and control the defense of
such third party claim. All costs and expenses incurred by the Indemnifying
Party in defending such third party claim shall be paid by the Indemnifying
Party. If the Indemnified Party desires to participate in any such defense or
settlement, it may do so at its sole cost and expense (it being understood that
the Indemnifying Party shall be entitled to control the defense), provided that,
if the defendants in the action include both the Indemnified Party and the
Indemnifying Party and the Indemnified Party shall have reasonably concluded
that there may be legal defenses available to it and/or other Indemnified
Parties which are different from or in addition to those available to the
Indemnifying Party, or if there is a conflict of interest which would prevent
counsel for the Indemnifying Party from also representing the Indemnified Party,
the Indemnified Party or Indemnified Parties shall have the right to select
separate counsel to participate in the defense of such action on behalf of such
Indemnified Party or Parties at the sole expense of the Indemnifying Party. So
long as the Indemnifying Party is defending such third party claim the
Indemnified Party shall not settle such claim.
(i) CERTAIN DAMAGES. Notwithstanding anything herein to the contrary,
---------------
no claims or causes of action arising out of or related to the transaction
contemplated by this Agreement may be asserted by either party for punitive,
presumptive, special or exemplary damages.
(j) If an Indemnifying Party shall disagree with an Indemnified Party
with respect to the amount of any indemnification claim under this Section 13,
it shall have 30 days from receipt of written notice of the indemnification
claim (or, if later, of the date of written notice from the Indemnified Party
setting forth such amount and the basis for it) to dispute in writing the amount
of such claim. If such dispute cannot be resolved by good faith negotiations
between the parties within 30 days after the Indemnified Party's receipt of the
written notice of such dispute, such dispute shall be submitted to a single
arbitrator with knowledge of accountancy and employed by the Chicago office of a
mutually agreeable "Big Five" accounting firm (the "Claim Arbitrator") who shall
be instructed to make a final, binding determination of the amount of such
indemnification claim within 30 days of being appointed. The Claim Arbitrator
shall calculate the amount of such claim in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. Each of the
Indemnifying Party (or Parties), on the one hand, and the Indemnified Party (or
Parties), on the other, shall bear its own
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<PAGE>
fees and expenses in connection with such arbitration and shall bear 50% of the
fees and expenses of the Claim Arbitrator. The determination of the Claim
Arbitrator regarding the amount of such indemnification claim shall be final and
binding on all parties and judgment to enforce such determination may be entered
in any court having proper jurisdiction over the party obligated to pay
hereunder.
(k) Each of Acquiror, Papa John's and the Members acknowledges and
agrees that Section 1(b) contains the sole remedy for any differences that are
determined to exist between the Preliminary Ownership Value and the final
Settlement Ownership Value and that they shall not be further entitled to seek
to recover any amounts pursuant to this Section 13 based upon or arising out of
the facts underlying any such difference. Therefore, Acquiror, Papa John's and
the Members acknowledge and agree that the provisions of Section 1(b) (including
the $50,000 threshold) shall constitute full and complete satisfaction of any
claim any of them may have under this Section 13 with respect to the final
Settlement Ownership Value and related underlying facts, even if the facts
underlying such determination would otherwise entitle Acquiror or Papa John's to
seek indemnification for breach of a representation or warranty (or for some
other permissible reason hereunder). Therefore, if the net difference between
the Preliminary Ownership Value and the final Settlement Ownership Value results
in less than $50,000 owed to Papa John's, the Members may not be held liable for
indemnity under this Section 13.
14. NOTICES. All notices, requests, consents, demands and other
-------
communications required or permitted to be given or made under this Agreement
shall be in writing and shall be deemed to have been duly given (a) on the date
of personal delivery, (b) on receipt of electronic confirmation of transmission,
if sent by facsimile, (c) three days after the date of deposit in the United
States Mail, postage prepaid, by certified mail, return receipt requested, or
(d) one day after the date of delivery to an internationally recognized
overnight courier service, in each case, addressed as follows or to such other
person or address as either party shall designate by notice to the other parties
in accordance herewith:
If to Acquiror
or Papa John's: Papa John's USA, Inc.
P.O. Box 99900
Louisville, Kentucky 40269-0900
Attn: General Counsel
Facsimile: 502/261-4324
If to MPC
or the Members' c/o W. Patrick Kranz
Representative: 80 Birch Bluff Road
Tonka Bay, Minnesota 55331
Facsimile: 612/474-8041
If to any Member, at such Member's address as set forth on Schedule 2.
----------
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<PAGE>
15. CAPTIONS. The captions in this Agreement are included for purposes of
--------
convenience only and shall not be considered a part of the Agreement in
construing or interpreting any provision hereof.
16. EXPENSES. The parties hereto shall each bear their own costs and
--------
expenses incurred in connection with the transactions described herein,
including, without limitation, the fees and expenses of their legal counsel and
accountants, and no such fees or expenses shall be charged to or paid on behalf
of any party hereto.
17. EXHIBITS; SCHEDULES. All Exhibits and Schedules to this Agreement
-------------------
shall be deemed to be incorporated herein by reference and made a part hereof as
if set out in full herein.
18. SEVERABILITY OF PROVISIONS. If any provision of this Agreement or the
--------------------------
application thereof to any person or circumstance shall to any extent be held in
any proceeding to be invalid or unenforceable, the remainder of this Agreement,
or the application of such provision to persons or circumstances other than
those to which it was held to be invalid or unenforceable, shall not be affected
thereby, and shall be valid and enforceable to the fullest extent permitted by
law, but only if and to the extent such enforcement would not materially and
adversely frustrate the parties' essential objectives as expressed herein.
19. NUMBER; GENDER. Unless the context clearly states otherwise, the use
--------------
of the singular or plural in this Agreement shall include the other and the use
of any gender shall include all others.
20. GOVERNING LAW; VENUE. This Agreement shall be governed by, and shall
--------------------
be construed in accordance with, the laws of the Commonwealth of Kentucky. The
proper venue for all matters litigated under this Agreement shall be in the
courts of Jefferson County, Kentucky or Hennepin County, Minnesota.
21. BINDING EFFECT. This Agreement may not be assigned by any party
--------------
without the prior written consent of the other parties. Subject to the
foregoing, all of the terms, provisions and conditions of this Agreement shall
be binding upon and shall inure to the benefit of and be enforceable by the
parties hereto, and their respective heirs, personal representatives, successors
and assigns.
22. ENTIRE AGREEMENT. As used herein, the term "Agreement" shall mean
----------------
this Acquisition Agreement, the Exhibits hereto and the Schedules delivered in
connection herewith, and all financial statements and other documents and
instruments delivered pursuant to the terms of this Agreement. This Agreement
embodies the entire agreement and understanding of the parties hereto with
respect to the subject matter herein contained, and supersedes all prior
agreements, correspondence, arrangements and understandings relating to the
subject matter hereof. No representation, promise, inducement or statement of
intention has been made by any party which has not been embodied in this
Agreement, and no party shall be bound by or be
-20-
<PAGE>
liable for any alleged representation, promise, inducement or statement of
intention not so set forth. This Agreement may be amended, modified, superseded,
or cancelled only by a written instrument signed by all of the parties hereto,
and any of the terms, provisions, and conditions hereof may be waived, only by a
written instrument signed by the waiving party. Failure of any party at any time
or times to require performance of any provision hereof shall not be considered
to be a waiver of any succeeding breach of such provision by any party.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on
the day and year first above written.
PAPA JOHN'S USA, INC.
Taxpayer I.D. #61-1193912
By: /s/ Blaine E. Hurst
_______________________________________________
Blaine E. Hurst
Vice Chairman and President
("Acquiror")
PAPA JOHN'S INTERNATIONAL, INC.
Taxpayer I.D. #51-1203323
By: /s/ J. David Flanery
_______________________________________________
J. David Flanery
Vice President and Controller
/s/ Robert Rinek
__________________________________________________
ROBERT RINEK
/s/ Howard Schultz
__________________________________________________
HOWARD SCHULTZ
/s/ Dan Levitan
__________________________________________________
DAN LEVITAN
-21-
<PAGE>
/s/ A. MARK BERLIN, JR.
________________________________________________
A. MARK BERLIN, JR.
/s/ ALAN MCDOWELL
________________________________________________
ALAN McDOWELL
/s/ ANDY HUNTER
________________________________________________
ANDY HUNTER
/s/ DOUGLAS R. DONALDSON
________________________________________________
DOUGLAS R. DONALDSON
/s/ JOHN L. MORRISON
________________________________________________
JOHN L. MORRISON
/s/ MICHAEL J. AHEARN
________________________________________________
MICHAEL J. AHEARN
/s/ MICHAEL T. SWEENEY
________________________________________________
MICHAEL T. SWEENEY
/s/ RALPH W. BURNET
________________________________________________
RALPH W. BURNET
/s/ ROBERT B. RINEK
________________________________________________
ROBERT B. RINEK
/s/ TIMOTHY D. JOHNSON
________________________________________________
TIMOTHY D. JOHNSON
/s/ W. PATRICK KRANZ
________________________________________________
W. PATRICK KRANZ
-22-
<PAGE>
/s/ WALTER R. BARRY, JR.
________________________________________________
WALTER R. BARRY, JR.
/s/ RICHARD BLANKENSHIP
________________________________________________
RICHARD BLANKENSHIP
/s/ SHEILA HARRIS
________________________________________________
SHEILA HARRIS
/s/ SHARON EMMONS
________________________________________________
SHARON EMMONS
/s/ GORDON M. AAMOTH, MD IRA
________________________________________________
GORDON M. AAMOTH, MD IRA
/s/ PARADISE CANYON VENTURES
________________________________________________
PARADISE CANYON VENTURES
-23-
<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
EXHIBITS AND SCHEDULES
----------------------
Exhibit Description
------- -----------
A Allocation of Valuation
B Restrictive Legend
C Termination Agreement
D MPC's Employees
Schedule Description
-------- -----------
1 Preliminary Financial Statements
2 Ownership of Interests
3 Disclosure Schedule
4 Leases and Timberwolves/Target Center
Contracts
-24-
<PAGE>
As of January 8, 1999
Mr. Charles W. Schnatter
Papa John's International, Inc.
11492 Bluegrass Parkway
Louisville, Kentucky 40299
Re: $20,000,000.00 Discretionary Line of Credit (the "Line of Credit")
------------------------------------------------------------------
Dear Chuck:
We are pleased to inform you that PNC Bank, National Association (the "Bank"),
has renewed and increased to $20,000,000.00 the discretionary line of credit to
Papa John's International, Inc. (the "Company"). The Bank is willing to maintain
the Discretionary Line of Credit upon the following terms and conditions:
1. Purpose of Line. Proceeds of the Line of Credit shall be used for
---------------
working capital, general corporate needs and for the issuance of letters of
credit up to an aggregate amount of $3,000,000.00 (the "Letters of Credit").
Advances made under the Line of Credit, if any, shall be due and payable on the
last day of the applicable interest period, and all obligations of the Company
to the Bank shall be due and payable upon the occurrence of an event of default.
All advances will bear interest and be subject to the terms and conditions set
forth herein and in the enclosed Note. The Line of Credit will be reviewed by
the Bank from time to time and in any event prior to its expiration of June 30,
1998 (the "Expiration Date") to determine whether it should be continued or
renewed.
This is not a committed line of credit. The Company acknowledges and
agrees that advances made or letters of credit issued under this Line of Credit,
if any, shall be made at the sole discretion of the Bank. The Bank may decline
to make advances or issue letters of credit under the line of Credit or
terminate the Line of Credit at any time and for any reason without prior notice
to the Company. This letter set forth certain terms and conditions solely to
assure that the parties understand each other's expectations and to assist the
Bank in evaluating the status, on an ongoing basis, of the Line of Credit.
2. Note and Letter of Credit Agreements. The Borrower's obligation to
------------------------------------
repay the advances under the Note (the "Loans") shall be evidenced by a
promissory note substantially in the form of Exhibit "A" hereto (the "Note").
The obligation of the Borrower to repay drawings under any Letter of Credit
shall be evidenced by the Bank's form of application and letter of credit
agreement therefor (each, an "Application" and a "Letter of Credit Agreement")
in form and content satisfactory to the Bank. An Application must be submitted
to and accepted by the
1
<PAGE>
Bank as a condition precedent to the issuance of each Letter of Credit. This
letter is not a pre-advice for the issuance of a letter of credit and is not
irrevocable. All drawings will be deemed to constitute advances under the Line
of Credit, evidenced by the Note, shall be payable to the Bank on demand, and
shall bear interest at the Default Rate provided in the Note. Unless approved by
the Bank, no Letter of Credit shall have an expiry date beyond the Expiration
Date. This Agreement, the Letter of Credit Agreement and the Note are
collectively referred to as the "Loan Documents".
3. Advances Procedures. The Borrower may request Loans hereunder upon
-------------------
giving oral or written notice to the Bank by 11:00 A.M. (Louisville, Kentucky
time) (a) on the day of the proposed Loan, in the case of Loans bearing interest
under the Base Rate Option, Prime Rate Option or the As Offered Rate Option, and
(b) three (3) Business Days prior to the proposed Loan, in the case of Loans
bearing interest under the Euro-Rate Option, followed promptly thereafter by the
Borrower's written confirmation to the Bank of any oral notice. The Borrower
authorizes the Bank to accept telephonic requests for Loans, and the Bank shall
be entitled to rely upon the authority of any person providing such
instructions.
4. Interest Rate Options. Each advance outstanding under the Note shall
---------------------
bear interest at a rate per annum selected by the Borrower from the interest
rate options set forth below (each, an "Option"), it being understood that the
Borrower may select different Options to apply simultaneously to different
portions of the Loans and may select up to two (2) different interest periods to
apply simultaneously to different portions of the Loans bearing interest under
the Euro-Rate Option or As Offered Rate Option as set forth below. There are no
required interest periods for Loans bearing interest under the Base Rate Option
or the Prime Rate Option.
(a) Base Rate Option. A rate of interest per annum (computed on the
----------------
basis of a year of 360 days, as the case may be, and the actual number of days
elapsed) equal to the lesser of (i) the rate of interest announced from time to
time by the Bank at its principal office as its prime rate, which rate may not
be the lowest interest rate then being charged commercial borrowers by the Bank
(the "Prime Rate") or (ii) the sum of the Federal Funds Rate plus fifty (50)
basis points (1/2%) per annum. If and when the Prime Rate or the Federal Funds
Rate changes, the rate of interest on Loans bearing interest under the Base Rate
Option will change automatically without notice to the Borrower, effective on
the date of any such change. For purposes hereof, the "Federal Funds Rate" means
the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%)
equal to the weighted average of the rates on federal funds transactions with
members of the Federal Reserve System arranged by federal funds brokers, as
published by the Federal Reserve Bank of New York on such day (or if such day is
not a Business Day, the Federal Funds Rate for such day shall be the rate as
published by the Federal Reserve Bank of New York on the immediately preceding
Business Day).
2
<PAGE>
(b) Prime Rate Option. An annual rate equal to the Prime Rate, minus
----------------- -----
100 basis points (1%). Each change in the Prime Rate shall become effective
without notice to the Borrower on the day of any change in the Prime Rate. All
interest shall be computed on the basis of the actual number of days elapsed
over an assumed year of 360 days.
(c) Euro-Rate Option. A rate of interest per annum (computed on the
----------------
basis of a year of 360 days and the actual number of days elapsed) equal to the
sum of (i) the Euro-Rate plus (ii) fifty (50) basis points (1/2%) per annum, for
----
the Euro-Rate Interest Period in an amount equal to the Loan bearing interest
under the Euro-Rate Option and having a comparable maturity as determined at or
about 11 A.M. (Eastern Time) two Business Days prior to the commencement of the
Euro-Rate Interest Period. For the purpose hereof, the following terms shall
have the following meanings:
"Business Day" shall mean any day other than a Saturday or Sunday
or a legal holiday on which commercial banks are authorized or required to be
closed for business in Louisville, Kentucky.
"Euro-Rate" shall mean, with respect to any Loan bearing interest
under the Euro-Rate Option for any Euro-Rate Interest Period, the interest rate
per annum determined by the Bank by dividing (the resulting quotient rounded
upward to the nearest 1/16th of 1% per annum) (i) the rate of interest
determined by the Bank in accordance with its usual procedures (which
determination shall be conclusive absent manifest error) to be the eurodollar
rate two (2) Business Days prior to the first day of such Euro-Rate Interest
Period for an amount comparable to such Loan and having a borrowing date and a
maturity comparable to such Euro-Rate Interest Period by (ii) a number equal to
1.00 minus the Euro-Rate Reserve Percentage.
"Euro-Rate Interest Period" shall mean the period of one, two or
three months selected by the Borrower commencing on the date of disbursement of
a Loan bearing interest under the Euro-Rate Option and each successive period
selected by the Borrower thereafter; provided that if a Euro-Rate Interest
--------
Period would end on a day which is not a Business Day, it shall end on the next
succeeding Business Day, unless such day falls in the succeeding calender month
in which case the Euro-Rate Interest Period shall end on the next preceding
Business Day. In no event shall any Euro-Rate Interest Period end on a day
after the Expiration Date.
"Euro-Rate Reserve Percentage" shall mean the maximum effective
percentage in effect on such day as prescribed by the Board of Governors of the
Federal Reserve System (or any successor) for determining the reserve
requirements (including, without limitation, supplemental, marginal and
emergency reserve requirements) with respect to eurocurrency funding (currently
referred to as "Eurocurrency liabilities").
3
<PAGE>
(d) As Offered Rate Option. A rate of interest per annum (computed on
----------------------
the basis of a year of 360 days and the actual number of days elapsed),
determined in the Bank's sole discretion, as offered from time to time by the
Bank to the Borrower as the rate at which the Bank would advance funds to the
Borrower for the interest period requested (the "As Offered Rate Interest
Period") in the principal amount requested (the "As Offered Rate").
If the Bank determines (which determination shall be final and conclusive) that,
by reason of circumstances affecting the interbank eurodollar market generally,
deposits in dollars (in the applicable amounts) are not being offered to banks
in the interbank eurodollar market for the selected term, or adequate means do
not exist for ascertaining the Euro-Rate, then the Bank shall give notice
thereof to the Borrower. Thereafter, until the Bank notifies the Borrower that
the circumstances giving rise to such suspension no longer exist, (a) the
availability of the Euro-Rate Option shall be suspended, and (b) the interest
rate for all Loans then bearing interest under the Euro-Rate Option shall be
converted to the Base Rate Option at the expiration of the then current
Euro-Rate Interest Period(s).
In addition, if, after the date of this letter, the Bank shall determine
(which determination shall be final and conclusive) that any enactment,
promulgation or adoption of or any change in any applicable law, rule or
regulation, or any change in the interpretation or administration thereof by a
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by the Bank with any
guideline, request or directive (whether or not having the force of law) of any
such authority, central bank or comparable agency shall make it unlawful or
impossible for the Bank to make or maintain or fund loans under the Euro-Rate
Option, the Bank shall notify the Borrower. Upon receipt of such notice, until
the Bank notifies the Borrower that the circumstances giving rise to such
determination no longer apply, (a) the availability of the Euro-Rate Option
shall be suspended, and (b) the interest rate on all Loans then bearing interest
under the Euro-Rate Option shall be converted to the Base Rate Option either (i)
on the last day of the then current Euro-Rate Interest Period(s) if the Bank may
lawfully continue to maintain Loans under the Euro-Rate Option to such day, or
(ii) immediately if the Bank may not lawfully continue to maintain Loans under
the Euro-Rate Option.
5. Payment of Interest. The Borrower shall pay accrued interest on the
-------------------
unpaid principal balance of the Note in arrears: (a) for the portion of Loans
bearing interest under the Base Rate Option or the Prime Rate Option, on the
last Business Day of each calendar quarter during the term hereof, (b) for the
portion of Loans bearing interest under the Euro-Rate Option, on the last day of
each Euro-Rate Interest Period, as the case may be, (c) for the portion of Loans
bearing interest under the As Offered Rate Option, on the last day of each As
Offered Rate Interest Period, (d) if any Euro-Rate Interest Period or As Offered
Rate Interest Period is longer than ninety (90) days, then also on the ninetieth
day of such interest period and every ninety days thereafter, and (e) for all
Loans, at maturity, whether by acceleration of the Note or otherwise, and after
maturity, on demand until paid in full.
4
<PAGE>
6. Interest Rate Election. Subject to the terms and conditions of this
----------------------
letter and the Note, at the end of each interest period applicable to a Loan the
Borrower may renew the Option applicable to such Loan or convert such Loan to a
different Option. If no notice of conversion or renewal is received by the Bank
or if an event of default exists, the Borrower shall be deemed to have converted
such Loan to the Base Rate Option. The Borrower shall notify the Bank of each
election of an interest rate Option, each conversion from one interest rate
Option to another, the amount of the Loans then outstanding to be allocated to
each interest Option and where relevant the interest periods. Any such election
shall be promptly confirmed in writing by such method as the Bank may require.
The Borrower shall indemnify the Bank against all liabilities, losses or
expenses (including loss of margin, any loss or expense incurred in liquidating
or employing deposits from third parties and any loss or expense incurred in
connection with funds acquired by the Bank to fund or maintain Loans bearing
interest under the As Offered Rate Option or the Euro-Rate Option) which the
Bank sustains or incurs as a consequence of any attempt by the Borrower to
revoke (expressly, by later inconsistent notices or otherwise) in whole or in
part any notice given to the Bank to request, convert, renew or prepay any such
Loan. If the Bank sustains or incurs any such loss, it shall notify the Borrower
of the amount determined by the Bank to be necessary to indemnify the Bank for
such loss or expense (which determination may include such assumptions,
allocations of costs and expenses and averaging or attribution methods as the
Bank deems appropriate). Such amount shall be due and payable by the Borrower
ten days after such notice is given.
7. Default Rate. After the principal amount of all or any part of the
------------
Loans shall have become due and payable, whether by acceleration or otherwise,
all the Loans shall bear interest at a rate per annum which shall be 200 basis
points (2%) per annum above the Prime Rate.
8. Conditions to Lending. The obligation of the Bank to make any Loan
---------------------
hereunder is subject to the condition that:
(a) In the case of the initial Loan hereunder, the Borrower shall
provide to the Bank this Agreement and the Note, such duly executed by the
Borrower; evidence of the due authorization by the Borrower of this Agreement
and the Note; and such other instruments as the Bank shall reasonably require in
form and substance satisfactory to the Bank.
(b) In the case of any Loan, each request for an advance under the
Line of Credit shall constitute, as of the time made, a certification by the
Borrower that the Borrower shall have performed and complied with all agreements
and conditions herein required under this Agreement, and at the time of such
Loan, no condition or event shall exist which constitutes an Event of Default.
5
<PAGE>
9. Covenants. Unless waived in writing by the Bank or until payment in
---------
full and termination of the Line of Credit:
(a) The Borrower will promptly submit to Bank financial statements
as follows:
(i) Annual Statements. As soon as available, and in any event
-----------------
within one hundred twenty (120) days after the end of each Fiscal Year, Borrower
shall furnish to the Bank an audited consolidated balance sheet, income
statement, and statement of cash flows showing sources and uses of cash, for
such Fiscal Year, together with comparative figures for the next preceding
Fiscal Year prepared by a certified public accounting firm acceptable to the
Bank (the "CPA"), together with the unqualified opinion of the CPA firm in
substantially the same form as provided in prior years. Together with such
audited financial statements and opinion, Borrower shall furnish the Bank with a
certificate from the Borrower's Vice President and Corporate Controller
certifying that he has reviewed the provisions of this Agreement and nothing has
come to his attention to cause him to believe that any Event of Default or
unmatured default exists as of the date of the statement, or, if such is not the
case, specifying such Event of Default or unmatured default and the nature
thereof, and the action Borrower has taken or will take to correct it.
(ii) Additional Financial Information. Upon written request of
--------------------------------
the Bank, the Borrower shall deliver to the Bank:
(A) Promptly upon receipt thereof, all detailed reports, if
any, submitted to Borrower by the CPA firm in connection with each annual audit,
(B) Promptly upon its becoming available, copies of all
financial statements, reports, notices or meetings and proxy statements which
Borrower shall send to its stockholders,
(C) Within ten (10) days after the filing (1) with the
Secretary of State of Delaware, certified copies of all amendments to Borrower's
Certificate of Incorporation, and (2) with the appropriate governmental
authority, copies of all regulatory reports, filings or notices which Borrower
is required to submit, including but not limited to reports, filings or notices
to the SEC, the IRS, OSHA, EPA and the Department of Labor.
(D) Such additional information with respect to its
financial condition as may be reasonably requested by the Bank from time to
time.
(b) The Borrower will not make or permit any change in the nature of
its business as carried on as of the date of this letter or permit any change in
control of more than a majority of its board of directors or its voting stock.
6
<PAGE>
(c) The Borrower shall continue to own 100% of all outstanding and
issued capital stock of PJ Food Service, Inc. and PJFS of Mississippi, Inc., and
there shall be no material variation from the present business operations of PJ
Food Service, Inc. and PJFS of Mississippi, Inc. The present business operations
of PJ Food Service, Inc. and PJFS of Mississippi, Inc. shall mean being the
primary provider of commissary services (consisting of dough production and
proprietary products) for the Borrower's operations in the United States.
(d) The Borrower shall, on a consolidated basis, maintain at all
times, such maintenance to be evidenced at the end of each fiscal year of the
Borrower, calculated by using the immediately preceding twelve month period, a
ratio of Funded Debt to EBITDA of not less than 2.0 to 1.0. "Funded Debt" is
defined as all long term debt plus short term debt from financial institutions.
----
"EBITDA" is defined as earnings before interest, taxes, depreciation and
amortization.
(e) The Borrower will not create, assume, incur or suffer to exist
any mortgage (except for proposed bond offering with the City of Jeffersontown,
Kentucky, such bonds to be acquired by the Company or a wholly-owned
subsidiary), pledge, encumbrance, security interest, lien or charge of any kind
upon any of its property, now owned or hereafter acquired, or acquire or agree
to acquire any kind of property under conditional sales or other title retention
agreements, except liens disclosed on the Borrower's latest financial statements
provided to the Bank prior to the date of this letter and additional liens to
secure indebtedness not exceeding $300,000.00 in the aggregate; provided,
--------
however, that the foregoing restrictions shall not prevent the Borrower from:
- -------
(i) incurring liens for taxes, assessments or governmental charges or levies
which shall not at the time be due and payable or can thereafter be paid without
penalty or are being contested in good faith by appropriate proceedings
diligently conducted and with respect to which it has created adequate reserves;
(ii) making pledges or deposits to secure obligations under workers'
compensation laws or similar legislation; or (iii) granting liens or security
interests in favor of the Bank.
(f) Without the prior written consent of the Bank (which consent
shall not be unreasonably withheld), John H. Schnatter and Charles Schnatter
shall continue to be employed by and be active in the management of the
Borrower.
(g) Without the Bank's prior written consent, which shall not be
unreasonably withheld, the Borrower shall not (i) be a party to any
consolidation, reorganization (including without limitation those types referred
to in Section 368 of the United States Internal Revenue Code of 1986, as
amended), "stock swap" or merger, (ii) sell or otherwise transfer any material
part of its assets, (iii) sell, assign, or otherwise dispose of, with or without
recourse, any of its accounts receivable or notes receivable or other
intangibles, except the endorsement of negotiable instruments of collection in
the ordinary course of business, or (iv) liquidate or dissolve or take any
action with a view toward liquidation or dissolution.
7
<PAGE>
10. Representations and Warranties. The Borrower represents and warrants
------------------------------
to the Bank as follows:
(a) The Borrower is duly organized, validly existing and in good
standing under the laws of the state of its incorporation or organization and
has the power and authority to own and operate its assets and to conduct its
business as now or proposed to be carried on, and is duly qualified, licensed
and in good standing to do business in all jurisdictions where its ownership of
property or the nature of its business requires such qualification or licensing.
(b) The Borrower has the power to make and carry out the terms of the
Loan Documents and has taken all necessary corporate action to authorize the
execution, delivery and performance of the Loan Documents.
(c) The Loan Documents constitute the legally binding obligations of
the Borrower, enforceable in accordance with their respective terms.
(d) The making and performance of the Loan Documents do not and will
not violate in any respect any provisions of (i) any federal, state or local law
or regulation or any order or decree of any federal, state or local governmental
authority, agency or court, or (ii) the organizational documents of the Borrower
or of any of its subsidiaries, or (iii) any mortgage, contract or other
undertaking to which the Borrower is a party or which is binding upon the
Borrower or any of its subsidiaries or any of their respective assets, and do
not and will not result in the creation or imposition of any security interest,
lien, charge or other encumbrance on any of their respective assets pursuant to
the provisions of any such mortgage, contract or other undertaking.
(e) Neither the Borrower nor any of its subsidiaries is in default
with respect to any material order, writ, injunction or decree (i) of any court
or (ii) of any Federal, state, municipal or other governmental instrumentality.
The Borrower and each subsidiary is substantially complying with all applicable
statutes and regulations of each governmental authority having jurisdiction over
its activities, except where failure to comply would not have a material adverse
effect on the Borrower and its subsidiaries, taken as a whole.
(f) There are no actions, suits, proceedings or governmental
investigations pending or, to the knowledge of the Borrower, threatened against
the Borrower which could result in a material adverse change in its business,
assets, operations, financial condition or result of operations and there is no
basis known to the Borrower or its officers or directors for any such action,
suit, proceedings or investigation.
(g) The Borrower's latest financial statements provided to the Bank
are true, complete and accurate in all material respects and fairly present the
financial condition, assets and liabilities, whether accrued, absolute,
contingent or otherwise and the results of the
8
<PAGE>
Borrower's operations for the period specified therein. The Borrower's financial
statements have been prepared in accordance with generally accepted accounting
principles consistently applied from period to period subject in the case of
interim statements to normal year-end adjustments. Since the date of the latest
financial statements provided to the Bank, the Borrower has not suffered any
damage, destruction or loss which has materially adversely affected its
business, assets, operations, financial condition or results of operations.
(h) The Borrower has filed all returns and reports that are required
to be filed by it in connection with any federal, state or local tax, duty or
charge levied, assessed or imposed upon the Borrower or its property, including
unemployment, social security and similar taxes and all of such taxes have been
either paid or adequate reserve or other provision has been made therefor.
(i) The Borrower and its subsidiaries have reviewed the areas within
their business and operations which could be adversely affected by, and have
developed or are developing a program to address on a timely basis, the risk
that certain computer applications used by the Borrower or its subsidiaries (or
any of their respective material suppliers, customers of vendors) may be unable
to recognize and perform properly date-sensitive functions involving dates prior
to and after December 31, 1999 (the "Year 2000 Problem"). The Year 2000 Problem
will not result, and is not reasonably expected to result, in any material
adverse effect on the business, properties, assets, financial condition, results
of operations or prospects of the Borrower and its subsidiaries, taken as a
whole, or the ability of the Borrower to duly and punctually pay or perform its
obligations under the Loan Documents.
11. Default. The events which give the Bank the right to accelerate the
-------
maturity of the Loans outstanding hereunder and terminate the Line of Credit are
set forth in the Note.
12. Notices. All notices required to be sent to the Borrower shall be sent
-------
by hand delivery, overnight courier or facsimile transmission (with confirmation
of receipt) to the Borrower at the address set forth on the records of the Bank.
13. Fees and Expenses. The Borrower shall pay the Bank's usual and
-----------------
customary commissions, fees and expenses in connection with any Letter of Credit
issued. The Borrower shall reimburse the Bank for the Bank's expenses (including
the reasonable fees and expenses of the Bank's outside and in-house counsel) in
documenting and closing this transaction and in connection with any amendments,
modifications, renewals or enforcement actions relating to the Line of Credit.
14. Governing Law. This Agreement and the Note shall be governed by the
-------------
laws of the Commonwealth of Kentucky, excluding its conflict of law rules.
9
<PAGE>
15. Counterparts. This Agreement may be executed in counterparts, each of
------------
which when executed by the Borrower and the Bank shall be regarded as an
original.
If the foregoing accurately reflects the understanding of the parties, please
execute the duplicate original of this Agreement and return it to me.
Very truly yours,
PNC BANK, NATIONAL ASSOCIATION
By /s/ Paula K. Fryland
--------------------------------
Paula K. Fryland, Vice President
Accepted, with the intent to be legally bound,
this 8th day of January, 1999:
PAPA JOHN'S INTERNATIONAL, INC.
By /s/ Charles W. Schnatter
---------------------------------
Title: Senior Vice President
-----------------------------
10
<PAGE>
DISCRETIONARY LINE OF CREDIT NOTE
$20,000,000.00 AS OF JANUARY 8, 1999
FOR VALUE RECEIVED, PAPA JOHN'S INTERNATIONAL, INC. (the "BORROWER"), with an
address at 11492 Bluegrass Parkway, Louisville, Kentucky 40299, promises to pay
to the order of PNC BANK, NATIONAL ASSOCIATION (the "BANK"), in lawful money of
the United States of America in immediately available funds at its offices
located at 500 West Jefferson Street, Louisville, Kentucky 40202, or at such
other location as the Bank may designate from time to time, the principal sum of
TWENTY MILLION DOLLARS ($20,000,000.00) (the "FACILITY") or such lesser amount
as may be advanced to or for the benefit of the Borrower hereunder, together
with interest accruing on the outstanding principal balance from the date
hereof, as provided below:
1. RATE OF INTEREST. Each advance outstanding under this Note will bear
----------------
interest at a rate per annum determined in the Bank's sole discretion, as
offered by the Bank to the Borrower as the rate at which the Bank would advance
funds to the Borrower in the principal amount requested for the interest period
requested, each as agreed upon in writing between the Borrower and the Bank.
Interest will be calculated on the basis of a year of 360 days for
the actual number of days in each interest period. In no event will the rate of
interest hereunder exceed the maximum rate allowed by law.
2. DISCRETIONARY ADVANCES. THIS IS NOT A COMMITTED LINE OF CREDIT AND
----------------------
ADVANCES UNDER THIS NOTE, IF ANY, SHALL BE MADE BY THE BANK IN ITS SOLE
DISCRETION. NOTHING CONTAINED IN THIS NOTE OR ANY OTHER LOAN DOCUMENTS SHALL BE
CONSTRUED TO OBLIGATE THE BANK TO MAKE ANY ADVANCES. THE BANK SHALL HAVE THE
RIGHT TO REFUSE TO MAKE ANY ADVANCES AT ANY TIME WITHOUT PRIOR NOTICE TO THE
BORROWER.
The Borrower may request advances, repay and request additional
advances hereunder, subject to the terms and conditions of this Note and the
Loan Documents (as defined herein). In no event shall the aggregate unpaid
principal amount of advances under this Note exceed the face amount of this
Note.
3. PAYMENT TERMS. The principal amount of each advance shall be due and
-------------
payable on the earlier of (i) the last day of the applicable interest period for
such advance or (ii) the Expiration Date (as defined in the Loan Documents).
Interest shall be due and payable at the times set forth in the Loan Documents,
and no less frequently than quarterly.
If any payment under this Note shall become due on a Saturday, Sunday
or public holiday under the laws of the State where the Bank's office indicated
above is located, such payment shall be made on the next succeeding business
day and such extension of time shall be
<PAGE>
included in computing interest in connection with such payment. The Borrower
hereby authorizes the Bank to charge the Borrower's deposit account at the Bank
for any payment when due hereunder. Payments received will be applied to
charges, fees and expenses (including attorneys' fees), accrued interest and
principal in any order the Bank may choose, in its sole discretion.
4. DEFAULT RATE. If any advance or other amount is not paid when due, the
------------
Borrower shall pay interest on such amount until it is paid in full at a rate
per annum (based on a year of 360 days and actual days elapsed) (the "DEFAULT
RATE") equal to two hundred (200) basis points (2%) above the Prime Rate but not
more than the maximum rate allowed by law. As used herein, "PRIME RATE" shall
mean the rate publicly announced by the Bank from time to time as its prime
rate. The Prime Rate is determined from time to time by the Bank as a means of
pricing some loans to its borrowers. The Prime Rate is not tied to any external
rate of interest or index, and does not necessarily reflect the lowest rate of
interest actually charged by the Bank to any particular class or category of
customers. If and when the Prime Rate changes, the rate of interest on this Note
will change automatically without notice to the Borrower, effective on the date
of any such change. The Default Rate shall continue to apply whether or not
judgment shall be entered on this Note.
5. PREPAYMENT. The Borrower shall have the right to prepay at any time
----------
and from time to time, in whole or in part, without penalty, any advance
hereunder which is accruing interest at a rate based upon a floating rate. If
the Borrower prepays all or any part of any advance which is accruing interest
at a fixed rate on other than the last day of the applicable interest period,
the Borrower shall also pay to the Bank, on demand therefor, the Cost of
Prepayment. "COST OF PREPAYMENT" means an amount equal to the present value, if
positive, of the product of (a) the difference between (i) the yield, on the
beginning date of the applicable interest period, of a U.S. Treasury obligation
with a maturity similar to the applicable interest period minus (ii) the yield,
-----
on the prepayment date, of a U.S. Treasury obligation with a maturity similar to
the remaining maturity of the applicable interest period, and (b) the principal
amount to be prepaid, and (c) the number of years, including fractional years
from the prepayment date to the end of the applicable interest period. The yield
on any U.S. Treasury obligation shall be determined by reference to Federal
Reserve Statistical Release H.15(519) "Selected Interest Rates". For purposes of
making present value calculations, the yield to maturity of a similar maturity
U.S. Treasury obligation on the prepayment date shall be deemed the discount
rate. The Cost of Prepayment shall also apply to any payments made after
acceleration of the maturity of this Note.
6. OTHER LOAN DOCUMENTS. This Note is issued pursuant to the letter
--------------------
agreement dated as of January 8, 1999, and the other documents referred to
therein, the terms of which are incorporated herein by reference (the "LOAN
DOCUMENTS").
7. ADVANCE PROCEDURES. A request for advance made by telephone must be
------------------
promptly confirmed in writing by such method as the Bank may require. The
Borrower authorizes the Bank to accept telephonic requests for advances, and the
Bank shall be entitled to rely upon the authority of any person providing such
instructions. The Borrower hereby indemnifies and holds the Bank harmless from
and against any and all damages, losses,
<PAGE>
liabilities, costs and expenses (including reasonable attorneys' fees and
expenses) which may arise or be created by the acceptance of such telephone
requests or making such advances. The Bank will enter on its books and records,
which entry when made will be presumed correct, absent manifest error, the date
and amount of each advance, the interest rate and interest period applicable
thereto, as well as the date and amount of each payment made by the Borrower.
8. YIELD PROTECTION. The undersigned shall pay to the Bank, on written
----------------
demand therefor, together with the written evidence of the justification
therefor, all direct costs incurred, losses suffered or payments made by Bank by
reason of any change in law or regulation or its interpretation imposing any
reserve, deposit, allocation of capital, or similar requirement (including
without limitation, Regulation D of the Board of Governors of the Federal
Reserve System) on the Bank, its holding company or any of their respective
assets.
9. EVENTS OF DEFAULT. The occurrence of any of the following events will
-----------------
be deemed to be an "EVENT OF DEFAULT" under this Note: (i) the nonpayment of any
principal, interest or other indebtedness under this Note when due; (ii) the
occurrence of any event of default or default and the lapse of any notice or
cure period under any Loan Document or any other debt, liability or obligation
to the Bank of any Obligor: (iii) the filing by or against any Obligor or any
Affiliate of any proceeding in bankruptcy, receivership, insolvency,
reorganization, liquidation, conservatorship or similar proceeding (and, in the
case of any such proceeding instituted against any Obligor or any Affiliate,
such proceeding is not dismissed or stayed within thirty (30) days of the
commencement thereof); (iv) any assignment by any Obligor or any Affiliate for
the benefit of creditors, or any levy, garnishment, attachment or similar
proceeding is instituted against any property of any Obligor or any Affiliate
held by or deposited with the Bank; (v) a default with respect to any other
indebtedness of any Obligor or any Affiliate for borrowed money in excess of
$100,000.00, if the effect of such default is to cause or permit the
acceleration of such debt; (vi) the entry of a final judgement in excess of
$100,000.00 against any Obligor or any Affiliate and the failure of such
Obligor or any Affiliate to discharge the judgement within ten days of the
entry thereof; (vii) any material adverse change in the business, assets,
operations, financial condition or results of operations of any Obligor or any
Affiliate; (viii) the revocation or attempted revocation, in whole or in part,
of any guarantee by any Guarantor; (ix) any representation or warranty made by
any Obligor or any Affiliate to the Bank in any document, including but not
limited to the Loan Documents is false, erroneous or misleading in any material
respect; (x) the failure of any Obligor or any Affiliate to observe or perform
any covenant or other agreement with the Bank contained in any Loan Document or
any other documents now or in the future securing the obligations of any Obligor
or any Affiliate to the Bank; and (xi) the occurrence of any event of default or
default and the lapse of any notice or cure period under any debt, liability or
obligation to the Bank of any Affiliate.
As used herein, the term "OBLIGOR" means any Borrower and any
Guarantor, the term "GUARANTOR" means any guarantor of the obligations of the
Borrower to the Bank existing on the date of this Note or arising in the future,
and the term "AFFILIATE" means each of PJ Food Service, Inc. and PJFS of
Mississippi, Inc.
<PAGE>
Upon the occurrence of an Event of Default: (a) the Bank shall
continue to have no obligation to make advances hereunder; (b) if an Event of
Default specified in clause (iii) or (iv) above shall occur, the outstanding
principal balance and accrued interest hereunder together with any additional
amounts payable hereunder shall be immediately due and payable without demand or
notice of any kind; (c) if any other Event of Default shall occur, the
outstanding principal balance and accrued interest hereunder together with any
additional amounts payable hereunder, at the option of the Bank and without
demand or notice of any kind, may be accelerated and become immediately due and
payable; (d) at the option of the Bank, this Note will bear interest at the
Default Rate from the date of the occurrence of the Event of Default; and (e)
the Bank may exercise from time to time any of the rights and remedies available
to the Bank under the Loan Documents or under applicable law.
10. RIGHT OF SETOFF. In addition to all liens upon and rights of setoff
----------------
against the money, securities or other property of the Borrower given to the
Bank by law, the Bank shall have, with respect to the Borrower's obligations to
the Bank under this Note and to the extent permitted by law, a contractual
possessory security interest in and a contractual right of setoff against, and
the Borrower hereby assigns, conveys, delivers, pledges and transfers to the
Bank all of the Borrower's right, title and interest in and to, all deposits,
moneys, securities and other property of the Borrower now or hereafter in the
possession of or on deposit with, or in transit to, the Bank whether held in a
general or special account or deposit, whether held jointly with someone else,
or whether held for safekeeping or otherwise, excluding, however, all IRA,
Keogh, and trust accounts. Every such security interest and right of setoff may
be exercised without demand upon or notice to the Borrower. Every such right of
setoff shall be deemed to have been exercised immediately upon the occurrence of
an Event of Default hereunder without any action of the Bank, although the Bank
may enter such setoff on its books and records at a later time.
11. MISCELLANEOUS. No delay or omission of the Bank to exercise any right
--------------
or power arising hereunder shall impair any such right or power or be considered
to be a waiver of any such right or power nor shall the Bank's action or
inaction impair any such right or power. The Borrower agrees to pay on demand,
to the extent permitted by law, all costs and expenses incurred by the Bank in
the enforcement of its rights in this Note and in any security therefor,
including without limitation reasonable fees and expenses of the Banks's
counsel. If any provision of this Note is found to be invalid by a court, all
the other provisions of this Note will remain in full force and effect.
The Borrower and all other makers and endorsers of this Note hereby
forever waive presentment, protest, notice of dishonor and notice of non-
payment. The Borrower also waives all defenses based on suretyship or impairment
of collateral.
If this Note is executed by more than one Borrower, the obligations of
such persons or entities hereunder will be joint and several. This Note shall
bind the Borrower and its heirs, executors, administrators, successors and
assigns, and the benefits hereof shall inure to the benefit of Bank and its
successors and assigns.
<PAGE>
This Note has been delivered to and accepted by the Bank and will be
deemed to be made in the State where the Bank's office indicated above is
located. THIS NOTE WILL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE
BANK AND THE BORROWER DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE WHERE
THE BANK'S OFFICE INDICATED ABOVE IS LOCATED, EXCLUDING ITS CONFLICT OF LAWS
RULES. The Borrower hereby irrevocably consents to the exclusive jurisdiction of
any state or federal court located for the county or judicial district where the
Bank's office indicated above is located; provided that nothing contained in
this Note will prevent the Bank from bringing any action, enforcing any award or
judgment or exercising any rights against the Borrower individually, against any
security or against any property of the Borrower within any other county, state
or other foreign or domestic jurisdiction. The Borrower acknowledges and agrees
that the venue provided above is the most convenient forum for both the Bank and
the Borrower. The Borrower waives any objection to venue and any objection based
on a more convenient forum in any action instituted under this Note.
12. WAIVER OF JURY TRIAL. THE BORROWER IRREVOCABLY WAIVES ANY AND ALL
--------------------
RIGHTS THE BORROWER MAY HAVE TO A TRAIL BY JURY IN ANY ACTION, PROCEEDING OR
CLAIM OF ANY NATURE RELATING TO THIS NOTE, ANY DOCUMENTS EXECUTED IN CONNECTION
WITH THIS NOTE OR ANY TRANSACTION CONTEMPLATED IN ANY OF SUCH DOCUMENTS. THE
BORROWER ACKNOWLEDGES THAT THE FOREGOING WAIVER IS KNOWING AND VOLUNTARY.
THE BORROWER ACKNOWLEDGES THAT IT HAS READ AND UNDERSTOOD ALL THE
PROVISIONS OF THIS NOTE, INCLUDING THE WAIVER OF JURY TRAIL, AND HAS BEEN
ADVISED BY COUNSEL AS NECESSARY OR APPROPRIATE.
WITNESS the due execution hereof as of the date first written above, with the
intent to be legally bound hereby.
PAPA JOHN'S INTERNATIONAL, INC.
By /s/ Charles W. Schnatter
-----------------------------------
Print Name: Charles W. Schnatter
--------------------------
Title: Senior Vice President
-------------------------------
WITNESS/ATTEST:
By /s/ Paula K. Fryland
-----------------------------------
Paula K. Fryland, Vice President
<PAGE>
Exhibit 11 - Calculation of Earnings per Share
<TABLE>
<CAPTION>
Three Months Ended
(In thousands, except per share amounts) March 28, 1999 March 29, 1998
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Basic Earnings per Share:
Income before cumulative effect of a change in
accounting principle $11,383 $ 7,509
Weighted average shares outstanding 29,966 29,290
------- -------
Basic earnings per share $ 0.38 $ 0.26
======= =======
Diluted Earnings per Share:
Income before cumulative effect of a change in
accounting principle $11,383 $ 7,509
Weighted average shares outstanding 29,966 29,290
Dilutive effect of outstanding common stock options 1,133 821
------- -------
Diluted weighted average shares outstanding 31,099 30,111
------- -------
Diluted earnings per share $ 0.37 $ 0.25
======= =======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-26-1999
<PERIOD-START> DEC-28-1998
<PERIOD-END> MAR-28-1999
<CASH> 37,400
<SECURITIES> 47,120
<RECEIVABLES> 18,931
<ALLOWANCES> 0
<INVENTORY> 8,951
<CURRENT-ASSETS> 72,798
<PP&E> 245,243
<DEPRECIATION> 53,835
<TOTAL-ASSETS> 343,330
<CURRENT-LIABILITIES> 48,315
<BONDS> 925
0
0
<COMMON> 301
<OTHER-SE> 279,528
<TOTAL-LIABILITY-AND-EQUITY> 343,330
<SALES> 176,463
<TOTAL-REVENUES> 187,351
<CGS> 85,581
<TOTAL-COSTS> 148,809
<OTHER-EXPENSES> 20,250
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 18,292
<INCOME-TAX> 6,909
<INCOME-CONTINUING> 11,383
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,383
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0.37
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-27-1998 DEC-27-1998 DEC-27-1998 DEC-27-1998
<PERIOD-START> DEC-29-1997 DEC-29-1997 DEC-29-1997 DEC-29-1997
<PERIOD-END> DEC-27-1998 SEP-27-1998 JUN-28-1998 MAR-29-1998
<CASH> 33,814 29,692 24,119 26,367
<SECURITIES> 47,355 51,013 59,940 58,778
<RECEIVABLES> 17,420 15,555 13,918 15,179
<ALLOWANCES> 0 0 0 0
<INVENTORY> 9,808 9,231 9,175 10,826
<CURRENT-ASSETS> 68,023 57,127 49,744 55,158
<PP&E> 222,859 207,414 181,372 165,652
<DEPRECIATION> 49,987 46,184 41,658 38,220
<TOTAL-ASSETS> 319,724 300,231 283,052 272,728
<CURRENT-LIABILITIES> 45,495 43,168 36,155 40,767
<BONDS> 1,130 1,130 1,130 1,130
0 0 0 0
0 0 0 0
<COMMON> 298 296 296 294
<OTHER-SE> 253,872 238,647 229,225 215,575
<TOTAL-LIABILITY-AND-EQUITY> 319,724 300,231 283,052 272,729
<SALES> 644,576 463,302 303,299 147,178
<TOTAL-REVENUES> 682,152 490,129 320,697 155,493
<CGS> 328,547 233,171 151,351 73,890
<TOTAL-COSTS> 552,128 395,570 258,077 125,745
<OTHER-EXPENSES> 72,879 53,796 36,237 17,398
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 0 0 0 0
<INCOME-PRETAX> 57,146 40,763 26,382 12,350
<INCOME-TAX> 22,181 15,925 10,243 4,841
<INCOME-CONTINUING> 34,964 24,838 16,139 7,509
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> (2,603) (2,603) (2,603) (2,603)
<NET-INCOME> 32,361 22,235 13,536 4,906
<EPS-PRIMARY> 1.10 0.75 0.46 0.17
<EPS-DILUTED> 1.06 0.73 0.45 0.16
</TABLE>
