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                   SECURITIES AND EXCHANGE COMMISSION
                        WASHINGTON, D.C.  20549

                               FORM 10-K

(Mark One)
[X]  Annual report pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934
FOR THE FISCAL YEAR ENDED DECEMBER 29, 1996

                                     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                                          61-12033
   (State or other jurisdiction of                    (I.R.S.Employer
   incorporation or organization)                     Identification Number)

                     11492 BLUEGRASS PARKWAY, SUITE 175
                      LOUISVILLE, KENTUCKY  40299-2370
                  (Address of principal executive offices)

                               (502) 266-5200
            (Registrant's telephone number, including area code)

- -----------------------------------------------------------------------------
     Securities registered pursuant to Section 12(b) of the Act:

                                                 (Name of each exchange
          (Title of Each Class)                   on which registered)
          None                                    None

     Securities registered pursuant to Section 12(g) of the Act:
        Common Stock, $.01 par value       The Nasdaq Stock Market
- -----------------------------------------------------------------------------

   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
                      -----                         ----

   Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.  [X]

   As of March 18, 1997, there were 28,759,997  shares of the Registrant's
Common Stock outstanding.  The aggregate market value of the shares of
Registrant's Common Stock held by non-affiliates of the Registrant at such
date was $513,981,333  based on the last sale price of the Common Stock on
March 18, 1997 as reported by The Nasdaq Stock Market.  For purposes of the
foregoing calculation only, all directors and executive officers of the
Registrant have been deemed affiliates.

                    DOCUMENTS INCORPORATED BY REFERENCE

    Portions of Part III are incorporated by reference to the Registrant's
Proxy Statement for the Annual Meeting of Stockholders to be held May 22, 1997.

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                               TABLE OF CONTENTS




PART I
- ------

   Item 1.        Business

   Item 2.        Properties

   Item 3.        Legal Proceedings

   Item 4.        Submission of Matters to a Vote of Security Holders


PART II
- -------

   Item 5.        Market for Registrant's Common Equity
                  and Related Stockholder Matters

   Item 6.        Selected Consolidated Financial Data

   Item 7.        Management's Discussion and Analysis of
                  Financial Condition and Results of Operations

   Item 8.        Consolidated Financial Statements and Supplementary Data

   Item 9.        Changes in and Disagreements with Accountants
                  on Accounting and Financial Disclosure


PART III
- --------

   Item 10.       Directors and Executive Officers of the
                  Registrant

   Item 11.       Executive Compensation

   Item 12.       Security Ownership of Certain Beneficial Owners
                  and Management

   Item 13.       Certain Relationships and Related Transactions


PART IV
- -------

   Item 14.       Exhibits, Consolidated Financial Statement
                  Schedules and Reports on Form 8-K

                                       1

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                                 PART I


ITEM 1.  BUSINESS

GENERAL

  Papa John's International, Inc. (the "Company") operates and franchises
pizza delivery and carry-out restaurants under the trademark "Papa John's" in
32 states and the District of Columbia, principally in the Midwest,
Mid-Atlantic, South and Southeast.  The first Company-owned restaurant opened
in 1985 and the first franchised restaurant opened in 1986.  At December 29,
1996, there were 1,160 Papa John's restaurants in operation, consisting of 303
Company-owned and 857 franchised restaurants.

STRATEGY

  The Company's objective is to become the leading chain of pizza delivery
restaurants in each of its targeted markets.  To accomplish this objective,
the Company has developed a strategy designed to achieve high levels of
customer satisfaction and repeat business, as well as to establish recognition
and acceptance of the Papa John's concept.  The key elements of the Company's
strategy include:

  Focused, High Quality Menu.  Papa John's restaurants offer a focused
menu of high quality, value-priced pizza, breadsticks and cheesesticks.
Papa John's original crust pizza is prepared using fresh dough (not
frozen), real mozzarella cheese, pizza sauce made from fresh-packed
tomatoes (not concentrate), a proprietary mix of savory spices and a
choice of high quality meat and vegetable toppings in generous portions.
Papa John's "Better Thin" pizza was introduced in 1996 in response to
customer demand.  Papa John's "Better Thin" is made with a prepared
crust and the same high quality toppings as the original crust pizza.
The Company believes its focused menu creates a strong identity in the
marketplace and simplifies operations.

  Efficient Operating System.  The Company believes that its operating
and distribution systems, restaurant layout and designated delivery
areas result in lower operating costs, improved food quality and
superior customer service.  The Company's commissary system takes
advantage of volume purchasing of food and supplies, and provides
consistency and efficiencies of scale in dough production.  This
eliminates the need for each restaurant to order food from multiple
vendors and commit substantial labor and other resources to dough
preparation.  Because Papa John's restaurants have a focused menu and
specialize in delivery and carry-out services, each employee can
concentrate on a well-defined function in preparing and delivering the
customer's order.

  Commitment to Employee Training and Development.  The Company is
committed to the development and motivation of its employees through on-
going training programs, incentive compensation and opportunities for
advancement.  Employee training programs for the Company and its
franchisees are conducted at 16 regional training centers.  The Company
offers financial and stock incentives to employees at various levels
based on the achievement of performance goals.  The Company's growth
also provides significant opportunities for advancement.  The Company
believes these factors create an entrepreneurial spirit throughout the
organization, resulting in a positive work environment and motivated,
customer-oriented employees.

  Targeted, Cost-Effective Marketing.  The Company's restaurant-level
marketing programs target the delivery area of each restaurant, making
extensive use of distinctive print materials in direct mail and store-
to-door couponing.  Local marketing efforts also include a variety of
community-oriented activities with schools, sports teams and other
organizations.  In markets in which the Company or its franchisees have
a significant presence, local marketing efforts area supplemented with
radio and television advertising.

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  Franchise System.  The Company is committed to developing a strong
franchise system by attracting experienced operators, expanding in a
controlled manner and ensuring that each franchisee  adheres to the
Company's high standards.  The Company seeks to attract franchisees with
experience in multi-unit restaurant operations and with the financial
resources and management capability to open multiple locations.  To
ensure consistent food quality, each franchisee is required to purchase
dough and spice mix from the Company and all other supplies either from
the Company or its approved suppliers.  The Company devotes significant
resources to provide its franchisees with assistance in employee
training, marketing, site selection and restaurant design.

UNIT ECONOMICS

  The Company believes its unit economics are exceptional.  The 215
Company-owned restaurants that were open throughout the entire 1996
fiscal year generated average sales of $682,000, average cash flow
(operating income plus depreciation) of $125,000 and average restaurant
operating income of $103,000 (or 15% of average sales).  A significant
number of these restaurants were operating in newer markets.  Sales and
profitability in the initial months of operations, particularly in new
markets, historically have been lower than for mature restaurants,
although recent trends indicate that new markets are opening with higher
than historical sales volumes.

  The average cash investment for the 66 Company-owned restaurants
opened during the 1996 fiscal year, exclusive of land and pre-opening
costs, was approximately $208,000.  The Company expects the average cash
investment for restaurants to be opened in 1997 to approximate
$240,000, with the increase from 1996 resulting primarily from an
increase in the percentage of planned free-standing units in 1997.

EXPANSION

  A total of 290 restaurants were opened during 1996, consisting of 66
Company-owned and 224 franchised restaurants.  The Company plans to open
approximately 70 restaurants in 1997 and anticipates that its
franchisees will open approximately 230 restaurants in 1997.  Expansion
is planned for the East Coast, Southwest and Rocky Mountain regions in
addition to building out existing markets in the Midwest, Mid-Atlantic,
South and Southeast.  As part of its growth strategy, the Company will
continue to consider acquiring restaurants from its franchisees.  The
Company acquired 22 restaurants  from its franchisees during the 1996
fiscal year.  See "Note 4 of Notes to Consolidated Financial
Statements."

  The ability of the Company and its franchisees to open new restaurants
is affected by a number of factors, many of which are beyond the control
of the Company and its franchisees.  These factors include, among other
things, selection and availability of suitable restaurant locations,
negotiation of suitable lease or financing terms, constraints on
permitting and construction of restaurants and the hiring, training and
retention of management and other personnel.  Accordingly, there can be
no assurance that the Company or its franchisees will be able to meet
planned growth targets or open restaurants in markets now targeted for
expansion.

  The Company's expansion strategy is to cluster restaurants in targeted
markets, thereby increasing consumer awareness and enabling the Company
to take advantage of operational, distribution and advertising
efficiencies.  The Company's experience in developing markets indicates
that market penetration through the opening of multiple restaurants
within a particular market results in increased average restaurant sales
in that market.  To accelerate penetration of larger markets, the
Company has co-developed markets with franchisees or divided markets
among franchisees, and will continue to utilize market co-development in
the future where appropriate.  In determining which new markets to
develop, the Company considers many factors, including the size of the
market, demographics and population trends, competition, and
availability and costs of real estate. Before entering a new market, the
Company analyzes detailed information of these factors and each market
is toured and evaluated by senior management.

                                   3

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MENU

  Papa John's restaurants offer a focused menu of high quality, value-
priced pizza, breadsticks and cheesesticks, as well as canned soft
drinks.  Papa John's original crust pizza is prepared using fresh dough
(not frozen).  The Company's thin crust pizza, "Better Thin," uses a
prepared crust which simplifies store-level operations.  All Papa John's
pizzas are made from high protein wheat flour, real mozzarella cheese,
pizza sauce made with fresh packed tomatoes (not concentrate), a
proprietary mix of savory spices and a choice of high quality meat and
vegetable toppings in generous portions.  Fresh onions and green peppers
are purchased from local produce suppliers.  Each original crust pizza
is served with a container of Papa John's special garlic sauce and two
pepperoncinis and each thin crust pizza is served with a container of
special seasonings and two pepperoncinis.  The Company believes its
limited menu helps create a strong identity among consumers and
simplifies operations, resulting in lower operating costs, improved food
quality and superior customer service.

RESTAURANT DESIGN AND SITE SELECTION

  The exterior of most Papa John's restaurants is characterized by
backlit awnings, neon window designs and other visible signage.  A
typical Papa John's restaurant ranges from 1,200 to 1,500 square feet
and is designed to facilitate a smooth flow of food orders through the
restaurant.  The layout includes specific areas for order taking, pizza
preparation and routing, resulting in simplified operations, lower
training and labor costs, increased efficiency and improved consistency
and quality of food products.  The typical interior of a Papa John's
restaurant has a vibrant red and white color scheme with green striping,
and includes a bright menu board, custom counters and carry-out customer
area.  The counters are designed to allow customers to watch the
employees slap out the dough and put sauce and toppings on pizzas.

  The Company considers the location of a restaurant to be important and
therefore devotes significant resources to the investigation and
evaluation of potential sites.  The site selection process focuses on
trade area demographics, target population density, household income
levels and competitive factors.  Management inspects each potential
Company-owned or franchised restaurant location and the surrounding
market before a site is approved.  Papa John's restaurants are typically
located in strip shopping centers or free-standing buildings that
provide visibility, curb appeal and accessibility.  The Company's
restaurant design may be configured to fit a wide variety of building
shapes and sizes, thereby increasing the number of suitable locations
for Papa John's restaurants.

  Since 1994, the Company has opened a greater number of free-standing
restaurants.  The Company seeks either existing buildings suitable for
conversion, or locations suitable for the construction of its prototype
restaurant.  Free-standing buildings generally provide more signage and
better visibility, accessibility and parking.  The Company believes that
these locations improve Papa John's image and brand awareness and
expects that free-standing and prototype units will approximate 15-20%
of total Company-owned restaurants.

COMMISSARY SYSTEM; PURCHASING

   The Company's commissary system supplies pizza dough, food products,
paper products, smallwares and cleaning supplies twice weekly to each
restaurant in the system.  This commissary system enables the Company to
closely monitor and control product quality and consistency, while
lowering food costs.  The Company opened a distribution facility in
Dallas, Texas in the first quarter of 1996 and a full-service commissary
in Denver, Colorado in the second quarter of 1996.  In the first quarter
of 1997, the Company opened a distribution center in Phoenix, Arizona
and a full-service commissary in Rotterdam, New York to support
restaurant expansion plans.  A full-service commissary in Des Moines,
Iowa is planned for mid-1997.  The Company's other full-service
commissaries are in Orlando, Florida; Louisville, Kentucky; Raleigh,
North Carolina; and Jackson, Mississippi.

                                   4

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  The Company sets quality standards for all products used in Papa John's
restaurants and designates approved outside suppliers of food and paper products
which must meet the Company's quality standards. In order to ensure product
quality and consistency, all Papa John's restaurants are required to purchase
proprietary spice mix and dough from the Company's commissaries. Franchisees may
purchase other goods directly from approved suppliers or the Company's
commissaries. The Company has negotiated national purchasing agreements with
most of its suppliers. These agreements result in volume discounts to the
Company, allowing it to sell the products to franchisees at prices below those
which franchisees can normally obtain independently. Products are distributed to
restaurants by refrigerated trucks leased and operated by the Company or
transported by common carrier.

  All of the equipment, counters and smallwares needed to open a Papa John's
restaurant are available for purchase through the Company. The Company also
provides layout and design services and recommends subcontractors, signage
installers and telephone systems to its franchisees. Although not required to do
so, substantially all of the Company's franchisees purchase most of their
equipment from the Company.


MARKETING PROGRAMS

  The Company's restaurant-level marketing programs target the delivery area of
each restaurant, making extensive use of distinctive print materials in direct
mail and store-to-door couponing. The local marketing efforts also include a
variety of community-oriented activities with schools, sports teams and other
organizations. Where appropriate, the Company supplements local marketing
efforts with radio and television advertising.

  In addition to extensive local store marketing, all Company-owned and
franchised Papa John's restaurants within a co-developed market are required to
join an advertising cooperative ("Co-op"). Each member restaurant contributes a
percentage of sales to the Co-op for market-wide programs, such as radio,
television and billboards. The rate of contribution and uses of the monies
collected is determined by a majority vote of the Co-op's members. The
restaurant-level and Co-op marketing efforts are supported by print and
electronic advertising materials that are produced by the Papa John's Marketing
Fund, Inc., a non-profit corporation (the "Marketing Fund"), for use by both the
Company and its franchisees. The required Marketing Fund contribution can be up
to 1.5% of sales, as established from time to time by the governing board of the
Marketing Fund (currently .5%). The required contribution can be increased above
1.5% only upon approval of not less than 60% of Marketing Fund members.

  The Company also provides both Company-owned and franchised restaurants with
catalogs for uniforms and promotional items and pre-approved, print marketing
materials. These items can be ordered through toll-free "800" numbers.

COMPANY OPERATIONS

  Restaurant Personnel.  A typical Papa John's restaurant employs a
restaurant manager, two assistant managers and approximately 20 hourly
employees, most of whom work part-time. The manager is responsible for the day-
to-day operation of the restaurant and for the maintenance of Company-
established operating standards. The Company seeks to hire experienced
restaurant managers and staff and motivate and retain them by providing
opportunities for advancement and performance-based, financial and stock
incentives. The Company has a relatively low managerial turnover rate which it
believes results in decreased training costs and higher productivity.

  The Company employs area supervisors, each of whom has responsibility for
overseeing three to five Company-owned restaurants. The Company also employs
regional vice presidents and district managers who oversee area supervisors and
managers within their respective markets. These employees are also eligible to
earn performance-based financial and stock incentives.

                                   5

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  Training.  The Company has 54 employees dedicated to training and new
restaurant openings, including a full-time coordinator in each of its
markets.  The Company provides an on-site training team three days
before and three days after the opening of each Company-owned
restaurant.  Each regional vice president, district manager, area
supervisor and restaurant manager is required to complete the Company's
two-week training program in which instruction is given on all aspects
of the Company's systems and operations.  The program includes classroom
instruction and hands-on training at an operating Papa John's
restaurant.  The programs are conducted at the Company's 16 regional
training centers located within operating Company-owned restaurants.
The Company's training also includes an education and safety program for
its delivery drivers.

  Point of Sale Technology.  Point of sale technology was in place in
all Company-owned restaurants and 641 franchised restaurants at the end
of 1996.  The Company believes this technology increases speed and
accuracy in order taking and pricing, reduces paper work and allows the
restaurant  manager to better monitor and control food and labor costs.
All Company-owned stores are using a proprietary point of sale system,
The Papa John's PROFIT System, which will also be installed in
substantially all franchised restaurants by the end of 1998.  The
Company believes the PROFIT System will further enhance restaurant-level
marketing capabilities through the development of a data base containing
information on customers and their buying habits with respect to the
Company's products.  Polling capabilities will allow the Company to
obtain current restaurant operating information, thereby improving the
speed, accuracy and efficiency of restaurant-level reporting.

  Reporting.  Managers at Company-owned restaurants prepare daily
reports of sales, cash deposits and operating costs.  Physical
inventories of all food and beverage items are taken weekly.  The
Company's area supervisors prepare weekly profit and loss statements for
each of the restaurants under their supervision.  The Company's Chief
Operating Officer meets on a monthly basis with regional vice
presidents, district managers and area supervisors to discuss restaurant
sales and operations, personnel needs and product quality.

  Hours of Operations.  Papa John's restaurants are open seven days a
week, typically from 11:00 a.m. to 12:30 a.m. Monday through Thursday,
11:00 a.m. to 1:30 a.m. on Friday and Saturday and 12:00 noon to 11:30
p.m. on Sunday.

FRANCHISE PROGRAM

  General.  The Company continues to attract many franchisees with
significant restaurant experience.  The Company considers its
franchisees to be a vital part of the system's continued growth and
believes its relationship with its franchisees is excellent.  At
December 29, 1996, there were 857 franchised restaurants operating in 32
states and the Company has development agreements for approximately 675
additional franchised restaurants committed to open through 2000.  There
can be no assurance that all of these restaurants will be opened or that
the development schedule set forth in the development agreements will be
achieved.  During the 1996 fiscal year, 224 franchised restaurants were
opened.

  Approval.  Franchisees are approved on the basis of the applicant's
business background, restaurant operating experience and financial
resources.  The Company generally seeks franchisees who will enter into
development agreements for multiple restaurants.  The Company seeks
franchisees that have restaurant experience or, in the case of
franchisees who do not have restaurant experience, the Company requires
the franchisee to hire a full-time operator who has either an equity
interest or the right to acquire an equity interest in the franchise
operation.

  Development and Franchise Agreements.  The Company enters into
development agreements with its franchisees for the opening of a
specified number of  restaurants over a defined period of time within a
specified geographic area.  Under the Company's current standard
development agreement, the franchisee is required to pay, at the time of
signing the agreement, a non-refundable fee of $5,000 per restaurant
covered by the development

                                   6

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agreement. This amount is credited against the standard $20,000 franchise fee
payable to the Company upon signing the franchise agreement for a specific
location. Generally, a franchise agreement is executed when a franchisee secures
a location.

  The Company's current standard franchise agreement provides for a term of 10
years (with one five-year renewal option) and payment to the Company of a
royalty fee of 4% of sales. The current standard franchise agreement, as well as
substantially all existing franchise agreements, permit the Company to increase
the royalty fee up to 5% of sales after the agreement has been in effect for
five years. However, the royalty fee cannot be increased to an amount greater
than the percentage royalty fee then in effect for new franchisees.

  The Company has the right to terminate any franchise agreement for a variety
of reasons, including a franchisee's failure to make payments when due or
failure to adhere to the Company's policies and standards. Many state franchise
laws limit the ability of a franchisor to terminate or refuse to renew a
franchise.

  The Company considers, and has entered into, development and franchise
agreements for non-traditional restaurant units. These agreements generally
cover areas not originally targeted for development and have terms differing
from the standard agreement. The Company does not believe these contracts have a
significant impact on revenues or profits.

  Franchise Restaurant Development.  The Company furnishes each franchisee with
assistance in selecting sites and developing restaurants and the physical
specifications for typical restaurants. Each franchisee is responsible for
selecting the location for its restaurants but must obtain Company approval of
restaurant design and location based on accessibility and visibility of the site
and targeted demographic factors, including population, density, income, age and
traffic. The Company provides design plans, counters and equipment for most
franchisee locations at competitive prices.

  Franchisee Loan Program. At the beginning of the second quarter of 1996, the
Company established a program under which selected franchisees developing ten or
more Papa John's restaurants may borrow funds for use in the construction and
development of their restaurants. Under the program, loans will typically bear
interest at fixed or floating rates (ranging from 5.5% to 9.25% at December 29,
1996), and will be secured by the fixtures, equipment and signage (and where
applicable, the land) of each restaurant and the ownership interests in the
franchisee. In some instances, the Company may obtain a purchase option with
respect to the financed restaurants. A franchisee utilizing the loan program
must open at least 20% of the restaurants covered by the franchisee's
development agreement with its own equity capital prior to receiving funds from
the Company under the program.

  Franchise Training and Support.  Every franchisee is required to have a
principal operator approved by the Company who satisfactorily completes the
Company's two-week training program and who devotes his or her full business
time and efforts to the operation of the franchisee's restaurants. Each
franchised restaurant manager is also required to complete the Company's two-
week training program. The Company provides an on-site training crew three days
before and three days after the opening of a franchisee's first two restaurants
and ongoing supervision thereafter. Multi-unit franchisees are encouraged to
hire a full-time training coordinator to train new employees for their
restaurants. The Company's franchise consultants, reporting to the Vice
President of Franchise Operations, maintain open communication with the
franchise community, relaying operating and marketing information and new ideas
between the Company and franchisees.

  Franchise Operations.  All franchisees are required to operate their Papa
John's restaurants in compliance with the Company's policies, standards and
specifications, including matters such as menu items, ingredients, materials,
supplies, services, fixtures, furnishings, decor and signs. Each franchisee has
full discretion to determine the prices to be charged to its customers.

                                   7

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  Franchise Advisory Board.  The Company has established a Franchise
Advisory Board that consists of Company and franchisee representatives.
The Advisory Board holds quarterly meetings to discuss new marketing
ideas, operations, growth and other relevant issues.

  Reporting.  The Company collects weekly and monthly sales and other
operating information from its franchisees.  The Company has agreements
with most of its franchisees permitting the Company to electronically
debit the franchisees' bank accounts for the payment of royalties,
Marketing Fund contributions and purchases of commissary products from
the Company.  This system significantly reduces the resources needed to
process receivables, improves cash flow and virtually eliminates past-
due accounts related to these items.  Franchisees generally are required
to purchase and install the Papa John's PROFIT System in their
restaurants.  See "Company Operations   Point of Sale Technology."

COMPETITION

  The restaurant industry is intensely competitive with respect to
price, service, location and food quality, and there are many well
established competitors with substantially greater financial and other
resources than the Company.  Competitors include a large number of
national and regional restaurant chains, as well as local pizza
operators. Some of the Company's competitors have been in existence for
a substantially longer period than the Company and may be better
established in the markets where the Company's restaurants are, or may
be, located.  Within the pizza segment of the restaurant industry, the
Company believes that its primary competitors are the national pizza
chains, including Pizza Hut, Domino's and Little Caesars.  A change in
the pricing or other marketing strategies of one or more of these
competitors could have an adverse impact on the Company's sales and
earnings.

  The restaurant business is often affected by changes in consumer
tastes, national, regional or local economic conditions, demographic
trends, traffic patterns and the type, number and location of competing
restaurants.  In addition, factors such as inflation, increased food,
labor and benefits costs and the lack of experienced management and
hourly employees may adversely affect the restaurant industry in general
and the Company's restaurants in particular.

  With respect to the sale of franchises, the Company competes with many
franchisors of restaurants and other business concepts.  In general,
there is also active competition for management personnel, capital and
attractive commercial real estate sites suitable for Papa John's
restaurants.

GOVERNMENT REGULATION

  The Company and its franchisees are subject to various federal, state
and local laws affecting the operation of their respective businesses.
Each Papa John's restaurant is subject to licensing and regulation by a
number of governmental authorities, which include health, safety,
sanitation, building and fire agencies in the state or municipality in
which the restaurant is located.  Difficulties in obtaining, or the
failure to obtain, required licenses or approvals can delay or prevent
the opening of a new restaurant in a particular area.  The Company's
commissary and distribution facilities are licensed and subject to
regulation by state and local health and fire codes, and the operation
of its trucks is subject to Department of Transportation regulations.
The Company is also subject to federal and state environmental
regulations.

  The Company is subject to Federal Trade Commission ("FTC") regulation
and various state laws regulating the offer and sale of franchises.
Several state laws also regulate substantive aspects of the franchisor-
franchisee relationship.  The FTC requires the Company to furnish to
prospective franchisees a franchise offering circular containing
prescribed information.  A number of states in which the Company might
consider franchising also regulate the sale of franchises and require
registration of the franchise offering circular with state authorities.

                                   8

<PAGE>
 
Substantive state laws that regulate the franchisor-franchisee
relationship presently exist in a substantial number of states, and
bills have been introduced in Congress from time to time (some of which
are now pending) which would provide for federal registration of the
franchisor-franchisee relationship in certain respects.  The state laws
often limit, among other things, the duration and scope of non-
competition provisions and the ability of a franchisor to terminate or
refuse to renew a franchise.

  Papa John's restaurant operations are also subject to federal and
state laws governing such matters as wages, working conditions,
citizenship requirements and overtime.  A significant number of the
Company's hourly personnel are paid at rates related to the federal
minimum wage.  In 1996, pursuant to the Fair Labor Standards Act, the
federal minimum wage was increased to $4.75 and will be further
increased to $5.15 in 1997.  The Company does not believe that these
increases will significantly impact 1997 or future years' operating
results.  Further government initiatives, if enacted, including a
proposed system of mandated health insurance, could adversely affect the
Company and its franchisees as well as the restaurant industry in
general. The Company is also subject to the Americans With Disabilities
Act of 1990, which, among other things, may require certain minor
renovations to its restaurants to meet federally-mandated requirements.
The cost of these renovations is not expected to be material to the
Company.

TRADEMARKS

  The Company's rights in its trademarks and service marks are a
significant part of its business.  The Company is the owner of the
federal registration of the trademark "Papa John's."  The Company has
also registered "Pizza Papa John's" and design as a trademark and a
service mark.  The Company owns federal registrations for the marks
"Pizza Papa John's Delivering the Perfect Pizza!" and design, "Call your
Papa", "Perfect Pizza Perfect Price", "Delivering the Perfect Pizza!"
and "Pizza Papa John's Print Network."

  The Company has applied for the registration of "Better Ingredients.
Better Pizza." and "Perfect Original" and design as trademarks and
service marks.  The Company is aware of the use by other persons in
certain geographic areas of names and marks which are the same as or
similar to the Company's marks.  It is the Company's policy to pursue
registration of its marks whenever possible and to vigorously oppose any
infringement of its marks.

EMPLOYEES

  As of December 29, 1996, the Company employed 9,544 persons, of whom
approximately  8,277 were restaurant employees, 398 were restaurant
management and supervisory personnel, 354 were corporate personnel and
515 were commissary and support services personnel.  Most restaurant
employees work part-time and are paid on an hourly basis.  None of the
Company's employees is covered by a collective bargaining agreement.
The Company considers its employee relations to be excellent.

FORWARD LOOKING STATEMENTS

  This Form 10-K contains forward looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995 (the "Act ),
including information within Management's Discussion and Analysis.  The
following cautionary statements are being made pursuant to the
provisions of the Act and with the intention of obtaining the benefits
of the "safe harbor" provisions of the Act.  Although the Company
believes that its expectations are based on reasonable assumptions,
actual results may differ materially from those in the forwarding
looking statements as a result of various factors, including but not
limited to, the following:

  1.   The ability of the Company and its franchisees to continue to
expand through the opening of new restaurants is affected by a number of
factors, many of which are beyond the control of the Company and its

                                   9

<PAGE>
 
franchisees.  These factors include, among other things, selection and
availability of suitable restaurant locations, negotiation of suitable
lease or financing terms, constraints on permitting and construction of
other restaurants, higher than anticipated construction costs, and the
hiring, training and retention of management and other personnel.
Accordingly, there can be no assurance that the Company or its
franchisees will be able to meet planned growth targets or open
restaurants in markets now targeted for expansion.

  2.   The restaurant industry is intensely competitive with respect to
price, service, location and food quality, and there are many well
established competitors with substantially greater financial and other
resources than the Company and its franchisees.  Some of these
competitors have been in existence for a substantially longer period
than the Company or its franchisees and may be better established in the
markets where restaurants operated by the Company or its franchisees
are, or may be, located.  A change in the pricing or other marketing or
promotional strategies of one or more of the Company's major competitors
could have an adverse impact on sales and earnings at restaurants
operated by the Company and its franchisees.

  3.   Changes in consumer taste, demographic trends, traffic patterns
and the type, number and location of competing restaurants as well as
increased food and other costs could adversely affect the Company's
restaurant business.

  4.   The Company's restaurant operations are subject to federal and
state laws governing such matters as wages, working conditions,
citizenship requirements and overtime.  A significant number of hourly
personnel employed by the Company and its franchisees are paid at rates
related to the federal minimum wage.  Accordingly, further increases in
the minimum wage will increase labor costs for the Company and its
franchisees.


I
TEM 2.  PROPERTIES

  At December 29, 1996, the Company and its franchisees operated 1,160
Papa John's restaurants.

                       COMPANY-OWNED RESTAURANTS
                       -------------------------
                                                   NUMBER OF
                                                  RESTAURANTS
                                                  -----------
     Colorado . . . . . . . . . . . . . . . . . .      8
     Washington, D.C. . . . . . . . . . . . . . .      3
     Florida  . . . . . . . . . . . . . . . . . .     38
     Georgia  . . . . . . . . . . . . . . . . . .     53
     Illinois . . . . . . . . . . . . . . . . . .      1
     Indiana  . . . . . . . . . . . . . . . . . .     25
     Kentucky . . . . . . . . . . . . . . . . . .     27
     Maryland . . . . . . . . . . . . . . . . . .     38
     Missouri . . . . . . . . . . . . . . . . . .     12
     North Carolina . . . . . . . . . . . . . . .     22
     South Carolina . . . . . . . . . . . . . . .      2
     Tennessee  . . . . . . . . . . . . . . . . .     26
     Texas  . . . . . . . . . . . . . . . . . . .     36
     Virginia . . . . . . . . . . . . . . . . . .     12
                                                  ------
              Total Company-owned Restaurants . .    303
                                                  ======

                                   10

<PAGE>
 
                         FRANCHISED RESTAURANTS
                         ----------------------
                                                   NUMBER OF
                                                  RESTAURANTS
                                                  -----------
     Alabama  . . . . . . . . . . . . . . . . . .     36
     Arkansas . . . . . . . . . . . . . . . . . .     11
     Colorado . . . . . . . . . . . . . . . . . .      6
     Connecticut  . . . . . . . . . . . . . . . .      1
     Florida  . . . . . . . . . . . . . . . . . .    113
     Georgia  . . . . . . . . . . . . . . . . . .     36
     Illinois . . . . . . . . . . . . . . . . . .     41
     Indiana  . . . . . . . . . . . . . . . . . .     58
     Iowa . . . . . . . . . . . . . . . . . . . .      6
     Kansas . . . . . . . . . . . . . . . . . . .      5
     Kentucky . . . . . . . . . . . . . . . . . .     43
     Louisiana  . . . . . . . . . . . . . . . . .     24
     Maryland . . . . . . . . . . . . . . . . . .      9
     Michigan . . . . . . . . . . . . . . . . . .     14
     Minnesota  . . . . . . . . . . . . . . . . .     15
     Mississippi  . . . . . . . . . . . . . . . .     13
     Missouri . . . . . . . . . . . . . . . . . .     19
     Nebraska . . . . . . . . . . . . . . . . . .      3
     New Jersey . . . . . . . . . . . . . . . . .      5
     New York . . . . . . . . . . . . . . . . . .      1
     North Carolina . . . . . . . . . . . . . . .     40
     Ohio . . . . . . . . . . . . . . . . . . . .    121
     Oklahoma . . . . . . . . . . . . . . . . . .      7
     Pennsylvania . . . . . . . . . . . . . . . .     24
     South Carolina . . . . . . . . . . . . . . .     26
     Tennessee  . . . . . . . . . . . . . . . . .     36
     Texas  . . . . . . . . . . . . . . . . . . .     58
     Utah . . . . . . . . . . . . . . . . . . . .      1
     Virginia . . . . . . . . . . . . . . . . . .     56
     West Virginia  . . . . . . . . . . . . . . .     14
     Wisconsin  . . . . . . . . . . . . . . . . .     14
     Wyoming  . . . . . . . . . . . . . . . . . .      1
                                                  ------
              Total Franchised Restaurants  . . .    857
                                                  ======


     Most Papa John's restaurants are located in leased space.  The
initial term of most restaurant leases is five years or less with most
leases providing for one or more options to renew for at least one
additional term.  Virtually all of the Company's leases specify a fixed
annual rent.  Generally, the leases are triple net leases which require
the Company to pay all or a portion of the cost of insurance, taxes and
utilities.  Certain leases further provide that the lease payments may
be increased annually based on changes in the Consumer Price Index.

                                   11

<PAGE>
 
     Information with respect to the Company's leased commissaries and
other facilities is set out below.

                   Facility               Square Footage
                   --------               --------------

     Louisville, KY Corporate Headquarters        31,000
     Louisville, KY Commissary                    35,000
     Jackson, MS Commissary                       30,000
     Raleigh, NC Commissary                       23,000
     Dallas, TX Distribution Center               12,000
     Denver, CO Commissary                        21,000
     Phoenix, AZ Distribution Center              26,000
     Des Moines, IA Commissary                    31,000
     Rotterdam, NY Commissary                     40,000

     In addition, the Company owns approximately five acres in Orlando
on which it constructed a 63,000 square foot full-service commissary to
replace its former Orlando dough production facility.  The Company
believes that it will continue to need additional office and commissary
space.

     The Company owns approximately 37 acres in Louisville, Kentucky,
and has built a 40,000 square foot building on the land consolidating
its printing and promotional operations.  The Company plans to begin
construction of an additional facility on the land in 1997 of
approximately 250,000 square feet, approximately 50% of which will
accommodate relocation and expansion of the Louisville commissary
operation and Novel Approach promotional division and the remainder of
which will accommodate relocation and consolidation of corporate
offices.  The facility is scheduled for completion in mid-1998.


ITEM 3.  LEGAL PROCEEDINGS

     The Company is subject to claims and legal actions in the ordinary
course of its business.  The Company believes that all such claims and
actions currently pending against it are either  adequately covered by
insurance or would not have a material adverse effect on the Company if
decided in a manner unfavorable to the Company.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     Not applicable.

                                   12

<PAGE>
 
                  EXECUTIVE OFFICERS OF THE REGISTRANT

     Set forth below are the current executive officers of the Company,
together with their ages, their positions with the Company and the year
in which they first became an officer of the Company:

<TABLE>
<CAPTION>
                                                                     First
                                                                    Elected
                                                                   Executive
 Name                          Age            Position              Officer
 ----                          ---            --------             ---------
 <S>                           <C>            <C>                  <C>
 John H. Schnatter              35    Founder, Chairman  and         1985
                                      Chief Executive Officer

 Charles W. Schnatter           34    Senior Vice President,         1991
                                       General Counsel and Secretary

 Blaine E. Hurst                40    President                      1995


 E. Drucilla Milby              43    Chief Financial Officer        1991
                                      and Treasurer

 Wade S. Oney                   36    Chief Operating Officer        1995

 Robert J. Wadell               41    President - PJ Food            1990
                                      Service, Inc.

 Richard J. Emmett              41    Senior Vice President -        1992
                                      Development

 J. David Flanery               40    Vice President and             1994
                                      Corporate Controller

 Syl J. Sosnowski               55    Vice President                 1995
                                      Marketing and Support
                                      Services
</TABLE>


        John Schnatter created the Papa John's concept and founded the
Company in 1985.  He has served as Chairman of the Board and Chief
Executive Officer since 1990, and from 1985 to 1990, served as
President.  John Schnatter has also been a franchisee of the Company
since 1986.

        Charles Schnatter has served as General Counsel and Secretary
since 1991 and has been a Senior Vice President of the Company since
1993.  From 1988 to 1991, he was an attorney with Greenebaum Doll &
McDonald PLLC, Louisville, Kentucky, a law firm which provides legal
services to the Company.  Charles Schnatter has been a franchisee of the
Company since 1989.

        Blaine Hurst has served as President since October 1996 and from
October 1995 to October 1996 served as Chief Information Officer after
having joined the Company in January 1995 as Vice President of
Information Systems.  From 1993 to 1995, Mr. Hurst was Vice President of
Information Systems for Boston Chicken, Inc.  From 1989 to 1993, Mr.
Hurst was a consulting partner with Ernst & Young LLP.  Mr. Hurst has
been a franchisee of the Company since 1996.

        Dru Milby was appointed Chief Financial Officer in October 1995
and has served as Treasurer since 1993.  Ms. Milby was the Company's
Vice President   Finance from 1991 to 1995.  From 1990 to 1991, Ms.
Milby was Director of Financial Planning for American Air Filter.  From
1987 to 1990, Ms. Milby was Manager of Financial Reporting and Systems
Support for KFC International, the operator and franchisor of KFC
restaurants. From 1983 to 1987, Ms. Milby held various positions with
KFC International and KFC USA in the areas of general accounting,
financial reporting and financial systems.  Ms. Milby is a licensed
Certified Public Accountant and Certified Management Accountant.

        Wade Oney was appointed Chief Operating Officer in April 1995. From
1992 to 1995, Mr. Oney served as the Company's Regional Vice President of
Southeast Operations.  From 1989 to 1992, Mr. Oney held various

                                      13

<PAGE>
 
positions with Domino's Pizza, Inc. as follows: from 1991 to 1992, Senior Vice
President, Northeast; from 1990 to 1991 Senior Vice President, Product
Implementation; and from 1989 to 1990, Vice President of Operations.  Mr. Oney
has been a franchisee of the Company since 1993.

        Robert Wadell was appointed President of PJ Food Service, Inc. in
October 1995 after having served as Vice President of Commissary Operations from
1990 to 1995. From 1988 to 1990, Mr. Wadell was employed with Mr. Gatti's in the
position of Regional Franchise Director, responsible for overseeing the
operations of 65 franchised restaurants in an eight-state area. From 1983 to
1988, Mr. Wadell was an Area Supervisor for Mr. Gatti's, and from 1979 to 1983,
was a store operator for Mr. Gatti's.

        Richard Emmett has been Senior Vice President Development since August
1996. From 1992 to 1996, Mr. Emmett was Vice President and Senior Counsel. From
1983 to 1992, Mr. Emmett was an attorney with the law firm of Greenebaum Doll &
McDonald PLLC, having become a partner of such firm in 1989. Mr. Emmett has been
a franchisee of the Company since 1992.

        David Flanery has served as Vice President since July 1995 after having
joined the Company in 1994 as Corporate Controller. From 1979 to 1994, Mr.
Flanery was with Ernst & Young LLP in a variety of positions, most recently as
Senior Audit Manager. Mr. Flanery is a licensed Certified Public Accountant.

        Syl Sosnowski joined the Company in August 1995 and became Vice
President of Marketing in October 1995. From 1990 to 1995, Mr. Sosnowski served
as Vice President of Marketing and Sales for Carvel Corporation.

        John and Charles Schnatter are brothers. There are no other family
relationships among the Company's executive officers and other key personnel.


                                 PART II


ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
        STOCKHOLDER MATTERS

The Company's common stock trades on the Nasdaq National Market tier of The
Nasdaq Stock Market under the symbol PZZA. At March 18, 1997, there were
approximately 568 record holders of common stock. The following table sets forth
for the quarters indicated the high and low sale prices of the Company's common
stock, as reported by The Nasdaq Stock Market. All sale prices have been
adjusted to reflect a 3-for-2 stock split to stockholders of record on March 12,
1996, and an additional 3-for-2 stock split to stockholders of record on
November 8, 1996. Each stock split was effected in the form of a 50% stock
dividend.


<TABLE>
<CAPTION>

1996                   HIGH           LOW
<S>                  <C>            <C>
First Quarter        $ 29.83        $ 16.80
Second Quarter         35.33          25.67
Third Quarter          35.00          26.00
Fourth Quarter         37.33          29.50


1995                   HIGH           LOW

First Quarter        $ 14.89        $ 12.00
Second Quarter         17.00          13.89
Third Quarter          22.22          15.22
Fourth Quarter         21.17          15.78

</TABLE>


                                   14

<PAGE>
 
Since its initial public offering of common stock in June 1993, the Company
has not paid dividends on its common stock, and has no plans to do so in the
foreseeable future.


ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The selected financial data presented below for each of the years in
the five year period ended December 29, 1996 was derived from the
audited consolidated financial statements of the Company. The selected
financial data should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of
Operations and the Consolidated Financial Statements and Notes thereto
included in Item 7 and Item 8, respectively, of this Form 10-K.


<TABLE>
<CAPTION>

(In thousands, except per share data)                                  Year Ended (1)
                                               ---------------------------------------------------------
                                                Dec.29,   Dec.31,   Dec.25,       Dec.26,       Dec.27,
                                                 1996      1995      1994          1993          1992
                                               ---------------------------------------------------------
<S>                                            <C>         <C>         <C>          <C>         <C>
System-wide Sales
 Company-owned                                 $167,982    $111,747    $ 66,267     $ 32,505    $ 20,033
 Franchised                                     451,214     347,003     231,343      133,846      62,025
                                               ---------------------------------------------------------
 Total                                         $619,196    $458,750    $297,610     $166,351    $ 82,058
                                               =========================================================

Income Statement Data
 Revenues:
    Restaurant sales                           $167,982    $111,747    $ 66,267     $ 32,505    $ 20,033
    Franchise royalties                          17,827      13,561       9,163        5,290       2,481
    Franchise and development fees                4,286       3,508       3,274        2,379       1,374
    Commissary sales                            142,998     105,874      67,515       41,013      20,684
    Equipment and other sales                    26,959      18,665      15,316        8,046       5,056
                                               ---------------------------------------------------------
 Total revenues                                 360,052     253,355     161,535       89,233      49,628
 Operating income (2)                            25,629      15,819      10,064        6,221       3,999
 Other income (expense)                           3,917       1,910       1,318          247         (14)
                                               ---------------------------------------------------------
 Income before income taxes(2)                   29,546      17,729      11,382        6,468       3,985
 Income tax expense(2)                           10,932       6,525       4,182        2,393       1,475
                                               ---------------------------------------------------------
 Net income(2)                                 $ 18,614    $ 11,204    $  7,200   $    4,075    $  2,510
                                               =========================================================
 Net income per share(2) (3)                   $    .66    $    .45    $    .31   $      .20    $    .13
                                               =========================================================
 Weighted average shares
    outstanding(3)                               28,010      25,139      23,525       20,191      18,788
                                               =========================================================
Balance Sheet Data
  Total assets                                 $212,061    $128,819    $ 76,173   $   27,789    $  7,852
  Long-term debt                                  1,680       2,510       1,279        -           1,161
  Stockholders' equity                          180,643     106,282      62,609       19,269       2,418


</TABLE>


(1) The Company operates on a 52-53 week fiscal year ending on the last
Sunday of December of each year.  The 1995 fiscal year consisted of 53
weeks and the 1996, 1994, 1993 and 1992 fiscal years consisted of 52
weeks.

(2) Information for 1993 and 1992 reflects pro forma adjustments
assuming that the Company had been treated as a C Corporation rather
than an S Corporation for income tax purposes, with assumed combined
federal, state and local effective income tax rates aggregating 37%,
and the Company's compensation program for the top three executive
officers that was adopted during 1993 had been in effect for both years
which would have reduced compensation expense by $154,000 for 1993 and
$837,000 for 1992.

                                   15

<PAGE>
 
(3) Adjusted to reflect 3-for-2 stock splits effected in the form of a 50%
stock dividend to stockholders of record on March 12, 1996 and November
8, 1996.



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS

INTRODUCTION

Papa John's International, Inc. (the "Company") began operations in
1985 with the opening of the first Papa John's restaurant in
Jeffersonville, Indiana. At December 29, 1996, there were 1,160 Papa
John's restaurants in operation, consisting of 303 Company-owned and
857 franchised restaurants. The Company's revenues are principally
derived from sales by Company-owned restaurants, franchise royalties,
franchise and development fees, sales of food and paper products to
franchisees,  sales of restaurant equipment and printing and
promotional items principally to franchisees and information systems
sales and related services provided to franchisees.

The Company intends to continue to expand the number of Company-owned
and franchised restaurants. The Company's expansion strategy is to
cluster restaurants in targeted markets, thereby increasing consumer
awareness and enabling the Company to take advantage of operational,
distribution and advertising efficiencies. The Company believes that
its expansion strategy has  contributed to increases in comparable
annual sales for Company-owned restaurants of 11.9% in 1996, 9.0% in
1995 and 13.8% in 1994. The Company anticipates that future comparable
sales increases, if any, will be at a lesser rate than in recent
periods. Average sales for Company-owned restaurants open a full year
increased to $682,000 for 1996 from $657,000 for 1995.  This increase
is attributable to continuing strong sales of maturing stores  and to
the fact that several new markets were entered in 1994, with generally
lower sales volumes throughout 1995 as those markets were built out.
Average sales volumes in new markets are generally lower than in those
markets in which the Company has established a significant market
position, although recent trends indicate that new markets are opening
with stronger than historical sales volumes.

Approximately 47% of the Company's revenues for 1996 and 49% for 1995
were derived from the sale to franchisees of food and paper products,
restaurant equipment, printing and promotional items and information
systems equipment and software and related services by the Company, its
commissary subsidiary, PJ Food Service, Inc., and the Company's support
services subsidiary, Printing & Promotions, Inc. The Company believes
that, in addition to supporting both Company and franchised growth,
these subsidiaries contribute to product quality and consistency
throughout the Papa John's system.

The Company continually strives to obtain high quality sites with
greater access and visibility, and to enhance the appearance and
quality of its restaurants. The Company believes that these factors
improve Papa John's image and brand awareness. During 1995 and 1996,
the Company pursued a greater number of free-standing locations and
expects to continue this strategy in 1997.

The average cash investment for the 66 Company-owned restaurants opened
during 1996, exclusive of land and pre-opening costs, increased to
approximately $208,000 from $205,000 for the 61 units opened in 1995.
This increase was primarily due to higher average costs of free-
standing units and increased signage and leasehold improvement costs.
The Company expects the average cash investment for restaurants opening
in 1997 to approximate $240,000, although there can be no assurance
that actual costs will not exceed this amount.  The primary reason for
the projected increase in average cash investment for 1997 restaurant
openings is an increase in the percentage of planned free-standing
units in 1997.

Pre-opening costs are capitalized and amortized on a straight-line
basis over a period of one year from the opening date of the restaurant
or commissary facility.  The Company does not expect the adoption of
proposed

                                   16

<PAGE>
 
new accounting guidance requiring that pre-opening costs be expensed as incurred
to significantly impact future operating income due to the relative consistency
of new facility openings and length of the current amortization period. The
Company defers certain costs incurred in connection with the development of its
information systems and amortizes such costs over periods of up to five years
from the date of completion.

The Company's fiscal year ends on the last Sunday in December of each year. The
1996 and 1994 fiscal years consisted of 52 weeks and the 1995 fiscal year
consisted of 53 weeks.

The Board of Directors approved a 3-for-2 stock split in February 1996 and an
additional 3-for-2 stock split in October 1996, each of which was effected in
the form of a 50% stock dividend. All share data included in this Annual Report
have been restated to reflect these stock splits.

RESULTS OF OPERATIONS

The following tables set forth the percentage relationship to total revenues,
unless otherwise indicated, of certain income statement data, and certain
restaurant data for the years indicated:


<TABLE>
<CAPTION>
                                                                       Year Ended
                                                             -------------------------------
                                                             Dec.29,     Dec.31,     Dec.25,
                                                              1996        1995        1994
                                                             -------------------------------
<S>                                                          <C>         <C>          <C>
Income Statement Data:
Revenues:
  Restaurant sales                                            46.7%       44.1%       41.0%
  Franchise royalties                                          4.9         5.3         5.7
  Franchise and development fees                               1.2         1.4         2.0
  Commissary sales                                            39.7        41.8        41.8
  Equipment and other sales                                    7.5         7.4         9.5
                                                             -------------------------------
    Total revenues                                           100.0       100.0       100.0
Costs and expenses:
  Restaurant cost of sales(1)                                 28.0        28.4        28.8
  Restaurant operating expenses(1)                            54.9        54.8        56.5
  Commissary, equipment and other expenses(2)                 91.1        93.1        93.7
  General and administrative expenses                          7.4         7.9         7.6
  Depreciation and amortization                                3.8         3.4         3.2
    Total costs and expenses                                  92.9        93.8        93.8
                                                             -------------------------------
Operating income                                               7.1         6.2         6.2
Other income:
  Investment income                                            1.0         0.7         0.7
  Other                                                        0.1         0.1         0.1
                                                             -------------------------------
Income before income taxes                                     8.2         7.0         7.0
Income tax expense                                             3.0         2.6         2.5
                                                             -------------------------------
   Net income                                                  5.2%        4.4%        4.5%
                                                             ===============================

</TABLE>


(1) As a percenntage of Restaurant sales.
(2) As a percentage of Commissary sales and Equipment and other sales on
    a combined basis.

                                    17

<PAGE>
 

<TABLE>
<CAPTION>

                                                                               Year Ended
                                                             -------------------------------------------
                                                                  Dec.29,         Dec.31,      Dec.25,
                                                                   1996            1995          1994
                                                             -------------------------------------------
<S>                                                           <C>            <C>            <C>
Restaurant Data:
Percentage increase in comparable Company-owned
  restaurant sales(3)                                                 11.9%            9.0%         13.8%
Average sales for Company-owned restaurants
  open full year                                              $    682,000   $     657,000  $    663,000
Number of Company-owned restaurants:
    Beginning of period                                                217            133             76
    Opened                                                              66             61             53
    Closed                                                              (2)           -              -
    Acquired(4)                                                         22             23              4
                                                             -------------------------------------------
    End of period                                                      303            217            133
Number of franchised restaurants:
    Beginning of period                                                661            499            324
    Opened                                                             224            190            180
    Closed                                                              (6)            (5)            (1)
    Sold to Company (4)                                                (22)           (23)            (4)
                                                             -------------------------------------------
    End of period                                                      857            661            499
                                                             -------------------------------------------
Total restaurants - end of period                                    1,160            878            632
                                                             ===========================================
</TABLE>


(3) Includes only Company-owned restaurants open throughout the periods
    being compared.
(4) The number for 1994 is reduced by one restaurant sold by the Company
    to a franchisee.

1996 COMPARED TO 1995

Revenues. Total revenues increased 42.1% to $360.1 million in 1996, from
$253.4 million in 1995.

Restaurant sales increased 50.3% to $168.0 million in 1996, from $111.7
million in 1995.  This increase was primarily due to a 44.3% increase in
the number of equivalent Company-owned restaurants open during 1996 as
compared to 1995.  "Equivalent restaurants" represents 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, comparable sales increased 11.9% in 1996 over 1995, for
Company-owned restaurants open throughout both years.

Franchise royalties increased 31.5% to $17.8 million in 1996, from $13.6
million in 1995.  This increase was primarily due to a 30.1% increase in
the number of equivalent franchised restaurants open during 1996 as
compared to 1995.  Also, comparable sales increased 5.9% in 1996 over 1995,
for franchised restaurants open throughout both years.

Franchise and development fees increased 22.2% to $4.3 million in 1996,
from $3.5 million in 1995.  This increase was primarily due to the 224
franchised restaurants opened during 1996, as compared to 190 opened during
1995, an increase of 17.9%, and an increasing number of franchise renewals.

Commissary sales increased 35.1% to $143.0 million in 1996, from $105.9
million in 1995.  This increase was primarily due to the increases in
equivalent franchised restaurants and

                                     18

<PAGE>
 
comparable sales for franchised restaurants noted above.  Additionally,
sales for the Orlando commissary increased in 1996 as compared to 1995 due
to its conversion from a dough production facility to a full-service
commissary and distribution center beginning in August 1995.

Equipment and other sales increased 44.4% to $27.0 million in 1996, from
$18.7 million in 1995.  This increase was primarily due to the increase in
equivalent franchised restaurants open during 1996 as compared to 1995, the
increase in franchised restaurants opened during 1996 as compared to 1995
and the increased installations of point of sale technology (the Papa
John's PROFIT System) in franchised restaurants during 1996 as compared to
1995.

Costs and Expenses.  Restaurant cost of sales, which consists of food,
beverage and paper costs, decreased as a percentage of restaurants sales to
28.0% in 1996, from 28.4% in 1995.  The primary reason for the decrease is
attributable to increased efficiencies at both mature and newly-opened
stores,  offset somewhat by higher average cheese prices for the year.

Restaurant salaries and benefits (26.7% in 1996 and 26.8% in 1995) and
occupancy costs (5.1% in 1996 and 5.3% in 1995) decreased slightly as a
percentage of restaurant sales primarily as a result of efficiencies
related to strong restaurant sales and a generally maturing restaurant
base.

Restaurant advertising and related costs increased as a percentage of
restaurant sales to 9.6% in 1996, from 9.4% in 1995.  The increase was
primarily driven by fourth quarter advertising campaigns related to the
rollout of the new Papa John's "Better Thin" product to all markets.

Other restaurant operating expenses increased as a percentage of restaurant
sales to 13.6% for 1996, from 13.3% for 1995.  Other operating expenses
include all other restaurant-level operating costs, the material components
of which are automobile mileage reimbursement for delivery drivers,
telephone costs, training costs and workers compensation insurance.  Other
operating expenses also 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.  The increase in other restaurant
operating expenses was primarily due to an increased emphasis on managerial
training programs throughout Company-owned restaurants during 1996.

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 91.1% in 1996, from 93.1%
in 1995.  This improvement was primarily due to volume related operating
efficiencies in the commissaries.

General and administrative expenses decreased as a percentage of total
revenues to 7.4% in 1996, from 7.9% in 1995.  The decrease was primarily
due to improved organizational efficiencies over an increasing revenue
base.  Additionally, savings in certain insurance costs have been realized
as a result of coverage changes implemented during the fourth quarter of
1995.

Depreciation and amortization increased as a percentage of total revenues
to 3.8% in 1996, from 3.4% in 1995.  This increase was primarily due to
additional capital expenditures by the

                                     19

<PAGE>
 
Company, intangibles related to acquisitions, deferred pre-opening costs
for newly-opened restaurants and commissaries and other deferred expenses,
primarily systems development costs.  These factors resulting in increased
depreciation and amortization were partially offset by the impact of a
change in the depreciable lives of certain restaurant equipment and signage
effective at the beginning of the third quarter of 1995 to more accurately
reflect the economic lives of such assets.  The estimated useful life for
ovens and certain other restaurant equipment was extended from five to
seven years, and the estimated useful life for restaurant signage was
extended from five to ten years.

Investment Income.  Investment income increased to $3.5 million in 1996,
from $1.7 million in 1995.  Average investment balances increased during
1996, compared to 1995, as a result of the investment of the net proceeds
of the Company's public offerings of common stock in August 1995 and May
1996.

Income Tax Expense.  Income tax expense reflects a combined federal, state
and local effective income tax rate of 37.0% in 1996, as compared to 36.8%
in 1995.  This increase was primarily due to the impact of higher federal
and state statutory income tax rates due to higher taxable income levels,
substantially offset by the impact of tax-exempt income generated by the
investment portfolio during 1996.


1995 COMPARED TO 1994

Revenues. Total revenues increased 56.8% to $253.4 million in 1995, from
$161.5 million in 1994.

Restaurant sales increased 68.6% to $111.7 million in 1995, from $66.3
million in 1994. This increase was primarily due to a 58.3% increase in the
number of equivalent Company- owned restaurants open during 1995 as
compared to 1994. Also, comparable sales increased 9.0% in 1995 over 1994,
for Company-owned restaurants open throughout both years.

Franchise royalties increased 48.0% to $13.6 million in 1995, from $9.2
million in 1994. This increase was primarily due to a 44.7% increase in the
number of equivalent franchised restaurants open during 1995 as compared to
1994. Also, comparable sales increased 7.8% in 1995 over 1994, for
franchised restaurants open throughout both years.

Franchise and development fees increased 7.2% to $3.5 million in 1995, from
$3.3 million in 1994. This increase was primarily due to the 190 franchised
restaurants opened during 1995, as compared to 180 opened during 1994, an
increase of 5.6%.

Commissary sales increased 56.8% to $105.9 million in 1995, from $67.5
million in 1994. This increase was primarily due to the increases in
equivalent franchised restaurants and comparable sales for franchised
restaurants noted above. Additionally, sales for the Orlando commissary
increased in 1995 as compared to 1994 due to its conversion from a dough
production facility to a full-service commissary in August 1995.

Equipment and other sales increased 21.9% to $18.7 million in 1995, from
$15.3 million in 1994. This increase was primarily due to the increase in
equivalent franchised restaurants open during 1995 as compared to 1994, the
increase in franchised restaurants opened during 1995 as compared to 1994
and a full year of operations in 1995 by the Company's Printing and

                                     20

<PAGE>
 
Promotions, Inc. subsidiary. This subsidiary was established in March 1994,
following the Company's purchase of the assets of QC, Inc., a printing
company which provided printed marketing materials for the Company and many
of its franchisees.

Costs and Expenses. Restaurant cost of sales decreased as a percentage of
restaurant sales to 28.4% in 1995, from 28.8% in 1994. This decrease was
primarily due to lower product costs resulting from increased purchasing
power and the impact of a severe winter storm which disrupted normal
commissary distribution activities for several days during the first
quarter of 1994 and required many of the Company's restaurants to utilize
alternative, higher-cost suppliers during that period.

Advertising and related costs increased as a percentage of restaurant sales
to 9.4% in 1995, from 8.9% in 1994. This increase was primarily due to
increased levels of advertising during 1995, including promotions related
to the Company's 10th Anniversary Celebration and the introduction of thin
crust pizza in test markets, as well as the establishment of local
advertising cooperatives as newer markets matured.

Occupancy costs were relatively consistent as a percentage of restaurant
sales at 5.3% in 1995, as compared to 5.1% in 1994.

Restaurant salaries and benefits decreased as a percentage of restaurant
sales to 26.8% in 1995, from 27.4% in 1994. Other restaurant operating
expenses decreased as a percentage of restaurant sales to 13.4% in 1995,
from 15.1% in 1994. The decreases in restaurant salaries and benefits and
other restaurant operating expenses as a percentage of restaurant sales
were primarily due to a smaller relative number of new restaurants opened
during 1995 compared to 1994.  Restaurant operating expenses historically
have been higher as a percentage of restaurant sales in the early months of
operations of new restaurants.

Commissary, equipment and other expenses decreased as a percentage of
combined commissary sales and equipment and other sales to 93.1% in 1995,
from 93.7% in 1994. This decrease was primarily due to increased commissary
volumes and efficiencies (particularly at the Jackson commissary which was
opened in May 1994, and accordingly had relatively higher costs in 1994 as
compared to 1995), partially offset by the relatively higher costs
associated with the start-up of the new Orlando commissary opened in August
1995.

General and administrative expenses increased as a percentage of total
revenues to 7.9% in 1995, from 7.6% in 1994. This increase was primarily
due to the hiring of additional corporate and restaurant management
personnel as the Company continues to develop the infrastructure necessary
to support its planned growth for 1996 and beyond.

Depreciation and amortization increased as a percentage of total revenues
to 3.4% in 1995, from 3.2% in 1994. This increase was primarily due to
additional capital expenditures by the Company, intangibles related to
acquisitions and deferred pre-opening costs for newly- opened restaurants
and commissaries and other deferred expenses. These factors resulting in
increased depreciation and amortization were partially offset by the impact
of a change in the depreciable lives of certain restaurant equipment and
signage effective at the beginning of the third quarter of 1995 to more
accurately reflect the economic lives of such assets. The estimated useful
life for ovens and certain other restaurant equipment was extended from
five to seven years, and the estimated useful life for restaurant signage
was extended from five to ten years.

                                     21

<PAGE>
 
Investment Income. Investment income increased to $1.7 million in 1995, from
$1.2 million in 1994. Average investment balances increased during 1995,
compared to 1994, as a result of the investment by the Company of the net
proceeds of public stock offerings in January and November 1994 and August 1995.

Income Tax Expense. Income tax expense reflects a combined federal, state and
local effective income tax rate of 36.8% in 1995, as compared to 36.7% in 1994.
This increase was primarily due to the impact of higher federal and state
statutory income tax rates in 1995 due to higher taxable income levels,
substantially offset by the impact of tax- exempt income generated by the
investment portfolio during 1995.

LIQUIDITY AND CAPITAL RESOURCES

The Company requires 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 loans to franchisees under a program adopted during the second quarter of
1996. Total capital expenditures for 1996 were approximately $29.3 million. The
total amount funded under the franchise loan program during 1996 was
approximately $7.8 million.

During 1996, the Company purchased the assets of four Papa John's restaurants
from franchisees for a total price of approximately $1.5 million, consisting of
$30,000 in cash and the issuance of 51,800 shares of Company common stock. Also
during 1996, the Company acquired eighteen franchised restaurants in a
transaction accounted for as a pooling of interests. The Company issued 46,593
shares of its common stock valued at approximately $1.5 million and retired
approximately $3.5 million of acquiree debt in connection with the acquisition.

The Company funded its requirements for capital expenditures, franchise loans
and acquisitions principally through cash flow from operations, which was $29.8
million for 1996. Additionally, the Company received $50.6 million in net
proceeds from the public offering of 1.7 million shares of its common stock in
May 1996.

Total 1997 capital expenditures are expected to be approximately $58 million,
primarily for the development of restaurants and the construction of new
commissary facilities. Thus far in 1997, two additional commissary facilities
have been opened-the Phoenix, Arizona distribution center in January and a full-
service commissary in Rotterdam, New York in March. The Company also plans on
opening a commissary in Des Moines, Iowa by mid-1997. Additionally, in mid-1998,
the Company plans to open a 250,000 square foot facility in Louisville,
Kentucky, approximately one-half of which will accommodate relocation and
expansion of the Louisville commissary operations and Novel Approach promotional
division and the remainder of which will accommodate relocation and
consolidation of corporate offices. Capital costs expected to be incurred in
1997 related to this facility are included in the $58 million of planned 1997
capital expenditures.

Additionally, during 1997 the Company expects to fund approximately $8 to $12
million in loans under the franchisee loan program. Approximately $5.1 million
was outstanding under this program as of December 29, 1996. The amounts actually
funded during 1997 may vary as the Company continues to gain experience with the
loan program.

                                     22

<PAGE>
 
Capital resources available at December 29, 1996 include $24.1 million of
cash and cash equivalents, $65.1 million of investments and a $10 million
line of credit expiring in June 1997.  The Company expects to fund planned
capital expenditures and disbursements under the franchise loan program for
the next twelve months from these resources and operating cash flows.

IMPACT OF INFLATION

The Company does not believe inflation has materially affected
earnings during the past three years. Substantial increases in
costs, particularly labor, employee benefits or food costs, could
have a significant impact on the Company.  During 1997, the
second phase of increases to the federal minimum wage will be
implemented in accordance with the Fair Labor Standards Act of
1996.  The Company does not believe that these increases will
significantly impact 1997 or future years' operating results.

                                     23

<PAGE>
 

I
TEM 8.  CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


<TABLE>
<CAPTION>

PAPA JOHN'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)


                                                                Year Ended
                                                 ----------------------------------------
                                                 December 29,  December 31,  December 25,
                                                      1996         1995          1994
                                                 ----------------------------------------
<S>                                                  <C>           <C>          <C>
Revenues:
    Restaurant sales                                 $167,982      $111,747     $ 66,267
    Franchise royalties                                17,827        13,561        9,163
    Franchise and development fees                      4,286         3,508        3,274
    Commissary sales                                  142,998       105,874       67,515
    Equipment and other sales                          26,959        18,665       15,316
                                                 ----------------------------------------
Total revenues                                        360,052       253,355      161,535
Costs and expenses:
Restaurant expenses:
    Cost of sales                                      47,092        31,703       19,095
    Salaries and benefits                              44,774        29,946       18,168
    Advertising and related costs                      16,074        10,513        5,887
    Occupancy costs                                     8,527         5,896        3,358
    Other operating expenses                           22,801        14,913       10,011
                                                 ----------------------------------------
                                                      139,268        92,971       56,519
Commissary, equipment and other expenses:
    Cost of sales                                     134,771       101,342       68,745
    Salaries and benefits                               9,023         7,072        4,057
    Other operating expenses                           11,009         7,577        4,780
                                                 ----------------------------------------
                                                      154,803       115,991       77,582
General and administrative expenses                    26,694        19,954       12,266
Depreciation                                            9,063         5,776        3,367
Amortization                                            4,595         2,844        1,737
                                                 ----------------------------------------
Total costs and expenses                              334,423       237,536      151,471
Operating income                                       25,629        15,819       10,064
Other income:
    Investment income                                   3,484         1,659        1,156
    Other                                                 433           251          162
                                                 ----------------------------------------
Income before income taxes                             29,546        17,729       11,382
Income tax expense                                     10,932         6,525        4,182
                                                 ----------------------------------------
Net income                                             18,614        11,204        7,200
                                                 ========================================
Net income per share                                      .66           .45          .31
                                                 ========================================
Weighted average shares outstanding                    28,010        25,139       23,525
                                                 ========================================
Supplemental Data:
    Revenues from affiliates                         $ 47,012      $ 34,673    $  23,854
                                                 ========================================
    Other income                                     $     85      $     48    $      27
                                                 ========================================

</TABLE>


See accompanying notes.




                                     24

<PAGE>
 

<TABLE>
<CAPTION>

PAPA JOHN'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
                                                          December 29,    December 31,
(Dollars in thousands, except per share amounts)              1996            1995
                                                          ----------------------------
<S>                                                        <C>             <C>
Assets
Current assets:
   Cash and cash equivalents                               $ 24,063        $ 19,904
   Accounts receivable                                       10,169           8,105
   Accounts receivable-affiliates                             2,932           2,093
   Inventories                                                6,839           5,188
   Deferred pre-opening costs                                 2,654           1,936
   Prepaid expenses and other current assets                  1,591           1,092
                                                          ----------------------------
Total current assets                                         48,248          38,318
Investments                                                  65,067          24,394
Net property and equipment                                   80,717          56,699
Notes receivable from franchisees                             2,646             109
Notes receivable-affiliates                                   2,407             728

Other assets                                                 12,976           8,571
                                                          ----------------------------
Total assets                                               $212,061        $128,819
                                                          ============================


Liabilities and stockholders' equity
Current liabilities:
    Accounts payable                                       $ 13,105        $  9,388
    Accrued expenses                                          9,062           6,432
    Current maturities of long-term debt                        175             830
    Deferred income taxes                                       672             250
                                                          ----------------------------
Total current liabilities                                    23,014          16,900
Unearned franchise and development fees                       3,378           2,678
Long-term debt, less current maturities                       1,505           1,680
Deferred income taxes                                         3,285           1,034
Other long-term liabilities                                     236             245
Stockholders' equity:
    Preferred stock ($.Ol par value per share;
      authorized 5,000,000 shares, no shares issued)              -               -
    Common stock ($.Ol par value per share;
      authorized 35,000,000 shares, issued 28,776,348
      in 1996 and 26,768,637 in 1995)                           288             268
    Additional paid-in capital                              143,978          88,043
    Unrealized gain (loss) on investments                       977            (263)
    Retained earnings                                        35,882          18,838
    Treasury stock (36,460 shares in 1996 and 45,720
      shares in 1995, at cost)                                 (482)           (604)
                                                          ----------------------------
Total stockholders' equity                                  180,643         106,282
                                                          ----------------------------
Total liabilities and stockholders' equity                 $212,061        $128,819
                                                          ============================
</TABLE>


See accompanying notes.


                                     25

<PAGE>
 
PAPA JOHN'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                     Additional       Unrealized                                Total         
                                          Common       Paid-In      Gain (Loss) on  Retained     Treasury    Stockholders'
(In thousands)                             Stock       Capital        Investments   Earnings       Stock        Equity
- --------------------------------------------------------------------------------------------------------------------------
<S>                                        <C>         <C>             <C>          <C>           <C>           <C>
Balance at December 27,1993                $208        $18,203         $    9       $   849       $    -        $ 19,269
Issuance of common stock                     31         34,967              -             -            -          34,998
Exercise of stock options                     5            285              -             -         (678)           (388)
Tax benefit related to exercise of
 non-qualified stock options                  -          2,039              -             -            -           2,039
Change in unrealized gain (loss)
 on investments                               -              -           (660)            -            -            (660)
Net income                                    -              -              -         7,200            -           7,200
Other                                         -            133              -           (47)          65             151
                                         -------------------------------------------------------------------------------
Balance at December 25,1994                 244         55,627           (651)        8,002         (613)         62,609
Issuance of common stock                     18         29,982              -             -            -          30,000
Exercise of stock options                     2            567              -             -            -             569
Tax benefit related to exercise of
 non-qualified stock options                  -          1,085              -             -            -           1,085
Acquisitions                                  4            782              -             -            -             786
Change in unrealized gain (loss)
 on investments                               -              -            388             -            -             388
Net income                                    -              -              -        11,204            -          11,204
Other                                         -              -              -          (368)           9            (359)
                                         -------------------------------------------------------------------------------

Balance at December 31,1995                 268         88,043           (263)       18,838         (604)        106,282
Issuance of common stock                     17         50,534              -             -            -          50,551
Exercise of stock options                     2          1,429              -             -            -           1,431
Tax benefit related to exercise of
 nonqualified stock options                   -          1,315              -             -            -           1,315
Acquisitions                                  1          2,602              -        (1,542)           -           1,061
Change in unrealized gain (loss)
 on investments                               -              -          1,240             -                        1,240
Net income                                    -              -              -        18,614            -          18,614
Other                                         -             55              -           (28)         122             149
                                         -------------------------------------------------------------------------------
Balance at December 29,1996                $288       $143,978         $  977       $35,882       $ (482)       $180,643
                                         ===============================================================================
</TABLE>



See accompanying notes.

                                     26

<PAGE>
 
PAPA JOHN'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

<TABLE>
<CAPTION>
                                                                                           Year Ended
                                                                    ------------------------------------------------------
                                                                    December 29,        December 31,       December 25,
                                                                        1996               1995                1994
                                                                    ------------------------------------------------------
<S>                                                                 <C>                <C>                 <C>
OPERATING ACTIVITIES
Net income                                                          $ 18,614           $  11,204           $   7,200
Adjustments to reconcile net income to net cash
 provided by operating activities:
    Depreciation                                                      9,063                5,776               3,367
    Amortization                                                      5,241                2,960               1,893
    Deferred income taxes                                             1,956                1,249                   4
    Other                                                               430                  239                 145
    Changes in operating assets and liabilities:
        Accounts receivable                                          (2,903)              (4,701)             (1,644)
        Inventories                                                  (1,651)              (2,671)               (947)
        Deferred pre-opening costs                                   (4,247)              (3,282)             (1,680)
        Prepaid expenses and other current assets                      (499)                 (22)               (422)
        Other assets                                                 (3,253)              (2,074)               (234)
        Accounts payable                                               3,717               2,626               1,617
        Accrued expenses                                               2,630               2,376               1,749
        Unearned franchise and development fees                          700                 829                 (24)
                                                                    ------------------------------------------------
Net cash provided by operating activities                             29,798              14,509              11,024
Investing activities
Purchase of property and equipment                                   (28,792)            (32,683)            (18,581)
Purchase of investments                                              (65,031)            (15,247)            (64,897)
Proceeds from sale or maturity of investments                         26,572              12,387              51,227
Loans to franchisees                                                  (7,823)               (420)               (502)
Deferred systems development costs                                    (2,614)             (2,078)                  -
Acquisitions                                                             (30)               (673)             (1,855)
Other                                                                    161                 (81)               (547)
                                                                    ------------------------------------------------
Net cash used in investing activities                                (77,557)            (38,795)            (35,155)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt                                   -               2,000                   -
Payments on long-term debt                                            (1,367)             (2,492)               (447)
Proceeds from issuance of common stock                                50,551              30,000              34,998
Acquisition of treasury stock                                              -                   -                (678)
Proceeds from exercise of stock options                                1,431                 569                 290
Tax benefit related to exercise of non-qualified
 stock options                                                         1,315               1,085               2,039
Other                                                                    (12)                255                 (80)
                                                                    ------------------------------------------------
Net cash provided by financing activities                             51,918              31,417              36,122
                                                                    ------------------------------------------------
Net increase in cash and cash equivalents                              4,159               7,131              11,991
Cash and cash equivalents at beginning of year                        19,904              12,773                 782
                                                                    ------------------------------------------------
Cash and cash equivalents at end of year                            $ 24,063            $ 19,904            $ 12,773
                                                                    ================================================

</TABLE>

See accompanying notes.

                                     27

<PAGE>
 
PAPA JOHN'S INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  DESCRIPTION OF BUSINESS

Papa John's International, Inc. (the "Company") operates and franchises
pizza delivery and carry-out restaurants under the trademark "Papa John's",
currently in 32 states and the District of Columbia. Substantially all
revenues are derived from retail sales and delivery of pizza to the general
public through Company-owned and franchised restaurants, sales of franchise
and development rights and sales to franchisees of equipment, food
products, supplies, printing and promotional items and information systems
and related services used in their operations.

2.  SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries. All significant intercompany balances and
transactions have been eliminated.

Fiscal Year

The Company's fiscal year ends on the last Sunday in December of each year.
The 1996 and 1994 fiscal years consisted of 52 weeks and the 1995 fiscal
year consisted of 53 weeks.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from these estimates.

Revenue Recognition

Franchise fees are recognized when a franchised restaurant begins
operations, at which time the Company has performed its obligations related
to such fees. Fees received pursuant to development agreements which grant
the right to develop franchised restaurants in future periods in specific
geographic areas are deferred and recognized on a pro rata basis as the
franchised restaurants subject to the development agreements begin
operations. Both franchise and development fees are nonrefundable.
Franchise royalties, which are based on a percentage of franchised
restaurants' sales, are recognized as earned.

Cash Equivalents

Cash equivalents consist of all highly liquid investments with a maturity
of three months or less at date of purchase. These investments are carried
at cost which approximates fair value.

Accounts Receivable

                                     28

<PAGE>
 
Substantially all accounts receivable are due from franchisees for
purchases of equipment, food products, supplies, printing and promotional
items, and information systems and related services, and for royalties from
December sales. Credit is extended based on an evaluation of the
franchisee's financial condition and, generally, collateral is not
required. The Company considers substantially all amounts to be
collectible.

Inventories

Inventories, which consist of food products, paper goods and supplies,
smallwares, store equipment and printing and promotional items, are stated
at the lower of cost, determined under the first-in, first-out (FIFO)
method, or market.

Deferred Pre-Opening Costs

Pre-opening costs, which represent certain expenses incurred before a new
restaurant or commissary facility opens, are capitalized and amortized on a
straight-line basis over a period of one year from the facility's opening
date. Total costs deferred were approximately $4.2 million in 1996,  $3.0
million in 1995 and $1.7 million in 1994.

Investments

The Company determines the appropriate classification of investment
securities at the time of purchase and reevaluates such designation as of
each balance sheet date. All investment securities held by the Company at
December 29, 1996, have been classified as available-for-sale.
Available-for-sale securities are stated at fair value as determined
primarily through quoted market prices. Unrealized gains and losses, net of
tax, are reported as a separate component of stockholders' equity. The cost
of debt securities is adjusted for amortization of premiums and accretion
of discounts to maturity. Such amortization and accretion, along with
interest and dividends earned and realized gains and losses, are included
in investment income. The cost of securities sold is based on the specific
identification method.

Property and Equipment

Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets
(generally five to ten years for restaurant, commissary and other
equipment, and 20 to 25 years for buildings and improvements). Leasehold
improvements are amortized over the terms of the respective leases,
including the first renewal period (generally five to ten years).

Systems Development Costs

The Company defers certain systems development and related costs which meet
established criteria. Amounts deferred are amortized over periods not
exceeding five years beginning in the month subsequent to completion of the
related systems project. Total costs deferred were approximately $2.6
million in 1996 and $2.1 million in 1995.  Such costs incurred prior to
1995 were not material and were expensed as incurred. Unamortized deferred
systems development costs were $3.8 million at December 29, 1996 and $1.9
million at December 31, 1995, and are reported in other assets in the
accompanying balance sheets.

                                     29

<PAGE>
 
Advertising and Related Costs

Advertising and related costs include Company-owned restaurant activities such
as mail coupons, door hangers and promotional items, and Company-owned
restaurant contributions to the Papa John's Marketing Fund, Inc. (the "Marketing
Fund") and local market cooperative advertising funds. All such advertising and
related costs are expensed as incurred. Contributions by Company-owned and
franchised restaurants to the Marketing Fund and the cooperative advertising
funds are based on an established percentage of monthly restaurant revenues. The
Marketing Fund is responsible for the development of marketing and advertising
materials for use throughout the Papa John's system. The local market
cooperative advertising funds are responsible for developing and conducting
advertising activities in a specific market, including the placement of
electronic and print materials developed by the Marketing Fund. Such funds are
accounted for separately and are not included in the consolidated financial
statements of the Company.

Net Income Per Share

Net income per share is based on the weighted average number of shares of common
stock outstanding during the period. The potential dilution attributable to
common stock equivalents is not material.

Prior Year Data

Certain prior year data has been reclassified to conform to the 1996
presentation.

3.  STOCK SPLITS

The Board of Directors approved a 3-for-2 stock split in February 1996 to
stockholders of record on March 12, 1996, and an additional 3-for-2 stock split
in October 1996 to stockholders of record on November 8, 1996. Each stock split
was effected in the form of a 50% stock dividend. All share data included in
these consolidated financial statements have been restated to reflect these
stock splits.

4.  BUSINESS COMBINATIONS

In February 1996, the Company purchased the assets and assumed certain
liabilities of a Papa John's restaurant in Floyd Knobs, Indiana, from Educators,
Inc., a franchisee, for $60,000. The purchase price consisted of a cash payment
of $30,000 and the issuance of 1,589 shares of Company stock.

In May 1996, the Company purchased the assets and assumed certain liabilities of
three Papa John's restaurants in Indianapolis, Indiana from Acumen, Inc., a
franchisee. The purchase price was approximately $1.4 million consisting solely
of 50,211 shares of Company common stock.

The above business combinations were accounted for by the purchase method of
accounting.

In September 1996, the Company acquired Nortex Pizza, L.P. ("Nortex"), a
franchisee of eighteen Papa John's restaurants in the Dallas, Texas market. The
Company issued 46,593 shares of its common stock (valued at $1.5 million) in

                                     30

<PAGE>
 
exchange for all of the issued and outstanding capital stock of Nortex. In
addition, the Company retired $3.5 million of Nortex debt at the closing (see
Note 7). The transaction was accounted for as a pooling of interests.

The Nortex pooling of interests was not significant for restatement of prior
financial statements. Additionally, the pro forma impact of these 1996
combinations is not material.

During 1995, the Company purchased the assets of eight Papa John's restaurants
from franchisees for total consideration of approximately $2 million, consisting
of 54,170 shares of common stock of the Company (valued at $650,000), $574,000
in credits toward future development and franchise fees and $770,000 in cash.
Additionally during 1995, the Company acquired franchisees operating 15 Papa
John's restaurants in transactions accounted for as poolings of interests. The
Company issued 346,080 shares of its common stock (valued at $6 million) and
retired $1.2 million of acquiree debt in connection with these acquisitions.

During 1994, the Company purchased the assets of five Papa John's restaurants
from franchisees for approximately $635,000.

During 1994, the Company purchased the assets of QC, Inc. ("QC"), a printing
company which provided printed marketing materials for the Company and many of
its franchisees. The purchase price was $1.5 million, consisting of cash
payments of $1.2 million (including the retirement of certain indebtedness) and
the assumption of approximately $300,000 in liabilities.

                                      31

<PAGE>
 
5.  INVESTMENTS

A summary of the Company's available-for-sale securities as of December 29,
1996 and December 31, 1995 follows (in thousands):


<TABLE>
<CAPTION>
                                                               Gross             Gross         Estimated
                                           Amortized         Unrealized        Unrealized         Fair
                                              Cost              Gains            Losses           Value
                                           -------------------------------------------------------------
<S>                                         <C>              <C>                <C>            <C>
December 29, 1996
 U.S. Government securities                 $ 4,003           $   11            $ (17)         $  3,997
 Corporate debt securities                      500                -               (1)              499
 Municipal bonds                             45,852              142               (1)           45,993
 Mortgage-backed securities                   1,078                -               (1)            1,077
 Fixed income mutual funds                   10,822                -             (221)           10,601
 Equity securities                                -            1,772                -             1,772
 Interest receivable                          1,128                -                -             1,128
                                            -----------------------------------------------------------
Total                                       $63,383           $1,925            $(241)         $ 65,067
                                            ===========================================================

December 31, 1995
 U.S. Government securities                 $ 1,005           $    -            $ (12)         $    993
 Corporate debt securities                      500                -               (8)              492
 Municipal bonds                             10,595                9                -            10,604
 Mortgage-backed securities                   1,532                4               (9)            1,527
 Fixed income mutual hinds                   10,822                -             (251)           10,571
 Interest receivable                            207                -                -               207
                                            -----------------------------------------------------------
Total                                       $24,661           $   13   $         (280)         $ 24,394
                                            ===========================================================

</TABLE>



The amortized cost and estimated fair value of securities at December 29,
1996, by contractual maturity, are shown below (in thousands). Expected
maturities will differ from contractual maturities because the issuers of
securities may have the right to prepay obligations without prepayment
penalties.


<TABLE>
<CAPTION>

                                            Amortized   Estimated
                                               Cost     Pair Value
                                            ----------------------
<S>                                          <C>         <C>
Due in one year or less                      $27,356     $27,405
Due after one year through three years        22,999      23,084
Mortgage-backed securities                     1,078       1,077
Fixed income mutual hinds                     10,822      10,601
Equity securities                                  -       1,772
Interest receivable                            1,128       1,128
                                             ===================
                                             $63,383     $65,067
</TABLE>

                                     32

<PAGE>
 
6.  NET PROPERTY AND EQUIPMENT

Net property and equipment consists of the following (in thousands):


<TABLE>
<CAPTION>
                                                         1996             1995
                                                      -------------------------
<S>                                                   <C>              <C>
Land                                                  $ 10,273         $  6,456
Buildings and improvements                              10,734            8,001
Leasehold improvements                                  20,169           14,254
Bquipment and other                                     49,496           38,114
Construction in progress                                10,841            1,727
                                                      -------------------------
                                                       101,513           68,552
Less accumulated depreciation and amortization         (20,796)         (11,853)
                                                      -------------------------
Net property and equipment                            $ 80,717         $ 56,699
                                                      =========================

</TABLE>



7.  FRANCHISEE LOAN PROGRAM

During 1996, the Company established a program under which selected
franchisees may borrow funds for use in the construction and development of
their restaurants.  At December 29, 1996, loans outstanding to franchisees
were approximately $5.1 million and commitments to loan up to an additional
$3.7 million had been made. Such loans bear interest at fixed or floating
rates (ranging from 5.5% to 9.25% at December 29, 1996), and are generally
secured by the fixtures, equipment, signage and, where applicable, land of
each restaurant and the ownership interests in the franchisee.  Interest
earned on franchisee loans during 1996 was approximately $153,000, and is
reported in investment income in the accompanying statements of income.
Approximately $3.5 million of franchisee loans issued during 1996 were
retired in connection with the Nortex acquisition (see Note 4).
Approximately $2.4 million of the loans outstanding as of December 29, 1996
were to franchisees in which the Company or certain directors or officers
of the Company had an ownership interest.


8.  ACCRUED EXPENSES

Accrued expenses consist of the following (in thousands):


<TABLE>
<CAPTION>

                                       1996           1995
                                      ---------------------
<S>                                   <C>            <C>
Salaries, wages and bonuses           $1,738         $1,339
Taxes other than income                2,857          1,615
Accrued insurance                      1,242            955
Income taxes                           1,228            531
Other                                  1,997          1,992
                                      ---------------------
Total                                 $9,062         $6,432
                                      =====================

</TABLE>


                                     33

<PAGE>
 
9.  LONG-TERM DEBT AND CREDIT ARRANGEMENTS

Long-term debt consists of the following (in thousands):

<TABLE>
<CAPTION>

                                                1996            1995
                                               ----------------------
         <S>                                   <C>             <C>
         Economic development loan             $1,680          $1,845
         Other                                      -             665
                                               ----------------------
                                                1,680           2,510
         Less current maturities                 (175)           (830)
                                               ----------------------
         Total                                 $1,505          $1,680
                                               ======================

</TABLE>


The Company entered into non-interest bearing notes payable of $520,000 in
1996, $450,000 in 1995 and $1.7 million in 1994, in connection with the
purchases of land.  All such notes payable were fully paid as of December
29, 1996.

In March 1994, the Company entered into an agreement for a $2 million
economic development loan (the "Loan") from the State of Mississippi in
connection with the opening of a commissary in Jackson, Mississippi. The
Loan was funded by a bond issuance under the Mississippi Small Enterprise
Development Finance Act. The Company received the loan proceeds in February
1995. Interest accrues on disbursed proceeds at a decreasing variable rate
(beginning at 6.5%) equal to the coupon rate of the bonds, with an average
effective annual rate of 5.3%. The Company is required to make semi-annual
principal and interest payments to retire the Loan by March 1, 2004. The
Loan is collateralized by a letter of credit issued by PNC Bank, Kentucky,
Inc. Scheduled principal payments on the Loan are as follows: 1997
$175,000; 1998 - $185,000; 1999 - $190,000; 2000 - $205,000;  2001 -
$215,000; and thereafter - $710,000.

The Company has a revolving credit agreement with maximum available
borrowings at December 29, 1996 of approximately $9.7 million. Outstanding
balances accrue interest at 1% below the prime rate or at rates tied to
other interest indices at the election of the Company. The agreement
expires on June 29, 1997, at which time any unpaid balance is due and
payable. In the event of any default, the lender has a security interest in
the Company's cash account balances maintained with the lender.

Interest paid was $96,000 in 1996 and $55,000 in 1995.  No interest was
paid in 1994.

                                     34

<PAGE>
 
10.  INCOME TAXES

A summary of the provision for income taxes follows (in thousands):



<TABLE>
<CAPTION>
                                        1996           1995           1994
                                      -------------------------------------
<S>                                   <C>             <C>            <C>
Current
 Federal                              $ 7,658         $4,469         $3,691
 State and local                        1,318            807            517
Deferred (federal and state)            1,956          1,249              4
Other                                       -              -            (30)
                                      -------------------------------------
Total                                 $10,932         $6,525         $4,182
                                      =====================================
</TABLE>






Significant deferred tax assets (liabilities) as of December 29, 1996 and
December 31, 1995 follow (in thousands):


<TABLE>
<CAPTION>

                                                                   1996         1995
                                                               ----------------------
<S>                                                            <C>           <C>
Unearned development fees                                      $  1,055      $   811
Unrealized loss on investments                                       91          102
Accrued expenses                                                    263          250
Other                                                               204          178
                                                               ----------------------
Total deferred tax assets                                         1,611        1,341
Valuation allowance related to unrealized loss on investments       (84)         (96)
                                                               ----------------------
Net deferred tax asset                                            1,529        1,245
Deferred expenses                                                (2,107)        (891)
Accelerated depreciation                                         (2,594)      (1,638)
Unrealized gain on warrant                                         (656)           -
Other                                                              (129)           -
                                                               ----------------------
Total deferred tax liabilities                                   (5,486)      (2,529)
                                                               ----------------------
Net deferred tax liability                                     $ (3,957)     $(1,284)
                                                               ======================
</TABLE>


The reconciliation of income tax computed at the U.S. federal statutory
rate to income tax expense for the years ended December 29, 1996,
December 31, 1995 and December 25, 1994 is as follows (in thousands):


<TABLE>
<CAPTION>


                                           1996         1995          1994
                                        -----------------------------------
<S>                                     <C>          <C>           <C>
Tax at U.S. federal statutory rate      $ 10,341     $  6,063      $  3,869
State and local income taxes               1,011          567           341
Tax exempt investment income                (788)        (188)            -
Other                                        368           83           (28)
                                        -----------------------------------
Total                                   $ 10,932     $  6,525      $  4,182
                                        ===================================

</TABLE>


Income taxes paid were $6.5 million in 1996, $3.2 million in 1995 and $2.3
million in 1994.

                                     35

<PAGE>
 
11.  PJ AMERICA, INC. STOCK WARRANT

PJ America, Inc. ("PJ America"), a franchisee of the Company, completed an
initial public offering ("IPO") of its common stock effective October 25,
1996.  In connection with the IPO, PJ America issued a warrant to purchase
225,000 shares of its common stock to the Company. The warrant is
exercisable in whole or in part at any time within 5 years from the closing
date of the IPO, and the purchase price of each share of common stock
pursuant to the warrant is $11.25 per share (90% of the IPO price of $12.50
per share).  The Company is restricted from selling any PJ America common
stock obtained by exercising the warrant for a period of 180 days from the
closing date of the IPO.  The warrant was issued by PJ America to the
Company in consideration for the guarantee by the Company of rights to
enter into development agreements for certain specified territories and the
waiver by the Company of certain market transfer fees.  The Company's
agreement with PJ America anticipates that PJ America will pay standard
development and franchise fees in connection with opening restaurants in
the specified territories.

The Company did not recognize income in connection with receipt of the
warrant.  The warrant is classified as an available-for-sale security, and
accordingly, is stated at fair value in the balance sheet, with unrealized
gains reported as a separate component of stockholders' equity.

The fair value of the warrant on December 29, 1996, based upon a closing
price per share of $19.125 for PJ America common stock on that date, was
approximately $1.8 million and is reported in investments in the
accompanying balance sheet.  The intrinsic value of the warrant (market
value of PJ America common stock less the exercise price of the warrant) is
considered a reasonable approximation of the fair value of the warrant.

Certain officers and/or directors of the Company are also officers and/or
directors of PJ America.


12.  RELATED PARTY TRANSACTIONS

Certain officers and directors of the Company own equity interests in
entities that operate and/or have rights to develop franchised restaurants.
Prior to the Company's initial public offering of common stock in June
1993, certain of these affiliated entities entered into agreements to
acquire area development rights at reduced development fees and also pay
reduced initial franchise fees when restaurants are opened. All such
entities pay royalties at the same rate as other franchisees. Certain
officers and directors of the Company also owned a 19% equity interest in
QC, Inc. ("QC"), which provided printing services to the Company and
franchisees and was acquired by the Company in 1994 (see Note 4). Following
is a summary of transactions and balances with affiliated entities (in
thousands):


                                   36

<PAGE>
 

<TABLE>
<CAPTION>
                                                         1996             1995             1994
                                                       -------------------------------------------
<S>                                                    <C>              <C>               <C>
Revenues from affiliates:
 Commissary sales                                      $35,972          $26,180           $17,267
 Equipment and other sales                               5,628            4,265             3,441
 Franchise royalties                                     4,512            3,518             2,482
 Franchise and development fees                            900              710               664
                                                       ------------------------------------------
Total                                                  $47,012          $34,673           $23,854
                                                       ==========================================

Other income                                           $    85          $    48           $    27
                                                       ==========================================
Accounts receivable-affiliates                         $ 2,932          $ 2,093           $ 1,492
                                                       ==========================================
Notes receivable-affiliates                            $ 2,407          $   728           $   500
                                                       ==========================================
</TABLE>


The Company paid $515,000 in 1996 and $149,000 in 1995 for charter aircraft
services provided by entities owned by certain directors and officers,
including the Chief Executive Officer, of the Company.

The Company advanced $384,000 and $394,000 in 1996 and 1995, respectively,
in premiums for split-dollar life insurance coverage on the Chief Executive
Officer for the purpose of funding estate tax obligations. The Company and
the officer share the cost of the premiums. The premiums advanced by the
Company will be repaid out of the cash value or proceeds of the policies.

In December 1996, the Company sold its 10% ownership interest in L-N-W
Pizza, Inc. ("L-N-W"), a franchisee that operates 12 restaurants in
Florida, back to L-N-W. The Chief Operating Officer of the Company  was the
90% owner of  L-N-W prior to the sale and is now the sole owner. The
Company sold its 10% interest for total consideration of $411,000, which
represented a gross value of approximately $400,000 per restaurant.


13.  LEASE COMMITMENTS

The Company leases office, retail and commissary space under operating
leases with terms generally ranging from three to five years and providing
for at least one renewal. Certain leases further provide that the lease
payments may be increased annually based on the Consumer Price Index. The
Company also leases certain equipment under operating leases with terms
ranging from three to seven years.  Future minimum lease payments are as
follows: 1997 - $7.1 million; 1998 - $5.1 million 1999 - $4.2 million; 2000
- - $3.2 million;  2001 - $1.8 million and thereafter  - $2.1 million. Total
rent expense was $4.6 million in 1996, $3.2 million in 1995 and $2.1
million in 1994.

                                     37

<PAGE>
 
14.  STOCK OPTIONS

In 1996, the Company adopted Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123"). In accordance with
SFAS 123, the Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under SFAS
123 requires the use of option valuation models that were not developed for use
in valuing employee stock options. Under APB 25, because the exercise price of
the Company's employee stock options equals or exceeds the market price of the
underlying stock on the date of grant, no compensation expense is recognized.

The Company awards stock options under the Papa John's International, Inc. 1993
Stock Ownership Incentive Plan (the "Incentive Plan") and the Papa John's
International, Inc. 1993 Non-Employee directors Stock Option Plan (the
"Directors Plan"). Shares of common stock authorized for issuance are 3,487,500
under the Incentive Plan and 270,000 under the Directors Plan. Options granted
under both plans generally expire ten years from the date of grant and vest over
one to five year periods, except for options awarded under a multi-year
operations compensation program which vest immediately upon grant.

The Incentive Plan also provides for awards of restricted stock. During 1996,
the Company awarded 9,225 shares of restricted stock under the Incentive Plan
with a weighted-average grant date fair value of $19.24 per share. Total
compensation expense recognized in 1996 related to restricted stock awards was
$158,000.

Prior to the establishment of the Incentive Plan and Directors Plan, the Company
awarded options to acquire 1,086,750 shares of common stock at exercise prices
ranging from $.05 to $1.67 per share, in connection with certain consulting and
employment arrangements.

Pro forma information regarding net income and earnings per share is required by
SFAS 123, which also requires that the information be determined as if the
Company has accounted for its employee stock options granted subsequent to
December 25, 1994 under the fair value method of that Statement. The fair value
for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1996
and 1995, respectively: risk-free interest rates of 5.9% and 5.1%; a dividend
yield of 0%; volatility factors of the expected market price of the Company's
common stock of .47 and .48; and a weighted-average expected life of the options
of 3.6 years.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.

                                     38

<PAGE>
 
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period.  The
Company's pro forma information follows (in thousands, except per share
amounts):

                                    1996              1995
                                    ----              ----

Pro forma net income             $14,772           $10,922
Pro forma earnings per share       $0.53             $0.43


Because SFAS 123 is applicable only to options granted subsequent to
December 25, 1994, its pro forma effect will not be fully reflected until a
complete five years of vesting occurs for 1995 option awards in 2000.

Information pertaining to options for 1996, 1995 and 1994 is as follows
(number of options in thousands):

<TABLE>
<CAPTION>

                                          1996                           1995                            1994
                                Number of    Weighted-Average    Number of  Weighted-Average    Number of    Weighted-Average
                                 Options       Exercise Price     Options     Exercise Price     Options       Exercise Price
                                -----------------------------    ---------------------------    -----------------------------
<S>                              <C>               <C>             <C>            <C>              <C>           <C>
Outstanding-beginning of year      1,725           $12.01           1,188         $ 6.46           1,314         $  1.95
Granted                            2,108            27.31             903          17.07             497           11.40
Exercised                            180             7.13             240           2.61             486            0.59
Cancelled                            121            19.04             128          11.48             137            2.52
                                -----------------------------    ---------------------------    -----------------------------
Outstanding-end of year            3,532           $20.98           1,725          12.01           1,188         $  6.46
                                =============================    ===========================    =============================
Exercisable-end of year              870           $13.19             421        $  3.63
                                =============================    ===========================

Weighted-average fair value
   of options granted dunng
   the year                       $ 9.65                           $ 5.03
                                ========                         ========

</TABLE>


The number, weighted-average exercise price and weighted-average remaining
contractual life of options outstanding as of December 29,1996, and the
number and weighted average exercise price of options exercisable as of
December 29, 1996 follow (number of options in thousands):

                                     39

<PAGE>
 

<TABLE>
<CAPTION>

                            Range of              Number of        Weighted-Average         Weighted-Average
                         Exercise Prices          Options            Exercise Price          Remaining Life
                         -----------------------------------------------------------------------------------
<S>                      <C>                           <C>                 <C>                       <C>
Outstanding options:     $0.05 - $4.99                    157              $  0.19                   0.41
                         5.00 - 19.99                   1,614                14.57                   8.31
                         20.00 - 37.88                  1,761                28.73                   9.63
                                                  -------------------------------------------------------
          Total                                         3,532              $ 20.98                   8.62
                                                  =======================================================

Exercisable options:     $0.05 - $4.99                    157              $  0.19
                         5.00 - 19.99                     613                13.64
                         20.00 - 37.88                    100                30.80
                                                  --------------------------------
          Total                                           870              $ 13.19
                                                  ================================

</TABLE>


As of December 29, 1996, approximately 99,000 shares were available for
future issuance under the Incentive Plan and approximately 83,250
shares were available for future issuance under the Directors Plan.


15.  DEFINED CONTRIBUTION BENEFIT PLAN

The Company has established the Papa John's International, Inc. 401(k) Plan
(the "Plan"), as a defined contribution benefit plan, in accordance with
Section 401(k) of the Internal Revenue Code. The Plan is open to all
employees who meet certain eligibility requirements and allows
participating employees to defer receipt of a portion of their compensation
and contribute such amount to one or more investment funds. Administrative
costs of the Plan are paid by the Company and are not significant.


16.  QUARTERLY DATA (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)


<TABLE>
<CAPTION>

Quarter                             1st                     2nd                     3rd                     4th
                            ------------------------------------------------------------------------------------------
                              1996        1995        1996        1995        1996       1995        1996        1995
                            ------------------------------------------------------------------------------------------
<S>                         <C>         <C>         <C>         <C>         <C>        <C>        <C>          <C>
Total revenues              $76,726     $52,009     $87,680     $57,322     $92,729    $62,411    $102,917     $81.613
Operating income              5,024       3,154       5,801       3,553       6,519      3,847       8,285       5,265
Net income                    3,519       2,240       4,232       2,457       4,914      2,766       5,949       3,741
Net income per share        $   .13     $   .09     $   .15      $  .10     $   .17    $   .11    $    .21     $   .14

</TABLE>


All quarterly information above is presented in 13 week periods except for
the fourth quarter of 1995 which is a 14 week period.

                                     40

<PAGE>
 

Report of Independent Auditors

The Board of Directors and Stockholders
Papa John's International, Inc.

We have audited the accompanying consolidated balance sheets of Papa John's
International, Inc. and subsidiaries (the "Company") as of December 29,
1996 and December 31, 1995, and the related consolidated statements of
income, stockholders' equity, and cash flows for each of the three years in
the period ended December 29, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Papa John's International, Inc. and subsidiaries at December
29, 1996 and December 31, 1995, and the consolidated results of their
operations and their cash flows for each of the three years in the period
ended December 29, 1996, in conformity with generally accepted accounting
principles.

Ernst & Young LLP


Louisville, Kentucky
February 28, 1997



I
TEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

      None.




                                   PART III


ITEMS 10, 11, 12 AND 13.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT;
      EXECUTIVE COMPENSATION; SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
      AND MANAGEMENT; AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

      The information required by these items, other than the information set
forth in this Report under Part I, "Executive Officers of Registrant," is
omitted because the Company is filing a definitive proxy statement pursuant to
Regulation 14A not later than 120 days after the end of the fiscal year

                                     41

<PAGE>
 
covered by this Report which includes the required information.  Such
information is incorporated herein by reference.


                                    PART IV


ITEM 14.  EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
          FORM 8-K

(a)(1)      Consolidated Financial Statements:

      The following consolidated financial statements, notes related thereto
and report of independant auditors are included in Item 8 of this Report:


      Consolidated Statements of Income for the years ended December 29, 1996,
            December 31, 1995 and December 25, 1994
      Consolidated Balance Sheets as of December 29, 1996 and December 31,
            1995
      Consolidated Statements of Stockholders' Equity for the years ended
            December 29, 1996, December 31, 1995 and December 25, 1994
      Consolidated Statements of Cash Flows for the years ended December 29,
            1996, December 31, 1995 and December 25, 1994

      Notes to Consolidated Financial Statements
      Report of Independent Auditors


(a)(2)      Consolidated Financial Statement Schedules:

      All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are not  applicable and therefore have been
omitted.

(a)(3)      Exhibits:

       3.1  The Company's Amended and Restated Certificate of Incorporation.
 
           Exhibit 3.1 to the Company's Registration Statement on Form S-1
            (Registration No. 33-61366) is incorporated herein by reference.

       3.2  The Company's Restated By-Laws.  Exhibit 3.2 to the Company's
            Registration Statement on Form S-1 (Registration No. 33-61366) is
            incorporated herein by reference.

       4.1  Specimen Common Stock Certificate.  Exhibit 4.1 to the Company's
            Annual Report on Form 10-K for the fiscal year ended December 31,
            1995, is incorporated herein by reference.

       4.2  Amended and Restated Certificate of Incorporation and Restated
            By-Laws (See 3.1 and 3.2 above).

      *10.1 Consulting Agreement dated March 29, 1991, between the Company and
            Richard F. Sherman.  Exhibit 10.4 to the Company's Registration
            Statement on Form S-1 (Registration No. 33-61366) is incorporated
            herein by reference.

                                     42

<PAGE>
 
      10.2  Lease dated November 7, 1990, including amendments I, II and III
            thereto, between the Company and CWK #7, a Texas limited
            partnership, relating to the Company's corporate offices.
            Exhibit 10.5 to the Company's Registration Statement on Form S-1
            (Registration No. 33-61366) is incorporated herein by reference.

      10.3  Lease dated November 9, 1990, including amendments thereto,
            between the Company and Crow-Kessler, a Texas limited partnership,
            relating to the Company's commissary and distribution facility in
            Louisville, Kentucky.  Exhibit 10.6 to the Company's Registration
            Statement on Form S-1 (Registration No. 33-61366) is incorporated
            herein by reference.

      10.4  Lease dated January 15, 1993, between the Company and CWK #7, a
            Texas limited partnership, relating to the Company's corporate
            offices.  Exhibit 10.7 to the Company's Registration Statement on
            Form S-1 (Registration No. 33-61366) is incorporated herein by
            reference.

      *10.5 Papa John's International, Inc. 1993 Stock Ownership Incentive
            Plan.  Exhibit 10.2 to the Company's quarterly report on Form 10-Q
            for the quarter ended September 29, 1996,  is incorporated herein
            by reference.

      *10.6 Papa John's International, Inc. 1993 Stock Option Plan for Non-
            Employee Directors.  Exhibit 10.3 to the Company's quarterly
            report on Form 10-Q for the quarter ended September 29, 1996,  is
            incorporated herein by reference.

      *10.7 Employment and Non-Competition Agreement dated January 1, 1993,
            between the Company and Richard J. Emmett.  Exhibit 10.14 to the
            Company's Registration Statement on Form S-1 (Registration
            No. 33-61366) is incorporated herein by reference.

      10.8  The Company's standard Franchise Agreement.

      10.9  Lease dated May 14, 1993, between PJ Food Service, Inc. and Sample
            Properties relating to the Company's commissary facility in
            Raleigh, North Carolina.  Exhibit 10.16 to the Company's
            Registration Statement on Form S-1 (Registration No. 33-61366) is
            incorporated herein by reference.

      10.10 Amendment IV to Lease dated November 7, 1990 (and related leases),
            by and between the Company and CWK #7, a Texas limited
            partnership, relating to the Company's corporate offices.
            Exhibit 10.17 to the Company's Registration Statement on Form S-1
            (Registration No. 33-73530) is incorporated herein by reference.

      10.11 Lease dated November 1, 1993, between PJ Food Service, Inc. and
            Jackson Developers, LLC, a Missouri limited liability company,
            relating to the Company's commissary and distribution facility in
            Jackson, Mississippi.  Exhibit 10.18 to the Company's Registration
            Statement on Form S-1 (Registration No. 33-73530) is incorporated
            herein by reference.

      10.12 Third Amended and Restated Loan Agreement dated June 30, 1996,
            between the Company and PNC Bank, Kentucky, Inc.  Exhibit 10.1 to
            the Company's quarterly

                                     43

<PAGE>
 
            report on Form 10-Q for the quarterly period ended September
            29, 1996,  is incorporated herein by reference.

      10.13 Amendment V to Lease dated November 7, 1990 (and related leases),
            by and between the Company and CWK #7, a Texas limited
            partnership, relating to the Company's corporate offices.
            Exhibit 10.22 to the Company's Registration Statement on Form S-1
            (Registration No. 33-73530) is incorporated herein by reference.

      10.14 Loan Agreement among Mississippi Business Finance Corporation
            (acting for and on behalf of the State of Mississippi), Bank of
            Mississippi (as Servicing Trustee) and PJFS of Mississippi, Inc.
            Exhibit 10.1 to the Company's quarterly report on Form 10-Q for
            the quarter ended March 27, 1994 (Commission File No. 0-21660) is
            incorporated herein by reference.

      10.15 Amendment VI to Lease dated November 7, 1990 (and related leases),
            by and between the Company and CWK #7, a Texas Partnership,
            relating to the Company's corporate offices.  Exhibit 10.28 to the
            Company's Annual Report on From 10-K for the fiscal year ended
            December 25, 1994 (Commission File No. 0-21660) is incorporated
            herein by reference.

     *10.16 Memorandum of Employment dated March 31, 1995, by and
            between the Company and Wade S. Oney.  Exhibit 10.2 to the
            Company's quarterly report on Form 10-Q for the quarterly period
            ended March 26, 1995 (Commission File No. 0-21660) is incorporated
            herein by reference.

      10.17 Second Amended and Restated Loan Agreement, and related promissory
            note, each dated June 30,1995, between the Company and PNC Bank,
            Kentucky, Inc. Exhibit 10.1 to the Company's quarterly report on
            Form 10-Q for the quarterly period ended June 25, 1995 (Commission
            File No. 0-21660) is incorporated herein by reference.

      10.18 Agreement and Plan of Merger dated December 1, 1995, by and among
            Papa John's International, Inc., Papa John's USA, Inc.,
            Kentuckiana Pizza, Ltd., Kentuckiana Pizza, Ltd., II
            (Collectively, "Kentuckiana Pizza") and all of the stockholders of
            Kentuckiana Pizza.  Exhibit 2.1 to the Company's Current Report on
            Form 8-K dated December 1, 1995 (Commission File No. 0-21660) is
            incorporated herein by reference.

      10.19 Agreement and Plan of Merger dated October 16, 1995 by and among
            Papa John's International, Inc., Papa John's USA, Inc., NRG, Inc.
            ("NRG") and all of the stockholders of NRG.  Exhibit 2.2 to the
            Company's Current Report on Form 8-K dated December 1, 1995
            (Commission File No. 0-21660) is incorporated herein by reference.

     *10.20 1996 Papa John's International, Inc. Executive Option
            Program.  Exhibit 10.26 to the Company's Annual Report on
            Form 10-K for the fiscal year ended December 31, 1995, is
            incorporated herein by reference.

     *10.21 Amendment to Chief Operating Officer Agreement dated
            February 12, 1996, by and between the Company and Wade S. Oney.
            Exhibit 10.27 to the Company's Annual Report on Form 10-K for the
            fiscal year ended December 31, 1995, is incorporated herein by
            reference.

                                     44

<PAGE>
 
      10.22 Lease dated November 29, 1995 between PJ Food Service, Inc. and
            Arlington-OP&F, Inc. relating to the Company's distribution
            facility in Dallas, Texas.  Exhibit 10.28 to the Company's Annual
            Report on Form 10-K for the fiscal year ended December 31, 1995,
            is incorporated herein by reference.

      10.23 Lease dated January 3, 1996, between PJ Food Service, Inc. and
            Fraser, L.L.C. relating to the Company's commissary and
            distribution facility in Denver, Colorado.  Exhibit 10.29 to the
            Company's Annual Report on Form 10-K for the fiscal year ended
            December 31, 1995, is incorporated herein by reference.

      10.24 Amendment VII to Lease dated November 7, 1990 (and related leases)
            between the Company and CWK #7 Limited Partnership, related to the
            Company's corporate offices.  Exhibit 10.30 to the Company's
            Annual Report on Form 10-K for the fiscal year ended December 31,
            1995, is incorporated herein by reference.

      10.25 Lease dated January 23, 1996, between PJ Food Service, Inc. and
            CWK #8 relating to commercial and corporate office space in
            Louisville, Kentucky.  Exhibit 10.31 to the Company's Annual
            Report on Form 10-K for the fiscal year ended December 31, 1995,
            is incorporated herein by reference.

      10.26 Agreement for Purchase and Sale of Real Estate dated February 28,
            1996, by and between Papa John's USA, Inc., NTS/Crossings
            Corporation and NTS Bluegrass Commonwealth Park, relating to
            approximately 6 acres of land in Louisville, Kentucky.
            Exhibit 10.32 to the Company's Annual Report on Form 10-K for the
            fiscal year ended December 31, 1995, is incorporated herein by
            reference.

      10.27 Lease dated September 30, 1996, between PJ Food Service, Inc. and
            Opus Southwest corporation relating to the Company's commissary
            and distribution facility to be opened in Tempe, Arizona.

      10.28 Sublease dated September 4, 1996, between PJ Food Service, Inc.
            and Distribution Unlimited, Inc. relating to the Company's
            commissary and distribution facility to be opened in Rotterdam,
            New York.

      10.29 Lease dated August 30, 1996, between PJ Food Service, Inc. and
            A. Terry Moss and Ira E. White relating to the Company's
            commissary and distribution facility to be opened in Des Moines,
            Iowa.

      21    Subsidiaries of the Company:
            (a)   PJ Food Service, Inc., a Kentucky corporation
            (b)   Papa John's USA, Inc., a Kentucky corporation
            (c)   Printing & Promotions, Inc., a Kentucky corporation
            (d)   PJFS of Mississippi, Inc., a Mississippi corporation
            (e)   Risk Services Corp., a Kentucky corporation
            (f)   Capital Delivery, Ltd., a Kentucky corporation

      23    Consent of Ernst & Young LLP

                                     45

<PAGE>
 
      27    Financial Data Schedule which is submitted electronically to the
            Securities and Exchange Commission for information only and not
            deemed to be filed with the Commission.

      99.1  Cautionary Statements.  Exhibit 99.1 to the Company's Annual
            Report on Form 10-K for the fiscal year ended December 31, 1995 is
            incorporated herein by reference.

__________________

*Compensatory plan required to be filed as an exhibit pursuant to Item 14(c)
of Form 10-K.

(b)   Reports on Form 8-K

      There were no Reports on Form 8-K filed during the last fiscal quarter
      of the period covered by this report.

(c)   Exhibits

      The response to this portion of Item 14 is submitted as a separate
      section of this report.

(d)   Consolidated Financial Statement Schedules

      All schedules for which provision is made in the applicable accounting
      regulation of the Securities and Exchange Commission are not required
      under the related instructions or are not  applicable and therefore have
      been omitted.

                                     46

<PAGE>
 

                                 SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) 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.

Date:   March 25, 1997              PAPA JOHN'S INTERNATIONAL, INC.


                                    By: /s/ John H. Schnatter
                                        -------------------------------
                                        John H. Schnatter, Chairman and
                                        Chief Executive Officer


      Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

SIGNATURE                           TITLE                                 DATE
- ------------------------------------------------------------------------------

/s/ John H. Schnatter      Chairman, Chief Executive Officer    March 25, 1997
- -------------------------    and Director (Principal Executive
    John H. Schnatter        Officer)



/s/ Charles W. Schnatter   Senior Vice President, Secretary,    March 25, 1997
- -------------------------    General Counsel and Director
    Charles W. Schnatter


/s/ Blaine E. Hurst        President and Director               March 25, 1997
- -------------------------
    Blaine E. Hurst


/s/ O. Wayne Gaunce        Director                             March 25, 1997
- -------------------------
    O. Wayne Gaunce


/s/ Jack A. Laughery       Director                             March 25, 1997
- -------------------------
    Jack A. Laughery


/s/ Michael W. Pierce      Director                             March 25, 1997
- -------------------------
    Michael W. Pierce

<PAGE>
 
SIGNATURE                           TITLE                                 DATE
- ------------------------------------------------------------------------------

/s/ Richard F. Sherman     Director                             March 25, 1997
- -------------------------
    Richard F. Sherman


/s/ E. Drucilla Milby      Chief Financial Officer and          March 25, 1997
- -------------------------    Treasurer (Principal Financial
    E. Drucilla Milby        Officer)

/s/ J. David Flanery       Vice President and Corporate         March 25, 1997
- -------------------------    Controller (Principal Accounting
J. David Flanery             Officer)

<PAGE>
 

                               EXHIBIT INDEX

                                                                  SEQUENTIALLY
      EXHIBIT                                                       NUMBERED
      NUMBER            DESCRIPTION OF EXHIBIT                         PAGE
 -----------------------------------------------------------------------------


      10.8  The Company's standard Franchise Agreement.

      10.27 Lease dated September 30, 1996, between PJ Food
            Service, Inc. and Opus Southwest corporation relating
            to the Company's commissary and distribution facility
            to be opened in Tempe, Arizona.

      10.28 Sublease dated September 4, 1996, between PJ Food
            Service, Inc. and Distribution Unlimited, Inc.
            relating to the Company's commissary and distribution
            facility to be opened in Rotterdam, New York.

      10.29 Lease dated August 30, 1996, between PJ Food Service,
            Inc. and A. Terry Moss and Ira E. White relating to
            the Company's commissary and distribution facility to
            be opened in Des Moines, Iowa.

      21    Subsidiaries of the Company

      23    Consent of Ernst & Young LLP

      27    Financial Data Schedule which is submitted
            electronically to the Securities and Exchange
            Commission for information only and is not deemed to
            be filed with the Commission.





<PAGE>
 
                                  Exhibit 10.8

<PAGE>
 
                                  PAPA JOHN'S

                              FRANCHISE AGREEMENT














                                      Franchisee:  ___________________________
                                      Address:     ___________________________
                                                   ___________________________

<PAGE>
 
                               TABLE OF CONTENTS



                                                                          Page
                                                                          ----

RECITALS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    1

1.    Grant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    2

2.    Term, Renewal and Expiration  . . . . . . . . . . . . . . . . . . .    2

3.    Franchise Fees and Payments . . . . . . . . . . . . . . . . . . . .    4

4.    Franchisor Services . . . . . . . . . . . . . . . . . . . . . . . .    5

5.    Territorial Provisions  . . . . . . . . . . . . . . . . . . . . . .    6

6.    Premises  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    6

7.    Proprietary Marks; Copyright  . . . . . . . . . . . . . . . . . . .    8

8.    Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . .    9

9.    Telephone Number  . . . . . . . . . . . . . . . . . . . . . . . . .   13

10.   Construction, Design and Appearance; Equipment  . . . . . . . . . .   14

11.   Operations; Standards of Quality; Inspections . . . . . . . . . . .   19

12.   Products; Commissary; Menu  . . . . . . . . . . . . . . . . . . . .   22

13.   Accounting and Reports  . . . . . . . . . . . . . . . . . . . . . .   23

14.   Transfers; Our Right of First Refusal . . . . . . . . . . . . . . .   24

15.   Death, Incapacity or Dissolution  . . . . . . . . . . . . . . . . .   27

16.   Your Additional Covenants . . . . . . . . . . . . . . . . . . . . .   28

17.   Trade Secrets and Confidential Information  . . . . . . . . . . . .   30

18.   Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   30

                                      (i)

<PAGE>
 
19.   Termination by Us . . . . . . . . . . . . . . . . . . . . . . . . .   32

20.   Obligations upon Termination or Expiration  . . . . . . . . . . . .   34

21.   Independent Contractor; Indemnification . . . . . . . . . . . . . .   37

22.   Your Representations  . . . . . . . . . . . . . . . . . . . . . . .   38

23.   ENFORCEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . .   38

24.   Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   42

25.   Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . .   42

EXHIBIT A   ADDENDUM TO LEASE . . . . . . . . . . . . . . . . . . . . . .  A-1

EXHIBIT B   ASSIGNMENT OF TELEPHONE NUMBERS AND LISTINGS  . . . . . . . .  B-1



                                      (ii)

<PAGE>
 
                                  PAPA JOHN'S
                                  -----------

                              FRANCHISE AGREEMENT
                              -------------------

                           SINGLE LOCATION FRANCHISE
                           -------------------------


      THIS FRANCHISE AGREEMENT ("Agreement") is made this _____ day of
_______________, 19__, by and between PAPA JOHN'S INTERNATIONAL, INC., a
Delaware corporation ("we", "us" or "Papa John's"), and _____________________,
a ________________________ ("you").  If you are a corporation, certain

provisions of the Agreement also apply to your owners and will be noted.


      RECITALS:
      --------

      A.    We and our Affiliates have expended time, money and effort to
develop a unique system for operating retail restaurants devoted primarily to
carry-out and delivery of pizza and other food items.  The chain of current and
future Papa John's restaurants are referred to as the "Papa John's Chain" or the
"Chain."

      B.    The Chain is characterized by a unique system which includes special
recipes and menu items; distinctive design, decor, color scheme and furnishings;
software and programs; standards, specifications and procedures for operations;
procedures for quality control; training assistance; and advertising and
promotional programs all of which we may improve, amend and further develop from
time to time (the "System").

      C.    We identify our goods and services with certain service marks, trade
names and trademarks, including, but not limited to, "Papa John's," "Papa John's
Pizza," "Better Ingredients.  Better Pizza." and "Pizza Papa John's Delivering
the Perfect Pizza!" as well as certain other trademarks, service marks, slogans,
logos and emblems that have been or may be designated for use in connection with
the System from time to time (the "Marks").

      D.    You now desire to enter into this Agreement regarding the operation
of one Papa John's restaurant under the System and the Marks at the location
listed below (the "Restaurant").

      E.    We have agreed to grant you a franchise for the Restaurant;


      NOW, THEREFORE, the parties agree as follows:

<PAGE>
 
      1.    GRANT.  Subject to the terms and conditions of this Agreement and
your continuing faithful performance, we hereby grant to you the non-exclusive
right and franchise (the "Franchise") to operate a retail restaurant under the
System and the Marks to be located at:

                  ______________________________
                  ______________________________

                        (the "Location")

      Pursuant to this grant, you, at your own expense, shall construct or
remodel, and equip, staff, open and operate the Restaurant at the Location.
Unless otherwise agreed in writing by us, you shall commence operating the
Restaurant within 60 days after the signing of this Agreement, and must
diligently operate such business in accordance with this Agreement for the Term
(defined below).  Approval of the Location by us does not constitute an
assurance, representation or warranty of any kind, expressed or implied, as to
(i) the suitability of the Location for a Papa John's Restaurant, (ii) the
successful operation of the Restaurant, or (iii) for any other purpose.  Our
approval of the Location indicates only that we believe it complies with
acceptable minimum criteria we establish solely for our purposes at the time of
the evaluation.

      2.    TERM, RENEWAL AND EXPIRATION.

            (a)   INITIAL TERM.  The Franchise shall be for a term of 10 years
from the date of this Agreement, unless terminated earlier as provided in this
Agreement (the "Initial Term").

            (b)   TERM.  As used in this Agreement, "Term" shall mean the
Initial Term or the Renewal Term, as the case may be.

            (c)   RENEWAL OF FRANCHISE.  This Agreement shall not automatically
renew upon the expiration of the Initial Term.  You shall, however, have an
option to renew the Franchise upon the expiration of the Initial Term.  You may
renew the Franchise for one additional 10 year term (the "Renewal Term") if, and
only if, each and every one of the following conditions has been satisfied:

                  (i)   You have given us written notice of your desire to renew
the Franchise not less than 3 months nor more than 6 months prior to the end of
the Initial Term; provided that if we have not received notice from you of your
desire to renew within such period, we will notify you and you shall have a
period of 10 days thereafter within which to submit the renewal notice;

                  (ii)  You are in full compliance with this Agreement and there
is no uncured default by you under this Agreement, and there has been no series
of defaults by you during the Initial Term (i.e., an abnormal frequency of
defaults or a default that has occurred repeatedly, or a combination thereof),
whether or not such defaults were cured, all your debts and obligations to us
and our Affiliates under this Agreement or otherwise are current and your

                                      -2-

<PAGE>
 
obligations to the Marketing Fund and each Cooperative (defined below) of which
you are a member are current;

                  (iii) You execute and deliver to us, within 10 days after
delivery to you, the form of Papa John's Franchise Agreement being offered to
new franchisees on the date you give the notice under this Section, including
all exhibits and our other then-current ancillary agreements, which agreements
shall supersede this Agreement and all ancillary agreements in all respects, and
the terms and conditions of which may differ substantially from this Agreement;
provided that such Franchise Agreement shall provide for a term of 10 years;

                  (iv)  You secure the right to continue possession of the
Premises for a period at least equal to the Renewal Term, or alternatively you
secure premises at another location that we approve for the same period;

                  (v)   Your Principal Operator (defined below) and manager
attend and successfully complete our training program for new franchisees;

                  (vi)  We are then continuing to offer Papa John's Pizza
franchises in the state in which the Restaurant is located and have all required
documents filed and all necessary approvals to offer Papa John's franchises in
that state;

                  (vii) You have paid us a renewal fee of $3,000;

                  (viii) You execute and deliver to us a general release, in the
form we prescribe, releasing, to the fullest extent permitted under the laws of
the state where the Restaurant is located, all claims that you may have against
us and our Affiliates and subsidiaries, and their respective officers,
directors, shareholders and employees in both their corporate and individual
capacities; and

                  (ix)  You make, or provide for in a manner reasonably
satisfactory to us, such renovation and re-equipping of the Restaurant as may be
necessary or appropriate to reflect the then-current standards and image of the
System, including, without limitation, renovation or replacement of signs,
equipment, furnishings, fixtures and decor; provided, however, that substantial
renovation and re-equipping shall not be required if you have substantially
renovated the Restaurant within the 3-year period immediately preceding the end
of the Initial Term.

            (d)   EXPIRATION.  Renewal of the Franchise after the Initial Term
shall not constitute a renewal or extension of this Agreement, but shall be
conditioned upon satisfaction of the above provisions.  Upon expiration of the
Renewal Term, further renewal rights will be governed by the Franchise Agreement
executed by you upon expiration of the Initial Term.  If you fail to meet any of
the conditions under Section 2.(c) above with respect to the renewal of the
Franchise, then the Franchise shall automatically expire at the end of the
Initial Term.

                                      -3-

<PAGE>
 
      3.    FRANCHISE FEES AND PAYMENTS.

            (a)   INITIAL FRANCHISE FEE AND ROYALTIES.  In consideration of the
grant of the Franchise, you agree to pay us the following fees:

                  (i)   An Initial Franchise Fee of $20,000 which shall be paid
upon the execution of this Agreement and which shall be deemed fully earned and
is non-refundable.

                  (ii)  A continuing royalty (the "Royalty") of 4% of the "Net
Sales" of the Restaurant for each "Period" (as defined in Section 13.(b));
provided that any time after the 3rd anniversary date of this Agreement we may
increase the Royalty to as much as 5% of Net Sales for the remainder of the
Initial Term and the Renewal Term, if applicable.  However, we may increase the
Royalty only if our form of Franchise Agreement being offered to new Papa John's
franchisees at the time of the increase provides for a Royalty of more than 4%.
Net Sales shall mean the gross sales of the Restaurant (whether such sales are
evidenced by cash, check, credit, charge account or otherwise), less sales tax
collected on such sales and paid to the State or other local taxing authority.
The Royalty is due on the 10th day of the month following each Period.

            (b)   PAYMENTS.  Prior to the opening of the Restaurant (and
thereafter as requested by us), you shall execute and deliver to us, our bank(s)
and your bank, as necessary, all forms and documents that we may request to
permit us to debit your bank account, either by check, via electronic funds
transfer or other means utilizing the "Information System" (as defined in
Section 10.(d)) or such alternative methods as we may designate ("Payment
Methods").  You must comply with all procedures specified by us from time to
time, and/or take such reasonable actions as we may request to assist in any of
the Payment Methods.  We may use the Payment Methods to collect the amount of
each Period's Royalty and any other amounts due to us, our Affiliates or the
Papa John's Marketing Fund, Inc. under this Agreement or otherwise, including,
but not limited to, "Marketing Fund" (as defined in Section 8.(b))
contributions, purchases from "PJFS" (as defined in Section 12.(b)), Printing &
Promotions, Inc. and all of our other Affiliates. The Royalty and Marketing Fund
contributions shall be debited on the 10th of each month, or if the 10th falls
on a weekend or bank holiday, then on the next business day.  Commissary
payments will be debited one business day after products are delivered to the
Restaurant.  We will determine your Net Sales for each Period via the
Information System, or if we are unable to do so, you shall report your Net
Sales in writing on or before the 7th day of the month following each Period.
Such reporting shall be in addition to all other reporting requirements under
Section 13.  If you fail to report Net Sales on a timely basis, we may estimate
the Net Sales of the Restaurant for such Period and debit your bank account the
amount of the Royalty and Marketing Fund contribution based on such estimate. If
an estimate results in an overpayment, we shall deduct the amount of the
overpayment from the next Period's Royalty.  Any deficiency resulting from such
estimate may be added to the next Royalty and/or Marketing Fund contribution
payment(s) due and debited against your bank account.  If, at any time, we
determine that you have underreported the Restaurant's Net Sales, or underpaid
any Period's Royalty, Marketing Fund contributions or payments to any of our
Affiliates, we are authorized to immediately debit your account for these
amounts by any of the Payment Methods.  You shall notify us at least 20

                                      -4-

<PAGE>
 
days prior to closing or making any change to the account against which such
debits are to be made.  If such account is closed or ceases to be used, you
shall immediately provide all documents and information necessary to permit us
to debit the amounts due from an alternative account.  You acknowledge that
these requirements are only a method to facilitate prompt and timely payment of
amounts due and shall not affect any obligation or liability for amounts owed.
If for any reason your account cannot be electronically debited, you shall
submit payments by check (certified or cashier's check if requested by us) on or
before the dates when due.  You shall indemnify and hold us harmless from and
against all damages, losses, costs and expenses resulting from any dishonored
debit against your account, regardless whether resulting from the act or
omission of you or your bank; provided that you shall not be obligated to
indemnify us for any dishonored debit caused by our negligence or mistake.

      4.    FRANCHISOR SERVICES.  During the Term, we agree to provide to you
the following services:

            (a)   specifications for the design of the Restaurant and related
facilities to be used in the operation of the Restaurant;

            (b)   specifications for fixtures, furnishings, decor,
communications and computer hardware and software, signs and equipment;

            (c)   the names and addresses of designated and approved suppliers,
and standards and specifications for (i) all food products, beverages,
ingredients and cooking materials sold from or used in the operation of the
Restaurant, and (ii) all containers, boxes, cups, packaging, menus, uniforms and
other products and materials used in connection with the operation of the
Restaurant;

            (d)   a pre-opening management training program for the "Principal
Operator" (as defined in Section 11) and one or more approved managers, and such
other persons as we may reasonably designate, and such other training for your
employees at the locations and for such periods as we may designate from time to
time; provided that you shall be responsible for all expenses incurred by such
persons in connection with training, including, without limitation, all costs of
travel, lodging, meals and wages;

            (e)   Our supervision and periodic inspections and evaluations of
your operation as described more fully in Section 11.(j) which supervision,
inspections and evaluations shall be conducted at such times and in such manner
as we shall reasonably determine; and

            (f)   We shall communicate to you information relating to the
operation of a Papa John's restaurant to the extent we deem it necessary or
pertinent.

                                      -5-

<PAGE>
 
      5.    TERRITORIAL PROVISIONS.

            (a)   TERRITORY.  Subject to the provisions of this Section 5, we
agree that during the Term we will not locate nor license another to locate a
Papa John's restaurant within a one and one-half mile radius of the Location
(the "Territory").  Notwithstanding the foregoing, enclosed malls, institutions
(such as hospitals or schools), airports, parks (including theme parks), and
sports arenas (collectively "Special Sites") shall be excluded from protection
within the Territory and we may open Papa John s restaurants, or franchise the
right to open Papa John s restaurants to other persons at any Special Site
locations, regardless of where they are located.  If this Agreement is signed
pursuant to a Development Agreement with us, in no event shall the Territory
extend outside the boundaries of the "Development Area" as defined in the
Development Agreement and neither termination nor expiration of the Development
Agreement shall alter this limitation.  We do not warrant or represent that no
other Papa John's restaurant will solicit or make any sales within the
Territory, and you expressly acknowledge and agree that such solicitations or
sales may occur within the Territory.  We shall have no duty to protect you from
any such sales, solicitations, or attempted sales.  You recognize and
acknowledge that (i) you will compete with other Papa John's restaurants that
are now, or that may in the future be, located near or adjacent to your
Territory, and (ii) that such restaurants may be owned by us, our Affiliates or
third parties.  You acknowledge and agree that if you relocate the Restaurant,
the Territory will not change (i.e., the radius will not be applicable to the
new location, even though we have approved the new location).

            (b)   OTHER BUSINESSES.  You understand and agree that we reserve
the right, either directly or through Affiliates, to operate or franchise or
license others to operate or franchise, restaurants or other food related
establishments or businesses other than Papa John's restaurants and you agree
that we and our Affiliates may do so within the Territory; provided, that such
restaurants or food establishments or businesses do not sell pizza on a delivery
basis, or primarily on a carry-out basis.  We also reserve the right to develop,
market and conduct any other business under the Marks or any other trademark.

            (c)   OTHER METHODS OF DISTRIBUTION.  We also reserve the right,
directly or through third parties, to manufacture or sell, or both, within and
outside your Territory, pizza and other products that are the same as or similar
to those sold in Papa John's restaurants using brand names which are the same
as, or similar to, the Marks through any channel of distribution; provided that
such items are not sold through restaurants or on a pre-cooked, ready-to-eat
basis.

      6.    PREMISES.

            (a)   LEASED PREMISES.  If you intend to lease the premises where
the Restaurant will be operated (the "Premises"), you shall submit to us copies
of the executed signature pages of all such leases immediately after signing and
copies of the full leases and any exhibits and addendum at such other times as
we may request.  The term of all leases plus all options for you to renew shall
together equal or exceed the Term.  All leases pertaining to the Premises shall
also include an Addendum in the form of Exhibit A attached hereto, or shall
contain terms and condit-

                                      -6-

<PAGE>
 
ions substantially similar to those contained in EXHIBIT A that we approve.  A
copy of the executed Addendum must also be submitted to us.

            (b)   OWNED PREMISES.  If you intend to own the Premises, you shall
furnish to us proof of ownership prior to the date you begin any construction,
build-out or remodeling of the Premises.  In the event you decide to sell the
Premises at any time prior to the expiration or termination of the Franchise
Agreement, you must notify us of your intention.  We shall have a right of first
refusal to purchase the Premises on the same terms and conditions as set forth
in Section 14.(b)(i).  If the sale will also involve a relocation of the
Restaurant, you shall submit to us for our approval your proposed plans
(including copies of any proposed lease or contract of purchase) for an
alternate location.

            (c)   PREMISES IDENTIFICATION.  Regardless of whether you own or
lease the Premises,  you must, within ten days after the expiration or
termination of the Franchise Agreement, remove all signs and other items and
indicia that serve, directly or indirectly, to identify the Premises as a Papa
John's restaurant and make such other modifications as are reasonably necessary
to protect the Marks and the Papa John's System, and to distinguish the Premises
from Papa John's restaurants.  To enforce this provision, we may pursue any or
all remedies available to us under applicable law.  Your obligation shall be
conditioned upon our giving you prior notice of the modifications to be made and
the items removed.

            (d)   SUITABILITY OF PREMISES.  Regardless of whether the Premises
are owned or leased, it shall be your responsibility to determine that the
Premises can be used, under all applicable laws and ordinances, for the purposes
provided herein and that the Premises can be constructed or remodeled in
accordance with the terms of this Agreement and you shall obtain all permits and
licenses that may be required to construct, remodel and operate the Restaurant.
You agree that the Premises will not be used for any purpose other than the
operation of the Restaurant in compliance with this Agreement.

            (e)   RELOCATION; ASSIGNMENTS.  You shall not, without first
obtaining our written consent: (i) relocate the Restaurant; or (ii) renew or
materially alter, amend or modify any lease, or make or allow any transfer,
sublease or assignment of your rights under any lease or owned location
pertaining to the Premises.  Such consent shall not be unreasonably withheld.
You agree to give us notice not less than 30 days prior to any of the foregoing.
We may require you to relocate the Restaurant to another location upon (A)
expiration of the original term or any extension or renewal of your lease, (B)
expiration of the Initial Term or Renewal Term of this Agreement, or (C) any
significant damage to the Premises or surrounding areas, or other event, that
would provide you with an option or right to terminate the lease. You agree to
give us notice not less than 60 days prior to the expiration of your lease, and
to give us written notice within five days after the occurrence of any event
covered by (C) above.  Our right to require you to relocate shall not be
exercisable during the first two years of the Initial Term, and thereafter shall
be conditioned upon (1) the availability of a location approved by us for such
relocation, (2) our offering to extend the Term of this Agreement for not less
than five years, or at our option, offering to enter into our then-current form
of franchise agreement (which shall include an initial

                                      -7-

<PAGE>
 
term of not less than 10 years), and (3) the Territory (as measured from the new
location) not extending into the "Territory" of any other Papa John's Pizza
franchisee.  YOU ACKNOWLEDGE THAT SUCH RELOCATION, IF REQUIRED, WOULD INVOLVE
SUBSTANTIAL ADDITIONAL INVESTMENT BY YOU DURING THE TERM OF THIS AGREEMENT, AND
MAY INCLUDE, WITHOUT LIMITATION, AN OBLIGATION TO LEASE OR BUY LAND, CONSTRUCT A
FREE-STANDING BUILDING, INSTALL LEASEHOLD IMPROVEMENTS AND/OR PURCHASE NEW
EQUIPMENT AND SIGNAGE.

      7.    PROPRIETARY MARKS; COPYRIGHT.

             (a)  OWNERSHIP OF COPYRIGHTS.  You acknowledge and agree that (i)
we may authorize you to use certain copyrighted or copyrightable works (the
"Copyrighted Works"), including the Manuals and the "Proprietary Programs" (as
defined in Section 10.(c)(i)(B)), (ii) the Copyrighted Works are the valuable
property of us, and (iii) your rights to use the Copyrighted Works are granted
to you solely on the condition that you comply with the terms of this Agreement.
You acknowledge and agree that we will further create, acquire or obtain
licenses for certain copyrights in various works of authorship used in
connection with the operation of the Restaurant, all of which shall be deemed to
be Copyrighted Works under this Agreement.  Such Copyrighted Works include, but
are not limited to, the materials and information provided to you by us for use
in the operation of the Proprietary Programs.  You shall not undertake to
patent, copyright or otherwise assert proprietary rights to the Proprietary
Programs and any data generated by the use of the Proprietary Programs or any
portion thereof.  Copyrighting of any material by us  shall not be construed as
causing the material to be public information.  You will cause all copies of the
Proprietary Programs and any data generated by the use of the Proprietary
Programs in your possession to contain an appropriate copyright notice or other
notice of proprietary rights specified by us.

            (b)   OWNERSHIP; USE BY OTHERS.  You agree that we are the owner of
(i) the Marks and all goodwill associated with or generated by the use of the
Marks, and (ii) the Copyrighted Works and any data generated by use of the
Copyrighted Works.  You agree that all works of authorship related to the System
that are created in the future will be owned by, or licensed to, us or our
Affiliates.  Your use of the Copyrighted Works and the Marks does not vest you
with any interest therein other than the non-exclusive license to use the
Copyrighted Works and Marks granted in this Agreement.  You shall execute any
documents that we or our counsel deem necessary for the protection of the
Copyrighted Works or the Marks or to maintain their validity or enforceability,
or to aid us in acquiring rights in or in registering any of the Marks or any
trademarks, trade names, service marks, slogans, logos or emblems that we
subsequently adopt.  You shall give notice to us of any knowledge that you
acquire concerning any actual or threatened infringement of the Copyrighted
Works or the Marks, or the use by others of names, marks or logos that are the
same as or similar to the Marks.  You shall cooperate with us in any suit, claim
or proceeding involving the Marks or the Copyrighted Works or their use to
protect our rights and interests in the Marks or the Copyrighted Works.  We, in
our sole discretion, shall control all decisions concerning the Marks or the
Copyrighted Works.

                                      -8-

<PAGE>
 
            (c)   USE OF MARKS.  You shall use the Marks only in connection with
the operation of the Restaurant at the Location specified herein, and shall use
them only in the manner that we authorize.  Your right to use the Marks is
limited to use during the Term of this Agreement and in compliance with
specifications, procedures and standards prescribed by us from time to time. You
shall prominently display the Marks in the manner that we prescribe on all
signs, plastic and paper products, and other supplies and packaging materials
that we designate.  You shall not fail to perform any act required under this
Agreement, or commit any act that would impair the value of the Marks or the
goodwill associated with the Marks.  You shall not at any time engage in any
business or market any product or service under any name or mark that is
confusingly or deceptively similar to any of our Marks.  You shall not use any
of the Marks as part of your corporate or trade name and shall not use any
trademark, trade name, service mark, logo, slogan or emblem that we have not
authorized for use in connection with the Restaurant.  You shall obtain such
fictitious or assumed name registrations as required by applicable state law and
forward to us copies of the same upon request.

            (d)   DESIGNATION AS YOU.  You shall identify yourself as the owner
of the Franchise in conjunction with the use of the Marks, including, without
limitation, on checks, invoices, receipts, letterhead and contracts, as well as
at conspicuous locations on the Premises in a form which specifies your name,
followed by the phrase "An independently owned and operated franchise" or such
other phrase as we direct.

            (e)   DISCONTINUANCE OF USE; ADDITIONAL MARKS AND/OR COPYRIGHTS. You
shall modify or discontinue use of any Mark or Copyrighted Work if a court of
competent jurisdiction orders it, or if we in our sole discretion deem it
necessary or advisable.  You shall comply with our directions regarding any such
Mark or Copyrighted Work within 30 days after receipt of notice from us. You
shall also use such additional or substitute Marks or Copyrighted Works as we
shall direct.  We shall not be obligated to compensate you for any costs or
expenses incurred by you to modify or discontinue using any Mark or Copyrighted
Work or to adopt additional or substitute Copyrighted Works or Marks.

      8.    ADVERTISING.

            (a)   CONTRIBUTIONS AND EXPENDITURES.  Recognizing the value of
advertising and the importance of the standardization of advertising to the
furtherance of the goodwill and public image of the System, we and you agree as
follows:

                  (i)   MONTHLY CONTRIBUTIONS AND EXPENDITURES.  Each month
during the Term, you shall make the following contributions and expenditures for
advertising:

                        (A)   You shall contribute to the "Marketing Fund," as
      defined below, such amount as the Board of Directors of the Marketing Fund
      (the "Board") may designate from time to time, which amount shall not
      exceed 1-1/2% of the monthly Net Sales of the Restaurant, except as set
      forth in (iii), below.

                                      -9-

<PAGE>
 
                        (B)   You shall contribute to the "Cooperative" (as
      defined below) that percentage of Net Sales that the governing body of the
      Cooperative may designate from time to time, which amount shall not be
      less than 2% nor more than 5% of the monthly Net Sales of the Restaurant,
      except as set forth in (iii), below.

                        (C)   You shall expend such amounts as we may designate
      from time to time for local advertising as provided below; provided, that
      the aggregate amount that you may be required to spend on local
      advertising together with your Marketing Fund contributions will not
      exceed 4% of the Net Sales of the Restaurant.

                  (ii)  INCREASES IN CONTRIBUTIONS.

                        (A)   MARKETING FUND CONTRIBUTIONS.  The Board may
      increase the maximum required contribution to the Marketing Fund to 2-1/2%
      of Net Sales, provided such increase is approved by the owners of not less
      than 60% of the restaurants required to contribute to the Marketing Fund
      (including both Franchisor-owned and franchised restaurants).  Any
      increase in the required contribution to the Marketing Fund in excess of
      2-1/2% of Net Sales must be approved by not less than 2/3 of the
      restaurants required to contribute to the Marketing Fund (including
      restaurants that we own and franchises).

                        (B)   COOPERATIVE CONTRIBUTIONS.  We may approve a
      monthly contribution rate to the Cooperative of less than 2% of Net Sales.
      The governing body of the Cooperative may increase the required
      contribution to the Cooperative to a percentage of Net Sales in excess of
      5%, provided that any such increase is approved by not less than two-
      thirds of the restaurants required to contribute to the Cooperative
      (including both Franchisor-owned and franchised restaurants).  We also
      have the right to authorize any Cooperative to determine contributions on
      a different basis (fixed amount, geographic location, etc.).  Our decision
      on any issue concerning Cooperative contributions shall be final.

            (b)   MARKETING FUND.  Papa John's Marketing Fund, Inc., a Kentucky
nonstock, nonprofit corporation (the "Marketing Fund"), has been organized for
the purposes set forth in the Articles of Incorporation and By-Laws of the
Marketing Fund, as they may be amended from time to time.  You shall
automatically become a non-voting member of the Marketing Fund upon the
execution of this Agreement, and prior to the opening of the Restaurant you
shall execute and deliver to the Marketing Fund an Advertising Agreement in the
form prescribed by the Board.

                  (i)   You agree and acknowledge that the Marketing Fund is
intended to increase recognition of the Marks and to further the public image
and acceptance of the System and that we, the Marketing Fund and the directors
of the Marketing Fund do not undertake any obligation to ensure that
expenditures by the Marketing Fund in or affecting any geographic area are
proportionate or equivalent to contributions to the Marketing Fund by Papa
John's restaurants operating in such geographic area or that you or the
Restaurant will benefit directly or in proportion to your contribution to the
Marketing Fund. We, our officers, directors, agents and

                                      -10-

<PAGE>
 
employees shall not be deemed a fiduciary or trustee of the contributions to, or
the assets of, the Marketing Fund.  We, the Marketing Fund and our respective
officers, directors, agents and employees shall not be liable to you with
respect to the maintenance, direction or administration of the Marketing Fund,
including without limitation, with respect to contributions, expenditures,
investments and borrowings, except for acts constituting willful misconduct.

                  (ii)  We and our Affiliates shall make contributions to the
Marketing Fund for each restaurant that we own on the same basis as required of
comparable franchisees within the System.

                  (iii) As long as you are in compliance with the Advertising
Agreement and the Articles and By-Laws of the Marketing Fund, you will be
furnished with advertising materials that were produced by or for the Marketing
Fund for System-wide distribution on the same terms and conditions as such
materials are furnished to other franchisees.

                  (iv)  You shall make your monthly contribution to the
Marketing Fund on the date and in the manner provided for in the Advertising
Agreement and the By-Laws and shall submit such statements and reports as the
Board may designate from time to time.  From time to time the Board may
designate one or more accounts to which such contributions shall be made, and
you shall make such payments by separate checks.  Contributions to the Marketing
Fund may be used to defray our expenses only to the extent of the administrative
costs and overhead that we may reasonably incur in rendering services to the
Marketing Fund.

                  (v)   The funds collected by the Marketing Fund, and any
earnings thereon, are not and shall not be our asset or the asset of any
franchisee.

                  (vi)  Although the Marketing Fund is intended to be of
perpetual duration, the Board has the right to terminate the Marketing Fund.
However, the Marketing Fund shall not be terminated until all monies held by it
have been expended for the purposes set forth in its Articles of Incorporation
and By-Laws or distributed as permitted by law.

            (c)   REGIONAL COOPERATIVE ADVERTISING.  You agree that we shall
have the right, in our sole discretion, to designate from time to time a
geographical area in which the Restaurant is located for the purpose of
establishing an advertising cooperative (the "Cooperative").  If a Cooperative
has been established applicable to the Restaurant at the time you commence
operations, you shall immediately become a member of such Cooperative.  If a
Cooperative applicable to the Restaurant is established at any later time during
the Term, you shall become a member of such Cooperative no later than 30 days
after the date on which the Cooperative commences operation.  In no event shall
the Restaurant be required to contribute to more than one Cooperative.  We may
designate, from time to time, a formula for calculating a proration or reduction
of the contribution rate for restaurants in a Cooperative based on media
coverage, demographics or other factors.  The following provisions shall apply
to each Cooperative:

                                      -11-

<PAGE>
 
                  (i)   Each Cooperative shall be organized and governed in a
form and manner, and shall commence operation on a date, that we designate in
advance in writing.  On all matters to be voted on by the Cooperative's
membership, each member shall have one vote for each restaurant it owns.

                  (ii)  Each Cooperative shall be organized for the purposes of
producing and conducting general advertising programs and activities for use in
and around the applicable geographic area and developing standardized
promotional materials for use by the members.

                  (iii) We shall make contributions to each Cooperative of which
we are a member on the same basis as required of comparable franchisees within
the System.

                  (iv)  No advertising programs or materials may be used by the
Cooperative or furnished to its members, and no advertising or promotional
activities may be conducted by the Cooperative, without our prior written
approval.  All such programs, materials and planned activities shall be
submitted to us for approval in accordance with the procedure set forth below. A
Cooperative may employ only advertising agencies that have been approved by us.

                  (v)   Subject to the provisions above, each Cooperative shall
have the right to require its members to make contributions to the Cooperative
in such amounts as are determined by the governing body of the Cooperative.

                  (vi)  You shall make your contributions to the Cooperative on
the date and in the manner designated by the Cooperative.  You shall also submit
such statements and reports as may be designated from time to time by us or the
Cooperative.  The Cooperative shall submit to us such statements and reports as
we may designate from time to time.

                  (vii) Notwithstanding the foregoing, we, in our sole
discretion, may, upon written request of a franchisee stating reasons supporting
such request, grant to any franchisee an exemption from the requirement of
membership in a Cooperative.  Such an exemption may be for any length of time
and may apply to one or more restaurants owned by such franchisee.  If an
exemption is granted to a franchisee, such franchisee may be required to expend
on local advertising the full amount that would otherwise be payable to the
Cooperative.  We may also exempt one or more restaurants owned or controlled by
us from the requirement of membership in a Cooperative for such periods as we
reasonably deem appropriate.  Our decision concerning an exemption shall be
final.

            (d)   LOCAL ADVERTISING.  Subject to the limits set forth above, you
agree to spend for local advertising such percentage of your Net Sales as we
from time to time direct.  You shall submit verification of your local
advertising expenditures at such times and in such form as we request from time
to time.

                                      -12-

<PAGE>
 
                  (i)   SUPPLEMENTAL ADVERTISING.  You shall have the right to
conduct, at your separate expense, supplemental advertising in addition to the
expenditures specified herein.  All such supplemental advertising shall have
been either prepared or previously approved by us within the 90-day period
preceding their intended use, or shall be approved by us as provided below.

                  (ii)  YELLOW PAGES ADVERTISING.  You shall, at your own
expense, obtain (or contribute to the cost of obtaining) a listing for the
Restaurant in each "yellow pages" and other telephone directory serving the
Territory and each such listing shall be of the style, format and size, and in
such form, as we may specify from time to time.

            (e)   OUR APPROVAL.  Prior to their use by the Cooperative or by
you, samples of all advertising and promotional materials not prepared or
previously approved by us within the 90-day period preceding their intended use
shall be submitted to us (via commercial overnight courier or through the mail
return receipt requested) for our approval, to ensure consistency with the
then-current standards and image of the System and protection of the Marks and
the goodwill associated therewith.  If disapproval is not received within 20
days from the date of receipt by us of such materials, we shall be deemed to
have given the required approval.  The Cooperative and you may not use, and must
cease using, any advertising or promotional materials that we may at any time
disapprove, regardless whether we have previously approved any such items.

            (f)   OUR ADVERTISING.  We may from time to time expend our own
funds to produce such promotional materials and conduct such advertising as we
deem necessary or desirable.  In any advertising conducted solely by or for us,
we shall have the sole discretion to determine the products and geographical
markets to be included, and the medium employed and we shall not have any duty
or obligation to supply you with any advertising or promotional materials
produced by or for us at our sole expense.

            (g)   OWNERSHIP OF ADVERTISING.  We shall be the sole and exclusive
owner of all materials and rights that result from advertising and marketing
programs produced and conducted, whether by you, us, the Cooperative or the
Marketing Fund.  Any participation by you in any advertising, whether by
monetary contribution or otherwise, shall not vest you with any rights in the
Marks employed in such advertising or in any tangible or intangible materials or
rights, including copyrights, generated by such advertising.  If requested by
us, you shall assign to us any contractual rights or copyright you acquire in
any advertising.

      9.    TELEPHONE NUMBER.  The only telephone number(s) assigned to the
Restaurant [is/are] ____________________.  Upon termination or expiration of the
Franchise, you shall cease using such telephone number(s).  In no event shall
you use such number(s) for any other business.  You further agree that if you
obtain any additional or substitute telephone service or telephone number(s) at
the Restaurant, you will promptly notify us and such additional or substitute
number(s) shall be subject to this Agreement.  You shall immediately take all
such actions as may be necessary to transfer any telephone number and any
telephone directory listings associated with the Restaurants or the Marks to us.
You acknowledge that, as between us and

                                      -13-

<PAGE>
 
you, we have the sole right to and interest in all telephone numbers and
directory listings associated with the Restaurants or the Marks.  Concurrently
with the execution of this Agreement, you shall execute and deliver the form of
assignment of telephone numbers and listings (the "TELEPHONE NUMBER
ASSIGNMENT"), required by the applicable local telephone company or, if the
local telephone company has no form, our current blank assignment form attached
to this Agreement as Exhibit B.  You acknowledge and agree that the telephone
company and all listing agencies may accept this Agreement and/or the Telephone
Number Assignment as conclusive evidence of our exclusive right in such
telephone numbers and directory listings and its authority to direct their
transfer.

      Upon termination or expiration of this Agreement (without renewal or
extension), we shall have the right and are hereby empowered to effectuate the
Telephone Numbers Assignment and, in such event, you shall have no further
right, title or interest in the telephone numbers and listings and shall remain
liable to the telephone company for all charges and fees owing to the telephone
company on or before the effective date of the assignment hereunder.

      You agree and acknowledge that as between us and you, upon termination or
expiration of the Franchise Agreement, we shall have the sole right to and
interest in the telephone numbers and listings, and you appoint us as your true
and lawful attorney-in-fact to direct the telephone company to assign same to
us, and execute such documents and take such actions as may be necessary to
effectuate the assignment.  Upon such event, you shall immediately notify the
telephone company to assign the telephone numbers and listings to us.  If you
fail to promptly direct the telephone company to assign the telephone numbers
and listings to us, we shall direct the telephone company to effectuate the
Telephone Number Assignment.  The parties agree that the telephone company may
accept our written direction, the Franchise Agreement or the Telephone Number
Assignment as conclusive proof of our exclusive rights in and to the telephone
numbers and listings upon such termination or expiration and that such
assignment shall be made automatically and effective immediately upon telephone
company's receipt of such notice from us or you.  The parties further agree that
if the telephone company requires that the parties execute the telephone
company's assignment forms or other documentation at the time of termination or
expiration of the Franchise Agreement, our execution of such forms or
documentation on your behalf shall effectuate your consent and agreement to the
assignment.  The parties agree that at any time after the date hereof, they will
perform such acts and execute and deliver such documents as may be necessary to
assist in or accomplish the assignment described herein and the Telephone Number
Assignment upon termination or expiration of the Franchise Agreement.

      10.   CONSTRUCTION, DESIGN AND APPEARANCE; EQUIPMENT.

            (a)   CONSTRUCTION.  You agree that you will construct or remodel
the Premises at the Location in accordance with our construction or remodeling
plans and design, layout and decor specifications.  You shall purchase or lease
the pizza preparation, beverage storage or dispensing, storage and other
equipment, displays, fixtures, and furnishings that we designate.  You shall
make no changes to any building plan, design, layout or decor, or any equipment
or signage

                                      -14-

<PAGE>
 
without our prior written consent, and shall maintain the interior and exterior
decor in such manner as may be reasonably prescribed from time to time by us.

            (b)   SIGNS.  You shall prominently display, at your expense, both
on the interior and exterior of the Premises, advertising signs in such form,
color, number, location and size, and containing such Marks, logos and designs
as we shall designate.  Such signs shall be obtained from a source designated or
approved by us.  You shall obtain all permits and licenses required for such
signs and shall also be responsible for ensuring that all signs comply with all
laws and ordinances.  You shall not display in or upon the Premises any sign or
advertising of any kind to which we object.

            (c)   PAPA JOHN'S PROFIT SYSTEM(TM); PURCHASE AND INSTALLATION.  You
agree to (1) acquire the "Information System" (as defined below) for the
Restaurant and the right to use, for the term of this Agreement, the "Designated
Software" (as defined below) in the manner specified by us, (2) obtain any and
all peripheral equipment and accessories, arrange for any and all support
services and take all other actions that may be necessary to enable the
"Information System" (as defined below) and the Designated Software to operate
as specified by us (including but not limited to installation of electrical
wiring and cabling, and temperature and humidity controls) that may be necessary
to prepare the Restaurant to enable the "Papa John's Profit System(TM)" (as
defined below) to operate as specified by us, and (3) install and commence using
the Designated Software on the Information System, and use such items solely in
the operation of the Restaurant in the manner specified by us. You shall be
responsible for all costs associated with the foregoing, including but not
limited to transportation, installation, sales, use, excise and similar taxes,
and site preparation.  You agree to operate only Designated Software on the Papa
John's Profit System(TM).  You acknowledge and agree that the Designated
Software, and all additions, modifications and enhancements thereto, shall be
deemed to be "confidential information" and shall be subject to Section 17 of
this Agreement.

                  (i)   DEFINITIONS.  For purposes of this Agreement, the terms
listed below shall have the meanings that follow them.

      "DESIGNATED SOFTWARE" - Such software, programming and services as we may
specify or require from time to time for use by you in the Restaurant. The
Designated Software does not include any data or data bases owned or compiled by
us for use with the Papa John's Profit System  or otherwise or any data
generated by the use of the Designated Software.  The Designated Software may
consist of either or both of the following:

                        (A)   PACKAGED SOFTWARE.  The Designated Software may
      consist of software purchased and licensed from us or a third party and/or
      may contain third-party subcomponents that we have the authority to
      license or sell to you ("Packaged Software") pursuant to and in accordance
      with agreements that we enter into with such third-party vendors
      (collectively, the "Packaged Software Agreements").

                                      -15-

<PAGE>
 
                        (B)   PROPRIETARY PROGRAMS.  The Designated Software may
      consist of or contain proprietary computer software programs that we may
      develop or cause to be developed and that are owned by us and that we
      designate for use on the Papa John's Profit System  in the operation of a
      Restaurant, including any modifications, additions or enhancements to such
      software programs ("Proprietary Programs").

      "INFORMATION SYSTEM" - Those brands, types, makes, and/or models of
communications and computer systems or hardware specified and required by us for
use in the Restaurant or between or among Papa John's Restaurants and/or us.
This Information System will include point of sale systems, information storage,
retrieval, transmission systems and security systems.

      "PAPA JOHN'S PROFIT SYSTEM(TM)" - The Designated Software and Information
System collectively.

                  (ii)  GRANT OF LICENSE.  We agree to grant to you, and to
cause our Vendors (defined below) to grant to you, a nonexclusive,
nontransferable, nonassignable license to use the Designated Software, subject
to the same terms and conditions as the Designated Software is licensed to our
other franchisees in general.  You agree to be bound by the terms of each
Packaged Software Agreement and, to the extent you purchase all or portions of
the Designated Software from or through us, agree that the vendors and licensors
of all or portions of the Designated Software (collectively, the "Vendors") are
third-party beneficiaries of this Agreement with full rights to enforce this
Agreement as it pertains to the Designated Software.  You acknowledge and agree
that the Designated Software and any data generated by the use of the Designated
Software are the valuable, proprietary property and trade secret of us and/or
our Vendors, and you agree to use the utmost care to safeguard the Designated
Software and any data generated by the use of the Designated Software and to
maintain the copyright protection and the secrecy and confidentiality thereof.

                  (III) ACCESS; ENHANCEMENTS AND CHANGES.

                        (A)   ACCESS TO SYSTEM.  We shall have the right at all
      times to access the Papa John's Profit System(TM) and to retrieve,
      analyze, download and use the Designated Software, and all software, data
      and files stored or used on the Papa John's Profit System(TM).  We may
      access the Papa John's Profit System  in the Restaurant or from other
      locations, including our headquarters and regional offices.  You shall
      store all data and information on the Papa John's Profit System(TM) that
      we designate from time to time.  No unauthorized data or information may
      be stored on the Papa John's Profit System(TM).

                        (B)   ENHANCEMENTS AND CHANGES.  During the term of this
      Agreement, and provided that you are in compliance with the terms of this
      Agreement, we shall provide to you, and you shall promptly implement, all
      upgrades, modifications, enhancements, extensions, error corrections and
      other changes to the Papa John's Profit System developed or adopted by us
      for use in the operation of the Restaurant.

                                      -16-

<PAGE>
 
                        (C)   INFORMATION SYSTEMS MAINTENANCE.  You agree to
      maintain the Information System in accordance with our published
      maintenance program, as amended from time to time (which will also be
      adhered to by our restaurants).  You also agree that if you fail to
      maintain the Information System in accordance with our published
      maintenance program, you shall reimburse any costs that we or our agents
      incur to bring your Information System up to our standards.  The published
      maintenance program may include, but is not limited to, a hardware spares
      program and a preventative maintenance program.  You acknowledge that such
      maintenance is necessary to help ensure the proper functioning of the Papa
      John's Profit System(TM).

                        (D)   IDEAS AND SUGGESTIONS.  You shall promptly
      disclose to us all ideas and suggestions for modifications or enhancements
      of the Papa John's Profit System(TM) or any component thereof that are
      conceived or developed by or for you, and we and our Affiliates shall have
      the right to use and license such ideas and suggestions.  All
      modifications and enhancements made to the Papa John's Profit System(TM)
      together with the copyright therein shall be the property of us (or the
      appropriate Vendor if we so designate), without regard to the source of
      the modification or enhancement, and you hereby assign all of your right,
      title, and interest in any ideas, modifications, and enhancements to us
      (or the appropriate Vendor if we so designate).  You agree to execute any
      documents, in the form provided by us, that we determine are necessary to
      reflect such ownership.

                        (E)   REMOVAL.  Upon expiration or termination of this
      Agreement, you shall allow our employees or agents to remove the
      Designated Software from the Information System, shall immediately return
      to us the Designated Software, each component thereof, any data generated
      by the use thereof, all documentation for the Designated Software and
      other materials or information that relate to or reveal the Designated
      Software and its operation.  You shall immediately destroy any and all
      back-up or other copies of the Designated Software or parts thereof, and
      any data generated by the use of the Designated Software (other than
      financial information relating solely to you).

                  (iv)  ON-SITE INSTALLATION AND SUPPORT FEE.  You agree to pay
to us upon installation of the Designated Software on your Information System,
an on-site installation and support fee (the "On-Site Installation and Support
Fee") in the amount of $2,500, plus all reasonable travel, lodging and other
expenses that we incur in connection with the installation.  In exchange for
this On-Site Installation and Support Fee, we will install the Designated
Software on the Information System and provide one or more of our system
installers/trainers at the Restaurant, generally 2 days before the Restaurant
opens for installation and training and 2 days after the Restaurant is open, for
support.  This installer/trainer will assist your employees in the use of the
Papa John's Profit System(TM).  We may also charge additional On-Site
Installation and Support Fees, not to exceed $750 plus expenses, each time an
enhancement or modification to the Papa John's Profit System(TM) is installed at
the Location. The On-Site Installation and Support Fees do not include any
hardware, supplies, data cabling, electrical wiring, or cash drawer or shelving
installation or other site work necessary to prepare the Restaurant for the Papa
John's Profit

                                      -17-

<PAGE>
 
System(TM).  These are your sole responsibility. However, some or all of these
materials and services may be offered by us or our agent for an additional fee.
If more than 4 days of on-site training and support is required, it will be
provided by us or our agent for $500 per day plus additional expenses.

                  (v)   SOFTWARE SUPPORT FEE.  You agree  to pay to us a
recurring software support service fee ("Software Support Fee") in the amount of
$100 per Period.  Such fee shall be payable in advance on the 15th day of each
month commencing in the Period immediately following the installation of the
Designated Software on the Papa John's Profit System(TM) and continuing through
the Term.  In exchange for this fee, we will provide general assistance and
support for your Papa John's Profit System(TM).  This fee entitles you to 3
telephone calls per Period.  Additional calls may be billed at $35 each.

                  (vi)  SOFTWARE MAINTENANCE FEE.  You agree to pay to us a
software maintenance fee, which shall not be more than 20% of the license fees
of the Designated Software as published by Vendors or by us in any year
("Software Maintenance Fee").  This fee shall be payable in advance on the 15th
day of the month.  This Software Maintenance Fee includes software maintenance,
research and development, upgrades and enhancements and installation media, if
any, that we adopt, require or provide.  Installation on the Papa John's Profit
System(TM), if required, will be charged as defined in Section 10.(c)(iv).

                  (vii) INCREASES IN FEES.  The On-Site Installation and Support
Fee, Software Support Fee, the Software Maintenance Fee and/or per diem charges
may be increased by us from time to time.

                  (viii) WARRANTIES AND LIMITATION OF LIABILITY.  We represent
and warrant to you that if we sell or license the Proprietary Programs to you:
(A) we will have all rights, licenses and authorizations necessary to license
the Proprietary Programs to you, subject only to nonexclusive licenses granted
to others; and (B) the Proprietary Programs will not, and as a result of any
enhancements, improvements or modifications provided by us will not, to the best
of our knowledge, infringe upon any United States patent, copyright or other
proprietary right of any third party. In the event your use of the Proprietary
Programs as provided by us is enjoined as a result of a claim by a third party
of patent or copyright infringement or violation of proprietary rights, we
shall, in our sole discretion, either (1) procure for you the right to continue
use of the Proprietary Programs as contemplated hereunder, or (2) replace the
Proprietary Programs or modify it such that there is no infringement of the
third party's rights; and such action by us shall be your sole and exclusive
remedy against us in such event.  We do not represent or warrant to you, and
expressly disclaim any warranty that the Proprietary Programs are error-free or
that the operation and use of the Proprietary Programs by you will be
uninterrupted or error-free.  We shall have no obligation or liability for any
expense or loss incurred by you arising from use of the Proprietary Programs in
conjunction with any other computer program.

      EXCEPT FOR THE ABOVE EXPRESS LIMITED WARRANTIES, WE MAKE NO WARRANTIES,
EXPRESS OR IMPLIED, ORAL OR WRITTEN, WITH RESPECT TO

                                      -18-

<PAGE>
 
THE DESIGNATED SOFTWARE OR ANY PORTION THEREOF, INCLUDING ANY PROGRAM
DOCUMENTATION OR OTHER MATERIAL FURNISHED HEREUNDER, OR ANY COMPONENT THEREOF,
AND THERE ARE EXPRESSLY EXCLUDED ALL WARRANTIES OF MERCHANTABILITY AND FITNESS
FOR A PARTICULAR PURPOSE WITH RESPECT THERETO.  WE SHALL HAVE NO LIABILITY FOR
CONSEQUENTIAL, EXEMPLARY, INCIDENTAL OR PUNITIVE DAMAGES.

            (d)   MAINTENANCE, REMODELING, RE-EQUIPPING, ENHANCEMENTS AND
REPLACEMENTS.  You agree at all times to maintain the Restaurant in accordance
with our standards, and that you will, within 90 days from the date of written
notice from us, remodel or re-equip or perform such maintenance at the
Restaurant in accordance with the specifications we provide.  Such maintenance,
remodeling and re-equipping may include, without limitation, replacing worn out,
obsolete, or dated equipment, fixtures, furnishings and signs; structural
modifications; painting and redecorating; or purchasing more efficient or
improved equipment.  We may require you to perform maintenance and remodeling
and to purchase equipment at such times as we deem necessary and reasonable;
provided, that we may not require any significant remodeling of the Restaurant
during the first 2 years of the Initial Term.  We may, during the term of this
Agreement, require you to modify, enhance and/or replace all or any part of the
Information System and/or the Designated Software at your expense, and you
agree, within 120 days of receipt of written notice from us, to acquire, or
acquire the right to use for the remainder of the term of this Agreement, the
modified, enhanced or replacement version of the Information System and/or
Designated Software specified by us.  You agree to take all other actions as may
be necessary to enable the modified, enhanced or replacement Information System
and Designated Software to operate as specified by us.  Any such modifications,
enhancements, and replacements may require you to incur costs to purchase, lease
and/or license new or modified computer hardware and/or software or other
equipment and to obtain different and/or additional service and support services
during the term of this Agreement.  You acknowledge that we cannot estimate the
costs of future maintenance, enhancements, modifications, and replacements to
the Restaurant, equipment, signage, Papa John's Profit System  or other items.
YOU ACKNOWLEDGE THAT EQUIPMENT, ADDITIONS, ENHANCEMENTS, ALTERATIONS,
MAINTENANCE AND RENOVATIONS REQUIRED BY US MAY INVOLVE SUBSTANTIAL ADDITIONAL
INVESTMENT BY YOU DURING THE TERM OF THIS AGREEMENT.

      11.   OPERATIONS; STANDARDS OF QUALITY; INSPECTIONS.

            (a)   PRINCIPAL OPERATOR.  You shall designate an individual to
serve as the "Principal Operator" of the Restaurant.  The Principal Operator
shall meet the following qualifications:

                  (i)   The Principal Operator shall own at least a 5% equity
interest in you; provided that you shall not be in default of this requirement
if the Principal Operator is entitled to a bonus of not less than 5% of the net
profits of the Restaurant, payable after the end of each Period, and also has
the right to acquire not less than a 5% equity interest in you within 12 months
of his or her hire date, which rights shall be evidenced by a written agreement
between

                                      -19-

<PAGE>
 
the Principal Operator and you.  You shall provide us with a copy of any such
agreement upon request.  Once the Principal Operator has acquired an equity
interest in you, he or she must continue to own that interest (or a greater
interest) during the entire period he or she serves as the Principal Operator.

                  (ii)  The Principal Operator shall devote full time and best
efforts to the supervision and conduct of the development and operation of the
Restaurant and, as required in this Agreement, shall agree to be bound by
confidentiality and non-competition provisions of the Owner Agreement.  At such
time as the Principal Operator becomes an owner of an interest in you, he or she
must agree to be bound by all the provisions of the Owner Agreement.

                  (iii) The Principal Operator shall be a person approved by us
who shall complete our initial training requirements and who shall participate
in and successfully complete all additional training as we may reasonably
designate.

      If, at any time for any reason, the Principal Operator no longer qualifies
to act as such, you shall promptly designate another Principal Operator subject
to the same qualifications listed above.  Any sale or transfer of any portion of
the Principal Operator's interest in you, if any, that would reduce the
Principal Operator's equity interest or voting rights in you to less than 5% of
the total shall be deemed a transfer of an interest and shall be subject to the
terms and conditions of Section 14 hereof; and any failure to comply with such
terms and conditions shall be deemed a default by you under this Agreement.
However, if the Principal Operator owns 5% or less of you, then a transfer of
the Principal Operator's interest to you, another shareholder, member or partner
of you or to a successor Principal Operator shall not require our consent, shall
not be subject to our right of first refusal and no transfer fee shall be
required.  You shall promptly notify us in writing of any such transfer and
provide all information about the transferee and the terms of the transfer as we
may reasonable request.

            (b)   MANAGEMENT OF THE RESTAURANT.  The Principal Operator and one
or more competent managers approved by us (which approval shall not be
unreasonably withheld) and who have successfully completed our initial training
program shall personally devote their full time and best efforts to the
management and operation of the Restaurant in order to ensure compliance with
this Agreement and to maintain our high standards.  Management responsibility
shall include, without limitation, presence of the Principal Operator or a
manager at the Restaurant during all business hours; maintaining the highest
standards of product quality and consistency; maintaining the Restaurant in the
highest condition of sanitation, cleanliness and appearance; and supervising
employees to ensure that the highest standard of service is maintained and to
ensure that your employees deal with customers, suppliers, us, and all other
persons in a courteous and polite manner.

            (c)   COMPLIANCE WITH OUR STANDARDS.  You shall have full
responsibility for the conduct and terms of employment for your employees and
the day-to-day operation of your business.  However, you shall operate the
Restaurant through strict adherence to the standards, specifications and
policies of the System as they now exist, and as they may from time to time be

                                      -20-

<PAGE>
 
modified, in order to ensure compliance with the quality standards of the
System.  Such standards and policies include, without limitation:  (i)
specifications and preparation methods for food and beverages; (ii) hours of
operation; (iii) menu items and services offered; (iv) employee uniform
requirements and specifications; and (v) use of specified emblems and Marks on
containers, bags, boxes, napkins, and other products.

            (d)   TRAINING.  Should any employee or prospective employee of you
perform work that in our reasonable judgment requires additional training,
skills or knowledge, such employee shall take part in such additional training
and instruction.  You shall be solely responsible for all wages, travel and
living expenses, and all other costs incurred by you and your employees in
connection with any training or instruction that we provide.  You shall also, at
your own expense, conduct at the Restaurant such training and instruction, using
such materials, equipment and supplies, as we may reasonably require from time
to time.

            (e)   MANUALS.  We will lend to you one or more manuals that contain
(i) the mandatory and suggested specifications, standards and operating
procedures prescribed from time to time by us and (ii) information relative to
other obligations hereunder and the operation of the Restaurant (the "Manuals").
The Manuals shall at all times remain our sole property.  We may, from time to
time, revise the contents of the Manuals.  To the extent that we deem it
necessary or appropriate, we will provide you with policy and procedure
statements or other written notice of specifications, standards and procedures.
You agree to promptly adopt and use the formulas, methods, procedures, policies,
menus, recipes, food products and other standards and specifications contained
in the Manuals, policy and procedure statements and other written notices as
issued from time to time by us.  You acknowledge and agree that all information
in the Manuals, policy and procedure statements and other notices constitute
confidential information and trade secrets, and shall not be disclosed at any
time by you.  You shall not copy any part of the Manuals or any other
communication or information provided by us.

            (f)   VARIATIONS IN STANDARDS.  You shall not implement any change
to the System without our prior written consent.  However, because complete and
detailed uniformity under varying conditions may not be possible or practical,
we specifically reserve the right, in our sole discretion and as we may deem in
the best interests of you or the Chain, to vary the System, including specific
standards, policies and/or procedures, within the Restaurant or any other
restaurant(s) in the Chain based upon peculiarities of a particular location or
circumstances, including, but not limited to, density of population and other
demographic factors, size of the Territory, business practices or customs, or
any other condition that we deem to be of importance to the operation of such
restaurant(s) or the Chain.  You acknowledge that because of these factors and
others, there may be variations from standard specifications and practices in
the Chain and that you shall not be entitled to require us to grant like or
similar variations or privileges to you.

            (g)   YOUR DEVELOPMENTS.  We shall have the right to use and
incorporate into the System for the benefit of other franchisees and us any
modifications, ideas or improvements, in whole or in part, developed or
discovered by you or your employees or agents, without any liability or
obligation to you or the developer thereof.

                                      -21-

<PAGE>
 
            (h)   COMPLIANCE WITH LAWS.  You shall at all times during the Term
comply with all applicable laws, ordinances, rules and regulations of all
governmental bodies.

            (i)   COURTESY; COOPERATION.  At all times and under all
circumstances, you and your employees shall treat all customers and other
persons, including our agents, officers, and employees with the utmost respect
and courtesy, and shall fully cooperate with us and our agents, officers, and
employees in all aspects of the franchise relationship.

            (j)   INSPECTIONS.  An agent, officer or employee of ours may make
inspections of the Restaurant to ensure compliance with all required standards,
specifications and procedures.  Our representative shall be allowed to inspect
the condition and operation of the Restaurant and all areas of the Restaurant at
any time during normal business hours.  Such inspections may include, without
limitation, (i) reviewing sales and order forms, (ii) observing the Principal
Operator and all managers and your other employees, (iii) interviewing any such
persons, (iv) interviewing customers of the Restaurant in order to evaluate your
performance and to ensure that the Restaurant is being operated in accordance
with the requirements of this Agreement and the Manuals, and (v) conducting any
type of audit or review necessary to evaluate your compliance with all required
standards, specifications or procedures.  We may, from time to time, make
suggestions and give mandatory instructions with respect to your operation of
the Restaurant, as we consider necessary or appropriate to ensure compliance
with the then-current quality standards of the System and to protect the
goodwill and image of the System.

      12.   PRODUCTS; COMMISSARY; MENU.

            (a)   PRODUCTS.  You agree that you will use only those food items,
ingredients, beverages, cooking materials, containers, boxes, cups, packaging,
menus, uniforms, and other products and materials in the operation of the
Restaurant as we shall have specifically designated or approved.  You may be
required to purchase from us certain products that involve trade secrets or that
have been specially prepared by us or at our direction or that we consider to be
integral to the System.  We may require that certain products be purchased from
one or more designated suppliers.  Products other than those required to be
obtained from us or a designated supplier may be purchased from any source
provided that the particular supplier and products have been approved by us. We
may, from time to time, amend the list of approved products and suppliers.

            (b)   COMMISSARIES.  PJ Food Service, Inc. ("PJFS") and PJFS of
Mississippi, Inc. ("PJFS of Mississippi") presently supply designated and
approved products to restaurants owned by us or our Affiliates and those of our
franchisees from commissaries that are either owned or operated by PJFS, PJFS of
Mississippi or us (the "Commissaries").  PJFS and PJFS of Mississippi are
currently the only designated manufacturers of dough, and you must purchase
dough from PJFS, PJFS of Mississippi or a designated representative unless and
until such time as a successor supplier of dough is designated. Neither PJFS nor
PJFS of Mississippi has any obligation to continue supplying you or to continue
to operate its Commissary.  If either of them ceases operating the Commissaries
or terminates service to you (other than as a result of the termination or
expiration of the Franchise), we shall provide you with the name, address and

                                      -22-

<PAGE>
 
phone number of an alternative approved supplier(s) and the products to be
purchased from such supplier(s).  All purchases by you from the Commissaries are
on the terms specified from time to time by PJFS or PJFS of Mississippi.  PJFS
and PJFS of Mississippi, through us, hereby reserve the right to specify
different terms for different franchisees.  We make no representations or
warranties about any of the services performed by or any of the products
produced or sold by or through PJFS or PJFS of Mississippi.

            (c)   MENU ITEMS.  You shall offer for retail sale, and shall carry
on your menu, only those types, sizes, styles and brands of pizza, pizza dough,
pizza sauce, toppings, beverages, and other products as from time to time we may
specify, and shall make all menu items available for carry-out and delivery
service from the Restaurant.  You agree that you will not sell or carry on your
menu any food items or other products we have not specified or approved.

            (d)   PRICING.  You shall have the sole responsibility for
establishing your prices, but you shall charge the same price for each product
whether sold in the Restaurant or delivered unless we otherwise approve.

      13.   ACCOUNTING AND REPORTS.

            (a)   ACCOUNTING.  We may lend to you and/or the person(s) who will
be preparing your reports and financial statements for each Period or year end
one or more manuals, which manual(s) may contain mandatory and/or optional (i)
accounting procedures, (ii) forms, (iii) chart of accounts, and (iv) other items
deemed relevant or necessary by us.  You agree to direct your
bookkeeper/accountant to follow all mandatory policies, procedures, forms,
formats and other items set forth in such manuals.  The accounting manual(s)
shall be part of the "Manuals" as defined in this Agreement.

            (b)   RECORDKEEPING.  You shall establish and maintain accounting
and record keeping systems substantially in accordance with the specifications
and procedures provided by us and as amended from time to time, including,
without limitation, maintaining accounting records on a basis enabling or
facilitating reporting to us according to monthly or multi-week periods (each
such accounting period is referred to as "Period").  You shall make all such
records available to us upon request.  You shall maintain and preserve, for at
least five years from the date of preparation, full, complete and accurate
books, records and accounts.

            (c)   PERIODIC REPORTS.  On or before the 15th day of the month
following each Period, you shall deliver to us:  (i) a statement, in the form
prescribed by us, of the revenues and expenses of the Restaurant for the
immediately preceding Period, and (ii) such other records and reports as are
requested by us, including but not limited to, bank statements, sales and
expense forms and reports, and a current balance sheet.

            (d)   REVIEW BY US.  At all times during the Term, we, or our
authorized agent, shall have the right to review all your sales and expense
records and reports that are located in or which relate to the Restaurant, and
to make photocopies of all such items.

                                      -23-

<PAGE>
 
            (e)   YEAR-END REPORTS.  Within 120 days following your fiscal year
end, you shall provide us with copies of your financial statements, including an
income statement for the fiscal year just ended and a balance sheet as of the
end of such fiscal year, which financial statements shall have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis.  You shall furnish us with copies of all of your federal and state income
tax returns and all state sales tax returns as we request from time to time. You
shall promptly notify us if any such return is not timely filed, or if any
extension is filed, and the reasons therefor.

            (f)   EXAMINATIONS AND AUDITS.  We or our designated agents shall
have the right, at all times and upon reasonable notice, to examine or audit
your books and records, and to make photocopies thereof.  If such examination or
audit should disclose any underpayment of the Royalty, Marketing Fund payments,
or any other sums or fees owed to us, you shall immediately pay the deficient
amount plus interest thereon from the date due until paid at a rate equal to 12%
per annum.  All payments received will first be credited against interest due
and then against other payments due.  If such an examination or audit discloses
an understatement in any statement or report of 5% or more, you shall, in
addition to the above provision, reimburse us for the cost of having your books
examined or audited.  The foregoing shall be in addition to any other rights or
remedies we may have, including the termination of the Franchise granted herein.

      14.   TRANSFERS; OUR RIGHT OF FIRST REFUSAL.

            (a)   TRANSFERS BY US.  We may transfer or assign this Agreement or
any or all of the rights, interests, benefits or obligations arising hereunder
without restriction.  Upon any transfer or assignment of this Agreement by us,
we shall be released from all obligations and liabilities arising or accruing in
connection with this Agreement after the date of such transfer or assignment.

            (b)   TRANSFERS BY YOU.  Your rights and interests under this
Agreement are and shall remain personal to you.  You recognize that we have
granted the Franchise in reliance on your business and financial capacity and
other attributes, and in reliance upon the Owner Agreement.  Accordingly,
neither you nor any holder of any capital stock or other ownership interest in
you (if you are a corporation or other entity) shall transfer (i) any interest
in this Agreement, (ii) any material portion of your assets or the assets of the
Restaurant, or (iii) any stock or other ownership interest in you, without
obtaining our prior written consent; provided that a member, partner or
shareholder of you may transfer all or a portion of such interest in you to
another member, partner or shareholder or to you (such person or entity being
referred to as a "Permitted Transferee") and such a transfer shall not be
subject to our consent or right of first refusal and no transfer fee shall be
required.  You shall promptly notify us of any such transfer.  For purposes of
this Agreement, the term "transfer" shall mean any issuance, sale, assignment,
gift, pledge, mortgage or any other encumbrance (other than a lien against your
assets to secure a loan for purchase of the Premises or the construction,
remodeling, equipping or operation of the Restaurant), transfer by bankruptcy,
transfer by judicial order, merger, consolidation, share exchange, transfer by
operation of law or otherwise, whether direct or indirect, voluntary or

                                      -24-

<PAGE>
 
involuntary.  Our consent to a particular transfer shall not be deemed as
consent to any subsequent or different transfer.  If you grant a security
interest in your assets to secure a loan for purchase of the Premises or
construction, leasehold or equipment costs, the secured party shall agree in
writing that upon (A) default by you, it shall notify us and we shall have the
right, but not the obligation, to be substituted as the debtor and to cure the
default, and (B) any acceleration of indebtedness provisions of the loan
documents shall not be exercisable if we cure the default and assume the
indebtedness.  Upon the occurrence of a default and our election to assume the
indebtedness, the Franchise and this Agreement shall automatically terminate and
we shall have the right under Section 20 to purchase the assets used in the
Restaurant.  The purchase price as determined under Section 20 shall be reduced
by the amount of the debt that we assumed.

                  (i)   OUR RIGHT OF FIRST REFUSAL.  You shall give us at least
45 days prior written notice of any intended transfer of any of your rights or
interest under this Agreement or of the proposed transfer of any interest in you
or any material portion of your assets.  Such notice shall set forth the name of
the proposed transferee and a detailed statement of all of the terms and
conditions of such intended or proposed transfer.  Subject to subsection (c)
below, we will not unreasonably withhold our consent to a proposed transfer.
Irrespective of the qualifications or acceptability of any prospective
transferee, we shall have the first right and option to purchase the interest
intended or proposed to be transferred at the same price and on the same terms
and conditions contained in the notice.  Should the proposed transfer involve
the payment of any non-cash consideration, we shall have the option to purchase
the interest at a price equal to the fair market value of such non-cash
consideration plus the amount, if any, of consideration paid in cash.  We shall
determine the fair market value of the non-cash consideration using fair and
reasonable methods.  We shall make such determination as promptly as
practicable, but in no event later than 30 days after we have received the
notice of the intended transfer.  If you disagree with the value as we
determine, then you and Papa John's shall each hire an appraiser (or a single
appraiser, if you and Papa John's so agree) to value the non-cash consideration.
If the appraisals are within 20% of each other, then the difference between the
two shall be equally divided to establish the price at which we may exercise our
first right and option.  If the difference between the appraisals is greater
than 20%, then the issue of the fair market value of such consideration shall be
determined by a third appraiser selected by the other two appraisers and whose
decisions shall be final, except that it may not be lower or higher than the
lowest appraisal and highest appraisal, respectively, determined by the first
two appraisers.  Should a proposed transfer not involve the payment of any
consideration, we have the option to purchase the interest at a price equal to
1-1/2 times the Net Profits of the Restaurant over the previous 12-month period
(or the average monthly Net Profit of the Restaurant multiplied by 12, if it has
been operating less than 12 months) multiplied by the percentage that the
interest to be transferred bears to all interests in, or assets of, the
Restaurant or you, as the case may be.  As used in this Agreement, Net Profits
means the amount of profit, if any, determined from statements of profit and
loss prepared by an independent public accountant that we find acceptable.
Within 30 days after we receive notice of a proposed transfer for no
consideration or solely for cash, or if the proposed transfer will not be solely
for cash, within 10 days after a determination is made of the fair market value
of the non-cash consideration, we will notify you that we are exercising our
right of first refusal or approving the transfer or denying approval of the
transfer.  Our decision to deny approval shall be final.

                                      -25-

<PAGE>
 
                  (ii)  APPROVED TRANSFERS.  If we decide not to exercise our
right of refusal, and if we approve the transfer in writing, you (or the
transferor of an interest in you) may make the proposed transfer on the exact
terms and conditions specified in your notice to us within 60 days after the
expiration of our option.  If the transfer is not consummated within such
60-day period, you may not thereafter transfer such interest without again
complying with this Section.

            (c)   CONDITIONS ON TRANSFER.  We agree that we will not
unreasonably withhold our consent to a proposed transfer if all of the following
conditions are satisfied:

                  (i)   We shall have decided not to exercise our right of first
refusal as provided above;

                  (ii)  You are in full compliance with this Agreement and there
are no uncured defaults by you hereunder, and all your debts and financial
obligations to us and our Affiliates under this Agreement or otherwise are
current and your obligations to the Marketing Fund and each Cooperative of which
you are a member are current;

                  (iii) The proposed transferee executes such documents as we
may reasonably require to evidence that such transferee has assumed your
obligations under this Agreement, and if required by us, the proposed transferee
executes, and in appropriate circumstances, causes such other parties as we may
require to execute, our then-current form of Owner Agreement, and other
then-current ancillary agreements, which documents may be substantially
different than those attached to this Agreement;

                  (iv)  The proposed transferee enters into an Advertising
Agreement with the Marketing Fund and also becomes a member of the Cooperative
to which the Restaurant is required to contribute;

                  (v)   Prior to the date of the proposed transfer, the proposed
transferee's Principal Operator and managers undertake and successfully complete
such training and instruction as we deem necessary;

                  (vi)  We are satisfied that the proposed transferee (and if
the proposed transferee is an entity, all owners of any interest in such entity)
meets all of the requirements for our new franchisees applicable on the date we
receive notice of the proposed transfer and including, but not limited to, good
reputation and character, business experience, restaurant management experience,
and financial strength and liquidity;

                  (vii) You and any owner transferring an interest in you
acknowledge and agree in writing that you and they are bound by the
non-competition and confidentiality provisions set forth herein and in the Owner
Agreement (and any similar provision in any other document that either you or
they have executed) to the maximum extent allowed under applicable law;

                                      -26-

<PAGE>
 
                  (viii) You and all owners of an interest in you execute a
general release, in the form prescribed by us, releasing, to the fullest extent
permitted under the laws of the state where either the Restaurant to be
transferred or you, as applicable, is/are located, all claims that you or any of
them may have against us or our Affiliates or subsidiaries, including our and
their respective shareholders, officers, directors and employees, in both their
individual and corporate capacities, and if you are the transferor, you shall
acknowledge in writing that your interest under this Agreement is terminated;

                  (ix)  You shall pay to us a transfer fee of $3,000; provided,
that if the proposed transfer is of the Restaurant together with one or more
other Papa John's restaurants owned by you to a single transferee, then the
total transfer fee shall be an amount equal to the greater of $3,000 or our
actual costs and expenses incurred in approving and effecting the transfer,
including, without limitation, all "in-house" and outside personnel and
professional costs; and

                  (x)   The proposed transferee and all owners of any interest
in a transferee that is an entity provide to us, at least 45 days prior to the
proposed transfer date, copies of financial statements for the preceding three
years, and where applicable, its certificate of incorporation and bylaws,
articles of organization and operating agreement (if an LLC) or agreement and
certificate of partnership (and any amendments or modifications thereof),
minutes and resolutions and all other documents, records and information
pertaining to the transferee's existence and ownership.

            (d)   OWNERSHIP AND STRUCTURAL CHANGES.  Except for transfers
between Permitted Transferees, any ownership or structural changes in you,
including but not limited to, any merger, reorganization, issuance of additional
shares or classes of stock or additional membership or partnership interests,
shall constitute and be deemed a transfer of the Franchise and shall be subject
to our prior written approval.

      15.   DEATH, INCAPACITY OR DISSOLUTION.

            (a)   TRANSFER UPON DEATH, ETC.  Upon your death or permanent
incapacity; or, if you are a corporation, limited liability company, partnership
or other entity, upon the death, incapacity or dissolution of any owner of any
interest in you; the executor, administrator, conservator, trustee or other
representative of such person or entity shall assign such interest in the
Franchise, or such interest in you, to us or a third party approved by us;
provided, that if the transferee is a Permitted Transferee, our right of first
refusal shall not apply and no transfer fee shall be payable.  Further, if an
approved transfer involves less than 25% of the ownership of you, no transfer
fee shall be payable.  If you are one or more individuals and any of you dies or
becomes permanently incapacitated, and if the law of the jurisdiction where the
Restaurant is located so provides, nothing contained in this Section shall deny
your spouse, heirs or personal representative the opportunity to participate in
the ownership of the Franchise for a reasonable time after your death or
incapacity, provided that: (i) this Agreement is valid and in effect, (ii) the
spouse, heirs or representative meets all conditions and qualifications
otherwise required of

                                      -27-

<PAGE>
 
transferees, and (iii) such spouse, heirs or representative maintains and
complies with all standards and obligations contained in this Agreement.  An
assignment under this Section 15 shall be completed within a reasonable time,
not to exceed 9 months from the date of death, permanent incapacity or
dissolution and shall (except as otherwise provided above) be subject to the
terms and conditions applicable to lifetime transfers contained in Section 14,
including our right of first refusal.

            (b)   MANAGEMENT BY US.  Pending assignment, if the Principal
Operator ceases managing the Restaurant and another shareholder, member, partner
or employee of you that qualifies as the Principal Operator does not assume such
obligations, we may, at our sole option, appoint a manager to operate the
Restaurant for your account.  All expenses of the Restaurant, including
compensation, travel and living expenses, and other costs of the appointed
manager, and a reasonable per diem fee for our administrative expenses, shall be
charged to you.  Operation of the Restaurant during any such period shall be for
and on your behalf.  The appointed manager shall have a duty only to utilize his
or her best efforts in the management of the Restaurant and neither we nor the
appointed manager shall be liable to you or your owners for any debts, losses,
liabilities or obligations incurred by the Restaurant, or to any of your
creditors for any merchandise, materials, supplies or services purchased by the
Restaurant during any period in which it is managed by our appointed manager.

      16.   YOUR ADDITIONAL COVENANTS.

            (a)   LIMITATIONS ON ACTIVITIES.  If you are a corporation, limited
liability company, partnership or other entity, you shall not at any time during
the Term of this Agreement, own, operate or have any interest in any other
business or business activity other than the operation of Papa John's
restaurants pursuant to agreements with us.  If you are an individual and are
also the Principal Operator, you have disclosed to us all businesses in which
you have an interest, or are engaged in, and covenant that you will notify us of
any intention to participate or engage, directly or indirectly, in any other
business activity at least 30 days before undertaking such activity or becoming
a party to any agreement or understanding relating to such activity.  You shall
provide us with such information in regard thereto as we may reasonably request
and will not engage or participate in any such activity unless you receive our
written consent.

            (b)   EXECUTION OF ANCILLARY DOCUMENTS.  Simultaneously with the
execution of this Agreement, you shall cause each person or entity owning any
beneficial interest in you to execute an Owner Agreement in the form provided by
us.

            (c)   YOUR NON-COMPETE.  You covenant and agree that during the Term
of this Agreement (including the Renewal Term, if applicable) and for a period
of two years after the termination or expiration of the Franchise (the
"Restricted Period"), regardless of the reason for such termination or
expiration, you shall not, within a 10-mile radius of (A) the Restaurant, or (B)
any business location at which we or an Affiliate or our franchisee then
conducts a Papa John's business, engage in any of the following activities:

                                      -28-

<PAGE>
 
                  (i)   directly or indirectly enter into the employ of, render
any service to or act in concert with any person, partnership, limited liability
company, corporation or other entity that owns, operates, manages, franchises or
licenses any business that (A) sells pizza or other non-pizza products
(excluding soft drinks) that are the same as those sold by Papa John's
restaurants on a delivery basis, or (B) sells pizza or any such other products
primarily on a carry-out basis, including, without limitation, business formats
such as Domino's, Pizza Hut, Mr. Gatti's, Sbarro and Little Caesars (a
"Competitive Business"), or

                  (ii)  directly or indirectly engage in any such Competitive
Business on your own account, or

                  (iii) become interested in any such Competitive Business
directly or indirectly as an individual, partner, member, shareholder, director,
officer, principal, agent, employee, consultant or in any other relationship or
capacity; provided, that the purchase of a publicly traded security of a
corporation engaged in such business or service shall not in itself be deemed
violative of this Section so long as you do not own, directly or indirectly,
more than 1% of the securities of such corporation.

      To the extent required by the laws of the state in which the Restaurant is
located, the duration or the geographic areas included within the foregoing
covenants, or both, shall be deemed amended in accordance with Section 25.(a).

            (d)   MANAGERIAL AND SUPERVISORY EMPLOYEES.  You covenant that you
shall cause all persons who are involved in managerial or supervisory positions
with you to enter into a Confidentiality Agreement as provided by us.  You agree
to provide us with copies of such executed agreements upon request.  If you have
reason to believe that any person has violated any such Confidentiality
Agreement, you shall promptly notify us and cooperate with us to protect us
against unfair competition, infringement, or other unlawful use of the Marks,
our trade secrets, recipes, or System.  You further grant us the right, but not
the obligation, to prosecute any such lawsuits at our expense in your name.

            (e)   COPYING; NON-SOLICITATION.  You shall not copy or duplicate
our System or any aspect thereof, or any of our trade secrets, recipes, methods
of operation, processes, formulas, advertising, marketing, designs, trade dress,
plans, software, programs, know-how or other proprietary ideas or information
nor will you convey, divulge, make available or communicate any such information
to any third party or assist others in doing so (except as permitted or required
by this Agreement).  You covenant that you will not, either during the Term or
after it, employ or seek to employ any person who is employed by us, our
Affiliates or by any of our franchisees, or otherwise directly or indirectly
solicit, entice or induce any such person to leave their employment.

            (f)   VALIDITY OF MARKS AND COPYRIGHTS; REGISTRATIONS.  You agree
that you will not, either during the Term or any time thereafter, directly or
indirectly challenge or contest the validity of, or take any action to
jeopardize our rights in or ownership of, any of the Marks

                                      -29-

<PAGE>
 
or any registration of a Mark or any Copyrighted Work.  If you violate this
provision, we shall be entitled to equitable, monetary and punitive remedies and
any other relief that may be available under applicable law, as well as the
recovery of all costs, expenses and attorneys' fees incurred by us as a result
of such violation.

            (g)   REASONABLENESS OF SCOPE AND DURATION.  You agree that the
covenants and agreements contained herein are, taken as a whole, reasonable with
respect to the activities covered and their geographic scope and duration, and
you shall not raise any issue of the reasonableness of the areas, activities or
duration of any such covenants in any proceeding to enforce any such covenants.
You acknowledge and agree that you have other skills and resources and that the
restrictions contained in this Section 16 will not hinder your activities or
ability to make a living either under this Agreement or in general.

            (h)   ENFORCEABILITY.  You agree that we may not be adequately
compensated by damages for a breach by you of any of the covenants and
agreements contained in this Section, and that we shall, in addition to all
other remedies, be entitled to injunctive relief and specific performance.  The
covenants and agreements contained in this Section shall be construed as
separate covenants and agreements, and if any court finally determines that the
restraints provided for in any such covenants and agreements are too broad as to
the area, activity or time covered, said area, activity or time covered may be
reduced to whatever extent the court deems reasonable, and such covenants and
agreements shall be enforced as to such reduced area, activity or time.

      17.   TRADE SECRETS AND CONFIDENTIAL INFORMATION.  You understand and
agree that we have disclosed or will disclose to you certain confidential or
proprietary information and trade secrets.  Except as necessary in connection
with the operation of the Restaurant and as approved by us, you shall not,
during the Term or at any time after the expiration or termination of the
Franchise, regardless of the cause of termination, directly or indirectly, use
for your own benefit or communicate or divulge to, or use for the benefit of any
other person or entity, any trade secrets, confidential information, knowledge
or know-how concerning the recipes, food products, advertising, marketing,
designs, plans, software, programs or methods of operation of the Restaurant or
the System.  You shall disclose to your employees only such confidential,
proprietary or trade secret information as is necessary to operate your business
hereunder and then only while this Agreement is in effect.  Any and all
information, knowledge, or know-how, including without limitation, drawings,
materials, equipment, marketing, recipes, and other data, that we designate as
secret or confidential shall be deemed secret and confidential for purposes of
this Agreement.

      18.   INSURANCE.

            (a)   TYPES AND EXTENT OF COVERAGE.  You shall obtain and maintain
throughout the Term such insurance coverages with such limits as specified below
(or such greater amounts of insurance as may be required by the terms of any
lease or mortgage relating to the Premises) under policies issued by carriers
rated "A" or better by A.M. Best Company:

                                      -30-

<PAGE>
 
                  (i)   fire, extended coverage, vandalism, malicious mischief
and special extended peril insurance at no less than the actual replacement
value of the building (if owned), the contents, and improvements of the
Restaurant;

                  (ii)  workers' compensation and other insurance required by
law;

                  (iii) commercial general liability insurance on an
"occurrence" form covering all operations by or on behalf of you, providing
insurance for bodily injury liability, property damage liability and personal
injury liability for the limits of liability indicated below and including
coverage for:

                        (A)   Premises and Operations Liability,

                        (B)   Products and Completed Operations Liability,

                        (C)   Independent Contractors Protective Liability,

                        (D)   Blanket Contractual Liability insuring the
      obligations assumed by you under this Agreement, and

                        (E)   Incidental Medical Malpractice;

                  (iv)  automobile liability insurance including non-owned
automobiles, with limits of liability not less than $1,000,000 combined single
limit each accident for bodily injury and property damage combined; and

                  (v)   fire legal liability, with a minimum coverage limit of
$500,000, unless you own the Premises or have a cross-waiver of subrogation with
your landlord.

The limits of liability required for the policies specified in (iii) above are:
$1,000,000 each occurrence (combined single limit for bodily injury and property
damage), $1,000,000 personal injury liability, $1,000,000 aggregate for
products - completed operations, $2,000,000 general aggregate.  Except with
respect to bodily injury and property damage included within the products and
completed operations hazards, the aggregate limit must apply separately to each
location if you operate at more than one location pursuant to multiple franchise
agreements with us.  You are also required to maintain an umbrella policy with a
minimum of $1,000,000, which must expressly provide coverage above the coverages
listed above.  We must be named as an additional insured on all your policies.
These are only the minimum coverages required.  We do not represent or warrant
that these coverages are adequate.  You should consult with your insurance
advisors to assure that you obtain all required coverages as well as any
additional types of coverages or higher limits that they may recommend.

            (b)   OTHER INSURANCE REQUIREMENTS.  Upon request, you shall deliver
to us copies of all such policies of insurance and proof of payment therefor.
All policies required

                                      -31-

<PAGE>
 
hereunder shall provide that the insurer shall endeavor to give us written
notice not less than 30 days prior to the date the coverage is canceled,
altered, or permitted to lapse or expire.  We may, from time to time, increase
the limits of any required policy of insurance.

      19.   TERMINATION BY US.

            (a)   AUTOMATIC TERMINATION.  You shall be in default under this
Agreement, and the Franchise and all rights granted to you in this Agreement
shall automatically terminate without notice to you, (i) if you make a general
assignment for the benefit of creditors; or if a petition in bankruptcy is filed
by you or (ii) such a petition is filed against and not opposed by you; or (iii)
if you are adjudicated as bankrupt or insolvent; or (iv) if a bill in equity or
other proceeding is filed for the appointment of a receiver or other custodian
for your business or assets and consented to by you; or (v) if a receiver or
other custodian (permanent or temporary) of your assets or property, or any part
thereof, is appointed by any court of competent jurisdiction; or (vi) if
proceedings for a composition with creditors under any state or federal law are
instituted by or against you; or (vii) if a final judgment against you remains
unsatisfied or of record for 30 days or longer (unless an appeal or supersedeas
bond is filed); or (viii) if you are liquidated or dissolved; or (ix) if any
portion of your interest in the Franchise becomes subject to an attachment,
garnishment, levy or seizure by any creditor or any other person claiming
against or in your rights; or (x) if execution is levied against your business
or property; or (xi) if the real or personal property of your Restaurant is sold
after levy thereupon by any sheriff, marshal, or constable; or (xii) for the
reasons described in Section 14.(b) hereof.

            (b)   WITHOUT NOTICE.  You shall be in default and we may, at our
option, terminate the Franchise and all rights granted in this Agreement,
without affording you any opportunity to cure the default, effective upon the
earlier of receipt of notice of termination by you, or five days after mailing
of such notice by us, upon the occurrence of any of the following events:

                  (i)   You at any time cease to operate or otherwise abandon
the Restaurant or forfeit the right to do or transact business in the
jurisdiction where the Restaurant is located or lose the right to possession of
the Premises; provided, however, that if any such loss of possession results
from the governmental exercise of the power of eminent domain, or if, through no
fault of yours, the Premises are damaged or destroyed, then you shall have 45
days after either such event in which to apply for our approval to relocate or
reconstruct the premises (which approval shall not be unreasonably withheld),
provided, that you shall either relocate or begin and diligently pursue
reconstruction of the Restaurant within 60 days after the event;

                  (ii)  Except as otherwise permitted in Sections 14 and 15, any
owner of more than a 5% interest in you transfers all or part of such interest
or you transfer any interest in the Franchise or a material portion of your
assets or the assets of the Restaurant without our prior written consent;

                                      -32-

<PAGE>
 
                  (iii) You or any person or entity owning more than 5% of you
is proven to have engaged in fraudulent conduct, or is convicted of, or pleads
guilty or no contest to a felony or a crime involving moral turpitude, or any
other crime or offense that is reasonably likely to have an adverse effect on
the Chain, the Marks or the goodwill associated therewith; provided, that if the
act or conviction involves your owner, we will not terminate the Franchise if
you notify us promptly after you learn of the event constituting the default,
and within 15 days of the date of the notice, either (A) the person or entity
that committed the wrongful act divests his, her or its entire interest in you,
or (B) you obtain our consent for such owner to maintain his, her or its
ownership interest.

                  (iv)  An approved transfer is not effected within 9 months of
your death or incapacity, or the death, incapacity or dissolution of any owner
of an interest in you;

                  (v)   You make any intentional, unauthorized disclosure or
divulgence of the contents of any Manual or other confidential information
provided to you by us;

                  (vi)  You are given 3 or more notices of being in material
violation of any of the terms or requirements of this Agreement within any
12-month period, whether or not such defaults are timely cured after notice;

                  (vii) You fail to comply with any of your covenants set forth
in Sections 16 or 17, fail to maintain the insurance coverages under Section 18,
or make any material misrepresentation to us or breach any warranty or
representation made to us, whether in this Agreement or otherwise;

                  (viii) You knowingly or intentionally maintain false books or
records or submit any false record, statement or report to us; or

                  (ix)  You, by act or omission, materially impair the value of,
or the goodwill associated with, the Chain, any of the Marks or the System.

            (c)   WITH NOTICE AND FAILURE TO CURE.  Except for those defaults
provided for under subsections (a) or (b) above, you shall be in default
hereunder for any failure to maintain or comply with any of the terms,
covenants, specifications, standards, procedures or requirements imposed by this
Agreement or in any Manual, policy or procedure statement or other written
document provided by us, or to carry out the terms of this Agreement in good
faith.  For such defaults, we will provide you with written notice and 15 days
to cure or, if a default cannot reasonably be cured within 15 days, to begin
within that time substantial and continuing action to cure such default and to
provide us with evidence of such actions.  If the defaults specified in such
notice are not cured within the 15-day period, or if substantial and continuing
action to cure has not been initiated, we may, at our option, terminate the
Franchise effective on the earlier of the date of receipt by you of notice of
termination or 5 days after the mailing of such notice by us. Such defaults
shall include, without limitation, the occurrence of any of the following
events:

                                      -33-

<PAGE>
 
                  (i)   You fail to construct, remodel, or commence operating
the Restaurant in accordance with this Agreement;

                  (ii)  You fail, refuse, or neglect to promptly pay any monies
owing to us, our Affiliates or the Marketing Fund or a Cooperative when due, or
to submit the financial or other information required under this Agreement;

                  (iii) Any person or entity owning 5% or less of you transfers
such interest in violation of this Agreement; provided, however, that your right
to cure such a default shall be conditioned upon you immediately notifying us of
the improper transfer and taking all actions necessary to either (A) obtain our
approval thereof or, (B) if approval is not desired or the transfer or
transferee is not approved by us, to re-acquire the interest so transferred;

                  (iv)  A threat or danger to public health or safety results
from the construction, maintenance, or operation of the Restaurant;

                  (v)   You misuse or make any unauthorized use of the Marks; or

                  (vi)  You, by act or omission in connection with the operation
of the Restaurant, permit a continuing violation of any applicable law,
ordinance, rule, or regulation of a governmental body.

            (d)   MATERIALITY OF BREACHES.  You acknowledge and agree that a
breach or violation of any term, covenant, condition, warranty, representation
or other obligation by you (other than a breach or violation that may be cured
under Section 19.(c) and is in fact cured within 15 days after notice) shall
constitute a material breach and default under this Agreement.  Any breach or
violation that may be cured under Section 19.(c) and that is not in fact cured
within the 15-day cure period shall also constitute a material breach and
default under this Agreement.

      20.   OBLIGATIONS UPON TERMINATION OR EXPIRATION.

            (a)   POST TERMINATION OBLIGATIONS.  Upon termination or expiration
of the Franchise, all rights granted to you under this Agreement shall
terminate, the Franchise shall revert to us, and you shall have the following
obligations with respect to the Restaurant franchised under this Agreement:

                  (i)   You shall immediately cease to operate the business
franchised under this Agreement, and shall not thereafter, directly or
indirectly, represent to the public or hold yourself out as a Papa John's
franchisee with respect to such business;

                  (ii)  You shall immediately and permanently cease to use, in
any manner whatsoever, all confidential information, Designated Software,
methods, procedures and techniques used by or associated with the System, and
the proprietary Marks "Papa John's,"

                                      -34-

<PAGE>
 
"Papa John's Pizza," and all other Marks and distinctive forms, slogans, signs,
symbols, logos and devices associated with the Papa John's Chain;

                  (iii) You shall immediately return to us any property held or
used by you that is owned by us and shall cease to use, and either destroy or
convey to us, all signs, advertising materials, displays, stationery, forms and
any other materials that bear or display the Marks;

                  (iv)  You shall take such actions as may be necessary to
cancel any assumed name or similar registration that contains the mark "Papa
John's" or "Papa John's Pizza" or any other Mark, and you shall furnish us with
evidence satisfactory to us of compliance with this obligation within thirty
(30) days after termination or expiration of the Franchise;

                  (v)   You shall, if we elect to purchase the assets of the
Restaurant pursuant to Section 20.(b) below, assign to us any interest that you
have in any lease for the Premises; provided that we agree to use reasonable
efforts to effect a termination of the existing lease for the Premises and enter
into a new lease on reasonable terms with the landlord.  In the event we are
unable to negotiate an acceptable new lease, we will indemnify and hold you
harmless from any ongoing liability under the lease from the date on which we
assume possession of the Premises.  The assignment of the lease shall be made at
the same time as we purchase the assets of the Restaurant pursuant to Section
20.(b).   If we do not elect to purchase the assets of the Restaurant, you
shall, within 10 days after termination or expiration of the Franchise, make
such modifications and alterations to the Premises as may be necessary to
distinguish the appearance of the Premises from that of other Papa John's
restaurants and shall make such specific additional changes thereto as we may
reasonably request;

                  (vi)  You shall promptly pay all sums owed to us, and if the
Franchise is terminated for any reason other than as a result of a material
breach of this Agreement by us that is not cured within 30 days or such longer
period as may be necessary after written notice thereof from you, such sums
shall include all damages, costs, and expenses, including reasonable attorneys'
fees, incurred by us as a result of the default and the termination, which
obligation shall give rise to and remain, until paid in full, a lien in favor of
us against any and all of the personal property, furnishings, equipment, signs,
fixtures and inventory owned by you and located on the Premises on the date the
Franchise terminated;

                  (vii) You shall pay to us all damages, costs and expenses,
including reasonable attorneys' fees, incurred by us subsequent to the
termination or expiration of the Franchise in obtaining injunctive or other
relief for the enforcement of any term, covenant or provision of this Agreement;

                  (viii) You shall immediately deliver to us all Manuals, policy
and procedure statements, instructions, and other materials related to operating
the Restaurant, including, without limitation, brochures, charts and any other
materials provided by us and all copies thereof, and you shall neither retain
nor convey to another any copy or record of any of

                                      -35-

<PAGE>
 
the foregoing and shall allow us to remove the Designated Software as described
in Section 10.(c)(iii)(E);

                  (ix)  If requested by us, you shall take all further action
and execute all documents necessary to convey and assign to us all telephone
numbers that have been used in the operation of the Restaurant or if we do not
so request, you shall cease all use of such telephone numbers; and

                  (x)   You shall comply with the covenants contained in this
Agreement, including, but not limited to, the covenants not to compete and the
covenants not to disclose trade secrets or confidential information contained in
Sections 16 and 17.

            (b)   ASSET PURCHASE OPTION.  Upon termination of this Agreement by
us, upon termination of this Agreement by you without cause or upon expiration
of this Agreement, we shall have the option, exercisable by giving written
notice thereof within 15 days from the date of such expiration or termination,
to purchase from you all the assets used in the Restaurant. Assets shall
include, without limitation, leasehold improvements, equipment (including the
Information System), furniture, fixtures, signs and inventory for the
Restaurant.  We shall have the unrestricted right to assign this option to
purchase.  We or our assignee shall be entitled to all customary warranties and
representations given by the seller of a business including, without limitation,
representations and warranties as to (i)  ownership, condition and title to
assets; (ii) liens and encumbrances relating to the assets; and (iii) validity
of contracts  and liabilities, inuring to us or affecting the assets, contingent
or otherwise.  The purchase price for the assets of the Restaurant shall be the
fair market value thereof, determined as of the date of termination or
expiration of this Agreement in a manner consistent with reasonable depreciation
of leasehold improvements owned by you and the equipment, furniture, fixtures,
signs and inventory of the Restaurant, provided that the purchase price shall
not contain any factor or increment for any trademark, service mark or other
commercial symbol used in connection with the operation of the Restaurant, or
any goodwill or "going concern" value for the Restaurant and further provided
that we may exclude from the assets purchased hereunder any equipment,
furniture, fixtures, signs and inventory that do not, as determined by us in our
sole discretion, meet quality standards for Papa John's restaurants.  If you and
we are unable to agree on the fair market value of the assets, the fair market
value shall be determined by an independent appraiser selected by us and you. If
you and we are unable to agree on a single appraiser, each party shall each
select one appraiser, who shall select a third appraiser, and the fair market
value shall be deemed to be the average of the three (3) independent appraisals.
The fees and costs of such appraiser or appraisers shall be borne equally by you
and us.  Except as provided above, nothing contained herein shall restrict the
manner in which the appraisers so selected value the leasehold improvements,
equipment, furniture, fixtures, signs and inventory.  The purchase price shall
be paid in cash, a cash equivalent, or marketable securities of equal value at
the closing of the purchase, which shall take place no later than 90 days after
receipt by you of notice of exercise of this option to purchase, at which time
you shall deliver instruments transferring to us or our assignee:  (1) good and
merchantable title to the assets purchased, free and clear of all liens and
encumbrances (other than liens and security interests acceptable to us or our
assignee), with all sales and other transfer taxes

                                      -36-

<PAGE>
 
paid by you; and (2) all licenses and permits of the Restaurant that may be
assigned or transferred.  If you cannot deliver clear title to all of the
purchased assets as aforesaid, or in the event there shall be other unresolved
issues, the closing of the sale shall be accomplished through an escrow.
Further, you and we shall, prior to closing, comply with all applicable legal
requirements, including the bulk sales provisions of the Uniform Commercial Code
of the state in which the Restaurant is located.  We shall have the right to set
off against and reduce the purchase price by any and all amounts owed by you to
us, and the amount of any encumbrances or liens against the assets or any
obligations assumed by us.  You and each owner of an interest in you shall
indemnify us against all liabilities not so assumed.  If we or our assignee
exercise this option to purchase, pending the closing of such purchase as
hereinabove provided, we shall have the right to appoint a manager to maintain
the operation of the Restaurant as set forth under Section 15.(b).
Alternatively, we may require you to close the Restaurant during such time
period without removing any assets from the Restaurant.  You shall maintain in
force all insurance policies required pursuant to this Agreement, until the
closing on the sale.

      21.   INDEPENDENT CONTRACTOR; INDEMNIFICATION.

            (a)   INDEPENDENT CONTRACTOR.  It is understood and agreed by the
parties that this Agreement creates only a contractual relationship between the
parties subject to normal rules of contract law.  This Agreement does not create
a fiduciary relationship between us and you and you are and shall remain an
independent contractor.  Nothing in this Agreement is intended to constitute
either party an agent, legal representative, subsidiary, joint venturer,
partner, employee, or servant of the other for any purpose whatsoever.  You
agree to hold yourself out to the public as an independent contractor, separate
and apart from us.  You agree that you shall not make any contract, agreement,
warranty, or representation on our behalf without our prior written consent, and
you agree that you shall not incur any debt or other obligation in our name.
This Agreement shall not be deemed to confer any rights or benefits to any
person or entity not expressly named herein.

            (b)   BUSINESS MANAGEMENT.  You agree and acknowledge that:  (i) we
will have no responsibility for the day-to-day operations of the Restaurant or
the management of your business; and (ii) you shall independently control the
operation of your business and the results of your operations will depend almost
exclusively on your business acumen and promotional and managerial efforts.

            (c)   INDEMNIFICATION.  We shall not be liable by reason of any act
or omission by you in your operation of the Restaurant or for any claim, cause
of action or judgment arising therefrom against you or us.  You agree to hold
harmless, defend and indemnify us and our Affiliates, and our and their
respective shareholders, officers, directors, agents, and employees, from and
against any and all losses, expenses, judgments, claims, costs (including
reasonable attorney fees) and damages arising out of or in connection with any
claim or cause of action in which we shall be a named defendant and that arises,
directly or indirectly, out of the operation of, or in connection with, your
Restaurant, other than a claim resulting directly from our negligence.

                                      -37-

<PAGE>
 
      22.   YOUR REPRESENTATIONS.  You hereby acknowledge and represent that:

            (a)   all information submitted to us by you or those owning an
interest in you, including all applications, financial statements and other
documents and information, is true and correct in all respects and does not omit
any material statement or item of fact necessary to make the statements made
therein not false or misleading;

            (b)   We have not represented (i) that you will earn, can earn, or
are likely to earn a gross or net profit, (ii) that we have knowledge of the
relevant market, or (iii) that the market demand will enable you to earn a
profit from the Franchise;

            (c)   You have read and understood this Agreement and the disclosure
document entitled "Papa John's Franchise Offering Circular" (the "Offering
Circular") required by the Federal Trade Commission or the state in which the
Restaurant will be located.  You understand that we make no representation or
warranty regarding your relevant market or the profitability of business
operations under the System and that no representations have been made by us, or
by any of our Affiliates or our or their officers, directors, shareholders,
employees or agents, that are contrary to or inconsistent with the terms of this
Agreement or with the statements made in the Offering Circular that accompanied
a copy of this Agreement;

            (d)   You accept the terms, conditions and covenants contained in
this Agreement as being reasonable and necessary to maintain our standards of
quality, service and uniformity and in order to protect and preserve the
goodwill of the Marks.  You acknowledge that other franchisees of ours have been
or will be granted franchises at different times and in different situations.
You further acknowledge that the provisions of the franchise agreements pursuant
to which such franchises were granted may vary materially from those contained
in this Agreement and that your obligation arising here-under may differ
substantially from other franchisees; and

            (e)   You recognize that the System may evolve and change over time
and that the Franchise involves an investment of substantial risk and its
success is dependent primarily upon your business acumen and your efforts and
other factors beyond our control.  You have conducted an independent
investigation of the Franchise and have had ample time and opportunity to
consult with independent professional advisors (lawyers, accountants, etc.), and
have not received or relied upon any express or implied guarantee as to
potential volumes, revenues, profits or success of the business venture
contemplated by the Franchise.

      23.   ENFORCEMENT.

            (a)   ARBITRATION.  EXCEPT FOR CONTROVERSIES, DISPUTES OR CLAIMS
RELATED TO OR BASED ON:  (1) ANY ACTION BY US TO STOP OR PREVENT ANY THREAT OR
DANGER TO PUBLIC HEALTH OR SAFETY RESULTING FROM THE CONSTRUCTION, MAINTENANCE,
OR OPERATION OF THE RESTAURANT; (2) ANY ACTION ARISING OUT OF OR RELATING TO ANY
FINANCING PROVIDED TO YOU BY US OR OUR AFFILIATES AND THE AGREE-

                                      -38-

<PAGE>
 
MENTS, NOTES, LIENS AND SECURITY INTERESTS RELATED THERETO AND THE ENFORCEMENT,
INTERPRETATION OR COLLECTION THEREOF; OR (3) AT OUR OPTION, YOUR VIOLATION OF
ANY PROVISION OF SECTION 16 OR 17 HEREOF, OR YOUR USE OF THE MARKS AFTER THE
EXPIRATION OR TERMINATION OF THIS AGREEMENT; ALL CONTROVERSIES, DISPUTES OR
CLAIMS BETWEEN US (INCLUDING OUR AFFILIATES, SHAREHOLDERS, OFFICERS, DIRECTORS,
AGENTS OR EMPLOYEES)AND YOU (INCLUDING YOUR OWNERS, GUARANTORS, AFFILIATES AND
EMPLOYEES, IF APPLICABLE) ARISING OUT OF OR RELATED TO:

                  (i)   THIS AGREEMENT OR ANY OTHER AGREEMENT BETWEEN YOU AND US
OR ANY PROVISION OF ANY SUCH AGREEMENT;

                  (ii)  OUR RELATIONSHIP WITH YOU, INCLUDING ISSUES RELATING TO
OUR DECISION TO TERMINATE THAT RELATIONSHIP;

                  (iii) THE VALIDITY OF THIS AGREEMENT OR ANY OTHER AGREEMENT
BETWEEN YOU AND US OR ANY PROVISION OF ANY SUCH AGREEMENT; OR

                  (iv)  ANY STANDARD, SPECIFICATION OR OPERATING PROCEDURE
RELATING TO THE ESTABLISHMENT OR OPERATION OF THE RESTAURANT

      WILL BE SUBMITTED FOR BINDING ARBITRATION TO THE LOUISVILLE, KENTUCKY
OFFICE OF THE AMERICAN ARBITRATION ASSOCIATION ON DEMAND OF EITHER PARTY. SUCH
ARBITRATION PROCEEDING WILL BE CONDUCTED IN LOUISVILLE, KENTUCKY AND, EXCEPT AS
OTHERWISE PROVIDED IN THIS AGREEMENT, WILL BE HEARD BY ONE ARBITRATOR IN
ACCORDANCE WITH THE THEN CURRENT FRANCHISING ARBITRATION RULES, IF ANY, OR
OTHERWISE BY THE THEN CURRENT COMMERCIAL ARBITRATION RULES OF THE AMERICAN
ARBITRATION ASSOCIATION.  ALL MATTERS RELATING TO ARBITRATION WILL BE GOVERNED
BY THE FEDERAL ARBITRATION ACT (9 U.S.C. SECTIONS 1 ET SEQ.) AND NOT BY ANY
STATE ARBITRATION LAW.

      THE ARBITRATOR WILL HAVE THE RIGHT TO AWARD OR INCLUDE IN THE AWARD ANY
RELIEF THAT THE ARBITRATOR DEEMS PROPER IN THE CIRCUMSTANCES, INCLUDING, WITHOUT
LIMITATION, MONEY DAMAGES (WITH INTEREST ON UNPAID AMOUNTS FROM THE DATE DUE),
SPECIFIC PERFORMANCE, INJUNCTIVE RELIEF AND ATTORNEYS' FEES AND COSTS, PROVIDED
THAT THE ARBITRATOR WILL NOT HAVE THE RIGHT TO DECLARE ANY MARK GENERIC OR
OTHERWISE INVALID OR, EXCEPT AS OTHERWISE PROVIDED IN THIS AGREEMENT, TO AWARD
EXEMPLARY OR PUNITIVE

                                      -39-

<PAGE>
 
DAMAGES.  THE AWARD AND DECISION OF THE ARBITRATOR WILL BE CONCLUSIVE AND
BINDING UPON ALL PARTIES HERETO, AND JUDGMENT UPON THE AWARD MAY BE ENTERED IN
ANY COURT OF COMPETENT JURISDICTION.

      WE AND YOU AGREE TO BE BOUND BY THE PROVISIONS OF ANY LIMITATION ON THE
PERIOD OF TIME IN WHICH CLAIMS MUST BE BROUGHT UNDER APPLICABLE LAW OR THIS
AGREEMENT, WHICHEVER EXPIRES EARLIER.  WE AND YOU FURTHER AGREE THAT, IN
CONNECTION WITH ANY SUCH ARBITRATION PROCEEDING, EACH PARTY MUST SUBMIT OR FILE
ANY CLAIM THAT WOULD CONSTITUTE A COMPULSORY COUNTERCLAIM (AS DEFINED BY RULE 13
OF THE FEDERAL RULES OF CIVIL PROCEDURE) WITHIN THE SAME PROCEEDING AS THE CLAIM
TO WHICH IT RELATES.  ANY SUCH CLAIM THAT IS NOT SUBMITTED OR FILED AS DESCRIBED
ABOVE WILL BE FOREVER BARRED.

      WE AND YOU AGREE THAT ARBITRATION WILL BE CONDUCTED ON AN INDIVIDUAL, NOT
A CLASS-WIDE, BASIS, AND THAT AN ARBITRATION PROCEEDING BETWEEN US (INCLUDING
OUR AFFILIATES, SHAREHOLDERS, OFFICERS, DIRECTORS, AGENTS OR EMPLOYEES) AND YOU
(INCLUDING YOUR OWNERS, GUARANTORS, AFFILIATES AND EMPLOYEES, IF APPLICABLE) MAY
NOT BE CONSOLIDATED WITH ANY OTHER ARBITRATION PROCEEDING BETWEEN US AND ANY
OTHER PERSON, CORPORATION, LIMITED LIABILITY COMPANY OR PARTNERSHIP.

      NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS SECTION, WE AND
YOU EACH HAVE THE RIGHT IN A PROPER CASE TO OBTAIN TEMPORARY RESTRAINING ORDERS
AND TEMPORARY OR PRELIMINARY INJUNCTIVE RELIEF FROM A COURT OF COMPETENT
JURISDICTION; PROVIDED, HOWEVER, THAT WE AND YOU MUST CONTEMPORANEOUSLY SUBMIT
OUR DISPUTE FOR ARBITRATION ON THE MERITS AS PROVIDED HEREIN EXCEPT AS OTHERWISE
PROVIDED IN THE FIRST PARAGRAPH OF THIS SECTION 23.(a).

      THE PROVISIONS OF THIS SECTION ARE INTENDED TO BENEFIT AND BIND CERTAIN
THIRD PARTY NON-SIGNATORIES AND WILL CONTINUE IN FULL FORCE AND EFFECT
SUBSEQUENT TO AND NOTWITHSTANDING THE EXPIRATION OR TERMINATION OF THIS
AGREEMENT.

            (b)   GOVERNING LAW.  ALL MATTERS RELATING TO ARBITRATION WILL BE
GOVERNED BY THE FEDERAL ARBITRATION ACT (9 U.S.C. SECTIONS 1 ET SEQ).  EXCEPT TO
THE EXTENT GOVERNED BY THE FEDERAL ARBITRATION ACT, THE UNITED STATES TRADEMARK
ACT OF 1946 (LANHAM ACT, 15 U.S.C. SECTIONS 1051 ET SEQ.) OR OTHER FEDERAL LAW,
THIS AGREEMENT AND ALL CLAIMS ARISING FROM THE RELATIONSHIP BETWEEN US AND YOU
WILL BE

                                      -40-

<PAGE>
 
GOVERNED BY THE LAWS OF THE COMMONWEALTH OF KENTUCKY WITHOUT REGARD TO ITS
CONFLICT OF LAWS PRINCIPLES.

            (c)   CONSENT TO JURISDICTION AND VENUE.  YOU AND YOUR OWNERS AGREE
THAT ALL JUDICIAL ACTIONS BROUGHT BY US AGAINST YOU OR YOUR OWNERS OR BY YOU OR
YOUR OWNERS AGAINST US OR OUR SUBSIDIARIES, AFFILIATES, SHAREHOLDERS, OFFICERS,
DIRECTORS, AGENTS OR EMPLOYEES MUST BE BROUGHT IN A COURT OF COMPETENT
JURISDICTION IN JEFFERSON COUNTY, KENTUCKY OR FEDERAL DISTRICT COURT FOR THE
WESTERN DISTRICT OF KENTUCKY AND YOU (AND EACH OWNER) IRREVOCABLY SUBMIT TO THE
JURISDICTION OF SUCH COURTS AND WAIVE ANY OBJECTION YOU, HE OR SHE MAY HAVE TO
EITHER THE JURISDICTION OF OR VENUE IN SUCH COURTS. NOTWITHSTANDING THE
FOREGOING, WE MAY BRING AN ACTION TO OBTAIN A RESTRAINING ORDER OR TEMPORARY OR
PRELIMINARY INJUNCTION, OR ENFORCE AN ARBITRATION AWARD, IN ANY FEDERAL OR STATE
COURT OF GENERAL JURISDICTION IN THE STATE IN WHICH YOU RESIDE OR IN WHICH THE
RESTAURANT IS LOCATED.

            (d)   WAIVER OF PUNITIVE DAMAGES.  EXCEPT WITH RESPECT TO YOUR
OBLIGATION TO INDEMNIFY US PURSUANT TO SECTION 21 AND CLAIMS WE BRING AGAINST
YOU UNDER SECTIONS 16.(c), 16.(f) AND 17, WE AND YOU AND YOUR OWNERS WAIVE TO
THE FULLEST EXTENT PERMITTED BY LAW ANY RIGHT TO OR CLAIM FOR ANY PUNITIVE OR
EXEMPLARY DAMAGES AGAINST THE OTHER AND AGREE THAT, IN THE EVENT OF A DISPUTE
BETWEEN US, THE PARTY MAKING A CLAIM WILL BE LIMITED TO EQUITABLE RELIEF AND TO
RECOVERY OF ANY ACTUAL DAMAGES IT SUSTAINS.

            (e)   WAIVER OF JURY TRIAL.  WE AND YOU IRREVOCABLY WAIVE TRIAL BY
JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM, WHETHER AT LAW OR IN EQUITY,
BROUGHT BY EITHER OF US.

            (f)   LIMITATIONS OF CLAIMS.  EXCEPT FOR CLAIMS BROUGHT BY US WITH
REGARD TO YOUR OBLIGATIONS UNDER SECTIONS 16 AND 17, AND YOUR OBLIGATION TO
INDEMNIFY US PURSUANT TO SECTION 21, ANY AND ALL CLAIMS ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE RELATIONSHIP OF YOU AND US PURSUANT TO THIS
AGREEMENT WILL BE BARRED UNLESS AN ACTION IS COMMENCED WITHIN ONE (1) YEAR FROM
THE DATE ON WHICH THE ACT OR EVENT GIVING RISE TO THE CLAIM OCCURRED, OR ONE (1)
YEAR FROM THE DATE ON WHICH YOU OR WE KNEW OR SHOULD HAVE KNOWN, IN THE EXERCISE
OF REASONABLE DILIGENCE, OF THE FACTS GIVING RISE TO SUCH CLAIMS, WHICHEVER
OCCURS FIRST.

            (g)   COSTS, EXPENSES AND ATTORNEYS' FEES.  Except as provided in
Sections 16.(f), 20 and 21, each party shall pay its own costs, expenses and
attorneys' fees in any

                                      -41-

<PAGE>
 
arbitration, claim, suit or proceeding arising out of this Agreement or the
franchise relationship of the parties.

      24.   NOTICES.  All notices, requests, demands and other communications
required or permitted to be given or made under this Agreement shall be in
writing and shall be given (i) by personal delivery or (ii) provided such
notice, request, demand or communication is actually received by the party to
which it is addressed in the ordinary course of delivery, by deposit in the
United States mail, postage prepaid, or (iii) by registered or certified mail,
return receipt requested, postage prepaid, or by delivery to a nationally-
recognized overnight courier service, in each case, addressed as follows, or to
such other person or entity as either party shall designate by notice to the
other in accordance herewith:

      Us:         If by Mail:
                        P.O. Box 99900
                        Louisville, Kentucky 40269-9990
                        ATTN:  General Counsel

                  If by Courier or Personal Delivery:
                        10801 Electron Drive, Suite 100
                        Louisville, Kentucky  40299-3880
                        ATTN:  General Counsel

      You:              ____________________________________
                        ____________________________________
                        ATTN:  _____________________________

      25.   MISCELLANEOUS.

            (a)   TOLLING; SEVERABILITY.  During any period in which any
covenant in Section 16 or 17 is being breached by you, including any period in
which we or you are seeking administrative or judicial enforcement,
interpretation or modification of any such covenant, and all appeals thereof,
the Restricted Period shall toll and be suspended.  You agree to be bound to the
maximum extent permitted by law that is subsumed within the terms of any
provision hereof, as though it were separately articulated in and made a part of
this Agreement, that may result from the striking of any provision hereof by a
court, or that a court holds to be unenforceable in a final decision to which we
are a party, or that may result from reducing the scope of any provision to the
extent required to comply with a court order or with any state or federal law,
whether currently in effect or subsequently enacted.

            (b)   CONSTRUCTION.  All references herein to the masculine, neuter,
or singular shall be construed to include the masculine, feminine, neuter, or
plural, as the case may require.  All acknowledgements, warranties,
representations, covenants, agreements, and obligations herein made or
undertaken by you shall be deemed jointly and severally undertaken by all those
executing this Agreement as you.

                                      -42-

<PAGE>
 
            (c)   ENTIRE AGREEMENT.  This Agreement, the documents incorporated
herein by reference and the Exhibits attached hereto, comprise the entire
agreement between the parties, and all prior understandings or agreements
concerning the subject matter hereof are canceled and superseded by this
Agreement.  The Exhibits to this Agreement are incorporated herein by reference
and made a part hereof as if set out in full herein.

            (d)   AFFILIATE.  As used in this Agreement, the term "Affiliate"
shall mean any person or entity that is owned or controlled by us or which owns
or controls us or is under common control with us, directly, or through one or
more intermediaries.

            (e)   AMENDMENTS.  Except for those permitted to be made
unilaterally by us, no supplement, amendment or variation of the terms of this
Agreement shall be valid unless made in writing and signed by the parties
hereto.

            (f)   WAIVERS.  No failure by us to exercise any right given to us
hereunder, or to insist upon strict compliance by you with any obligation,
agreement or undertaking hereunder, and no custom or practice of the parties at
variance with the terms hereof shall constitute a waiver of our right to demand
full and exact compliance by you with the terms hereof.  Waiver by us of any
particular default by you shall not affect or impair our rights with respect to
any subsequent default of the same or of a different nature, nor shall any delay
or omission by us to exercise any right arising from such default affect or
impair our rights as to such default or any subsequent default.

            (g)   COUNTERPARTS.  This Agreement may be executed in several
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.

            (h)   HEADINGS.  The headings used in this Agreement are for
convenience only, and the paragraphs shall be interpreted as if such headings
were omitted.


                                      -43-

<PAGE>
 
            (i)   TIME OF ESSENCE.  You agree and acknowledge that time is of
the essence with regard to your obligations hereunder, and that all of your
obligations are material to us and this Agreement.


      IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
on the day, month and year first written above.

                                       PAPA JOHN'S INTERNATIONAL, INC.


                                       By:____________________________________
                                          Title:______________________________



                                       _______________________________________
                                       FRANCHISEE


                                       By:____________________________________
                                          Title:______________________________



                                      -44-



<PAGE>
 
                                 Exhibit 10.27

<PAGE>
 
08/06/96                                                                12/01/92
08/28/96
09/09/96


                                     LEASE


      THIS INDENTURE of lease, dated as of the 30th day of September, 1996, by
and between OPUS SOUTHWEST CORPORATION, a Minnesota corporation, owner of the
Complex (as hereinafter defined), hereinafter referred to as "Lessor", and P.J.
FOOD SERVICE, INC., a Kentucky corporation, hereinafter referred to as "Lessee".

                                  WITNESSETH:

      That Lessor, in consideration of the rents and covenants hereinafter set
forth, does hereby lease and let unto Lessee, and Lessee does hereby hire and
take from Lessor, that certain space shown and designated on the site plan
attached hereto and made a part hereof as Exhibit A (the "Site Plan"), which
space consists of approximately 25,436 square feet, located in the office and
warehouse complex known and described as Kyrene Business Park located north of
the northwest corner of Kyrene Road and Elliot Road, Tempe, Arizona, and the
Premises is located at 7350 South Kyrene Road, Tempe, Arizona 85283.  The
aforesaid space leased and let unto Lessee is hereinafter referred to as the
"Premises"; the land (including all easement areas appurtenant thereto) upon
which the building or buildings of which the Premises are a part is herein-
after referred to as the
 "Property"; and the Property and all buildings and
improvements and personal property of Lessor used in connection with the
operation or maintenance thereof located therein and thereon and the appur-
tenant parking facilities, if any, are hereinafter called the "Complex".

      Lessee hereby accepts this Lease and the Premises upon the covenants and
conditions set forth herein and subject to any encumbrances, covenants,
conditions, restrictions and other matters of record and all applicable zoning,
municipal, county, state and federal laws, ordinances and regulations governing
and regulating the use of the Premises.

      TO HAVE AND TO HOLD THE SAME PREMISES, without any liability or obligation
on the part of Lessor to make any alterations, improvements or repairs of any
kind on or about the Premises, except as expressly provided herein, for a term
of five (5) years, commencing on the first (1st) day of December, 1996, and
ending on the thirtieth (30th) day of November, 2001, unless sooner terminated
in the manner provided hereinafter, to be occupied and used by Lessee for
general warehouse purposes, including receiving, ordering, production, shipping,
selling and billing of products, materials and merchandise made or distributed
by Lessee, its parent, affiliates or subsidiaries, and for no other purpose,
subject to the covenants and agreements hereinafter contained.

                                      -2-

<PAGE>
 
ARTICLE I.  BASE RENT:  In consideration of the leasing aforesaid, Lessee agrees
to pay to Lessor, at c/o Normandale Properties Southwest Corporation, 4742 North
24th Street, Suite 100, Phoenix, Arizona 85016, Attention: Accounting Department
or at such other place as Lessor from time to time may designate in writing, an
annual rental as hereinafter set forth, sometimes hereinafter referred to as the
"Base Rent", payable monthly, in advance, in installments as hereinafter set
forth, commencing on the first day of the term and continuing on the first day
of each and every month thereafter for the next succeeding months during the
balance of the term:

            APPLICABLE PORTION                         MONTHLY
                  OF TERM                             BASE RENT
            ------------------                        ---------

              Months 01-60                            $ 8,139.52

      If the term commences on a date other than the first day of a calendar
month or ends on a date other than the last day of a calendar month, monthly
rent for the first month of the term or the last month of the term, as the case
may be, shall be prorated based upon the ratio that the number of days in the
term within such month bears to the total number of days in such month.

ARTICLE II.  ADDITIONAL RENT:  In addition to the Base Rent payable by Lessee
under the provisions of Article I hereof, Lessee shall pay to Lessor "Additional
Rent" as hereinafter provided for in this Article II.  All sums under this
Article II and all other sums and charges required to be paid by Lessee under
this Lease (except Base Rent), however denoted, shall be deemed to be
"Additional Rent".  If any such amounts or charges are not paid at the time
provided in this Lease, they shall nevertheless be collectible as Additional
Rent with the next installment of Base Rent falling due.

      For purposes of this Article II, the parties hereto agree upon the
following Definitions:

      A.    The term "Lease Year" shall mean each of those calendar years
            commencing with and including the year during which the term of this
            Lease commences, and ending with the calendar year during which the
            term of this Lease (including any extensions or renewals)
            terminates.

      B.    The term "Real Estate Taxes" shall mean and include all personal
            property taxes of Lessor relating to Lessor's personal property
            located in the Complex and used or useful in connection with the
            operation and maintenance thereof, real estate taxes and
            installments of special assessments, including interest thereon,
            relating to the Property and the Complex, and all other governmental
            charges, general and special, ordinary and extraordinary, foreseen
            as well as unforeseen, of any kind and nature whatsoever, or other
            tax, however described, which is levied or assessed by the United
            States of America or the state in which the Complex is located or
            any political subdivision thereof, against Lessor or all or any part
            of the Complex as a result of Lessor's ownership of the

                                      -3-

<PAGE>
 
            Property or the Complex, and payable during the respective Lease
            Year.  The term "Real Estate Taxes" shall also include any
            assessments or other charges imposed against Lessor or all or any
            part of the Complex and payable during the respective Lease Year
            as a result of the Complex being subject to any covenants,
            conditions or restrictions now or hereafter recorded, as the same
            may be amended from time to time. It shall not include any net
            income tax, estate tax or inheritance tax.  Nothwithstanding
            anything to the contrary contained herein, the term "Real Estate
            Taxes" shall not include personal property taxes of Lessor relating
            to any of Lessor's personal property to the extent that such
            personal property is used or useful in connection with the operation
            and maintenance of future phases of Lessor's proposed development of
            the real property adjacent to the Complex.  In addition, "Real
            Estate Taxes" shall not include any special assessments or other
            charges imposed against Lessor as a result of the development of
            future phases of Lessor's proposed development of the real property
            adjacent to the Complex, including, without limitation, Phase II or
            Phase III (as hereinafter defined).

      C.    The term "Operating Expenses" shall mean and include all expenses
            incurred with respect to the maintenance and operation of the
            Property and the Complex as determined in accordance with generally
            accepted accounting principles consistently followed, including, but
            not limited to, insurance premiums (including insurance premiums for
            rent insurance), maintenance and repair costs, steam, electricity,
            water, sewer, gas and other utility charges (if any), fuel for
            maintenance vehicles, lighting, window washing and janitorial
            services for the common areas, trash and rubbish removal (excluding
            removal of garbage generated by tenants of the Complex), wages
            payable to employees of Lessor whose duties are directly connected
            with the operation and maintenance of the Property and the Complex
            (but only for the portion of their time allocable to work related to
            the Complex), amounts paid to contractors or subcontractors for work
            or services performed in connection with the operation and
            maintenance of the Property and the Complex, all costs of uniforms,
            supplies and materials used in connection with the operation and
            maintenance of the Property and the Complex, all payroll taxes,
            unemployment insurance costs, vacation allowances and the cost of
            providing disability insurance or benefits, pensions, profit sharing
            benefits, hospitalization, retirement or other so-called fringe
            benefits, and any other expense imposed on Lessor or its contractors
            or subcontractors, pursuant to law or pursuant to any collective
            bargaining agreement covering such employees, all services,
            supplies, repairs, replacements (except those of a capital nature)
            or other expenses for maintaining and operating the Complex,
            reasonable attorneys' fees and costs in connection with appeal or
            contest of real estate or other taxes or levies, and such other
            expenses as may be ordinarily

                                      -4-

<PAGE>
 
            incurred in the operation and maintenance of a warehouse complex and
            not specifically set forth herein, including reasonable management
            fee not to exceed three percent (3%) of annual gross receipts
            received from the operation of the Complex. The term "Operating
            Expenses" shall not include any capital improvement to the Complex
            other than replacements required for normal maintenance and repair,
            nor shall it include repairs, restoration or other work occasioned
            by fire, windstorm or other insured casualty, expenses incurred in
            leasing or procuring tenants for the Complex or for Phase II or
            Phase III (as defined in Article XXVI), leasing commissions,
            advertising and marketing expenses, expenses for renovating space
            for new tenants, legal expenses incident to enforcement by Lessor of
            the terms of any lease, interest or principal payments on any
            mortgage or other indebtedness of Lessor, compensation paid to any
            employee of Lessor above the grade of building superintendent,
            depreciation allowance or expense.  Notwithstanding the foregoing,
            in the event Lessor installs equipment in or makes improvements or
            alterations to the Complex which are for the purpose of reducing
            energy costs, maintenance costs or other Operating Expenses or which
            are required under any governmental laws, regulations or ordinances
            which were not required at the date of commencement of the term of
            this Lease, Lessor may include in Operating Expenses reasonable
            charges for interest on such investment and reasonable charges for
            depreciation on the same so as to amortize such investment over the
            reasonable life of such equipment, improvement or alteration on a
            straight line basis.  Operating Expenses shall also be deemed to
            include expenses incurred by Lessor in connection with city
            sidewalks adjacent to the Property or other public facility to which
            Lessor or the Complex is from time to time subject in connection
            with operations of the Property and the Complex, only to the extent
            such other public facility benefits Phase I (as depicted on the Site
            Plan).

      D.    The term "Lessee's Pro Rata Share of Real Estate Taxes" shall mean
            twenty-five and fifty-nine one hundredths percent (25.59%) of the
            Real Estate Taxes for the applicable Lease Year, and the term
            "Lessee's Pro Rata Share of Operating Expenses" shall mean twenty-
            five and fifty-nine one hundredths percent (25.59%) of the Operating
            Expenses for the applicable Lease Year.  Said percentages have been
            agreed upon by the parties hereto after due consideration of the
            rentable area of the Premises compared to the rentable area of the
            Complex.

      As to each Lease Year after the term of this Lease commences, Lessor shall
estimate and provide Lessee with a detailed cost projection in writing for each
such Lease Year (i) the total amount of Real Estate Taxes; (ii) the total amount
of Operating Expenses; (iii) Lessee's Pro Rata Share of Real Estate Taxes; (iv)
Lessee's Pro Rata Share of Operating Expenses; (v) the computation of the annual
and monthly rental payable during such Lease Year as a result of increases or
decreases in Lessee's Pro Rata Share of Real

                                      -5-

<PAGE>
 
Estate Taxes and Lessee's Pro Rata Share of Operating Expenses.  Said estimate
shall be in writing and shall be delivered or mailed to Lessee at the Premises.

      Lessee shall pay, as Additional Rent, the amount of Lessee's Pro Rata
Share of Real Estate Taxes for each Lease Year and Lessee's Pro Rata Share of
Operating Expenses for each Lease Year, so estimated, in equal monthly
installments, in advance, on the first day of each month during each applicable
Lease Year.  In the event that said estimate is delivered to Lessee after the
first day of January of the applicable Lease Year, said amount, so estimated,
shall be payable as Additional Rent, in equal monthly installments, in advance,
on the first day of each month over the balance of such Lease Year, with the
number of installments being equal to the number of full calendar months
remaining in such Lease Year.

      Not more than once during any applicable Lease Year, Lessor may re-
estimate the amount of Real Estate Taxes and Operating Expenses and Lessee's Pro
Rata Share thereof, and in such event Lessor shall notify Lessee, in writing, of
such re-estimate and the reasons for such re-estimate in the manner above set
forth and fix monthly installments for the then remaining balance of such Lease
Year in an amount sufficient to pay the re-estimated amount over the balance of
such Lease Year after giving credit for payments made by Lessee on the previous
estimate.

      Upon completion of each Lease Year, Lessor shall cause its accountants to
determine the actual amount of Real Estate Taxes and Operating Expenses for such
Lease Year and Lessee's Pro Rata Share thereof and deliver a written
certification of the amounts thereof to Lessee after the end of each Lease Year.
If Lessee has paid less than its Pro Rata Share of Real Estate Taxes or its Pro
Rata Share of Operating Expenses for any Lease Year, Lessee shall pay the
balance of its Pro Rata Share of the same within ten (10) days after the receipt
of such statement.  If Lessee has paid more than its Pro Rata Share of Real
Estate Taxes or its Pro Rata Share of Operating Expenses for any Lease Year,
Lessor shall, at Lessee's option, either (i) refund such excess, or (ii) credit
such excess against the most current monthly installment or installments due
Lessor for its estimate of Lessee's Pro Rata Share of Real Estate Taxes and
Lessee's Pro Rata Share of Operating Expenses for the next following Lease Year.
A pro rata adjustment shall be made for a fractional Lease Year occurring during
the term of this Lease or any renewal or extension thereof based upon the number
of days of the term of this Lease during said Lease Year as compared to three
hundred sixty-five (365) days and all additional sums payable by Lessee or
credits due Lessee as a result of the provisions of this Article II shall be
adjusted accordingly.

      Further, Lessee shall pay, also as Additional Rent, all other sums and
charges required to be paid by Lessee under this Lease, and any tax or excise on
rents, gross receipts tax, transaction privilege tax or other tax, however
described, which is levied or assessed by the United States of America or the
state in which the Complex is located or any political subdivision thereof, or
any city or municipality, against Lessor in respect to the Base Rent, Additional
Rent, or other charges reserved under this Lease or as

                                      -6-

<PAGE>
 
a result of Lessor's receipt of such rents or other charges accruing under this
Lease; provided, however, Lessee shall have no obligation to pay net income
taxes of Lessor.

ARTICLE III.  LATE CHARGE AND OVERDUE AMOUNTS - RENT INDEPENDENT:  Lessee shall
pay to Lessor, as liquidated damages, a late charge equal to five percent (5%)
of any amount not paid on the date when the same is due to compensate Lessor for
its costs in connection with such late payment by Lessee.  The assessment or
collection of a late charge hereunder shall not constitute the waiver by Lessor
of a default by Lessee under this Lease and shall not bar the exercise by Lessor
of any rights or remedies available under this Lease.  In addition, any
installment of Base Rent, Additional Rent or other charges to be paid by Lessee
accruing under the provisions of this Lease, which shall not be paid when due,
shall bear interest at the rate of eighteen percent (18%) per annum from the
date when the same is due until the same shall be paid, but if such rate exceeds
the maximum interest rate permitted by law, such rate shall be reduced to the
highest rate allowed by law under the circumstances.  Lessee's covenants to pay
the Base Rent and the Additional Rent are independent of any other covenant,
condition, provision or agreement herein contained.  Nothing herein contained
shall be deemed to suspend or delay the payment of any amount of money or charge
at the time the same becomes due and payable hereunder, or limit any other
remedy of Lessor. Base Rent and Additional Rent are sometimes collectively
referred to as "rent".  Except as may specifically be set forth to the contrary
elsewhere herein, rent shall be payable without deduction, offset, prior notice
or demand, in lawful money of the United States.

ARTICLE IV.  POSSESSION OF PREMISES:  If Lessor shall be unable to give
possession of the Premises on the date of the commencement of the term because
the construction of the Complex or the completion of the Premises has not been
sufficiently completed to make the Premises ready for occupancy, or for any
other reason, Lessor shall not be subject to any claims, damages or liabilities
for the failure to give possession on said date.  Under said circumstances, the
rent reserved and covenant to pay same shall not commence until possession of
the Premises is given or the Premises are ready for occupancy, whichever is
earlier, and, subject to the preceding sentence, failure to give possession on
the date of commencement of the term shall in no way affect the validity of this
Lease or the obligations of Lessee hereunder; provided, however, that if the
date of commencement of the initial term is delayed beyond the scheduled
commencement date, the expiration date of the initial term shall be extended to
provide for a full five-year initial term of this Lease.  If Lessee is given and
accepts possession of the Premises on a date earlier than the date above
specified for commencement of the term, the rent reserved herein and all
covenants, agreements and obligations herein and the term of this Lease shall
commence on the date that possession of the Premises is given to Lessee.

      The acceptance of possession by Lessee shall be deemed conclusively to
establish that the Premises and all other improvements of the Complex required
to be constructed by Lessor for use thereof by Lessee hereunder have been
completed at such time to Lessee's

                                      -7-

<PAGE>
 
satisfaction and in conformity with the provisions of this Lease in all respects
unless Lessee notifies Lessor in writing within sixty (60) days after
commencement of the term as to any items not completed.  Lessee waives any claim
as to matters not listed in said notice.  Lessee acknowledges that neither
Lessor nor any agent of Lessor has made any representation or warranty with
respect to the Premises or the Complex or with respect to the suitability or
fitness of either for the conduct of Lessee's business or for any other purpose.

ARTICLE V.  SERVICES:

      A.    All electric lighting bulbs and tubes and all ballasts and starters
            within the Premises shall be replaced by Lessee at the expense of
            Lessee.

      B.    Subject to Article II hereof, Lessor shall provide maintenance in
            good order, condition and repair of the parking facilities and all
            driveways leading thereto and keeping the same free from any
            unreasonable accumulation of snow.  Lessor shall keep and maintain
            the landscaped area and parking facilities in a neat and orderly
            condition.  Lessor reserves the right to designate areas of the
            appurtenant parking facilities where Lessee and its agents,
            employees and invitees shall park and may exclude Lessee, its
            agents, employees and invitees from parking in other areas as
            designated by Lessor; provided, however, Lessor shall not be liable
            to Lessee for the failure of any tenant or its invitees, employees,
            agents or customers to abide by Lessor's designations or
            restrictions.

      No interruption in, or temporary stoppage of, any of the aforesaid
services caused by repairs, renewals, improvements, alterations, strikes,
lockouts, labor controversies, accidents, inability to obtain fuel or supplies,
or other causes shall be deemed an eviction or disturbance of Lessee's use and
possession, or render Lessor liable for damages, by abatement of rent or
otherwise or relieve Lessee from any obligation herein set forth; provided,
however, that if there is a localized interruption in, or localized temporary
stoppage of, any of the aforesaid services in the Premises (as opposed to an
interruption in the general vicinity of the Complex not under Lessor's control),
and if such interruption or temporary stoppage is within the sole control of
Lessor and, after notice to Lessor, Lessor does not diligently attempt and
continue diligent attempts to cure such interruption or temporary stoppage, then
Lessee shall be entitled to a proportional abatement of Base Rent and Additional
Rent if seven (7) consecutive days of such interruption or temporary stoppage
occurs after Lessor's efforts to cure same have failed.  Said abatement shall be
determined based upon the proportion of Lessee's business that Lessee is able to
conduct in the Premises, using commercially reasonable efforts, during the
period of any such interruption. In no event shall Lessor be required to provide
any heat, air conditioning, electricity or other service in excess of that
permitted by voluntary or involuntary guidelines or laws, ordinances or
regulations of governmental authority.  Lessor reserves the right, from time to

                                      -8-

<PAGE>
 
time, to make reasonable and non-discriminatory modifications to the above
standards for utilities and services.  Lessee acknowledges and agrees that
natural gas is not presently available at the Premises, but that natural gas can
be tapped at Kyrene Road. In the event Lessee desires to tap said natural gas in
Kyrene Road and bring the same to the Premises, Lessee may do so at Lessee's
sole cost and expense provided Lessee first obtains the prior written consent of
Lessor to Lessee's plans for such extension of natural gas to the Premises.

ARTICLE VI.  USE:  The Premises shall be used for general warehouse purposes
including receiving, ordering, production, shipping, selling and billing of
products, materials and merchandise made or distributed by Lessee, its parent,
affiliates or subsidiaries and for carrying on such activities as may be
incidental thereto and for no other purpose; provided, however, Lessee may not
use or occupy the Premises, or knowingly permit the Premises to be used or
occupied, contrary to any statute, rule, order, ordinance, requirement or
regulation or any covenant, condition or restriction now or hereafter applicable
thereto, or in any manner which would violate any certificate of occupancy or
permit affecting the same, or which would cause structural injury to the
Premises or cause the value or usefulness of the Premises, or any part thereof,
substantially to diminish (reasonable wear and tear excepted) or which would
constitute a private or public nuisance or waste, and Lessee agrees that it will
promptly, upon discovery of any such use, take all necessary steps to compel
the discontinuance of such use.  Lessee shall not be obligated to comply with
the terms of any covenant, condition or restriction hereafter recorded against
the Property by Lessor to the extent said covenant, condition or restriction
would materially adversely impair Lessee's ability to engage in the use
permitted hereby.  Any use of the Premises by Lessee involving discharge of hot
water into the sewer system shall comply with all applicable laws, codes,
ordinances, rules, regulations, covenants and conditions now or hereafter
imposed against or encumbering the Property.

ARTICLE VII.  CERTAIN RIGHTS RESERVED BY LESSOR:  Lessor reserves the following
rights exercisable without notice and without liability to Lessee and without
effecting an eviction, constructive or actual, or disturbance of Lessee's use or
possession, or giving rise to any claim for setoff or abatement of rent:

      A.    To control, install, affix and maintain any and all signs on the
            Property, or on the exterior of the Complex and in any common
            corridors, entrances and other common areas thereof, except those
            signs within the Premises not visible from outside the Premises.

      B.    To reasonably designate, limit, restrict and control any service in
            or to the Complex, including but not limited to the designation of
            sources from which Lessee may obtain sign painting and lettering;
            provided, however, nothing contained herein shall be deemed to limit
            the sources from which Lessee may obtain services used in the
            ordinary course of Lessee's business, including, but not limited to,
            courier or delivery services.  Any restric-

                                      -9-

<PAGE>
 
            tion, designation, limitation or control imposed by reason of this
            subparagraph shall be imposed uniformly on Lessee and other tenants
            occupying space in the Complex.

      C.    To retain at all times and to use in appropriate instances keys to
            all exterior doors into the Premises.  No exterior locks shall be
            changed without the prior written consent of Lessor.  This provision
            shall not apply to Lessee's safes or other areas maintained by
            Lessee for the safety and security of monies, securities, negotiable
            instruments or like items, or to other areas within the Premises
            which Lessee deems proprietary.

      D.    To make repairs, improvements, alterations, additions or
            installations, whether structural or otherwise, in and about the
            Complex, or any part thereof, and for such purposes to enter upon
            the Premises, and during the continuation of any of said work, to
            temporarily close doors, entryways, public spaces and corridors in
            the Complex and to interrupt or temporarily suspend services and
            facilities.  Lessor shall give reasonable advance notice to Lessee
            prior to commencing such activities, and shall use commercially
            reasonable efforts to complete such activities at such time and in
            such manner so as to minimize any material adverse impact on the
            ability of Lessee to conduct Lessee's business in the Premises.

      E.    To approve the weight, size and location of safes and other heavy
            equipment and articles in and about the Premises and the Complex and
            to require all such items to be moved into and out of the Complex
            and the Premises only at such times and in such manner as Lessor
            shall direct in writing.  Upon approval of Lessee's space plan, as
            evidenced by the initials of an authorized representative of Lessor
            thereon, Lessor shall be deemed to have approved the weight, size
            and location of items to be located with the Premises.  In the event
            any of such items shall be moved from the locations depicted on said
            approved space plan, Lessor shall again have the approval rights
            granted in this paragraph with respect to such items.

ARTICLE VIII.  ALTERATIONS AND IMPROVEMENTS:  Lessee shall not make any
improvements, alterations, additions or installations in or to the Premises
(hereinafter referred to as the "Work") without Lessor's prior written consent,
which consent may be withheld in Lessor's sole discretion in the event such
improvements, alterations, additions or installations affect the structural,
mechanical or electrical systems of the Premises, and which consent shall not be
unreasonably withheld for other improvements, alterations, additions or
installations.  In the event Lessor should grant its consent to any
improvements, alterations, additions or installations, such consent shall be
contingent upon Lessee providing to Lessor, before commencement of the Work or
delivery of any materials to be used in the Work to the Premises or into the
Complex, plans and specifications, names and addresses of contractors, copies of
contracts, necessary permits and licenses, an indemnification in such

                                      -10-

<PAGE>
 
form and amount as may be reasonably satisfactory to Lessor and a performance
bond executed by a commercial surety reasonably satisfactory to Lessor in an
amount equal to the cost of the Work and for the payment of all liens for labor
and material arising therefrom.  Lessee agrees to defend and hold Lessor forever
harmless from any and all claims and liabilities of any kind and description
which may arise out of or be connected in any way with said improvements,
alterations, additions or installations. All Work shall be done only by
contractors or mechanics reasonably approved by Lessor and at such reasonable
times and in such manner as Lessor may from time to time reasonably designate.
All work done by Lessee or its agents, employees or contractors shall be done in
such a manner as to avoid labor disputes.  Lessee shall pay the cost of all such
improvements, alterations, additions or installations (including a reasonable
charge for Lessor's services and for Lessor's inspection and engineering time in
the event Lessor is required to retain the services of a consultant in
connection with such services) and the cost of painting, restoring or repairing
the Premises and the Complex occasioned by such improvements, alterations,
additions or installations.  Upon completion of the Work, Lessee shall furnish
Lessor with contractor's affidavits, full and final waivers of liens and
receipted bills covering all labor and materials expended and used.  The Work
shall comply with all insurance requirements and all laws, ordinances, rules and
regulations of all governmental authorities and shall be constructed in a good
and workmanlike manner.  Lessee shall permit Lessor to inspect construction
operations in connection with the Work.  Lessee shall not be allowed to make any
improvements, alterations, additions or installations without taking reasonable
steps to assure that such action does not result in a labor dispute or otherwise
would not materially interfere with Lessor's operation of the Complex.  Lessor,
by written notice to Lessee given at or prior to termination of this Lease, may
require Lessee, at Lessee's sole cost and expense, to remove any improvements,
alterations, additions or installations installed by Lessee in the Premises
(except for improvements related to general office use that were installed by
Lessee with Lessor's approval) and to repair or restore any damage caused by the
installation and removal of such improvements, alterations, additions or
installations; provided, however, with the exception of Lessee's trade fixtures
and equipment, the only improvements, additions or installations which Lessee
shall remove shall be those specified in Lessor's notice.  Lessee shall keep the
Premises and the Complex free from any liens arising out of any work performed,
material furnished or obligations incurred by Lessee, and shall indemnify,
protect, defend and hold harmless Lessor from any liens and encumbrances arising
out of any work performed or material furnished by or at the direction of
Lessee.  In the event that Lessee shall not, within twenty (20) days following
the imposition of any such lien, cause such lien to be released of record by
payment or posting of a proper bond, Lessor shall have, in addition to all other
remedies provided herein and by law, the right, but not the obligation, to cause
the same to be released by such means as it shall deem proper, including payment
of and/or defense against the claim giving rise to such lien.  All such sums
paid by Lessor and all expenses incurred by it in connection therewith,
including attorneys' fees and costs, shall be payable as Additional Rent to
Lessor by Lessee on demand with interest at the

                                      -11-

<PAGE>
 
rate provided in Article III accruing from the date paid or incurred by Lessor
until reimbursed to Lessor by Lessee.

ARTICLE IX.  REPAIRS:  Subject to Article X hereof, Lessee shall, during the
term of this Lease, at Lessee's expense, keep the Premises in as good order,
condition and repair as they were at the time Lessee took possession of the
same, reasonable wear and tear and damage from fire and other casualties
excepted.  Lessee shall keep the Premises in a neat and sanitary condition, and
Lessee shall not commit any nuisance or waste on the Premises or in, on or about
the Complex, throw foreign substances in the plumbing facilities, or waste any
of the utilities furnished by the Lessor.  All uninsured damage or injury to the
Premises or to the Complex caused by Lessee moving furniture, fixtures,
equipment or other devices in or out of the Premises or the Complex or by
installation or removal of furniture, fixtures, equipment, devices or other
property of Lessee or its agents, contractors, servants or employees, due to
carelessness, omission, neglect, improper conduct or other cause of Lessee or
its servants, employees, agents, visitors or licensees, shall be repaired,
restored and replaced promptly by Lessee at its sole cost and expense to the
same condition as existed immediately prior to such damage. All repairs,
restorations and replacements shall be in quality and class equal to the
original work.  For the duration of the term hereof, Lessee shall be obligated
to maintain a maintenance contract for the mechanical equipment serving the
Premises, and Lessee shall provide evidence of said contract to Lessor (i)
concurrently with the commencement of the term of this Lease, and (ii) at such
other times as Lessor may reasonably require.

      Lessor and its employees and agents shall have the right to enter the
Premises during or as a result of any emergency, or at any reasonable time or
times after giving Lessee reasonable advance notice for the purpose of
inspection, cleaning, repairs, altering or improving the same but nothing con-
tained herein shall be construed as imposing any obligation on Lessor to make
any repairs, alterations or improvements which are the obligation of Lessee. In
completing such repairs, alterations and improvements, Lessor shall use
commercially reasonable efforts to minimize any material adverse impact on the
ability of Lessee to engage in Lessee's business in the Premises.

      Lessor and Lessee shall meet at least ten (10) days prior to Lessee
vacating the Premises for the express purpose of conducting a joint inspection
of the Premises to determine the scope of Lessee's responsibility for repairs
and restoration to be completed prior to Lessee vacating the Premises.

ARTICLE X.  INSURANCE:  Lessor shall keep the Complex insured for the benefit of
Lessor in an amount equivalent to the full replacement value thereof (excluding
foundation, grading and excavation costs) against:

      (a)   loss or damage by fire; and

      (b)   such other risk or risks of a similar or dissimilar nature as are
now or may be customarily covered with respect to

                                      -12-

<PAGE>
 
buildings and improvements similar in construction, general location, use,
occupancy and design to the building of which the Premises is a part, including,
but without limiting the generality of the foregoing, windstorms, hail,
explosion, vandalism, malicious mischief, civil commotion provided such
additional coverage is obtainable and provided such additional coverage is such
as is customarily carried with respect to buildings and improvements similar in
construction, general location, use, occupancy and design to the building of
which the Premises is a part.

      These insurance provisions shall in no way limit or modify any of the
obligations of Lessee under any provision of this Lease.  In the event that
additional Phases are added to the Complex pursuant to Article XXVI, and such
buildings in any additional Phase are constructed in such a manner and for such
use as to require different insurance coverage than is required for the building
of which the Premises is a part, Lessor shall only include in Operating
Expenses that portion of such premium which Lessor would have paid for a
building comparable to the building of which the Premises is a part. Lessor
agrees that such policy or policies of insurance shall permit releases of
liability as provided herein and/or waiver of subrogation clause as to Lessee,
and Lessor waives, releases and discharges Lessee from all claims or demands
whatsoever which Lessor may have or acquire arising out of damage to or
destruction of the Complex or loss of use thereof occasioned by fire or other
casualty, whether such claim or demand may arise because of the negligence or
fault of Lessee or its agents, employees, customers or business invitees, or
otherwise, and Lessor agrees to look to the insurance coverage only in the event
of such loss.  Notwithstanding the foregoing, Lessee shall be obligated to pay
the rental called for hereunder in the event of damage to or destruction of the
Premises or the Complex if such damage or destruction is occasioned by the
negligence or fault of Lessee, its agents or employees. Insurance premiums paid
thereon shall be a portion of the "Operating Expenses" described in Article II
hereof.  Notwithstanding the above, in the event a release of Lessee or waiver
of subrogation as to Lessee (without invalidation of coverage) becomes generally
unavailable in insurance policies as to commercial warehouse projects similar to
the Complex, the release and any waiver of subrogation above provided for shall
cease upon written notice by Lessor to Lessee of such event.  Thereafter, Lessee
may, upon written notice to Lessor, require Lessor to secure a waiver of
subrogation as to Lessee if (a) a right to waive subrogation as to Lessee
thereafter becomes available without increased premium, or (b) a right to waive
subrogation as to Lessee becomes available and Lessee pays any increased premium
required in connection therewith.

      Lessee shall keep all of its machinery, equipment, furniture, fixtures,
personal property (including also property under the care, custody or control of
Lessee) and business interests which may be located in, upon or about the
Premises insured for the benefit of Lessee in an amount equivalent to the full
replacement value or insurable value thereof against:

      (a)   loss or damage by fire; and

                                      -13-

<PAGE>
 
      (b)   such other risk or risks of a similar or dissimilar nature as are
now, or may in the future be, customarily covered with respect to a tenant's
machinery, equipment, furniture, fixtures, personal property and business
located in a building similar in construction, general location, use, occupancy
and design to the building of which the Premises is a part, including, but
without limiting the generality of the foregoing, windstorms, hail, explosions,
vandalism, theft, malicious mischief, civil commotion.

      Lessee agrees that such policy or policies of insurance shall permit
releases of liability as provided herein and/or waiver of subrogation clause as
to Lessor, and Lessee waives, releases and discharges Lessor and its agents,
employees and contractors from all claims or demands whatsoever which Lessee may
have or acquire arising out of damage to or destruction of the machinery,
equipment, furniture, fixtures, personal property and loss of use thereof
occasioned by fire or other casualty, whether such claim or demand may arise
because of the negligence or fault of Lessor or its agents, employees,
contractors or otherwise, and Lessee agrees to look to the insurance coverage
only in the event of such loss.

      Lessor shall, as a portion of the Operating Expenses defined in Article
II, maintain, for its benefit and the benefit of its managing agent, general
public liability insurance against claims for personal injury, death or property
damage occurring upon, in or about the Complex, such insurance to afford
protection to Lessor and its managing agent.

      Lessee shall, at Lessee's sole cost and expense but for the mutual benefit
of Lessor, its managing agent and Lessee, maintain general public liability
insurance against claims for personal injury, death or property damage occurring
upon, in or about the Premises, such insurance to afford protection to Lessor,
its managing agent and Lessee to the limit of not less than One Million and
No/100 Dollars ($1,000,000.00) in respect to the injury or death to a single
person, and to the limit of not less than Three Million and No/100 Dollars
($3,000,000.00) in respect to any one accident, and to the limit of not less
than Five Hundred Thousand and No/100 Dollars ($500,000.00) in respect to any
property damage.  Such policies of insurance shall be written in companies
licensed to write insurance in Arizona having an AM Best's rating of _____ or
better, naming Lessor and its managing agent as additional insureds thereunder,
and such policies, or a memorandum or certificate of such insurance, shall be
delivered to Lessor endorsed "Premium Paid" by the company or agent issuing the
same or accompanied by other evidence satisfactory to Lessor that the premium
thereon has been paid.  At such time as insurance limits required of tenants in
warehouse buildings in the metropolitan area in which the Complex is located are
generally increased to greater amounts, Lessor shall have the right to require
such greater limits as may then be customary.  Lessee agrees to include in such
policy the contractual liability coverage insuring Lessee's indemnification
obligations provided for herein.  Any such coverage shall be deemed primary
to any liability coverage secured by Lessor.  Such insurance shall also afford
coverage for all claims based upon acts, omissions, injury or damage, which
claims occurred or arose

                                      -14-

<PAGE>
 
(or the onset of which occurred or arose) in whole or in part during the policy
period.

      Except to the extent caused by the gross negligence of Lessor, Lessee
agrees to indemnify, protect, defend and hold harmless Lessor and Lessor's
partners, shareholders, employees, lender and managing agent harmless from and
against any and all claims, losses, costs, liabilities, actions and damages,
including without limitation attorneys' fees and costs, by or on behalf of any
person or persons, firm or firms, corporation or corporations, arising from any
breach or default on the part of Lessee in the performance of any covenant or
agreement on the part of Lessee to be performed, pursuant to the terms of this
Lease, or arising from any act or negligence on the part of Lessee or its
agents, contractors, servants, employees or licensees, or arising from any
accident, injury or damage to the extent caused by Lessee or its agents or
employees to any person, firm or corporation occurring during the term of this
Lease or any renewal thereof, in or about the Premises and the Complex, and from
and against all costs, reasonable counsel fees, expenses and liabilities
incurred in or about any such claim or action or proceeding brought thereon; and
in case any action or proceeding be brought against Lessor or its managing agent
by reason of any such claim, Lessee, upon notice from Lessor, covenants to
resist or defend such action or proceeding by counsel selected by Lessee and
reasonably satisfactory to Lessor.

      Unless caused by the gross negligence of Lessor, Lessee agrees, to the
extent not expressly prohibited by law, that Lessor and Lessor's agents,
employees and servants shall not be liable, and Lessee waives all claims for
damage to property and business sustained during the term of this Lease by
Lessee occurring in or about the Complex, resulting directly or indirectly from
any existing or future condition, defect, matter or thing in the Premises, the
Complex or any part thereof, or from equipment or appurtenances becoming out of
repair, or from accident, or from any occurrence or act or omission of Lessor,
Lessor's agents, employees or servants, any tenant or occupant of the Complex or
any other person.  This paragraph shall apply especially, but not exclusively,
to damage caused as aforesaid or by the flooding of basements or other
subsurface areas, or by refrigerators, sprinkling devices, air conditioning
apparatus, water, snow, frost, steam, excessive heat or cold, falling plaster,
broken glass, sewage, gas, odors or noise, or the bursting or leaking of pipes
or plumbing fixtures, and shall apply equally, whether any such damage results
from the act or omission of other tenants or occupants in the Complex or any
other persons, and whether such damage be caused by or result from any of the
aforesaid, or shall be caused by or result from other circumstances of a similar
or dissimilar nature.

      Anything herein to the contrary notwithstanding, in the event any damage
to the Complex results from any act or omission of Lessee, its agents, employees
or invitees, and all or any portion of Lessor's loss is within the "deductible"
portion of Lessor's insurance coverage, Lessee shall pay to Lessor the amount of
such deductible loss (not to exceed $1,000 per event). All property in the
Complex or on the Premises belonging to Lessee or its agents, employees or
invitees or otherwise located at the Premises, shall

                                      -15-

<PAGE>
 
be at the risk of Lessee only, and Lessor shall not be liable for damage thereto
or theft, misappropriation or loss thereof, and Lessee agrees to defend and hold
Lessor and Lessor's agents, employees and servants harmless and indemnify them
against claims and liability for injuries to such property, unless such damage
or injury results from the gross negligence of Lessor.  Lessee shall not do or
permit anything to be done in or about the Premises nor bring or keep anything
therein which will in any way increase the existing rate of or affect in any
other way any fire or other insurance upon the building of which the Premises is
a part or any of its contents, or cause a cancellation of any insurance policy
covering the Complex or any of its contents.  In such event, Lessor shall give
written notice to Lessee of such matters and Lessee shall have a period of five
(5) days therefrom to cease such activity or remove such items from the
Premises.  In the event Lessee has not ceased such activity or removed such
items from the Premises within such five (5) day period, Lessee shall promptly,
upon demand, reimburse Lessor for the full amount of any additional premium
charged for such policy by reason of Lessee's failure to comply with the
provisions of this paragraph, it being understood that such demand for
reimbursement shall not be Lessor's exclusive remedy.  Lessee shall promptly,
upon demand, reimburse Lessor for any additional premium charged for any such
policy by reason of Lessee's failure to comply with the provisions of this
Article.

      In the event Lessee fails to provide Lessor with evidence of insurance
required under this Article X, Lessor may, but shall not be obligated to,
without further demand upon Lessee, and without waiving or releasing Lessee from
any obligation contained in this Lease, obtain such insurance and Lessee agrees
to repay, upon demand, all such sums incurred by Lessor in effecting such
insurance.  All such sums shall become a part of the Additional Rent payable
hereunder, but no such payment by Lessor shall relieve Lessee from any default
under this Lease.

ARTICLE XI.  ASSIGNMENT AND SUBLETTING:  Lessee shall not, without the prior
written consent of Lessor, (i) transfer, pledge, mortgage or assign this Lease
or any interest hereunder; (ii) permit any assignment of this Lease by voluntary
act, operation of law or otherwise; (iii) sublet the Premises or any part
thereof; or (iv) permit the use of the Premises by any parties other than Lessee
and its agents and employees, its subsidiaries, affiliates or parent company for
the uses permitted under this Lease.  Lessee shall seek such written consent of
Lessor by a written request therefor, setting forth such information as Lessor
may reasonably deem necessary.  Lessee shall, by notice in writing, advise
Lessor of Lessee's intention, from, on and after a stated date (which shall not
be less than thirty (30) days after the date of Lessee's notice), to assign this
Lease or to sublet any part or all of the Premises for the balance or any part
of the term.  Lessee's notice shall include all of the terms of the proposed
assignment or sublease and shall state the consideration therefor.  In such
event, Lessor shall have the right, to be exercised by giving written notice to
Lessee within thirty (30) days after receipt of Lessee's notice, to recapture
the space described in Lessee's notice and such recapture notice shall, if
given, cancel and terminate this Lease with respect to the space therein
described as of the date

                                      -16-

<PAGE>
 
stated in Lessee's notice. Lessee's notice shall state the name and address of
the proposed assignee or subtenant and a true and complete copy of the proposed
assignment or sublease shall be delivered to Lessor with Lessee's notice.  If
Lessee's notice shall cover all of the Premises, and Lessor shall have exercised
its foregoing recapture right, the term of this Lease shall expire and end on
the date stated in Lessee's notice as fully and completely as if that date had
been herein definitely fixed for the expiration of the term.  If, however, this
Lease be canceled with respect to less than the entire Premises, the Base Rent
and Additional Rent shall be adjusted pro rata in proportion to the portion of
the Premises recaptured and such rent shall be reduced accordingly from and
after the termination date for said portion, and this Lease as so amended shall
continue thereafter in full force and effect.  The rent adjustments provided for
herein shall be evidenced by an amendment to this Lease executed by Lessor and
Lessee.  If this Lease shall be terminated in the manner aforesaid, either as to
the entire Premises or only a portion thereof, to such extent the term of this
Lease shall end upon the appropriate effective date of the proposed sublease or
assignment as if that date had been originally fixed in this Lease for such
expiration, and in the event of a termination affecting less than the entire
Premises, Lessee shall comply with Article XIV ("Surrender of Premises") of this
Lease with respect to such portion of the Premises affected thereby.
Notwithstanding anything to the contrary herein, if Lessee desires to sell its
business and either (i) assign to the purchaser thereof all of Lessee's interest
in this Lease or (ii) sublet all of the Premises to the purchaser thereof, the
provisions of this Article X shall otherwise apply to such situation except
Lessor shall have no right to recapture the Premises.

      In the event of any termination pursuant to this paragraph, Lessee shall,
at its sole cost and expense, discharge in full any commission which may be due
and owing as a result of any proposed assignment or subletting, whether or not
the subject portion of the Premises is "recaptured" pursuant thereto and rented
by Lessor to the proposed tenant or any other tenant.

      If Lessor, upon receiving Lessee's notice with respect to any such space,
shall not exercise its right to recapture as aforesaid, Lessor will not
unreasonably withhold its consent to Lessee's assignment of the Lease or
subletting such space to the party identified in Lessee's notice, provided,
however, that in the event Lessor consents to any such assignment or subletting,
and as a condition thereto, Lessee shall pay to Lessor fifty percent (50%) of
all profit derived by Lessee from such assignment or subletting.  For purposes
of the foregoing, profit shall be deemed to include, but shall not be limited
to, the amount of all rent payable by such assignee or sublessee in excess of
the Base Rent, and rent adjustments, payable by Lessee under this Lease.  If a
part of the consideration for such assignment or subletting shall be payable
other than in cash, the payment to Lessor shall be in cash for its share of any
non-cash consideration based upon the fair market value thereof.

      Lessee shall and hereby agrees that it will furnish to Lessor upon request
from Lessor a complete statement, certified by an

                                      -17-

<PAGE>
 
independent certified public accountant, setting forth in detail the computation
of all profit derived and to be derived from such assignment or subletting, such
computation to be made in accordance with generally accepted accounting
principles.  Lessee agrees that Lessor and its authorized representatives shall
be given access at all reasonable times to the books, records and papers of
Lessee relating to any such assignment or subletting, and Lessor shall have the
right to make copies thereof.  The percentage of Lessee's profit due Lessor
hereunder shall be paid by Lessee to Lessor within five (5) days of receipt
by Lessee of all payments made from time to time by such assignee or sublessee
to Lessee.

      For purposes of the foregoing, any change in the partners of Lessee, if
Lessee is a partnership, or, if Lessee is a corporation, any transfer of any or
all of the shares of stock of Lessee by sale, assignment, operation of law or
otherwise resulting in a change in the present control of such corporation by
the person or persons owning a majority of such shares as of the date of this
Lease, shall be deemed to be an assignment within the meaning of this Article
XI.  Notwithstanding the provisions of this paragraph, the transfer of any or
all of the shares of stock of Lessee shall not be deemed an assignment for
purposes of this Article X, provided that, at the time of such transfer, said
stock is publicly traded on a recognized national stock exchange.

      Any subletting or assignment hereunder shall not release or discharge
Lessee of or from any liability, whether past, present or future, under this
Lease, and Lessee shall continue fully liable thereunder.  The subtenant or
subtenants or assignee shall agree in a form satisfactory to Lessor to agree to
be obligated for, comply with, and be bound by all of the terms, covenants,
conditions, provisions and agreements of this Lease to the extent of the space
sublet or assigned, and Lessee shall deliver to Lessor promptly after execution
an executed copy of each such sublease or assignment.  Consent by Lessor to any
assignment of this Lease or to any subletting of the Premises shall not be a
waiver of Lessor's rights under this Article as to any subsequent assignment or
subletting.

      Any sale, assignment, mortgage, transfer or subletting of this Lease which
is not in compliance with the provisions of this Article XI shall be of no
effect and void.  Lessor's right to assign its interest in this Lease shall
remain unqualified.  Lessor may make a reasonable charge (not to exceed $500.00)
to Lessee for any reasonable attorneys' fees or expenses incident to a review of
any documentation related to any proposed assignment or subletting by Lessee.

      Lessee, without the consent of Lessor, in the ordinary course of Lessee's
business shall have the right to allow a portion of the Premises (not to exceed
five percent (5%) of the floor area thereof) to be used by a licensee from time
to time as reasonably necessary in connection with the operation of Lessee's
business, subject to all the terms, covenants and conditions of this Lease,
provided notice of the nature of the use is given promptly to Lessor prior to
said use commencing, and further provided that the occupancy is subject to all
of the terms, covenants and conditions of this Lease.

                                      -18-

<PAGE>
 
      Notwithstanding anything to the contrary in this Lease, Lessee shall not
assign its rights under this Lease or sublet all or any part of the Premises to
a person, firm or corporation which is (or, immediately prior to such subletting
or assignment, was) a tenant or occupant of the Complex or any warehouse or
office building on property contiguous to the Complex owned by Lessor.

      The consent of Lessor to a transfer may not be unreasonably withheld,
provided that should Lessor withhold its consent for any of the following
reasons, which list is not exclusive, such withholding shall be deemed to be
reasonable:

      (a)   Financial strength of the proposed transferee is not at least equal
            to that of Lessee at the time of execution of this Lease or of
            tenants occupying comparable premises in the Complex or in other
            buildings owned or operated by Lessor located in the same
            metropolitan area as the Complex;

      (b)   A proposed transferee whose occupation of the Premises would cause a
            diminution in the reputation of the Complex or the other businesses
            located therein due to the nature of the business conducted by such
            proposed transfer;

      (c)   A proposed transferee whose impact on the common areas or the other
            occupants of the Complex would be disadvantageous due to, without
            limitation, excessive noise or vibrations, or an impact on the
            parking facilities substantially in excess of that for a normal
            warehouse use; or

      (d)   A proposed transferee whose occupancy will require any variation in
            the terms and conditions of this Lease.

      Lessee agrees that its personal business skills and philosophy were an
important inducement to Lessor for entering into this Lease and that Lessor may
reasonably object to the transfer of the Premises to another tenant whose
proposed use, while permitted by this Lease, would involve a different quality,
manner or type of business skill than that of Lessee.


ARTICLE XII.  DAMAGE BY FIRE OR OTHER CASUALTY:  If fire or other casualty shall
render the whole or any material portion of the Premises untenantable, and the
Premises can reasonably be expected to be made tenantable within one hundred
twenty (120) days from the date of such event, then Lessor shall repair and
restore the Premises and the Complex to as near their condition prior to the
fire or other casualty as is reasonably possible within such one hundred twenty
(120) day period (subject to delays for Force Majeure) and notify Lessee that it
will be doing so, such notice to be mailed within thirty (30) days from the date
of such damage or destruction, and this Lease shall remain in full force and
effect, but the rent for the period during which the Premises are untenantable
shall be abated pro rata (based upon the portion of the Premises which is
untenantable).  If Lessor is required to repair the Complex and/or the
Premises, as aforesaid, said work shall be undertaken and prosecuted with all
due diligence and speed.  For purposes of this Lease, "Force Majeure" shall be
deemed to mean delay

                                      -19-

<PAGE>
 
caused by act or neglect of Lessee or those acting for or under Lessee, or by
labor disputes, casualties, acts of God or the public enemy, governmental
embargo restrictions, shortages of fuel, labor or building materials, action or
nonaction of public utilities, or of local, state or federal governments
affecting the Tenant Improvements (such as a delay in the issuance of a building
permit or other governmental approval), or other causes beyond Lessor's
reasonable control.

      If fire or other casualty shall render the whole or any material part of
the Premises untenantable and the Premises cannot reasonably be expected to be
made tenantable within one hundred twenty (120) days from the date of such
event, then either party, by notice in writing to the other mailed within thirty
(30) days from the date of such damage or destruction, may terminate this Lease
effective upon a date within thirty (30) days from the date of such notice.

      In the event that more than sixty percent (60%) of the value of the
Complex is damaged or destroyed by fire or other casualty, and in the event a
material portion of the building of which the Premises is a part is damaged or
destroyed by such fire or other casualty, and irrespective of whether damage or
destruction can be made tenantable within one hundred twenty (120) days
thereafter, then at Lessor's option, by written notice to Lessee, mailed within
forty-five (45) days from the date of such damage or destruction, Lessor may
terminate this Lease effective upon a date within ninety (90) days from the date
of such notice to Lessee.

      If fire or other casualty shall render any portion of the Premises or any
material portion of the building of which the Premises is a part untenantable
and the insurance proceeds are not sufficient to make repairs, then Lessor may,
by notice to Lessee, mailed within thirty (30) days from the date of such
damages or destruction, terminate this Lease effective upon a date within thirty
(30) days from the date of such notice.

      If the Premises or the Complex is damaged, and such damage is of the type
insured against under the fire and special form property damage insurance
maintained by Lessor hereunder, the cost of repairing said damage up to the
amount of the deductible under said insurance policy shall be included as a part
of the Operating Expenses.  If the damage is not covered by such insurance
policies and Lessor elects to repair the damage, then Lessee shall pay Lessor a
pro rata share of the "deductible amount" (if any) under Lessor's insurance
policies based on Lessee's percentage interest of the Premises and, if the
damage was due to an act or omission of Lessee, Lessee shall pay Lessor the
difference between the actual cost of repair and any insurance proceeds received
by Lessor.

      If fire or other casualty shall render the whole or any material part of
the Premises untenantable and the Premises cannot reasonably be expected to be
made tenantable within one hundred twenty (120) days from the date of such event
and neither party hereto terminates this Lease pursuant to its rights herein or
in the event that more than sixty percent (60%) of the value of the Complex is
damaged or destroyed by fire or other casualty, and Lessor does not

                                      -20-

<PAGE>
 
terminate this Lease pursuant to its option granted herein, or in the event that
sixty percent (60%) or less of the value of the Complex is damaged or destroyed
by fire or other casualty and neither the whole nor any material portion of the
Premises is rendered untenantable, then Lessor shall repair and restore the
Premises and the Complex to as near their condition prior to the fire or other
casualty as is reasonably possible with all due diligence and speed (subject to
delays for causes beyond Lessor's reasonable control) and the rent for the
period during which the Premises are untenantable shall be abated pro rata
(based upon the portion of the Premises which is untenantable).  In no event
shall Lessor be obligated to repair or restore any special equipment or
improvements installed by Lessee.  Anything herein contained to the contrary
notwithstanding, Lessor shall not be obligated to spend more than the net
insurance proceeds available to Lessor on account of any fire or other casualty
in order to repair or restore the Premises or the Complex following such
casualty; provided, however, Lessor shall notify Lessee promptly after the
casualty if Lessor is unwilling to expend more than available net insurance
proceeds.

      In the event of a termination of this Lease pursuant to this Article, rent
shall be apportioned on a per diem basis and paid to the date of the fire or
other casualty.

ARTICLE XIII.  EMINENT DOMAIN:  If the whole of or any substantial part of the
Premises is taken by any public authority under the power of eminent domain, or
taken in any manner for any public or quasi-public use, so as to render the
remaining portion of the Premises unsuitable for the purposes intended
hereunder, then the term of this Lease shall cease as of the day possession
shall be taken by such public authority and Lessor shall make a pro rata refund
of any prepaid rent.  All damages awarded for such taking under the power of
eminent domain or any like proceedings shall belong to and be the property of
Lessor, Lessee hereby assigning to Lessor Lessee's interest, if any, in said
award.  In the event that fifty percent (50%) or more of the building area or
fifty percent (50%) or more of the value of the building of which the Premises
is a part is taken by public authority under the power of eminent domain, then,
at Lessor's option, by written notice to Lessee mailed within sixty (60) days
from the date possession shall be taken by such public authority, Lessor may
terminate this Lease effective upon a date within ninety (90) days from the date
of such notice to Lessee.  Further, if the whole of or any material part of the
Premises is taken by public authority under the power of eminent domain, or
taken in any manner for any public or quasi-public use, so as to render the
remaining portion of the Premises unsuitable for the purposes intended
hereunder, upon delivery of possession to the condemning authority pursuant to
the proceedings, Lessee may, at its option, terminate this Lease as to the
remainder of the Premises by written notice to Lessor, such notice to be given
to Lessor within thirty (30) days after Lessee receives notice of the taking.
Lessee shall not have the right to terminate this Lease pursuant to the
preceding sentence unless (i) the business of Lessee conducted in the portion of
the Premises taken cannot be carried on with substantially the same utility and
efficiency in the remainder of the Premises (or any substitute space securable
by Lessee pursuant to clause (ii) hereof); and (ii)

                                      -21-

<PAGE>
 
Lessee cannot secure substantially similar (in Lessee's reasonable judgment)
alternate space upon the same terms and conditions as set forth in this Lease
(including rental) from Lessor in the Complex (with Lessor to bear the costs and
expenses of moving Lessee to such alternate space).  Any notice of termination
shall specify the date no more than sixty (60) days after the giving of such
notice as the date for such termination.

      Anything in this Article XIII to the contrary notwithstanding, Lessee
shall have the right to prove in any condemnation proceedings and to receive any
separate award which may be made for damages to or condemnation of Lessee's
movable trade fixtures and equipment and for moving expenses; provided, however,
Lessee shall in no event have any right to receive any award for its interest in
this Lease or for loss of leasehold; and, provided further, Lessee shall not be
entitled to claim any award to the extent the award to Lessor would be reduced
below the amount which would be allowed to Lessor absent such claim by Lessee.
In the event of a partial condemnation of the Complex or the Premises and this
Lease is not terminated, Lessor shall, at its sole cost and expense, restore the
Premises and Complex to a complete architectural unit and the Base Rent provided
for herein during the period from and after the date of delivery of possession
pursuant to such proceedings to the termination of this Lease shall be reduced
pro rata based on the square footage of the Premises so taken.  Notwithstanding
the foregoing provisions of this Article, Lessor may terminate this Lease with
no further liability to Lessee whatsoever in the event that following any taking
of any part of the Complex by condemnation or right of eminent domain, or any
conveyance in lieu thereof, any party holding a mortgage, trust deed or similar
lien on Lessor's interest in the Complex elects to require the application of an
award or payment for the taking or conveyance in lieu thereof to reduce the
indebtedness secured by such mortgage, trust deed or similar lien.  Lessor's
obligation to rebuild, repair or restore under this Article shall in all events
be limited to the extent of the net condemnation proceeds available to Lessor
therefor.

ARTICLE XIV.  SURRENDER OF PREMISES:  On the last day of the term of this Lease,
or on the sooner termination thereof, Lessee shall peaceably surrender the
Premises in good condition and repair consistent with Lessee's duty to make
repairs as herein provided. On or before the last day of the term of this Lease,
or the date of sooner termination thereof, Lessee shall, at its sole cost and
expense, remove all of its property and trade fixtures and equipment from the
Premises, and all property not removed shall be deemed abandoned. Lessee shall
leave the Premises in good order, condition and repair, reasonable wear and tear
and damage from fire and other casualty not caused by Lessee excepted.  Lessor
may, at Lessor's option, deduct the amount of any expenses incurred by Lessor
with respect to the removal, transportation or storage of abandoned property
from the Security Deposit required pursuant to Article XXV hereof.  In the event
that the Security Deposit is not sufficient to reimburse Lessor for the full
amount of such expenses, or in the event that Lessor elects not to withhold such
amounts from the Security Deposit, Lessee shall reimburse Lessor upon demand for
any expenses incurred by Lessor with respect to removal, transportation or
storage of abandoned property and with

                                      -22-

<PAGE>
 
respect to restoring said Premises to good order, condition and repair.  All
improvements, alterations, additions, installations and fixtures, other than
Lessee's trade fixtures and equipment, which have been made or installed by
either Lessor or Lessee upon the Premises shall remain the property of Lessor
and shall be surrendered with the Premises as a part thereof, unless Lessee is
required to remove same pursuant to the provisions of Article VIII hereof.  If
the Premises are not surrendered at the end of the term or sooner termination
thereof, Lessee shall indemnify Lessor against loss or liability resulting from
delay by Lessee in so surrendering the Premises, including, without limitation,
claims made by any succeeding tenants founded on such delay and any attorneys'
fees resulting therefrom.  Lessee shall promptly surrender all keys for the
Premises to Lessor at the place then fixed for the payment of rent and shall
inform Lessor of the combinations of any vaults, locks and safes left on the
Premises.

      In the event Lessee remains in possession of the Premises after expiration
of this Lease and without the execution of a new lease, but with Lessor's
written consent, Lessee shall be deemed to be occupying the Premises as a tenant
from month-to-month, subject to all the provisions, conditions and obligations
of this Lease insofar as the same can be applicable to a month-to-month tenancy,
except that the Base Rent shall be escalated to one hundred fifty percent (150%)
of the Base Rent payable hereunder immediately prior to the expiration of this
Lease.  In the event Lessee remains in possession of the Premises after
expiration of this Lease and without the execution of a new lease and without
Lessor's written consent, Lessee shall be deemed to be occupying the Premises
without claim of right and Lessee shall pay Lessor for all costs arising out of
loss or liability resulting from delay by Lessee in so surrendering the Premises
as above provided and shall pay as a charge for each day of occupancy an amount
equal to two hundred percent (200%) of the Base Rent (on a daily basis) payable
hereunder immediately prior to the expiration of this Lease plus the Additional
Rent (on a daily basis) then currently being charged by Lessor on new leases in
the Complex for space similar to the Premises.

ARTICLE XV.  DEFAULT OF LESSEE:  The occurrence of any one or more of the
following events (in this Article sometimes called "Event of Default") shall
constitute a default and breach of this Lease by Lessee:

      A.    If Lessee fails to pay any Base Rent or Additional Rent payable
            under this Lease or fails to pay any obligation required to be paid
            by Lessee when and as the same shall become due and payable, and
            such default continues for a period of five (5) days after written
            notice thereof given by Lessor to Lessee.

      B.    If Lessee fails to perform any of Lessee's nonmonetary obligations
            under this Lease for a period of thirty (30) days after written
            notice from Lessor; provided that if more time is required to
            complete such performance, Lessee shall not be in default if Lessee
            commences such performance within the thirty-day period and
            thereafter

                                      -23-

<PAGE>
 
            diligently pursues its completion.  However, Lessor shall not be
            required to give such notice if Lessee's failure to perform
            constitutes a non-curable breach of this Lease.  The notice required
            by this subsection is intended to satisfy any and all notice
            requirements imposed by law on Lessor and is not in addition to any
            such requirement.

      C.    If Lessee, by operation of law or otherwise, violates the provisions
            of Article XI hereof relating to assignment, sublease, mortgage or
            other transfer of Lessee's interest in this Lease or in the Premises
            or in the income arising therefrom.

      D.    Lessee, by operation of law or otherwise, violates the provisions of
            Article XVII.R relating to compliance with environmental laws.

      E.    If (i) Lessee makes a general assignment or general arrangement for
            the benefit of creditors; (ii) a petition for adjudication of
            bankruptcy or for reorganization or rearrangement is filed by or
            against Lessee and is not dismissed within thirty (30) days; (iii)
            if a trustee or receiver is appointed to take possession of
            substantially all of Lessee's assets located at the Premises or of
            Lessee's interest in this Lease and possession is not restored to
            Lessee within thirty (30) days; or (iv) if substantially all of
            Lessee's assets located at the Premises or of Lessee's interest in
            this Lease is subjected to attachment, execution or other judicial
            or non-judicial seizure which is not discharged within thirty (30)
            days.  If a court of competent jurisdiction determines that any of
            the acts described in this subsection does not constitute an
            Event of Default and a trustee is appointed to take possession
            (or if Lessee remains a debtor in possession) and such trustee or
            Lessee transfers Lessee's interest hereunder, then Lessor shall
            receive, as Additional Rent, the difference between the rent (or any
            other consideration) paid in connection with such assignment or
            sublease and the rent payable by Lessee hereunder.  As used in this
            subsection, the term "Lessee" shall also mean any guarantor of
            Lessee's obligations under this Lease.  If any such Event of Default
            shall occur, Lessor, at any time during the continuance of any such
            Event of Default, may give written notice to Lessee stating that
            this Lease shall expire and terminate on the date specified in such
            notice, and upon the date specified in such notice this Lease, and
            all rights of Lessee under this Lease, including all rights of
            renewal whether exercised or not, shall expire and terminate, or in
            the alternative or in addition to the foregoing remedy, Lessor may
            assert and have the benefit of any other remedy allowed herein, at
            law, or in equity.

      Upon the occurrence of an Event of Default by Lessee, and at any time
thereafter, with or without notice or demand and without limiting Lessor in the
exercise of any right or remedy which Lessor

                                      -24-

<PAGE>
 
may have, Lessor shall be entitled to the rights and remedies set forth below:

      A.    Terminate Lessee's right to possession of the Premises by any lawful
            means, in which case this Lease shall not terminate unless Lessor
            gives written notice to Lessee of its intention to terminate this
            Lease and Lessee shall immediately surrender possession of the
            Premises to Lessor.  In such event, Lessor shall have the immediate
            right to reenter and remove all persons and property, and such
            property may be removed and stored in a public warehouse or
            elsewhere at the cost of, and for the account of Lessee, all without
            service of notice or resort to legal process and without being
            deemed guilty of trespass, or becoming liable for any loss or damage
            which may be occasioned thereby.  In the event that Lessor shall
            elect to so terminate this Lease, then Lessor shall be entitled to
            recover from Lessee all damages incurred by Lessor by reason of
            Lessee's default, including:

            1.    The equivalent of the amount of the Base Rent and Additional
                  Rent which would be payable under this Lease by Lessee if this
                  Lease were still in effect, less

            2.    The net proceeds of any reletting affected pursuant to the
                  provisions of this Article XV hereof after deducting all of
                  Lessor's reasonable expenses in connection with such relet-
                  ting, including, without limitation, all repossession costs,
                  brokerage commissions, legal expenses, reasonable attorneys'
                  fees, alteration costs, and expenses of preparation of the
                  Premises, or any portion thereof, for such reletting.

            Lessee shall pay such current damages in the amount determined in
            accordance with the terms of this Article XV as set forth in a
            written statement thereof from Lessor to Lessee (hereinafter called
            the "Deficiency"), to Lessor in monthly installments on the days on
            which the rent would have been payable under this Lease if this
            Lease were still in effect, and Lessor shall be entitled to recover
            from Lessee each monthly installment of the Deficiency as the same
            shall arise.

      B.    At any time after an Event of Default, whether or not Lessor shall
            have collected any monthly Deficiency as set forth in this Article
            XIV, Lessor shall be entitled to recover from Lessee, and Lessee
            shall pay to Lessor, on demand, as and for final damages for
            Lessee's default, an amount equal to the then present worth of the
            amount by which (i) the aggregate of the Base Rent and Additional
            Rent and any other charges to be paid by Lessee hereunder for the
            unexpired portion of the term of this Lease (assuming this Lease had
            not been so terminated), exceeds (ii) the fair market rents and all
            other charges for the Premises during the unexpired portion of the
            term of this

                                      -25-

<PAGE>
 
            Lease (assuming this Lease had not been so terminated).  In the
            computation of present worth, a discount at the rate of 6% per annum
            shall be employed.  If the Premises, or any portion thereof, shall
            be relet by Lessor for the unexpired term of this Lease, or any part
            thereof, before presentation of proof of such damages to any court,
            commission or tribunal, the amount of rent received upon such
            reletting shall be offset against any monies claimed pursuant to
            this subsection. Nothing herein contained or contained in this
            Article XV shall limit or prejudice the right of Lessor to prove for
            and obtain, as damages, an amount equal to the maximum allowed by
            any statute or rule of law in effect at the time when, and governing
            the proceedings in which, such damages are to be proved, whether
            or not such amount be greater, equal to or less than the amount of
            the difference referred to above.

      C.    Upon the occurrence of an Event of Default by Lessee, Lessor shall
            also have the right, with or without terminating this Lease, to
            reenter the Premises to remove all persons and property from the
            Premises.  Such property may be removed and stored in a public
            warehouse or elsewhere at the cost of and for the account of Lessee.
            If Lessor shall elect to reenter the Premises, Lessor shall not be
            liable for damages by reason of such reentry.

      D.    If Lessor does not elect to terminate this Lease as provided in this
            Article XV then Lessor may, from time to time, recover all rent as
            it becomes due under this Lease.  At any time thereafter, Lessor may
            elect to terminate this Lease and to recover damages to which Lessor
            is entitled.

      E.    In the event that Lessor should elect to terminate this Lease and to
            relet the Premises, it may execute any new lease in its own name. In
            the event that Lessor should not elect to terminate this Lease, it
            may re-let the premises to a substitute tenant.  Lessee hereunder
            shall have no right or authority whatsoever to collect any rent from
            such substitute tenant.  The proceeds of any such reletting shall be
            applied as follows:

            1.    First, to the payment of any indebtedness other than rent due
                  hereunder from Lessee to Lessor, including but not limited to
                  storage charges or brokerage commissions owing from Lessee to
                  Lessor as the result of such reletting;

            2.    Second, to the payment of the reasonable costs and expenses of
                  reletting the Premises, including alterations and repairs
                  which Lessor, in its reasonable, good faith discretion, deems
                  reasonably necessary and advisable and reasonable attorneys'
                  fees incurred by Lessor in connection with the retaking of the
                  Premises and such reletting;

                                      -26-

<PAGE>
 
            3.    Third, to the payment of rent and other charges due and unpaid
                  hereunder; and

            4.    Fourth, to the payment of future rent and other damages
                  payable by Lessee under this Lease.

      Lessor shall not be deemed to have terminated this Lease and the Lessee's
right to possession of the leasehold or the liability of Lessee to pay rent
thereafter to accrue or its liability for damages under any of the provisions
hereof, unless Lessor shall have notified Lessee in writing that it has so
elected to terminate this Lease.  Lessee covenants that the retaking of
possession by Lessor or the service by Lessor of any notice pursuant to the
applicable unlawful detainer statutes of the state in which the Complex is
located and Lessee's surrender of possession pursuant to such notice shall not
(unless Lessor elects to the contrary at the time of, or at any time subsequent
to the service of, such notice, and such election be evidenced by a written
notice to Lessee) be deemed to be a termination of this Lease or of Lessee's
right to possession thereof.

      All rights, options and remedies of Lessor contained in this Lease shall
be construed and held to be cumulative, and no one of them shall be exclusive of
the other, and Lessor shall have the right to pursue any one or all of such
remedies or any other remedy or relief which may be provided by law whether or
not stated in this Lease.  No waiver by Lessor of a breach of any of the terms,
covenants or conditions of this Lease by Lessee shall be construed or held to be
a waiver of any succeeding or preceding breach of the same or any other term,
covenant or condition therein contained.  No waiver of any default of Lessee
hereunder shall be implied from any omission by Lessor to take any action on
account of such default if such default persists or is repeated, and no express
waiver shall affect default other than as specified in said waiver. The consent
or approval by Lessor to or of any act by Lessee requiring Lessor's consent or
approval shall not be deemed to waive or render unnecessary Lessor's consent
to or approval of any subsequent similar acts by Lessee.

      Lessee shall reimburse Lessor, upon demand, for any costs or expenses
incurred by Lessor in excess of Five Hundred and No/100ths Dollars ($500.00) in
connection with any breach or default of Lessee under this Lease, whether or not
suit is commenced or judgment entered.  Such costs shall include, but not be
limited to: legal fees and costs incurred for the negotiation of a settlement,
enforcement of rights or otherwise.  Furthermore, if any action for breach of or
to enforce the provisions of this Lease is commenced, the court in such action
shall award to the party in whose favor a judgment is entered a reasonable sum
as attorneys' fees and costs.  Such attorneys' fees and costs shall be paid by
the losing party in such action.  Lessee shall also indemnify Lessor against and
hold Lessor harmless from all costs, expenses, demands and liability incurred by
Lessor if Lessor becomes or is made a party to any claim or action (a)
instituted by Lessee, or by any third party against Lessee except where such
claim or action arises out of an occurrence in the common areas of the Complex
and does not allege an act or omission by Lessee or Lessee's agents, employees
or

                                      -27-

<PAGE>
 
contractors; (b) for foreclosure of any lien for labor or material furnished to
or for Lessee or such other person; (c) otherwise arising out of or resulting
from any act or transaction of Lessee or such other person; or (d) necessary to
protect Lessor's interest under this Lease in a bankruptcy proceeding or other
proceeding under Title 11 of the United States Code, as amended.  Lessee shall
defend Lessor against any such claim or action at Lessee's expense with counsel
reasonably acceptable to Lessor or, at Lessor's election, Lessee shall reimburse
Lessor for any legal fees or costs incurred by Lessor in any such claim or
action.

      In addition, Lessee shall pay Lessor's reasonable attorneys' fees (not to
exceed $500.00) incurred in connection with Lessee's request for Lessor's
consent in connection with any act which Lessee proposed to do and which
requires Lessor's consent and which reasonably requires the review of an
attorney.

      Lessee hereby waives all claims by Lessor's reentering and taking
possession of the Premises or removing and storing the property of Lessee as
permitted under this Lease and will save Lessor harmless from all losses, costs
or damages occasioned Lessor thereby.  No such reentry shall be considered or
construed to be a forcible entry by Lessor.

ARTICLE XVI.  SUBORDINATION:  This Lease shall be subject and subordinate to any
mortgage, deed of trust or ground lease now or hereafter placed upon the
Premises, the Complex, the Property or any portion thereof by Lessor or its
successors or assigns, and to amendments, replacements, renewals and extensions
thereof.  Lessee agrees at any time hereafter, upon demand to execute and
deliver any instruments, releases or other documents that may be reasonably
required for the purpose of subjecting and subordinating this Lease, as above
provided, to the lien of any such mortgage, deed of trust or ground lease.  It
is agreed, nevertheless, that as long as Lessee is not in default in the payment
of Base Rent, Additional Rent, and other charges to be paid by Lessee under this
Lease and the performance of all covenants, agreements and conditions to be
performed by Lessee under this Lease, then neither Lessee's right to quiet
enjoyment under this Lease, nor the right of Lessee to continue to occupy the
Premises and to conduct its business thereon, in accordance with the terms of
this Lease as against any lessor, lessee, mortgagee, trustee or their successors
or assigns shall be interfered with.

      The above subordination shall be effective without the necessity of the
execution and delivery of any further instruments on the part of Lessee to
effectuate such subordination.  Notwithstanding anything hereinabove contained
in this Article XVI, in the event the holder of any mortgage, deed of trust or
ground lease shall at any time elect to have this Lease constitute a prior and
superior lien to its mortgage, deed of trust or ground lease, then, and in such
event, upon any such holder or landlord notifying Lessee to that effect in
writing, this Lease shall be deemed prior and superior in lien to such mortgage,
deed of trust or ground lease, whether this Lease is dated prior to or
subsequent to the date of such mortgage, deed of trust or ground lease, and
Lessee

                                      -28-

<PAGE>
 
shall execute such attornment agreement as may be reasonably requested by said
holder.

      Lessee agrees, provided the mortgagee, ground lessor or trust deed holder
under any mortgage, ground lease, deed of trust or other security instrument
shall have notified Lessee in writing (by the way of a notice of assignment of
lease or otherwise) of its address, that Lessee shall give such mortgagee,
ground lessor, trust deed holder or other secured party ("Mortgagee"),
simultaneously with delivery of notice to Lessor, by registered or certified
mail, a copy of any such notice of default served upon Lessor. Lessee further
agrees that said Mortgagee shall have the right to cure any alleged default
during the same period that Lessor has to cure such default.

ARTICLE XVII.  MISCELLANEOUS:

      A.    Lessee represents that Lessee has dealt directly with and only with
CB Commercial Real Estate Group, Inc. (Mark Krison/Bob Crum) and Colliers Iliff
Thorn (Paul Sieczkowski) (the "Brokers"), as brokers, in connection with this
Lease and insofar as Lessee knows, no other broker negotiated or participated in
negotiations of this Lease or submitted or showed the Premises or is entitled to
any commission in connection therewith.  Lessor shall be responsible for paying
the commission due the Brokers on account of this Lease pursuant to a separate
agreement between Lessor and the Brokers.

      B.    Lessee agrees from time to time, upon not less than fifteen (15)
days prior written request by Lessor, to deliver to Lessor a statement in
writing certifying (i) this Lease is unmodified and in full force and effect (or
if there have been modifications that the Lease as modified is in full force and
effect and stating the modifications); (ii) the dates to which the rent and
other charges have been paid; (iii) Lessor is not in default in any provision of
this Lease or, if in default, the nature thereof specified in detail; (iv) the
amount of monthly rental currently payable by Lessee; (v) the amount of any
prepaid rent, and (vi) such other matters as may be reasonably requested by
Lessor or any Mortgagee or prospective purchaser of the Complex.

      If Lessee does not deliver such statement to Lessor within such fifteen
(15) day period, Lessor and any prospective purchaser or encumbrancer of the
Premises or the Complex may conclusively presume and rely upon the following
facts: (i) that the terms and provisions of this Lease have not been changed
except as otherwise represented by Lessor; (ii) that this Lease has not been
cancelled or terminated and is in full force and effect, except as otherwise
represented by Lessor; (iii) that the current amounts of the Base Rent and
security deposit are as represented by Lessor and that any charges made against
the security deposit are uncontested and valid; (iv) that there have been no
subleases or assignments of the Lease; (v) that not more than one month's Base
Rent or other charges have been paid in advance; and (vi) that Lessor is not in
default under the Lease.  In such event, Lessee shall be estopped from denying
the truth of such facts.

                                      -29-

<PAGE>
 
      C.    All notices, demands and requests shall be in writing, and shall be
effectively served by forwarding such notice, demand or request by certified or
registered mail, postage prepaid, or by commercial overnight courier service
addressed as follows:

            (i)   If addressed to Lessee:
                  By forwarding such notice, demand or request by certified or
                  registered mail, postage prepaid, addressed to Lessee at:

                  P. J. Food Service, Inc.
                  11460 Bluegrass Parkway
                  Louisville, Kentucky  40299
                  Attention: President

                  or at such other address as Lessee may hereafter designate by
                  written notice to Lessor, in which case said notice shall be
                  effective at the time of mailing such notice.

          (ii)    If addressed to Lessor:
                  By forwarding such notice, demand or request by certified or
                  registered mail, postage prepaid, addressed to Lessor at:

                  Opus Southwest Corporation
                  c/o Normandale Properties Southwest Corporation
                  4742 North 24th Street, Suite 100
                  Phoenix, Arizona  85016

                  With copy to:

                  Opus Southwest Corporation
                  4742 North 24th Street
                  Suite 100
                  Phoenix, Arizona  85016
                  Attn:  Thomas W. Roberts, President

                  With copy to:

                  Opus U.S. Corporation
                  P. O. Box 59110
                  Minneapolis, Minnesota  55440
                  Attention:  Law Department

or at such other address as Lessor and Lessee may hereafter designate by written
notice.  The effective date of all notices shall be the time of mailing such
notice or the date of delivery to a commercial overnight courier service.

      D.    All rights and remedies of Lessor under this Lease or that may be
provided by law may be executed by Lessor in its own name, individually, or in
the name of its agent, and all legal proceedings for the enforcement of any such
rights or remedies, including those set forth in Article XV, may be commenced
and prosecuted to final judgment and execution by Lessor in its own name or in
the name of its agent.

                                      -30-

<PAGE>
 
      E.    Lessor covenants and agrees that Lessee, upon paying the Base Rent,
Additional Rent and other charges herein provided for and observing and keeping
the covenants, agreements and conditions of this Lease on its part to be kept
and performed, shall lawfully and quietly hold, occupy and enjoy the Premises
during the term of this Lease.  Time is of the essence of this Lease and each
and every provision contained herein, and any extension of time granted by
Lessor to Lessee for the performance of any obligation of Lessee under this
Lease shall not be considered an extension of time for the performance of any
subsequent obligation of Lessee under this Lease.

      F.    The covenants and agreements herein contained shall bind and inure
to the benefit of Lessor and its successors and assigns and Lessee and its
permitted successors and assigns.  All obligations of each party constituting
Lessee hereunder shall be the joint and several obligations of each such party.

      G.    If any term or provision of this Lease shall to any extent be held
invalid or unenforceable, the remaining terms and provisions of this Lease shall
not be affected thereby, but each term and provision of this Lease shall be
valid and enforced to the fullest extent permitted by law.  This Lease shall be
construed and enforced in accordance with the laws of the state in which the
Premises are located.

      H.    Lessee covenants not to do or suffer any waste or damage or
disfigurement or injury to the Premises or the Complex.

      I.    The term "Lessor" as used in this Lease so far as covenants or
obligations on the part of Lessor are concerned shall be limited to mean and
include only the owner or owners of the Complex at the time in question, and in
the event of any transfer or transfers or conveyances the then grantor shall be
automatically freed and released from all personal liability accruing from and
after the date of such transfer or conveyance as respects the performance of any
covenant or obligation on the part of Lessor contained in this Lease to be
performed, it being intended hereby that the covenants and obligations contained
in this Lease on the part of Lessor shall be binding on the Lessor, its
successors and assigns, only during and in respect to their respective
successive periods of ownership.

      In the event of a sale or conveyance by Lessor of the Complex or any part
of the Complex, the same shall operate to release Lessor from any future
liability upon any of the covenants or conditions herein contained and in such
event Lessee agrees to look solely to the responsibility of the successor in
interest of Lessor in and to this Lease.  This Lease shall not be affected by
any such sale or conveyance, and Lessee agrees to attorn to the purchaser or
grantee, which purchaser or grantee shall be personally obligated on this Lease
only so long as it is the owner of Lessor's interest in and to this Lease.

      J.    The marginal or topical headings of the several Articles are for
convenience only and do not define, limit or construe the contents of said
Articles.

                                      -31-

<PAGE>
 
      K.    All preliminary negotiations are merged into and incorporated in
this Lease, except for written collateral agreements executed contemporaneously
herewith.

      L.    This Lease can only be modified or amended by an agreement in
writing signed by the parties hereto.  No receipt of money by Lessor from Lessee
or any other person after termination of this Lease or after the service of any
notice or after the commencement of any suit, or after final judgment for
possession of the Premises shall reinstate, continue or extend the term of this
Lease or affect any such notice, demand or suit, or imply consent for any action
for which Lessor's consent is required, unless specifically agreed to in writing
by Lessor.  Any amounts received by Lessor may be allocated to any specific
amounts due from Lessee to Lessor as Lessor determines, except in the event of a
dispute between Lessor and Lessee as to the appropriate charge, in which event
Lessor shall await resolution of such dispute before allocating such amounts.

      M.    Lessor shall have the right to temporarily close any portion of the
building area or land area to the extent as may, in Lessor's legal counsel's
reasonable opinion, be necessary to prevent a dedication thereof or the accrual
of any rights to any person or the public therein.  Lessor shall at all times
have full control, management and direction of the Complex, subject to the
rights of Lessee in the Premises, and Lessor reserves the right at any time and
from time to time to reduce, increase, enclose or otherwise change the size,
number and location of buildings, layout and nature of the Complex and the other
tenancies, premises and buildings included in the Complex, to construct
additional buildings and additions to any building, and to create additional
rentable areas through use and/or enclosure of common areas, or otherwise, and
to place signs on the Complex, and to change the name, address, number or
designation by which the Complex is commonly known. In exercising the foregoing
rights, Lessor shall use commercially reasonable efforts to minimize any
material adverse impact or the ability of Lessee to conduct its business in the
Premises.  No implied easements are granted by this Lease.  Lessor shall in no
event be liable for any lack of security in respect to the Complex.

      N.    Lessee shall permit Lessor (or its designees) to erect, use,
maintain, replace and repair pipes, cables, conduits, plumbing, vents, and
telephone, electric and other wires or other items, in, to and through the
ceiling, floor and walls of the Premises, as and to the extent that Lessor may
now or hereafter deem necessary or appropriate for the proper operation and
maintenance of the Complex.  In exercising the foregoing rights, Lessor shall
use commercially reasonable efforts to minimize any material adverse impact or
the ability of Lessee to conduct its business in the Premises.

      O.    Employees or agents of Lessor have no authority to make or agree to
make a lease or other agreement or undertaking in connection herewith.  The
submission of this document for examination does not constitute an offer to
lease, or a reservation of, or option for, the Premises.  This document becomes
effective and

                                      -32-

<PAGE>
 
binding only upon the execution and delivery hereof by the proper officers of
Lessor and by Lessee.  Lessee confirms that Lessor and its agents have made no
representations or promises with respect to the Premises or the making of or
entry into this Lease except as in this Lease expressly set forth, and Lessee
agrees that no claim or liability shall be asserted by Lessee against Lessor
for, and Lessor shall not be liable by reason of, breach of any representations
or promises not expressly stated in this Lease.  This Lease, except for the
Complex Rules and Regulations, in respect to which subparagraph P of this
Article shall prevail, can be modified or altered only by agreement in writing
between Lessor and Lessee, and no act or omission of any employee or agent of
Lessor shall alter, change or modify any of the provisions hereof.

      P.    Lessee shall perform, observe and comply with the Complex Rules and
Regulations of the Complex as set forth on Exhibit B attached hereto and by this
reference incorporated herein, with respect to the safety, care and cleanliness
of the Premises and the Complex, and the preservation of good order thereon,
and, upon written notice thereof to Lessee, Lessee shall perform, observe and
comply with any changes, amendments or additions thereto as from time to time
shall be established and deemed advisable by Lessor for tenants of the Complex
provided such changes, amendments or additions do not impose additional monetary
burdens or affirmative obligations on Lessee. Lessor shall not be liable to
Lessee for any failure of any other tenant or tenants of the Complex to comply
with such Complex Rules and Regulations.

      Q.    Lessee shall not use the Premises or permit anything to be done in
or about the Premises which will, in any way, conflict with any law, statute,
ordinance or governmental rule or regulation now in force or which may hereafter
be enacted or promulgated.  Lessee shall, at its sole cost and expense, promptly
comply with all laws, statutes, ordinances and governmental rules and
regulations now in force or which may hereafter be in force, and with the
requirements of any fire insurance underwriters or other similar body now or
hereafter constituted relating to or affecting the condition, use or occupancy
of the Premises.  Lessee shall use the Premises and comply with any recorded
covenants, conditions, and restrictions affecting the Premises and the Complex
as of the commencement of the Lease or which are recorded during the lease term,
provided that such covenants, conditions and restrictions which are recorded
during the term of the Lease do not materially and substantially interfere
with the ability of Lessee to engage in Lessee's business at the Premises.

      R.    Lessee shall at all times during the term of this Lease and in all
respects comply with all federal, state and local laws, ordinances and
regulations ("Hazardous Materials Laws") relating to the industrial hygiene,
environmental protection or the use, analysis, generation, manufacture, storage,
presence, disposal or transportation of any oil, petroleum products, flammable
explosives, asbestos, urea formaldehyde, polychlorinated biphenyls, radioactive
materials or waste, or other hazardous, toxic, contaminated or polluting
materials, substances or wastes, including without limitation any "hazardous
substances", "hazardous wastes", "hazardous

                                      -33-

<PAGE>
 
materials" or "toxic substances" under any such laws, ordinances or regulations
(collectively, "Hazardous Materials").

      Lessee shall at its own expense procure, maintain in effect and comply
with all conditions of any and all permits, licenses and other governmental and
regulatory approvals required for Lessee's use of the Premises, including,
without limitation, discharge of (appropriately treated) materials or waste into
or through any sanitary sewer system serving the Premises.  Except as discharged
into the sanitary sewer in conformity with all applicable Hazardous Materials
Laws, Lessee shall cause any and all Hazardous Materials brought or permitted on
the Premises by Lessee to be removed from the Premises and transported solely by
duly licensed haulers to duly licensed facilities for final disposal of such
Hazardous Materials and wastes.  Lessee shall in all respects handle, treat,
deal with and manage any and all Hazardous Materials brought or permitted on the
Premises by Lessee in conformity with all applicable Hazardous Materials Laws
and prudent industry practices regarding the management of such Hazardous
Materials.  All reporting obligations relating to such Hazardous Materials to
the extent imposed upon Lessee by Hazardous Materials Laws are solely the
responsibility of Lessee.  Upon expiration or earlier termination of this Lease,
Lessee shall cause all Hazardous Materials (to the extent such Hazardous
Materials are generated, stored, released or disposed of during the term of this
Lease by Lessee) to be removed from the Premises and transported for use,
storage or disposal in accordance and in compliance with all applicable
Hazardous Materials Laws.  Lessee shall not take any remedial action in response
to the presence of any Hazardous Materials in, on, about or under the Premises
or in any improvements situated on the Complex, nor enter into any settlement
agreement, consent, decree or other compromise in respect to any claims relating
to or in any way connected with the Premises or the Complex without first
notifying Lessor of Lessee's intention to do so and affording Lessor ample
opportunity to appear, intervene or otherwise appropriately assert and protect
Lessor's interest with respect thereto.  In addition, at Lessor's request, at
the expiration of the term of this Lease, Lessee shall remove all tanks or
fixtures which were placed on the Premises during the term of this Lease by or
for Lessee and which contain, have contained or are contaminated with, Hazardous
Materials.

      Lessee shall immediately notify Lessor in writing of (a) any enforcement,
clean-up, removal or other governmental or regulatory action instituted,
completed or threatened pursuant to any Hazardous Materials Laws; (b) any claim
made or threatened by any person against Lessor, or the Premises, relating to
damage, contribution, cost recovery, compensation, loss or injury resulting from
or claimed to result from any Hazardous Materials; and (c) any reports made to
any environmental agency arising out of or in connection with any Hazardous
Materials in, on or about the Premises or with respect to any Hazardous
Materials removed by Lessee from the Premises, including, any complaints,
notices, warnings, reports or asserted violations in connection therewith.
Lessee shall also provide to Lessor, as promptly as possible, and in any event
within five business days after Lessee first receives or sends the same, copies
of all claims, reports, complaints, notices, warnings or

                                      -34-

<PAGE>
 
asserted violations relating in any way to the Premises or Lessee's use thereof.
Upon written request of Lessor (to enable Lessor to defend itself from any claim
or charge related to any Hazardous Materials Law), Lessee shall promptly deliver
to Lessor notices of hazardous waste manifests reflecting the legal and proper
disposal of all such Hazardous Materials removed or to be removed from the
Premises.

      To Lessor's knowledge, Lessor is not aware of any Hazardous Materials
which exist or are located on or in the Premises, except as may be disclosed in
that certain Environmental Site Assessment prepared by Western Technologies,
Inc., dated April 18, 1995, as amended by that certain Stained Soil Report
prepared by Western Technologies, Inc., dated June 20, 1995, and that certain
Supplemental Environmental Report prepared Western Technologies, Inc., dated
September 19, 1995.  Further, Lessor represents to Lessee that, to the best of
its knowledge, Lessor has not caused the generation, storage or release of
Hazardous Materials upon the Premises, except in accordance with Hazardous
Materials Laws.  In the event (a) Hazardous Materials are discovered upon the
Premises, (b) Lessor has been given written notice of the discovery of such
Hazardous Materials, and (c) pursuant to the provisions of the preceding
paragraphs of this Article XVII.R., neither Lessor nor Lessee is obligated to
pay the cost of compliance with Hazardous Materials Laws, then and in that event
Lessor may voluntarily but shall not be obligated to agree with Lessee to take
all action necessary to bring the Premises into compliance with Hazardous
Materials Laws at Lessor's sole cost.  In the event Lessor fails to notify
Lessee in writing within 30 days of the notice to Lessor of the discovery of
such Hazardous Materials that Lessor intends to voluntarily take such action as
is necessary to bring the Premises into compliance with Hazardous Materials
Laws, then Lessee may (i) bring the Premises into compliance with Hazardous
Materials Laws at Lessee's sole cost or (ii) provided such Hazardous Materials
endanger persons or property in, on or about the Premises or interfere with
Lessee's use of the Premises, terminate this Lease on a date not less than
ninety days following written notice of such intent to terminate.

      Lessor shall indemnify, defend (with counsel reasonably acceptable to
Lessee), protect and hold Lessee and each of Lessee's officers, directors,
partners, employees, agents, attorneys, successors and assigns free and harmless
from and against any and all claims, liabilities, damages, costs, penalties,
forfeitures, losses or expenses (including attorneys' fees) for death or injury
to any person or damage to any property whatsoever (including water tables and
atmosphere) arising or resulting in whole or in part, directly or indirectly,
from the presence or discharge of Hazardous Materials, in, on, under, upon or
from the Premises, including materials used during construction of the Premises
and the Complex or from the transportation or disposal of Hazardous Materials to
or from the Premises to the extent caused by Lessor whether knowingly or
unknowingly, the standard herein being one of strict liability.  Lessor's
obligations hereunder shall include, without limitation, and whether
foreseeable, all cost of any required or necessary repairs, clean-up or
detoxification or decontamination of the Premises, and the presence and
implementation of any closure, remedial

                                      -35-

<PAGE>
 
action or other required plans in connection therewith, and shall survive the
expiration of or early termination of the term of this Lease.  For purposes of
the indemnity provided herein, any acts or omissions of Lessor or its employees,
agents, customers, assignees, contractors or sub-contractors (whether or not
they are negligent, intentional, willful or unlawful) shall be strictly
attributable to Lessor.

      Lessee shall indemnify, defend (with counsel reasonably acceptable to
Lessor), protect and hold Lessor and each of Lessor's officers, directors,
partners, employees, agents, attorneys, successors and assigns free and harmless
from and against any and all claims, liabilities, damages, costs, penalties,
forfeitures, losses or expenses (including attorneys' fees) for death or injury
to any person or damage to any property whatsoever (including water tables and
atmosphere) arising or resulting in whole or in part, directly or indirectly,
from the presence or discharge of Hazardous Materials, in, on, under, upon or
from the Premises or from the transportation or disposal of Hazardous Materials
to or from the Premises to the extent caused by Lessee whether knowingly or
unknowingly, the standard herein being one of strict liability.  Lessee's
obligations hereunder shall include, without limitation, and whether
foreseeable, all cost of any required or necessary repairs, clean-up or
detoxification or decontamination of the Premises, and the presence and
implementation of any closure, remedial action or other required plans in
connection therewith, and shall survive the expiration of or early termination
of the term of this Lease.  For purposes of the indemnity provided herein, any
acts or omissions of Lessee or its employees, agents, customers, sub-lessees,
assignees, contractors or sub-contractors (whether or not they are negligent,
intentional, willful or unlawful) shall be strictly attributable to Lessee.

      For purposes of the covenants and agreements contained in this Article
XVII.R., inclusive, any acts or omissions of Lessee, its employees, agents,
customers, sublessees, assignees, contractors or sub-contractors (except Opus
Southwest Corporation and its contractors and subcontractors) shall be strictly
attributable to Lessee; any acts or omissions of Lessor, its employees, agents,
customers, assignees, contractors or sub-contractors shall be strictly
attributable to Lessor.

      S.    All obligations of Lessee hereunder not fully performed as of the
expiration or earlier termination of the term of this Lease shall survive the
expiration or earlier termination of the term hereof, including, without
limitation, all payment obligations with respect to Operating Expenses and Real
Estate Taxes and all obligations concerning the condition of the Premises.

      T.    Any claim which Lessee may have against Lessor for default in
performance of any of the obligations herein contained to be kept and performed
by Lessor shall be deemed waived unless such claim is asserted by written notice
thereof to Lessor within thirty (30) days of commencement of the alleged default
or of accrual of the cause of action and unless suit be brought thereon within
one (1) year subsequent to the accrual of such cause of action.  Furthermore,
Lessee agrees to look solely to Lessor's

                                      -36-

<PAGE>
 
interest in the Complex for the recovery of any judgment from Lessor, it being
agreed that Lessor, or if Lessor is a partnership, its partners whether general
or limited, or if Lessor is a corporation, its directors, officers or share-
holders, shall never be personally liable for any such judgment.

      U.    Lessee shall furnish to Lessor promptly upon demand, a corporate
resolution, proof of due authorization of partners, or other appropriate
documentation reasonably requested by Lessor evidencing the due authorization of
Lessee to enter into this Lease.

      V.    This Lease shall not be deemed or construed to create or establish
any relationship or partnership or joint venture or similar relationship or
arrangement between Lessor and Lessee hereunder.

      W.    Lessee shall in all respects comply with the Americans With
Disabilities Act of 1990 (42 U.S.C. Section 12101 et seq.), as the same may be
amended from time to time (as amended, the "ADA"), and Lessee agrees to
indemnify and save Lessor and its managing agent harmless against and from any
and all claims, loss, damage and expense by or on behalf of any person or
persons, firm or firms, corporation or corporations, arising from any failure or
alleged failure of Lessee to comply with the ADA or arising from any claim made
under the ADA in connection with the Premises, and from and against all costs,
reasonable attorneys' fees, expenses and liabilities incurred in or about any
such claim or action or proceeding brought thereon; in case any action or
proceeding be brought against Lessor or its managing agent by reason of any such
claim, Lessee, upon notice from Lessor, covenants to resist or defend such
action or proceeding by counsel reasonably satisfactory to Lessor.

      X.    Lessee shall not place, or permit to be placed or maintained, on any
exterior door, wall or window of the Premises any sign, awning or canopy, or
advertising matter or other thing of any kind, and will not place or maintain
any decoration, lettering or advertising matter on the glass of any window or
door, or that can be seen through the glass, of the Premises except as
specifically approved in writing by Lessor.  Lessee further agrees to maintain
such sign, awning, canopy, decoration, lettering, advertising matter or thing as
may be approved, in good condition and repair at all times. Lessee agrees at
Lessee's sole cost, that any Lessee sign will be maintained in strict
conformance with Lessor's sign criteria, if any, as to design, material, color,
location, size, letter style, and method of installation.

ARTICLE XVIII.  MISCELLANEOUS TAXES:  Lessee shall pay, prior to delinquency,
all taxes assessed or levied upon its occupancy of the Premises, or upon the
trade fixtures, furnishings, equipment and all other personal property of Lessee
located in the Premises, and when possible, Lessee shall cause such trade
fixtures, furnishings, equipment and other personal property to be assessed and
billed separately from the property of Lessor.  In the event any or all of
Lessee's trade fixtures, furnishings, equipment or other personal property, or
Lessee's occupancy of the Premises, shall be assessed and taxed with the
property of Lessor, Lessee shall pay to Lessor its share of such taxes within
ten (10) days after delivery to

                                      -37-

<PAGE>
 
Lessee by Lessor of a statement in writing setting forth the amount of such
taxes applicable to Lessee's personal property.

ARTICLE XIX.  OTHER PROVISIONS:  The following are made a part hereof, with the
same force and effect as if specifically set forth herein:

      A.    Site Plan - Exhibit A.
      B.    Complex Rules and Regulations - Exhibit B.
      C.    Rider to Warehouse Lease - Exhibit C.
      D.    Space Plan/Building Elevation - Exhibit D.
      E.    Guarantee From Papa John's International, Inc. - Exhibit E.

      IN WITNESS WHEREOF, the parties have executed this Lease as of the day and
year first above written.

LESSOR:                                LESSEE:

OPUS SOUTHWEST CORPORATION,            P.J. FOOD SERVICE, INC.,
a Minnesota corporation                a Kentucky corporation



By /s/ Thomas W. Roberts               By /s/ Robert J. Wadell
   ----------------------------        --------------------------------
   Thomas W. Roberts                      Its President
   Its President

                                      -38-

<PAGE>
 
                                   EXHIBIT A

                                   SITE PLAN









                                   Exhibit A
                                 (Page 1 of 1)

<PAGE>
 
                                   EXHIBIT B

                         COMPLEX RULES AND REGULATIONS


      1.    Any sign, lettering, picture, notice or advertisement installed on
or in any part of the Premises and visible from the exterior of the Complex, or
visible from the exterior of the Premises, shall be installed at Lessee's sole
cost and expense, and in such manner, character and style as Lessor may approve
in writing.  In the event of a violation of the foregoing by Lessee, Lessor may
remove the same without any liability and may charge the expense incurred by
such removal to Lessee.

      2.    No awning or other projection shall be attached to the outside walls
of the Complex.  No curtains, blinds, shades or screens visible from the
exterior of the Complex or visible from the exterior of the Premises shall be
attached to or hung in, or used in connection with, any window or door of the
Premises without the prior written consent of Lessor.  Such curtains, blinds,
shades, screens or other fixtures must be of a quality, type, design and color,
and attached in the manner, approved by Lessor.

      3.    Lessee and its servants, employees, customers, invitees and guests
shall not obstruct sidewalks, entrances, passages, corridors, vestibules, halls,
elevators or stairways in and about the Complex which are used in common with
other tenants and their servants, employees, customers, guests and invitees and
which are not a part of the Premises of Lessee.  Lessee shall not place objects
against glass partitions or doors or windows which would be unsightly from the
Complex corridors or from the exterior of the Complex and will promptly remove
any such objects upon notice from Lessor.

      4.    Lessee shall use its best efforts not to make excessive noises,
cause disturbances or vibrations or use or operate any electrical or mechanical
devices that emit excessive sound or other waves or disturbances, and Lessee
shall not create obnoxious odors (including cigarette, cigar and pipe smoke),
any of which may be offensive to the other tenants and occupants of the Complex,
or that would interfere with the operation of any device, equipment, radio,
television broadcasting or reception from or within the Complex or elsewhere
and shall not place or install any projections, antennas, aerials or similar
devices inside or outside of the Premises or on the Complex.

      5.    Lessee shall not waste electricity, water or air conditioning and
shall cooperate fully with Lessor to insure the most effective operation of the
Complex's heating and air conditioning systems.

      6.    Lessee assumes full responsibility for protecting its space from
theft, robbery and pilferage, which includes keeping doors locked and other
means of entry to the Premises closed and secured after normal business hours.

                                   Exhibit B
                                 (Page 1 of 4)

<PAGE>
 
      7.    In no event shall Lessee bring into the Complex inflammables, such
as gasoline, kerosene, naphtha and benzine, or explosives or any other article
of intrinsically dangerous nature.  If, by reason of the failure of Lessee to
comply with the provisions of this subparagraph, any insurance premium for all
or any part of the Complex shall at any time be increased, Lessee shall make
immediate payment of the whole of the increased insurance premium, without
waiver of any of Lessor's other rights at law or in equity for Lessee's breach
of this Lease.

      8.    Lessee shall comply with all applicable federal, state and municipal
laws, ordinances and regulations and building rules and shall not directly or
indirectly make any use of the Premises which may be prohibited by any of the
foregoing or which may be dangerous to persons or property or may increase the
cost of insurance or require additional insurance coverage.

      9.    Lessor shall have the right to prohibit any advertising by Lessee
relating to Lessee's commissary to be operated in the Premises which in Lessor's
reasonable opinion tends to impair the reputation of the Complex or its
desirability as a warehouse complex for warehouse use and other uses, and upon
written notice from Lessor, Lessee shall refrain from or discontinue such
advertising.

      10.   The Premises shall not be used for lodging, sleeping or for any
immoral or illegal purpose.

      11.   Lessee and Lessee's servants, employees, agents, visitors and
licensees shall observe faithfully and comply strictly with the foregoing rules
and regulations and such other and further appropriate and reasonable rules and
regulations as Lessor or Lessor's agent may from time to time adopt; provided,
however, that Lessee shall not be obligated to comply with any rules and
regulations adopted after the date of this Lease to the extent same would
prohibit Lessee from engaging in the uses permitted by this Lease.  Reasonable
notice of any additional rules and regulations shall be given in such manner as
Lessor may reasonably elect.

      12.   Unless expressly permitted by Lessor, no additional locks or similar
devices shall be attached to any exterior door or window and no keys other than
those provided by Lessor shall be made for any exterior door.  If more than two
keys for one lock are desired by Lessee, Lessor may provide the same upon
payment by Lessee.  Upon termination of this Lease or of the Lessee's
possession, Lessee shall surrender all keys of the Premises and shall explain to
Lessor all combination locks on safes, cabinets and vaults.

      13.   Any carpeting cemented down by Lessee shall be installed with a
releasable adhesive.  In the event of a violation of the foregoing by Lessee,
Lessor may charge the expense incurred by such removal to Lessee.

      14.   The water and wash closets, drinking fountains and other plumbing
fixtures shall not be used for any purpose other than those for which they were
constructed, and no sweepings, rubbish, rags, coffee grounds or other substances
shall be thrown therein.  All damages resulting from any misuse of the fixtures
shall be

                                   Exhibit B
                                 (Page 2 of 4)

<PAGE>
 
borne by the lessee who, or whose servants, employees, agents, visitors or
licensees, shall have caused the same.  No person shall waste water by
interfering or tampering with the faucets or otherwise.

      15.   No electric circuit for any purpose shall be brought into the leased
premises without Lessor's written permission specifying the manner in which same
may be done.

      16.   No dog or other animal shall be allowed in offices, halls, corridors
or elsewhere in the Complex.

      17.   Lessee shall not throw anything out of the door or windows or down
any passageways or elevator shafts.

      18.   All loading, unloading, receiving or delivery of goods, supplies or
disposal of garbage or refuse shall be made only through entryways and freight
elevators provided for such purposes and indicated by Lessor.  Lessee shall be
responsible for any damage to the Complex or the property of its employees or
others and injuries sustained by any person whomsoever resulting from the use or
moving of such articles in or out of the leased premises, and shall make all
repairs and improvements required by Lessor or governmental authorities in
connection with the use of such articles.

      19.   Lessee shall be responsible for any damage to the Complex or the
property of its employees or others and injuries sustained by any person
whomsoever resulting from the use or moving of heavy articles in or out of the
Premises, and shall make all repairs and improvements required by Lessor or
governmental authorities in connection with the use or moving of such articles.

      20.   Canvassing, soliciting and peddling in the Complex is prohibited and
all tenants of the Complex shall cooperate to prevent the same.

      21.   Vending machines shall not be installed without permission of
Lessor; provided, however, Lessor consents to the installation of vending
machines in the pantry or kitchen area of the Premises for the dispensing of
soda and other similar drinks to Lessee's employees and guests.

      22.   Canvassing, soliciting and peddling in the Complex is prohibited and
each Lessee shall cooperate to prevent the same.

      23.   Wherever in these Complex Rules and Regulations the word "Lessee"
occurs, it is understood and agreed that it shall mean Lessee and Lessee's
associates, agents, clerks, servants and visitors.  Wherever the word "Lessor"
occurs, it is understood and agreed that it shall mean Lessor and Lessor's
assigns, agents, clerks, servants and visitors.

      24.   Lessor shall have the right to enter upon the leased premises at all
reasonable hours for the purpose of inspecting the same.

                                   Exhibit B
                                 (Page 3 of 4)

<PAGE>
 
      25.   Lessor shall have the right to enter the leased premises at hours
convenient to Lessee for the purpose of exhibiting the same to prospective
tenants within the sixty (60) day period prior to the expiration of this Lease,
and Lessor may place signs advertising the leased premises for rent on the
windows and doors of said Premises at any time within said sixty (60) day
period.

      26.   Lessee and its servants, employees, customers, invitees and guests
shall, when using the common parking facilities, if any, in and around the
Complex, observe and obey all signs regarding fire lanes and no parking zones,
and when parking always park between the designated lines.  Lessor reserves the
right to tow away, at the expense of the owner, any vehicle which is im-
properly parked or parked in a no parking zone.  All vehicles shall be parked at
the sole risk of the owner, and Lessor assumes no responsibility for any damage
to or loss of vehicles.  No vehicles shall be parked overnight, except to the
extent such vehicles are driven by employees of Lessee and such employees are
working in the Premises at such time as said vehicles are parked overnight.

      27.   In case of invasion, mob, riot, public excitement, or other
commotion, Lessor reserves the right to prevent access to the Complex during the
continuance of the same by closing the doors or otherwise, for the safety of the
tenants or the protection of the Complex and the property therein. Lessor shall
in no case be liable for damages for any error or other action taken with regard
to the admission to or exclusion from the Complex of any person.

      28.   All entrance doors to the Premises shall be locked when the Premises
are not in use.  All corridor doors shall also be closed during times when the
air conditioning equipment in the Complex is operating so as not to dissipate
the effectiveness of the system or place an overload thereon.

      29.   Lessor reserves the right at any time and from time to time to
rescind, alter or waive, in whole or in part, any of these Rules and Regulations
when it is deemed necessary, desirable, or proper, in Lessor's judgment, for its
best interest or for the best interest of the tenants of the Complex.

      30.   Smoking shall be permitted only in the smoking areas located outside
of the building, as designated and redesignated from time to time by Lessor, and
Lessee and its servants, employees, customers, invitees and guests shall not
smoke anywhere at the Complex (other than the smoking areas designated by
Lessor), including without limitation Lessee's Premises and the sidewalks,
entrances, passages, corridors, halls, elevators and stairways of the Complex.


                                                               Initials:

                                                               Lessor_________

                                                               Lessee_________


                                   Exhibit B
                                 (Page 4 of 4)

<PAGE>
 
                                   EXHIBIT C

                                 RIDER TO LEASE


ARTICLE XX.  LOCK BOX:  Lessor may from time to time designate a lock box
collection agent for the collection of rents or other charges due Lessor.  In
such event, the payment made by Lessee to the lock box shall be the date of
receipt by the lock box collection agent of such payment (or the date of
collection of any such sum if payment is made in the form of a negotiable
instrument thereafter dishonored upon presentment); however, for the purpose of
this Lease, no such payment or collection shall be deemed a waiver by Lessor of
any breach by Lessee of any term, covenant or condition of this Lease nor a
waiver of any of Lessor's rights or remedies and any payment of amounts other
than that deemed due and proper by Lessor shall not prejudice Lessor in any
manner nor constitute a waiver and Lessor shall hereby be authorized to retain
the proceeds of any payments by Lessee, whether restrictively endorsed or
otherwise, and apply same to the amounts due and payable from Lessee under this
Lease without waiver.

ARTICLE XXI.  PRIOR PROPOSALS:  All prior proposals in respect to this Lease are
hereby terminated.

ARTICLE XXII.  CONFIDENTIALITY:  Lessee agrees to keep this Lease and the terms
hereof in confidence, and not to publish or disclose, in whole or in part, the
same without Lessor's prior written consent, which consent may be withheld in
Lessor's sole discretion.

ARTICLE XXIII.  TENANT IMPROVEMENTS:  Lessor shall provide the base building
improvements and a tenant improvement allowance (the "Tenant Improvement
Allowance") equal to Fifty Thousand Eight Hundred Seventy-Two and No/100ths
Dollars ($50,872.00).  All additional improvements to the base building will be
so-called "Tenant Improvements" to be installed by Lessor but to be selected by
Lessee as hereinafter set forth and paid for by Lessee subject to Lessor
providing the Tenant Improvement Allowance (as hereinafter defined). Lessee
acknowledges and agrees that items to be paid for by Lessee from the Tenant
Improvement Allowance include the cost of space planning, construction document
preparation, the cost of the design work and construction drawing work, all
costs of obtaining permits, and reimbursables, and the cost of one-half (1/2) of
the demising wall to be constructed in the building of which the Premises are a
part.  If the price of the Tenant Improvements exceeds the Tenant Improvement
Allowance, Lessee shall pay Lessor, in cash, upon substantial completion of the
Tenant Improvements, the amount by which the price of the Tenant Improvements
exceeds the Tenant Improvement Allowance.

      On or before September 20, 1996, Lessee shall provide to Lessor a space
plan of the Tenant Improvements which Lessee desires for Lessor to construct,
which space plan shall be subject to Lessor's approval and shall be adequate for
the preparation by Lessor of working drawings for construction of such Tenant
Improvements.  Such space plan shall show in reasonable detail the design and
appearance of the tenant finishing materials to be used in the

                                   Exhibit C
                                 (Page 1 of 5)

<PAGE>
 
construction thereof, and such other detail or description as may be necessary
to adequately outline the scope of the Tenant Improvements.  Lessee shall be
responsible for Lessor's costs (including lost rent) arising out of delays in
completing the Tenant Improvements caused by Lessee.  Lessee also agrees to
refrain from ordering long lead time items which would delay substantial
completion of the Tenant Improvements.  Lessee acknowledges that any air com-
pressors to be installed either on the interior or the exterior of the Premises
by Lessor or Lessee shall be subject to the prior written consent of Lessor.

ARTICLE XXIV.  FINANCIAL STATEMENTS:  Lessee agrees to provide to Lessor upon
Lessee's execution of this Lease and prior to Lessor executing same, and within
thirty (30) days after Lessor's request therefor in connection with a proposed
sale or refinancing of the Complex, complete, accurate up-to-date financial
statements prepared according to generally accepted accounting principles
consistently applied, certified by Lessee's chief financial officer, that same
are a true, complete and correct statement of the financial condition of Lessee
as of the date of such financial statements.  Lessor shall use commercially
reasonable efforts to disclose such information only to such parties as Lessor
deems reasonably necessary in connection with any such proposed sale or
refinancing.

ARTICLE XXV.  SECURITY DEPOSIT:  Lessee hereby deposits with Lessor in cash the
sum of Eight Thousand One Hundred Thirty-nine and 52/100ths Dollars ($8,139.52),
Lessor's estimate of one month's Base Rent, the receipt of which is hereby
acknowledged, as and for a security deposit for the full and faithful
performance by Lessee of each and every term, covenant and condition of this
Lease.  In the event that Lessee defaults in respect to any of the terms,
provisions, covenants and conditions of this Lease, including, but not limited
to, the payment of any rentals or other charges or items to be paid or provided
for by Lessee, Lessor may use, apply or retain the whole or any part of the
security so deposited for the payment of any such rentals in default or for any
other sum which Lessor may expend or be required to expend by reason of Lessee's
default, including, but not limited to, any damages or deficiency in the
reletting of the Premises, whether such damages or deficiency may accrue before
or after reentry by Lessor.  Lessee shall not be entitled to any interest on the
security deposit.  It is expressly understood and agreed that such deposit is
not an advance rental deposit or a measure of Lessor's damages in case of
Lessee's default.  Upon application of any part of the deposit by Lessor as
provided herein, Lessee shall pay to Lessor on demand the amount so applied in
order to restore the security deposit to its original amount.  Any application
of the deposit by Lessor shall not be deemed to have cured Lessee's default by
reason of which the application is made.

      In the event of a bona fide sale of the building of which the Premises are
a part (the "Building"), Lessor shall have the right to transfer the security
deposit to its vendee for the benefit of Lessee and thereafter Lessor shall be
released of all liability for the return of such deposit and Lessee agrees to
look to said vendee for the return of its security deposit.  It is agreed that
this

                                   Exhibit C
                                 (Page 2 of 5)

<PAGE>
 
provision shall apply to every transfer or assignment made of the security
deposit to any new landlord.

      This security deposit shall not be assigned or encumbered by Lessee.  It
is expressly understood that the reentry of the Premises by Lessor for any
default on the part of Lessee prior to the expiration of the term of this Lease
shall not be deemed a termination of this Lease so as to entitle Lessee to
recover the security deposit, and the security deposit shall be retained and
remain in the possession of Lessor until the end of the term of this Lease.

      Actions by Lessor against Lessee for breach of this Lease shall in no way
be limited or restricted by the amount of the security deposit and resort to
such deposit shall not waive any other rights or constitute an election of
remedies which Lessor may have.

ARTICLE XXVI.  ADDITIONAL DEVELOPMENT:  Lessor and Lessee understand and agree
that the Complex as constructed is a part of an integrated commercial real
estate development ("Phase I"), to which additional phases may be added by
Lessor (the second phase is hereinafter referred to as "Phase II," and the third
phase is hereinafter referred to as "Phase III").  At any time during the term
hereof, the Complex for purposes of this Lease may, at Lessor's option, include
one or more of the three existing buildings currently constructed on Phase I and
all easement areas appurtenant thereto, and all buildings, improvements and
personal property of Lessor used in connection with the operation or maintenance
thereof located therein and thereon and the appurtenant parking facilities.
Additionally, upon substantial completion of Phase II and/or Phase III, the
Complex for purposes of this Lease may, at Lessor's option, include all of the
land within Phase II and/or Phase III and all easement areas appurtenant
thereto, and all buildings, improvements and personal property of Lessor used in
connection with the operation or maintenance thereof located therein and
thereon and the appurtenant parking facilities.

      Upon the election of Lessor, the Property shall thereafter be deemed to
mean that portion of the land (and all easement areas appurtenant thereto) on
which that portion of Phase I elected by Lessor to be included in the Complex is
located; and the Complex as that term is used herein shall be deemed to mean all
buildings and improvements and personal property of Lessor used in connection
with the operation or maintenance thereof and appurtenant parking facilities.

      Upon substantial completion of Phase II and the election of Lessor, the
Property shall thereafter be deemed to mean the land (and all easement areas
appurtenant thereto) on which both Phase I and Phase II are located; and the
Complex as that term is used herein shall be deemed to mean all buildings and
improvements and personal property of Lessor used in connection with the
operation or maintenance thereof and appurtenant parking facilities located on
the existing development and Phase II.

      Upon substantial completion of Phase III and the election of Lessor, the
Property shall thereafter be deemed to mean the land (and all easement areas
appurtenant thereto) on which Phase I,

                                   Exhibit C
                                 (Page 3 of 5)

<PAGE>
 
Phase II and/or Phase III are located; and the Complex as that term is used
herein shall be deemed to mean all buildings and improvements and personal
property of Lessor used in connection with the operation or maintenance thereof
and appurtenant parking facilities located on the existing development, Phase II
and/or Phase III.

      If Lessor so elects, redefinition of the terms "Property" and "Complex" as
hereinabove described (and upon substantial completion of Phase II with respect
to Phase II and upon substantial completion of Phase III with respect to Phase
III), the percentage set forth as "Lessee's Pro Rata Share of Real Estate Taxes"
and "Lessee's Pro Rata Share of Operating Expenses" in Article II.D. herein,
shall be recomputed on the basis of the rentable area of the Premises compared
to the rentable area of the Complex (as expanded).

      In no event shall this Article be deemed to required Lessor to develop or
construct Phase II or Phase III (nor require Lessor to combine any portions of
Phase I and/or Phase II and/or Phase III as hereinabove allowed) or any addition
or modification to the Complex (as originally defined herein or otherwise), nor
is this intended in any manner to be a representation or warranty that Phase II
and/or Phase III will at any time be constructed or developed by Lessor.  Lessor
shall retain the right to increase or decrease the size of the existing
development or Phase II and/or Phase III and make other changes to the Property
and the legal description of the Complex in its sole discretion.

ARTICLE XXVII.  RIGHT TO EXAMINE BOOKS AND RECORDS OF LESSOR:  Lessor hereby
agrees, at Lessee's request, to make available to Lessee for its inspection and
examination all of the books and records that relate to Lessor's statement as to
Lessee's Pro Rata Share of Excess Real Estate Taxes and Lessee's Pro Rata Share
of Excess Operating Expenses.  Lessor also agrees to make the aforementioned
books and records available to a certified public accountant, selected by
Lessee, for review and audit if Lessee so elects.

ARTICLE XXVIII.  CONTINUOUS OPERATIONS:    Nothing contained in this Lease shall
be construed as an obligation for Lessee to open or operate its business in the
Premises.  Lessee shall have the right to remove all of Lessee's personal
property and cease operations in the Premises at any time and at Lessee's sole
discretion.  However, the right to cease to operate its business shall not
affect Lessee's obligations to pay all amounts due hereunder and to perform all
other covenants and obligations hereunder.  Notwithstanding the foregoing, if
Lessee ceases to operate its business in the Premises for a period in excess of
ninety (90) days and such failure is not due to damage, casualty, or
condemnation, Lessor shall have the right to terminate this Lease and recapture
the possession of the Premises by delivering written notice of same to Lessee.
All of Lessee's obligations under this Lease accruing from and after the date of
such termination shall terminate upon the recapture of the Premises by Lessor
under this Article.

ARTICLE XXIX.  GUARANTEE:  Lessee acknowledges that Lessor would not lease the
Premises to Lessee without this Lease being guaran-

                                   Exhibit C
                                 (Page 4 of 5)

<PAGE>
 
teed by Papa John's International, Inc., a Delaware corporation.  Lessee agrees
to cause said corporation to execute and deliver to Lessor, simultaneously with
execution and delivery of this Lease, the Guarantee in the form of Exhibit E
attached hereto and by this reference incorporated herein.

ARTICLE XXX.  FIXTURIZATION PERIOD:  Lessor shall permit Lessee, during the
thirty (30) day period prior to the commencement date of this Lease, to commence
installing Lessee's furniture, fixtures and equipment in the Premises; provided,
however, that Lessee shall not interfere with any Tenant Improvement work then
being completed by Lessor, and provided further, however, that Lessee shall not
commence doing business in the Premises during such thirty-day period.  During
such early move-in period, Lessee agrees to comply with all provisions of this
Lease (except for the provisions relating to the payment of rent, which shall
not become effective until the commencement date of this Lease).  Prior to
entering the Premises during such early move-in period, Lessee agrees that all
insurance required to be maintained by Lessee under Article VI of this Lease
shall be in full force and effect, and Lessee agrees to deliver certificates of
insurance to Lessor evidencing such insurance.  All improvements, alterations,
additions and installations made by Lessee prior to the commencement date of
this Lease shall be made in strict compliance with the provisions of Article
VIII of this Lease.

ARTICLE XXXI.  PARKING:  Lessor shall provide sufficient standard vehicular
parking spaces on the Property so as to allow Lessee to utilize up to a maximum
of twenty-nine (29) such spaces.



                                                          Initials:

                                                          Lessor _____________

                                                          Lessee _____________


                                   Exhibit C
                                 (Page 5 of 5)

<PAGE>
 
                                   EXHIBIT E

                                   GUARANTEE


            This is a guarantee of a lease dated as of ____________, 1996 (the
"Lease"), by and between OPUS SOUTHWEST CORPORATION, a Minnesota corporation,
hereinafter called "Lessor", and P.J. FOOD SERVICE, INC., a Kentucky
corporation, hereinafter called "Lessee", concerning that certain premises to be
constructed upon a portion of the retail shopping complex commonly known as
Kyrene Business Park located north of the northwest corner of Kyrene Road and
Elliot Road, City of Tempe, County of Maricopa, State of Arizona.

            FOR VALUE RECEIVED, and in consideration for, and as an inducement
to Lessor to enter into the foregoing Lease, the undersigned hereby guarantees
to Lessor and its successors and assigns the payment of all rentals specified
thereunder and all other payments to be made by Lessee under the Lease, and the
full performance and observance by Lessee of all the terms, covenants,
conditions and agreements therein provided to be performed and observed by
Lessee for which the undersigned shall be jointly and severally liable with
Lessee, without requiring any notice of nonpayment, nonperformance or
nonobservance, or proof of notice or demand, whereby to charge the undersigned,
all of which the undersigned does hereby expressly waive, and the undersigned
expressly agrees that the Lessor and its successors and assigns may proceed
against the undersigned, before, after or simultaneously with the proceedings
against the Lessee for default, and that this Guarantee shall not be terminated,
affected or impaired in any way or manner whatsoever by reason of the assertion
by Lessor against Lessee of any of the rights or remedies reserved to Lessor
pursuant to the provisions of the Lease, or by reason of summary or other
proceedings against Lessee, or by the omission of Lessor to enforce any of its
rights against Lessee or by reason of any extensions of time or indulgences
granted by Lessor to Lessee.  The undersigned further covenants and agrees (i)
that the undersigned will be bound by all of the provisions, terms, conditions,
restrictions and limitations contained in the Lease, the same as though the
undersigned was named therein as Lessee; and (ii) that this Guarantee shall be
absolute and unconditional and shall remain and continue in full force and
effect as to any renewal, extension, amendment, addition, assignment, sublease,
transfer or other modification of the Lease, whether or not the undersigned
shall have any knowledge or have been notified of or agreed or consented to any
such renewal, extension, amendment, addition, assignment, sublease, transfer or
other modification of the Lease, and the undersigned agrees to be bound by any
and all modifications to the Lease.  If Lessor at any time is compelled to take
any action or proceeding in court or otherwise to enforce or compel compliance
with the terms of this Guarantee, the undersigned shall, in addition to any
other rights and remedies to which the Lessor may be entitled hereunder or as a
matter of law or in equity, be obligated to pay all costs, including attorneys'
fees, incurred or expended by Lessor in connection therewith.  Further, the
undersigned hereby covenants and agrees to assume the Lease and to perform all
of the terms and conditions thereunder for the balance of the original term
should the Lease be disaffirmed by

                                  Exhibit "E"
                                 (Page 1 of 3)

<PAGE>
 
any Trustee in Bankruptcy for Lessee, or at the option of Lessor, the
undersigned shall, in the event of Lessee's bankruptcy, make and enter into a
new lease which shall be in form and substance identical to the Lease.  All
obligations and liabilities of the undersigned pursuant to this Guarantee shall
be binding upon the heirs, legal representatives, successors and assigns of the
undersigned, and the undersigned and its heirs, legal representatives,
successors and assigns shall remain fully liable under the Lease and this
Guarantee regardless of any merger, corporate reorganization or restructuring
involving Lessee regardless of the resulting organization, structure or
ownership of Lessee.  This Guarantee shall be governed by and construed in
accordance with the laws of the State of Arizona.

            The undersigned hereby unconditionally consents and agrees that any
legal action brought under this Guarantee may be brought in any State Court of
the State of Arizona or in a Federal United States Court in Arizona and the
undersigned hereby unconditionally consents to the jurisdiction of such courts
in connection with any cause of action brought by or against Lessee and/or
Guarantor(s) in any way directly or indirectly related to the aforementioned
Lease or this Guarantee.  Further, each Guarantor hereby irrevocably and
unconditionally appoints P. J. Food Service, Inc., a Kentucky corporation
(Lessee), and the lessee under the Lease if another party shall be the lessee
under the Lease, as its duly authorized agent(s) for the service of process in
connection with any such cause of action, either of which may be considered a
fully authorized agent for service of process.  Nothing herein shall prevent
Lessor from serving process in any other manner permitted by law.

            The liability of the undersigned shall not be affected or impaired
by any full or partial release of, settlement with, or agreement not to sue,
Lessee or any other guarantor or other person liable in respect of the Lease,
which Lessor is expressly authorized to do, omit or suffer from time to time,
without notice to or approval by the undersigned.  The singular herein shall
include the plural and the plural shall include the singular when referring to
the undersigned.

            The Guarantor hereby waives the applicability and the benefits of
Arizona Revised Statutes Section 12-1641 and Section 12-1642 and Arizona Rules
of Civil Procedure 17(f).

            At any time that Lessee is required to furnish a certificate
pursuant to the Lease, the undersigned, by guarantying the terms and conditions
of the Lease, agree that Guarantor, upon twenty (20) days prior written request
to Lessee, shall certify (by written instrument, duly executed, acknowledged and
delivered to Lessor and to any third person designated by Lessor in such
request) that such person concurs with the statements set forth in said
certificate by Lessee and that the guarantee of such person remains in full
force and effect as to all obligations of Lessee under the Lease.  Failure to
deliver such certificate to Lessor (and any such designated third party) within
such twenty (20) day period shall constitute automatic approval of the requested
certificate as though such certificate had been fully executed and

                                  Exhibit "E"
                                 (Page 2 of 3)

<PAGE>
 
delivered by such Guarantor to Lessor and such designated third party.

            IN WITNESS WHEREOF, the undersigned has executed this Guarantee as
of the ____ day of _____________, 1996.

                                       GUARANTOR:

                                       PAPA JOHN'S INTERNATIONAL, INC., a
                                       Delaware corporation



                                       By:  NOT FOR SIGNATURE-EXHIBIT ONLY
                                            ------------------------------

                                            Its: _________________________

                                                           INITIALS:

                                                           Lessee_________

                                                           Lessor_________


                                  Exhibit "E"
                                 (Page 3 of 3)



<PAGE>
 
                                 Exhibit 10.28

<PAGE>
 
                      S U B L E A S E    A G R E E M E N T




                                      FOR




                           ROTTERDAM INDUSTRIAL PARK
                              ROTTERDAM, NEW YORK




                                    BETWEEN




                          DISTRIBUTION UNLIMITED, INC.
                           ROTTERDAM INDUSTRIAL PARK
                                   BUILDING 6
                           ROTTERDAM, NEW YORK  12306




                                      AND




                            P.J. FOOD SERVICE, INC.
                            11460 BLUEGRASS PARKWAY
                          LOUISVILLE, KENTUCKY  40299

<PAGE>
 
                               TABLE OF CONTENTS



PARAGRAPH                                                                 PAGE
- ---------                                                                 ----

TERM  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    1
RENTAL  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    1
CONDITION OF PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . .    1
UTILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    2
ADDITIONAL RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    4
SERVICES - ADDITIONAL RENT  . . . . . . . . . . . . . . . . . . . . . . .    4
USE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    5
REPAIRS AND MAINTENANCE . . . . . . . . . . . . . . . . . . . . . . . . .    6
ALTERATIONS AND LIENS . . . . . . . . . . . . . . . . . . . . . . . . . .    6
ENTRY AND INSPECTION  . . . . . . . . . . . . . . . . . . . . . . . . . .    6
SUBLETTING AND ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . .    7
LIABILITY AND INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . .    9
ABANDONMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   10
DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   10
HOLDING OVER  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   11
DESTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   11
CONDEMNATION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   12
SALE OF PREMISES  . . . . . . . . . . . . . . . . . . . . . . . . . . . .   12
ESTOPPEL  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   12
SIGNS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   13
ENTIRE AGREEMENT, WAIVER  . . . . . . . . . . . . . . . . . . . . . . . .   13
NOTICE  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   14
FINANCIALS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   14
ANCILLARY FACILITIES  . . . . . . . . . . . . . . . . . . . . . . . . . .   14
SECURITY BARRIERS . . . . . . . . . . . . . . . . . . . . . . . . . . . .   14
MASTER LEASE  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   14
NOTICE OF SUBLEASE EXTENSION  . . . . . . . . . . . . . . . . . . . . . .   14
ENVIRONMENTAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . .   14
RENEWAL OPTION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   15
CONSUMER PRICE INDEX  . . . . . . . . . . . . . . . . . . . . . . . . . .   15
BROKERAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   16
ELECTRICITY RATES . . . . . . . . . . . . . . . . . . . . . . . . . . . .   16
SUBLESSEE'S FIT-UP  . . . . . . . . . . . . . . . . . . . . . . . . . . .   16
GUARANTY  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   16
EXHIBIT A - RENTAL AND TERM SCHEDULE  . . . . . . . . . . . . . . . . . .   18
EXHIBIT B - REFURBISHING REQUIREMENTS . . . . . . . . . . . . . . . . . .   19
EXHIBIT C - SUBLESSEE'S SPECS . . . . . . . . . . . . . . . . . . . . . .   20
EXHIBIT D - SITE PLAN . . . . . . . . . . . . . . . . . . . . . . . . . .   21

<PAGE>
 
                               SUBLEASE AGREEMENT


      THIS SUBLEASE made this _____ day of September, 1996, between Distribution
Unlimited, Inc., Rotterdam Industrial Park, Building
 6, Rotterdam, New York
12306, hereinafter referred to as the "Sublessor" and P.J. Food Service, Inc., a
Delaware corporation which has a business office at 11460 Bluegrass Parkway,
Louisville, Kentucky 40299, hereinafter referred to as the "Sublessee".

      WITNESSETH that the Sublessor hereby subleases to the Sublessee and the
Sublessee hereby hires and takes from the Sublessor those premises described as
Bay 4, Building 14 located in Rotterdam Industrial Park, Town of Rotterdam,
County of Schenectady, State of New York, hereinafter referred to as the
"Demised Premises", as shown on the map attached hereto and made a part hereof,
as Exhibit "D"; said Demised Premises being 40,420 square feet as measured in
accordance with the BOMA Standard Method of Measurement, American National
Standard Section Z65.1, which states that the rentable area of a floor shall be
computed by measuring to the center of the dominant portion of the permanent
outer buildings walls, and Sublessor hereby grants to Sublessee its guests,
invitees and licensees all easements, rights and privileges appurtenant thereto
including the right to use adjoining parking areas, driveways, roads, alleys,
means of ingress and egress and other portions of the other areas ("Common
Areas") in common use by owners or lessees of the Rotterdam Industrial Park and
Sublessor agrees that it will not, during the term of this Sublease, alter those
portions of the Common Areas shown in yellow on Exhibit "D" so as to materially
and adversely affect ingress and egress to and from the Demised Premises or
parking adjacent to the Demised Premises.  The foregoing subleasing shall be
upon the terms and conditions hereinafter set forth, and the Sublessee does
hereby covenant with the Sublessor as follows:

1.    TERM:  The initial term of this Sublease shall be for a period of
      approximately four (4) years and eleven (11 ) months commencing on the
      earlier to occur of (i) January 31, 1997 or (ii) the date that Sublessee
      first commences normal business operations in any portion of the Demised
      Premises (the earlier of such two dates being hereinafter referred to as
      the "Term Commencement Date") and ending December 31, 2001 ("Initial
      Term").  Commencing September 8, 1996, Sublessee shall be entitled to
      enter upon the Demised Premises for the purpose of making same ready for
      Sublessee's use.

2.    RENTAL:  Commencing with the date Sublessee first enters the Demised
      Premises, Sublessee shall be responsible for the payment of all utility
      costs and Common Area charges allocable to the Demised Premises.  As
      rental for the Demised Premises for the Initial Term the Sublessee hereby
      agrees to pay the Sublessor without deduction, setoff, prior notice or
      demand the sums as outlined in Exhibit A Rental and Term Schedule, in
      advance on the Term Commencement Date (to the extent of any partial
      month's rent due because the Term Commencement Date is not the first day
      of a calendar month) and thereafter on the first day of each and every
      month, said rental to be paid to the Sublessor by good check mailed to
      Sublessor at c/o Northeastern Industrial Park, P.O. Box 98, Guilderland
      Center, New York 12085 or delivered to Sublessor's offices at Building 6,
      East Road, Rotterdam Industrial Park, Schenectady, New York, or at such
      other place or places as the Sublessor may from time to time direct.
      Sublessee shall pre-pay the first full month's rent and last months'
      rental at Sublease signing.  The Sublessee shall pay a "late charge" of
      two (2%) percent per month from the due date of any installment of rental
      (Fixed Minimum, or other as may be construed as rent) if said rental
      payment is made after its due date.  Nothing herein contained shall be
      deemed to limit any right or remedy which the Sublessor may have under
      this Sublease, at law or in equity.

3.    CONDITION OF PREMISES:  The Sublessee covenants that the Sublessee has
      examined the Demised Premises, knows the condition thereof and
      acknowledges that the same are accepted "as is", subject to the warranties
      as set forth hereafter

<PAGE>
 
      and subject to the conditions as set forth on Exhibit "B" attached hereto,
      which are conditions precedent to Sublessee's acceptance of the Demised
      Premises and obligations to perform any terms herein.  Sublessee shall
      comply with the requirements of the Occupational Safety and Health Act of
      1970 and all other applicable laws relating to occupational safety and
      health and rules and regulations promulgated thereunder, and the Sublessee
      shall further comply with all laws, rules and regulations of the State of
      New York and any department agency, board, or political sub-division of
      the State pertaining to building construction or safety applicable to
      either the Sublessee or the Sublessor and shall hold the Sublessor
      harmless therefrom.  Nothing herein shall be construed as preventing the
      Sublessor from taking such action as it shall deem necessary for the
      protection of its interests in respect to any order, decree, judgment or
      other act of any Federal or State department, agency or board.

4.    UTILITIES:  The Sublessor or the local public utility shall provide and
      maintain the necessary mains, ducts and conduits in order to bring water,
      electricity and natural gas service to the Demised Premises and to carry
      sewage therefrom in accordance with Sublessee's specifications as set
      forth on Exhibit "C" attached hereto any made a part hereof.  All means of
      distribution of such services within the Demised Premises shall be
      supplied and maintained by the Sublessee at the Sublessee's expense.

      a.    ELECTRICAL:  The Sublessee shall make known to the Sublessor its
            electricity requirements at or prior to the execution of this
            Sublease.  In the event the Sublessee requires additional capacity
            beyond that as set forth on Exhibit "C", any additional risers,
            feeders, meters, wiring or other equipment required thereby shall be
            installed by the Sublessor or a qualified contractor upon the
            Sublessee's request and at the Sublessee's cost and expense,
            provided, however, that in the Sublessor's sole judgment, the same
            are reasonably necessary and will not cause permanent damage or
            injury to the Demised Premises or cause or create a dangerous or
            hazardous condition or entail excessive alterations, repairs or
            expense or unreasonably or materially interfere with or disturb
            other lessees.  If, at the time of the commencement of this
            Sublease, the Demised Premises shall be unmetered for electricity
            consumption, the Sublessor shall cause such metering device or
            devices to be installed as the Sublessor shall deem necessary and
            the cost of such device, together with the expense of installing the
            same, shall not be paid by the Sublessee.  If such electrical
            service is directly with the Niagara Mohawk Power Corporation,
            Sublessee shall request service in its own name prior to entering
            upon the Demised Premises and pay such costs directly to Niagara
            Mohawk Power Corporation.

      b.    WATER:  The Sublessor shall install, or cause to be installed, at no
            cost to Sublessee, a water meter and thereby measure the Sublessee's
            water consumption.  Throughout the duration of the Sublessee's
            occupancy, the Sublessee shall keep such meter and installation
            equipment in good working order and repair at its own expense.  In
            the event of activation of the unmetered sprinkler system due to
            fire or acts of Sublessee, Sublessor shall render a bill for water
            consumption based on output per sprinkler head times the duration of
            sprinkler flow.  The cost of water is to be the then current charge
            by the municipality.  Sublessee is to make payment directly to the
            utility company supplying such water. Sublessor warrants that a
            water line of at least 2" or greater delivering at a constant flow
            of 60 to 80 PSI services the Demised Premises.

      c.    SEWER:  Sublessee is to make payment, upon presentation of a bill by
            Sublessor, for the then current sewage charge by the municipality
            for the Demised Premises, and the amount thereof shall be deemed
            Additional Rent hereunder.  Lessor warrants that a sewer line of at
            least 6" or greater services the Demised Premises.

                                      -2-

<PAGE>
 
      d.    FUEL OIL AND/OR NATURAL GAS AND/OR LP GAS:  Sublessee is to contract
            for and pay all costs of liquid or gas fuels directly to supplier,
            provided service to the Demised Premises shall not be the obligation
            and expense of the Sublessee.  Sublessor warrants that a gas line of
            at least 2" or greater delivering at a constant flow of 5 PSI to the
            Demised Premises.

      e.    SPRINKLERS:  Sprinklers and sprinkler systems now existing in said
            Demised Premises shall be maintained and serviced by the Sublessor,
            provided, however, that if any such system or any of its appliances
            shall be damaged or injured or rendered otherwise than in proper
            working order by reason of any act or omission of the Sublessee, the
            Sublessee's agents, servants, employees, licensees or visitors, the
            Sublessee shall forthwith restore such equipment to good working
            condition and order at its own expense. If by reason of the acts or
            operations of the Sublessee, the New York Board of Fire Underwriters
            or the New York Fire Insurance Exchange or any bureau, department or
            official of the state or municipal government requires or recommends
            any change in such sprinklers or sprinkler system or if any change
            is necessary to prevent the imposition of a penalty or charge
            against the full allowance for a sprinkler system in the fire
            insurance rate as fixed by such exchange or by any fire insurance
            company, the Sublessee shall at its own expense promptly make such
            change; provided said change is a direct consequence of Sublessee's
            particular use of the Demised Premises.  In the event said change is
            incident to the general usage of the Demised Premises as warehouse,
            industrial or distribution uses, Sublessee shall not be obligated to
            perform same at its expense.  Any changes whatsoever in the
            sprinkler system desired by the Sublessee must be submitted to the
            Sublessor for the review and approval of the Sublessor's insurer.

      In the event the Sublessee shall fail to pay any tax, rent, levy or charge
      for any utility service, which by reason of such non-payment may become a
      lien upon any part of the premises of the Sublessor, the Sublessor may,
      upon ten (10) days' written notice thereof to the Sublessee, make payment
      of such tax, rent, levy or charge together with any interest, penalties or
      other accruals due thereon, and upon such payment the amount thereof shall
      immediately become due and payable by the Sublessee to the Sublessor as
      rent hereunder.

      The Sublessor may interrupt or suspend the supply of any such service to
      the Demised Premises in order to make any necessary repair or alteration
      to the Demised Premises or to any other building or other part of the
      premises of the Sublessor provided Sublessor notifies Sublessee, in
      writing, promptly after receiving notice thereof from any utility or
      governmental authority of any scheduled suspension of such service, and,
      in the case of a suspension of service necessitated by any activity of
      Sublessor or it affiliates, upon not less than ten (10) days' written
      notice sent prior to the Sublessee of the date for the commencement of any
      necessary repair or alteration.  Said notice shall not be applicable in
      the event of an emergency involving the endangerment of life or the
      preservation of property from imminent destruction.  There shall be no
      abatement in rent because of any such interruption or suspension provided
      that such repairs or alterations shall be made with reasonable diligence
      and provided further that any repair or alteration made by Sublessor shall
      not unreasonably interfere with the Sublessee's business.  The Sublessor
      may at any time during the term of this Sublease assign, convey, transfer
      or set over to any municipality having jurisdiction or to any public
      utility corporation or private water corporation or sewage disposal
      corporation any or all of the Sublessor's right, title and interest in and
      to such public utility facilities and thereupon require the Sublessee to
      make payment for such services to such assignee, municipality, firm or
      corporation in accordance with such rates as such assignee may establish.
      Upon any such conveyance, assignment or transfer, there shall be no
      abatement of rent due and payable hereunder by reason of any interruption
      of such service resulting from the act or fault of such assignee,

                                      -3-

<PAGE>
 
      provided further that such conveyance, assignment or transfer shall not
      unreasonably interfere with the Sublessee's business.

5.    ADDITIONAL RENT:  In addition to the rental herein provided, the Sublessee
      shall pay to the Sublessor as Additional Rent within twenty (20) days,
      that proportion of any real property taxes and assessments levied or
      assessed against the premises of which the Demised Premises are a unit,
      either school tax or town tax, as the total net rental area within the
      Demised Premises bears to the total net rental area within the building or
      buildings or land area, including the Demised Premises, which are included
      in the unit so taxed or assessed.  The Sublessee shall also pay to the
      Sublessor as Additional Rent, similarly computed, premium rate charges
      incurred by the Sublessor with respect to insurance on the Demised
      Premises for general liability, fire and extended coverage.  Such amounts
      shall be paid by the Sublessee to the Sublessor within ten (10) days after
      the receipt by the Sublessee of written notice thereof from the Sublessor.
      As of the date immediately preceding execution of this Sublease, Sublessor
      represents that the Demised Premises are listed on the applicable
      assessment rolls as being exempt from all real estate taxes.  Sublessor
      agrees not to take any action to seek to have the Demised Premises become
      subject to real estate taxation.  Nonetheless, should the Demised Premises
      become subject to any real estate taxes, Sublessee's liability or
      obligation for payment shall not exceed $30,315.00 (thirty thousand three
      hundred fifteen and 00/100 dollars) (calculated by multiplying $.15 x
      40,420 square feet x 5 years) in the aggregate over the Initial Term.

6.    SERVICES - ADDITIONAL RENT:  The Sublessee shall initially pay to the
      Sublessor as Additional Rent, as and when billed by the Sublessor, $.30
      per square foot annual cost, paid monthly, for security and common area
      maintenance.  The $.30 is an estimated amount expected due for the first
      year, or part thereof, which is subject to adjustments detailed later in
      the Sublease.

      Security and Common Area Maintenance:  The charges for maintaining
      security and common area maintenance, as hereinbefore defined, shall
      include, but not be limited to, the costs of replacing, operating,
      managing, equipping, cleaning, lighting, repairing, and removing snow from
      main roads, ingress and egress thereto and parking areas (but excluding
      dock areas), landscaping and gardening, striping, sign, rail track
      maintenance and repair, traffic and safety control (including personnel),
      security personnel, maintenance and costs of labor, insurance materials
      and supplies, and the Sublessor's administrative and overhead costs for
      said services, which administrative and overhead costs shall be charged in
      the same manner as such costs are charged to other tenants in Rotterdam
      Industrial Park.  The Sublessee shall pay its proportionate share, as
      hereinafter defined, of the total costs of security and common area
      maintenance in the manner hereinafter stated.

      In computing the charges for security and common area maintenance, as
      provided above, the Sublessee's proportionate share, currently 1.1%, shall
      be deemed to be the ratio of the total square footage of the floor area of
      the Demised Premises, presently 40,420, to the total square footage of the
      floor area of the entire industrial park, presently 3,743,204.

      Sublessor shall furnish the Sublessee a written estimate of the
      Sublessee's proportionate share of the charges specified above for the
      first calendar year or portion thereof, or for the next succeeding
      calendar year, as the case may be, and said charges shall be paid monthly
      with Fixed Minimum Rent, in advance commencing on the first day of the
      first Sublease Year.  Charges for the first and last Sublease Years shall
      be on a pro rata basis based upon twelve (12) thirty (30) day months.

      The Sublessee shall at its own expense maintain all portions of the
      Demised Premises and immediately adjoining areas in a clean and orderly
      condition free of dirt and rubbish, and the Sublessee shall remove or
      cause to be removed all

                                      -4-

<PAGE>
 
      rubbish from the Demised Premises and immediately adjoining areas at the
      Sublessee's expense.  Under no conditions will Sublessor permit Sublessee
      to use outside areas for parking of unregistered and/or disabled or
      nonfunctioning or damaged vehicles except for the temporary storage in the
      case of an emergency, or for the accumulation of pallets and/or other
      packing materials.  Sublessee must install a dumpster or similar trash
      receptacle of ample size at inception of occupancy at a location proximate
      to the Demised Premises as provided by the Sublessor.  In the event the
      Sublessee permits accumulations of rubbish, which the Sublessor in the
      exercise of its judgment may deem unreasonable or harmful, injurious or
      deleterious to the use and enjoyment of the remainder of the premises of
      the Sublessor of which the Demised Premises are a part, the Sublessor may
      remove such rubbish and charge the cost thereof to the Sublessee and the
      Sublessee shall thereupon become liable to the Sublessor for such cost as
      Additional Rent.  Sublessee shall keep all fire doors clear and shall not
      obstruct dock areas with vehicles or goods excepting the normal process of
      loading and unloading operations from inside storage to transport
      vehicles.

7.    USE:  The Demised Premises are hereby leased to the Sublessee upon the
      express condition that the Sublessee shall use the said Demised Premises
      for receiving, ordering, production, shipping and selling of products,
      materials and merchandise made or distributed by Sublessee or its
      affiliates and for no other purpose without the written consent of the
      Sublessor first obtained.

      1.    Will rail be utilized?              Yes     X         No
                                                     -------          -------
            If Yes, what will the average be?
            Rail Cars Per Day    .5             Month     15      Year     180
                               ------                  -------          -------

      2.    Will there be any truck traffic?    Yes     X         No
                                                     --------         -------
            If Yes, what will the average be?
            Trucks Per Day       25             Month    750      Year   8,900
                               ------                  -------          -------

      3.    Number of employees in your local operation:
            Initial Start Up     50             After One Year    125
                               ------                           -------

      4.    Number of employee parking spaces needed:
            Initial Start Up     65             After One Year    135
                               ------                           -------

      All uses to which the Demised Premises shall be put by the Sublessee shall
      conform to the requirements of any and all local laws, ordinances, rules
      or regulations adopted or enacted by the municipality having jurisdiction
      over the Demised Premises and shall also conform to any special use permit
      or certificate of occupancy or other permit of any kind issued or required
      to be issued by any governmental authority having such jurisdiction over
      the Demised Premises and shall not be put to any such use by the Sublessee
      until all governmental rules and regulations relative to or affecting such
      use have been complied with and all governmental permits required as a
      condition precedent to such use shall have been obtained.  The Sublessee
      shall conduct its business throughout the term hereof in a first-class
      manner and shall not use the Demised Premises for or carry on or permit
      upon said Demised Premises any offensive, unreasonably noisy, or dangerous
      business, trade, manufacture or occupation or any nuisance or any activity
      contrary to public policy or any activity causing a noxious or offensive
      odor or causing pollution to the atmosphere, nor permit any auction sale
      to be held or conducted upon said Demised Premises, nor shall it use or
      permit the use of such Demised Premises or part thereof for any immoral or
      any other purpose prohibited by law or which will increase the rate of
      insurance upon the building in which said Demised Premises may be located
      or cause a cancellation of any insurance policy covering said building or
      any part thereof.  The Sublessee shall not do or suffer anything to be
      done upon said Demised Premises which will cause structural injury to
      said Demised Premises or to the building of which the same form a part,
      nor shall it cause said Demised Premises to be overloaded, nor shall it
      permit any

                                      -5-

<PAGE>
 
      machinery, apparatus or other appliance to be used or operated upon said
      Demised Premises which will injure said Demised Premises or the building
      of which the same form a part, nor shall the Sublessee permit any
      noisemaking device to be operated or allowed upon said Demised Premises
      for the purpose of attracting trade or otherwise.  The Sublessee shall not
      permit any use to be made of the Demised Premises which will in any way
      impair the efficient operation of the sprinkler within the building
      containing the Demised Premises.  In addition to the Sublessee's liability
      for Additional Rent in respect of insurance premium rate increases as
      provided in Paragraph 5 hereof, if any act on the part of the Sublessee or
      use of the Demised Premises by the Sublessee shall cause directly or
      indirectly any increase of the Sublessors insurance expense, such
      additional expense shall be paid by the Sublessee to the Sublessor upon
      demand as Additional Rent.  No such payment by the Sublessee shall limit
      the Sublessor in the exercise of any other rights or remedies or
      constitute a waiver of the Sublessor's right to require the Sublessee to
      discontinue such act or use.

8.    REPAIRS AND MAINTENANCE:  Throughout the term of this Sublease the
      Sublessee shall take good care of the Demised Premises.  Sublessor is
      responsible for maintenance of the structural elements, fire alarm system,
      and sprinklers, and Sublessee for the maintenance and repairs of all other
      non-structural elements and systems, including doors and windows.  When
      used in this paragraph the term "repairs" shall include all necessary
      replacements, renewals, alterations, additions and betterments of a
      non-structural character.  All repairs made by the Sublessee shall be at
      least equal in quality and class to the original work.  The Sublessee
      shall make no structural alterations to the Demised Premises without prior
      permission of the Sublessor given in writing. Upon the expiration of the
      term of this Sublease or sooner termination, the Sublessee shall surrender
      the Demised Premises to the Sublessor in the same condition as received,
      ordinary wear and tear and damage by fire, earthquake, act of God or the
      elements alone excepted.  Sublessor, acting in its reasonable judgment,
      may make demand that maintenance be accomplished if a hazardous or
      deteriorating condition exists.  If Sublessee desires services by
      Sublessor's maintenance personnel such will be performed on a work order
      basis only.

9.    ALTERATIONS AND LIENS:  The Sublessee shall make no structural alterations
      or additions to the Demised Premises without prior written consent of the
      Sublessor.  Upon the giving of such written consent all alterations,
      additions and improvements, excluding trade fixtures, furnishings and
      equipment made in, to or on the Demised Premises shall become the property
      of the Sublessor (or Master Lessor, as hereinafter defined) and shall
      remain upon and be surrendered with the Demised Premises, except that the
      Sublessee shall ascertain from the Sublessor within sixty (60) days before
      the expiration of this term whether the Sublessor desires to have the
      Demised Premises or any part or parts thereof restored to their condition
      as of the time of the delivery thereof to the Sublessee (except for any
      and all offices or office-related improvements which shall remain), and,
      if the Sublessor so desires, the Sublessee shall restore said Demised
      Premises or such part or parts thereof to such original condition before
      the end of the term of this Sublease entirely at the Sublessee's own cost
      and expense.  The Sublessee shall indemnify and save and hold harmless the
      Sublessor from all liens, claims or demands arising out of any work
      performed, materials furnished or obligations incurred by or for the
      Sublessee upon said Demised Premises during said term and agrees not to
      suffer any such lien or encumbrance to be imposed on any of the
      Sublessor's premises.  The Sublessor shall have the right, after the
      giving of not less than five (5) days' notice to the Sublessee to remove
      such lien or encumbrance, to bring such action or proceeding as may be
      necessary to effect the removal thereof and the costs and expenses
      thereof, including reasonable attorney's fees, shall become immediately
      due and payable by the Sublessee to the Sublessor as Additional Rent.

10.   ENTRY AND INSPECTION:  The Sublessor and its agents may enter upon the
      Demised Premises at all reasonable times to inspect the same, to submit
      them to

                                      -6-

<PAGE>
 
      a prospective purchaser or to make any repairs which the Sublessor shall
      consider necessary for the protection, improvement or preservation of the
      building in which the Demised Premises are situated, or to make any
      changes in the plumbing, wiring, meters or other equipment, fixtures or
      appurtenances of the building, provided that the same may be performed
      without material interference with the business operations of the
      Sublessee, and there shall be no liability against the Sublessor in favor
      of the Sublessee for damages sustained by the Sublessee by reason of such
      repairs or changes nor shall the Sublessee be entitled to any abatement of
      rental by reason thereof.  At any time after sixty (60) days prior to the
      termination of the Sublease the Sublessor may place on said Demised
      Premises any usual or ordinary "To Let" or "To Lease" signs.  For the
      purposes of this paragraph, the Sublessor may hold at all times a
      duplicate set of keys to the Demised Premises.  The Sublessee shall make
      no changes in locks or other facilities controlling access to the Demised
      Premises without the permission of the Sublessor and whenever such
      permission is granted, the Sublessee shall provide the Sublessor with a
      duplicate set of keys so as to provide the Sublessor with access at all
      times.

11.   SUBLETTING AND ASSIGNMENT:  The Sublessee shall not, without the
      Sublessor's prior written consent, which consent shall not be arbitrarily
      withheld or unreasonably delayed, assign or sublet this Sublease or permit
      any person or entity other than the Sublessee to use or occupy, or store
      goods, materials or other property (such goods, materials and property
      being hereinafter referred to as "Property") at the Demised Premises or
      any part thereof.

      Notwithstanding the foregoing, or anything to be contrary elsewhere
      contained in this Sublease, Sublessee, without Sublessors consent, but
      upon not less than thirty (30) days' prior written notice, may assign this
      Sublease or sub-sublet the Demised Premises, or any portion thereof, to
      its parent, any of its subsidiaries or to any other entity affiliated with
      Sublessee or its parent, or to a corporation or other entity resulting
      from any reorganization or merger to which Sublessee, its parent or any of
      its subsidiaries or affiliates is a party, provided Sublessee shall remain
      obligated under this Sublease (the foregoing being heroinafter referred to
      as a "Permitted Assignment").  The Sublessor will not divulge to any third
      parties, except if required by the applicable loan document, to Sublessors
      lender, any confidential information received with respect to any proposed
      reorganization or merger.

      Any (a) assignment or subletting or (b) or the permitting of any person or
      entity other than the Sublessee to use, or occupy any portion of, or store
      any Property at the Demised Premises, without the consent of the Sublessor
      in each instance, shall be void and shall constitute a breach of this
      Sublease.  In the event of such prohibited assignment, sublet or use,
      occupancy or storage, the Sublessor may avail itself of any other remedies
      contained in this Sublease and any other remedy available to it under
      applicable law.  In addition to the foregoing, in the event of any breach
      of clause (b) in the preceding sentence, the Sublessor may cause the
      removal of such occupant and/or materials, goods or Property, at the sole
      cost and expense of the Sublessee.

      If the Sublessee proposes to assign the Sublease, enter into any sublease
      of the Demised Premises or grant to any person or entity the right to use,
      occupy, or store Property at any portion of the Demised Premises, the
      Sublessee shall deliver written notice thereof to the Sublessor, together
      with a copy of the proposed assignment, sublease or other agreement, if
      any, governing such use, occupancy or storage, and such financial
      information (i.e., balance sheet and annual reports concerning such
      sublessee, assignee or the person or entity that Sublessee proposes to let
      use or occupy, or store any Property at the Demised Premises (any such
      person or entity being hereinafter referred to as a "Licensee") as is
      acceptable to the Sublessor, in the exercise of Sublessor's reasonable
      discretion, the foregoing notice and financial information shall be
      delivered at least thirty (30) days prior to the effective date of the
      proposed assignment, the commencement date of the term

                                      -7-

<PAGE>
 
      of the proposed sublease or the date on which any person or entity
      proposes to use, occupy or store Property at the Demised Premises or any
      pad thereof.  Any proposed assignment, sublease or use, occupancy or
      storage of Property shall be expressly subject to the terms, conditions,
      and covenants of this Sublease.  The Sublessee shall reimburse the
      Sublessor for all reasonable legal costs involved in reviewing a proposed
      assignment, subletting or agreement with any Licensee for the use,
      occupancy or storage of any Property.

      Any proposed assignment shall contain a written assumption by the assignee
      of all of the Sublessee's obligations under this Sublease.  Any sublease
      shall (a) provide that the sub-sublessee shall procure and maintain a
      policy of insurance as required of the Sublessee under this Sublease; (b)
      provide for a copy to the Sublessor of any notice of default by either
      party; and (c) otherwise be reasonably acceptable in form to the
      Sublessor.

      No consent by the Sublessor to any subletting, assignment or use,
      occupancy or storage of Property by any Licensee shall be deemed to be a
      consent to any further subletting (or sub-subletting), assignment or any
      other use, occupancy or storage by any Licensee (including the Licensees
      for whom permission is being given).

      In the event that the Sublessee assigns or subleases any portion of the
      Demised Premises or permits the use, occupancy or storage of Property at
      any portion of the Demised Premises to anyone other than the Sublessee, or
      a subsidiary or affiliate of Sublessee pursuant to a Permitted Assignment,
      the Sublessee shall pay to the Sublessor monthly, as Additional Rent
      hereunder, one hundred (100%) percent of the amount calculated by
      subtracting from the rent and other charges and considerations payable
      from time to time by the assignee, sub-sublessee or Licensee to the
      Sublessee for aforesaid space, the amount of rent and other charges
      payable by the Sublessee to the Sublessor under this Sublease, allocated
      to the assigned, subleased or otherwise utilized portion of the Demised
      Premises.

      A) Except for a Permitted Assignment, Sublessee shall not have the right
      to sublet or assign the Demised Premises except on the following terms and
      conditions:

            1) Such subletting or assignment shall not relieve the Sublessee
            from its duty to perform fully all of the agreements, covenants and
            conditions set forth in this Sublease or any Guarantor from the
            obligations of any Guaranty executed and delivered in connection
            with this leasing.

            2) The Sublessee shall first obtain the Sublessor's written consent
            to the subletting or assignment in each instance.

            3) The Sublessee shall provide the name of the proposed
            sub-sublessee or assignee, the terms and conditions of the proposed
            subletting or assignment, the nature and character of the business
            of the proposed sub-sublessee or assignee, and the banking,
            financial and other credit information relating to the proposed
            assignee or sub-sublessee reasonably sufficient to enable Sublessor
            to determine the financial responsibility of said proposed
            sub-sublessee or assignee.

            4) Upon the receipt of such request from Sublessee, Sublessor shall
            have an option, to be exercised in writing within thirty (30) days
            thereafter, to terminate this Sublease effective on a date (the
            "Termination Date") set forth in Sublessor's notice of termination,
            which shall not be less than thirty (30) days nor more than ninety
            (90) days following the service upon Sublessee of Sublessor's notice
            of termination.

            5) In the event Sublessor shall exercise such option to terminate
            this Sublease, this Sublease shall expire on the Termination Date as
            if that date had been originally fixed as the expiration date of the
            term herein granted

                                      -8-

<PAGE>
 
            and Sublessee shall surrender possession of the entire Demised
            Premises on the Termination Date in accordance with the provisions
            of this Sublease.

      B) If Sublessor shall not exercise its option within the period aforesaid,
      then Sublessor's consent to such request shall not be unreasonably
      withheld but will be given only on the following conditions acknowledged
      by Sublessee to be reasonable and proper:

            1) That the subletting or assignment is for the entire Demised
            Premises only;

            2) That the subletting or assignment shall be to a sub-sublessee
            whose occupancy will be in keeping with the dignity and character of
            the then use and occupancy of the premises by other lessees and
            whose occupancy will not be more objectionable or more hazardous
            than that of Sublessee herein.  In no event shall any subletting or
            assignment be permitted to a school of any kind or an employment or
            placement agency; or governmental or quasi-governmental agency;

            3) That the subletting or assignment shall not be to any Sublessee,
            sub-sublessee or assign of any leased space in the premises of which
            the Demised Premises form a part;

            4) That no subletting or assignment shall be permitted to any person
            or entity who is then a tenant or occupant of Rotterdam Industrial
            Park, Northeastern Industrial Park or Scotia-Glenville Industrial
            Park;

            5) That the sublease or assignment will expressly prohibit
            assignment of the Sublease agreement or further subletting by the
            sub-sublessee without Sublessor's written consent.

            6) If this Sublease shall be assigned, or if the Demised Premises or
            any part thereof, be sublet or occupied by any person or persons
            other than Sublessee, Sublessor may, after default by Sublessee,
            collect rent from the assignee, subtenant or occupant, and apply the
            net amount collected to the rent herein reserved, but no such
            assignment, subletting, occupancy or collection of rent shall be
            deemed a waiver of the covenants contained in this Sublease, nor
            shall it be deemed acceptance of the assignee, subtenant or occupant
            as a tenant or a release of Sublessee from the full performance by
            Sublessee of all of the terms, conditions and covenants of this
            Sublease.

12.   LIABILITY AND INSURANCE:  The Sublessee shall keep, save and hold the
      Sublessor harmless and free from all liability, penalties, losses,
      damages, costs, expenses, causes of action, claims and/or judgments
      arising by reason of any injury or damage to any person or persons or
      property including, without limitation, the Sublessee, its servants,
      agents and employees, from any cause or causes whatsoever, except for
      intentional acts or gross negligence of Sublessor, including leakage,
      while in, upon or in any way connected with said Demised Premises or its
      appurtenances.

      The Sublessor shall not be liable for any loss or damage occasioned by
      defective wiring, plumbing, gas, sprinkler, steam, sewer, water or other
      pipes or fixtures; the bursting, leaking, running or. clogging of the
      above pipes or fixtures or of any heating or air conditioning equipment,
      cistern, tank, sprinkler system, boiler, wash stand, closet or wastepipe;
      accidental discharge of the sprinkler; water, snow, ice or other foreign
      matter being upon or coming through the roof, skylights, trapdoors, doors,
      windows or otherwise, unless in each case the foregoing result from the
      gross negligence or intentional acts of Sublessor; acts or negligence or
      failure to comply with lease covenants by other tenants of the Sublessor;
      acts of negligence of guests, invitees and employees of the Sublessee or
      other occupants of the

                                      -9-

<PAGE>
 
      Demised Premises; acts of negligence of any owners or occupants of
      adjacent or contiguous properly or their employees; acts of God; acts of
      negligence of any persons not in the employ of the Sublessor.  In
      connection with any defect in or damage to the structural portions of the
      Demised Premises or the building-wide systems servicing the same (not
      arising from the act or omission of Sublessee or its sub-subtenants, or
      their respective employees, agents or invitees), Sublessor agrees to take
      commercially reasonable good faith steps to have Sublessor's landlord or
      any other appropriate party repair same.

      The Sublessee shall take out and keep in force during the term hereof, at
      the Sublessee's expense, public liability and other insurance in companies
      acceptable to the Sublessor to protect against any liability to the
      public, whether to persons or properly, incident to the use of said
      Demised Premises or resulting from accident occurring in or about said
      Demised Premises or the areas immediately adjacent thereto, which
      insurance shall be in an amount not less than $1,000,000.00 to indemnify
      against the claim of one person for personal injuries and not less than
      $3,000,000.00 to indemnify against the claim of two or more persons for
      personal injuries in any one occurrence and in an amount not less than
      $1,000,000.00 per occurrence to indemnify against a claim or claims for
      property damage.  The Sublessee shall cause every insurer to agree by
      endorsement upon the policy or policies issued by it, or by independent
      instrument furnished to the Sublessor, that such insurer will give the
      Sublessor ten (10) days' written notice at the address where rental is
      paid before the policies in question shall be altered or canceled.
      Certified copies of said policies or certificates of insurance naming the
      Sublessor as additional insured shall be furnished at the time of Sublease
      inception.  Said policies shall be renewed at the end of each policy
      period.

      The Sublessor and Sublessee hereby release one another and their
      respective officers, agents, employees and servants from any and all
      claims or demands for damages, loss, expense or injury to the Demised
      Premises or to the furnishings and fixtures and equipment or inventory or
      other property of either the Sublessor or the Sublessee in, about or upon
      the Demised Premises, as the case may be, which may be caused by or result
      from perils, events or happenings which are the subject of insurance
      carried by the respective parties and in force at the time of any such
      loss, provided, however, that such release and waiver shall be effective
      only to the extent of the insurance coverage for such loss. This paragraph
      does not preclude the respective parties from any and all other remedies
      at law which are available and in no way are their respective rights
      prejudiced.

13.   ABANDONMENT:  In the event the Demised Premises become abandoned or
      surrendered or in the event the Sublessee be dispossessed or evicted by
      process of law, the Sublessor, in addition to all other remedies granted
      by this Sublease or available by operation of law, may deem that any
      personal property belonging to the Sublessee left on said Demised Premises
      is abandoned, and the Sublessor may enter upon said Demised Premises and
      remove therefrom any and all equipment, fixtures and merchandise and sell
      the same at public or private sale at such price and upon such terms as
      the Sublessor may determine without notice to or demand upon the
      Sublessee.  Out of the proceeds of such sale the Sublessor may reimburse
      itself for the expense of such taking, removal and sale and for any
      indebtedness of the Sublessee to the Sublessor and the surplus, if any,
      shall be accounted for the Sublessee.

14.   DEFAULT:  In the event the Sublessee (a) fails to pay the rental herein
      provided or any part thereof or any other sum required by the Sublessee to
      be paid to the Sublessor within ten (10) days of the date when due or in
      the manner herein provided; or (b) if the Sublessee abandons said Demised
      Premises or violates any of the provisions of this Sublease respecting
      assignments or subletting; or (c) makes default in any of the other
      covenants or conditions on the Sublessee's part to be performed hereunder
      and such default is not cured within thirty (30) days after notice by the
      Sublessor to the Sublessee of such default, then such default or

                                      -10-

<PAGE>
 
      breach or act shall give the Sublessor the right to re-enter the Demised
      Premises and remove all persons and all or any property therefrom either
      by summary dispossess proceedings or by any suitable action or proceeding
      at law, or by force or otherwise, without being liable to indictment,
      prosecution or damages therefor, and repossess and enjoy said Demised
      Premises together with all additions, alterations and improvements, and in
      such case the Sublessor may either relet the Demised Premises or any parts
      thereof as agent of the Sublessee and receive the rents applying the same
      first to the payment of such expenses as the Sublessor may have incurred
      and then to the fulfillment of the covenants of the Sublessee.  The
      Sublessor may rent said Demised Premises for a term extending beyond the
      term hereby granted without releasing the Sublessee from any liability.
      Upon the expiration of this Sublease prior to the expiration of its term
      by operation of any provision hereof or by summary proceedings or
      otherwise, then, whether or not the Demised Premises be relet, the
      Sublessee shall remain liable for and shall pay the Sublessor, until the
      time when this Sublease would have expired but for such termination or
      expiration, the equivalent of the amount of all of the rent and Additional
      Rent reserved herein, less the avails of reletting, if any, and the same
      shall be due and payable by the Sublessee to the Sublessor on the several
      rent days above specified.  The Sublessee hereby expressly waives any and
      all rights of redemption in the event of eviction or dispossession by
      judgment or warrant of any court or judge, and the Sublessee waives and
      will waive all right to trial by jury in any summary proceeding hereafter
      instituted by the Sublessor against the Sublessee in respect of the
      Demised Premises.  All remedies herein provided shall be deemed cumulative
      and shall in no way limit or restrict the Sublessor from pursuing such
      other and further remedies as may be allowed at law or in equity.

15.   [DELETED PRIOR TO EXECUTION]

16.   HOLDING OVER:  In the event the Sublessee holds over the term hereby
      created with the consent of the Sublessor, the Sublessee shall become a
      tenant from month to month at the average monthly rental payable hereunder
      for the immediately preceding six (6) month period, plus twenty-five (25%)
      percent increase at discretion of Sublessor.

17.   DESTRUCTION:  In the event the Demised Premises are damaged by fire,
      earthquake, enemy, act of God or the elements or other casualty, the
      Sublessor, unless it shall otherwise elect as hereinafter provided, shall
      take commercially reasonable, good faith steps to have the Master Lessor
      repair the same with reasonable dispatch after written notice of the
      damage.  If such damage is so extensive as to render the Demised Premises
      untenantable, but the election is made to nevertheless repair same, then
      the rent shall be abated to an extent corresponding with the time during
      which and the extent to which said Demised Premises may have been
      untenantable.  If such repairs, however, are delayed because of the
      Sublessee's failure to adjust the Sublessee's own insurance claim, no
      rental reduction shall be allowed beyond a reasonable time allowed for
      such adjustment.  If, however, such damage or destruction to said Demised
      Premises shall be caused by negligence or intentional, improper conduct on
      the part of the Sublessee or the Sublessee's agents, servants, employees,
      visitors or licensees, then, notwithstanding such damage or destruction,
      the Sublessee shall be liable for the rent during the unexpired portion of
      the demised term without abatement unless this Sublease is terminated by
      mutual agreement of the parties.  The Sublessor shall have the right to
      determine, within a reasonable time after such occurrence regardless of
      its cause, whether to demolish, rebuild or reconstruct the building
      containing the Demised Premises and, in the event of such decision by the
      Sublessor to so demolish, rebuild or reconstruct, then, upon notice given
      by the Sublessor to the Sublessee, this Sublease shall terminate on a date
      to be specified in such notice as if that date had been originally fixed
      as the expiration date of the term here demised and the rent shall be
      adjusted as of the time of the occurrence of such damage or destruction.
      The Sublessee shall give immediate notice to the Sublessor in case of such
      damage or destruction. Notwithstanding anything else

                                      -11-

<PAGE>
 
      herein to the contrary, in the event the Demised Premises cannot, with
      reasonable effort, be repaired with one hundred twenty (120) days,
      Sublessee may, upon not less than thirty (30) days' prior written notice
      to Sublessor, terminate this Sublease; provided that any such notice must
      be given within thirty (30) days after Sublessor advises Sublessee that
      the Demised Premises cannot be repaired within one hundred twenty (120)
      days.

18.   CONDEMNATION:  If the whole or a portion of the Demised Premises shall be
      taken for any public or quasi-public use by right of eminent domain, with
      or without litigation, or transferred by agreement or purchase in
      connection with such public or quasi-public use, the Sublease at the
      option of the Sublessor shall terminate as of the date title shall vest in
      the condemnor.  If any part of the Demised Premises shall be so taken as
      to render the remainder thereof unusable for the purposes for which the
      Demised Premises were leased, then the Sublessee shall have the right to
      terminate this Sublease by giving notice as hereinafter provided.  Upon
      any such taking, with or without a termination of this Sublease, all
      compensation awarded shall belong and be paid to the Sublessor and the
      Sublessee shall have no claim thereto and the Sublessee hereby irrevocably
      assigns, transfers, releases and sets over to the Sublessor any right to
      compensation for damages to which the Sublessee may become entitled during
      the term hereof by reason of such condemnation or taking, provided,
      however, that in the event of such taking and a termination of this
      Sublease by either party as a result of or in connection therewith the
      Sublessee shall be entitled to a payment from the Sublessor of an amount
      equal to the unamortized cost (depreciated on a straight line basis
      computed monthly) to the Sublessee of all leasehold improvements made by
      the Sublessee during the original term hereof and such payment shall be
      made by the Sublessor out of the proceeds received by the Sublessor from
      the condemning authority and such claim of the Sublessee shall not be
      deemed a claim against the condemning authority or a lien on such
      proceeds.  In no event shall the amount which the Sublessor shall be
      obligated to pay the Sublessee hereunder exceed the amount of the
      Sublessor's award less all expenses incurred by the Sublessor in
      connection with the securing or obtaining of such award.  In the event
      that upon such taking there shall be no termination of this Sublease by
      either party, this Sublease shall continue for the balance of its term as
      to the part of the Demised Premises remaining.  In such event the base
      rent payable by the Sublessee to the Sublessor hereunder and all items of
      Additional Rent payable hereunder as are determinable by reference to the
      area of the Demised Premises shall be reduced pro rata in the proportion
      in which the area of the Demised Premises so taken bears to the area of
      the Demised Premises before such taking, and all other liabilities of the
      Sublessee hereunder shall remain unaffected.  If upon such taking this
      Sublease shall not terminate and shall continue as herein provided, the
      Sublessor shall at its own cost and expense restore the remaining portion
      of the Demised Premises to the extent necessary to render it useable for
      the purposes for which it was leased and shall make all repairs to the
      building in which the Demised Premises are located to the extent necessary
      to constitute the building a complete architectural unit, provided that
      such work shall not exceed the scope of construction existing immediately
      prior to such taking and the cost of such restoration shall not exceed the
      proceeds of the condemnation award less the Sublessor's expenses in
      securing such award.  Termination of this Sublease by either party under
      the provisions of this paragraph shall be effected by the delivery of a
      thirty (30) day notice by such party to the other.

19.   SALE OF PREMISES:  In the event of a sale or conveyance by the Sublessor
      of all or any part of the Sublessor's estate containing the Demised
      Premises, the same shall operate to release the Sublessor from any future
      liability upon any of the covenants or conditions, express or implied,
      herein contained in favor of the Sublessee, and in such event the
      Sublessee agrees to look solely to the responsibility of the successor in
      interest of the Sublessor.

20.   ESTOPPEL:  At Sublessor's request, Sublessee agrees, within ten (10) days
      after receipt, to execute a lease estoppel certificate stating that:

                                      -12-

<PAGE>
 
      a.    The Sublease is unmodified and in full force and effect;
      b.    The term of the Sublease has begun and rent payable under the
            Sublease is accruing;
      c.    No notice of default or termination of the Sublease has been served
            on Sublessee under the terms of the Sublease;
      d.    To the best of Sublessee's knowledge, neither he nor the Sublessor
            are in default in any way under the Sublease.  In addition,
            Sublessee certifies that no event has occurred that with the passage
            of time or giving notice would constitute default under the Sublease
            by either him or the Sublessor; and

      certifying with respect to such other information with respect to this
      Sublease and Sublessee's occupancy of the Demised Premises as Sublessor
      shall reasonably request.

21.   [DELETED PRIOR TO EXECUTION]

22.   SIGNS:  The Sublessee shall not inscribe, paint or affix any signs,
      placards or advertisements on the exterior or roof of the Demised Premises
      or upon entrance doors, windows or upon any adjoining or appurtenant lands
      without obtaining the prior approval of the Sublessor in writing or
      without obtaining such permits therefor as may be required under any
      ordinance, local law, order, rules of regulation of the municipality
      having jurisdiction thereof.  Any such sign, placard or advertisement so
      placed upon the Demised Premises shall be removed by the Sublessee at the
      termination of this Sublease and the Sublessee shall repair any damage or
      injury to the Demised Premises caused thereby, and upon the failure of the
      Sublessee to comply herewith, the Sublessor may have the same removed and
      the Sublessee shall be liable to the Sublessor for the expense thereof.

23.   ENTIRE AGREEMENT, WAIVER:  This instrument contains all the agreements and
      conditions made between the parties hereto and may not be modified,
      changed or terminated in whole or in part orally or in any manner other
      than by agreement in writing signed by the parties hereto or their
      respective successors in interest.  The receipt of rent by the Sublessor,
      with knowledge of any breach of this Sublease by the Sublessee or of any
      default on the part of the Sublessee in the observance or performance of
      any of the conditions or covenants of this Sublease, shall not be deemed
      to be a waiver of any provision of this Sublease. If the Sublessee makes
      any payment of any amount less than that due hereunder, the Sublessor
      without notice may accept the same as a payment on account; the Sublessor
      shall not be bound by any notation on any check involving such payment nor
      any statement in any accompanying letter.  No failure on the part of the
      Sublessor to enforce any covenant or provision herein contained, nor any
      waiver of any right thereunder by the Sublessor, unless in writing, shall
      discharge or invalidate such covenant or provision or affect the right of
      the Sublessor to enforce the same in the event of any subsequent breach or
      default.  The receipt by the Sublessor of any rent or any other sum of
      money or any other consideration hereunder paid by the Sublessee after the
      termination, in any manner, of the term herein demised, or after the
      giving by the Sublessor of any notice hereunder to effect such
      termination, shall not reinstate, continue or extend the term herein
      demised, or destroy, or in any manner impair the efficacy of any such
      notice of termination as may have been given hereunder by the Sublessor to
      the Sublessee prior to the receipt of any such sum of money or other
      consideration, unless so agreed to in writing and signed by the Sublessor.
      Neither acceptance of the keys nor any other act or thing done by the
      Sublessor or any agent or employee of the Sublessor during the term herein
      demised shall be deemed to be an acceptance of a surrender of said Demised
      Premises, excepting only an agreement in writing signed by the Sublessor
      accepting or agreeing to accept such a surrender.  Any right herein
      granted to the Sublessor to terminate this Sublease shall apply to any
      extension or renewal of the term herein demised, and the exercise of any
      such right during the term herein demised shall terminate any extension or
      renewal of the term herein demised, and any right on the part of the
      Sublessee thereto.  No act or conduct of any nature or

                                      -13-

<PAGE>
 
      character on the part of the Sublessor or its agents, servants or
      employees other than by an agreement in writing signed by the Sublessor
      shall be construed as a waiver of the provisions of this paragraph
      irrespective of any circumstances existing at the time of such act or
      conduct.

24.   NOTICE:  Any notice required hereunder or by law to be served upon either
      of the parties shall be in writing and it shall be sent by certified mail,
      postage prepaid, addressed to the Demised Premises in the instance of the
      Sublessee, and to the place where rental is paid in the instance of the
      Sublessor, or to such other address as may be from time to time furnished
      in writing by either party to the other.  Notice in writing shall be
      deemed to be communicated twenty-four (24) hours from the time of mailing.

25.   [DELETED PRIOR TO EXECUTION]

26.   FINANCIALS:  From time to time during the term of the Sublease, but not
      more often than annually, the Sublessor has the right to request current
      financials from the Sublessee.

27.   ANCILLARY FACILITIES:  Sublessor agrees that Sublessee shall have the
      right, under the then prevailing terms, conditions and rates; and subject
      to their availability to use the following facilities at, nearby, or
      within the Rotterdam Industrial Park:

      a)    railroad-related transport, loading/unloading and storage
            facilities; or

      b)    cold, frozen and dry goods storage facilities.

28.   SECURITY BARRIERS:  Sublessor agrees to permit Sublessee to erect, install
      or otherwise construct whatever security-related barriers within the
      Demised Premises Sublessee deems necessary between the Demised Premises
      and any adjacent premises, provided the work is performed in accordance
      with all applicable governmental laws and regulations. Sublessee shall not
      be obligated to remove these security barriers upon surrender of the
      Demised Premises to Sublessor.  Further, any work performed hereunder
      shall be subject to the provisions of Paragraph 9 of this Sublease as it
      refers to liens.

29.   MASTER LEASE:  Sublessor and Sublessee acknowledge that this Sublease is
      subject to all terms and conditions of that certain lease dated April 23,
      1996 ("Master Lease") between The People of the State of New York acting
      by and through the Commission of the State of New York ("Master Lessor')
      and Sublessor.  Notwithstanding the aforementioned, Sublessor warrants
      that any and all terms, conditions and representations made in this
      Sublease are not contrary to or in conflict with any terms, conditions and
      covenants of the Master Lease.  This Sublease is contingent upon Sublessor
      obtaining the consent of the Master Lessor to this Sublease within ninety
      (90) days of its final execution.

30.   NOTICE OF SUBLEASE EXTENSION:  In the event Sublessor shall obtain the
      right to lease the Demised Premises from Maser Lessor for a period beyond
      the expiration date of Sublessee's Renewal Term, as hereinafter described,
      then Sublessor shall promptly notify Sublessee or such fact.

31.   ENVIRONMENTAL MATTERS:  Sublessor represents and warrants that to its
      knowledge no leak, spill, discharge, emission or disposal or hazardous or
      toxic substances has occurred on the Demised Premises and that to
      Sublessor's knowledge, the soil, ground water, soil vapor on or under the
      Demised Premises is free of toxic or hazardous substances as of the date
      hereof.  Except to the extent caused by Sublessee, Sublessor agrees not to
      attempt to hold Sublessee and its officers, employees and agents liable
      for any claims, judgements, damages, fines, penalties, costs, liabilities
      (including sums paid in settlement of claims) or loss

                                      -14-

<PAGE>
 
      including attorneys' fees, consultants' fees, and experts' fees which
      arise during or after the term or any renewal term or in connection with
      the presence or suspected presence of toxic or hazardous substances in the
      soil, ground water, or soil vapor or in, under or upon the Demised
      Premises.

      In the event Sublessee shall become aware of any environmental problem at
      the Demised Premises, which has, or in the exercise of reasonable
      discretion on the part of Sublessee could have, a material adverse affect
      upon Sublessee's business operations conducted at the Demised Premises,
      Sublessee shall have the right, on not less than thirty (30) days' prior
      written notice, to cancel this Sublease; provided that Sublessee must send
      such notice within thirty (30) days after the earlier to occur of (i) the
      date Sublessor advises Sublessee of the existence of such environmental
      problem or (ii) the date Sublessee first receives actual knowledge of such
      problem.

32.   RENEWAL OPTION:  If Sublessee shall not be in default of any of the terms,
      covenants and conditions of this Sublease at the time of giving the notice
      set forth within this Paragraph, as well as at the end of the Initial Term
      of this Sublease, the Sublessee is hereby granted the option to renew this
      Sublease for one (1) five (5) year period (the "Renewal Term") by giving
      notice, in writing, to Sublessor at least ninety (90) days prior to the
      expiration of the Initial Term.  The rental for the Renewal Term shall be
      as outlined on Exhibit A with the Lessee paying its pro rata share of
      taxes (but with no limitation as to amount), insurance and security and
      common area maintenance (triple net costs) calculated and paid in the same
      manner as described herein.

33.   CONSUMER PRICE INDEX:

      A.    Definitions:  For the purpose of calculating the cost of living
            adjustment referred to on Exhibit A, the following definitions shall
            apply: (i) the term "Base Month" shall mean the calendar month
            immediately preceding the calendar month in which the term of this
            Sublease commences; (ii) the term "Price Index" shall mean the
            "Consumer Price Index for All Urban Consumers" published by the
            Bureau of Labor Statistics of the United States Department of Labor,
            for New York-Northeastern, N J, All Items, (1967=100) or any renamed
            local index covering the metropolitan New York area or any other
            successor or substitute index appropriately adjusted; (iii) the term
            "Price Index for the Base Month" shall mean the Price Index for the
            Base Month; and (iv) the term "Equalization Factor" shall mean one
            hundred percent (100%).

      B.    The rent payable during the Renewal Term shall be adjusted to
            reflect a cost of living adjustment.  The adjustment shall be based
            on the percentage difference between the Price Index for the Base
            Month and the Price Index for the month immediately preceding the
            commencement of the Renewal Term (the "Adjustment Month"). (i) In
            the event the Price Index for the Adjustment Month reflects an
            increase over the Price Index for the Base Month, then the annual
            rental rate to be charged for the Renewal Term shall be multiplied
            by the Equalization Factor of the percentage difference between the
            Price Index for the Base Month and the Price Index for the
            Adjustment Month, and the resulting sum shall be added to such
            annual rental rate, effective as of commencement of the Renewal
            Term.  Sublessee covenants and agrees that said adjusted annual
            rental rate shall thereafter be payable hereunder in equal monthly
            installments.

            The following illustrates the intentions of the parties hereto as to
            the computation of the aforementioned cost of living adjustment in
            the rental rate payable hereunder during the Renewal Term:

                                      -15-

<PAGE>
 
            Assuming that the fixed annual rent is $10,000, that the
            Equalization Factor is 100%, that the Price Index for the Base Month
            was 102.0 and that the Price Index for the Adjustment Month was
            105.0, then 100% of the percentage increase thus reflected, i.e.,
            100% x 2.941%, or 2.94%, would be multiplied by $10,000, and the
            annual rental rate would be increased $294.00 (plus any other
            adjustments computed in accordance with the terms of this Sublease)
            effective as of the first day of the Renewal Term.

            In the event that any cost of living adjustment is not available as
            of the Adjustment Month, the monthly rent payments shall be made on
            the basis of the next preceding monthly rental until the cost of
            living adjustment is available when the monthly rental payment next
            due shall be computed on the basis of the cost of living adjustment
            increased to retroactively adjust the rental paid during the period
            at the old rate, and all subsequent monthly payments in such period
            shall be at the new rate.

      C.    No adjustments or recomputations, retroactive or otherwise, shall be
            made due to any revision with may later be made in the first
            published figure of the Price Index for any month.

      D.    Any delay or failure of Sublessor in computing or billing for the
            rent adjustments hereinabove provided, shall not constitute a waiver
            of or in any way impair the continuing obligation of Sublessee to
            pay such rent adjustments hereunder.

      E.    Notwithstanding any expiration or termination of this Sublease prior
            to the date that this Sublease is scheduled to expire (except in
            case of a cancellation by mutual written agreement) Sublessee's
            obligation to pay rent as adjusted under this Paragraph shall
            continue and shall cover all periods during the Renewal Term up to
            the date that this Sublease is scheduled to expire, and shall
            survive any default under this Sublease.

34.   BROKERAGE:  Sublessee warrants and represents that it has not dealt with
      any real estate broker or agent in connection with this Sublease or its
      negotiations except Richard Sleasman of Robert Cohn Associates, Inc.
      Sublessee shall indemnify and hold Sublessor harmless from any cost,
      expense or liability (including cost of suit and reasonable attorney's
      fees) for any compensation, commission or fees claimed by any other real
      estate broker or agent in connection with this Sublease or its negotiation
      by reason of any act of Sublessee.  Sublessor agrees to pay a real estate
      commission pursuant to the Real Estate Brokerage Commission Agreement
      dated on or about the date of this Sublease, by and between Sublessor and
      Robert Cohn Associates, Inc.

35.   ELECTRICITY RATES:  Sublessee shall file by no later than September 1,
      1996, the New Load Forms required by Niagara Mohawk Power Corporation to
      receive competitive pricing for electricity under the Service
      Clarification No. 11 ("SC11 "), which is a tariff agreement to respond to
      customer needs and the increasing competitive forces in the energy service
      markets. Sublessee agrees to work diligently with Niagara Mohawk Power
      Corporation to receive an SC11 rate.  The parties agree that should
      Sublessee not receive a satisfactory negotiated rate by no later than
      October 15, 1996, Sublessee may, at its option, give ten (10) days prior
      written notice to terminate this Lease.

36.   SUBLESSEE'S FIT-UP:  Sublessor, at its soles cost and expense shall
      perform the refurbishing requirements as outlined as Sublessor's
      responsibility on Exhibit B attached hereto prior to the Term Commencement
      Date.

37.   GUARANTY:  This Sublease is entitled to the benefits of a certain Guaranty
      of Sublease dated on or about the date hereof executed by Papa John's USA,
      Inc.

                                      -16-

<PAGE>
 
      This Agreement shall be interpreted according to the laws of the State of
New York.

      IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
the day and year first above written.

AS TO SUBLESSOR:                       DISTRIBUTION UNLIMITED, INC.
ATTEST:


/s/ Asa U. Kavanaugh                   BY: /s/ David M. Buicko
- ------------------------------             ---------------------------------
                                               David M. Buicko
                                               Executive Vice President

                                       DATE:       September 4, 1996
                                             -------------------------------


AS TO SUBLESSEE:                       P.J. FOOD SERVICE, INC.
ATTEST:


                                       BY: /s/ Robert J. Wadell
- ------------------------------             ---------------------------------
                                       NAME:
                                       TITLE: President

                                       DATE:       August 29, 1996
                                             -------------------------------

                                      -17-

<PAGE>
 
                            RENTAL AND TERM SCHEDULE



40,420 Square Feet in Building 14, Bay 4 in Rotterdam Industrial Park

Sublessor:        P.J. Food Service, Inc.
                  11460 Bluegrass Parkway
                  Louisville, KY 40299

Contact:          Robert Wadell (502-266-5200)

Initial Term:     Five (5) years

Renewal Term:     One (1) five (5) year term under the same terms and conditions
                  subject only to an adjustment in the rental rate based on the
                  change in the Consumer Price Index (as described in Paragraph
                  33 herein) as of the commencement date of the Sublease, but in
                  no event shall the increase in the Sublease rate exceed
                  fifteen percent (15%) of the Sublease rate for the initial
                  term.  Said adjusted rental rate shall remain constant
                  throughout the Renewal Term.

Term Dates:       Initial Term:     January 31, 1997 through December
31, 2001
                  Renewal Term:     January 1, 2002 through December 31, 2006

Sublease Rates:   Initial Term:     $2.75 per square foot per annum,
triple net
                  Renewal Term:     $2.75 per square foot per annum, increased
                                    one-time by any increase in the Consumer
                                    Price Index since the Lease Commencement
                                    Date, triple net

Triple net costs at Building 14, Rotterdam Industrial Park are currently $.48
per square foot per annum, of which $.15 per square foot per annum is allocable
to taxes, to the extent charged.  Taxes are limited, as described in Paragraph 5
of this Lease, during the Initial Term of the Lease.











Prepared August 28, 1996




                      EXHIBIT A - RENTAL AND TERM SCHEDULE

<PAGE>
 
                         REFURBISHING REQUIREMENTS FOR
                            P.J. FOOD SERVICE, INC.


Services and charges to be addressed by both parties.

      Item                    Responsible Party       Description

1.    Pedestrian Door         Sublessee               one (1) - south side

2.    Overhead Doors          Sublessor               two (2)

3.    Exterior of Bldg.

4.    Interior of Bldg.       N/A

5.    Office Space            Sublessee

6.    Toilets                 Sublessee

7.    Heat-Duct Work          Sublessee               removal of duct work
                                                      above office space

                              Sublessor               reposition gas heaters

8.    Light Bulbs             N/A

9.    Electricity             N/A

10.   Oil                     N/A

11.   Painting                Sublessor               interior

12.   Floors                  Sublessor               fill holes; pressure
                                                      wash soil stains

13.   Windows                 N/A

14.   Parking Area            N/A

15.   Other - Ceilings        Sublessor               replace specific areas
                                                      with fiber board and
                                                      paint.
            - Mechanic Room   Sublessor               remove compressors;
                                                      conduit only

In addition to the items listed above, representatives of Sublessor and
Sublessee agree to met within ten (10) days after the date of the full execution
and delivery of this Sublease to resolve issues relating to building interior
repairs, exterior painting, truck docks, truck canopies and truck apron paving.
Lessor and Lessee agree to work in good faith to resolve these issues
expeditiously, failing which either party may cancel this Sublease prior to the
date Sublessee takes occupancy of the Demised Premises for any purpose.


SUBLESSOR: /s/ David M. Buicko         SUBLESSEE: /s/ Robert J. Wadell
           -----------------------                --------------------------

DATE:       September 4, 1996          DATE:       August 29, 1996
      ----------------------------           -------------------------------


                     EXHIBIT B - REFURBISHING REQUIREMENTS



<PAGE>
 
                                 Exhibit 10.29

<PAGE>
 
                           LEASE - BUSINESS PROPERTY

         THIS LEASE AGREEMENT, executed in duplicate, made and entered into this
30th day of August, 1996, by and between A. Terry Moss and Ira E. White
(hereinafter called the "Landlord") whose address for the purpose of this lease
is 1801 Guthrie Avenue Des Moines, Iowa 50316  and P.J. Food Service, Inc., a
Kentucky corporaiton (hereinafter called the "Tenant") whose address for the
purpose of this lease is 1901 Guthrie Avenue, Des Moines, Iowa 50316

WITNESSETH THAT:

         1.      PREMISES AND TERM.  The Landlord, in consideration of the rents
herein reserved and of the agreements and conditions herein contained, on the
part of the Tenant to be kept and performed, leases unto the Tenant and Tenant
hereby rents and leases from Landlord, according to the terms and provisions
herein, the following described real estate, situated in Polk County, Iowa, to
wit:

         See attached Addendum.




with the improvements thereon and all rights, easements and appurtenances
thereto belonging, which more particularly, includes the space and premises as
may be shown on "Exhibit A," if an as may be attached hereto, for a term of  *
years, commencing at midnight of the day previous to the first day of the lease
term, which shall be on
 the *  day of * , 19*, and ending at midnight on the
last day of the lease term, which shall be on the * day of * , 19 *, upon the
condition that the Tenant pays rent therefor, and otherwise performs as in this
lease provided.


         * See attached addendum.


         2.      RENTAL.  Tenant agrees to pay to Landlord as rental for said
term, as follows: $ *  per month, in advance, the first year payment becoming
due upon and the same amount, per month, in advance, on the 1st day of each
month thereafter, during the term of this lease.  In addition, to the above
monthly rental Tenant shall also pay:


All sums shall be paid at the address of Landlord, as above designated, or at
such other place in Iowa, or elsewhere, as the Landlord may, from time to time,
previously designate in writing.

         Delinquent payments shall draw interest at 12% per annum from the due
date, until paid.

         3.      POSSESSION.  Tenant shall be entitled to possession on the
first day of the term of this lease, and shall yield possession to the Landlord
at the time and date of the close of this lease term, except as herein otherwise
expressly provided.  Should Landlord be unable to give possession on said date,
Tenant's only damages shall be a rebating of the pro rata rental.

         4.      USE OF PREMISES.  Tenant covenants and agrees during the term
of this lease to use and to occupy the leased premises only for see addendum.
For restrictions on such use, see paragraph 6(c), 6 (d) and 11 (b) below.

         5.      QUIET ENJOYMENT.  Landlord covenants that its estate in said
premises is fee subject to mortgage and that the Tenant on paying the rent
herein reserved and performing all the agreements by the Tenant to be performed
as provided in this lease, shall and may peaceably have, hold and enjoy the
demised premises for the term of this lease free from molestation, eviction or
disturbance by the Landlord or any other persons or legal entity whatsoever.
(But see paragraph 14, below).

<PAGE>
 
         Landlord, shall have the right to mortgage all of its right, title,
interest in said premises at any time without notice, subject to this lease.

         6.      CARE AND MAINTENANCE OF PREMISES.  (a) Tenant takes said
premises in their present condition except for such repairs and alterations as
may be expressly herein provided.

         (b)     LANDLORD'S DUTY OF CARE AND MAINTENANCE.  See attached
addendum.

         (c)     TENANT'S DUTY OF CARE AND MAINTENANCE.  Tenant shall, after
taking possession of said premises and until the termination of this lease and
the actual removal from the premises, at its own expense, care for and maintain
said premises in a reasonably safe and serviceable condition.  Tenant will
furnish its own interior and exterior decorating.  Tenant will not permit or
allow said premises to be damaged or depreciated in value by any act or
negligence of the Tenant, its agents or employees.  Without limiting the
generality of the foregoing, Tenant will make necessary repairs to the sewer,
the plumbing, the water pipes and electrical wiring, except as follows:

No exceptions.


Tenant agrees to keep faucets closed so as to prevent waste of water and
flooding of premises; to promptly take care of any leakage or stoppage in any of
the water, gas or waste pipes.  The Tenant agrees to maintain adequate heat to
prevent freezing of pipes, if and only if the other terms of this lease fix
responsibility for heating upon the Tenant.  Tenant at its own expense may
install flooring covering and will maintain such floor covering in good
condition.  Tenant will be responsible for the plate glass in the windows of the
leased premises.  Tenant shall make no structural alterations or improvements
without the written approval of the landlord first had and obtained, of the
plans and specifications therefor.

         (d)     Tenant will make no unlawful use of said premises and agrees to
comply with all valid regulations of the Board of Health, City Ordinances or
applicable municipality, the laws of the State of Iowa and the Federal
government, but this provision shall not be construed as creating any duty by
Tenant to members of the general public.  If Tenant, by the terms of this lease
is leasing premises on the ground floor, it will not allow trash of any kind to
accumulate on said premises in the halls, if any, or the alley or yard in front,
side or rear thereof, and it will remove same from the premises at its own
expense.  Tenant also agrees to remove snow and ice and other obstacles from the
sidewalk on or abutting the premises, if premises include the ground floor, and
if this lease may be fairly construed to impose such liability on the Tenant.

         7(a).   UTILITIES AND SERVICES.  Tenant, during the term of this lease,
shall pay, before delinquency, all charges for use of telephone, water, sewer,
gas, heat, (if heating is Tenant's responsibility), electricity, power, air
conditioning (if air conditioning is the Tenant's responsibility), garbage
disposal, trash disposal and not limited by the foregoing all other utilities
and services of whatever kind and nature which may be used in or upon the
demised premises.

         (b)     Original heating equipment shall be furnished at the expense of
landlord and maintenance thereof at the expense of tenant.

         (c)     JANITOR SERVICE shall be furnished at the expense of tenant.

         (d)     HEATING shall be furnished at the expense of tenant.

         8(a).   SURRENDER OF PREMISES AT END OF TERM - REMOVAL OF FIXTURES.
Tenant agrees that upon the termination of this lease, it will surrender, yield
up and deliver the leased premises in good and clean condition, except the
effects of ordinary wear and tear and depreciation arising from lapse of time,
or damage without fault or liability of Tenant.  (See also 11(a) and 11(e)
below).

                                       2

<PAGE>
 
         (b)     HOLDING OVER.  Continued possession, beyond the expiratory date
of the term of this lease, by the Tenant, coupled with the receipt of the
specified rental by the Landlord (and absent a written agreement by both parties
for an extension of this lease, or for a new lease) shall constitute a month to
month extension of this lease.


         9.      ASSIGNMENT AND SUBLETTING.  Any assignment of this lease or
subletting of the premises or any part thereof, without the Landlord's written
permission shall, at the option of the Landlord, make the rental for the balance
of the lease term due and payable at once.  Such written permission shall not be
unreasonably withheld.


         10(a).  ALL REAL ESTATE TAXES, except as may be otherwise expressly
provided in this paragraph 10, levied or assessed by lawful authority (but
reasonably preserving Landlord's rights of appeal) against said real property
shall be timely paid by the parties in the following proportions:  by landlord
0%, by Tenant 100% to be prorated and paid as provided in the attached Addendum.

         (b)     Increase in such taxes, except as in the next paragraph
provided, above the amount paid during the base year of N/A (base year if and as
may be defined in this paragraph) shall be paid by Landlord,) 0% by Tenant 100%,
to be prorated and paid as provided in the attached addendum..

         (c)     Increase in such taxes caused by improvements of Tenant shall
be paid by Landlord 0%, by Tenant 100%.

         (d)     PERSONAL PROPERTY TAXES.  Tenant agrees to timely pay all
taxes, assessments or other public charges levied or assessed by lawful
authority (but reasonably preserving Tenant's rights of appeal) against its
personal property on the premises, during the term of this lease.

         (e)     SPECIAL ASSESSMENTS.  Special assessments shall be timely paid
by the parties in the following proportions; by the Landlord 0%, by the Tenant
100%, to be prorated and paid as provided in the attached addendum.

         11.     INSURANCE.  (a) Landlord and Tenant will each keep its
respective property interests in the premises and its liability in regard
thereto, and the personal property on the premises, reasonably insured against
hazards and casualties; that is, fire and those items usually covered by
extended coverage; and Tenant will procure and deliver to the Landlord a
certification from the respective insurance companies to that effect.  Such
insurance shall be made payable to the parties hereto as their interest may
appear, except that the Tenant's share of such insurance proceeds are hereby
assigned and made payable to the Landlord to secure rent or other obligations
then due and owing Landlord by Tenant [See also 11(e) below].

         (b)     Tenant will not do or omit the doing of any act which would
vitiate any insurance, or increase the insurance rates in force upon the real
estate improvements on the premises or upon any personal property of the Tenant
upon which the Landlord by law or by the terms of this lease, has or shall have
a lien.

         (c)     Subrogation rights are not to be waived unless a special
provision is attached to this lease.

         (d)     Tenant further agrees to comply with recommendations of Iowa
Insurance Service Bureau and to be liable for and to promptly pay, as if current
rental, any increase in insurance rates on said premises and on the building of
which said premises are a part, due to increased risks or hazards resulting from
Tenant's use of the premises otherwise than as herein contemplated and agreed.

         (e)     INSURANCE PROCEEDS.  Landlord shall settle and adjust any claim
against any insurance company under its said policies of insurance for the
premises, and said insurance monies

                                       3

<PAGE>
 
shall be paid to and held by the Landlord to be used in payment for cost of
repairs or restoration of damaged building, if the destruction is only partial.
[See also 11(a) above].

         12.     INDEMNITY AND LIABILITY INSURANCE.  Except as to any negligence
of the Landlord, arising out of roof and structural parts of the building,
Tenant will protect, indemnify and save harmless the Landlord from and against
any and all loss, costs, damage and expenses occasioned by, or arising out of,
any accident or other occurrence causing or inflicting injury and/or damage to
any person or property, happening or done in, upon or about the leased premises,
or due directly or indirectly to the tenancy, use or occupancy thereof, or any
part thereof by the Tenant or any person claiming through or under the Tenant.
The Tenant further covenants and agrees that it will at its own expense procure
and maintain casualty and liability insurance in a responsible company or
companies authorized to do business in the State of Iowa, in amounts not less
than $1,000,000 for any one person injured, and $2,000,000 for any one accident,
and with the limits of $100,000 for property damage, protecting the Landlord
against such claim, damages, costs or expenses on account of injury to any
person or persons, or to any property belonging to any person or persons, by
reason of such casualty, accident or other happening on or about the demised
premises during the term thereof. Certificates or copies of said policies,
naming the Landlord and providing for fifteen (15) days' notice to the Landlord
before cancellation shall be delivered to the Landlord within twenty (20) days
from the date of the beginning of the term of this lease.  As to insurance of
the Landlord for roof and structural faults, see paragraph 11(a) above.

         13.     FIRE AND CASUALTY, PARTIAL DESTRUCTION OF PREMISES.  (a) In the
event of a partial destruction or damage of the leased premises, which is a
business interference, that is, which prevents the conducting of a normal
business operation and which damage is reasonably repairable within sixty (60)
days after its occurrence, this lease shall not terminate but the rent for the
leased premises shall abate during the time of such business interference.  In
the event of partial destruction, Landlord shall repair such damages within 90
days of its occurrence unless prevented from so doing by acts of God, the
elements the public enemy, strikes, riots, insurrection, government regulations,
city ordinances, labor, material or transportation shortages, or other causes
beyond Landlord's reasonable control.

         (b)     ZONING.  Should the zoning ordinance of the city or
municipality in which this property is located make it impossible for Landlord,
using diligent and timely effort to obtain necessary permits and to repair
and/or rebuild so that Tenant is not able to conduct its business on the
premises or then such partial destruction shall be treated as a total
destruction as in the next paragraph provided.

         (c)     TOTAL DESTRUCTION OF BUSINESS USE.  In the event of a
destruction or damage of the leased premises including the parking area (if a
parking area is a part of the subject matter of this lease) so that Tenant is
not able to conduct its business on the premises or the then current legal use
for which the premises are being used and which damages cannot be repaired
within sixty (60) days this lease may be terminated at the option of either the
Landlord or Tenant.  Such termination in such event shall be effected by written
notice of one party to the other, within twenty (20) days after such
destruction.  Tenant shall surrender possession within ten (10) days after such
notice issues, and each party shall be released from all future obligations
hereunder, Tenant paying rental pro rata only to the date of such destruction.
In the event of such termination of this lease, Landlord at its option, may
rebuild or not, according to its own wishes and needs.

         14.     CONDEMNATION.  (a) DISPOSITION OF AWARDS.  Should the whole or
any part of the demised premises be condemned or taken by a competent authority
for any public or quasi-public use or purpose, each party shall be entitled to
retain, as its own property, any award payable to it.  Or in the event that a
single entire award is made on account of the condemnation, each party will then
be entitled to take such proportion of said award as may be fair and reasonable

         (b)     DATE OF LEASE TERMINATION.  If the whole of the demised
premises shall be so condemned or taken, the Landlord shall not be liable to the
Tenant except and as its rights are preserved as in paragraph 14(a) above.

                                       4

<PAGE>
 
         15.     TERMINATION OF LEASE AND DEFAULTS OF TENANTS.  (a) TERMINATION
UPON EXPIRATION OR UPON NOTICE OF DEFAULTS.  This lease shall terminate upon
expiration of the demised term; or if this lease expressly and in writing
provides for any option or options, and if any such option is exercised by the
Tenant, then this lease will terminate at the expiration of the option term or
terms.  Upon default in payment of rental herein or upon any other default by
Tenant in accordance with ther terms and provisions of this lease, this lease
may at the option of the Landlord be canceled and forfeited, provided however,
before any such cancellation and forfeiture except as provided in 15(b) below,
Landlord shall give Tenant a written notice specifying the default, or defaults,
and stating that this lease will be cancelled and forfeited ten (10) days after
the giving of such notice, unless such default, or defaults are remedied within
such grace period.  (See paragraph 22, below).  As an additional optional
procedure or as an alternative to the foregoing (and neither exclusive of the
other) Landlord may proceed as in paragraph 21, below, provided.

         (b)     BANKRUPTCY OR INSOLVENCY OF TENANT.  In the event Tenant is
adjudicated a bankrupt or in the event of a judicial sale or other transfer of
Tenant's leasehold interest by reason by any bankruptcy or insolvency
proceedings or by other operation of law, but not by death, and such bankruptcy,
judicial sale or transfer has not been vacated or set aside within ten (10) days
from the giving of notice thereof by Landlord to Tenant, then and in any such
events, Landlord may, at its option, immediately terminate this lease, re-enter
said premises, upon giving of ten (10) days' written notice by Landlord to
Tenant, all to the extent permitted by applicable law.

         (c)     In (a) and (b) above, waiver as to any default shall not
constitute a waiver of any subsequent default or defaults.

         (d)     Acceptance of keys, advertising and re-renting by the Landlord
upon the Tenant's default shall be construed only as an effort to mitigate
damages by the Landlord, and not as an agreement to terminate this lease.

         16.     RIGHT OF EITHER PARTY TO MAKE GOOD ANY DEFAULT OF THE OTHER
If default shall be made by either party in the performance of, or in compliance
with, any of the terms, covenants or conditions of this lease, and such default
shall have continued for thirty (30) days after written notice thereof from one
party to the other, the person aggrieved, in addition to all  other remedies now
or hereafter provided by law, may, but need not, perform such term, covenant or
condition, or make good such default and any amount advanced shall be repaid
forthwith on demand, together with interest at the rate of 12% per annum, from
date of advance.

         (b)     Landlord during the last ninety (90) days of this lease, or
extension, shall have the right to maintain in the windows or on the building or
on the premises either or both a "For Rent" or "For Sale" sign and Tenant will
permit at such time, prospective tenants or buyers to enter and examine the
premises.

         18.     MECHANIC'S LIENS.  Neither the Tenant nor anyone claiming by,
through, or under the Tenant, shall have the right to file or place any
mechanic's lien or other lien of any kind or character whatsoever, upon said
premises or upon any building or improvement thereon, or upon the leasehold
interest of the Tenant therein, and notice is hereby given that no contractor,
sub-contractor, or anyone else who may furnish any material, service or labor
for any building, improvements, alteration, repairs or any part thereof, shall
at any time be or become entitled to any lien thereon, and for the further
security of the Landlord, the Tenant covenants and agrees to give actual notice
thereof in advance, to any and all contractors and sub-contractors who may
furnish or agree to furnish any such material, service or labor.

         19.     LANDLORD'S LIEN AND SECURITY INTEREST.  (a) Said Landlord shall
have in addition to the lien given by law, a security interest as provided by
the Uniform Commercial Code of Iowa, upon all personal property and all
substitutions therefor, kept and used on said premises by Tenant.  Landlord may
proceed at law or in equity with any remedy provided by law or by this lease for
the recovery of rent, or for termination of this lease because of Tenatn's
default in its performance.

                                       5

<PAGE>
 
         20.     SUBSTITUTION OF EQUIPMENT, MERCHANDISE, ETC. (a) The Tenant
shall  have the right, from time to time, during the term of this lease, or
renewal thereof, to sell or otherwise dispose of any personal property of the
Tenant situated on the said demised premises, when in the judgment of the Tenant
it shall have become obsolete, outworn or unnecessary in connection with the
operation of the business on said premises; provided, however, that the Tenant
shall, in such instance (unless no substituted article or item is necessary) at
its own expense, substitute for such items of personal property so sold or
otherwise disposed of, a new or other item in substitution thereof, in like or
greater value and adopted to the affixed operation of the business upon the
demised premises.

         (b)     Nothing herein contained shall be construed as denying to
Tenant the right to dispose of inventoried merchandise in the ordinary course of
the Tenant's trade or business.

         21.     RIGHTS CUMULATIVE.  The various rights, powers, options,
elections and remedies of either party, provided in this lease, shall be
construed as cumulative and no one of them as exclusive of the others, or
exclusive of any rights, remedies or priorities allowed either party by law, and
shall in no way affect or impair the right of either party to pursue any other
equitable or legal remedy to which either party may be entitled as long as any
default remains in any way unremedied, unsatisfied or undischarged.

         22.     NOTICES AND DEMANDS.  Notices as provided for in this lease
shall be given to the respective parties hereto at the respective addresses
designated on page one of this lease unless either party notifies the other, in
writing, of a different address.  Without prejudice to any other method of
notifying a party in writing or making a demand or other communications, such
message shall be considered given under the terms of this lease when sent,
addressed as above designated, postage prepaid, by registered or certified mail,
return-receipt requested, by the United States mail and so deposited in a United
States mail box.

         23.     PROVISIONS TO BIND AND BENEFIT SUCCESSORS, ASSIGNS, ETC.  Each
and every covenant and agreement herein contained shall extend to and be binding
upon the respective successors, heirs, administrators, executors and assigns of
the parties hereto; except that if any part of this lease is held in joint
tenancy, the successor in interest shall be the surviving joint tenant.

         24.     CHANGES TO BE IN WRITING.  None of the covenants, provisions,
terms or conditions of this lease to be kept or performed by Landlord or Tenant
shall be in any manner modified, waived or abandoned, except by a written
instrument duly signed by the parties and delivered to the Landlord and Tenant.
This lease contains the whole agreements of the parties.

         25.     RELEASE OF DOWER.  Spouse of Landlord, appears as a party
signatory to this lease solely for the purpose of releasing dower, or
distributive share, unless said spouse is also a co-owner of an interest in the
leased premises.

         26.     CONSTRUCTION.  Words and phrases herein, including
acknowledgment hereof, shall be construed as in the singular or plural number,
and as masculine, feminine or neuter gender according to the context.

         27.     See attached Addendum.

         IN WITNESS WHEREOf, the parties hereto have duly executed this lease in
duplicate the day and year first above written.

ALL SIGNATURES APPEAR ON THE ADDENDUM.

                                       6

<PAGE>
 
                        ADDENDUM TO LEASE AGREEMENT FOR
                1901 GUTHRIE, DES MOINES, IOWA, BY AND BETWEEN,
            A. TERRY MOSS AND IRA E. WHITE, COLLECTIVELY, LANDLORD,
                      AND P.J. FOOD SERVICE, INC., TENANT,
                      DATED THE 30TH DAY OF AUGUST, 1996.


      28.      Description of the Property and the Premises. The real property
demised to Tenant pursuant to paragraph 1, above (the "Premises") is locally
known as 1901 Guthrie Avenue, Des Moines, Iowa. The Premises is approximately
30,750 gross square feet and is shown on Exhibit "A" hereto. The Premises is a
portion of a multi-tenant office/warehouse building (the "Building") in what is
a multi-building development. The warehouse/office buildings, parking lot, all
site improvements and the land on which the same are located, are hereinafter
collectively referred to as the "Complex". The Complex is legally described as:


      Part of vacated Block 23, T.E. Brown's Official Plat of the Northeast 1/4
      of Section 36, Township 79 North, Range 24 West of the 5th P.M. except the
      Northeast 40 acres of the same, and part of Blocks 28 and 29, T.E. Brown's
      Official Plat of the North 1/2 of the Northeast 1/4 of the Northeast 1/4
      of Section 36, Township 79 North, Range 24 West of the 5th P.M., and part
      of DeWolf Street right-of-way and part of East 19th Street right-of-way,
      more particularly described as follows:


      Beginning at the Southwest corner of Lot 24, Block 23 of said T.E. Brown's
      Official Plat; thence North 0 (degrees) 03' (minutes) 41" (seconds) West
      along the West line of said Block 23, a distance of 579.02 feet to the
      present South right-of-way line of Guthrie Avenue; thence North 89 degrees
      52'09" East along said right-of-way line, 114.91 feet to a jog in said
      right-of-way line; thence South 0 degrees 00'02" West, 10.00 feet; thence
      North 89 degrees 52'09" East along said right-of-way line, 134.91 feet to
      a jog in said right-of-way line; thence

                                       7

<PAGE>
 
      South 0 degrees 03'50" West, 19.50 feet; thence North 89 degrees
      52'09" East along said right-of-way line, 90.00 feet; thence South 77
      degrees 53'36" East along said right-of-way line, 184.00 feet to the West
      line of vacated East 19th Street; thence North 89 degrees 52'09" East
      along said right-of-way line, 50.00 feet to a jog in said right-of-way
      line; thence South 0 degrees 02'34" East, 11.00 feet; thence North 89
      degrees 52'09" East along said right-of-way line, 120.90 feet to a jog in
      said right-of-way line; thence North 0 degrees 02'13" West, 97.00 feet;
      thence North 89 degrees 52'09" East, 100.00 feet; thence South 0 degrees
      02'14" East, 447.03 feet; thence South 1 degree 15'11" East, 99.52 feet;
      thence South 89 degrees 52'11" West, 514.23 feet to the Southwest corner
      of Lot 23 of said Block 28; thence South 0 degrees 27'28" East along the
      East right-of-way line of vacated DeWolf Street, 50.00 feet to the North
      right-of-way line of Thompson Avenue; thence South 89 degrees 52'11" West
      along said North right-of-way line, 278.56 feet to the point of beginning,
      all now included in and forming a part of the City of Des Moines, Polk
      County, Iowa and containing 9.37 acres.

The demise of the Premises includes a non-exclusive right to use the parking
lot, the driveways, sidewalks and other common areas which are a part of the
Complex. Landlord reserves the right to increase or decrease the size of the
Complex, including the land and the improvements thereto and to increase or
decrease the size and number of buildings in the Complex.

      29.      Rental Amount. During the initial term of this Lease, the annual
base rent shall be One Hundred Fifteen Thousand Three Hundred Twelve Dollars and
Fifty Cents ($115,312.50), payable in advance in equal monthly installments of
Nine Thousand Six Hundred Nine Dollars and Thirty-eight Cents

                                       8
  

<PAGE>

($9,609.38). Tenant has paid to Landlord, a rental deposit in the amount of Nine
Thousand Six Hundred Nine Dollars and Thirty-eight Cents ($9,609.38), which
shall be applied to the base rent for the last month of this Lease.

      30. Term. The term of this Lease shall commence on the 1st day of October,
1996 (or as soon thereafter as the Premises are ready for occupancy by Tenant)
and shall expire five (5) years after the date on which this Lease commences.
Tenant is granted an Option to Renew this Lease for an additional term of five
(5) years. The term of the Option to Renew shall commence upon the expiration of
the initial term of this Lease. (The word "term" when used in this Lease without
the adjective "initial" shall refer collectively to the initial term of this
Lease plus the term of the Option to Renew if it is exercised, unless the
context clearly requires a different meaning.) All terms and provisions of this
Lease shall remain in full force and effect during the term of the Option to
Renew, provided however, the monthly base rental amount due to Landlord during
the term of the Option to Renew shall be increase by fifteen percent (15%) over
the monthly base rent due during the initial term of this Lease. The Option to
Renew may be exercised by Tenant only by written notice to Landlord no later
than nine (9) months prior to the commencement of the term of the Option to
Renew, given in the manner described in paragraph 22, above.

      31. Repair, Maintenance and Replacements. It is expressly understood and
agreed that the rental payments due hereunder are to be completely net to
Landlord and this Lease shall be construed so as to assure Landlord that the
rents herein reserved are received on an absolutely net basis (except in so far
as Landlord shall be obligated to complete the improvements described in
paragraph 36, below). Without limiting the generality of the foregoing, Tenant
shall pay all costs of use, operation, maintenance and repair of the premises,
including, but not limited to, general interior maintenance; all maintenance,
repairs and replacements to the Premises, including electrical, plumbing,
heating and cooling equipment; utilities; and insurance. Provided, however,
Tenant shall not be responsible to pay the cost of repair or replacement of the
roof membrane or the
                                       9

<PAGE>
 
repair or replacement of structural parts of the walls, floor or footings.
Tenant shall also pay its prorated share of the operating expenses of the
Complex, as hereinafter described. Tenant shall pay the cost of any damage done
to the Complex caused by Tenant, its employees, agents, contractors, principals,
guests, invitees or customers. Warranties for those improvements, machinery and
equipment of Landlord which are to be repaired, maintained and/or replaced by
Tenant under the terms of this Lease, shall be deemed to have been assigned to
Tenant. Landlord shall be responsible for replacement of structural parts of the
Building and for repairs and replacements to water, sewer and electrical
services for the Premises located outside the Building, in each case, as needed
during the term of this Lease.

      32.      Common Area Maintenance and Operating Expenses. A prorated share
of all common area maintenance expenses and all other operating expenses
(collectively "Operating Expenses") paid or incurred by Landlord with respect to
the ownership, maintenance or operation of the Complex during the term of this
Lease, shall be timely paid by Tenant as provided herein. Tenant's share of such
Operating Expenses shall be that portion of the Operating Expenses for the
Complex calculated by multiplying the total Operating Expenses for the Complex
times a fraction, the numerator of which is the size of the Premises in square
feet, and the denominator of which is the total size in square feet (measured on
the same basis as the size of the Premises used to calculate the numerator) of
all completed rental space in the office/warehouse building or buildings which
are a part of the Complex. Tenant shall pay on the first day of each month
during the term hereof, a sum equal to one-twelfth of Landlord's good faith
estimate of Tenant's obligation for such Operating Expenses under the terms
hereof for the then current calendar year, plus or minus any estimated
deficiency or surplus in the amount paid by Tenant to that time, as the case may
be. Within ninety (90) days following the close of each calendar year during
which any such payments were made by Tenant to Landlord, Landlord shall provide
Tenant with an accounting of all such Operating Expenses

                                       10

<PAGE>
 
and all payments received from Tenant on account thereof. If Tenant does not
object to the accounting within thirty (30) days following its receipt of the
same, the accounting shall become conclusively binding on Tenant, except in the
event of fraud or intentional misrepresentation by Landlord. If such accounting
shows that Tenant's share of the Operating Expenses for such calendar year
exceeds the payments made by Tenant, Tenant shall within ten (10) days pay to
Landlord the amount by which Tenant's share of such expenses exceeds the
payments made by Tenant. If such accounting shows that Tenant's share of the
Operating Expenses for such calendar year was less than the payments made by
Tenant, Landlord shall within ten (10) days, pay to Tenant the amount by which
Tenant's payments exceed Tenant's share of the Operating Expenses. Landlord may
in good faith from time to time during each calendar year, adjust the payment
amount Tenant is to make under the terms of this paragraph so as to more
accurately approximate Tenant's anticipated share of the annual Operating
Expenses, and to take into account any deficiency or surplus in the amounts paid
by Tenant. Whenever under the terms of this Lease a proration of expenses is
provided for based upon the area of the Premises and the area of the building or
buildings in the Complex, such areas shall be determined as of the dates the
particular expenses are incurred by Landlord (it being Landlord's prerogative to
change the size and number of buildings and the size of the Complex). Tenant
shall pay the entire cost of property/casualty insurance for the Tenant
Improvements (defined below) and any other improvements made by Tenant.

      33.      Operating Expenses Defined. Operating Expenses shall include all
expenses of maintaining, repairing, caring for and operating the Complex,
including, but not limited to: exterior maintenance, repairs and replacements;
common area maintenance, repairs and replacements; lawn care; landscaping care;
snow removal; salaries, payroll taxes, insurance and the like for maintenance
personnel; supplies; licenses; equipment rental; areaway fees; easement fees;
liability and property/casualty insurance (with such endorsements and coverages
as Landlord may reasonably

                                       11

<PAGE>
 
select, including but not limited to the insurance to be carried by Landlord
pursuant to paragraph 11, above); common area utilities including, but not
limited to water, sewer, electric, gas and lighting; security (if any); signage;
cleaning; parking lot maintenance, repairs, replacements, wear coating, sealing,
crack filling and striping; routine roof leak repair; equipment and mechanical
maintenance, repairs and replacements; routine accounting expenses; and
administrative expenses (not to exceed ten percent (10%) of the Operating
Expenses excluding real estate taxes and insurance) and fees. Operating Expenses
shall not include: (i) major repairs to or replacement of the roof membrane;
(ii) repair or replacement of structural parts of the walls, floor or footings;
(iii) repair or replacement of exterior walls or the foundation; (iv) major
repairs to infrastructure at the building site, or, (v) real estate commissions
or fees.

      34.      Use of Premises. Tenant covenants and agrees during the term of
this Lease to use and to occupy the Premises only for office space and for the
preparation, storage and distribution of food, food product and food
ingredients. Tenant may use the Premises for other purposes only with the
express written consent of Landlord, which consent shall not be withheld unless
Landlord has a good and substantial reason for withholding such approval. Tenant
agrees that it shall not use the Premises for any purpose or in any manner which
is prohibited or restricted by law, ordinance, regulation, restrictive covenant,
applicable urban renewal plan, or in any manner which interferes with the use of
the Complex by any other tenants. No use of the Premises shall be permitted
which presents an undue hazard of fire or explosion or which creates hazardous
or otherwise unreasonable levels of smoke, noise, vibrations, dust, pollutants,
refuse, waste, fumes, odors or other emissions. Tenant shall have non-exclusive
use of the parking areas at the Complex for vehicle parking for Tenant, Tenant's
customers, employees, contractors, vendors, suppliers, owners, and principals,
while using the Premises. Tenant and its customers, employees, contractors,
vendors and suppliers shall have non-exclusive use of the truck turnaround areas
for truck

                                       12

<PAGE>
 
access to the Premises and for truck turnaround. Tenant and Tenant's employees,
contractors, vendors, suppliers, owners, and principals, shall park their
vehicles in such parking areas at the Complex as Landlord may from time to time
designate. Tenant has no other rights or interest in the common areas. By way of
example, and not by way of limitation, Tenant shall not: maintain, keep, store
or abandon any vehicles or other property, temporarily or permanently in, on or
under the common area; damage the common area; use the common area in such a
manner as to interfere with the use of the common area by Landlord, other
tenants or the customers, employees, contractors, vendors, suppliers, owners or
principals of such other tenants; or use the common area for any purpose not
expressly permitted under the terms hereof. Tenant shall not park any vehicle on
a regular or continuing basis at the Complex, if such automobile, truck or other
vehicle is physically damaged, rusted or otherwise ill kept. Tenant shall not
repair, paint or maintain any vehicle at the Complex.

      35.      Subordination to Landlord's Mortgage. Tenant shall subordinate
its leasehold interest in the Premises and in this Lease to any mortgage as
Landlord may from time to time grant and Tenant shall execute a subordination
instrument to that effect in such form and content as Landlord shall reasonably
request, on the condition that (i) each mortgagee shall recognize this Lease and
agree not to disturb the occupancy of the Premises by Tenant so long as Tenant
is in compliance with the terms and conditions of this Lease, (ii) each
mortgagee enters into a customary non-disturbance agreement on terms reasonably
acceptable to Tenant. Tenant agrees that at any time, or from time to time, upon
request by Landlord, it shall, within ten (10) days following any such request,
execute, acknowledge and deliver to Landlord a statement in writing stating (i)
that this Lease is unmodified and in full force and effect (or if there have
been modifications, that this Lease is in full force and effect, with such
modifications); (ii) the commencement and termination date thereof; (iii) that
all conditions to be performed by Landlord

                                       13

<PAGE>
 
under this Lease have been performed, or stating those conditions not performed;
(iv) that there are no expenses or offsets against Landlord, or stating those
claimed by Tenant; (v) the date to which rent and other charges have been paid
in advance, if any; and (vi) such other matters requested by Landlord. It is
intended that any such statement may be relied upon by any prospective purchaser
or assignee of this Lease, the fee or other interest in the Complex, or any
mortgagee, beneficiary or conveyee of any security interest, or any assignee
thereof, under any mortgage, deed of trust, assignment or conveyance for
security purposes now or hereinafter made with respect to this Lease, the fee or
other interest in the Complex.

      36.      Additional Improvements. Tenant leases the Premises "as is" and
in its present condition, except that as soon as reasonably possible following
the execution of this Lease by Landlord and Tenant, Landlord shall at its
expense make the following improvements to the Premises (the "Additional
Improvements"): the installation of two (2) additional dock doors (with dock
bumpers and seals) in the Premises as shown on the attached Exhibit "B". Tenant
shall pay one-half (1/2) of the cost of the Additional Improvements, not to
exceed the sum of Ten Thousand Dollars ($10,000.00). Tenant shall pay said
amount within thirty (30) days following completion of the Additional
Improvements and receipt of an itemized statement from Landlord for the same.

      37.      Tenant Improvements. Tenant may make improvements to the Premises
("Tenant Improvements") at its sole expense as provided herein. Landlord hereby
consents to the Tenant Improvements which include: Installation of coolers
(including cutting the floor slab), baking equipment, ventilation equipment as
well as office, electrical and plumbing improvements. The nature, design and
specifications for all other Tenant Improvements shall be subject to written
approval by Landlord, which approval shall not be unreasonably withheld,
conditioned or delayed. Tenant Improvements shall not structurally alter the
Building, nor decrease its fair market value. Tenant Improvements shall comply
with all

                                       14

<PAGE>
 
applicable city, state and federal building codes, including but not limited to
the Uniform Building Code and the Americans with Disabilities Act and shall be
completed in a workmanlike manner.

      38.      Removal of Fixtures and Attached Equipment. Tenant may not, at
the termination or expiration of this Lease, or at any other time, except as
provided herein, remove any fixtures, signs, or equipment attached to the
Premises, Tenant Improvements, or other improvements installed in, or made to
the Premises or the Complex. All such fixtures, attached equipment, Tenant
Improvements or other improvements shall become the property of Landlord upon
the expiration or termination of this Lease. However, upon the expiration or
termination of this Lease, Tenant will promptly remove at its expense any
fixture, sign, attached equipment or improvement if requested in writing to do
so by Landlord. Notwithstanding the foregoing, during the sixty (60) days
preceding the termination or expiration of this Lease, if Tenant is not in
default hereunder, Tenant may remove any signs, trade fixtures and attached
trade equipment which it has installed at the Premises. Trade fixtures and
attached trade equipment are fixtures and attached equipment used specifically
for the preparation, storage and distribution of food, food product and food
ingredients. In all cases, Tenant shall promptly repair in a workmanlike manner
any damage done by such removal and restore the Premises to a good condition.
Such repairs shall include replacing any section of floor removed and in case of
the removal of a concrete floor, doweling the replacement floor section to the
then existing floor in a workmanlike manner. In addition, Tenant may remove and
replace fixtures during the term of this Lease, provided that the replacement
fixtures are promptly installed and that the value of each replacement fixture
meets or exceeds the value of the fixture removed.

      39.      Real Estate Taxes and Special Assessments. In addition to the
real estate taxes paid by Tenant pursuant to paragraph 10(c) (which shall
include the real estate taxes on the Tenant Improvements and other improvements
made by Tenant), above, a share of all other real estate taxes and special
assess-

                                       15

<PAGE>
 
ments levied or assessed by lawful authority against the Complex during the term
of this Lease shall be timely paid by Tenant as provided herein. Tenant shall
pay such share of the real estate taxes and special assessments for the Complex
calculated by multiplying the total real estate taxes and special assessments
for the Complex (less the amounts paid by Tenant pursuant to paragraph 10(c),
above and less the amounts of real estate taxes allocated by Landlord to tenant
improvements made by other tenants in the portions of the Complex which are
demised exclusively to such other tenants) times a fraction, the numerator of
which is the size of the Premises in square feet, and the denominator of which
is the total size in square feet (measured on the same basis as used to
calculate the numerator) of all completed rental space in the office/warehouse
building or buildings which are a part of the Complex. (A sample calculation of
the real estate tax allocation is set forth on Exhibit "C".) The Landlord shall
elect the ten (10) year declining tax abatement schedule as permitted by the
City of Des Moines. The prorata share of real estate taxes to be paid by Tenant
during the term of this Lease shall reflect a prorata share of said tax
abatement as though the tax abatement were level (rather than there being a
greater abatement in the earlier years), so that the benefit of such tax
abatement on a present value basis shall be allocated evenly to the full ten
(10) year period of said abatement. Therefore, if Tenant leases the Premises
only for the initial five (5) year term hereof, it shall be entitled to a
prorated share of one-half (1/2) of the total tax abatement, or if Tenant leases
the Premises for the initial five (5) year term hereof and for the five (5) year
Option Period, Tenant shall be entitled to a prorated share of all of the tax
abatement. Tenant shall pay on the first day of each month during the term
hereof, a sum equal to Tenant's obligation for all real estate taxes and special
assessments under the terms hereof next due (as estimated in good faith by
Landlord) divided by the number of months to elapse before one month prior to
the date on which such real estate taxes and special assessments will become due
and payable to the authority assessing the same. Such

                                       16

<PAGE>
 
amounts shall be held by Landlord and paid to the taxing authority when due. No
interest shall accrue to the benefit of Tenant on such funds and such funds may
be commingled with other funds of Landlord. Tenant acknowledges that at the end
of the term of this Lease, it will owe to Landlord, Tenant's share of the real
estate taxes which come due following the end of the term of this Lease, as
indicated on said Exhibit "C". For purposes of this paragraph and paragraph
10(e), above, the special assessments which become due and payable during the
term of this Lease (and with respect to which Tenant is to pay a prorated
share), shall be deemed to be only those installments of any such special
assessments which come due and payable during the term of this Lease.

      40.      Personal Property Taxes. Tenant agrees to timely pay all taxes,
assessments or other public charges levied or assessed by lawful authority (but
reasonably preserving Tenant's rights of appeal) against its personal property
on the Premises, during the term of this Lease.

      41.      Other Taxes. Tenant shall be responsible to pay as additional
rent, any and all sales tax, use tax, lease tax, rent tax or other tax assessed
against or imposed upon Lease payments or other payments hereunder or against
Landlord by reason of the Lease payments or other payments hereunder, except
that nothing herein shall be construed so as to require Tenant to pay Landlord's
income tax, estate tax, inheritance tax, excess profits tax, franchise tax or
capital tax.

      42.      Indemnity. Tenant shall protect, indemnify and save harmless
Landlord from and against any and all loss, costs, damage and expenses
occasioned by, or arising out of, any accident or other occurrence causing or
inflicting injury or damage to any person or property, happening or done, in,
upon or about the Complex, or due directly or indirectly to the tenancy, use or
occupancy thereof, or any part thereof by Tenant, its employees, agents,
contractors, principals, guests, invitees, customers and the like, or any person
claiming through or under Tenant, except

                                       17

<PAGE>
 
with respect to the negligent or intentional acts of Landlord or its agents.

      43.      Damage to Personal Property. Tenant shall maintain
property/casualty insurance for all personal property of Tenant (or for which
Tenant is responsible) which is located at the Premises or the Complex, and for
all fixtures and all improvements made to the Premises or the Complex by Tenant,
and under no circumstances shall Landlord be liable for any loss of or damage to
such personal property, fixtures or improvements, except with respect to the
intentional acts of Landlord or its agents.

      44.      Hazardous Wastes. Landlord warrants to Tenant that Landlord has
no actual first hand knowledge of any hazardous wastes on, in, under or adjacent
to the Complex. Landlord shall not bring, create, store, discharge, dump, place,
dispose of or use any hazardous product, material, substance or waste on, in or
near the Complex except in compliance with all applicable governmental laws,
ordinances and regulations. Tenant shall not bring, create, store, discharge,
dump, place, dispose of or use any hazardous product, material, substance or
waste on, in or near the Complex except in compliance with all applicable
governmental laws, ordinances and regulations. Tenant shall pay all abatement
cost, clean up cost, damages, charges, taxes, assessments, penalties, fines, and
any other charge or cost incident to any hazardous product, material, substance
or waste brought, created, stored, discharged, dumped, placed, disposed of or
used on or near the Complex by Tenant, its employees, invitees or agents holding
Landlord harmless from and against the same and Tenant does hereby agree to
indemnify Landlord from and against any and all liability of any kind or type
arising therefrom. Tenant shall immediately notify Landlord in writing if Tenant
becomes aware of or suspects any environmental contamination on, in or near the
Complex. Landlord does hereby agree to indemnify Tenant from and against the
cost of all abatement, clean up, taxes, assessments, penalties or fines imposed
on Tenant by reason of hazardous waste brought to the Complex by Landlord, if
such abatement costs, clean up, taxes, assessments, penalties or fines are
imposed on

                                       18

<PAGE>
 
Tenant solely because of Tenant's occupancy of the Premises and Tenant is not
otherwise liable or at fault for the same.

      45.      Right of First Refusal. Before agreeing to sell the Building,
Landlord shall first offer the Building for sale to Tenant by submitting to
Tenant a written proposal (the "Sale Proposal"). Tenant may within thirty (30)
days after receipt of such Sale Proposal accept or reject the same. If Tenant
fails to accept the Sale Proposal within said thirty (30) day period in the
manner prescribed herein, Landlord may agree to sell the Building free of
Tenant's right of first refusal on substantially the same terms and conditions
as are set forth in the Sale Proposal. However, if Landlord receives an offer to
buy the Building on materially less onerous terms or for a purchase price less
than the lesser of (i) the price contained in the Sale Proposal, and (ii) the
price of any counter-proposal Tenant may have made to Landlord, Landlord must
give written notice to Tenant of the receipt of such an offer to buy (together
with a copy thereof) if Landlord accepts or intends to accept such offer to buy.
Tenant may within ten (10) business days following receipt of such notice, elect
to purchase the Building under the same terms and conditions as are contained in
the offer to buy. Election to accept the Sale Proposal or to purchase under the
same terms and conditions as the offer to buy must be made by written notice to
Landlord in the manner described in paragraph 22, above. Failure to timely
exercise the right of first refusal by accepting the Sale Proposal or agreeing
to purchase the Building under the same terms and conditions as the offer to
buy, shall be deemed to be a waiver of this right of first refusal. If the
Building is not sold within the one (1) year period following receipt of the
Sale Proposal by Tenant, the Building shall not then be sold by Landlord without
first giving another Sale Proposal to Tenant as first described above. This
right of first refusal shall apply to subsequent sales of the Building by
Landlord's successors and assigns, notwithstanding the fact that Tenant has
declined to purchase the Building under the provisions hereof with respect to a
previous sale. This right of first refusal shall not apply to

                                       19

<PAGE>
 
any sale whereby the Building is sold as a part of the sale of Complex, or any
other sale if sold together with other real property owned by Landlord or any of
Landlord's partners or affiliates. This right of first refusal shall not apply
to sales to entities controlled by or affiliated with Landlord, to any one or
more of Landlord's partners, to any relative of any of Landlord's partners or to
any entity controlled by or affiliated with any relative of Landlord's partners.
A "relative" shall mean a parent, grandparent, child, sibling, stepbrother,
stepsister, aunt, uncle or spouse; or a parent, grandparent, child, sibling,
stepbrother, stepsister, aunt or uncle of a spouse, or trustee or custodian of
any of the foregoing. If Landlord agrees to sell the Building together with the
Complex, Tenant shall have no right of first refusal, but Tenant's right of
first refusal to purchase the Building if the same is to be sold separately from
the Complex, shall continue and be applicable with respect to any subsequent
sale of the Building separately from the Complex. A series of two or more sales
which take place as part of an exchange shall be treated as a single sale for
purposes of this paragraph

      46.      Additional Rights and Remedies on Default. In addition to any and
all remedies Landlord or Tenant may have at law or in equity, and in addition to
other remedies herein provided:

             A.     Upon any default by Tenant, Landlord may terminate this
       Lease by giving Tenant written notice thereof, in which event this Lease
       and the leasehold estate hereby created and all interest of Tenant and
       all parties claiming by, through or under Tenant shall automatically
       terminate upon the effective date of such notice of termination as
       therein stated and Landlord and Tenant shall have no further obligations,
       liabilities or rights hereunder after the date of such termination except
       for rights, obligations or liabilities accrued through the date thereof,
       and Landlord and its agents and representatives shall have the right,
       without further demand or notice, to re-enter and take posses-

                                       20

<PAGE>
 
       sion of the Premises and remove all persons and property therefrom with
       process of law, without being deemed guilty of any manner of trespass and
       without prejudice to any remedies for nonpayment of rent or existing
       breaches hereof (this remedy shall not be deemed to have been exercised
       by Landlord unless the notice of termination contains an explicit waiver
       of all claims against Tenant arising subsequent to the effective date of
       the notice).

             B.     Landlord may terminate Tenant's right to possession of the
       Premises without terminating this Lease, by giving Tenant written notice
       thereof and specifying the effective date of the termination of Tenant's
       right to possession, and without further demand or notice, re-enter and
       take possession of the Premises and remove all persons and property
       therefrom with process of law, without being deemed guilty of any manner
       of trespass, and without prejudice to any remedies for arrears of accrued
       rent or existing breaches hereof, and lease, manage and operate the
       Premises and collect the rents, issues and profits therefrom all for the
       account of Tenant, and credit toward the satisfaction of Tenant's
       obligations hereunder the rental thus received (after deducting therefrom
       all reasonable costs and expenses actually incurred by Landlord in
       repossessing, leasing, remodeling, managing and operating the Premises).
       If the rental so received by Landlord is not sufficient to satisfy all of
       Tenant's obligations under this Lease, then Tenant shall pay to Landlord
       upon demand the deficiencies in rent and other amounts after the same
       come due under the terms and conditions of this Lease, together with
       interest thereon at the rate of Twelve per cent (12%) per annum from the
       date such deficiency arises.

                                       21

<PAGE>
 
             C.     In the event of a default under the terms and provisions of
       this Lease, the aggrieved party shall be entitled to collect from the
       party in default, in addition to any and all other amounts which the
       aggrieved party may be entitled to recover under other provisions of this
       Lease or under the provisions of applicable law, the reasonable costs and
       expenses of the aggrieved party, including reasonable attorney's fees and
       legal expenses, which are incurred in the pursuit of the remedies of the
       aggrieved party.

             D.     No remedy herein or otherwise conferred upon or reserved to
       Landlord or Tenant shall be considered to exclude or suspend any other
       remedy but the same shall be cumulative and shall be in addition to every
       other remedy given hereunder, or now or hereafter existing at law or in
       equity or by statute, and every power and remedy given by this Lease to
       Landlord or Tenant may be exercised from time to time and so often as
       occasion may arise or as may be deemed expedient.

             E.     No delay or omission of Landlord or Tenant to exercise any
       right or power arising from any default shall impair any such right or
       power or be construed to be a waiver of any such default or any
       acquiescence therein. No waiver of any breach of any of the covenants of
       this Lease shall be construed, taken or held to be a waiver of any other
       breach, or as a waiver, acquiescence in or consent to any further or
       succeeding breach of the same covenant. The acceptance by Landlord of any
       payment of rent or other charges hereunder after the termination by
       Landlord of this Lease or of Tenant's right to possession hereunder shall
       not, in the absence of an agreement in writing to the contrary signed by
       Landlord, be deemed to restore this Lease

                                       22

<PAGE>
 
       or Tenant's right to possession hereunder, as the case may be, but shall
       be construed as a payment on account and not in satisfaction of damages
       due from Tenant to Landlord.

Notwithstanding the provisions of paragraph 15, above, the grace period with
respect to non-monetary defaults shall be the thirty (30) days following the
written notice described in said paragraph 15, but only if Tenant commences to
cure the non-monetary default within the first ten (10) days of the thirty (30)
day grace period and proceeds with due diligence and in good faith to attempt to
cure such default within the thirty (30) day period.

      28.      Late Payment Penalty. Tenant agrees that for any and every
monthly rental or other monthly payment due hereunder which is not actually
received in full by Landlord on or before the tenth (10th) day of the month for
which said payment is due, Tenant shall pay to Landlord as a late payment
penalty, payable as additional rent, a sum equal to five per cent (5%) of the
amount due. A check tendered to Landlord in payment of any amount due under the
terms of this Lease which is returned to Landlord due to insufficient funds or
because the drawer's account is closed, shall be deemed to be a late payment
under the terms of this paragraph. Provided however, such late payment penalty
shall be waived by Landlord twice during each year of this Lease, if the payment
for such a month is received within five (5) days following the date on which
Landlord advises Tenant that the particular payment has not been received.

      29.      Recordation. This Lease shall not be filed or recorded by either
party hereto with any city, county, state or federal government office or
agency, except as may become necessary in the event of a bona fide legal
proceeding which requires such filing or recording. Each party agrees, upon the
request of the other party, to execute a memorandum of this Lease in a form
suitable for recording to protect, preserve or enhance those rights of each
party which are protected, preserved or enhanced by such recordation.

                                       23

<PAGE>
 
      30.      Retained Easements and Further Assurances. Landlord retains
easements for ingress, egress, access, utilities, maintenance and inspection,
over, under, across and through the Premises. Landlord may exercise its right to
inspect the Premises from time to time during Tenant's normal business hours
following reasonable notice to Tenant. However, in the case of an emergency with
the substantial threat of personal injury or material property damage, Landlord
may enter the Premises without prior notice to Tenant. Tenant, upon written
request from Landlord, shall provide Landlord with keys to the Premises and
locks within the Premises, but shall not be required to provide Landlord with
keys or code numbers to any alarm system for the Premises. Tenant shall not
change or re-key the locks to or in the Premises without first providing
Landlord with notice of the same.

      31.      Rules. Tenant acknowledges that the Premises is part of an
office/warehouse building located at 1801-1915 Guthrie Avenue, Des Moines, Iowa,
and that there are or will be other tenants in the building and are or may be
other buildings at 1801-1915 Guthrie Avenue. Tenant agrees that Landlord may
from time to time promulgate reasonable rules and regulations pertaining to
Tenant, other tenants, the Premises and the Complex and that Tenant will abide
by such reasonable rules and regulations. Such rules and regulations shall be
effective only after Tenant is notified of the same in writing.

      32.      Signage. No signs shall be affixed or attached to the Premises or
displayed from the Premises or the Complex without the express written approval
of Landlord (including approval as to the location and the manner in which such
signage is affixed), which approval shall not be unreasonably withheld,
conditioned or delayed. All signage approved by Landlord pursuant to the
provisions hereof shall be high quality and professionally constructed. All such
signage shall match existing signage (if any) at the Complex and signage for the
Complex planned by Landlord in terms of location, attachment, quality, design,
color, style, construction, materials, etc. and it shall not be unreasonable for
Landlord to disapprove Tenant's signage or proposed

                                       24

<PAGE>
 
signage based on location, attachment, quality, design, color, style,
construction, materials, Landlord's subjective evaluation of its general
appearance, or because Tenant's signage or proposed signage is not harmonious
with the existing signage at the Complex, or signage for the Complex planned by
Landlord.

      33.      Waiver of Subrogation. Landlord and Tenant shall each look first
to any insurance in its favor before making any claim against the other for
damage or loss resulting from fire or other casualty, and to the extent that
such insurance is in force and collectible and to the extent permitted by law
and such insurance without penalty, Landlord and Tenant hereby each release and
waive all rights of recovery against the other or anyone claiming through or
under each of them by way of subrogation or otherwise.

      34.      Increased Insurance Limits. The limits of the insurance required
under the terms of paragraph 12, above, to be carried by Tenant shall be
increased at Landlord's reasonable request from time to time during the terms of
the Options to Renew, if at the time of such request the customary limits of
liability policies insuring similar risks in similar localities have increased
materially.

      35.      Exhibits. The Exhibits referred to herein are a part of this
Lease as if fully set forth herein.

      36.      Conflicts. The terms, covenants, obligations and duties contained
in this Addendum are in addition to and in clarification of the terms,
covenants, obligations and duties contained in the pre-printed portion of this
Lease (paragraphs 1 through 27 on pages 1 through 4). However, in each instance
in which a provision of this Addendum is in conflict with a provision of the
printed portion of this Lease and cannot reasonably be construed as a
clarification or an additional term, covenant, obligation or duty, the provision
in this Addendum shall control.

   IN WITNESS WHEREOF, the parties hereto have duly executed this Lease in
duplicate the day and year first above written.

                                       25

<PAGE>
 
                                       /s/ A. Terry Moss
                                       -----------------------------------
                                        A. Terry Moss, Landlord






                                       /s/ Mariann Moss
                                       -----------------------------------
                                        Mariann Moss, Spouse





                                       /s/ Ira E. White
                                       -----------------------------------
                                        Ira E. White, Landlord


                                       P. J. FOOD SERVICE, INC.,

                                          Tenant


                                       By:   /s/ Robert J. Wadell
                                             ---------------------
                                       Robert J. Wadell, President







   This Lease Agreement and each and every term, covenant, condition, promise
and provision thereof made by or obligating Tenant, and the full, prompt and
complete performance of this Lease Agreement by Tenant, is hereby
unconditionally and fully guaranteed by Papa John's International, Inc.


                                       PAPA JOHN'S INTERNATIONAL, INC.,

                                          Guarantor


                                       By:   /s/ Richard J. Emmett
                                             -----------------------------
                                             Senior Vice President

                                       26




<PAGE>
 
                                   Exhibit 21


                         Subsidiaries of the Registrant



PJ Food Service, Inc., a Kentucky corporation

Papa John's USA, Inc., a Kentucky corporation

Printing & Promotions, Inc., a Kentucky corporation

PJFS of Mississippi, Inc., a Mississippi corporation

Risk Services Corp., a Kentucky corporation

Capital Delivery, Ltd., a Kentucky corporation





<PAGE>
 
                                                                    EXHIBIT 23

Consent of Independent Auditors

We consent to the incorporation by reference in (I) the Registration Statements
(Forms S-8 No. 333-16447 and No. 33-67472) pertaining to the Papa John's
International, Inc. 1993 Stock Ownership Incentive Plan, (ii) the Registration
Statement (Form S-8 No. 33-67470) pertaining to the Papa John's International,
Inc. 1993 Stock Option Plan for Non-Employee Directors, and (iii) the
Registration Statement (Form S-4 No. 33-96552) of Papa John's International,
Inc. of our report dated February 28, 1997, with respect to the consolidated
financial statements of Papa John's International, Inc. and subsidiaries
included in the Annual Report (Form 10-K) for the year ended December 29, 1996.

Ernst & Young LLP

Louisville, Kentucky
March 24, 1997





<TABLE> <S> <C>


<PAGE>
 
<ARTICLE> 5
       
<S>                             <C>                     <C>
<PERIOD-TYPE>                   12-MOS                   12-MOS
<FISCAL-YEAR-END>                          DEC-29-1996             DEC-31-1995
<PERIOD-START>                             JAN-01-1996             DEC-26-1994
<PERIOD-END>                               DEC-29-1996             DEC-31-1995
<CASH>                                          24,063                  19,904
<SECURITIES>                                    65,067                  24,394
<RECEIVABLES>                                   13,101                  10,198
<ALLOWANCES>                                         0                       0
<INVENTORY>                                      6,839                   5,188
<CURRENT-ASSETS>                                48,248                  38,318
<PP&E>                                         101,513                  68,552
<DEPRECIATION>                                  20,796                  11,853
<TOTAL-ASSETS>                                 212,061                 128,819
<CURRENT-LIABILITIES>                           23,014                  16,900
<BONDS>                                          1,505                   1,680
<PREFERRED-MANDATORY>                                0                       0
<PREFERRED>                                          0                       0
<COMMON>                                           288                     268
<OTHER-SE>                                     180,355                 106,014
<TOTAL-LIABILITY-AND-EQUITY>                   212,061                 128,819
<SALES>                                        337,939                 236,286
<TOTAL-REVENUES>                               360,052                 253,355
<CGS>                                          181,863                 133,045
<TOTAL-COSTS>                                  294,071                 208,962
<OTHER-EXPENSES>                                40,352                  28,574
<LOSS-PROVISION>                                     0                       0
<INTEREST-EXPENSE>                                   0                       0
<INCOME-PRETAX>                                 29,546                  17,719
<INCOME-TAX>                                    10,932                   6,525
<INCOME-CONTINUING>                             18,614                  11,204
<DISCONTINUED>                                       0                       0
<EXTRAORDINARY>                                      0                       0
<CHANGES>                                            0                       0
<NET-INCOME>                                    18,614                  11,204
<EPS-PRIMARY>                                     0.66                    0.45
<EPS-DILUTED>                                     0.66                    0.45
        

</TABLE>