SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 28, 1997
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 0-21660
PAPA JOHN'S INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 61-1203323
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) number)
11492 Bluegrass Parkway, Suite 175
Louisville, Kentucky 40299-2334
(Address of principal executive offices)
(502) 266-5200
(Registrant's telephone number, including area code)
- -------------------------------------------------------------------------------
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
--- ---
At October 31, 1997, there were outstanding 29,035,654 shares of the
registrant's common stock, par value $.01 per share.
INDEX
PART I. FINANCIAL INFORMATION Page No.
--------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets --
September 28, 1997 and December 29, 1996 2
Condensed Consolidated
Statements of Income --
Three Months and Nine
Months Ended September 28,
1997 and September 29, 1996 3
Condensed Consolidated Statements of
Stockholders' Equity -- Nine Months Ended
September 28, 1997 and September 29, 1996 4
Condensed Consolidated Statements of Cash Flows
-- Nine Months Ended September 28, 1997 and
September 29, 1996 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 6. Exhibits and Reports on Form 8-K 10
-1-
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Papa John's International, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
September 28, 1997 December 29, 1996
(Unaudited) (Note)
------------------ -----------------
(In thousands)
Assets
Current assets:
Cash and cash equivalents $ 19,663 $ 24,063
Accounts receivable 13,547 13,101
Inventories 8,524 6,839
Deferred pre-opening costs 3,925 2,654
Prepaid expenses and other current assets 1,522 1,591
------------------ -----------------
Total current assets 47,181 48,248
Investments 57,247 65,067
Net property and equipment 104,399 80,717
Notes receivable from franchisees 14,853 5,053
Other assets 17,609 12,976
------------------ -----------------
Total assets $ 241,289 $ 212,061
================== =================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 12,934 $ 13,105
Accrued expenses 14,143 9,062
Current maturities of long-term debt 185 175
Deferred income taxes 763 672
------------------ -----------------
Total current liabilities 28,025 23,014
Unearned franchise and development fees 4,709 3,378
Long-term debt, less current maturities 1,320 1,505
Deferred income taxes 3,768 3,285
Other long-term liabilities 221 236
Stockholders' equity:
Preferred stock - -
Common stock 290 288
Additional paid-in capital 148,021 143,978
Unrealized gain on investments 695 977
Retained earnings 54,721 35,882
Treasury stock (481) (482)
------------------ -----------------
Total stockholders' equity 203,246 180,643
------------------ -----------------
Total liabilities and stockholders' equity $ 241,289 $ 212,061
================== =================
Note: The balance sheet at December 29, 1996 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See accompanying notes.
-2-
Papa John's International, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
Three Months Ended Nine Months Ended
September 28, 1997 September 29, 1996 September 28, 1997 September 29, 1996
------------------ ------------------ ------------------ ------------------
(In thousands, except per share amounts)
Revenues:
Restaurant sales $ 63,645 $ 42,311 $ 180,114 $ 118,085
Franchise royalties 5,971 4,506 17,274 12,699
Franchise and development fees 1,149 1,211 3,774 3,032
Commissary sales 46,466 37,153 133,355 104,011
Equipment and other sales 11,021 7,548 29,590 19,308
------------------ ------------------ ------------------ ------------------
Total revenues 128,252 92,729 364,107 257,135
Costs and expenses:
Restaurant expenses:
Cost of sales 16,644 12,170 47,398 33,632
Salaries and benefits 17,016 11,300 48,705 31,467
Advertising and related costs 6,058 4,016 16,759 11,145
Occupancy costs 3,493 2,288 9,200 6,058
Other operating expenses 8,503 5,811 24,408 16,012
------------------ ------------------ ------------------ ------------------
51,714 35,585 146,470 98,314
Commissary, equipment and other expenses:
Cost of sales 44,524 35,474 126,672 98,302
Salaries and benefits 3,248 2,357 9,463 6,607
Other operating expenses 4,611 2,791 13,143 7,820
------------------ ------------------ ------------------ ------------------
52,383 40,622 149,278 112,729
General and administrative expenses 9,160 6,355 26,990 18,865
Depreciation 3,549 2,415 9,455 6,495
Amortization 1,749 1,233 4,635 3,388
------------------ ------------------ ------------------ ------------------
Total costs and expenses 118,855 86,210 336,828 239,791
------------------ ------------------ ------------------ ------------------
Operating income 9,697 6,519 27,279 17,344
Other income (expense):
Investment income 1,175 1,098 3,399 2,445
Other, net 8 183 (808) 315
------------------ ------------------ ------------------ ------------------
Income before income taxes 10,880 7,800 29,870 20,104
Income tax expense 4,026 2,886 11,052 7,439
------------------ ------------------ ------------------ ------------------
Net income $ 6,854 $ 4,914 $ 18,818 $ 12,665
================== ================== ================== ==================
Net income per share $ 0.24 $ 0.17 $ 0.65 $ 0.46
================== ================== ================== ==================
Weighted average shares outstanding 28,972 28,671 28,872 27,776
================== ================== ================== ==================
See accompanying notes.
-3-
Papa John's International, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders' Equity
(Unaudited)
Additional Unrealized Total
Common Paid-In Gain (Loss) on Retained Treasury Stockholders'
Stock Capital Investments Earnings Stock Equity
------ ---------- -------------- -------- --------- -------------
(In thousands)
Balance at January 1, 1996 $ 268 $ 88,043 $ (263) $18,838 $ (604) $ 106,282
Issuance of common stock 17 50,534 - - - 50,551
Exercise of stock options 1 1,191 - - - 1,192
Tax benefit related to exercise of
non-qualified stock options - 1,006 - - - 1,006
Acquisitions 1 1,454 - - - 1,455
Change in unrealized gain (loss)
on investments - - (25) - - (25)
Net income - - - 12,665 - 12,665
Other - 42 - (32) 112 122
------ ---------- -------------- -------- --------- -------------
Balance at September 29, 1996 $ 287 $ 142,270 $ (288) $31,471 $ (492) $ 173,248
====== ========== ============== ======== ========= =============
Balance at December 30, 1996 $ 288 $ 143,978 $ 977 $35,882 $ (482) $ 180,643
Exercise of stock options 2 2,161 - - - 2,163
Tax benefit related to exercise of
non-qualified stock options - 1,882 - - - 1,882
Change in unrealized gain (loss)
on investments - - (282) - - (282)
Net income - - - 18,818 - 18,818
Other - - - 21 1 22
------ ---------- -------------- -------- --------- -------------
Balance at September 28, 1997 $ 290 $ 148,021 $ 695 $54,721 $ (481) $ 203,246
====== ========== ============== ======== ========= =============
See accompanying notes.
-4-
Papa John's International, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 28, 1997 September 29, 1996
------------------ ------------------
(In thousands)
Operating activities
Net cash provided by operating activities $ 32,761 $ 18,108
Investing activities
Purchase of property and equipment (31,163) (21,104)
Purchase of investments (28,482) (52,094)
Proceeds from sale or maturity of investments 35,070 9,225
Loans to franchisees (10,605) (5,502)
Loan repayments from franchisees 805 -
Deferred systems development costs (1,486) (1,247)
Acquisitions (5,448) (30)
Other 293 9
------------------ ------------------
Net cash used in investing activities (41,016) (70,743)
Financing activities
Proceeds from exercise of stock options 2,163 1,192
Payments on long-term debt (175) (837)
Proceeds from issuance of common stock - 50,555
Tax benefit related to exercise of non-qualified
stock options 1,882 1006
Other (15) (16)
------------------ ------------------
Net cash provided by financing activities 3,855 51,900
------------------ ------------------
Net decrease in cash and cash equivalents (4,400) (735)
Cash and cash equivalents at beginning of period 24,063 19,904
------------------ ------------------
Cash and cash equivalents at end of period $ 19,663 $ 19,169
================== ==================
See accompanying notes.
-5-
Papa John's International, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
September 28, 1997
Note 1 -- Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments, consisting
of normal recurring accruals, considered necessary for a fair presentation have
been included. Operating results for the three and nine months ended September
28, 1997, are not necessarily indicative of the results that may be expected for
the year ended December 28, 1997. For further information, refer to the
consolidated financial statements and footnotes thereto included in the Papa
John's International, Inc. Annual Report on Form 10-K for the year ended
December 29, 1996.
Note 2 -- Business Combinations
During the second quarter of 1997, the Company acquired four Papa John's
restaurants in Arlington, Texas for approximately $488,000 in cash and 16 Papa
John's restaurants in North Carolina for $5 million (consisting of $4,960,000 in
cash and a credit of $40,000 towards future development fees), in transactions
accounted for by the purchase method of accounting. A majority ownership
interest in the franchisee of the North Carolina restaurants was held by certain
directors and officers, including the Chief Executive Officer, of the Company.
Note 3 -- Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share," which is required to be adopted for 1997 year-end financial reporting.
In addition to the Company's current presentation of net income per share, this
Statement will require the Company to present diluted net income per share,
which will include the dilutive effect of stock options. The Company does not
believe the additional disclosure of diluted net income per share will
materially impact the financial statements.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
which is required to be adopted for 1998 interim financial reporting. This
Statement will require additional disclosures related to comprehensive income
(which includes items such as unrealized gains and losses on available-for-sale
securities, not included in the income statement) in the Company's financial
statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information" which is required to be adopted for 1998
year-end financial reporting. This Statement does not have any impact on the
financial results or financial condition of the Company, but will result in
certain changes in required disclosures of segment information.
Note 4 -- Subsequent Events
Subsequent to quarter end, the Company acquired three Papa John's restaurants
near Denver, Colorado for $720,000 in cash in a transaction accounted for by the
purchase method of accounting. These restaurants were owned by the Chief
Executive Officer of the Company and his wife.
Also subsequent to quarter end, the Company acquired a 49% equity ownership
interest in Mountain Pizza Group, L.L.C. ("MPG"), an entity which operates seven
Papa John's restaurants in Denver, Colorado, for $150,000 in cash. The
transaction and subsequent operating results of MPG will be accounted for by the
equity method of accounting. The 49% equity ownership interest was acquired from
the President of the Company, who remains the 51% majority owner of MPG.
-6-
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Restaurant Progression
Three Months Ended Nine Months Ended
September 28, September 29, September 28, September 29,
1997 1996 1997 1996
------------- ------------- ------------- -------------
Company-owned:
Beginning of period 367 248 303 217
Opened 22 20 67 48
Closed - (1) (1) (2)
Acquired - - 20 4
------------- ------------- ------------- -------------
End of period 389 267 389 267
============= ============= ============= =============
Franchised:
Beginning of period 976 752 857 661
Opened 64 62 206 159
Closed (2) (1) (5) (3)
Sold to Company - - (20) (4)
------------- ------------- ------------- -------------
End of Period 1,038 813 1,038 813
============= ============= ============= ============
Total at end of period 1,427 1,080 1,427 1,080
============= ============= ============= ============
Results of Operations
Revenues. Total revenues increased 38.3% to $128.3 million for the three months
ended September 28, 1997, from $92.7 million for the comparable period in 1996,
and 41.6% to $364.1 million for the nine months ended September 28, 1997, from
$257.1 million for the comparable period in 1996.
Restaurant sales increased 50.4% to $63.6 million for the three months ended
September 28, 1997, from $42.3 million for the comparable period in 1996, and
52.5% to $180.1 million for the nine months ended September 28, 1997, from
$118.1 million for the comparable period in 1996. These increases were primarily
due to increases of 45.3% and 44.5% in the number of equivalent Company-owned
restaurants open during the three and nine months ended September 28, 1997,
respectively, compared to the same periods in the prior year. "Equivalent
restaurants" represent the number of restaurants open at the beginning of a
given period, adjusted for restaurants opened or acquired during the period on a
weighted average basis. Also, sales increased 6.6% for the three months ended
September 28, 1997, over the comparable period in 1996, for Company-owned
restaurants open throughout both periods.
Franchise royalties increased 32.5% to $6.0 million for the three months ended
September 28, 1997, from $4.5 million for the comparable period in 1996, and
36.0% to $17.3 million for the nine months ended September 28, 1997, from $12.7
million for the comparable period in 1996. These increases were primarily due to
increases of 29.4% and 30.2% in the number of equivalent franchised restaurants
open during the three and nine months ended September 28, 1997, respectively,
compared to the same periods in the prior year. Also, sales increased 5.4% for
the three months ended September 28, 1997, over the comparable period in 1996,
for franchised restaurants open throughout both periods.
-7-
Franchise and development fees decreased 5.1% to $1.1 million for the three
months ended September 28, 1997, from $1.2 million for the comparable period in
1996, and increased 24.5% to $3.8 million for the nine months ended September
28, 1997, from $3.0 million for the comparable period in 1996. The decrease for
the three month period was primarily due to a lower average dollar amount of
fees in 1997, which more than offset the impact of two additional restaurant
openings. The increase for the nine month period was primarily due to the 206
franchised restaurants opened during the nine months ended September 28, 1997,
versus the 159 opened during the comparable period in 1996, an increase of
29.6%. The average dollar amount of fees per franchised restaurant may vary from
period to period depending upon the mix of restaurants opened pursuant to
older development agreements and "Hometown restaurants" which generally have
lower required fees than restaurants opened pursuant to standard development
agreements. "Hometown restaurants" are located in smaller markets, generally
markets with less than 9,000 households.
Commissary sales increased 25.1% to $46.5 million for the three months ended
September 28, 1997, from $37.2 million for the comparable period in 1996, and
28.2% to $133.4 million for the nine months ended September 28, 1997, from
$104.0 million for the comparable period in 1996. These increases were primarily
the result of the increases in equivalent franchised restaurants and comparable
sales for franchised restaurants noted above. The impact of these increases was
partially offset by an 18% and 14% decrease in the average cheese block market
price during the three and nine months ended September 28, 1997, respectively,
as compared to the same periods in 1996, which resulted in lower sales prices to
franchisees.
Equipment and other sales increased 46.0% to $11.0 million for the three months
ended September 28, 1997, from $7.5 million for the comparable period in 1996,
and 53.3% to $29.6 million for the nine months ended September 28, 1997, from
$19.3 million for the comparable period in 1996. These increases were primarily
due to the increase in equivalent franchised restaurants open during the three
and nine months ended September 28, 1997, as compared to the same periods in
1996, and the increase in franchised restaurants opened during the three and
nine months ended September 28, 1997, as compared to the same periods in 1996. A
portion of the equipment and other sales increase was attributable to the
increase in sales of the Papa John's PROFIT System, a proprietary point of sale
system, and related PROFIT support services to the franchisees, as well as
increasing insurance commissions from franchisees. The Company initiated an
insurance agency function for franchisees during the fourth quarter of 1996.
Costs and Expenses. Restaurant cost of sales, which consists of food, beverage
and paper costs, decreased as a percentage of restaurant sales to 26.2% for the
three months ended September 28, 1997, from 28.8% for the comparable period in
1996, and decreased as a percentage of restaurant sales to 26.3% for the nine
months ended September 28, 1997, from 28.5% for the comparable period in 1996.
This decrease was primarily due to decreases in the average cheese block market
prices noted above.
Restaurant salaries and benefits as a percentage of restaurant sales were 26.7%
for the three months ended September 28, 1997, and September 29, 1996.
Restaurant salaries and benefits increased as a percentage of sales to 27.0% for
the nine months ended September 28, 1997, from 26.6% for the comparable period
in 1996, primarily due to increased staffing levels during the second quarter of
1997 to ensure quality customer service was delivered during the 12th
Anniversary Promotion.
Advertising and related costs (9.5% vs. 9.5% and 9.3% vs. 9.4%, respectively),
occupancy costs (5.5% vs. 5.4% and 5.1% vs. 5.1%, respectively), and other
restaurant operating expenses (13.4% vs. 13.7% and 13.6% vs. 13.6%,
respectively), were relatively consistent as a percentage of sales for the three
and nine months ended September 28,1997, as compared to the same periods in the
prior year. 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.
Commissary, equipment and other expenses include cost of sales and operating
expenses associated with sales of food, paper, equipment, printing and
promotional items to franchisees and other customers. These costs increased as a
percentage of combined commissary sales and equipment and other sales to 91.1%
for the three months ended September 28, 1997, as compared to 90.9% for the
comparable period in 1996, and to 91.6% for the nine months
-8-
ended September 28, 1997, from 91.4% for the comparable period in 1996. Cost of
sales as a percentage of combined commissary sales and equipment and other sales
decreased to 77.5% and 77.7%, respectively, for the three and nine months ended
September 28, 1997 from 79.4% and 79.7%, respectively, for the comparable
periods in 1996, due to the timing of certain favorable commodity price changes.
The decrease was more than offset by an increase in other operating expenses to
8.0% and 8.1%, respectively, for the three months and nine months ended
September 28,1997, compared to 6.2% and 6.3%, respectively, for the comparable
periods in 1996, due primarily to increased delivery costs resulting from larger
commissary service areas and costs related to the opening of three commissary
facilities in 1997.
General and administrative expenses were relatively consistent as a percentage
of total revenues at 7.1% and 7.4%, respectively, for the three and nine months
ended September 28, 1997, as compared to 6.9% and 7.3%, respectively, for the
comparable periods in 1996.
Depreciation and amortization was relatively consistent as a percentage of total
revenues at 4.1% and 3.9%, respectively, for the three and nine months ended
September 28, 1997, as compared to 3.9% and 3.8%, respectively, for the
comparable periods in 1996.
Investment Income. Investment income increased to $1.2 million for the three
months ended September 28, 1997, from $1.1 for the comparable period in 1996,
and to $3.4 million for the nine months ended September 28, 1997, from $2.4
million for the comparable period in 1996. These increases were primarily the
result of higher investment returns for the three months ended September 28,
1997, and higher average investment balances during the first nine months of
1997 compared to the same periods in 1996, due to the investment of proceeds
from the Company's public offering of common stock in May 1996.
Other Income (Expense). Other income (expense) was relatively consistent for the
three month periods ended September 28, 1997 and September 29, 1996. Other
income (expense) fluctuated from income of $315,000 for the nine months ended
September 29, 1996 to expense of $808,000 for the same period in 1997. This
fluctuation was primarily attributable to the equipment and leasehold write-offs
related to an increasing number of restaurant relocations during the first and
second quarters of the year.
Income Tax Expense. Income tax expense reflects a combined federal, state and
local effective tax rate of 37% for the three and nine months ended September
28, 1997 and September 29,1996.
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 and the enhancement of corporate systems and facilities. Capital
expenditures of $31.2 million, acquisitions of $5.4 million and loans to
franchisees of $10.6 million for the nine months ended September 28, 1997, were
primarily funded by cash flow from operations, available cash and liquidation of
investments.
Cash flow from operations increased to $32.8 million for the nine months ended
September 28, 1997, from $18.1 million for the comparable period in 1996, due
primarily to the higher level of net income for the first nine months of 1997.
In addition to restaurant development and possible acquisitions, significant
capital projects for the next twelve months are expected to include a new
commissary in the Pacific Northwest area. The Company also expects to begin
construction during 1997 of a 221,000 square foot facility in Louisville,
Kentucky, scheduled for completion in late 1998, approximately one-half of which
will accommodate relocation and expansion of the Louisville commissary facility
and Novel Approach promotional division and the remainder of which will
accommodate relocation and consolidation of corporate offices. In addition, the
Company expects to fund an additional $7 million in loans under existing
commitments within the franchisee loan program. The amounts actually funded may
vary as the Company continues to review the growth of the loan program.
-9-
Capital resources available at September 28, 1997, include $19.7 million of cash
and cash equivalents, $57.2 million of investments and a $10 million line of
credit expiring in June 1998. 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.
PART II. OTHER INFORMATION
Item 1. 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 6. Exhibits and Reports on Form 8-K.
a. Exhibits
Exhibit
Number Description
------ -----------
10.1 Discretionary Line of Credit Note dated June 30,
1997 between the Company and PNC Bank, Kentucky,
Inc.
10.2 Amendment to Chief Operating Officer Agreement dated
October 9, 1997, by and between the Company and Wade
S. Oney.
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 29, 1996 (Commission File No. 0-21660) is
incorporated herein by reference.
b. Current Reports on Form 8-K.
There were no reports filed on Form 8-K during the quarterly period ended
September 28, 1997.
-10-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PAPA JOHN'S INTERNATIONAL, INC.
(Registrant)
Date: November 12, 1997 /s/ E. Drucilla Milby
----------------- ----------------------------------
E. Drucilla Milby, Chief Financial
Officer and Treasurer
-11-
Exhibit 10.1 - Discretionary Line of Credit Note
$10,000,000.00 As of June 30, 1997
FOR VALUE RECEIVED, PAPA JOHN'S INTERNATIONAL, INC. (the "Borrower"), with an
address at 11492 Bluegrass Parkway, Louisville, Kentucky 40299, promises to pay
to the order of PNC BANK, KENTUCKY, INC. (the "Bank"), in lawful money of the
United States of America in immediately available funds at its offices located
at 500 West Jefferson Street, Louisville, Kentucky 40202, or at such other
location as the Bank may designate from time to time, the principal sum of TEN
MILLION DOLLARS ($10,000,000.00) (the "Facility") or such lesser amount as may
be advanced to or for the benefit of the Borrower hereunder, together with
interest accruing on the outstanding principal balance from the date hereof, as
provided below:
1. Rate of Interest. Each advance outstanding under this Note will bear
interest at a rate per annum determined in the Bank's sole discretion, as
offered by the Bank to the Borrower as the rate at which the Bank would advance
funds to the Borrower in the principal amount requested for the interest period
requested, each as agreed upon in writing between the Borrower and the Bank.
Interest will be calculated on the basis of a year of 360 days for the
actual number of days in each interest period. In no event will the rate of
interest hereunder exceed the maximum rate allowed by law.
2. Discretionary Advances. This is not a committed line of credit and
advances under this Note, if any, shall be made by the Bank in its sole
discretion. Nothing contained in this Note or any other Loan Documents shall be
construed to obligate the Bank to make any advances. The Bank shall have the
right to refuse to make any advances at any time without prior notice to the
Borrower.
The Borrower may request advances, repay and request additional
advances hereunder, subject to the terms and conditions of this Note and the
Loan Documents (as defined herein). In no event shall the aggregate unpaid
principal amount of advances under this Note exceed the face amount of this
Note.
3. Payment Terms. The principal amount of each advance shall be due and
payable on the earlier of (i) the last day of the applicable interest period for
such advance or (ii) the Expiration Date (as defined in the Loan Documents).
Interest shall be due and payable at the times set forth in the Loan Documents,
and no less frequently than quarterly.
If any payment under this Note shall become due on a Saturday, Sunday
or public holiday under the laws of the State where the Bank's office indicated
above is located, such payment shall be made on the next succeeding business day
and such extension of time
shall be included in computing interest in connection with such payment. The
Borrower hereby authorizes the Bank to charge the Borrower's deposit account at
the Bank for any payment when due hereunder. Payments received will be applied
to charges, fees and expenses (including attorneys' fees), accrued interest and
principal in any order the Bank may choose, in its sole discretion.
4. Default Rate. If any advance or other amount is not paid when due, the
Borrower shall pay interest on such amount until it is paid in full at a rate
per annum (based on a year of 360 days and actual days elapsed) (the "Default
Rate") equal to two hundred (200) basis points (2%) above the Prime Rate but not
more than the maximum rate allowed by law. As used herein, "Prime Rate" shall
mean the rate publicly announced by the Bank from time to time as its prime
rate. The Prime Rate is determined from time to time by the Bank as a means of
pricing some loans to its borrowers. The Prime Rate is not tied to any external
rate of interest or index, and does not necessarily reflect the lowest rate of
interest actually charged by the Bank to any particular class or category of
customers. If and when the Prime Rate changes, the rate of interest on this
Note will change automatically without notice to the Borrower, effective on the
date of any such change. The Default Rate shall continue to apply whether or
not judgment shall be entered on this Note.
5. Prepayment. The Borrower shall have the right to prepay at any time
and from time to time, in whole or in part, without penalty, any advance
hereunder which is accruing interest at a rate based upon a floating rate. If
the Borrower prepays all or any part of any advance which is accruing interest
at a fixed rate on other than the last day of the applicable interest period,
the Borrower shall also pay to the Bank, on demand therefor, the Cost of
Prepayment. "Cost of Prepayment" means an amount equal to the present value, if
positive, of the product of (a) the difference between (i) the yield, on the
beginning date of the applicable interest period, of a U.S. Treasury obligation
with a maturity similar to the applicable interest period minus (ii) the yield,
on the prepayment date, of a U.S. Treasury obligation with a maturity similar to
the remaining maturity of the applicable interest period, and (b) the principal
amount to be prepaid, and (c) the number of years, including fractional years
from the prepayment date to the end of the applicable interest period. The
yield on any U.S. Treasury obligation shall be determined by reference to
Federal Reserve Statistical Release H.15(519) "Selected Interest Rates". For
purposes of making present value calculations, the yield to maturity of a
similar maturity U.S. Treasury obligation on the prepayment date shall be deemed
the discount rate. The Cost of Prepayment shall also apply to any payments made
after acceleration of the maturity of this Note.
6. Other Loan Documents. This Note is issued pursuant to the letter
agreement dated as of June 30, 1997, and the other documents referred to
therein, the terms of which are incorporated herein by reference (the "Loan
Documents").
7. Advance Procedures. A request for advance made by telephone must be
promptly confirmed in writing by such method as the Bank may require. The
Borrower authorizes the Bank to accept telephonic requests for advances, and the
Bank shall be entitled to rely upon the authority of any person providing such
instructions. The Borrower hereby indemnifies and holds the Bank harmless from
and against any and all damages, losses, liabilities, costs and expenses
(including reasonable attorneys' fees and expenses) which may
-2-
arise or be created by the acceptance of such telephone requests or making such
advances. The Bank will enter on its books and records, which entry when made
will be presumed correct, absent manifest error, the date and amount of each
advance, the interest rate and interest period applicable thereto, as well as
the date and amount of each payment made by the Borrower.
8. Yield Protection. The undersigned shall pay to the Bank, on written
demand therefor, together with the written evidence of the justification
therefor, all direct costs incurred, losses suffered or payments made by Bank by
reason of any change in law or regulation or its interpretation imposing any
reserve, deposit, allocation of capital, or similar requirement (including
without limitation, Regulation D of the Board of Governors of the Federal
Reserve System) on the Bank, its holding company or any of their respective
assets.
9. Events of Default. The occurrence of any of the following events will
be deemed to be an "Event of Default" under this Note: (i) the nonpayment of any
principal, interest or other indebtedness under this Note when due; (ii) the
occurrence of any event of default or default and the lapse of any notice or
cure period under any Loan Document or any other debt, liability or obligation
to the Bank of any Obligor; (iii) the filing by or against any Obligor or any
Affiliate of any proceeding in bankruptcy, receivership, insolvency,
reorganization, liquidation, conservatorship or similar proceeding (and, in the
case of any such proceeding instituted against any Obligor or any Affiliate,
such proceeding is not dismissed or stayed within thirty (30) days of the
commencement thereof); (iv) any assignment by any Obligor or any Affiliate for
the benefit of creditors, or any levy, garnishment, attachment or similar
proceeding is instituted against any property of any Obligor or any Affiliate
held by or deposited with the Bank; (v) a default with respect to any other
indebtedness of any Obligor or any Affiliate for borrowed money in excess of
$100,000.00, if the effect of such default is to cause or permit the
acceleration of such debt; (vi) the entry of a final judgment in excess of
$100,000.00 against any Obligor or any Affiliate and the failure of such Obligor
or any Affiliate to discharge the judgment within ten days of the entry thereof;
(vii) any material adverse change in the business, assets, operations, financial
condition or results of operations of any Obligor or any Affiliate; (viii) the
revocation or attempted revocation, in whole or in part, of any guarantee by any
Guarantor; (ix) any representation or warranty made by any Obligor or any
Affiliate to the Bank in any document, including but not limited to the Loan
Documents is false, erroneous or misleading in any material respect; (x) the
failure of any Obligor or any Affiliate to observe or perform any covenant or
other agreement with the Bank contained in any Loan Document or any other
documents now or in the future securing the obligations of any Obligor or any
Affiliate to the Bank; and (xi) the occurrence of any event of default or
default and the lapse of any notice or cure period under any debt, liability or
obligation to the Bank of any Affiliate.
As used herein, the term "Obligor" means any Borrower and any
Guarantor, the term "Guarantor" means any guarantor of the obligations of the
Borrower to the Bank existing on the date of this Note or arising in the future,
and the term "Affiliate" means each of PJ Food Service, Inc. and PJFS of
Mississippi, Inc.
Upon the occurrence of an Event of Default: (a) the Bank shall
continue to have no obligation to make advances hereunder; (b) if an Event of
Default specified in clause (iii) or (iv) above shall occur, the outstanding
principal balance and accrued interest hereunder
-3-
together with any additional amounts payable hereunder shall be immediately due
and payable without demand or notice of any kind; (c) if any other Event of
Default shall occur, the outstanding principal balance and accrued interest
hereunder together with any additional amounts payable hereunder, at the option
of the Bank and without demand or notice of any kind, may be accelerated and
become immediately due and payable; (d) at the option of the Bank, this Note
will bear interest at the Default Rate from the date of the occurrence of the
Event of Default; and (e) the Bank may exercise from time to time any of the
rights and remedies available to the Bank under the Loan Documents or under
applicable law.
10. Right of Setoff. In addition to all liens upon and rights of setoff
against the money, securities or other property of the Borrower given to the
Bank by law, the Bank shall have, with respect to the Borrower's obligations to
the Bank under this Note and to the extent permitted by law, a contractual
possessory security interest in and a contractual right of setoff against, and
the Borrower hereby assigns, conveys, delivers, pledges and transfers to the
Bank all of the Borrower's right, title and interest in and to, all deposits,
moneys, securities and other property of the Borrower now or hereafter in the
possession of or on deposit with, or in transit to, the Bank whether held in a
general or special account or deposit, whether held jointly with someone else,
or whether held for safekeeping or otherwise, excluding, however, all IRA,
Keogh, and trust accounts. Every such security interest and right of setoff may
be exercised without demand upon or notice to the Borrower. Every such right of
setoff shall be deemed to have been exercised immediately upon the occurrence of
an Event of Default hereunder without any action of the Bank, although the Bank
may enter such setoff on its books and records at a later time.
11. Miscellaneous. No delay or omission of the Bank to exercise any right
or power arising hereunder shall impair any such right or power or be considered
to be a waiver of any such right or power nor shall the Bank's action or
inaction impair any such right or power. The Borrower agrees to pay on demand,
to the extent permitted by law, all costs and expenses incurred by the Bank in
the enforcement of its rights in this Note and in any security therefor,
including without limitation reasonable fees and expenses of the Bank's counsel.
If any provision of this Note is found to be invalid by a court, all the other
provisions of this Note will remain in full force and effect.
The Borrower and all other makers and endorsers of this Note hereby
forever waive presentment, protest, notice of dishonor and notice of non-
payment. The Borrower also waives all defenses based on suretyship or
impairment of collateral.
If this Note is executed by more than one Borrower, the obligations of
such persons or entities hereunder will be joint and several. This Note shall
bind the Borrower and its heirs, executors, administrators, successors and
assigns, and the benefits hereof shall inure to the benefit of Bank and its
successors and assigns.
This Note has been delivered to and accepted by the Bank and will be
deemed to be made in the State where the Bank's office indicated above is
located. This Note will be interpreted and the rights and liabilities of the
Bank and the Borrower determined in accordance with the laws of the State where
the Bank's office indicated above is located, excluding its conflict of laws
rules. The Borrower
-4-
hereby irrevocably consents to the exclusive jurisdiction of any state or
federal court located for the county or judicial district where the Bank's
office indicated above is located, and consents that all service of process be
sent by nationally recognized overnight courier service directed to the Borrower
at the Borrower's address set forth herein and service so made will be deemed to
be completed on the business day after deposit with such courier; provided that
nothing contained in this Note will prevent the Bank from bringing any action,
enforcing any award or judgment or exercising any rights against the Borrower
individually, against any security or against any property of the Borrower
within any other county, state or other foreign or domestic jurisdiction. The
Borrower acknowledges and agrees that the venue provided above is the most
convenient forum for both the Bank and the Borrower. The Borrower waives any
objection to venue and any objection based on a more convenient forum in any
action instituted under this Note.
12. WAIVER OF JURY TRIAL. The Borrower irrevocably waives any and all
rights the Borrower may have to a trial by jury in any action, proceeding or
claim of any nature relating to this Note, any documents executed in connection
with this Note or any transaction contemplated in any of such documents. The
Borrower acknowledges that the foregoing waiver is knowing and voluntary.
The Borrower acknowledges that it has read and understood all the
provisions of this Note, including the waiver of jury trial, and has been
advised by counsel as necessary or appropriate.
WITNESS the due execution hereof as of the date first written above, with the
intent to be legally bound hereby.
PAPA JOHN'S INTERNATIONAL, INC.
By /s/ J. David Flanery
Print Name: J. David Flanery
Title: Vice President and Corporate Controller
WITNESS/ATTEST:
By /s/ Edward B. Martin
Edward B. Martin, Vice President
-5-
Exhibit 10.2 - Amendment to Chief Operating Officer Agreement
October 9, 1997
Mr. Wade S. Oney
8536 Summerville Place
Orlando, Florida 32819
RE: 1998 Compensation Plan as Chief Operating Officer
Dear Wade:
This letter will memorialize our understanding as of April 8, 1997,
concerning your employment as Chief Operating Officer ("COO") of Papa John's
International, Inc. and Papa John's USA, Inc. for fiscal year 1998.
1. Position. As COO, you will be primarily responsible for the
development and operation of Company-owned and franchised Papa John's Pizza
stores system-wide. Such responsibilities shall include, without limitation,
reviewing markets and sites, supervising store-level operations and interacting
with the remainder of the Papa John's organization on behalf of your department.
You will report directly to the President. This Plan is based on our present
expectation that you would serve as COO through the fourth quarter of 1998.
During that time, we would work together to identify and train your replacement.
In the event we identify and properly train an agreed-upon candidate sooner, we
would support your decision to step down and concentrate on L-N-W and Bam-Bam.
2. Salary and Bonus. Your annualized salary shall be $150,000, payable
weekly. You will also be eligible for an annual bonus of up to $100,000. The
bonus will be paid quarterly subject to the criteria set forth in Section 4
below. The bonus will be prorated for any partial quarter.
3. Stock Options. You shall be granted options to purchase 150,000 shares
of Papa John's International, Inc. ("PJI") common stock at $27.00 per share
pursuant to a written Option Agreement and the PJI 1993 Stock Ownership
Incentive Plan (the "Plan").
-1-
Mr. Wade S. Oney
October 9, 1997
Page 2.
4. Bonus Criteria.
A. Performance vs. Goal(1) Cash
Level (% above) Bonus(3)
----- --------- --------
Poor 2+ $ 2,500
Average 1.5 - 1.9 5,000
Good 0.1 - 1.4 10,000
Excellent At or below goal 12,500
% Increase Quarterly
B. Performance Comparable Cash
Level Sales (2) Bonus(3)
----- --------- --------
Poor 3.9 or less $ 2,500
Average 4.0 - 6.0 5,000
Good 6.1 - 9.4 10,000
Excellent 9.5+ 12,500
(1) For all Company-owned restaurants open more than 149 days. For
restaurants open 0-60 days -- FLM goal will be 80%; 61-149 days --
65%.
(2) For those restaurants open a full year.
(3) Cash bonus will be calculated and paid within 45 days after each of
the first three quarters and within 90 days after the close of the
fiscal year. The amounts for each level (i.e., poor - excellent) are
not cumulative. The amount earned under a particular level in A. is
added to the amount earned in a particular level in B.
5. Car Allowance. You will receive a car allowance of $500 per month. We
will also pay for the business use of your mobile telephone.
6. Operational Headquarters and Travel. You will be based in Orlando,
Florida. The decision to base you out of Orlando is centered on the fact that
we want operations to remain as unencumbered as possible from the day-to-day
administrative burdens which would naturally come from being based in the
Louisville corporate office. Of course, substantial interaction between
yourself and the remainder of the Company will remain necessary. You will have
a travel budget of up to $16,000 per period to cover commercial and charter air
-2-
Mr. Wade S. Oney
October 9, 1997
Page 3.
travel to the corporate and franchise markets and the corporate office.
7. Prior Plans. This plan applies only for fiscal year 1998. In the
event Oney does not continue in the position of Chief Operating Officer
subsequent to December 27, 1998, for reasons other than cause, Oney's employment
will continue as a consultant on mutually agreed-upon terms through December
1999. This compensation package replaces and supersedes all prior oral or
written understandings concerning your compensation for 1998. Your existing
plan, as outlined in the memorandum dated March 31, 1995, and as amended by the
Amendment to Chief Operating Officer Agreement dated February 12, 1996, shall
continue through fiscal year 1997, and shall terminate and be replaced by this
Plan on December 29, 1997.
Sincerely,
PAPA JOHN'S INTERNATIONAL, INC.
/s/ Charles W. Schnatter
------------------------
Charles W. Schnatter
Senior Vice President, Secretary
and General Counsel
CWS:kw
READ AND AGREED TO:
/s/ Wade S. Oney
- ----------------
Wade S. Oney
October 24, 1997
-3-
5
1,000
9-MOS
DEC-28-1997
DEC-30-1996
SEP-28-1997
19,663
57,247
13,547
0
8,524
47,181
133,727
29,328
241,289
28,025
1,320
0
0
290
202,956
241,289
343,059
364,107
174,070
295,748
41,080
0
0
29,870
11,052
18,818
0
0
0
18,818
0.65
0.65
