As of January 8, 1999
Mr. Charles W. Schnatter
Papa John's International, Inc.
11492 Bluegrass Parkway
Louisville, Kentucky 40299
Re: $20,000,000.00 Discretionary Line of Credit (the "Line of Credit")
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Dear Chuck:
We are pleased to inform you that PNC Bank, National Association (the "Bank"),
has renewed and increased to $20,000,000.00 the discretionary line of credit to
Papa John's International, Inc. (the "Company"). The Bank is willing to maintain
the Discretionary Line of Credit upon the following terms and conditions:
1. Purpose of Line. Proceeds of the Line of Credit shall be used for
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working capital, general corporate needs and for the issuance of letters of
credit up to an aggregate amount of $3,000,000.00 (the "Letters of Credit").
Advances made under the Line of Credit, if any, shall be due and payable on the
last day of the applicable interest period, and all obligations of the Company
to the Bank shall be due and payable upon the occurrence of an event of default.
All advances will bear interest and be subject to the terms and conditions set
forth herein and in the enclosed Note. The Line of Credit will be reviewed by
the Bank from time to time and in any event prior to its expiration of June 30,
1998 (the "Expiration Date") to determine whether it should be continued or
renewed.
This is not a committed line of credit. The Company acknowledges and
agrees that advances made or letters of credit issued under this Line of Credit,
if any, shall be made at the sole discretion of the Bank. The Bank may decline
to make advances or issue letters of credit under the line of Credit or
terminate the Line of Credit at any time and for any reason without prior notice
to the Company. This letter set forth certain terms and conditions solely to
assure that the parties understand each other's expectations and to assist the
Bank in evaluating the status, on an ongoing basis, of the Line of Credit.
2. Note and Letter of Credit Agreements. The Borrower's obligation to
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repay the advances under the Note (the "Loans") shall be evidenced by a
promissory note substantially in the form of Exhibit "A" hereto (the "Note").
The obligation of the Borrower to repay drawings under any Letter of Credit
shall be evidenced by the Bank's form of application and letter of credit
agreement therefor (each, an "Application" and a "Letter of Credit Agreement")
in form and content satisfactory to the Bank. An Application must be submitted
to and accepted by the
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Bank as a condition precedent to the issuance of each Letter of Credit. This
letter is not a pre-advice for the issuance of a letter of credit and is not
irrevocable. All drawings will be deemed to constitute advances under the Line
of Credit, evidenced by the Note, shall be payable to the Bank on demand, and
shall bear interest at the Default Rate provided in the Note. Unless approved by
the Bank, no Letter of Credit shall have an expiry date beyond the Expiration
Date. This Agreement, the Letter of Credit Agreement and the Note are
collectively referred to as the "Loan Documents".
3. Advances Procedures. The Borrower may request Loans hereunder upon
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giving oral or written notice to the Bank by 11:00 A.M. (Louisville, Kentucky
time) (a) on the day of the proposed Loan, in the case of Loans bearing interest
under the Base Rate Option, Prime Rate Option or the As Offered Rate Option, and
(b) three (3) Business Days prior to the proposed Loan, in the case of Loans
bearing interest under the Euro-Rate Option, followed promptly thereafter by the
Borrower's written confirmation to the Bank of any oral notice. The Borrower
authorizes the Bank to accept telephonic requests for Loans, and the Bank shall
be entitled to rely upon the authority of any person providing such
instructions.
4. Interest Rate Options. Each advance outstanding under the Note shall
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bear interest at a rate per annum selected by the Borrower from the interest
rate options set forth below (each, an "Option"), it being understood that the
Borrower may select different Options to apply simultaneously to different
portions of the Loans and may select up to two (2) different interest periods to
apply simultaneously to different portions of the Loans bearing interest under
the Euro-Rate Option or As Offered Rate Option as set forth below. There are no
required interest periods for Loans bearing interest under the Base Rate Option
or the Prime Rate Option.
(a) Base Rate Option. A rate of interest per annum (computed on the
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basis of a year of 360 days, as the case may be, and the actual number of days
elapsed) equal to the lesser of (i) the rate of interest announced from time to
time by the Bank at its principal office as its prime rate, which rate may not
be the lowest interest rate then being charged commercial borrowers by the Bank
(the "Prime Rate") or (ii) the sum of the Federal Funds Rate plus fifty (50)
basis points (1/2%) per annum. If and when the Prime Rate or the Federal Funds
Rate changes, the rate of interest on Loans bearing interest under the Base Rate
Option will change automatically without notice to the Borrower, effective on
the date of any such change. For purposes hereof, the "Federal Funds Rate" means
the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%)
equal to the weighted average of the rates on federal funds transactions with
members of the Federal Reserve System arranged by federal funds brokers, as
published by the Federal Reserve Bank of New York on such day (or if such day is
not a Business Day, the Federal Funds Rate for such day shall be the rate as
published by the Federal Reserve Bank of New York on the immediately preceding
Business Day).
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(b) Prime Rate Option. An annual rate equal to the Prime Rate, minus
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100 basis points (1%). Each change in the Prime Rate shall become effective
without notice to the Borrower on the day of any change in the Prime Rate. All
interest shall be computed on the basis of the actual number of days elapsed
over an assumed year of 360 days.
(c) Euro-Rate Option. A rate of interest per annum (computed on the
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basis of a year of 360 days and the actual number of days elapsed) equal to the
sum of (i) the Euro-Rate plus (ii) fifty (50) basis points (1/2%) per annum, for
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the Euro-Rate Interest Period in an amount equal to the Loan bearing interest
under the Euro-Rate Option and having a comparable maturity as determined at or
about 11 A.M. (Eastern Time) two Business Days prior to the commencement of the
Euro-Rate Interest Period. For the purpose hereof, the following terms shall
have the following meanings:
"Business Day" shall mean any day other than a Saturday or Sunday
or a legal holiday on which commercial banks are authorized or required to be
closed for business in Louisville, Kentucky.
"Euro-Rate" shall mean, with respect to any Loan bearing interest
under the Euro-Rate Option for any Euro-Rate Interest Period, the interest rate
per annum determined by the Bank by dividing (the resulting quotient rounded
upward to the nearest 1/16th of 1% per annum) (i) the rate of interest
determined by the Bank in accordance with its usual procedures (which
determination shall be conclusive absent manifest error) to be the eurodollar
rate two (2) Business Days prior to the first day of such Euro-Rate Interest
Period for an amount comparable to such Loan and having a borrowing date and a
maturity comparable to such Euro-Rate Interest Period by (ii) a number equal to
1.00 minus the Euro-Rate Reserve Percentage.
"Euro-Rate Interest Period" shall mean the period of one, two or
three months selected by the Borrower commencing on the date of disbursement of
a Loan bearing interest under the Euro-Rate Option and each successive period
selected by the Borrower thereafter; provided that if a Euro-Rate Interest
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Period would end on a day which is not a Business Day, it shall end on the next
succeeding Business Day, unless such day falls in the succeeding calender month
in which case the Euro-Rate Interest Period shall end on the next preceding
Business Day. In no event shall any Euro-Rate Interest Period end on a day
after the Expiration Date.
"Euro-Rate Reserve Percentage" shall mean the maximum effective
percentage in effect on such day as prescribed by the Board of Governors of the
Federal Reserve System (or any successor) for determining the reserve
requirements (including, without limitation, supplemental, marginal and
emergency reserve requirements) with respect to eurocurrency funding (currently
referred to as "Eurocurrency liabilities").
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(d) As Offered Rate Option. A rate of interest per annum (computed on
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the basis of a year of 360 days and the actual number of days elapsed),
determined in the Bank's sole discretion, as offered from time to time by the
Bank to the Borrower as the rate at which the Bank would advance funds to the
Borrower for the interest period requested (the "As Offered Rate Interest
Period") in the principal amount requested (the "As Offered Rate").
If the Bank determines (which determination shall be final and conclusive) that,
by reason of circumstances affecting the interbank eurodollar market generally,
deposits in dollars (in the applicable amounts) are not being offered to banks
in the interbank eurodollar market for the selected term, or adequate means do
not exist for ascertaining the Euro-Rate, then the Bank shall give notice
thereof to the Borrower. Thereafter, until the Bank notifies the Borrower that
the circumstances giving rise to such suspension no longer exist, (a) the
availability of the Euro-Rate Option shall be suspended, and (b) the interest
rate for all Loans then bearing interest under the Euro-Rate Option shall be
converted to the Base Rate Option at the expiration of the then current
Euro-Rate Interest Period(s).
In addition, if, after the date of this letter, the Bank shall determine
(which determination shall be final and conclusive) that any enactment,
promulgation or adoption of or any change in any applicable law, rule or
regulation, or any change in the interpretation or administration thereof by a
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by the Bank with any
guideline, request or directive (whether or not having the force of law) of any
such authority, central bank or comparable agency shall make it unlawful or
impossible for the Bank to make or maintain or fund loans under the Euro-Rate
Option, the Bank shall notify the Borrower. Upon receipt of such notice, until
the Bank notifies the Borrower that the circumstances giving rise to such
determination no longer apply, (a) the availability of the Euro-Rate Option
shall be suspended, and (b) the interest rate on all Loans then bearing interest
under the Euro-Rate Option shall be converted to the Base Rate Option either (i)
on the last day of the then current Euro-Rate Interest Period(s) if the Bank may
lawfully continue to maintain Loans under the Euro-Rate Option to such day, or
(ii) immediately if the Bank may not lawfully continue to maintain Loans under
the Euro-Rate Option.
5. Payment of Interest. The Borrower shall pay accrued interest on the
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unpaid principal balance of the Note in arrears: (a) for the portion of Loans
bearing interest under the Base Rate Option or the Prime Rate Option, on the
last Business Day of each calendar quarter during the term hereof, (b) for the
portion of Loans bearing interest under the Euro-Rate Option, on the last day of
each Euro-Rate Interest Period, as the case may be, (c) for the portion of Loans
bearing interest under the As Offered Rate Option, on the last day of each As
Offered Rate Interest Period, (d) if any Euro-Rate Interest Period or As Offered
Rate Interest Period is longer than ninety (90) days, then also on the ninetieth
day of such interest period and every ninety days thereafter, and (e) for all
Loans, at maturity, whether by acceleration of the Note or otherwise, and after
maturity, on demand until paid in full.
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6. Interest Rate Election. Subject to the terms and conditions of this
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letter and the Note, at the end of each interest period applicable to a Loan the
Borrower may renew the Option applicable to such Loan or convert such Loan to a
different Option. If no notice of conversion or renewal is received by the Bank
or if an event of default exists, the Borrower shall be deemed to have converted
such Loan to the Base Rate Option. The Borrower shall notify the Bank of each
election of an interest rate Option, each conversion from one interest rate
Option to another, the amount of the Loans then outstanding to be allocated to
each interest Option and where relevant the interest periods. Any such election
shall be promptly confirmed in writing by such method as the Bank may require.
The Borrower shall indemnify the Bank against all liabilities, losses or
expenses (including loss of margin, any loss or expense incurred in liquidating
or employing deposits from third parties and any loss or expense incurred in
connection with funds acquired by the Bank to fund or maintain Loans bearing
interest under the As Offered Rate Option or the Euro-Rate Option) which the
Bank sustains or incurs as a consequence of any attempt by the Borrower to
revoke (expressly, by later inconsistent notices or otherwise) in whole or in
part any notice given to the Bank to request, convert, renew or prepay any such
Loan. If the Bank sustains or incurs any such loss, it shall notify the Borrower
of the amount determined by the Bank to be necessary to indemnify the Bank for
such loss or expense (which determination may include such assumptions,
allocations of costs and expenses and averaging or attribution methods as the
Bank deems appropriate). Such amount shall be due and payable by the Borrower
ten days after such notice is given.
7. Default Rate. After the principal amount of all or any part of the
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Loans shall have become due and payable, whether by acceleration or otherwise,
all the Loans shall bear interest at a rate per annum which shall be 200 basis
points (2%) per annum above the Prime Rate.
8. Conditions to Lending. The obligation of the Bank to make any Loan
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hereunder is subject to the condition that:
(a) In the case of the initial Loan hereunder, the Borrower shall
provide to the Bank this Agreement and the Note, such duly executed by the
Borrower; evidence of the due authorization by the Borrower of this Agreement
and the Note; and such other instruments as the Bank shall reasonably require in
form and substance satisfactory to the Bank.
(b) In the case of any Loan, each request for an advance under the
Line of Credit shall constitute, as of the time made, a certification by the
Borrower that the Borrower shall have performed and complied with all agreements
and conditions herein required under this Agreement, and at the time of such
Loan, no condition or event shall exist which constitutes an Event of Default.
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9. Covenants. Unless waived in writing by the Bank or until payment in
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full and termination of the Line of Credit:
(a) The Borrower will promptly submit to Bank financial statements
as follows:
(i) Annual Statements. As soon as available, and in any event
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within one hundred twenty (120) days after the end of each Fiscal Year, Borrower
shall furnish to the Bank an audited consolidated balance sheet, income
statement, and statement of cash flows showing sources and uses of cash, for
such Fiscal Year, together with comparative figures for the next preceding
Fiscal Year prepared by a certified public accounting firm acceptable to the
Bank (the "CPA"), together with the unqualified opinion of the CPA firm in
substantially the same form as provided in prior years. Together with such
audited financial statements and opinion, Borrower shall furnish the Bank with a
certificate from the Borrower's Vice President and Corporate Controller
certifying that he has reviewed the provisions of this Agreement and nothing has
come to his attention to cause him to believe that any Event of Default or
unmatured default exists as of the date of the statement, or, if such is not the
case, specifying such Event of Default or unmatured default and the nature
thereof, and the action Borrower has taken or will take to correct it.
(ii) Additional Financial Information. Upon written request of
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the Bank, the Borrower shall deliver to the Bank:
(A) Promptly upon receipt thereof, all detailed reports, if
any, submitted to Borrower by the CPA firm in connection with each annual audit,
(B) Promptly upon its becoming available, copies of all
financial statements, reports, notices or meetings and proxy statements which
Borrower shall send to its stockholders,
(C) Within ten (10) days after the filing (1) with the
Secretary of State of Delaware, certified copies of all amendments to Borrower's
Certificate of Incorporation, and (2) with the appropriate governmental
authority, copies of all regulatory reports, filings or notices which Borrower
is required to submit, including but not limited to reports, filings or notices
to the SEC, the IRS, OSHA, EPA and the Department of Labor.
(D) Such additional information with respect to its
financial condition as may be reasonably requested by the Bank from time to
time.
(b) The Borrower will not make or permit any change in the nature of
its business as carried on as of the date of this letter or permit any change in
control of more than a majority of its board of directors or its voting stock.
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(c) The Borrower shall continue to own 100% of all outstanding and
issued capital stock of PJ Food Service, Inc. and PJFS of Mississippi, Inc., and
there shall be no material variation from the present business operations of PJ
Food Service, Inc. and PJFS of Mississippi, Inc. The present business operations
of PJ Food Service, Inc. and PJFS of Mississippi, Inc. shall mean being the
primary provider of commissary services (consisting of dough production and
proprietary products) for the Borrower's operations in the United States.
(d) The Borrower shall, on a consolidated basis, maintain at all
times, such maintenance to be evidenced at the end of each fiscal year of the
Borrower, calculated by using the immediately preceding twelve month period, a
ratio of Funded Debt to EBITDA of not less than 2.0 to 1.0. "Funded Debt" is
defined as all long term debt plus short term debt from financial institutions.
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"EBITDA" is defined as earnings before interest, taxes, depreciation and
amortization.
(e) The Borrower will not create, assume, incur or suffer to exist
any mortgage (except for proposed bond offering with the City of Jeffersontown,
Kentucky, such bonds to be acquired by the Company or a wholly-owned
subsidiary), pledge, encumbrance, security interest, lien or charge of any kind
upon any of its property, now owned or hereafter acquired, or acquire or agree
to acquire any kind of property under conditional sales or other title retention
agreements, except liens disclosed on the Borrower's latest financial statements
provided to the Bank prior to the date of this letter and additional liens to
secure indebtedness not exceeding $300,000.00 in the aggregate; provided,
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however, that the foregoing restrictions shall not prevent the Borrower from:
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(i) incurring liens for taxes, assessments or governmental charges or levies
which shall not at the time be due and payable or can thereafter be paid without
penalty or are being contested in good faith by appropriate proceedings
diligently conducted and with respect to which it has created adequate reserves;
(ii) making pledges or deposits to secure obligations under workers'
compensation laws or similar legislation; or (iii) granting liens or security
interests in favor of the Bank.
(f) Without the prior written consent of the Bank (which consent
shall not be unreasonably withheld), John H. Schnatter and Charles Schnatter
shall continue to be employed by and be active in the management of the
Borrower.
(g) Without the Bank's prior written consent, which shall not be
unreasonably withheld, the Borrower shall not (i) be a party to any
consolidation, reorganization (including without limitation those types referred
to in Section 368 of the United States Internal Revenue Code of 1986, as
amended), "stock swap" or merger, (ii) sell or otherwise transfer any material
part of its assets, (iii) sell, assign, or otherwise dispose of, with or without
recourse, any of its accounts receivable or notes receivable or other
intangibles, except the endorsement of negotiable instruments of collection in
the ordinary course of business, or (iv) liquidate or dissolve or take any
action with a view toward liquidation or dissolution.
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10. Representations and Warranties. The Borrower represents and warrants
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to the Bank as follows:
(a) The Borrower is duly organized, validly existing and in good
standing under the laws of the state of its incorporation or organization and
has the power and authority to own and operate its assets and to conduct its
business as now or proposed to be carried on, and is duly qualified, licensed
and in good standing to do business in all jurisdictions where its ownership of
property or the nature of its business requires such qualification or licensing.
(b) The Borrower has the power to make and carry out the terms of the
Loan Documents and has taken all necessary corporate action to authorize the
execution, delivery and performance of the Loan Documents.
(c) The Loan Documents constitute the legally binding obligations of
the Borrower, enforceable in accordance with their respective terms.
(d) The making and performance of the Loan Documents do not and will
not violate in any respect any provisions of (i) any federal, state or local law
or regulation or any order or decree of any federal, state or local governmental
authority, agency or court, or (ii) the organizational documents of the Borrower
or of any of its subsidiaries, or (iii) any mortgage, contract or other
undertaking to which the Borrower is a party or which is binding upon the
Borrower or any of its subsidiaries or any of their respective assets, and do
not and will not result in the creation or imposition of any security interest,
lien, charge or other encumbrance on any of their respective assets pursuant to
the provisions of any such mortgage, contract or other undertaking.
(e) Neither the Borrower nor any of its subsidiaries is in default
with respect to any material order, writ, injunction or decree (i) of any court
or (ii) of any Federal, state, municipal or other governmental instrumentality.
The Borrower and each subsidiary is substantially complying with all applicable
statutes and regulations of each governmental authority having jurisdiction over
its activities, except where failure to comply would not have a material adverse
effect on the Borrower and its subsidiaries, taken as a whole.
(f) There are no actions, suits, proceedings or governmental
investigations pending or, to the knowledge of the Borrower, threatened against
the Borrower which could result in a material adverse change in its business,
assets, operations, financial condition or result of operations and there is no
basis known to the Borrower or its officers or directors for any such action,
suit, proceedings or investigation.
(g) The Borrower's latest financial statements provided to the Bank
are true, complete and accurate in all material respects and fairly present the
financial condition, assets and liabilities, whether accrued, absolute,
contingent or otherwise and the results of the
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Borrower's operations for the period specified therein. The Borrower's financial
statements have been prepared in accordance with generally accepted accounting
principles consistently applied from period to period subject in the case of
interim statements to normal year-end adjustments. Since the date of the latest
financial statements provided to the Bank, the Borrower has not suffered any
damage, destruction or loss which has materially adversely affected its
business, assets, operations, financial condition or results of operations.
(h) The Borrower has filed all returns and reports that are required
to be filed by it in connection with any federal, state or local tax, duty or
charge levied, assessed or imposed upon the Borrower or its property, including
unemployment, social security and similar taxes and all of such taxes have been
either paid or adequate reserve or other provision has been made therefor.
(i) The Borrower and its subsidiaries have reviewed the areas within
their business and operations which could be adversely affected by, and have
developed or are developing a program to address on a timely basis, the risk
that certain computer applications used by the Borrower or its subsidiaries (or
any of their respective material suppliers, customers of vendors) may be unable
to recognize and perform properly date-sensitive functions involving dates prior
to and after December 31, 1999 (the "Year 2000 Problem"). The Year 2000 Problem
will not result, and is not reasonably expected to result, in any material
adverse effect on the business, properties, assets, financial condition, results
of operations or prospects of the Borrower and its subsidiaries, taken as a
whole, or the ability of the Borrower to duly and punctually pay or perform its
obligations under the Loan Documents.
11. Default. The events which give the Bank the right to accelerate the
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maturity of the Loans outstanding hereunder and terminate the Line of Credit are
set forth in the Note.
12. Notices. All notices required to be sent to the Borrower shall be sent
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by hand delivery, overnight courier or facsimile transmission (with confirmation
of receipt) to the Borrower at the address set forth on the records of the Bank.
13. Fees and Expenses. The Borrower shall pay the Bank's usual and
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customary commissions, fees and expenses in connection with any Letter of Credit
issued. The Borrower shall reimburse the Bank for the Bank's expenses (including
the reasonable fees and expenses of the Bank's outside and in-house counsel) in
documenting and closing this transaction and in connection with any amendments,
modifications, renewals or enforcement actions relating to the Line of Credit.
14. Governing Law. This Agreement and the Note shall be governed by the
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laws of the Commonwealth of Kentucky, excluding its conflict of law rules.
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15. Counterparts. This Agreement may be executed in counterparts, each of
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which when executed by the Borrower and the Bank shall be regarded as an
original.
If the foregoing accurately reflects the understanding of the parties, please
execute the duplicate original of this Agreement and return it to me.
Very truly yours,
PNC BANK, NATIONAL ASSOCIATION
By /s/ Paula K. Fryland
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Paula K. Fryland, Vice President
Accepted, with the intent to be legally bound,
this 8th day of January, 1999:
PAPA JOHN'S INTERNATIONAL, INC.
By /s/ Charles W. Schnatter
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Title: Senior Vice President
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