PDM Royalties Income Fund
TSX : PDM.UN

Pizza Delight Corporation Ltd.

July 07, 2005 16:11 ET

Pizza Delight Corporation Ltd. to Acquire Scores Restaurants and PDM Royalties Income Fund to Acquire Royalty

MONCTON, NEW BRUNSWICK--(CCNMatthews - July 7, 2005) -

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PDM Royalties Income Fund (the "Fund") (TSX:PDM.UN) announced today that Pizza Delight Corporation Ltd. ("PDC") has entered into a formal agreement with Scores Rotisserie BBQ and Ribs Inc., a Quebec based restaurant chain offering chicken and rib value meals in a family type setting, and related companies ("Scores") pursuant to which it will acquire all of the assets of Scores for approximately $32 million in cash. In connection therewith, the Fund has entered into a letter of intent with PDC to indirectly acquire the trademarks and other intellectual property associated with Scores for approximately $32.5 million and to license the trademarks and other intellectual property associated with Scores to PDC in consideration for a royalty equal to 6% of system sales generated by Scores restaurants the ("Transaction"). As the number of Scores restaurants in the royalty pool is adjusted, PDC's interest in the Fund will also be adjusted pursuant to a predetermined formula. The Transaction between the Fund and PDC will be considered a related party transaction under OSC Rule 61-501 ("61-501") and Quebec Policy 27 ("Q-27").

Bernard Imbeault, President and CEO of PDC stated "The addition of the Scores brand of restaurants to our portfolio is a very natural fit that will enable us to continue to expand within Canada, offering an attractive compliment of restaurant concepts."

The Trustees have retained RSM Richter Inc. to prepare the formal valuation as to the fair market value of the Transaction consideration including the trademarks and other intellectual property associated with Scores, in accordance with 61-501 and Q-27. In addition, the Trustees have retained National Bank Financial Inc. as the Financial Advisor for the Fund and to provide a Fairness Opinion as to the fairness of the Transaction consideration, from a financial point of view, to the Fund.

The Transaction between the Fund and PDC is conditional on completion and receipt of the necessary equity and debt financing to fund the Transaction, PDM's satisfaction with its due diligence investigation of Scores, completion of the acquisition of Scores by PDC on terms and conditions satisfactory to the Fund, receipt of a formal valuation under 61-501 and Q-27 by the Fund, approval of the Transaction by a majority of the minority unitholders of the Fund in accordance with 61-501 and Q-27, receipt of a formal valuation in respect of the Transaction in accordance with 61-501 and Q-27, receipt of a fairness opinion in respect of the Transaction that states that the Transaction consideration is fair, from a financial point of view, to the Fund, PDM's approval of the acquisition of Scores by PDC, approval of the Transaction and related matters by the Fund's Board of Trustees, approval of the Transaction and related matters by PDM, and other regulatory approvals. A special meeting of unitholders of the Fund is expected to be held in August, 2005.

The Fund expects to fund the acquisition of Scores trademarks and other intellectual property through a combination of equity and debt. The Fund has entered into a term sheet with a financial institution to provide a five year, non-amortizing $12 million credit facility bearing interest at a rate of approximately 6.2% per annum. The debt financing is subject to a number of conditions including preparation of satisfactory formal documentation and completion of satisfactory due diligence by the financial institution. In addition, the Fund has entered into an agreement with National Bank Financial Inc., and a syndicate of underwriters including CIBC World Markets Inc. and Sprott Securities Inc., pursuant to which the underwriters have agreed to purchase 1,983,400 subscription receipts of the Fund on an underwritten private placement basis, at a price of $12 per subscription receipt, for gross proceeds to the Fund of approximately $23.8 million. PDC intends to subscribe for $1 million of the subscription receipts at the offering price. Each subscription receipt will be automatically exercised for one unit of the Fund at the effective time of the Transaction. Completion of the private placement is subject to requisite regulatory approvals, including approval of the Toronto Stock Exchange.

The Fund believes that the acquisition will be significantly accretive and, as a result, upon completion of the Transaction, the Fund intends to increase its distributions to Unitholders from the current level of $1.32 to $1.44 on an annual basis.

About Scores

Scores was founded in Quebec in 1995 and operates in the family/mid scale dining and take-out and delivery segment in the Province of Quebec with 21 full service family restaurants and 3 express locations. Scores offers chicken and rib value meals at its restaurants in a family type setting or through its one-number delivery service. Revenue from delivery service accounted for approximately 15% of Scores' revenues for the year ended March 31, 2005. Scores restaurant locations range from 220 to 350 seats in facilities ranging from 6,000 square feet to 9,000 square feet in size. System sales for the year ended March 31, 2005 were approximately $60 million. The Scores business includes the franchising of Scores Restaurants plus the operation of a distribution centre and a call centre. For the year ended March 31, 2005, Scores had revenues of $31.3 million and net income before taxes of $3.7 million. Management does not expect any reductions in staff as a result of this transaction. As a result of strong same store sales growth and the impact of the new restaurants opened during the second half of the last fiscal year, PDC has committed to the Fund that annual minimum aggregate royalties payable to the Fund in respect of the Scores restaurants will be $4.2 million.

About the Fund

The Fund is a limited purpose open-ended trust established under the laws of Ontario. The Fund will make monthly distributions of its available cash to holders of units. The Fund indirectly owns the trade marks and intellectual property for the Pizza Delight and Mikes Restaurants brands and has licensed them to PDC in consideration for a royalty equal to 4% percent of system sales generated by Pizza Delight and Mikes restaurants. On April 18, 2005 PDM announced an increase in its annualized distributions from $1.30 to $1.32.

About PDC

PDC is a privately owned corporation, headquartered in Moncton, New Brunswick. It operates franchised and corporate restaurants under the brand names Pizza Delight® and Mikes® Restaurants. Pizza Delight® operates primarily in Atlantic Canada, where it dominates the family/mid-scale segment. Mikes® Restaurants operates primarily in Quebec in the casual dining segment and the take-out and delivery segments.

For additional information on our two brands visit: www.pizzadelight.com or www.mikes.ca

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