Pizza Pizza Limited and Pizza Pizza Royalty Income Fund complete Pizza 73 acquisition

TORONTO, July 24 /CNW/ – Pizza Pizza Royalty Income Fund (the “Fund”)
(TSX: PZA.UN) and Pizza Pizza Limited (“Pizza Pizza”) announced today that
Pizza Pizza has completed the previously-announced acquisition of Flying Pizza
73 Inc. and its affiliated companies (together, “Pizza 73”). In connection
with this transaction, the Fund has acquired the trademarks and other
intellectual property associated with Pizza 73 restaurant operations.  

The acquisition of Pizza 73, a leading quick service restaurant (“QSR”)
pizza retailer, based in Edmonton, Alberta, allows Pizza Pizza, which is
marking its 40th year in the industry, to expand into Western Canada and
specifically the fast-growing Alberta market. Pizza Pizza, Ontario’s “number
one pizza”, operates 532 restaurant locations, predominantly in Ontario and

The Fund and Pizza Pizza acquired Pizza 73 for a combined purchase price
of $70.25 million. The Fund, through Pizza Pizza Royalty Limited Partnership
(the “Partnership”), acquired the trademarks and other intellectual property
of Pizza 73 for $54.04 million (the “Transaction”) and Pizza Pizza acquired
the operating business of Pizza 73 for $16.21 million. An additional
$3 million earnout will be paid to the Pizza 73 vendors by Pizza Pizza in July
2008, provided certain revenue and profitability targets are met. Pizza Pizza
will license the trademarks and other intellectual property associated with
Pizza 73 from the Partnership for a 9% royalty payment to the Fund on system
sales generated by the Pizza 73 restaurants in the royalty pool. The
Transaction is expected to be immediately 4.0% accretive to the Fund’s cash
available for distribution per fully diluted unit on a pro forma basis for the
52 weeks ended April 21, 2007.  

Concurrent with the closing of the Transaction, the Partnership has
entered into a credit facility co-led by BMO Bank of Montreal and
Toronto-Dominion Bank to finance a portion of the purchase price payable in
the Transaction and to re-finance existing indebtedness. In addition, Michael
Overs, indirectly, and the Pizza 73 vendors have completed the
previously-announced acquisition of an aggregate of 766,392 Units on a private
placement basis, for total proceeds to the Fund of approximately $7.0 million.   

As the Transaction between the Fund and Pizza Pizza was considered a
related party transaction under Ontario Securities Commission Rule 61-501 and
Autorité des marchés financiers Policy Q-27, a special meeting of the Fund’s
unitholders was held on July 20, 2007, at which certain matters related to the
Transaction were approved by more than 99% of the Fund units (“Units”)
represented in person or by proxy, including a majority of minority

In connection with the Transaction, on July 5, 2007 the Fund issued
2,600,000 subscription receipts, each representing the right to receive one
Unit of the Fund, for gross proceeds of $23.8 million. The proceeds of the
offering have been held in escrow pending today’s closing of the Transaction.
Upon release, the proceeds were applied to satisfy part of the purchase price
payable by the Partnership. The subscription receipts will be automatically
exchanged for Units effective at 5:00 p.m. (Toronto time) today (July 24), and
thereafter the former holders of the subscription receipts will be entitled as
unitholders to receive distributions from the Fund. The Units will be issued
to the former holders of subscription receipts through the facilities of CDS
Clearing and Depository Services Inc. (“CDS”) and CDS Book-Entry Only System
customer confirmations will be entered on July 26, 2007, the second business
day following the Transaction closing date.   


The Fund is a limited purpose, open-ended trust established under the
laws of Ontario to indirectly acquire the trademarks and trade names used by
Pizza Pizza in its Pizza Pizza and Pizza 73 branded restaurants. The
trademarks have been licensed to Pizza Pizza for 99 years, for which Pizza
Pizza pays the Fund a royalty equal to 6% of the system sales of its Pizza
Pizza restaurants in the royalty pool, and 9% of the system sales of its Pizza
73 restaurants in the royalty pool. As of January 1, 2007, there were 531
Pizza Pizza restaurants in the royalty pool, and the initial Pizza 73 royalty
pool includes 41 restaurants.   

Since its initial public offering in 2005, the Fund has increased
distributions four times while maintaining a 5% same restaurant sales growth
at its Pizza Pizza restaurants. The last distribution increase was in January
2007 when monthly distributions were increased from $0.071 per unit to $0.073
per unit.   

A key attribute of the Fund’s structure is the fact that it is a
“top-line” fund. Royalty income of the Fund is based on top-line system sales
of the royalty pool restaurants and is not determined by the profitability of
either Pizza Pizza or the Pizza Pizza and Pizza 73 restaurants in the royalty
pool. Given this structure, the success of the Fund depends primarily on the
ability of Pizza Pizza to maintain and increase system sales of the royalty
pool restaurants.


Pizza Pizza Limited, a privately-held Canadian corporation, is one of
Canada’s most successful operators in the quick service restaurant industry
and is celebrating its 40th anniversary this year. Founded in 1967, Pizza
Pizza is guided by a mission to provide the “best food, made especially for
you” and a focus on quality ingredients, customer service, community
contribution and continual innovation, especially in offering health-conscious
menu choices.


Founded in 1985, Pizza 73, with its recognizable phone numbers ending in
“7373”, currently has 48 restaurants in its system. Pizza 73 operates in the
take-out and delivery pizza QSR segment, principally in the province of
Alberta. Pizza 73 currently has four locations outside of Alberta; three in
Saskatchewan and one in British Columbia. Systems sales through its
centralized call centre and together accounted for approximately
95% of Pizza 73’s sales for the 52 weeks ended April 21, 2007. Pizza 73
restaurants are not franchised, but instead are owned and operated as
independent businesses. Each restaurant is a corporation equally owned by an
independent owner/operator and Pizza 73. Pizza 73 supports its independent
owner/operators with new restaurant openings, product development and supplier
arrangements and a centralized marketing program funded by contributions from
each restaurant equal to approximately 8% of annual sales. Trademarks and
other intellectual property used in the restaurant system are owned by Pizza
73. The Pizza 73 business also includes two commissaries and a call centre.   

For the 52 weeks ended April 21, 2007, Pizza 73 had system sales of
$65.0 million. For the years ended July 22, 2006 and July 23, 2005, Pizza 73
had system sales of $52.8 million and $40.8 million, respectively.


Certain financial information contained in this news release, including
references to cash available for distribution, are not standard measures under
Generally Accepted Accounting Principles (“GAAP”) in Canada and may not be
comparable to similar measures presented by other entities. These measures are
considered to be important measures used by the investment community to assess
the source and sustainability of the Fund’s cash distributions and should be
used to supplement other performance measures prepared in accordance with GAAP
in Canada.


Certain statements in this press release may constitute “forward-looking”
statements which involve known and unknown risks, uncertainties and other
factors which may cause actual results, performance or achievements of the
Fund to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. When
used in this press release, such statements use such words as “may,” “will,”
“expect,” “anticipate,” “project,” “believe,” “plan” and other similar
terminology. The risks and uncertainties are detailed from time to time in
reports filed by the Fund with the securities regulatory authorities in all of
the provinces of Canada to which recipients of this press release are referred
for additional information concerning the Fund, its prospects and the risks
and uncertainties relating to the Fund and its prospects. New risk factors may
arise from time to time and it is not possible for management to predict all
of those risk factors or the extent to which any factor or combination of
factors may cause actual results, performance and achievements of the Fund to
be materially different from those contained in forward-looking statements.

Certain of risks and uncertainties that may arise in connection with the
acquisition of Pizza 73 include risks associated with (i) the integration of
the Pizza 73 business by Pizza Pizza; (ii) liabilities that may be assumed in
respect of the business and limitations on recourse in respect thereof, and
(iii) operating risks associated with the operation of Pizza 73 business in
its principal markets.   

The forward-looking information contained in this press release is
current only as of the date of this press release. There should not be an
expectation that such information will in all circumstances be updated,
supplemented or revised whether as a result of new information, changing
circumstances, future events or otherwise.

For further information: Curt Feltner, Chief Financial Officer, Pizza
Pizza Limited, (416) 967-1010,


Archives, Pizza News