Boston Pizza International Inc. Announces Plans for Internal Reorganization

Toronto Stock Exchange: BPF.UN

VANCOUVER, Sept. 19, 2017 /CNW/ - Boston Pizza Royalties Income Fund (the "Fund") and Boston Pizza International Inc. ("BPI") today announced plans for the orderly succession of ownership at BPI, Canada's largest franchisor of casual dining restaurants.  Walter James Treliving and George C. Melville, business partners for over 46 years and BPI's chairmen and owners, are planning an internal reorganization of their jointly-owned assets (the "Reorganization") such that Mr. Treliving will acquire 100% economic interest in BPI, while Mr. Melville will become the single largest individual owner of trust units of the Fund ("Units").

"Having been involved with the Boston Pizza brand for almost 50 years, I am thrilled to continue my commitment to this business by acquiring all the outstanding shares of Boston Pizza International Inc.  Success is not achieved alone and I want to thank George for his unwavering commitment to our partnership, BPI and the Fund." said Mr. Treliving.  "I see incredible potential for the continued growth of Boston Pizza, and together with our strong leadership team and committed franchisees, I am confident about our plans to lead Boston Pizza into the future."

Mr. Melville added, "I am very proud of the success that Jim and I have had as partners and it has been a real honour to work with the many talented people and great franchisees of Boston Pizza.  I am happy that we have plans for a restructuring and I am confident that Jim and his team will continue the success.  I want to thank my family for all the years of support and I am extremely excited about the future."

The Reorganization will involve BPI obtaining new senior credit facilities in the amount of $50 million (the "New Credit Facilities") from the Bank of Montreal, Corporate Finance Division (the "Bank") and increasing its leverage by drawing down $40 million on these facilities.  This increased level of indebtedness of BPI requires certain consents from the Fund, including the relaxation of certain debt restrictions contained in the general security agreements (or "GSAs") that secure the Fund's interest in future royalty payments from BPI.  The covenants negotiated in the amended GSAs will be more stringent than those in the New Credit Facilities obtained to fund the Reorganization, and will result in the return to pre-existing levels by 2021.  At the same time, the Fund and BPI will agree to a number of changes that favour the Fund immediately and on a permanent basis, including improved security arrangements, undertakings that will allow the Trustees of the Fund enhanced flexibility in their decision making with respect to distribution policy, and indemnification related to the Reorganization.

"The Trustees of the Fund are very pleased with the plans to effect this orderly transition of ownership," said William C. Brown, Chairman of the Trustees of the Fund.  "This clear, decisive Reorganization means that BPI will remain a very strong franchisor with a long term vision, and interests that continue to be directly aligned with those of the Fund."

Boston Pizza franchisees will be unaffected by the Reorganization, and the economic terms of the relationship between the Fund and BPI will not change.  The Reorganization will involve a series of transactions and steps and it is expected to be completed in the next couple of weeks.

Highlights of the Proposed Reorganization

• BPI will exchange 1,910,597 of its exchangeable Class B general partner units ("Class B Units") of Boston Pizza Royalties Limited Partnership ("BPRLP") and 40,815,839 of its exchangeable Class 2 general partnership units ("Class 2 Units") of Boston Pizza Canada Limited Partnership ("BPCLP") for 1,600,000 Units, which Mr. Melville will indirectly acquire.
  
  
• BPI will exchange all of its 2,400,000 Class C general partner units of BPRLP for the assumption by Boston Pizza Holdings Limited Partnership of the $24 million loan owing by BPI to the Fund (collectively, the "Exchange").   Subsequently, the Fund and its subsidiaries will effectively capitalize and eliminate this loan.
  
  
• Following the Exchange, BPI will transfer its remaining Class B Units and Class 2 Units to a new general partnership (the "BP Partnership") wholly owned (directly and indirectly) by BPI.  Following the Reorganization, the BP Partnership will have the right to acquire 2,487,719 Units, representing 10.2% of the outstanding Units on a fully diluted basis.
  
  
• The New Credit Facilities will be comprised of a $40 million term loan (the "Term Loan") and a $10 million revolving operating facility, which will replace BPI's existing $7.5 million revolving operating facility from the same Bank.  The New Credit Facilities will have a term of 5 years and will bear interest at fixed or variable rates, as selected by BPI, comprised of either or a combination of bankers' acceptance rates plus between 1.0% and 2.5%, depending upon debt to EBITDA ratios.  The Term Loan will be amortized over 15 years and require quarterly payments of principal and interest.  The New Credit Facilities will be guaranteed by some of BPI's subsidiaries (the "Guarantors") and secured by assets owned by BPI and the Guarantors, and will have customary covenants usual for these types of credit facilities.  The Term Loan will be fully advanced as part of the Reorganization and will be paid to an entity owned and controlled by Mr. Melville as partial consideration for him disposing of his interest in BPI.
  
  
• Following the Reorganization, Mr. Treliving will be the sole owner of BPI.  Mr. Melville will resign as a director and officer of BPI and will no longer be a joint actor of BPI.

ABOUT US

The Fund is a limited purpose open ended trust with an excellent track record for investors since its IPO in 2002.  Including the July 2017 distribution which was paid on August 31, 2017, the Fund has delivered 18 distribution increases and 181 consecutive monthly distributions to unitholders totalling $264.2 million or $18.69 per unit since 2002.  The Fund earns revenue based on the franchise system sales of the 383 Boston Pizza restaurants included in the Fund's royalty pool.

BPI is Canada's number one casual dining brand with annual gross sales in excess of $1.0 billion serving more than 45 million guests through over 380 mainly franchisee operated restaurants. The Boston Pizza brand has successfully existed for over 50 years since opening its first restaurant in Edmonton, Alberta in 1964.  BPI has been recognized as a Platinum Member of Canada's 50 Best Managed Companies and has been a Franchisees' Choice Designation winner for six consecutive years.

Certain information in this press release constitutes "forward-looking information" that involves known and unknown risks, uncertainties, future expectations and other factors which may cause the actual results, performance or achievements of the Fund, Boston Pizza Holdings Trust, BPRLP, Boston Pizza Holdings Limited Partnership, Boston Pizza Holdings GP Inc., Boston Pizza GP Inc., BPI, BPCLP, Boston Pizza Canada Holdings Partnership (to be formed as part of the Reorganization), Boston Pizza restaurants, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information.  All statements, other than statements of historical facts, included in this press release that address activities, events or developments that the Fund or management of BPI expects or anticipates will or may occur in the future, including such things as, whether Mr. Melville and Mr. Treliving will finalize the terms of the Reorganization, the timing for the completion of the Reorganization, that the Reorganization will close at all, Mr. Melville continuing as a direct unitholder of the Fund, the Exchange occurring, and the anticipated security holdings of BPI following the Reorganization are forward-looking information.  When used in this press release, forward-looking information may include words such as "is expected", "will", "continue" or "to be" and other similar terminology.  The material factors and assumptions used to develop the forward-looking information contained in this press release include the following: the Reorganization occurring as currently contemplated by the Fund and BPI management, future results being similar to historical results, and expectations related to future general economic conditions. Risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from any future results, performance or achievement expressed or implied by the forward-looking information contained herein, relate to (among others) competition, demographic trends, consumer preferences and discretionary spending patterns, business and economic conditions, legislation and regulation, distributable cash and reliance on operating revenues, accounting policies and practices, the results of operations and financial condition of BPI and the Fund, as well as those factors discussed under the heading "Risks and Uncertainties" in the most recent Annual Information Form of the Fund. This information reflects current expectations regarding future events and operating performance and speaks only as of the date of this press release. Except as required by law, the Fund and BPI assume no obligation to update previously disclosed forward-looking information. For a complete list of the risks associated with forward-looking information and our business, please refer to the "Risks and Uncertainties" and "Note Regarding Forward-Looking Information" sections included in the Fund's Management's Discussion and Analysis for the Period available at www.sedar.com and www.bpincomefund.com.

The Trustees of the Fund have approved the contents of this news release.

SOURCE Boston Pizza Royalties Income Fund

Wes Bews, Chief Financial Officer, Tel: [phone], E-mail: [email protected], www.bpincomefund.com