Agreement subject to Court and Unitholder Approval
MONCTON, NB, July 28 /CNW Telbec/ - PDM Royalties Income Fund (TSX: PDM.UN) ("PDM" or the "Fund") announced today that it has signed a definitive agreement (the "Combination Agreement") with 7209835 Canada Inc. ("PDMCo"), Imvescor Inc. ("Imvescor"), Imvescor Restaurants Inc. ("IRI") and Imvescor's two shareholders, General Financial Corporation Ltd. ("GFC") and Delighted Guests Ltd. ("DGL") and related parties setting out the principal terms of a proposed arrangement (the "Arrangement") to form a new, publicly-traded corporation which will be named Imvescor Restaurant Group Inc. (or "Amalco"). Imvescor operates franchised and corporate restaurants under the brand names Pizza Delight(R), Mikes(R), Scores(R), and Baton Rouge(R).
"The trustees unanimously recommend this transaction to the Fund's unitholders," said Brian Flemming, Chairman of the board of trustees of the Fund. "Combining the business into one public company will provide greater certainty to the unitholders going forward, and the new corporate structure will enable them to participate fully in the profits from the new company's franchising and distribution business."
As is necessary in most complex business reorganizations, proceedings for approval of a plan of arrangement under Section 192 of the Canada Business Corporations Act will be submitted for approval to the Nova Scotia Supreme Court (the "Court") no later than July 28, 2009. If an interim order is granted by the Court, the Arrangement will be subsequently submitted for approval by PDM's voting unitholders (the "Unitholders") at the Fund's annual and special meeting of Unitholders (the "Meeting"), to be held at the offices of the Fund in Halifax, Nova Scotia on September 4, 2009. If approved by Unitholders at the Meeting, the Arrangement will then submitted to the Court for final approval.
The proposed Arrangement will consolidate ownership of the trademarks and other intellectual property for the Pizza Delight(R), Mikes(R), Scores(R) and Baton Rouge(R) restaurant brands (now indirectly owned by the Fund through PDM Royalties Limited Partnership ("PDM LP")) and the franchising and distribution businesses currently operated by Imvescor and its wholly-owned subsidiary IRI, thereby enabling investors to benefit equally from all future growth of the combined businesses. The conversion to corporate status in conjunction with the Arrangement will provide certainty to the Unitholders prior to the 2011 effective date of tax legislation affecting income trusts and simplify the structure of the combined business.
Principal Terms of the Arrangement The principal terms of the Arrangement are as follows: A new entity, PDMCo, will be formed. - PDMCo will acquire all of the units (the "Units") of the Fund, issuing one common share for each Unit of the Fund it acquires. - PDMCo will also purchase Imvescor shares held separately by GFC and DGL in exchange for 3,508,091 and 103,014 PDMCo shares, respectively. - PDM and PDM Holdings Trust will be dissolved. - Imvescor and IRI will amalgamate with PDMCo to form Amalco, which under the terms of the Arrangement assumes all assets and liabilities of its predecessor entities. - Upon completion of the transactions, the former public Unitholders of PDM will together own approximately 65% of the Amalco shares, with GFC and DGL owning the balance, or 35% of the Amalco shares. - A cash adjustment will be payable by the Fund or by GFC and DGL, to reflect certain changes in Imvescor's working capital and indebtedness prior to the closing of the Arrangement.
RSM Richter Inc. ("RSM Richter") has prepared a formal valuation of the Imvescor business and the Amalco shares to be received by Unitholders if the Arrangement is approved. RSM Richter has also provided an opinion to the trustees of PDM (the "Trustees") that the Arrangement is fair, from a financial point of view, to the Unitholders other than Imvescor. A copy of the fairness report will be included as an appendix to PDM's information circular being prepared in connection with the Meeting (the "Information Circular"). The Information Circular will also include a summary of the Combination Agreement and additional details concerning the Arrangement. Unitholders should review the full text of the Combination Agreement, which will be filed on SEDAR (www.SEDAR.com), for all terms and conditions of the Arrangement.
Approvals and Closing of the Transaction
The Information Circular will be available on SEDAR on July 29, 2009, and will be mailed in early August 2009. The Unitholder vote in respect of the Arrangement will take place at the Meeting. To proceed, the Arrangement must be approved by the holders of at least 66 2/3% of PDM's voting units represented at the meeting (including a majority of the voting units held by disinterested Unitholders). In addition to the requirement of Court approval and the approval of Unitholders, the Arrangement is subject to other customary conditions, including securing a commitment for refinancing of Imvescor and PDM LP indebtedness by the closing date. If all conditions are met, the Arrangement is scheduled to close on or about October 10, 2009.
The Board of Trustees have unanimously determined that the Arrangement is fair to Unitholders and is in the best interests of the Fund and Unitholders, and recommend that the Unitholders vote in favour of the Arrangement resolution as will be presented in the Information Circular.
Unitholders of record on August 21, 2009 will receive their regular monthly cash distribution of $0.05 per Unit on August 31, 2009, and it is expected that a further distribution at that level will be paid on or about September 30, 2009 to Unitholders of record on September 21, 2009. Provided the Arrangement is approved at the Meeting, it is expected that this will be the last distribution paid to Unitholders by the Fund. In the event that the Arrangement is not approved by the Court and then subsequently at the Meeting, the Board of Trustees will meet in September 2009 to determine the next distribution on the Units.
If the Arrangement is approved by the Court and subsequently by Unitholders at the Meeting and the effective date of the transaction occurs on or about October 10, 2009, as currently scheduled, it is anticipated that Amalco will adopt a cash management policy that will enable the company to pay regular dividends in order to provide a significant level of current income to shareholders, while providing Amalco with flexibility to repay debt and/or repurchase convertible debentures and shares in the market in a manner that will maximize long term shareholder value.
The cash management policy will be subject to the discretion of the Board of Directors of Amalco and may vary depending on Amalco's operating cash flow, financial requirements restrictions under credit facilities and other conditions.
Impairment of Investment in PDM LP
The Fund is required, at least on an annual basis, or more frequently if conditions so indicate, to assess potential impairment by evaluating whether the carrying value of its assets exceed their fair values. The impairment test to be performed by management involves comparing the estimated fair value of the trademarks with their carrying value. Driven primarily by a change in market conditions, the Fund's carrying value of its investment in PDM LP and certain rights and goodwill held by Imvescor exceeded their fair value in the second quarter.
The Fund and Imvescor are currently in the process of completing their second quarter financial statements. It is expected that a material impairment charge may be required against the trademark rights of certain brands and possibly goodwill, which will be reflected in the second quarter results to be filed no later than August 14, 2009, and which statements will become documents incorporated by reference in the Information Circular upon their filing on SEDAR.
Board of Directors and Management Team
The board of directors of Amalco will be composed of Brian Flemming, Gabriel Sacratini, James Peterson, Bernard Imbeault, Ronald Magruder, Inouk Imbeault, Rino Volpe, David Hawkins and William Dover, all of who are currently directors of Imvescor or PDM. Messrs. Flemming, Sacratini, Peterson, Hawkins and Dover will all be independent directors of Amalco. Mr. Magruder, currently the Chief Executive Officer of Imvescor, will be Chief Executive Officer of Amalco and William Lane, Chief Financial Officer of Imvescor, will be Chief Financial Officer of Amalco. The current management team at Imvescor will move to Amalco and continue to guide franchising and distribution operations.
About PDM Royalties Income Fund
The Fund is a limited purpose open-ended trust established under the laws of Ontario. The Fund indirectly owns the trademarks and intellectual property for the Pizza Delight(R), Mikes(R), Scores(R), and Baton Rouge(R) brands and has licensed them to Imvescor in consideration for a royalty equal to 4% of system sales for Pizza Delight(R) and Mikes(R) restaurants, and a royalty rate of 6% for Scores(R) and Baton Rouge(R) restaurants.
Imvescor is a privately owned corporation, headquartered in Moncton, New Brunswick. Pizza Delight(R) operates primarily in Atlantic Canada, where it dominates the family/mid-scale segment. Mikes(R) and Scores(R) restaurants operate primarily in Quebec in the family and casual dining segments and the take-out and delivery segments. Baton Rouge(R) operates in the Province of Quebec and Ontario in the casual dining segment.
Certain information regarding the Fund contained herein may constitute forward-looking statements within the meaning of applicable securities laws. Forward-looking statements may include estimates, plans, expectations, opinions, forecasts, projections, guidance or other statements that are not statements of fact. Although the Fund believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. The Fund cautions that actual performance will be affected by a number of factors, many of which are beyond the Fund's control, and that future events and results may vary substantially from what the Fund currently foresees. Discussion of the various factors that may affect future results is contained in the annual information form of the Fund dated March 30, 2009, which is available at www.sedar.com. The Fund assumes no obligation to update such forward-looking statements, except as required by applicable securities laws. The Fund's forward-looking statements are expressly qualified in their entirety by this cautionary statement.