Pizza Pizza Royalty Income Fund, an Unincorporated Open-Ended Limited Purpose Trust Established Under the Laws of the Province of Ontario
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PIZZA PIZZA ROYALTY CORP. ANNUAL INFORMATION FORM For the year ended December 31, 2016 March 8, 2017 - 2 - TABLE OF CONTENTS GLOSSARY OF TERMS ........................................................................................................ 5 EXPLANATORY NOTES ..................................................................................................... 11 COMPANY STRUCTURE .................................................................................................... 11 The Company ........................................................................................................................ 11 Organizational Structure ..................................................................................................... 12 The Partnership ..................................................................................................................... 13 Pizza Pizza GP Inc. ............................................................................................................... 13 Pizza Pizza Limited ............................................................................................................... 13 GENERAL DEVELOPMENT OF THE BUSINESS.......................................................... 14 Three Year History ............................................................................................................... 14 Recent Developments ......................................................................................................... 14 DESCRIPTION OF THE BUSINESS .................................................................................. 15 The Company ........................................................................................................................ 15 The Partnership .................................................................................................................... 15 Credit Facility ..................................................................................................................... 16 BUSINESS OF PPL .............................................................................................................. 17 Overview ................................................................................................................................. 17 Restaurant Format................................................................................................................ 17 Restaurant Locations .......................................................................................................... 17 System Sales ......................................................................................................................... 19 Same Store Sales Growth .................................................................................................. 19 Pizza Pizza Brand ................................................................................................................. 23 Pizza 73 Brand ...................................................................................................................... 23 Competitive Strength ........................................................................................................... 24 Growth Strategy in Existing and New Markets .............................................................. 24 Pizza Pizza Franchise Operations ................................................................................... 25 Franchising Operations and Structure ........................................................................ 25 Relationship with Franchisees ...................................................................................... 25 Franchise Agreement ...................................................................................................... 26 Pizza 73 Ownership Structure ........................................................................................... 28 Marketing and Advertising ................................................................................................. 28 Management of PPL ............................................................................................................. 29 Personnel ........................................................................................................................... 30 DESCRIPTION OF THE COMPANY ................................................................................. 30 Common Shares ................................................................................................................... 30 Exchangeable Securities .................................................................................................... 30 Preferred Shares ................................................................................................................... 30 Dividends ................................................................................................................................ 31 Take-over Bids ...................................................................................................................... 32 Book-Entry Only System .................................................................................................... 33 Company Administration .................................................................................................... 33 - 3 - DESCRIPTION OF THE PARTNERSHIP .......................................................................... 33 Partners and Partnership Securities ................................................................................ 34 Distributions .......................................................................................................................... 34 Allocation of Net Income and Loss .................................................................................. 36 Exchange Rights ................................................................................................................... 36 LICENCE AND ROYALTY ................................................................................................... 37 The Licence ............................................................................................................................ 37 The Pizza Pizza and Pizza 73 Royalty .............................................................................. 37 Security for the Royalty ...................................................................................................... 38 Security ............................................................................................................................... 38 Negative Covenants ......................................................................................................... 38 Certain Remedies ............................................................................................................. 39 Operating Covenants of PPL in the Pizza Pizza and Pizza 73 Licence and Royalty Agreements ............................................................................................................................ 40 Adjustments to the Royalty Pools and Payments Made Under the Licence and Royalty Agreements ............................................................................................................ 41 Adjustments to the Pizza Pizza Royalty Pool ............................................................ 41 Adjustments to the Pizza 73 Royalty Pool .................................................................. 44 MANAGEMENT AND CORPORATE GOVERNANCE OF PIZZA PIZZA GP .............. 47 Capital of Pizza Pizza GP .................................................................................................... 48 Management and Control of Pizza Pizza GP .................................................................. 48 Restrictive Covenants ......................................................................................................... 49 Restrictions on the Transfer of Partnership Securities............................................... 49 Rights of Offer ....................................................................................................................... 49 Other Matters ......................................................................................................................... 52 MARKET FOR SECURITIES .............................................................................................. 52 DIRECTORS AND MANAGEMENT ................................................................................... 52 Directors of the Company .................................................................................................. 52 Committees of the Board of Directors ......................................................................... 53 Directors and Executive Officers of Pizza Pizza GP ................................................... 54 Conflicts of Interest ............................................................................................................. 55 AUDIT COMMITTEE INFORMATION ............................................................................... 55 Audit Committee Mandate ................................................................................................. 55 Composition of Audit Committee .................................................................................... 55 Relevant Education and Expertise .................................................................................. 55