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No securities regulatory authority has expressed an opinion about these securities and it is an offence to claim otherwise. This prospectus constitutes a public offering of these securities
only in those jurisdictions where they may be lawfully offered for sale and therein only by persons permitted to sell such securities in those jurisdictions. These securities have not been and
will not be registered under the United States Securities Act of 1933, as amended (the ‘‘U.S. Securities Act’’), or any state securities laws and may not be offered or sold in the
United States except in compliance with the registration requirements of the U.S. Securities Act and applicable state securities laws or pursuant to an exemption therefrom.
See ‘‘Plan of Distribution’’.
PROSPECTUS
Initial Public Offering October 31, 2003
Priszm Canadian Income Fund
$150,000,000
15,000,000 Units
This prospectus qualifies the distribution (the ‘‘Offering’’) of 15,000,000 units (the ‘‘Units’’) of Priszm Canadian Income Fund (the ‘‘Fund’’). The Fund is an unincorporated, open-ended,
limited purpose trust established under the laws of the Province of Ontario, created to acquire and hold, indirectly through Priszm Canadian Operating Trust (the ‘‘Trust’’), limited partnership
units representing a 58.1% interest in KIT Limited Partnership (‘‘KIT LP’’ and, together with its general partner, KIT Inc., collectively the ‘‘Company’’). The remaining 41.9% interest in the
Company will be held by priszm brandz LP (‘‘PB LP’’). The portion of PB LP’s retained interest that will be subordinated to the interest held by the Fund in respect of the right to receive
distributions represents a 20% interest in the Company. The Company will operate 466 KFCTM restaurants in Canada. KFCTM is one of the most recognized brands in the world and is the leader
in sales volume in the ‘‘chicken-on-the-bone’’ sub-segment of the quick service restaurant (‘‘QSR’’) industry in Canada. See ‘‘Business of the Company’’ and ‘‘Use of Proceeds’’.
The Company has rights to use the KFCTM, Pizza HutTM and Taco BellTM names, logos and products pursuant to the terms of its franchise arrangements with an affiliate of Yum! Brands, Inc. See
‘‘Disclaimer Regarding Yum! Brands, Inc. and its Affiliates.’’ The Company is one of the largest franchisees of KFCTM in the world by number of restaurants, and the Company’s sales
account for approximately 70% of all KFCTM product sales in Canada.
The Fund intends to make cash distributions of its income to the maximum extent possible. The first such payment is expected to be made to holders of Units (‘‘Unitholders’’) on or about
January 15, 2004 for the period from the closing of this Offering to December 31, 2003. See ‘‘Description of the Fund — Cash Distributions’’.
There is currently no market through which the Units may be sold and purchasers may not be able to resell Units purchased under this prospectus. The Toronto Stock Exchange has
conditionally approved the listing of the Units under the symbol ‘‘QSR.UN’’. Listing is subject to the Fund fulfilling all the requirements of the Toronto Stock Exchange on or before
January 19, 2004, including the distribution of the Units to a minimum number of public Unitholders. In connection with this Offering, the Underwriters may over-allot or effect transactions
that stabilize or maintain the market price of the Units at levels other than those that otherwise might prevail in the open market. See ‘‘Plan of Distribution’’.
An investment in the Units is subject to a number of risks that should be considered by a prospective purchaser. Cash distributions by the Fund will be based entirely on results
from the KFCTM restaurant business operated by the Company, and the Company’s ability to make distributions on its limited partnership units, which are susceptible to a number
of risks. See ‘‘Risk Factors’’.
Price: $10.00 per Unit
Price to Underwriters’ Net Proceeds
the Public (1) Fee to the Fund (2)
Per Unit***************************************************************** $10.00 $0.575 $9.425
Total Offering (3)********************************************************* $150,000,000 $8,625,000 $141,375,000
Notes:
(1) The Offering price of the Units has been established through negotiation between the Fund, PB LP and the Underwriters.
(2) Before deducting expenses of the Offering estimated to be $5,000,000, which, together with the Underwriters’ fee will be paid by the Company from the proceeds of the Offering.
(3) The Fund has granted the Underwriters an option, exercisable for a period of 30 days from the closing of the Offering, to purchase up to a total of 1,500,000 additional Units on the same
terms as set out above solely to cover over allotments, if any, and for market stabilization purposes (the ‘‘Over-Allotment Option’’). If the Over-Allotment Option is exercised in full, the
total ‘‘Price to the Public’’, ‘‘Underwriters’ Fee’’ and ‘‘ Net Proceeds’’ will be $165,000,000, $9,487,500 and $155,512,500, respectively. In the event that the Over-Allotment Option is
exercised, it is the intention of the Fund to cause the Company to issue additional Ordinary LP Units and GP Common Shares to the Trust, and to use the proceeds of such issuance to
redeem a number of the Exchangeable LP Units issued to PB LP, as well as an equivalent percentage of the common shares in KIT Inc. This prospectus qualifies the distribution of the
Over-Allotment Option and the issuance of the Units issuable on the exercise of the Over-Allotment Option. See ‘‘Plan of Distribution’’. This prospectus also qualifies the distribution of
the Exchange Rights in respect of the Exchangeable LP Units and Subordinated LP Units and the Special Voting Units, as defined herein. See ‘‘Retained Interest and Exchange Rights’’
and ‘‘Description of the Fund — Units and Special Voting Units’’.
CIBC World Markets Inc., RBC Dominion Securities Inc., BMO Nesbitt Burns Inc., National Bank Financial Inc. and TD Securities Inc. (collectively, the ‘‘Underwriters’’), as principals,
conditionally offer the Units, subject to prior sale, if, as and when issued, sold and delivered by the Fund to, and accepted by, the Underwriters in accordance with the conditions contained in
the Underwriting Agreement referred to under ‘‘Plan of Distribution’’ and subject to the approval of certain legal matters by Stikeman Elliott LLP, as counsel to the Fund, the Trust and the
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Company, by Borden Ladner Gervais LLP, as special tax counsel to the Fund, the Trust and the Company, and by McCarthy T´ trault LLP as counsel to the Underwriters. Subscriptions will be
received subject to rejection or allotment in whole or in part and the Underwriters reserve the right to close the subscription books at any time without notice. A book entry only certificate
representing the Units will be issued in registered form to The Canadian Depository for Securities Limited (‘‘CDS’’) or its nominee and will be deposited with CDS on the date of the closing
of the Offering, which is expected to occur on or about November 10, 2003, or such later date as the Fund, PB LP and the Underwriters may agree, but in any event not later than December 12,
2003. A purchaser of Units will receive only a customer confirmation from an Underwriter or any other registered dealer which is a CDS Participant and from or through which the Units are
purchased. See ‘‘Details of the Offering’’.
CIBC World Markets Inc., RBC Dominion Securities Inc. and BMO Nesbitt Burns Inc. are, and certain of the other Underwriters may be, subsidiaries of Canadian chartered banks that
are members of a syndicate that have agreed to make a term facility available to the Company on the closing of the Offering. Accordingly, under applicable Canadian securities
legislation, the Fund may be considered a ‘‘connected issuer’’ to such Underwriters. PB LP, the promoter of the Offering, intends to use a portion of the proceeds of the Offering to repay
the indebtedness outstanding under a credit facility among PB LP, as borrower, and a syndicate of financial institutions, including the Canadian chartered bank affiliates of certain of the
Underwriters, as lenders. See ‘‘Principal Agreements — Term Facility’’ and ‘‘Plan of Distribution’’.
TABLE OF CONTENTS
Page Page
FORWARD LOOKING STATEMENTS ******* 4 SELECTED PRO FORMA FINANCIAL
TRADEMARKS*************************** 4 INFORMATION ************************ 39
DEFINITION OF EBITDA AND ADJUSTED SUMMARY OF DISTRIBUTABLE CASH OF
EBITDA ******************************* 4 THE FUND **************************** 40
ELIGIBILITY FOR INVESTMENT ********** 4 PRO FORMA CAPITALIZATION
CURRENCY AND FISCAL PERIODS ******** 5 OF THE FUND ************************* 41
DISCLAIMER REGARDING YUM! BRANDS, CONSOLIDATED CAPITALIZATION OF THE
INC. AND ITS AFFILIATES ************** 5 COMPANY **************************** 41
PROSPECTUS SUMMARY ***************** 6 PRINCIPAL AGREEMENTS **************** 42
The Fund ****************************** 6 The Franchise Agreement ***************** 42
The Business *************************** 6 Acquisition Agreement ******************* 48
Business Strengths *********************** 6 Priszm License Agreement **************** 49
Growth Strategy ************************* 8 Marketing Arrangements ****************** 49
Canadian Commercial Foodservice Sector **** 9 Lease Agreement with Yum! Canada ******** 49
SELECTED FINANCIAL INFORMATION **** 10 Lease Agreement with Scott’s
SELECTED PRO FORMA FINANCIAL Restaurants Inc. *********************** 50
INFORMATION ************************ 11 Lease Agreement with PB LP************** 50
SUMMARY OF DISTRIBUTABLE CASH OF Co-operation Arrangement **************** 50
THE FUND **************************** 12 Call Centre Agreement ******************* 50
THE OFFERING ************************** 13 Term Facility *************************** 50
Funding, Acquisition and Related Non-Competition Agreement*************** 51
Transactions ************************** 17 Restaurant Operations Agreement*********** 51
THE FUND, THE TRUST AND KIT LP ****** 18 Administration Agreement***************** 51
THE CANADIAN COMMERCIAL Governance Agreement ******************* 52
FOODSERVICE SECTOR **************** 18 MANAGEMENT, TRUSTEES AND
The Quick Service Restaurant Market ******* 19 DIRECTORS *************************** 53
Trends in the QSR Industry *************** 20 Trustees of the Fund ********************* 53
BUSINESS OF THE COMPANY ************ 22 Directors and Officers ******************** 53
Overview ****************************** 22 EXECUTIVE COMPENSATION ************* 55
Background***************************** 22 RETAINED INTEREST AND EXCHANGE
Business Strengths *********************** 23 RIGHTS ******************************* 56
Growth Strategy ************************* 25 Retained Interest ************************ 56
The KFCTM Concept ********************** 26 Escrow and Purchase of Exchangeable LP
Multi-branding ************************** 27 Units ******************************** 56
Restaurant Operations ******************** 27 Exchange Rights ************************ 57
Capital Expenditures ********************* 28 DESCRIPTION OF THE FUND ************* 59
Properties ****************************** 28 Declaration of Trust********************** 59
Marketing (Advertising and Promotions) ***** 29 Activities of the Fund ******************** 59
Suppliers and Distributors ***************** 29 Units and Special Voting Units************* 60
Chicken Marketing Boards **************** 30 Issuance of Units ************************ 60
Trademarks ***************************** 30 Trustees******************************** 61
Employees ***************************** 30 Cash Distributions *********************** 61
Government Regulation ******************* 30 Redemption Right *********************** 62
Competition **************************** 31 Repurchase of Units********************** 63
MANAGEMENT’S DISCUSSION AND Meetings of Voting Unitholders ************ 63
ANALYSIS OF FINANCIAL CONDITION Limitation on Non Resident Ownership ****** 65
AND RESULTS OF OPERATIONS ******** 32 Amendments to the Declaration of Trust ***** 65
SELECTED FINANCIAL INFORMATION **** 38 Term of the Fund************************ 65
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Page Page
Take-over Bids ************************** 66 FUNDING, ACQUISITION AND RELATED
Restrictions on Exercise of Certain Voting TRANSACTIONS *********************** 77
Rights Attached to the Trust Securities **** 66 PLAN OF DISTRIBUTION ***************** 79
Information and Reports ****************** 67 USE OF PROCEEDS ********************** 80
Book-Entry Only System****************** 67 DETAILS OF THE OFFERING************** 80
Financial Year End ********************** 68 Book Entry Form and Depository Service **** 80
DESCRIPTION OF THE TRUST ************ 69 Transfer of Units ************************ 81
General ******************************** 69 Payments of Distributions ***************** 81
Trustees of the Trust ********************* 69 PRIOR ISSUANCES *********************** 81
Cash Distributions *********************** 69 PRINCIPAL UNITHOLDER **************** 81
Unit Certificates ************************* 70 INTEREST OF MANAGEMENT AND
Redemption Right *********************** 70 OTHERS IN MATERIAL TRANSACTIONS 82
The Trust Notes ************************* 71 CERTAIN CANADIAN FEDERAL INCOME
Restrictions on Exercise of Certain Voting TAX CONSIDERATIONS **************** 82
Rights Attached to GP Common Shares Status of the Fund *********************** 82
and LP Units ************************* 72 Taxation of the Fund ********************* 83
DESCRIPTION OF KIT LP ***************** 73 Taxation of the Trust ********************* 84
General ******************************** 73 Taxation of KIT LP ********************** 84
General Partner ************************* 73 Taxation of Unitholders******************* 84
Units ********************************** 73 ENVIRONMENTAL MATTERS ************* 85
Distributions **************************** 74 RISK FACTORS ************************** 86
Allocation of Net Income and Losses ******* 74 MATERIAL CONTRACTS ***************** 93
Reimbursement of the GP ***************** 75 LEGAL MATTERS ************************ 94
Limited Liability ************************ 75 LEGAL PROCEEDINGS ******************* 94
Transfer of Partnership Units ************** 75 PROMOTER ***************************** 94
Amendments to the Limited Partnership AUDITORS, TRANSFER AGENT AND
Agreement *************************** 75 REGISTRAR *************************** 94
DESCRIPTION OF THE GP **************** 76 PURCHASERS’ STATUTORY RIGHTS OF
General ******************************** 76 WITHDRAWAL AND RESCISSION ******* 94
Capital of the GP ************************ 76 GLOSSARY ****************************** G-1
Functions and Powers of the GP *********** 76 FINANCIAL STATEMENT INDEX ********** F-1
Restrictions on Authority of the GP ********* 76 CERTIFICATE OF THE FUND AND THE
Withdrawal or Removal of the GP ********** 76 PROMOTER *************************** C-1
PB LP REORGANIZATION **************** 77 CERTIFICATE OF THE UNDERWRITERS *** C-2
3
FORWARD LOOKING STATEMENTS
Certain statements in this prospectus constitute ‘‘forward looking’’ statements which involve known and unknown
risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Fund, the
Trust, the Company, the KFCTM Division of PB LP, the Company Restaurants or industry results to be materially
different from any future results, performance or achievements expressed or implied by such forward looking
statements. When used in this prospectus, such statements use words such as ‘‘may’’, ‘‘will’’, ‘‘expect’’, ‘‘believe’’,
‘‘plan’’, and other similar terminology. These statements reflect Management’s current expectations regarding future
events and operating performance, are based on information currently available to Management, and speak only as of
the date of this prospectus. These forward-looking statements involve a number of risks and uncertainties, including,
but not limited to the risks and uncertainties discussed under ‘‘Risk Factors’’.
TRADEMARKS
TM TM TM
KFC , Pizza Hut , Taco Bell , Long John Silver’sTM, Original Recipe˛, Extra CrispyTM, TwisterTM, Colonel’s
Crispy Strips˛, Popcorn ChickenTM, Chunky Chicken Pot PiesTM and the ColonelTM are trademarks and registered marks
owned and marketed worldwide by Yum! Brands, Inc. or its affiliates. The other trademarks used in this prospectus are
the property of their respective owners.
DEFINITION OF EBITDA AND ADJUSTED EBITDA
References in this prospectus to ‘‘EBITDA’’ are to earnings before provisions for interest, income taxes,
depreciation and amortization and certain non-recurring items. The term ‘‘Adjusted EBITDA’’ is defined in the
Glossary at the end of this prospectus. Management believes that, in addition to net income, EBITDA and Adjusted
EBITDA are useful supplemental measures since they provide investors with an indication of cash available for
distribution prior to debt service, working capital needs and capital expenditures and, in the case of Adjusted EBITDA,
it annualizes the impact of certain actions or events which have taken place during the relevant period. EBITDA and
Adjusted EBITDA are not recognized measures under Canadian generally accepted accounting principles (‘‘GAAP’’).
Investors are cautioned that EBITDA and Adjusted EBITDA should not be construed as alternatives to net earnings
determined in accordance with GAAP, as an indicator of the performance of the Company or to cash flows from
operating, investing and financing activities as a measure of liquidity and cash flows. The Company’s method of
calculating EBITDA and Adjusted EBITDA may differ from other issuers and, accordingly, EBITDA and Adjusted
EBITDA may not be comparable to similar measures presented by other issuers.
ELIGIBILITY FOR INVESTMENT
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In the opinion of Stikeman Elliott LLP, counsel to the Fund, and McCarthy T´ trault LLP, counsel to the
Underwriters, based on legislation in effect at the date hereof and subject to compliance with the prudent investment
standards and the general provisions and restrictions of the following statutes (and the regulations thereunder) and, in
certain cases, subject to the satisfaction of additional requirements relating to investment or lending policies, standards,
procedures and goals, the Units would not, if the date hereof were the date of the closing of the Offering, be precluded
as investments under the following statutes:
Insurance Companies Act (Canada); Pension Benefits Act (Ontario);
Trust and Loan Companies Act (Canada); Trustee Act (Ontario);
Cooperative Credit Associations Act (Canada); Loan and Trust Corporations Act (Ontario);
Pension Benefits Standards Act, 1985 (Canada); e
An Act respecting insurance (Qu´ bec) (for an insurer,
Insurance Act (Alberta); as defined therein, incorporated under the laws of
Employment Pension Plans Act (Alberta); e
Qu´ bec, other than a guarantee fund corporation, an
Alberta Heritage Savings Trust Fund Act (Alberta); insurance fund or a mutual association);
Pension Benefits Standards Act (British Columbia); An Act respecting trust companies and savings
Financial Institutions Act (British Columbia); e
companies (Qu´ bec) (for a trust company, as defined
The Insurance Act (Manitoba); therein, investing its own funds and deposits it
The Trustee Act (Manitoba); receives and a savings company, as defined therein,
The Pension Benefits Act (Manitoba); investing its funds);
Pension Benefits Act (Nova Scotia); e
Supplemental Pension Plans Act (Qu´ bec); and
Trustee Act (Nova Scotia); The Pension Benefits Act, 1992 (Saskatchewan).
4
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In the opinion of Borden Ladner Gervais LLP, as special tax counsel to the Fund, and McCarthy T´ trault LLP,
counsel to the Underwriters, provided the Fund is a mutual fund trust under the Income Tax Act (Canada) and
regulations thereunder (the ‘‘Tax Act’’) as of the date of this prospectus, (i) the Units will be qualified investments
under the Tax Act for trusts governed by registered retirement savings plans, registered retirement income funds,
deferred profit sharing plans (collectively, ‘‘Deferred Income Plans’’) and registered education savings plans on that
date and (ii) the Units, if issued on the date hereof, would not on that date constitute ‘‘foreign property’’ for Deferred
Income Plans, registered pension plans and other persons subject to tax under Part XI of the Tax Act. Registered
education savings plans are not subject to the foreign property rules. See ‘‘Certain Canadian Federal Income Tax
Considerations’’ and ‘‘Risk Factors’’.
CURRENCY AND FISCAL PERIODS
Except as otherwise noted, all dollar amounts in this prospectus are expressed in Canadian dollars and references
to $ are to Canadian dollars.
With respect to the Company and the KFCTM Division of PB LP, references to the fiscal period 2000 refer to the
period July 10, 2000 to December 3, 2000, references to the fiscal year 2001 refer to the period December 4, 2000 to
December 2, 2001, references to the fiscal year 2002 refer to the period December 3, 2001 to December 1, 2002 and
references to the fiscal period 2003 or the current fiscal period refer to the period December 2, 2002 to August 10,
2003.
DISCLAIMER REGARDING YUM! BRANDS, INC. AND ITS AFFILIATES
Yum! Brands, Inc. and its affiliates are not selling, offering for sale nor underwriting all or any part of the
Offering. Yum! Brands, Inc. and its affiliates are not receiving the proceeds of this Offering. Yum! Brands, Inc.
and its affiliates do not endorse or make any recommendations with respect to this Offering or the securities
offered hereby.
Neither the Offering nor the contents of this prospectus (including any financial data or any analysis of any
tax consequences contained herein) have been approved or endorsed by Yum! Brands, Inc. or its affiliates. Any
information concerning Yum! Brands, Inc. and its affiliates contained herein was derived from publicly
available information filed by Yum! Brands, Inc. with the United States Securities and Exchange Commission, is
historic and has not been updated for purposes of this prospectus and was not prepared for purposes of this
prospectus. Yum! Brands, Inc. and its affiliates assume no obligation whatsoever to any purchaser or
underwriter or member of any selling group in connection with this Offering or with respect to the accuracy,
adequacy or completeness of this prospectus or any portion of this prospectus.
Yum! Brands, Inc. and its affiliates further disclaim any liability arising out of or in connection with this
Offering, including without limitation any liability whatsoever as a seller or promoter or in any other capacity
whatsoever. Yum! Brands, Inc. and its affiliates do not hold any equity interest in the Company and are not
lenders to the Company. The relationship of Yum! Brands, Inc. and its affiliates with the Company is strictly
limited to their contractual relationship as a franchisor and lessor. Yum! Brands, Inc. and its affiliates expressly
reserve all of their rights under their various franchise and other agreements with the Company. Reference is
made to the Franchise Agreement as best evidence of its terms.
Yum! Brands, Inc. and its affiliates have not participated in or commented upon the preparation or
presentation of any of the financial information of the Company contained herein, nor has Yum! Brands, Inc.
and its affiliates approved or endorsed this information.
The display of trademarks, logos and product offerings owned and marketed by Yum! Brands, Inc. and its
affiliates should not be construed as any approval by Yum! Brands, Inc. or its affiliates of the contents of this
prospectus or the merits of the units offered hereby.
Notice of the above disclaimer is hereby given. Purchasers who acquire any of the Units offered hereby are
deemed to be bound by the foregoing.
5
PROSPECTUS SUMMARY
The following is a summary of the principal features of the Offering of Units of the Fund and should be read
together with the more detailed information and financial data and statements contained elsewhere in this prospectus.
Although PB LP currently operates the Company Restaurants, the disclosure contained in this prospectus assumes that
the steps outlined under the heading ‘‘Funding, Acquisition and Related Transactions’’ have been completed, the
Company operates the Company Restaurants, the Fund owns the Trust Units and the Over-Allotment Option has not
been exercised, in each case, unless otherwise indicated. Please refer to the ‘‘Glossary’’ at the end of this prospectus
for a list of certain defined terms used herein.
The Fund
The Fund is an unincorporated, open-ended, limited purpose trust established under the laws of the Province of
Ontario, created to indirectly acquire and hold a 58.1% interest in the Company. On the closing of the Offering, the
Company will acquire 466 KFCTM restaurants from PB LP, which has operated these restaurants since July 10, 2000.
The remaining 41.9% interest in the Company will be retained by PB LP following the closing of the Offering (36.1%
if the Over-Allotment Option is exercised in full). See ‘‘Business of the Company — Overview’’, ‘‘Description of the
Fund’’ and ‘‘PB LP Reorganization’’.
The Business
The Company is one of the largest franchisees of KFCTM in the world by number of restaurants, and the
Company’s sales account for approximately 70% of all KFCTM product sales in Canada. The KFCTM brand was
introduced in Canada in the 1950’s when it became the country’s first QSR franchise chain. As one of the most
recognized brands in the world, KFCTM is the world’s largest ‘‘chicken-on-the-bone’’ QSR chain by number of
restaurants. The Company has more than 8,000 employees and the Company serves, on average, approximately
1.5 million customers a week through a network of 466 restaurants that the Company owns and operates in seven
Canadian provinces. A total of 414 of the Company Restaurants are single-brand, KFCTM restaurants. The remaining 52
Company Restaurants are multi-brand locations that combine a KFCTM host restaurant with one of either the Pizza
HutTM or Taco BellTM concepts. Although none of the Company Restaurants currently include the Long John Silver’sTM
concept, there may be an opportunity for the Company, subject to the Franchisor’s approval, to multi-brand its KFCTM
restaurants with the Long John Silver’sTM concept in the future. By number of restaurants, Pizza HutTM is the world’s
largest pizza restaurant company and the largest national pizza chain in Canada, Taco BellTM is the world’s largest
Mexican-style quick service restaurant company and Long John Silver’sTM is the largest quick service seafood chain in
the United States.
Business Strengths
Management believes that the strengths of the business include the following and make the Company Restaurants
well suited for an income fund:
Global Brand Recognition and Market Leadership — KFCTM is one of the most
recognized brands in the world. Key competitive advantages of the KFCTM concept
include proprietary recipes and the ColonelTM, who ranks as one of the best-known
commercial icons of all time. In Canada, KFCTM sales represent approximately 90% of
the total fried chicken chain sales and approximately 45% of total revenue in the
‘‘chicken-on-the-bone’’ segment of the QSR industry.
6
Financial Performance — Since July 10, 2000, the date PB LP acquired the Company Restaurants, the Company
Restaurants have demonstrated stable performance through various economic cycles. The following charts illustrate the
historical sales, EBITDA (as adjusted in note 3 below) and average weekly sales per restaurant for the restaurants
acquired by the KFCTM Division of PB LP for the period 1997 to June 30, 2000 and the historical sales, EBITDA and
average weekly sales per restaurant for the KFCTM Division of PB LP for the period from July 10, 2000 to December 1,
2002:
Restaurant Sales EBITDA(1)
600 60
500 50
400 40
($000,000)
($000,000)
300 30
200 20
100 10
0 0
1997 1998 1999 2000(2) 2001 2002 1997 1998 1999 2000(2) 2001 2002
Average Weekly Sales Per Restaurant
25
22.5
20
17.5
15
($000)
12.5
10
7.5
5
2.5
0
1997 1998 1999 2000(2) 2001 2002
Unaudited Pre - PB LP Acquisition (3),(4)
KFCTM Division of PB LP(5)
Notes:
(1) EBITDA is not a recognized measure under GAAP and does not have a standardized meaning prescribed by GAAP. Therefore, EBITDA may
not be comparable to similar measures presented by other issuers. See ‘‘Definition of EBITDA and Adjusted EBITDA’’.
(2) The 2000 period results presented include financial information derived from financial records of PB LP and the prior owners’ accounting
records. Results for the period after July 10, 2000 pertain to the KFCTM Division of PB LP and comprise 5.2 periods of operating results out of
a fiscal year of 13 periods. Results for the period prior to July 10, 2000 pertain to results for each of the former Scott’s Restaurants Inc.
restaurants and former restaurants of an affiliate of Yum! Canada as follows: (i) first and second quarter results for each of the former Scott’s
Restaurants Inc. restaurants (2 three-month periods) and former restaurants of an affiliate of Yum! Canada (6 one-month periods) and (ii) 1.8
periods of the prior owners’ respective fourth quarter results on a pro rata basis, adjusted and presented as explained in note 3 below.
(3) On July 10, 2000 PB LP acquired an aggregate of 507 KFCTM restaurants, of which 329 KFCTM restaurants were acquired from Scott’s
Restaurants Inc. and 178 were acquired from an affiliate of Yum! Canada. The 1997, 1998, 1999 and 2000 (to June 30, 2000) financial
information represents historical restaurant sales, average weekly sales per restaurant and EBITDA of the KFCTM restaurants derived from the
accounting records of Scott’s Restaurants Inc. and an affiliate of Yum! Canada prior to the acquisition of such restaurants by PB LP on July 10,
2000, adjusted to exclude results of closed restaurants not acquired by PB LP. The historical EBITDA results have been adjusted to reflect
(i) royalty expense calculated based on 6% of restaurant sales, because the actual royalty rates were historically different for the restaurants of
Scott’s Restaurants Inc. and restaurants of an affiliate of Yum! Canada and (ii) general and administrative costs based on 5% of restaurant sales
because actual historical general and administrative costs were not previously allocated.
(4) Scott’s Restaurants Inc.’s accounting records are based on the 52-week period ending on the last Saturday in December in each calendar year.
Yum! Canada’s accounting records are based on 13 four-week periods ending on the first Sunday in December or the last Sunday in
November.
(5) The 2000 (from July 10, 2000 to December 3, 2000), 2001 and 2002 restaurant sales, average weekly sales per restaurant and EBITDA are
derived from information contained in the audited financial statements of the KFCTM Division of PB LP.
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For the 52 weeks ended August 10, 2003, the Company Restaurants generated pro forma sales of approximately
$460 million and pro forma EBITDA of approximately $36 million. The KFCTM restaurants owned and operated by
PB LP that have existed since 1997 have had a compound annual growth rate (‘‘CAGR’’) of sales of 2.8% from 1997
to 2002. The average weekly sales of the restaurants acquired by the KFCTM Division of PB LP grew 3.0% for the same
period.
Large Scale Operations — Management believes that the Company’s large scale operations over a broad
geographic area in Canada give it a significant advantage over other smaller franchise concepts, including (i) significant
cash flow, (ii) access to capital, (iii) protection against regional economic downturns, and (iv) the ability to spread its
costs over a larger system. The sales by province of the Company Restaurants for the 52 weeks ended August 10, 2003
are illustrated below:
Restaurant Sales By Province
Nova Scotia British
6% Columbia
New Brunswick 9% Alberta
4% 12%
Quebec Manitoba
20% 7%
Ontario
42%
Operating Efficiencies — Management believes that the Company has a number of operating efficiencies that
contribute to its success including the following, some of which are unique to the KFCTM concept:
) Lower labour costs as a result of its predictable customer flow, which reduces the number of employees
working at a KFCTM restaurant relative to other QSR concepts.
) A significantly higher average KFCTM customer cheque of $10.30 versus the average customer cheque of $4.04
for a typical QSR.
) Economies of scale from purchasing all of its supplies through UPGC, Inc. (‘‘UPGC’’), a not for profit
purchasing cooperative that negotiates pricing with suppliers on behalf of all Canadian KFCTM franchisees — a
group Management believes is one of the largest restaurant purchasing accounts in Canada.
) The benefits of national KFCTM advertising initiatives as well as advertising spill from the United States where
KFCTM is also a leading brand.
) The benefits of customer research and product innovation in the worldwide KFCTM system.
) Reduced costs by producing its own salads rather than sourcing them from a third party supplier.
Experienced Management Team — The Company has a strong, experienced management team — at both senior
and operational levels — focused on customer service and enhancing franchise value. Members of senior management
each have 10 or more years of experience working in QSRs and the Canadian foodservice industry. In addition, at the
Company Restaurant level, the average tenure of restaurant general managers (‘‘RGMs’’) is over 14 years. The average
e
tenure of RGMs at the 96 locations in Qu´ bec is almost 18 years.
The Company will seek to align the interests of key management with those of the Company and Unitholders
through a long-term incentive plan under which participants will acquire Units. See ‘‘Executive Compensation’’.
Growth Strategy
Management believes that steady growth may be achieved through a combination of:
Same Restaurant Sales and Profit Growth — The Company’s strategy to increase same restaurant sales growth
and profitability includes a combination of focused advertising, new product introductions, continued training and
improved execution through a proprietary customer training and standards program known as ‘‘CHAMPS’’ (which
stands for Cleanliness, Hospitality, Accuracy, Maintenance, Product quality and Speed) and operating efficiencies.
Multi-branding — Multi-branding refers to the practice of combining two brand concepts in one restaurant. The
Company has 52 locations where a host KFCTM restaurant is combined with either a Pizza HutTM or Taco BellTM concept.
8
Management believes that, subject to the approval of the Franchisor and payment of the applicable franchise fee,
opportunities may exist for multi-branding its KFCTM restaurants with one of the Pizza HutTM or Taco BellTM concepts or
the Long John Silver’sTM concept, which was recently introduced in Canada by the Franchisor.
Additional Restaurants — Management believes that the Company may have the opportunity to expand its
franchise network by acquiring restaurants from other Canadian franchisees of the KFCTM brand, and building new
KFCTM restaurants in selected markets in Canada. To the extent these opportunities arise, the Company intends to
pursue restaurant acquisitions only if they are expected to be immediately accretive to the Fund and if the restaurants
exhibit characteristics similar to those of the existing Company Restaurants as a whole — high margin, stable cash flow
and comparable capital requirements. The Company is currently in the process of building one and planning three new
KFCTM restaurants. The Company expects that if it chooses to proceed with the building of these new KFCTM
restaurants, then the costs of such construction will be paid out of the $25 million capital pool to be created out of the
gross proceeds of the Offering. See ‘‘Use of Proceeds’’. Franchisor approval (and payment of the applicable fee) is
required for the acquisition or construction of additional restaurants. See ‘‘Principal Agreements — The Franchise
Agreement’’.
Canadian Commercial Foodservice Sector
The Canadian commercial foodservice sector, which represents more than 78% of the Canadian foodservice
industry, accounted for sales of $33.1 billion in 2002 and has grown at a CAGR of 5.7% since 1997 as illustrated in the
chart below:
Total Commercial Foodservice Revenue
1997 - 2002
50
CAGR 5.7%
40
32.2 33.1
27.0 28.1 30.2
30
($Billion)
25.1
20
10
0
1997 1998 1999 2000 2001 2002
Source: Statistics Canada
The Canadian commercial foodservice sector can be segmented by type of food service provider into four major
segments. The QSR market is the second largest of these segments. QSRs are distinguished by the characteristics of
convenience, bundled meals and service, and value pricing. QSRs, including those operated by the Company,
represented approximately $11.8 billion (or 35.5%) of the $33.1 billion in sales in the Canadian commercial
foodservice sector in 2002. In 2002, QSRs represented 64% of all consumer ‘‘eating out’’ occasions. The following
charts detail the QSR share of meal occasions and QSR share of meal dollars within the Canadian foodservice sector
for the period indicated:
Share of Occasions Share of Meal $
(QSR Share of Customer Transactions) (QSR $ Market Share)
66% 45%
64% 44%
62% 43%
60% 42%
58% 41%
56% 40%
1997 1998 1999 2000 2001 2002 1997 1998 1999 2000 2001 2002
Source: Crest / NPD Foodservice Information Group
9
SELECTED FINANCIAL INFORMATION
The following table sets out selected historical financial information for the KFCTM Division of PB LP for the
periods indicated, prepared in accordance with GAAP. This information should be read in conjunction with the
financial statements of the KFCTM Division of PB LP for the 36 weeks ended August 10, 2003 and August 11, 2002, the
years ended December 1, 2002 and December 2, 2001 and the period from July 10, 2000 to December 3, 2000 and the
related notes, and ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’, all as
included elsewhere in this prospectus. Such financial statements of the KFCTM Division of PB LP include the
results of all of the restaurant operations of the KFCTM Division of PB LP, including 31 restaurants currently
operated by PB LP that will not be transferred to the Company (which excluded restaurants are expected to be
closed or refranchised to non-competing franchisees within one year of the Closing Date), as outlined under the
heading ‘‘Funding, Acquisition and Related Transactions’’.
36 weeks ended Year ended Period from
Aug. 10, Aug. 11, Dec. 1, Dec. 2, July 10, 2000
2003 2002 2002 2001 to Dec. 3, 2000
(Unaudited) (Unaudited)
(dollar amounts in thousands)
Statement of Income Data:
Restaurant sales ******************************** $328,828 $333,074 $482,354 $477,551 $197,628
Cost of restaurant sales ************************** 197,098 199,802 287,958 286,625 118,510
Income from restaurant operations ***************** 27,851 32,496 47,048 43,380 19,265
Net income************************************ 8,565 17,221 27,082 25,546 7,209
EBITDA (1) *********************************** 26,817 30,917 46,955 47,881 18,555
Reconciliation of Net income to EBITDA:
Net Income************************************ 8,565 17,221 27,082 25,546 7,209
Add:
Depreciation and amortization ****************** 12,607 13,696 19,573 22,335 9,086
Write down of leasehold improvements*********** 410 — 300 — —
Loss on sale of land and buildings*************** 2,652 — — — —
Employee severance ************************** 2,583 — — — 2,260
EBITDA ************************************** $ 26,817 $ 30,917 $ 46,955 $ 47,881 $ 18,555
Number of restaurants at end of period (unaudited) *** 494 496 497 493 501
(1) EBITDA is not a recognized measure under GAAP and does not have a standardized meaning prescribed by GAAP. Therefore, EBITDA may
not be comparable to similar measures presented by other issuers. See ‘‘Definition of EBITDA and Adjusted EBITDA’’.
10
SELECTED PRO FORMA FINANCIAL INFORMATION
The following table sets out selected pro forma financial information of the KFCTM Division of PB LP for the
periods indicated. This information should be read in conjunction with the pro forma consolidated financial statements
of the Fund for the 36 weeks ended August 10, 2003 and for the year ended December 1, 2002 and the related notes,
included elsewhere in this prospectus. Pro forma means the financial information of the KFCTM Division of PB LP
attributable to the Company Restaurants being transferred to the Company, as if the transfer of the business
had occurred at the beginning of the periods presented, but does not give effect to the Offering. Pro forma
amounts for the 36 weeks ended August 11, 2002 are unaudited and have been prepared by Management in a manner
consistent with those amounts for the year ended December 1, 2002 and the 36 weeks ended August 10, 2003. The
amounts for the 52 weeks ended August 10, 2003 are unaudited and have been derived from the pro forma financial
results for the year ended December 1, 2002 and the 36 weeks ended August 10, 2003 and August 11, 2002 included in
this table and elsewhere in this prospectus. The pro forma financial information for the 52 weeks ended August 10,
2003 is not necessarily indicative of the results of operations to be expected in any given fiscal year.
52 weeks
ended 36 weeks ended Year ended
Aug. 10, Aug. 10, Aug. 11, Dec. 1,
2003 2003 2002 2002
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
(dollar amounts in thousands)
Statement of Income Data:
Restaurant sales ************************************** $460,205 $316,561 $320,464 $464,108
Cost of restaurant sales ******************************** 273,102 188,800 191,458 275,760
Income from restaurant operations *********************** 40,824 26,496 31,251 45,579
Net income ****************************************** 16,847 7,210 15,976 25,613
EBITDA (1) ****************************************** 36,339 22,253 25,912 39,998
Reconciliation of Net income to EBITDA:
Net Income ****************************************** 16,847 7,210 15,976 25,613
Add:
Depreciation and amortization ************************* 13,547 9,398 9,936 14,085
Write down of leasehold improvements ***************** 710 410 — 300
Loss on sale of land and buildings ********************* 2,652 2,652 — —
Employee severance ********************************* 2,583 2,583 — —
EBITDA ******************************************** $ 36,339 $ 22,253 $ 25,912 $ 39,998
Number of restaurants at end of period (unaudited) ********* 466 466 456 460
(1) EBITDA is not a recognized measure under GAAP and does not have a standardized meaning prescribed by GAAP. Therefore, EBITDA may
not be comparable to similar measures presented by other issuers. See ‘‘Definition of EBITDA and Adjusted EBITDA’’.
11
SUMMARY OF DISTRIBUTABLE CASH OF THE FUND
Management of the Company has prepared the following analysis on the basis of the information contained in this
prospectus and Management’s estimate of the amount of expenses and expenditures to be incurred by the Company, the
Trust and the Fund. This analysis is not a forecast or a projection of future results. The actual results of operations of
the Company for any period, whether before or after the closing of the Offering, will likely vary from the amounts set
forth in the following analysis, and such variation may be material.
Management of the Company believes that, upon completion of the Offering and the transactions described under
‘‘Funding, Acquisition and Related Transactions’’, the Company will incur net interest expense and certain additional
administrative costs and require capital expenditures different from those contained in the historical financial
statements or in the unaudited pro forma consolidated financial statements that are included elsewhere in this
prospectus. Although Management of the Company does not have firm commitments for all of those expenses and,
accordingly, the complete financial effects of all of those expenses and expenditures are not objectively determinable,
Management believes that the following represents a reasonable estimate of distributable cash for the 52-week period
ended August 10, 2003 had the Fund been in existence during such time:
52 weeks ended
August 10, 2003 (1),(2)
(thousands of dollars
except per Fund Unit
amounts)
(Unaudited)
Pro forma EBITDA (3) ********************************************************* $36,339
Adjustments to EBITDA
Exclusion of direct costs of terminated employees (4) ****************************** 1,184
Reduction of advertising costs to 5% of sales (5) ********************************** 1,057
Amount to annualize contribution of recently multi-branded and new restaurants (6) ***** 611
Adjusted EBITDA (3) ********************************************************** 39,191
Management estimates the following capital expenditures:
Maintenance capital expenditures (7) ******************************************** 3,560
Reserve for additional capital expenditures (7) ************************************ 1,100
Management also believes that distributable amounts should be reduced by the following:
Cash interest expense (net) (8) ************************************************* 2,597
Additional administrative expenses (9)******************************************* 950
The foregoing adjustments result in total estimated distributable cash ******************* $30,984
Estimated distributable cash per Unit (10) ****************************************** $ 1.20
(1) Assuming the Fund existed for the 52-week period ended August 10, 2003.
(2) Company Restaurants only.
(3) Representing pro forma EBITDA of the KFCTM Division of PB LP attributable to the Company Restaurants being transferred to the Company.
See ‘‘Definition of EBITDA and Adjusted EBITDA’’. EBITDA and Adjusted EBITDA are not recognized measures under GAAP and do not
have a standardized meaning prescribed by GAAP. Therefore, EBITDA and Adjusted EBITDA may not be comparable to similar measures
presented by other issuers.
(4) In the 52 weeks ended August 10, 2003, the Company incurred approximately $1,184,000 of salary and other direct costs for 30 employees
prior to their termination on January 20, 2003 which are not expected to be incurred in the future. See ‘‘Management’s Discussion and
Analysis of Financial Condition and Results of Operations’’.
(5) Since PB LP was formed, the percentage of sales spent on total advertising has been declining. PB LP has reduced its use of third party agents
in favour of in-house marketing services and has reduced other non-direct advertising expenses. Management expects this trend to continue and
anticipates advertising costs to be 5% of sales.
(6) Management has estimated the additional amount to annualize the contribution of recently multi-branded and new restaurants added to the
Company’s portfolio of restaurants during the 52 weeks ended August 10, 2003.
(7) On-going maintenance capital expenditures are estimated to be $3,560,000. In addition to the $25 million capital funding pool created out of
the gross proceeds of the Offering, $1,100,000 of cash available for distributions will be set aside annually as a reserve to fund other capital
expenditures. See ‘‘Business of the Company — Capital Expenditures.’’
(8) Net cash interest expense will consist of interest expense on the $60 million Term Facility based on a 3 year fixed swap rate of 5.37% net of
estimated interest income of $625,500 on the estimated unspent $25 million capital funding pool. See ‘‘Principal Agreements — Term
Facility’’.
(9) Subsequent to the Offering, it is estimated that the Company and the Fund will incur additional general and administrative costs on a
continuing basis, relating to reporting to Voting Unitholders, investor relations and other related expenses typically incurred by a reporting
issuer.
(10) Based on 25,820,000 Units outstanding upon the closing of the Offering, including the Units issuable upon exercise of the Exchange Rights
attached to the Exchangeable LP Units and the Subordinated LP Units owned by PB LP but without giving effect to the Over-Allotment
Option.
12
THE OFFERING
Offering: 15,000,000 Units of the Fund.
Price: $10.00 per Unit, payable on the Closing Date.
Attributes of Units: Each Unit represents an equal undivided beneficial interest in the Fund and
any distributions payable by the Fund. Each Unit is transferable, entitles
the holder thereof to participate equally in distributions of the Fund, is not
subject to future calls or assessment and entitles the holder to rights of
redemption and to one vote at all meetings of Voting Unitholders. See
‘‘Description of the Fund’’.
Use of Proceeds: The gross proceeds of $150,000,000 from the Offering will be used by the
Fund to indirectly acquire, through the Trust, a 58.1% interest in the
Company. The Fund will use the gross proceeds of the Offering to
subscribe for the Trust Units in the amount of $15,000,000 and Series 1
Trust Notes in the aggregate principal amount of $135,000,000. The Trust
will use the proceeds from the issuance of the Trust Units and Series 1
Trust Notes to the Fund to subscribe for 15,000,000 Ordinary LP Units for
$150,000,000 representing approximately 58.1% of the outstanding LP
Units, and an equivalent percentage of the GP Common Shares. The
Company will use the proceeds from the issuance of the Ordinary LP Units
to the Trust and the issuance to PB LP of Exchangeable LP Units and
Subordinated LP Units, representing approximately 41.9% of the
outstanding LP Units, to pay the expenses of the Offering and the
Underwriters’ fee, to purchase the Company Restaurants from PB LP and
to create a capital pool. See ‘‘Use of Proceeds’’ and ‘‘Funding, Acquisition
and Related Transactions’’.
Over-Allotment Option: The Fund has granted the Underwriters, exercisable for a period of 30 days
from the closing of the Offering, the Over-Allotment Option to purchase
up to 1,500,000 additional Units to cover over-allotments, if any, and for
market stabilization purposes. See ‘‘Plan of Distribution’’. In the event that
the Over-Allotment Option is exercised, it is the intention of the Fund to
cause the Company to issue additional Ordinary LP Units and GP
Common Shares to the Trust, and to use the proceeds of such issuance to
redeem a number of the Exchangeable LP Units issued to PB LP, as well
as an equivalent percentage of the GP Common Shares. If the Over-
Allotment Option is exercised in full, the Fund will hold a 63.9% indirect
interest in the Company.
Retained Interest: As partial consideration for the transfer of the Company Restaurants,
PB LP will acquire a 41.9% interest in the Company (36.1% if the Over-
Allotment Option is exercised in full), consisting of 5,656,000
Exchangeable LP Units and 5,164,000 Subordinated LP Units and an
equivalent percentage of the GP Common Shares. The Exchangeable LP
Units and the Subordinated LP Units will be indirectly exchangeable for
Units of the Fund on a one-for-one basis, subject to adjustment in certain
circumstances. In addition, PB LP will be granted ‘‘demand’’ and ‘‘piggy
back’’ registration rights by the Fund in respect of the Units that it
indirectly owns or may acquire pursuant to the exercise of its Exchange
Rights, subject to certain restrictions. See ‘‘Retained Interest and Exchange
Rights’’ and ‘‘Description of KIT LP — Units’’. The Subordinated LP
Units and the Exchangeable LP Units are transferable, subject to certain
restrictions, at any time after a period of 180 days after the Closing Date.
PB LP has agreed with the Underwriters not to transfer, other than to its
13
affiliates, any Subordinated Units held by PB LP for a period of three years
after the Closing Date.
Distribution Policy of the Fund: The Fund intends to distribute all of its distributable cash to the maximum
extent possible to Unitholders by equal monthly cash distributions. The
distributable cash of the Fund will be comprised of all cash received from
its indirect interest in the Company less administrative expenses and other
obligations of the Fund and amounts which may be paid by the Fund in
connection with any cash redemptions or repurchases of Units and
reasonable reserves established by the Trustees, which reserves are
currently expected to be nominal.
The initial cash distribution for the period from the Closing Date to
December 31, 2003 is expected to be paid on or about January 15, 2004,
and is estimated to be approximately $0.17 per Unit. Thereafter, it is
anticipated that distributions in respect of each month will be made
payable to Unitholders of record on the last business day of each month,
and that distributions will be paid within 15 days following each month
end. See ‘‘Description of the Fund — Cash Distributions’’.
Distribution Policy of the Trust: The distributable cash of the Trust will be derived primarily from
distributions on or in respect of Ordinary LP Units owned by the Trust.
The Trust intends to make monthly distributions to holders of Trust Units
of its distributable cash after satisfaction of its interest obligations, if any,
including interest on the Trust Notes, and less any administrative expenses
and other obligations of the Trust, including principal repayments in
respect of the Trust Notes. See ‘‘Description of the Trust — Cash
Distributions’’.
Distribution Policy of the Company: The Company will make monthly distributions of distributable cash on the
Ordinary LP Units and Exchangeable LP Units and, subject to the
subordination described below, quarterly cash distributions on the
Subordinated LP Units. The distributable cash of the Company will be
based on all available cash from the operation of the Company Restaurants
less amounts required for debt service obligations, general and
administrative expense and other expense obligations, including expenses
relating to renewing its rights under the Franchise Agreement from time to
time, expenditures in excess of reserves, long-term incentive plan awards
and other incentives, reserves (including amounts on account of
maintenance capital expenditures, upgrades and renovations, renewals and
reserves to stabilize distributions to Unitholders), and such other amounts
as may be considered appropriate by the board of directors of the GP. See
‘‘Description of KIT LP — Distributions’’.
Restrictions on Distributions on Distributions on the Subordinated LP Units will be subordinated in favour
Subordinated LP Units: of Ordinary LP Units and Exchangeable LP Units. Distributions will only
be paid by the Company on the Subordinated LP Units at the end of a fiscal
quarter to the extent that: (i) the Company has paid average monthly
distributions of at least $0.10 per Ordinary LP Unit and Exchangeable LP
Unit to holders of Ordinary LP Units and Exchangeable LP Units during
that quarter, and (ii) any deficiency in such distributions to holders of
Ordinary LP Units and Exchangeable LP Units during the preceding three
quarters has been satisfied, as described below. If these targets are not
satisfied, any deficiency will be borne by holders of the Subordinated LP
Units, distributions on which will be reduced to the extent necessary to
support the continued payment of distributions on the Ordinary LP Units
14
and Exchangeable LP Units and any applicable deficiency in such
distributions.
Distributions on the LP Units will be cumulative, such that the amount of
any deficiency will accumulate for a period of 12 months. Payments of
deficiencies in distributions on the Ordinary LP Units and the
Exchangeable LP Units will be made in priority to distributions on the
Subordinated LP Units. Any accumulated deficiency on LP Units not
satisfied by a distribution by the Company within 12 months of the date it
arose will cease to be payable.
The Subordinated LP Units will automatically convert into Exchangeable
LP Units on a one-for-one basis on (and the subordination provisions only
apply until) the earlier of: (i) December 31, 2008 if, for the fiscal year of
the Company ending on such date, the Company has earned EBITDA
(based on audited financial statements) of at least $39.191 million (the
‘‘EBITDA Target’’) and the Company has paid average monthly
distributions of at least $0.10 per LP Unit (the ‘‘Distribution Target’’) for
such fiscal year, and (ii) the end of any fiscal year following December 31,
2008 in respect of which the Company has earned the EBITDA Target
(based on audited financial statements) and the Company has paid average
monthly distributions on the LP Units at least equal to the Distribution
Target for such fiscal year.
Notwithstanding the foregoing, a total of 50% of the Subordinated LP
Units (the ‘‘Released Subordinated LP Units’’) will automatically convert
into Exchangeable LP Units on a one-for-one basis (and the subordination
provisions will not apply to the Released Subordinated LP Units) on the
date of approval by the board of directors of the Company of the audited
financial statements of the Company for the fiscal year ending
December 31, 2006 if, for such fiscal year, the Company has earned
EBITDA (based on audited financial statements) of at least
$43.110 million and has paid out of distributable cash earned in the fiscal
year ending December 31, 2006 average monthly distributions of at least
$0.11 per LP Unit for such fiscal year. The Subordinated LP Units will also
automatically convert into Exchangeable LP Units in certain other
specified circumstances.
Risk Factors: An investment in Units is subject to a number of risk factors. Cash
distributions to Unitholders depend entirely on the ability of the Trust to
pay distributions on the Trust Units and satisfy its interest obligations on
the Trust Notes. Payments by the Trust will depend, in turn, on the ability
of the Company to satisfy its debt service obligations under the Term
Facility and KIT LP’s ability to pay distributions on the Ordinary LP
Units. The Company’s income will be earned from the operation of the
Company Restaurants.
The risks associated with the operation of the Company’s business and the
QSR industry include: the restaurant industry and its competitive nature;
the execution by the Company of its growth and development strategy,
including the requirement of the Company to obtain the consent of the
Franchisor for new restaurants and multi-brand restaurants; risks
associated with the intellectual property licensed by the Company from the
Franchisor; the Company’s dependence on key personnel; the Company’s
dependence on the Franchisor; the terms and conditions of the Franchise
Agreement, which permit the Franchisor to terminate the Franchise
Agreement for all of the Company Restaurants in certain circumstances;
15
the restrictions on change of control of the Fund set out in the Franchise
Agreement and the Guarantee; the restrictions on the operations of the
Company imposed by the Franchisor under the Franchise Agreement; the
Company may not have sufficient cash flow to satisfy its maintenance
capital expenditures and upgrade and renovation requirements under the
Franchise Agreement; the renewal fee required in order to renew the
Franchise Agreement for a Company Restaurant; risks associated with
government regulation, including those related to alcohol beverage control,
smoking laws, health and safety, fire agencies and laws governing labour
and employment; potential litigation, class actions and other complaints;
environmental liability risks; the non-assignability and non-renewal of
certain leases in respect of the Company Restaurants; price and supply
fluctuations; seasonality of the business and cash receipts; costs of
commodities, labour shortages and employee benefit costs and other risks;
risks relating to the ability to locate and secure acceptable sites for
Company Restaurants; the absence of an operating history as a public
company; and risks relating to uninsured and underinsured losses.
The risks associated with the structure of the Fund and the Offering
include: the dependence of the Fund on the Trust and the Company; the
degree to which the Company is levered and the restrictive covenants in
respect of the Term Facility; cash distributions are not guaranteed and will
fluctuate with the Company’s performance; the nature of the Units; the
restrictions on the potential growth of the Company as a consequence of
the payment by the Company of substantially all of its operating cash flow;
possible Unitholder liability; the absence of a prior public market for the
Units; the possible distribution of securities on redemption or termination
of the Fund; the possibility that the Fund may issue additional Units
diluting existing Unitholders’ interests; income tax matters; investment
eligibility and foreign property status of the Units; and the effect of market
interest rates on the price of the Units.
Cash distributions to Unitholders are not guaranteed and, subject to
required regulatory approvals, the Fund may in certain circumstances
distribute to Unitholders additional Units in lieu of cash distributions on
account of income, or securities of the Trust in lieu of cash on a
redemption of Units or on the termination of the Fund. See ‘‘Risk
Factors’’.
Tax Considerations: Each Unitholder will be required to include in computing income for
Canadian tax purposes for a particular taxation year the Unitholder’s
pro rata share of the Fund’s income that was paid or payable in that year
by the Fund to the Unitholder and that was deducted by the Fund in
computing its income. Generally, all other amounts received by
Unitholders will not be included in the Unitholders’ income, but will
reduce the adjusted cost base of the Unitholders’ Units, for Canadian
income tax purposes. It is anticipated that substantially all of the annual
distributions of the Fund will be considered income to Unitholders for
Canadian tax purposes. Prospective purchasers should consult their tax
advisors regarding the tax implications of an investment in Units. See
‘‘Certain Canadian Federal Income Tax Considerations’’.
16
Funding, Acquisition and Related Transactions
At or prior to the closing of this Offering, the Fund will undertake a series of transactions pursuant to which it will
indirectly acquire a 58.1% beneficial ownership interest in the Company. As partial consideration for the transfer of the
Company Restaurants, PB LP will receive Exchangeable LP Units and Subordinated LP Units representing 41.9% of
the LP Units and an equivalent percentage of the GP Common Shares (a 36.1% interest if the Over-Allotment Option is
exercised in full). The business of the Fund will be directly operated by various entities, the interest in which will,
indirectly, be held by the Fund. See ‘‘Consolidated Capitalization of the Fund’’, ‘‘Retained Interest and Exchange
Rights’’, ‘‘PB LP Reorganization’’, ‘‘Funding, Acquisition and Related Transactions’’ and ‘‘Use of Proceeds’’.
The following chart illustrates the structure of the Fund on completion of this Offering and the indirect investment
by the Fund in the Company:
Public
Unitholders
Units
Priszm Canadian
Income Fund
(“Fund”)
100%
(Trust Units and
Trust Notes)
priszm
brandz LP Priszm Canadian
(“PB LP”) Operating Trust
(“Trust”)
41.9% (1) 58.1% (2)
KIT Limited
Partnership and
KIT Inc.
(the “Company”)
Notes:
(1) Subordinated LP Units and Exchangeable LP Units representing, collectively, 41.9% of the LP Units and 41.9% of the GP Common Shares.
(2) Ordinary LP Units, representing 58.1% of the LP Units and 58.1% of the GP Common Shares.
17
THE FUND, THE TRUST AND KIT LP
The Fund is an unincorporated, open-ended, limited purpose trust established under the laws of the Province of
Ontario by the Declaration of Trust. On the closing of the Offering, the Fund will own all of the Series 1 Trust Notes
and the Trust Units, and will hold, indirectly through the Trust, a 58.1% interest in the Company. The Fund will
receive, indirectly through the Trust, distributions of distributable cash of the Company. See ‘‘Description of the
Fund’’.
The Trust is an unincorporated, limited purpose trust established under the laws of the Province of Ontario
pursuant to the Trust Declaration of Trust. The Trust was created to acquire and hold 15,000,000 Ordinary LP Units
representing 58.1% of the LP Units and 58.1% of the GP Common Shares. See ‘‘Description of the Trust’’.
KIT LP is a limited partnership formed under the laws of the Province of Manitoba, with the GP as its general
partner. KIT LP carries on business and is governed under the Limited Partnership Agreement. With 466 restaurants,
the Company is the largest operator of KFCTM restaurants in Canada. See ‘‘Description of KIT LP’’. The principal and
head office of each of the Fund, the Trust and KIT LP is located at 101 Exchange Avenue, Vaughan, Ontario,
L4K 5R6.
THE CANADIAN COMMERCIAL FOODSERVICE SECTOR
The Canadian commercial foodservice sector represents over 78% of the Canadian foodservice industry and is
comprised of operations whose primary business is food and beverage services (e.g. restaurants and bars). The non-
commercial foodservice sector represents 22% of the foodservice industry and includes those operators whose primary
business is something other than food and beverage (e.g. hotels and movie theatres).
Total commercial foodservice sales in Canada were estimated to be $33.1 billion in 2002 and have grown at a
compound annual growth rate (‘‘CAGR’’) of 5.7% since 1997 as illustrated in the following chart:
Total Commercial Foodservice Revenue
1997 - 2002
50
CAGR 5.7%
40
32.2 33.1
27.0 28.1 30.2
30
($Billion)
25.1
20
10
0
1997 1998 1999 2000 2001 2002
Source: Statistics Canada
18
The Canadian commercial foodservice sector is comprised of four major segments based on the type of
foodservice provider: full service restaurants (which includes casual dining, family-midscale dining and fine
restaurants), quick service restaurants or QSRs, social and contract caterers, and pubs, taverns and night-clubs. The
following chart summarizes the estimated revenue for each such segment of the Canadian commercial food service
sector in 2002:
Social and Contract Pubs, Taverns and Nightclubs
Caterers $2.3 billion (6.9%)
$2.8 billion (8.6%)
Quick Service Restaurants (QSR) Full Service Restaurants
$11.8 billion (35.5%) $16.3 billion (49.0%)
Source: Statistics Canada
The Quick Service Restaurant Market
The QSR market is the second largest segment of the Canadian commercial foodservice sector with sales of
approximately $11.8 billion in 2002, representing 35.5% of total sector sales. Sales in the QSR segment grew at a
CAGR of 5.1% between 1997 and 2002.
QSRs target time and value conscious consumers who want convenient ‘‘grab and go’’ meals. QSRs are
distinguished by the following characteristics:
Convenience: QSRs offer high speed of service and customer use and generally offer a high level of
convenience. It is estimated that a typical customer of a QSR will spend approximately five minutes in the QSR
(in the case of a take-out order) and twenty minutes in the QSR (in the case of dining in) from the time of ordering
to departure. QSRs are typically located in places that are easy to access and convenient to customers’ homes,
places of work and commuter routes.
Bundled meals and service: The menus at most QSRs include a number of bundled or ‘‘combo’’ meals that
expedite customer choice and service and enhance individual sale value.
Value prices: At a QSR, the average customer cheque expenditure for an individual meal is significantly less
than the average customer cheque for a casual dining restaurant.
19
Trends in the QSR Industry
Management believes that several factors favour growth of the QSR industry, including the following:
Lifestyle Trends: The increasing number of dual-income and single parent households has reduced the amount
of time available for families to prepare meals. As a result, families are replacing meals prepared at home with meals
purchased from restaurants. QSRs typically offer customers the convenience of a familiar menu, multiple restaurant
locations and fast service. The Canadian commercial foodservice sector share of the total dollars spent on food has
increased over the past 19 years at the expense of grocery stores. Management believes that this trend results from the
increased propensity of consumers to dine out. The following chart illustrates the percentage of household spending on
food purchased in restaurants as estimated by Statistics Canada for the periods indicated:
Household Spending on Restaurants
40%
30%
20%
10%
0%
1982 1986 1992 1996 2001
Source: Statistics Canada
Increased Convenience: QSRs have enhanced consumer convenience and have increased the frequency of
customer visits by expanding their menus, opening more drive-thrus and offering more coupons and bundled meal
deals. Off-premise dining has increased as compared to on-premise dining for the period 1997 to 2002 as illustrated in
the following chart:
Share of Meal Occasions by On/Off Premise
65%
60%
55%
50%
45%
40%
35%
30%
1997 1998 1999 2000 2001 2002
Off-Premise (Take-out) On-Premise (Dine-in)
Source: Crest / NPD Foodservice Information Group
20
According to CREST, QSR traffic has outpaced that of casual dining, family-midscale dining and fine dining
establishments (which are part of the full service restaurant segment). In 2002, QSRs represented 64% of all consumer
‘‘eating out’’ occasions, an increase from a 59% share of meal occasions in 1997, and have also experienced a similar
trend in the share of consumer expenditures. In both cases QSRs have benefited at the expense of casual dining and
family-midscale dining restaurants. The following charts detail the share of meal occasions and share of meal dollar
trends within the Canadian commercial foodservice sector for the period indicated:
Share of Occasions Share of Meal $
(QSR Share of Customer Transactions) (QSR $ Market Share)
66% 45%
64% 44%
62% 43%
60% 42%
58% 41%
56% 40%
1997 1998 1999 2000 2001 2002 1997 1998 1999 2000 2001 2002
Source: Crest / NPD Foodservice Information Group
Multi-Branding: Multi-branding refers to the practice of combining two brand concepts in one restaurant.
Multi-branding provides customers with greater selection and convenience and enables QSR operators to combine
several brand offerings at the same location and to take advantage of synergies such as shared real estate, reduced
construction costs (single building for two concepts instead of two buildings) and higher sales volumes. These
synergies allow QSR operators to develop profitable locations within smaller trade zones, while further developing two
brands and enabling emerging brands to capitalize on established brand equity.
Brand Equity: The top 50 foodservice chains in Canada generated sales of $21.5 billion in 2001 representing
over 52.7% of the total Canadian foodservice industry, up from 48% in 1997. Historically, growth in revenues of chain
restaurants has been driven by increased personal income, favourable demographics and increased market share as a
result of the brand strength that many of the chain restaurants have developed through their use of marketing programs
and product innovations. The chart below illustrates the percentage of sales in the commercial foodservice segment
captured by the top 50 foodservice chains in Canada for the period 1997 through 2001:
Percentage of Commercial Foodservice Sales Captured by
Top 50 Foodservice Chains
53%
51% 51%
48% 49%
1997 1998 1999 2000 2001
Source: Canadian Restaurant and Foodservice Association; Foodservice and Hospitality Magazine; Statistics Canada
21
BUSINESS OF THE COMPANY
Overview
The Company is one of the largest franchisees of KFCTM in the world by number of restaurants, and the
Company’s sales account for approximately 70% of all KFCTM product sales in Canada. By comparison, sales of the
next largest Canadian KFCTM franchisee represents less than 5% of the sales of KFCTM products in Canada. The KFCTM
brand was introduced in Canada in the 1950s when it became the country’s first QSR franchise chain. As one of the
most recognized brands in the world, KFCTM is the world’s largest ‘‘chicken-on-the-bone’’ QSR chain by number of
restaurants. The Company has more than 8,000 employees and the Company serves, on average, approximately
1.5 million customers a week through a network of 466 restaurants that the Company owns and operates in seven
Canadian provinces. A total of 414 of the Company Restaurants are single-brand, KFCTM restaurants. The remaining
52 Company Restaurants are multi-brand locations that combine a KFCTM host restaurant with one of either the Pizza
HutTM or Taco BellTM concepts. Although none of the Company Restaurants currently include the Long John Silver’sTM
concept, there may be an opportunity for the Company, subject to the Franchisor’s approval, to multi-brand its KFCTM
restaurants with the Long John Silver’sTM concept in the future. By number of restaurants, Pizza HutTM is the world’s
largest pizza restaurant company and the largest national pizza chain in Canada, Taco BellTM is the world’s largest
Mexican-style quick service restaurant company and Long John Silver’sTM is the largest quick service seafood chain in
the United States.
Background
priszm brandz LP (‘‘PB LP’’) currently owns and operates all of the Company Restaurants that will be sold to the
Company upon the completion of the Offering. PB LP acquired the Company Restaurants on July 10, 2000 together
with other assets and is owned 50% by each of Yum! Canada and Scott’s Restaurants Inc. Following the
Reorganization, to occur immediately prior to the closing of the Offering, the Company Restaurants will represent
substantially all of PB LP’s assets. See ‘‘Use of Proceeds’’, ‘‘Funding, Acquisition and Related Transactions’’, ‘‘PB
LP Reorganization’’ and ‘‘Principal Agreements — Acquisition Agreement’’.
The Company was formed to buy selected KFCTM restaurants of PB LP. A total of 466 quality, performing KFCTM
restaurants will be acquired by the Company. It is intended that the small number of remaining underperforming KFCTM
restaurants retained by Yum! Canada and/or PB LP will be closed or refranchised to individual non-competing
franchisees within one year of the closing of the Offering. Upon completion of the Offering, the Company will be the
largest operator of the KFCTM concept in Canada.
22
Business Strengths
Management believes that the strengths of the business include the following and make the Company Restaurants
well suited for an income fund:
Global Brand Recognition and Market Leadership — KFCTM is one of the most recognized brands in the world.
There are approximately 12,300 KFCTM units in 88 countries and territories, serving approximately 8 million customers
a day.
Key competitive advantages of the KFCTM concept include proprietary recipes and the ColonelTM, who ranks as one
of the best-known commercial icons of all time. In Canada, KFCTM sales represent approximately 90% of total fried
chicken chain sales and approximately 45% of total revenue in the ‘‘chicken-on-the-bone’’ segment of the QSR
industry as illustrated in the chart below. The success of its core product has enabled KFCTM to successfully develop
and market other products such as sandwiches, nuggets and salads and to grow sales through multi-branding with other
proven concepts.
2002 ‘‘Chicken-on-the-Bone’’ Chain Revenue
800
600
C$000,000
400
200
0
KFCTM Swiss Chalet St Hubert Dixie Lee Mary
Brown’s
PB LP - KFCTM Other Canadian Franchisees - KFCTM
Source: Food Service and Hospitality Magazine (July 2003) and the financial statements of the KFCTM Division of PB LP
23
Financial Performance — Since July 10, 2000, the date PB LP acquired the Company Restaurants, the Company
Restaurants have demonstrated stable performance through various economic cycles. The following charts illustrate the
historical sales, EBITDA (as adjusted in note 3 below) and average weekly sales per restaurant for the restaurants
acquired by the KFCTM Division of PB LP for the period 1997 to June 30, 2000 and the historical sales, EBITDA and
average weekly sales per restaurant for the KFCTM Division of PB LP for the period from July 10, 2000 to December 1,
2002:
Restaurant Sales EBITDA(1)
600 60
500 50
400 40
($000,000)
($000,000)
300 30
200 20
100 10
0 0
1997 1998 1999 2000(2) 2001 2002 1997 1998 1999 2000(2) 2001 2002
Average Weekly Sales Per Restaurant
25
22.5
20
17.5
15
($000)
12.5
10
7.5
5
2.5
0
1997 1998 1999 2000(2) 2001 2002
Unaudited Pre - PB LP Acquisition (3),(4)
KFC TM
Division of PB LP(5)
Notes:
(1) EBITDA is not a recognized measure under GAAP and does not have a standardized meaning prescribed by GAAP. Therefore, EBITDA may
not be comparable to similar measures presented by other issuers. See ‘‘Definition of EBITDA and Adjusted EBITDA’’.
(2) The 2000 period results presented include financial information derived from financial records of PB LP and the prior owners’ accounting
records. Results for the period after July 10, 2000 pertain to the KFCTM Division of PB LP and comprise 5.2 periods of operating results out of
a fiscal year of 13 periods. Results for the period prior to July 10, 2000 pertain to results for each of the former Scott’s Restaurants Inc.
restaurants and former restaurants of an affiliate of Yum! Canada as follows: (i) first and second quarter results for each of the former Scott’s
Restaurants Inc. restaurants (2 three-month periods) and former restaurants of an affiliate of Yum! Canada (6 one-month periods) and (ii) 1.8
periods of the prior owners’ respective fourth quarter results on a pro rata basis, adjusted and presented as explained in note 3 below.
(3) On July 10, 2000 PB LP acquired an aggregate of 507 KFCTM restaurants, of which 329 KFCTM restaurants were acquired from Scott’s
Restaurants Inc. and 178 were acquired from an affiliate of Yum! Canada. The 1997, 1998, 1999 and 2000 (to June 30, 2000) financial
information represents historical restaurant sales, average weekly sales per restaurant and EBITDA of the KFCTM restaurants derived from the
accounting records of Scott’s Restaurants Inc. and an affiliate of Yum! Canada prior to the acquisition of such restaurants by PB LP on July 10,
2000, adjusted to exclude results of closed restaurants not acquired by PB LP. The historical EBITDA results have been adjusted to reflect
(i) royalty expense calculated based on 6% of restaurant sales, because the actual royalty rates were historically different for the restaurants of
Scott’s Restaurants Inc. and restaurants of an affiliate of Yum! Canada and (ii) general and administrative costs based on 5% of restaurant sales
because actual historical general and administrative costs were not previously allocated.
(4) Scott’s Restaurants Inc.’s accounting records are based on the 52-week period ending on the last Saturday in December in each calendar year.
Yum! Canada’s accounting records are based on 13 four-week periods ending on the first Sunday in December or the last Sunday in
November.
(5) The 2000 (from July 10, 2000 to December 3, 2000), 2001 and 2002 restaurant sales, average weekly sales per restaurant and EBITDA are
derived from information contained in the audited financial statements of the KFCTM Division of PB LP.
24
For the 52 weeks ended August 10, 2003, the Company Restaurants generated pro forma sales of approximately
$460 million and pro forma EBITDA of approximately $36 million. The KFCTM restaurants owned and operated by
PB LP that have existed since 1997 have had a CAGR of sales of 2.8% from 1997 to 2002. The average weekly sales of
the KFCTM Division of PB LP grew 3.0% for the same period.
Large Scale Operations — Management believes that the Company’s large scale operations over a broad
geographic area in Canada gives it a significant advantage over other smaller franchise concepts, including
(i) significant cash flow, (ii) access to capital, (iii) protection against regional economic downturns, and (iv) the ability
to spread its costs over a larger system. As a result of the size of its operations, Management believes the Company
achieves certain economies of scale, including higher flow through on same restaurant sales growth, cost reductions
from cross brand synergies and profit driven operational enhancements with respect to training, purchasing and labour
management.
Operating Efficiencies — Management believes that the Company has a number of operating efficiencies that
contribute to its success including the following, some of which are unique to the KFCTM concept:
) Lower labour costs as a result of its predictable customer flow, which reduces the number of employees
working at a KFCTM restaurant relative to other QSR concepts. Approximately 70% of the Company’s
transactions are conducted between the hours of 2:00 p.m. and 8:00 p.m., which allows RGMs to more
efficiently plan food production and schedule hourly employees.
) A significantly higher average KFCTM customer cheque of $10.30 versus the average customer cheque of $4.04
for a typical QSR.
) Most KFCTM customers order take out meals and dine off-premise which reduces the need for large facilities
and large parking areas.
) Economies of scale from purchasing all of its supplies through UPGC, a not for profit purchasing cooperative
that negotiates pricing with suppliers on behalf of all Canadian KFCTM franchisees — a group that
Management believes is one of the largest restaurant purchasing accounts in Canada.
) The benefits of national KFCTM advertising initiatives as well as advertising spill from the United States where
KFCTM is also a leading brand.
) The benefits of customer research and product innovation in the worldwide KFCTM system of approximately
12,300 restaurants.
) Reduced costs by producing its own coleslaw, macaroni and potato salads rather than sourcing them from a
third party supplier.
) In addition, Management believes that the Company benefits from the stability and certainty with respect to
lease fixed costs that it derives from its lease portfolio. The Company’s leases have an average remaining term
of 15.4 years (assuming the exercise of all renewal options).
Experienced Management Team — The Company has a strong, experienced management team — at both senior
and operational levels — focused on customer service and enhancing franchise value. Members of senior management
each have 10 or more years of experience working in QSRs and the Canadian foodservice industry. In addition, at the
Company Restaurant level, the average tenure of RGMs is over 14 years. The average tenure of RGMs at the 96
e
locations in Qu´ bec is almost 18 years.
The Company will seek to align the interests of key management with those of the Company and Unitholders
through a long-term incentive plan under which participants will acquire Units. See ‘‘Executive Compensation’’.
Growth Strategy
Management believes that steady growth may be achieved through a combination of:
Same Restaurant Sales and Profit Growth — The Company’s strategy to increase same restaurant sales growth
and profitability includes a combination of focused advertising, new product introductions, continued training and
improved execution through the proprietary CHAMPS customer training and standards program and operating
efficiencies.
25
Multi-branding — Multi-branding refers to the practice of combining two brand concepts in one restaurant. The
Company has 52 locations where a host KFCTM restaurant is combined with either a Pizza HutTM or Taco BellTM concept.
Management believes that, subject to the approval of the Franchisor and payment of the applicable franchise fee,
opportunities may exist for multi-branding its single-brand KFCTM restaurants with one of the Pizza HutTM or Taco
BellTM concepts or the Long John Silver’sTM concept, which was recently introduced in Canada by the Franchisor.
Additional Restaurants — Management believes that the Company may have the opportunity to expand its
franchise network by acquiring restaurants from other Canadian franchisees of the KFCTM brand, and building new
KFCTM restaurants in select markets in Canada. To the extent these opportunities arise, the Company intends to pursue
restaurant acquisitions only if they are expected to be immediately accretive to the Fund and if the restaurants exhibit
characteristics similar to those of the existing Company Restaurants as a whole — high margin, stable cash flow and
comparable capital requirements. The Company is currently in the process of building one and planning three new
KFCTM restaurants. The Company expects that if it chooses to proceed with the building of these new KFCTM
restaurants, then the costs of such construction will be paid out of the $25 million capital pool to be created out of the
gross proceeds of the Offering. See ‘‘Use of Proceeds’’. Franchisor approval (and payment of the applicable fee) is
required for the acquisition or construction of additional restaurants. See ‘‘Principal Agreements — The Franchise
Agreement’’.
The KFCTM Concept
KFCTM is the Company’s largest brand, and the Company currently operates 414 single-brand and
52 multi-brand restaurants.
KFCTM was founded in Corbin, Kentucky by Colonel Harland D. Sanders, an early developer of the
QSR business and a pioneer of the restaurant franchise concept. The Colonel perfected his secret
blend of 11 herbs and spices for Kentucky Fried Chicken in 1939 and signed up his first franchisee
in 1952. KFCTM is based in Louisville, Kentucky. As of year-end 2002, KFCTM was the leader in the
Canadian QSR segment among companies featuring ‘‘chicken-on-the-bone’’ as their primary
product offering. KFCTM operates approximately 12,300 restaurants in 88 countries and territories.
While product offerings vary throughout the worldwide system, traditional KFCTM restaurants offer fried
‘‘chicken-on-the-bone’’ products, primarily marketed under the names Original Recipe˛ and Extra CrispyTM. Other
principal entree items include chicken sandwiches (including the TwisterTM), Colonel’s Crispy Strips˛, Popcorn
ChickenTM and, seasonally, Chunky Chicken Pot PiesTM. KFCTM restaurants also offer a variety of side items, such as
coleslaw, potato salad, macaroni salad and french fries, as well as desserts and non-alcoholic beverages. Restaurant
decor is characterized by the image of the ColonelTM and KFCTM’s distinctive packaging includes the ‘‘Bucket’’ of
chicken.
For the most part, menu items are combined and sold as packaged meals designed to serve anywhere from 1 to
12 people. ‘‘Family Packs’’, designed for large groups, provide a convenient choice for consumers, as they package
together a variety of foods to suit various tastes. At the $20 price point, Family Packs increase the Company’s KFCTM
average customer cheque, which at approximately $10.30 is significantly higher than the average customer cheque of
$4.04 for a typical QSR. In addition, Family Packs improve KFCTM’s speed of service since they can be packaged prior
to a customer’s order.
KFCTM restaurants also offer a variety of individual ‘‘Combo’’ meals, which combine chicken with side items and
a soft drink, or a sandwich with fries and a soft drink. Prices for ‘‘Combo’’ meals range from $3.99 to $5.99,
representing an average saving of $1.20 off individually priced items. In addition, KFCTM restaurants offer customers
the option to ‘‘megasize’’ their meals by increasing the size of their fries and/or drink for approximately $0.30 to $0.50.
In terms of revenue by specific menu items, large group meals represent over 40% of the Company’s revenue. The
Company Restaurants are open from 11:00 a.m. to 10:00 p.m., and therefore serve lunch, dinner and snacks. Over 70%
of the Company’s business is conducted between the hours of 2:00 p.m. and 8:00 p.m.
26
Multi-branding
Multi-branding refers to the practice of combining two brand concepts in one restaurant. The
Company has 52 locations where a host KFCTM restaurant is combined with either a Pizza HutTM
concept or a Taco BellTM concept. Although none of the Company Restaurants currently include the Long John
Silver’sTM concept, subject to the approval of the Franchisor, there may be an opportunity for the Company to multi-
brand its KFCTM restaurants with the Long John Silver’sTM concept in the future. Multi-brand restaurant growth can be
pursued at a far lower capital cost than building a new restaurant and does not have the same inherent risk associated
with adding additional locations.
Management believes that the multi-brand concept helps expand the breadth of product offerings, thereby adding
variety for consumers, and helping to counter the ‘‘veto’’ vote that families or groups experience when one member
refuses to eat at a particular chain. Over the past three years, the Company’s multi-brand restaurants have grown from
6% to 11% of its total restaurant locations.
The Pizza Hut TM Concept
Pizza HutTM is the only ‘‘national’’ pizza franchise chain in Canada and the brand has the largest sales volume in
Canada. Pizza HutTM is positioned as the pizza chain known for ‘‘quality, innovative products and variety’’. Pizza HutTM
also features beverages, breadsticks, appetizers and salads. More than 76% of Pizza HutTM revenue is generated through
pizza sales.
The Taco Bell TM Concept
Taco BellTM specializes in Mexican-style food products, including various types of tacos, burritos, gorditas,
chalupas and salads. Consumer research derived from focus groups commissioned by PB LP shows that the Taco BellTM
brand continues to have high regard, uniqueness and value scores.
The Long John Silver’sTM Concept
Long John Silver’sTM is an additional concept that the Franchisor has recently introduced in Canada. Long John
Silver’sTM is the largest quick-service seafood chain in the United States (by number of restaurants). The Long John
Silver’sTM menu includes a variety of signature batter-dipped fish, chicken, and seafood, breaded fish, a signature
sandwich line, salads and desserts.
Restaurant Operations
Management within each Company Restaurant varies by brand concept and restaurant size. Generally, each
Company Restaurant is managed by one RGM, together with one or more assistant managers, depending on the
operating complexity and sales volume of the Company Restaurant. Each Company Restaurant typically has between
10 and 35 hourly employees, most of whom work part-time. The Franchisor issues detailed manuals for each concept
covering all aspects of their respective operations, including food handling and product preparation procedures, safety
and quality issues, equipment maintenance, facility standards and accounting control procedures. The restaurant
management teams are responsible for day-to-day operation of each Company Restaurant and for ensuring compliance
with operating standards.
CHAMPS is the Franchisor’s system-wide program for training, measuring and rewarding employee performance
against key customer measures. CHAMPS is intended to align the operating processes of all KFCTM franchisees around
one set of standards. RGMs’ efforts, including CHAMPS performance measures, are monitored by area managers. Area
managers typically work with approximately ten to fifteen restaurants. The Company Restaurants are visited from time
to time by various senior management to help ensure adherence to system standards and to mentor restaurant team
members. CHAMPS data are provided on an ongoing basis to the Franchisor.
RGMs attend and complete training programs for their respective concept. These programs consist of initial
training, as well as additional continuing development and training programs that may be offered or required from time
to time. Initial RGM training programs emphasize leadership, business management, supervisory skills, product
preparation and production, safety, quality control, customer service, labour management and equipment maintenance.
27
The Company owns and operates a salad production facility that produced approximately 7.6 million kilograms of
coleslaw, macaroni salad and potato salad in 2002. The Company is the primary consumer of the salad production
facility’s products, although other KFCTM franchises and some grocery stores purchase products from the salad
production facility at market rates. Four full-time, salaried employees and 23 full-time, hourly employees are employed
by the Company in the operation of the salad production facility. The salad production facility leased by the Company
is located in Toronto, Ontario and is approximately 41,000 square feet. The remaining term of the salad production
facility lease is approximately 14.5 years.
Capital Expenditures
On-going Maintenance Capital Expenditure Requirements. Maintenance capital expenditures, which are
capitalized by the Company, are those maintenance expenditures required to maintain existing restaurants. Included in
maintenance capital expenditures are amounts for equipment replacement, rollouts of new products and signage. The
Company’s average annual maintenance capital expenditures over the last two fiscal years was $3.5 million.
Management believes that annual maintenance capital expenditures of $3.5 million are required to maintain the
operations of the Company Restaurants.
Additional Capital Expenditures Required for Growth Strategy and Upgrade Requirements under the Franchise
Agreement. Since July 10, 2000, the Company has increased the number of multi-brand restaurants it operates and has
modernized the interior and exterior appearance of a number of Company Restaurants. Where possible, Management will
consider opportunities to multi-brand a Company Restaurant at the same time as it performs full upgrades of the interior
and exterior appearance of the restaurant. Such upgrades are required for each Company Restaurant as a condition of the
renewal of the Franchise Agreement. Management estimates that the cost of multi-branding and the cost of fully
upgrading the Company Restaurants will be approximately $50,000 to $250,000 per Company Restaurant depending on
the size and type of restaurant facility. These estimates include applicable franchise renewal fees.
Management expects to fund these capital expenditures from the $25 million capital pool to be created out of the
gross proceeds of the Offering, an ongoing annual reserve from cash available for distributions of approximately
$1.1 million and an additional reserve from cash available for distributions to be based upon the incremental EBITDA
generated from the Company’s multi-branding and upgrade activity each year. The development of a multi-brand
restaurant, if it has been approved by the Franchisor and the landlord (if required under the applicable lease), only
requires modification to an existing Company Restaurant and the purchasing of additional equipment and signage.
The Company is in material compliance with its various upgrade obligations under the Franchise Agreement and
Management expects renewals of the Franchise Agreement for the Company Restaurants to be granted by the
Franchisor in the ordinary course. There can be no assurance that the Company will have sufficient cash to meet the
upgrade and renewal fee requirements under the Franchise Agreement. See ‘‘Risk Factors’’.
Historical Maintenance Capital Expenditures. For information relating to historical maintenance capital
expenditures, see ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’.
Properties
The Company Restaurants are located in seven provinces of Canada. The concentration of these restaurants among
the provinces largely matches population distribution. The Company’s geographic diversification reduces its exposure
to regional economic conditions that may affect a particular province or area. The following chart illustrates the sales
by province of the Company Restaurants for the 52 weeks ended August 10, 2003:
Restaurant Sales by Province
Nova Scotia British
6% Columbia
New Brunswick 9% Alberta
4% 12%
Quebec Manitoba
20% 7%
Ontario
42%
28
The Company leases all of its restaurant premises as well as its head office and the salad production facility. The
average remaining term of each restaurant lease is approximately 15.4 years (assuming the exercise of all renewal
options). These leases are held by various landlords, including each of Yum! Canada (and/or its affiliates) and Scott’s
Restaurants Inc. (and/or its affiliates) pursuant to their respective master lease agreements with the Company. See
‘‘Principal Agreements — Lease Agreement with Yum! Canada’’, ‘‘Principal Agreements — Lease Agreement with
Scott’s Restaurants Inc.’’ and ‘‘Interest of Management and Others in Material Transactions’’.
The chart below outlines the remaining terms of the Company Restaurants’ leases (assuming the exercise of all
renewal options):
Remaining Lease Term
250
200
Restaurants
150
100
50
0
<1 Year 1 - 5 Years 5 - 10 Years 10 - 15 Years > 15 Years
Marketing (Advertising and Promotions)
Under the Franchise Agreement, the Company is required to spend at least 5% of its total revenues on marketing
activities as directed by the Franchisor. Historically, these expenditures have been as follows:
(a) approximately 1% of the Company’s annual gross revenues has been paid to a KFCTM co-operative to
develop national advertising and sales promotion materials and concepts to be implemented across Canada.
The Company is kept informed of current advertising campaigns and promotions for the KFCTM brand
around the world, and receives advertising and sales promotion materials for this 1% contribution;
(b) approximately 1% to 2.5% of annual gross revenues, depending on the region or province, has been spent on
regional or provincial media buying cooperatives; and
(c) the remaining portion of the Company’s advertising and marketing budget, approximately 1.5% to 3% of
annual gross revenues of the Company Restaurants, has been spent on local and regional advertising.
Typically this portion of the advertising and promotions budget is spent on local radio and direct mail
promotions.
Suppliers and Distributors
UPGC, a not for profit cooperative set up to act as a central procurement service, manages all of the purchasing for
the Canadian franchisees of the KFCTM, Pizza HutTM and Taco BellTM concepts in Canada, including the Company.
UPGC handles all negotiations with suppliers and distributors, but does not take title to goods. UPGC’s mandate is to
negotiate the lowest cost on all product purchases.
Each franchisee of the Franchisor in Canada is eligible to be a shareholder of UPGC. By co-ordinating purchasing
for franchisees of the Franchisor in Canada, UPGC is able to obtain lower costs for foods, packaging for supplies and
related services and equipment than the franchisees could generally obtain individually.
UPGC is governed by a board of directors, a fixed number of whose members are elected by each of the
Franchisor and by the franchisees of each of the KFCTM, Pizza HutTM and Taco BellTM concepts, respectively. Pursuant
to a shareholders’ agreement, which is subject to renewal from time to time, the franchisees, including the Company,
have agreed to purchase substantially all of the food supplies and equipment required for the operation of their
franchised restaurants through the UPGC. Unless otherwise agreed by the shareholders of UPGC, this arrangement is
terminable in 2004.
Management believes that if the UPCG arrangement is terminated, the purchasing volume of the Company
Restaurants will mitigate any negative effect on supplier pricing.
29
The Company has a long-term distribution arrangement with a reputable national distributor, which is one of the
largest food distribution companies in Canada. This contract is based on a flat markup on food delivered to restaurants.
The Company Restaurants receive direct restaurant delivery from manufacturers for perishable items such as fresh
chicken. The large scale of the Company’s operations provides for economies of scale in purchasing most raw
materials. The Company is one of the largest purchasers of chicken in Canada. The Company currently deals with over
20 national and regional suppliers.
The Company’s five top suppliers based on gross purchases (and the principal products they supply) are: Lilydale
Co-operative Limited (fresh chicken), Maple Lodge Farms Ltd. (fresh chicken), McCain Foods Limited (french fries),
Olymel L.P. (fresh and processed chicken) and Pepsi-Cola Canada Ltd. (beverages). The Company has had a long term
relationship exceeding 10 years with each of these suppliers. In 2002, Canadian KFCTM franchisees purchased a total of
approximately $119 million of products from these suppliers, approximately 70% of which aggregate amount were
Company purchases.
Chicken Marketing Boards
The Company purchases its fresh chicken based on the provincial ‘‘live’’ price. The ‘‘live’’ price is established
provincially by various provincial chicken marketing boards, which are comprised of chicken farmers and processors.
Marketing boards are provincially based and prices vary by jurisdiction.
Trademarks
The Company has rights to use, among others, the KFCTM, Pizza HutTM and Taco BellTM names, logos and products,
in connection with operating the Company Restaurants pursuant to the terms of the Franchise Agreement. The
Company has the right, pursuant to the Franchise Agreement, to use the trademarks, service marks, trade names and
other similar rights owned by the Franchisor (or its affiliates) and designated by the Franchisor from time to time for
use in the operation of the Concepts. See ‘‘Principal Agreements — The Franchise Agreement’’. The KFCTM, Pizza
HutTM and Taco BellTM name and logo are trademarks of Yum! and/or its affiliates.
Employees
The Company has over 8,000 employees, approximately 75% of whom are part time. Management believes that it
provides working conditions and compensation that compare favourably with those of its principal competitors.
Approximately 89% of the Company’s employees are paid on an hourly basis.
The Company has been effective in its efforts to reward and retain quality employees, as evidenced by its low
turnover rate. In an industry characterized by high annual turnover rates, the Company’s average hourly employee
annual turnover rate is 68%. At the RGM and assistant manager level, the Company’s annual turnover rate is
approximately 11% and 24%, respectively. For example, the average tenure for RGMs across the 96 Qu´ bec KFCTM’s
e
which form part of the Company Restaurants is almost 18 years. The average RGM tenure across all of the Company
Restaurants is over 14 years.
A total of 37 of the 466 Company Restaurants are covered by collective bargaining agreements. One agreement
e
covers 10 restaurants in Qu´ bec and another agreement covers 27 restaurants in British Columbia. Since July 10, 2000,
the date that PB LP acquired the Company Restaurants, no Company Restaurants have been added to the collective
bargaining agreements and there have been no work stoppages. Management considers that the Company’s relationship
with the unions is good.
Government Regulation
The Company Restaurants are subject to licensing and regulation by a number of governmental authorities, which
may include liquor, health, sanitation, safety, fire, building and other agencies in the provinces or municipalities in
which QSRs are located. Developing new QSRs in certain locations requires licenses and land use approval, and could
be delayed by difficulties in obtaining such licenses and approvals or by more stringent requirements of local
government bodies with respect to zoning, land use and licensing.
Suppliers of food products to QSRs must comply with applicable federal and provincial regulations relating to the
manufacture, preparation and labelling of food products.
In certain jurisdictions, QSRs are subject to various laws that prohibit or limit smoking on the premises and that
impose fines for failure to adhere to such laws.
30
Competition
The Canadian commercial foodservice industry is intensely competitive with respect to price, food quality, brand
recognition, service, location and concept. In addition, the Canadian commercial foodservice industry is often affected
by changes in consumer tastes and national, regional or local economic conditions. Competition within the industry
comes from both established competitors and potential new market entrants, including restaurant chains based in the
United States and other regions of Canada.
The quick service, family/mid-scale and casual dining segments of the Canadian commercial foodservice industry
are highly competitive. Each Company Restaurant competes with other commercial foodservice operations within the
same geographical area. The Company’s competition includes other restaurants, including quick service and take-out
operations, coffee shops, street vendors, convenience food stores, delicatessens and supermarkets. Each Company
Restaurant competes with other operations in its local market primarily through the quality, variety and value
perception of food products offered. The number and location of outlets, quality and speed of service, attractiveness of
facilities, effectiveness of marketing and new product development are also important competitive factors.
31
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following management’s discussion and analysis of financial condition and results of operations, or MD&A,
of the KFCTM Division of PB LP for the 36 weeks ended August 10, 2003 and August 11, 2002, for the fiscal years
ended December 1, 2002 and December 2, 2001 and for the period from July 10, 2000 to December 3, 2000 should be
read in conjunction with the financial statements of the KFCTM Division of PB LP and related notes included elsewhere
in this prospectus prepared in accordance with GAAP. Certain information contained in MD&A, particularly under the
heading ‘‘Outlook’’, are forward looking statements that are not historical facts but reflect Management’s current
expectation regarding future results. Actual results may differ materially from the results discussed in the forward
looking statements because of a number of risks and uncertainties, including the matters discussed below and
elsewhere in this prospectus, particularly under the heading ‘‘Risk Factors’’.
Overview
The description in this MD&A of the financial condition and results of operations is based on analysis of the
financial statements of the KFCTM Division of PB LP. The KFCTM Division of PB LP owns and operates 494 KFCTM
restaurants in seven provinces in Canada. The KFCTM Division of PB LP comprises 446 (as at August 10, 2003) stand
alone KFCTM restaurants, 48 (as at August 10, 2003) multi-brand restaurants and a salad production facility. PB LP was
formed by its partners Scott’s Restaurants Inc. and Yum! Canada to acquire KFCTM, Pizza HutTM and Taco BellTM
restaurants from the two partners. The two partners originally contributed a total of 649 restaurants, including
507 KFCTM restaurants, to PB LP. The restaurants in the KFCTM Division of PB LP operate under franchise agreements
with the Franchisor. Substantially all of the restaurants in the KFCTM Division of PB LP, being 466 KFCTM restaurants,
will be acquired indirectly by the Fund through its initial public offering. See ‘‘Funding, Acquisitions and Related
Transactions’’.
The financial statements of the KFCTM Division of PB LP have been prepared for inclusion in this prospectus to
present the historical financial position, results of operations and cash flows of the KFCTM Division of PB LP since the
acquisition of the restaurants on July 10, 2000. The financial position, results of operations and cash flows are not
necessarily indicative of the financial position, results of operations or cash flows of the business in the future or that
would have occurred had the KFCTM Division of PB LP been a separate legal entity. As the KFCTM Division of PB LP is
not a legal entity, the financial statements report the net equity in the business as equity in net assets. As the KFCTM
Division of PB LP is part of a limited partnership, no provision for income taxes is made as the income from PB LP is
taxed directly to the partners and the financial statements do not include all of the assets, liabilities, revenue and
expenses of its partners. All assets, liabilities, revenues and expenses directly attributable to the KFCTM Division of
PB LP have been presented in the financial statements. Certain assumptions and allocations of assets, liabilities and
expenses are described in note 1 of the financial statements of the KFCTM Division of PB LP included elsewhere in this
prospectus.
The fiscal year-end of the KFCTM Division of PB LP and PB LP is the Sunday closest to November 30 and
comprises 13 four-week periods. The first three quarters of each fiscal year consist of 12 weeks and the fourth quarter
consists of 16 weeks.
The KFCTM Division of PB LP is the largest franchisee of KFCTM restaurants in Canada. As of August 10, 2003,
the KFCTM Division of PB LP owned and operated 494 restaurants, including 48 multi-brand restaurants. The KFCTM
concept has proprietary menu items and emphasizes the preparation of food with high quality ingredients with unique
recipes and seasonings. Traditional restaurants feature a combination of dine-in, carryout, drive-thru or delivery
service. The KFCTM Division of PB LP continues to actively pursue opportunities for multi-branding, where two or
more brand concepts are operated in a single restaurant.
32
The following table presents the ending restaurant count for the KFCTM Division of PB LP since the acquisition of
the restaurants on July 10, 2000 through to August 10, 2003. During this period the KFCTM Division of PB LP closed 37
under performing restaurants, opened 16 new locations and acquired 8 existing restaurants from other franchisees. At
the formation of PB LP reserves were established for committed restaurant closures.
Stand-alone KFCTM Multi-brand Total
Restaurant Restaurant Division
July 10, 2000 ************************************************ 474 33 507
December 3, 2000 ******************************************** 469 32 501
December 2, 2001 ******************************************** 459 34 493
August 11, 2002 ********************************************** 460 36 496
December 1, 2002 ******************************************** 456 41 497
August 10, 2003 ********************************************** 446 48 494
The Fund
The Fund will be entirely dependent on the operations and financial condition of KIT LP. In turn, KIT LP’s
earnings and cash flows may be affected by certain risks described elsewhere in this prospectus. See ‘‘Risk Factors’’.
Key Performance Drivers and Factors Affecting Operating Results
Key performance drivers of the business are: (i) restaurant sales, (ii) cost of food and paper and (iii) cost of labour.
Restaurant sales are impacted by a number of factors including: new product introductions, successful advertising
campaigns, additional service options such as drive-thru windows and menu pricing. In the past the Franchisor has
provided many new product innovations such as Extra CrispyTM, Popcorn ChickenTM, TwisterTM and KFCTM salads.
Advertising campaigns are developed working with the KFCTM Division of PB LP’s advertising agency. In-
addition the KFCTM Division of PB LP participates in advertising cooperatives with other Canadian KFCTM franchisees.
These cooperatives provide a more efficient and cost effective method to leverage the purchase of media across
Canada. The Franchise Agreement requires a minimum of 5% of revenues be spent on marketing activities.
Menu price increases are reviewed and implemented throughout the year to offset increased costs. The ability to
recover all increased food and labour costs through higher pricing is, at times, limited by the competitive environment
in which the KFCTM Division of PB LP operates.
The cost of food and paper is a significant performance driver with chicken representing the largest component of
this category. In Canada, production and market pricing is regulated by provincial marketing boards. Over the past
several years, the KFCTM Division of PB LP has not experienced significant volatility in the cost of chicken. For all
other food items the KFCTM Division of PB LP participates in a purchasing cooperative with other KFCTM, Pizza HutTM
and Taco BellTM franchisees. This purchasing power leverages the entire $1 billion plus system sales for the KFCTM,
Pizza HutTM and Taco BellTM concepts in Canada.
Restaurant staffing consists mainly of hourly paid employees. Staffing levels vary depending on the time of the
day, sales and transaction volume. Hourly pay rates are generally adjusted twice a year.
33
Results of Operations
The following table presents summary information regarding the KFCTM Division of PB LP’s operating results for
the 36 weeks ended August 10, 2003 and August 11, 2002, the fiscal years ended December 1, 2002 and December 2,
2001 and the period from July 10, 2000 to December 3, 2000. As discussed above, this information was prepared on a
carve-out basis and may not be indicative of the results of operations of the business in the future or what would have
occurred had the KFCTM Division of PB LP been a separate legal entity.
Period from
July 10,
36 weeks ended Year ended 2000
August 10, % of August 11, % of Dec. 1, % of Dec. 2, % of to Dec. 3, % of
2003 sales 2002 sales 2002 sales 2001 sales 2000 sales
(Unaudited) (Unaudited)
(dollar amounts in thousands)
Restaurant sales **************** $328,828 $333,074 $482,354 $477,551 $197,628
Cost of restaurant sales *********** 197,098 60.0% 199,802 60.0% 287,958 59.7% 286,625 60.0% 118,510 60.0%
Restaurant operating expenses****** 71,516 21.7% 67,074 20.1% 98,796 20.5% 96,524 20.2% 38,899 19.7%
Franchise royalty expense ********* 19,756 6.0% 20,006 6.0% 28,979 6.0% 28,687 6.0% 11,868 6.0%
Depreciation and amortization
expense ********************** 12,607 3.8% 13,696 4.1% 19,573 4.0% 22,335 4.7% 9,086 4.6%
300,977 91.5% 300,578 90.2% 435,306 90.2% 434,171 90.9% 178,363 90.3%
Income from restaurant operations 27,851 8.5% 32,496 9.8% 47,048 9.8% 43,380 9.1% 19,265 9.7%
General and administrative expenses 14,051 4.3% 15,275 4.6% 19,966 4.2% 17,834 3.7% 9,796 5.0%
Employee severance ************** 2,583 0.8% — — — 2,260 1.1%
Loss on sale of land and buildings ** 2,652 0.8% — — — —
Net income for the period ******** 8,565 2.6% 17,221 5.2% 27,082 5.6% 25,546 5.4% 7,209 3.6%
Cost of restaurant sales comprises food, supplies and direct labour costs. Restaurant operating expenses comprises
all other direct costs including advertising, rent, utilities, occupancy, expenditures for repairs and maintenance, home
delivery, operating supplies, bank charges, insurance and other costs. For additional information relating to the
components of cost of restaurant sales and restaurant operating expenses, see note 9 to the financial statements of the
KFCTM Division of PB LP. General and administrative expenses include an allocation of centralized services provided
to the KFCTM Division of PB LP by PB LP including human resources, finance, non-restaurant level management,
information technology, development, advertising administration and other general expenses. For additional
information regarding the allocation of general and administrative expenses, see note 1 to the financial statements of the
KFCTM Division of PB LP. Depreciation and amortization comprises depreciation on fixed assets and the KFCTM
Division of PB LP’s allocation of amortization of franchise rights.
36 Weeks ended August 10, 2003 compared to 36 Weeks ended August 11, 2002
Restaurant sales decreased $4.3 million or 1.3% for the 36 weeks ended August 10, 2003 to $328.8 million from
$333.1 million for the 36 weeks ended August 11, 2002. Same restaurant sales decreased 2.3% during the 36 weeks
ended August 10, 2003 (same restaurants defined as restaurants opened 36 weeks in both 2003 and 2002). Management
attributes the decrease in same restaurant sales to a number of factors including: the negative effect of the SARS
(Severe Acute Respiratory Syndrome) quarantine impacting consumer spending and tourism across Canada, in
particular the greater Toronto area, where approximately 18% of the KFCTM Division of PB LP restaurants are located;
increased pricing pressure from QSR competitors; and a severe 2003 winter. During the 36 weeks of 2003, four
restaurants were opened and seven under-performing restaurants were closed while during the 36 weeks of 2002, seven
restaurants were opened and four restaurants were closed.
Cost of restaurant sales remained constant at 60% of restaurant sales during the 36 weeks ended August 10, 2003
and August 11, 2002.
Restaurant operating expenses increased by $4.4 million or 6.6% to $71.5 million in the 36 weeks ended
August 10, 2003 from $67.1 million in the corresponding prior period. This increase in restaurant operating expenses is
primarily due to the sale and leaseback of 65 properties with Scott’s Restaurants Inc. that occurred on two separate
occasions, 29 properties in October 2002 and 36 properties in March 2003, resulting in additional rent payments of
$2.1 million in the 36 weeks ended August 10, 2003. In addition, utility costs increased by $1.1 million or 12% in the
36 weeks ended August 10, 2003 compared to the corresponding prior period due to severe 2003 winter weather
34
increasing consumption of electricity and an increase in oil and natural gas prices. The remaining $1.2 million increase
in restaurant operating expenses is primarily attributable to an increase in insurance expenses and bank fees relating to
restaurant activity.
Depreciation and amortization expense decreased by $1.1 million or 8% in the 36 weeks ended August 10, 2003 to
$12.6 million from $13.7 million for the 36 weeks ended August 11, 2002. This decrease is primarily a result of the two
sale leaseback transactions discussed above.
General and administrative expenses allocated to the KFCTM Division of PB LP decreased by $1.2 million to
$14.1 million from $15.3 million due to lower salary and bonus expense as a result of a restructuring of PB LP and the
termination of 30 employees in January 2003.
In March 2003 the KFCTM Division of PB LP undertook a sale and leaseback transaction of 36 properties which
resulted in gains totaling $3.6 million on 21 properties, which has been deferred and will be amortized over the 15 year
term of the related leases, and losses totaling $2.7 million on 15 properties, which has been charged to income.
Restructuring of certain functions and processes that took place in January 2003 resulted in employee severance
expense of $2.6 million. The $2.6 million of employee severance is Management’s estimate of the amount of total
severance incurred by PB LP which is attributable to the KFCTM Division of PB LP.
The above resulted in net income of $8.6 million for the 36 weeks ended August 10, 2003 compared to
$17.2 million for the 36 weeks ended August 11, 2002.
Year ended December 2, 2001 compared to year ended December 1, 2002
Restaurant sales for the year ended December 1, 2002 increased by $4.8 million or 1.0% to $482.4 million from
$477.6 million for the year ended December 2, 2001. Growth due to the development of multi-brand and new KFCTM
restaurants added $8.8 million to sales for the year ended December 1, 2002. The existing restaurants experienced a
slight increase of 0.1% or $0.6 million and closures of under-performing restaurants resulted in a reduction of
$1.0 million in sales.
Cost of restaurant sales as a percentage of sales decreased by 0.3% to 59.7% for the year ended December 1, 2002
from 60.0% for the year ended December 2, 2001. This decrease in cost of sales resulted principally from lower
chicken prices which were offset by increased employee benefit costs.
Restaurant operating expenses for the year ended December 1, 2002 increased by $2.3 million or 2.4% to
$98.8 million from $96.5 million for the year ended December 2, 2001. Significant components of this increase include
occupancy expenses which rose by $1.2 million due to the sale leaseback of 29 properties in October 2002 and 14
properties in May 2001 and new restaurants added to the portfolio in 2002. Maintenance costs were also $0.7 million
higher during 2002.
Depreciation and amortization for the year ended December 1, 2002 decreased by $2.7 million or 12.1% to
$19.6 million from $22.3 million for the year ended December 2, 2001. This decrease is primarily due to the decrease
in restaurant assets resulting from the sale leaseback of properties in October, 2002 and restaurants that were closed in
2001 and 2002.
General and administrative expenses allocated to the KFCTM Division of PB LP increased by $2.1 million to
$20.0 million. This increase was driven by higher staffing levels in the marketing and development functions.
Year ended December 2, 2001 compared to the Period from July 10, 2000 to December 3, 2000
The 2000 stub period contained slightly more than 15 weeks of activity and is therefore not comparable to the
52 weeks of 2001. Cost of restaurant sales as a percentage of sales was 60.0% for the stub period, which was consistent
with the full year of 2001. Restaurant operating expenses as a percentage of sales was 19.7% which was slightly lower
than 20.2% for the fiscal year 2001. General and administrative expense was $9.8 million for the stub period and
included initial and incremental expenses associated with the formation of PB LP. A charge of $2.3 million related to
employee severance associated with duplication of functions and processes in the businesses contributed by Scott’s
Restaurants Inc. and Yum! Canada to PB LP was incurred during this period.
35
Capital Expenditures
On-going Maintenance Capital Expenditure Requirements. Maintenance capital expenditures are required to
maintain existing restaurants. Included in maintenance capital expenditures are amounts for equipment replacement and
additions driven by new products, signage and general replacement. The KFCTM Division of PB LP’s average annual
maintenance capital expenditures over the last two fiscal years was $3.5 million. Management believes that annual
maintenance capital expenditures of $3.5 million are required going forward to maintain the operations of the KFCTM
Division of PB LP’s restaurants.
Capital Expenditures Required for Growth Strategy and Upgrade Requirements under the Franchise Agreement.
Since July 10, 2000, the Company has increased the number of multi-brand restaurants it owns and operates and has
modernized the interior and exterior appearance of a number of existing restaurants. Management will pursue growth
opportunities by continuing to evaluate existing restaurants for multi-brand potential. In addition to sales growth
multi-brand restaurants provide a cost effective method to upgrade the interior and exterior of the restaurants.
Development of a multi-branded restaurant, after it has been approved by the Franchisor, requires only modification of
an existing restaurant and the purchase of additional equipment and signage.
Management estimates that the cost of multi-branding and the cost of fully upgrading the Company Restaurants
will be approximately $50,000 to $250,000 per Company Restaurant depending on the type and size of restaurant
facility. These estimates include applicable franchise renewal fees. Management expects to fund these capital
expenditures from the $25 million capital pool to be created out of the gross proceeds of the Offering, an ongoing
annual reserve from cash available for distributions of approximately $1.1 million and an additional reserve from cash
available for distributions based upon incremental EBITDA generated from the multi-branding and upgrade activity
each year.
Liquidity and Capital Resources
As discussed above, the financial statements of the KFCTM Division of PB LP have been prepared on a carve-out
basis and may not be necessarily indicative of the cash flows generated by the business in the future or what would
have occurred had the KFCTM Division of PB LP been a separate legal entity. As the KFCTM Division of PB LP is not a
legal entity, the financial statements report the net equity in the business as equity in net assets with no partnership
capital or third-party debt. Furthermore, the basis of presentation of the KFCTM Division of PB LP’s financial
statements assumes that all of the cash flows generated by the business are transferred to PB LP, as reported under the
heading ‘‘Financing Activities’’ of the statements of cash flows.
The KFCTM Division of PB LP has historically financed its business activities primarily from cash generated by
operating activities and sale leaseback transactions.
Cash flows provided by operating activities were $15.1 million and $23.3 million in the 36 weeks ended
August 10, 2003 and August 11, 2002, respectively. The decrease in cash provided by operating activities was
primarily due to a decrease in net income of $8.7 million.
Cash flows provided by operating activities were $45.9 million, $56.9 million and $37.7 million in the years ended
December 1, 2002, December 2, 2001 and the 2000 stub period, respectively. Operating cash flows were impacted
positively in the year ended December 2, 2001 by the timing of payment of accounts payable and accrued liabilities.
Operating cash flows for the 2000 stub period include a favourable change in net working capital of $21.4 million,
which primarily results from a change in accounts payable and accrued liabilities, because upon formation of PB LP, no
trade accounts payable and accrued liabilities were contributed by the partners.
Cash flows used in investing activities were $3.4 million and $7.5 million in the 36 weeks ended August 10, 2003
and August 11, 2002, respectively. The 2003 period includes a decrease of $4.1 million of capital expenditures.
Cash flows used in investing activities were $25.4 million, $10.9 million and $1.3 million in the years ended
December 1, 2002, December 2, 2001 and the 2000 stub period, respectively. Capital expenditures used $22.4 million
and $10.6 million of cash flows during the years ended December 1, 2002 and December 2, 2001, respectively. The
significantly higher capital expenditures in 2002 were attributed to more development of new restaurants and multi-
branding initiatives. The 2002 period also includes $2.5 million of cash flows used to acquire 3 new KFCTM restaurants.
Cash flows used in financing activities were $11.7 million and $15.8 million in the 36 weeks ended August 10,
2003 and August 11, 2002, respectively. Proceeds on the sale of land and buildings in connection with the sale
leaseback transaction in March 2003 of $18.1 million and a transfer of cash to PB LP of $29.8 million represented the
36
net cash flow generated by the KFCTM Division of PB LP during the period. The 2002 period cash flows used in
financing activities primarily reflect the transfer of the KFCTM Division of PB LP’s net cash flow to PB LP.
Cash flows used in financing activities were $20.4 million, $46.0 million and $36.5 million in the years ended
December 1, 2002, December 2, 2001 and the 2000 stub period, respectively. Proceeds on the sale of land and
buildings including sale leaseback transactions represented $21.0 million and $12.0 million of cash flows generated by
financing activities during the years ended December 1, 2002 and December 2, 2001, respectively offset by
$41.4 million and $58.0 million representing the net cash flow generated by the KFCTM Division of PB LP, which was
transferred to PB LP, for the years ended December 1, 2002 and December 2, 2001.
Management anticipates that its future capital requirements will be primarily for upgrading existing restaurants
and the replacement of restaurant equipment. The Fund will have two principal sources of liquidity: cash provided by
operations and cash on hand, which will be approximately $25 million on the closing of the Offering.
Critical Accounting Policies
The preparation of financial statements in conformity with GAAP requires Management to make assumptions and
estimates that can have a material impact on its results of operations. Sales recognition at restaurants is straightforward
as customers pay for food and beverage at the time of sale and inventory turns over very quickly. Payment to suppliers
for products sold in the restaurants are generally settled within 30 days. The financial reporting process of the KFCTM
Division of PB LP is covered by PB LP’s system of internal controls, and generally does not require significant
Management estimates and judgments. However, estimates and judgments are inherent in the assessment and recording
of land, buildings and equipment, impairment of long-lived assets, evaluation of franchise rights for impairment and
accrued liabilities. In addition, estimates and judgments are inherent in the allocation of certain assets, liabilities and
costs to the KFCTM Division of PB LP. While Management applies judgment based on assumptions believed to be
reasonable under the circumstances, actual results could vary from these assumptions. It is possible that materially
different amounts would be reported using different assumptions.
Recent Accounting Pronouncements
Management is not aware of any recent accounting pronouncements that would have an effect on these financial
statements or notes to the financial statements.
Seasonality
The KFCTM business is seasonal, with sales in the three-month period of July, August and September typically
accounting for 27% of annual sales versus 22% for the three-month period of January, February and March.
Outlook
Following the completion of the transactions contemplated by this prospectus, Management believes that the
$25 million capital pool created out of the gross proceeds of the Offering and the ongoing cash flow from operations
will be sufficient to allow it to meet all anticipated capital expenditures. However, the cash flow requirements of the
business may change and in such event the Fund’s ability to satisfy its obligations will be dependent upon future
financial performance, which in turn will be subject to general economic conditions and to financial, business and other
factors, including elements beyond Management’s control. Refer to ‘‘Risk Factors’’.
Prior to the completion of this Offering, the KFCTM Division of PB LP operated as a private entity. The
establishment of KIT LP as an indirect subsidiary of the Fund will likely result in incremental expenses estimated to be
$950,000 annually in respect of investor relations costs, additional insurance expense and professional fees.
Since July 10, 2000, PB LP’s marketing costs expressed as a percentage of sales have decreased. This decrease
has been achieved by increasing the use of more cost-effective in-house marketing services and reducing the use of
third party agents and other low impact marketing activities. Through targeted marketing, Management expects this
trend to continue and anticipates marketing costs to be 5% of revenues, which is the minimum amount required to be
spent by the Company on advertising, marketing and promotion pursuant to the Franchise Agreement.
37
SELECTED FINANCIAL INFORMATION
The following table sets out selected historical financial information for the KFCTM Division of PB LP for the
periods indicated, prepared in accordance with GAAP. This information should be read in conjunction with the
financial statements of the KFCTM Division of PB LP for the 36 weeks ended August 10, 2003 and August 11, 2002, the
years ended December 1, 2002 and December 2, 2001 and the period from July 10, 2000 to December 3, 2000 and the
related notes, and ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’, all as
included elsewhere in this prospectus. Such financial statements of the KFCTM Division of PB LP include the
results of all of the restaurant operations of the KFCTM Division of PB LP, including 31 restaurants currently
operated by PB LP that will not be transferred to the Company (which excluded restaurants are expected to be
closed or refranchised to non-competing franchisees within one year of the Closing Date), as outlined under the
heading ‘‘Funding, Acquisition and Related Transactions’’.
36 weeks ended Year ended Period from
Aug. 10, Aug. 11, Dec. 1, Dec. 2, July 10, 2000
2003 2002 2002 2001 to Dec. 3, 2000
(Unaudited) (Unaudited)
(dollar amounts in thousands)
Statement of Income Data:
Restaurant sales ******************************** $328,828 $333,074 $482,354 $477,551 $197,628
Cost of restaurant sales ************************** 197,098 199,802 287,958 286,625 118,510
Income from restaurant operations ***************** 27,851 32,496 47,048 43,380 19,265
Net income************************************ 8,565 17,221 27,082 25,546 7,209
EBITDA (1) *********************************** 26,817 30,917 46,955 47,881 18,555
Reconciliation of Net income to EBITDA:
Net Income************************************ 8,565 17,221 27,082 25,546 7,209
Add:
Depreciation and amortization ****************** 12,607 13,696 19,573 22,335 9,086
Write down of leasehold improvements*********** 410 — 300 — —
Loss on sale of land and buildings*************** 2,652 — — — —
Employee severance ************************** 2,583 — — — 2,260
EBITDA ************************************** $ 26,817 $ 30,917 $ 46,955 $ 47,881 $ 18,555
Number of restaurants at end of period (unaudited) *** 494 496 497 493 501
(1) EBITDA is not a recognized measure under GAAP and does not have a standardized meaning prescribed by GAAP. Therefore, EBITDA may
not be comparable to similar measures presented by other issuers. See ‘‘Definition of EBITDA and Adjusted EBITDA’’.
38
SELECTED PRO FORMA FINANCIAL INFORMATION
The following table sets out selected pro forma financial information of the KFCTM Division of PB LP for the
periods indicated. This information should be read in conjunction with the pro forma consolidated financial statements
of the Fund for the 36 weeks ended August 10, 2003 and for the year ended December 1, 2002 and the related notes,
included elsewhere in this prospectus. ‘‘Pro forma’’ means the financial information of the KFCTM Division of
PB LP attributable to the Company Restaurants being transferred to the Company, as if the transfer of the
business had occurred at the beginning of the periods presented, but does not give effect to the Offering. Pro
forma amounts for the 36 weeks ended August 11, 2002 are unaudited and have been prepared by Management in a
manner consistent with those amounts for the year ended December 1, 2002 and the 36 weeks ended August 10, 2003.
The amounts for the 52 weeks ended August 10, 2003 are unaudited and have been derived from the pro forma
financial results for the year ended December 1, 2002 and the 36 weeks ended August 10, 2003 and August 11, 2002
included in this table and elsewhere in this prospectus. The pro forma financial information for the 52 weeks ended
August 10, 2003 is not necessarily indicative of the results of operations to be expected in any given fiscal year.
52 weeks
ended 36 weeks ended Year ended
Aug. 10, Aug. 10, Aug. 11, Dec. 1,
2003 2003 2002 2002
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
(dollar amounts in thousands)
Statement of Income Data:
Restaurant sales ************************************** $460,205 $316,561 $320,464 $464,108
Cost of restaurant sales ******************************** 273,102 188,800 191,458 275,760
Income from restaurant operations *********************** 40,824 26,496 31,251 45,579
Net income ****************************************** 16,847 7,210 15,976 25,613
EBITDA (1) ****************************************** 36,339 22,253 25,912 39,998
Reconciliation of Net income to EBITDA:
Net Income ****************************************** 16,847 7,210 15,976 25,613
Add:
Depreciation and amortization ************************* 13,547 9,398 9,936 14,085
Write down of leasehold improvements ***************** 710 410 — 300
Loss on sale of land and buildings ********************* 2,652 2,652 — —
Employee severance ********************************* 2,583 2,583 — —
EBITDA ******************************************** $ 36,339 $ 22,253 $ 25,912 $ 39,998
Number of restaurants at end of period (unaudited) ********* 466 466 456 460
(1) EBITDA is not a recognized measure under GAAP and does not have a standardized meaning prescribed by GAAP. Therefore, EBITDA may
not be comparable to similar measures presented by other issuers. See ‘‘Definition of EBITDA and Adjusted EBITDA’’.
39
SUMMARY OF DISTRIBUTABLE CASH OF THE FUND
Management of the Company has prepared the following analysis on the basis of the information contained in this
prospectus and Management’s estimate of the amount of expenses and expenditures to be incurred by the Company, the
Trust and the Fund. This analysis is not a forecast or a projection of future results. The actual results of operations of
the Company for any period, whether before or after the closing of the Offering, will likely vary from the amounts set
forth in the following analysis, and such variation may be material.
Management of the Company believes that, upon completion of the Offering and the transactions described under
‘‘Funding, Acquisition and Related Transactions’’, the Company will incur net interest expense and certain additional
administrative costs and require capital expenditures different from those contained in the historical financial
statements or in the unaudited pro forma consolidated financial statements that are included elsewhere in this
prospectus. Although Management of the Company does not have firm commitments for all of those expenses and,
accordingly, the complete financial effects of all of those expenses and expenditures are not objectively determinable,
Management believes that the following represents a reasonable estimate of distributable cash for the 52-week period
ended August 10, 2003 had the Fund been in existence during such time:
52 weeks ended
August 10, 2003 (1),(2)
(thousands of dollars
except per Fund Unit
amounts)
(Unaudited)
Pro forma EBITDA (3) ********************************************************* $36,339
Adjustments to EBITDA
Exclusion of direct costs of terminated employees (4) ****************************** 1,184
Reduction of advertising costs to 5% of sales (5) ********************************** 1,057
Amount to annualize contribution of recently multi-branded and new restaurants (6) ***** 611
Adjusted EBITDA (3) ********************************************************** 39,191
Management estimates the following capital expenditures:
Maintenance capital expenditures (7) ******************************************** 3,560
Reserve for additional capital expenditures (7) ************************************ 1,100
Management also believes that distributable amounts should be reduced by the following:
Cash interest expense (net) (8) ************************************************* 2,597
Additional administrative expenses (9)******************************************* 950
The foregoing adjustments result in total estimated distributable cash ******************* $30,984
Estimated distributable cash per Unit (10) ****************************************** $ 1.20
(1) Assuming the Fund existed for the 52-week period ended August 10, 2003.
(2) Company Restaurants only.
(3) Representing pro forma EBITDA of the KFCTM Division of PB LP attributable to the Company Restaurants being transferred to the Company.
See ‘‘Definition of EBITDA and Adjusted EBITDA’’. EBITDA and Adjusted EBITDA are not recognized measures under GAAP and do not
have a standardized meaning prescribed by GAAP. Therefore, EBITDA and Adjusted EBITDA may not be comparable to similar measures
presented by other issuers.
(4) In the 52 weeks ended August 10, 2003, the Company incurred approximately $1,184,000 of salary and other direct costs for 30 employees
prior to their termination on January 20, 2003 which are not expected to be incurred in the future. See ‘‘Management’s Discussion and
Analysis of Financial Condition and Results of Operations’’.
(5) Since PB LP was formed, the percentage of sales spent on total advertising has been declining. PB LP has reduced its use of third party agents
in favour of in-house marketing services and has reduced other non-direct advertising expenses. Management expects this trend to continue and
anticipates advertising costs to be 5% of sales.
(6) Management has estimated the additional amount to annualize the contribution of recently multi-branded and new restaurants added to the
Company’s portfolio of restaurants during the 52 weeks ended August 10, 2003.
(7) On-going maintenance capital expenditures are estimated to be $3,560,000. In addition to the $25 million capital funding pool created out of
the gross proceeds of the Offering, $1,100,000 of cash available for distributions will be set aside annually as a reserve to fund other capital
expenditures. See ‘‘Business of the Company — Capital Expenditures.’’
(8) Net cash interest expense will consist of interest expense on the $60 million Term Facility based on a 3 year fixed swap rate of 5.37% net of
estimated interest income of $625,500 on the estimated unspent $25 million capital funding pool. See ‘‘Principal Agreements — Term
Facility’’.
(9) Subsequent to the Offering, it is estimated that the Company and the Fund will incur additional general and administrative costs on a
continuing basis, relating to reporting to Voting Unitholders, investor relations and other related expenses typically incurred by a reporting
issuer.
(10) Based on 25,820,000 Units outstanding upon the closing of the Offering, including the Units issuable upon exercise of the Exchange Rights
attached to the Exchangeable LP Units and the Subordinated LP Units owned by PB LP but without giving effect to the Over-Allotment
Option.
40
PRO FORMA CAPITALIZATION OF THE FUND
The following table sets out the pro forma capitalization of the Fund as at September 24, 2003, both before and
after giving effect to the Offering.
Pro forma as at
At September 24, September 24, 2003, after
Designation Authorized 2003 giving effect to the Offering
(unaudited)
Units (1),(2) ************************************* Unlimited $ 100 $ 136,375,000
(10 Units) (15,000,000 Units)
Notes:
(1) The Fund was initially settled on September 24, 2003 with $100.
(2) Assuming no exercise of the Over-Allotment Option granted to the Underwriters.
CONSOLIDATED CAPITALIZATION OF THE COMPANY
The following table sets forth the consolidated capitalization of the Company: (i) immediately before the Offering
and (ii) after giving effect to the Offering.
As at October 31, 2003,
after giving effect
Designation As at October 31, 2003 to the Offering
(unaudited)
Bank Indebtedness (1) ************************************* Nil $ 60,000,000
LP Units (2) (unlimited authorized) ************************** $ 100 $ 244,575,000
(10 LP Units) (25,820,000 LP Units)
Total Capitalization ************************************ $ 100 $ 304,575,000
(1) Concurrently with the closing of the Offering, the Company will draw $60 million under the Term Facility and apply that amount as partial
consideration for the Company Restaurants. See ‘‘Principal Agreements — Term Facility’’ and ‘‘Funding, Acquisition and Related
Transactions’’.
(2) Assuming no exercise of the Over-Allotment Option granted to the Underwriters. After completion of the Offering, but before giving effect to
the exercise of the Over-Allotment Option granted to the Underwriters, PB LP will own a total of 10,820,000 LP Units, of which 5,656,000 are
Exchangeable LP Units that are exchangeable indirectly at any time after a period of 180 days following the closing of the Offering for Units on
a one-for-one basis, and 5,164,000 are Subordinated LP Units that will automatically convert into Exchangeable LP Units on a one-for-one basis
as described under ‘‘Retained Interest and Exchange Rights — Exchange Rights’’.
41
PRINCIPAL AGREEMENTS
The Franchise Agreement
The following is a summary of certain of the key terms of the Franchise Agreement, and is qualified in its entirety
by reference to the complete text of the Franchise Agreement. Each Company Restaurant is operated pursuant to its
own Franchise Agreement, the terms and conditions of which are substantially identical, other than the length of the
initial term (as described below) and other than the Franchise Agreements for multi-brand restaurants, which license
the operation of two Concepts. Other than as specifically set out below, all references to ‘‘Franchise Agreement’’
include each of the 466 separate Franchise Agreements entered into between the Franchisor and the Company on the
closing of the Offering.
Overview
The Franchise Agreement licenses the Company as a franchisee to use the trademarks, the system and the system
property developed by the Franchisor for the preparation, marketing and sale of food products in accordance with the
‘‘KFCTM Outlet’’ restaurant concept at each Company Restaurant location. Additionally, with respect to the multi-brand
restaurants, the Franchise Agreement also licenses the Company as a franchisee to use the trademarks, the system and
the system property developed by the Franchisor for the preparation, marketing and sale of food products in accordance
with a second concept, being either the ‘‘Pizza HutTM Outlet’’ restaurant concept or the ‘‘Taco BellTM Outlet’’ restaurant
concept, in each case at the location of a multi-brand restaurant. Collectively, the ‘‘KFCTM Outlet’’ restaurant concept,
the ‘‘Pizza HutTM Outlet’’ restaurant concept and the ‘‘Taco BellTM Outlet’’ restaurant concepts are referred to as the
‘‘Concepts’’.
The license under the Franchise Agreement also includes the right to use the contents of the manuals, and other
similar documents, published or issued from time to time by the Franchisor containing the standards, specifications and
other requirements, rules, procedures and guidelines relating to the operation of the Concept(s), as well as the
trademarks, service marks, trade names and other similar rights owned by the Franchisor (or its affiliates) and
designated by the Franchisor from time to time for use in the operation of the Concept(s).
The Franchise Agreement provides, among other things, that: (i) the Company must comply with all standards and
manuals issued by the Franchisor and all applicable laws, regulations and other requirements in the conduct of its
business, (ii) the Company must upgrade, modify, renovate or replace all or part of a Company Restaurant as necessary
in order to comply with the standards and the manuals prescribed by the Franchisor or specific upgrade notices issued
by the Franchisor, (iii) the Company must prepare, market and sell only approved products and services and must
purchase supplies, materials, equipment and services only from approved suppliers, (iv) the Company must spend, in
the manner directed by the Franchisor in writing from time to time, an amount not less than 5% of the Company’s
Revenues (as defined below) on advertising, promoting, marketing and researching the products and services of the
Concept(s), (v) employees of the Company must participate in such initial and ongoing training programs as specified
by the Franchisor, (vi) the Company must pay annual continuing fees to the Franchisor equal to 6% of its Revenues (as
defined below), (vii) the Company must use the Franchisor’s trademarks, system and system property only in approved
forms and manners, (viii) the Company and its employees must maintain confidential the Franchisor’s standards,
manuals and other information related to its trademarks, system and system property, and (ix) the Company must
comply with all of the other requirements and restrictions set out in the Franchise Agreement.
The Franchise Agreement defines ‘‘Revenues’’ to mean all gross receipts received by the Company as payment
for the sale of approved products and for all other goods and services sold at or from each Company Restaurant, but
excluding sales tax or other tax receipts required by law to be remitted, and in fact remitted by the Company, to any
government authority. No adjustment for cash shortages from cash registers, the cost of debit cards, credit cards or any
other form of credit payment will be made.
The Franchise Agreement does not grant the Company any exclusive territory, protection or other right in the
contiguous space, area or market of any of the Company Restaurants. Pursuant to the terms of the Franchise
Agreement, the Franchisor reserves the right to use, and to grant to other parties the right to use, all rights associated
with the Concept(s), the system property and the associated trademarks, system and system property associated with the
operation of the Concept(s) in any manner and at any other locations.
The Franchise Agreements have initial terms that expire between 6 and 10 years from the date of the closing of the
Offering. The Company has the right under each Franchise Agreement to renew the Franchise Agreement applicable to
42
each Company Restaurant for an additional term of 10 years on the same contractual and financial terms, provided that
the conditions set out in the Franchise Agreement (including payment of the applicable renewal fee) are satisfied at the
expiration of the initial term thereof.
Grant of Franchise. Under the Franchise Agreement, the Company is granted individual franchises pursuant to
the standard terms of the Franchisor for each of the Company Restaurants. The Franchise Agreement does not permit
the Company to operate at any locations other than the original 466 Company Restaurant sites without the Franchisor’s
prior written approval.
The grant of franchise includes the right to use, solely in connection with the operation of the Company
Restaurants, the Concept(s), the right to use the contents of the manuals, and other similar documents, published or
issued from time to time by the Franchisor containing the standards, specifications and other requirements, rules,
procedures and guidelines relating to the operation of the Concept(s) and the associated trademarks, subject to the terms
and conditions of the Franchise Agreement.
The Franchisor owns, or has the right to use, the trademark registrations and other intellectual property rights
related to the Concept(s) in Canada. The Franchisor may at any time by notice to the Company change or withdraw any
of these trademarks, or designate new trademarks, and the Company must, pursuant to the terms of the Franchise
Agreement, implement such changes, withdrawals and additions within the period specified by the Franchisor in the
notice.
Term. The Franchise Agreements have initial terms that expire between 6 and 10 years from the date of the
closing of the Offering. The Company has the right under each Franchise Agreement to renew the Franchise Agreement
for an additional term of 10 years on the same contractual and financial terms, if certain specified renewal conditions
are satisfied, including, without limitation, the following: (i) payment of the applicable renewal fee, (ii) the Company
has requested the renewal in writing no more than 18 months and no less than 12 months prior to the expiration of the
initial term, (iii) the Franchisor’s then current training programs must be in use at all Company Restaurants and all
managers and the principal operator must be trained and certified under current programs, (iv) the Company must have
approved ‘‘field’’ management structures in place and must have participated in the Franchisor’s consumer ‘‘P&L’’
tracking programmes from time to time, (v) the Company is not, at the expiration of the initial term, in breach of any
term or condition of the Franchise Agreement or any other agreement between the Franchisor and the Company (or
their respective affiliated companies), (vi) the Company has paid all amounts due to the Franchisor on time pursuant to
the Franchise Agreement, (vii) no Guarantor is in violation of certain specified terms set forth in the Franchise
Agreement and (viii) the Company must have upgraded the renewal Company Restaurant to the Franchisor’s then
current signage, equipment and image standards for new outlets prior to the expiration of the initial term.
The renewal fee is 50% of the Franchisor’s initial fee (as of the date of renewal) per Company Restaurant. The
Franchisor’s current initial fee (as of the date of this prospectus) is the equivalent in Canadian dollars of
US $37,600 per Company Restaurant.
Continuing Fees and Advertising Contributions. The Company is required to pay every four weeks a
continuing fee to the Franchisor equal to 6% of its Revenues. The Franchise Agreement also provides that the
Company must pay advertising contributions equal to 5% of its Revenues in the manner directed by the Franchisor
from time to time. Each continuing fee payment must be accompanied by a statement of the Revenues of the Company
for the relevant period in the form required by the Franchisor from time to time.
Standards and Manuals. The Company is required to comply with all of the standards and manuals issued by
the Franchisor from time to time. The Franchisor may at any time change any of the standards or manuals or introduce
new standards or manuals. The Franchise Policies Manual (‘‘FPM’’) issued under the Franchise Agreement provides
specific terms relating to market development policies, product excellence policies, marketing and advertising,
operational requirements, global franchise partnering policies, human resources and training, finance and
administration and insurance. These provisions may be unilaterally changed by the Franchisor. In order to determine
the Company’s compliance with the manuals and the terms and conditions of the Franchise Agreement, the Franchisor
and its agents or representatives have the right at all times during opening hours to enter and inspect the Company
Restaurants without prior notice to the Company.
Upgrades. The Company must from time to time upgrade, modify, renovate or replace all or part of the
Company Restaurants or any of their fittings, fixtures or signage or any of the equipment, systems or inventory used in
the Company Restaurant in order to maintain the Company Restaurants’ compliance with the Franchisor’s then current
43
standards, which may require significant capital expenditures and/or periodic financial commitments by the Company.
Furthermore, the Franchisor can, by notice, require the Company to take such upgrade and renovation actions with
respect to one or more Company Restaurants. Pursuant to the terms of the Franchise Agreement, however, the
Franchisor has undertaken that it will not require the Company to complete, during each of the initial term and the
renewal term (if any), more than one comprehensive refurbishment of all fittings, fixtures, signage, equipment, systems
and inventory in the ‘‘front-of-house’’ area of each Company Restaurant to then current standards (an ‘‘FOH
Upgrade’’) and more than one comprehensive refurbishment of all fittings, fixtures, signage, equipment, systems and
inventory in the ‘‘back-of-house’’ area of each Company Restaurant to then current standards (a ‘‘BOH Upgrade’’),
and in any event not to require the Company to complete any FOH Upgrade or BOH Upgrade during the last two years
of each of the initial term and the renewal term. Consequently, under the Franchise Agreement the Company may only
be required to complete a total of two comprehensive FOH Upgrades and two comprehensive BOH Upgrades for each
Company Restaurant during the complete term (including the renewal term, if any) of the Franchise Agreement.
Approved Products, Services, Suppliers and Distributors. The Company may only prepare, market or sell
products and services approved by the Franchisor and may only use suppliers and distributors who have been approved
in writing by the Franchisor. The Franchisor may, by notice to the Company, at any time change or withdraw any
approved product or add new approved products. The Company must implement such changes, withdrawals and
additions within the period specified in the notice. The Company will bear all costs of equipment and the costs of
replacing, modifying or acquiring equipment and of remodelling or altering the Company Restaurants to accommodate
approved products or new products or services mandated by the Franchisor from time to time. The Franchisor may
withdraw approval of any product, supplier or distributor at any time. The Franchisor will from time to time notify the
Company of the approved products and specify which must be offered for sale at the Company Restaurants, and at what
times. The Company will not have any claim against the Franchisor in connection with any non-delivery, delayed
delivery or non-conforming delivery of any distributor or supplier. If the Company wishes to develop, market or sell
new products other than current approved products, it must seek the Franchisor’s approval. The Company must give the
Franchisor 30 days prior written notice of any proposed change in a retail price for an approved product.
Advertising and Research. The Company is required to spend, in the manner directed by the Franchisor in
writing from time to time, not less than 5% of its Revenues on advertising, promoting, marketing and researching the
products and services of the Company Restaurants. The Franchisor will have sole and total control and direction over
all advertising and marketing programs. The Company is required to advertise in the manner directed by the Franchisor
and may not conduct any advertising or promotional activity in relation to the Company Restaurants without the
Franchisor’s prior written approval. The Company will participate in such national and regional advertising,
promotions, research and tests as the Franchisor from time to time requires. The Franchisor may direct the Company to
pay all or any part of the advertising contribution to a national or regional co-operative advertising or marketing fund or
to spend all or part of such contribution on local or regional advertising, promotion and research. The Franchisor may
also direct the Company to pay all or part of the advertising contribution to the Franchisor, to be applied to the costs of
national or regional advertising and/or research conducted by the Franchisor in its discretion.
Non-Competition. During the term of the Franchise Agreement, neither the Company nor any affiliated entity
may, without the Franchisor’s approval, directly or indirectly, have any interest in, be engaged in or perform any
services for any business world-wide involving the wholesale or retail preparation, marketing or sale of any food
products, provided that the Franchisor will not unreasonably withhold its approval unless one of the following
categories of products individually constitutes more than 20% of the food products sold in the business: (i) pizza
products, (ii) pizza and pasta products collectively, (iii) ready-to-eat chicken products, (iv) Mexican food products,
(v) beef burger products, or (vi) fish products. For eighteen months following the final expiry, termination or transfer of
the Franchise Agreement, the Company and its affiliated entities may not, directly or indirectly, have any interest in or
be engaged in or perform any services for any business within Canada involving the preparation, marketing or sale of
products similar to the products sold in the Company Restaurants.
Restrictions on Charges and Transfers. The Company may not charge, pledge or otherwise create any
encumbrance, security interest or lien in respect of any interest in or right under the Franchise Agreement. The
Company may not charge, pledge or otherwise create any encumbrance, security interest or lien in respect of any other
interest in or other asset of the Company Restaurants without the prior written approval of the Franchisor.
The Company may not sell, transfer or gift the Franchise Agreement or any interest therein without the prior
written approval of the proposed transferee by the Franchisor. In addition, the Company must comply with all of the
44
Franchisor’s transfer procedures specified in the FPM, including executing a deed of release satisfactory to the
Franchisor and procuring the execution by the transferee, and by such guarantors as the Franchisor requires, of such
guarantee and other documentation as the Franchisor requires. In the event of an approved transfer, transfer fees equal
to the equivalent in Canadian dollars of US $5,400 (US Consumer Price Index adjusted annually) for each transferred
Company Restaurant (subject to an aggregate maximum amount of the equivalent in Canadian dollars of
US $1,000,000), together with all external costs and expenses incurred by the Franchisor to effect the transfer, must be
paid to the Franchisor.
Rights of First Refusal. If the Company proposes any sale or transfer of a Company Restaurant, any interest in
the Franchise Agreement or any interest or shareholding in the Company (other than transfers expressly contemplated
by the Exchange and Escrow Agreement), the Franchisor has a right of first refusal, exercisable by the Franchisor or by
a nominated third party, to acquire such interest at the same purchase price and otherwise on substantially the same
terms and conditions.
Restrictions on Share Transfers, Reorganizations, Change of Control. The Company may not, directly or
indirectly, without first obtaining the Franchisor’s written approval: (i) permit any sale, transfer, gift, charge or pledge
by any party of any LP Units or any GP Common Shares, (ii) permit a change of control (directly or indirectly) of KIT
LP or KIT GP, (iii) issue any new partnership units in KIT LP or shares in KIT GP to any party who is not a partner of
KIT LP or a shareholder of KIT GP, respectively, at the closing of the Offering, or (iv) permit any reconstruction,
reorganization, amalgamation or other material change in the structure or financial condition of the Company. The
Franchise Agreement does however, permit an internal reorganization or amalgamation involving the Company and
one or more of its wholly-owned subsidiaries.
Prior to a change in the direct or indirect control of the Company, the Company must comply with all of the
Franchisor’s transfer procedures specified in the FPM. The FPM currently provides that the Company must provide the
Franchisor with written details of the proposed new controlling party and must demonstrate that the new controlling
party meets all of the Franchisor’s then current criteria for new franchisees. The Franchisor may withhold approval in
its absolute discretion. Prior to the date of change of control, the Company must pay the applicable transfer fee and
procure the execution by the former and new controlling shareholders of such guarantee and deed of release
documentation as the Franchisor requires.
Notwithstanding the foregoing, the restrictions set out in paragraph (a) above do not apply to any transfer of LP
Units between the current limited partners of the Company (being PB LP and the Trust) as expressly contemplated by
the Exchange and Escrow Agreement.
Insurance. The Company is required at its cost to maintain insurance as prescribed by the Franchisor.
Training. The Company’s employees must undertake at the Company’s cost such initial and ongoing training as
the Franchisor in its sole discretion considers appropriate.
Quality Control. The Company must, at its cost, participate in and comply with all programs prescribed by the
Franchisor to measure quality control, customer satisfaction and brand image.
Termination. The Franchisor may terminate the Franchise Agreement in respect of any or all of the Company
Restaurants when any of the following events occur:
(a) the Company is unable to pay debts as and when they become due or becomes insolvent or a liquidator,
receiver, manager, administrator or trustee in bankruptcy of the Company is appointed, whether
provisionally or finally, or an application or order for the winding up of the Company is made or the
Company enters into any composition or scheme of arrangement;
(b) the Company or any Guarantor breaches certain of the terms and conditions of the Franchise Agreement,
such as: (i) the operation of a Concept at a location other than one of the original 466 Company Restaurants
without the Franchisor’s consent, (ii) sublicensing a Concept to other parties, (iii) the use by the Company
of non-approved products, supplies or services, (iv) improper use of the Franchisor’s licensed trademarks,
(v) breach by the Company of its confidentiality obligations under the Franchise Agreement, (vi) breach by
the Company of the non-competition provisions of the Franchise Agreement, and (vii) contravention by the
Company of the provisions in the Franchise Agreement governing transfers and charges (including improper
share transfers);
45
(c) subject to any cure period enjoyed by a Guarantor, such Guarantor breaches any term or condition of the
Guarantee required by the Franchisor;
(d) the Company or any Guarantor commits any crime, offence or act which in the Franchisor’s reasonable
judgment is likely to adversely affect the goodwill of the franchised business, system, associated trademarks
or associated system property;
(e) the Company knowingly or negligently maintains false records in respect of the Company Restaurants or
submits any false report to the Franchisor;
(f) the Company abandons or ceases to operate any of the 466 Company Restaurants for more than three
consecutive days without the Franchisor’s prior written approval, provided that such approval will not be
unreasonably withheld by the Franchisor where the abandonment or cessation is caused by war, civil
commotion, fire, flood, earthquake, act of God, industrial action or unrest which the Company has used best
endeavours to prevent and remedy;
(g) the Company takes any action to prejudice, damage or contest the validity of the franchised trademarks or
the system property, the goodwill associated with them or the ownership of them by the Franchisor or its
affiliated companies;
(h) any other specified agreement between the Franchisor and the Company (or between their respective
affiliated companies or between one party and an affiliated company of the other party) is terminated;
(i) the Franchisor notifies the Company that the Company or any Guarantor has breached any term or condition
of the Franchise Agreement (other than those identified in paragraph (b), above) or any other agreement
between the Franchisor and the Company and/or any Guarantor (or their respective affiliated companies)
relating to the Company Restaurants and the Company or such Guarantor does not fully cure the breach to
the Franchisor’s satisfaction within the cure period which is specified by the Franchisor in the notice as
reflecting the nature of the breach; or
(j) the Company or any Guarantor materially breaches any term or condition of the Franchise Agreement (other
than those identified in paragraph (b), above) or any other agreement between the Franchisor and the
Company and/or the Guarantor (or their respective affiliated companies (as defined in the Franchise
Agreement)) relating to the Company Restaurants in circumstances where, in the preceding 24-month
period, the Company has been sent two notices, whether or not the Company or the Guarantor cured the
prior material breaches to the Franchisor’s satisfaction.
If any of the foregoing events occurs, the Franchisor may, in addition to and without prejudice to its other rights,
(i) terminate the Company’s right to renew the Franchise Agreement and (ii) itself take whatever actions it considers
necessary to cure the breach at the Company’s cost.
The Franchisor may also, at its option, immediately terminate the Franchise Agreement by notice in writing to the
Company in the event that a ‘‘take-over bid’’, as defined in the Securities Act (Ontario), is made for the Units of the
Fund (or any other securities of the Fund that are outstanding from time to time) or the Trust Units of the Trust (or any
other securities of the Trust that are outstanding from time to time), or in the event that a ‘‘change of control’’ occurs
with respect to either the Fund or the Trust, or in the event any reconstruction, reorganization, amalgamation or other
material change in the structure of either the Fund or the Trust occurs. For this purpose, a ‘‘change of control’’ will
occur if, following the Offering, any Person (including such Person’s associates and affiliates) becomes the beneficial
owner of more than 20% of the outstanding Units (or any other securities of the Fund that are outstanding from time to
time) of the Fund or the Trust Units of the Trust (or any other securities of the Trust that are outstanding from time to
time), other than with the prior consent of the Franchisor. In addition, the Franchisor may also, at its option,
immediately terminate the Franchise Agreement by notice in writing to the Company in the event that a Person who is
required pursuant to the terms of the Franchise Agreement to guarantee to the Franchisor the obligations of the
Company thereunder does not, promptly upon becoming so obligated, deliver to the Franchisor a duly executed
guarantee in the form required by the Franchisor.
The Franchisor has cross-termination rights that allow it to terminate the Franchise Agreement in respect of all of
the Company Restaurants in certain circumstances. However, if the Franchisor seeks to exercise these cross-termination
rights because of a Company Restaurant-level operational default that is within the control of the RGM of such
46
Company Restaurant, then it can do so only if the Franchisor has previously terminated two other Company
Restaurants within the preceding 24-month period.
Franchisor Option to Acquire Assets. On termination of the Franchise Agreement with respect to any Company
Restaurant, for any reason, including expiry of the term thereof or non-renewal, the Franchisor has the option to
purchase, or nominate a third party to purchase, any of the supplies held by the Company at cost and any of the
equipment or signage at the relevant Company Restaurant at fair market value or book value less depreciation,
whichever is greater. If the parties fail to agree on a price, the value of equipment or signage will be determined by an
agreed-upon appraiser.
Indemnification by the Company. The Company has agreed that it will indemnify and keep indemnified the
Franchisor, its affiliated companies (as defined in the Franchise Agreement) and their agents, employees, directors,
successors and assigns from and against any and all claims, liabilities, losses, costs and damages (including legal costs
and expenses) arising directly or indirectly in connection with or related to the Company Restaurants, the Company’s
exercise of any right pursuant to the Franchise Agreement or any act or omission by any agent of the Company, other
than where any such claim arises solely as a result of the Franchisor’s fault or negligence.
Guarantee and Indemnity by the Trust and the Fund. Each of the Trust, the Fund, the GP and any Person
holding from time to time 20% or more of the issued and outstanding Units of the Fund (or securities exchangeable,
directly or indirectly, for Units) on a non-fully diluted basis (collectively, the ‘‘Guarantors’’), is required under the
Franchise Agreement to guarantee the due and punctual payment of all monies to be paid under all agreements between
the Company and the Franchisor, and the due and punctual performance by the Company of all of the Company’s
obligations and liabilities thereunder. This guarantee (the ‘‘Guarantee’’) will be a principal and continuing obligation,
and will not be abrogated, released, affected or discharged by any approved sale, transfer or assignment of the
Franchise Agreement or any Company Restaurants or any other act, event or omission which would otherwise affect or
discharge these obligations and liabilities. Each of the Guarantors will be liable under the Guarantee as principal
debtors, and the Franchisor may enforce the Guarantee without first taking any other steps or proceedings or having
recourse to any other security.
Each Guarantor will indemnify and keep indemnified the Franchisor, its affiliated companies (as defined in the
Franchise Agreement) and their agents, employees, directors, successors and assigns from and against any and all
claims, liabilities, losses, costs and damages (including legal costs and expenses) arising directly or indirectly in
connection with or related to: (i) any breach by the Company of any term or condition of the Franchise Agreement,
(ii) the occurrence of any termination event under the Franchise Agreement, (iii) the exercise by the Franchisor of any
right pursuant to the Franchise Agreement, (iv) any act or omission or violation of law by an agent, representative,
contractor, licensee or invitee of the Company, or (v) any action taken by the Franchisor to enforce such rights and
remedies.
Pursuant to the Guarantee, each of the Guarantors will agree to use its best efforts at all time to cause the
Company to comply timely and fully with all obligations under the Franchise Agreement, and to not perform any act or
omission that would cause the Company to breach or default in any obligation under the Franchise Agreement. Each of
the Guarantors will further agree to be personally bound by certain specified clauses of the Franchise Agreement on the
basis that each reference to the term ‘‘Franchisee’’ in the Franchise Agreement (as such term is defined therein) means
each of the Guarantors jointly and severally. The specified clauses of the Franchise Agreement that are applicable to the
Guarantors pursuant to the Guarantee include: (i) certain provisions relating to the protection and use of the
Franchisor’s trademarks, (ii) the confidentiality obligations set out in the Franchise Agreement, (iii) the non-
competition provisions of the Franchise Agreement, and (iv) the provisions in the Franchise Agreement governing
transfers and charges (including improper share transfers). The transfer restrictions applicable to Guarantors under the
Guarantee do not apply, however, to transfers of securities of the Guarantors (other than the GP). Each of the Trust, the
Fund and the GP have acknowledged and agreed pursuant to the Guarantee that in the event that a ‘‘take-over bid’’, as
defined in the Securities Act (Ontario), is made for the Units of the Fund (or any other securities of the Fund that are
outstanding from time to time) or the Trust Units of the Trust (or any other securities of the Trust that are outstanding
from time to time), or in the event that a ‘‘change of control’’ occurs with respect to either the Fund or the Trust, or in
the event any reconstruction, reorganization, amalgamation or other material change in the structure of either the Fund
or the Trust occurs, the Franchisor may, at its option, immediately terminate the Franchise Agreement by notice in
writing to the Company. For this purpose, a ‘‘change of control’’ will occur if, following the Offering, any Person
(including such Person’s associates and affiliates) becomes the beneficial owner of 20% or more of the outstanding
47
Units (or any other securities of the Fund) of the Fund or the Trust Units of the Trust (or any other securities of the
Trust that are outstanding from time to time), other than with the prior consent of the Franchisor.
Acquisition Agreement
Immediately following completion of the Offering, the Company will complete the acquisition of all of the assets
of the Company Restaurants, including the salad production facility of PB LP to be acquired by the Company (the
‘‘Acquisition’’), and the assumption of the related liabilities, pursuant to the terms and conditions of the Acquisition
Agreement.
Consideration
The consideration payable by the Company to PB LP for the assets of the Company Restaurants pursuant to the
Acquisition Agreement will consist of $169,300,000 in cash, 5,656,000 Exchangeable LP Units, 5,164,000
Subordinated LP Units and the assumption of the accounts payable and accrued liabilities relating to the Company
Restaurants. In addition, there may be an adjustment based on working capital as specified in the Acquisition
Agreement.
Assets and Associated Liabilities
Pursuant to the Acquisition Agreement, the Company has agreed to purchase the following assets (the ‘‘Purchased
Assets’’) in respect of the Company Restaurants from PB LP: (i) all machinery, equipment and supplies, (ii) head office
assets used to support the operation of the Company Restaurants, (iii) a dedicated KFCTM call centre located in
Montreal, Quebec, (iv) all inventories, including all food, food ingredients and packaging, (v) all accounts receivable
due or accruing due, (vi) all prepaid expenses, (vii) the benefit of all contracts, including leases of personal property,
licenses and software licenses relating to the Purchased Assets, (viii) the leasehold interest in all leased real property,
(ix) all authorizations owned, held or used by PB LP in respect of the Company Restaurants, (x) the standard opening
restaurant cash and restaurant level petty cash float of the Company Restaurants, (xi) any and all right of PB LP to trade
fixtures and third party fixtures located at any of the Company Restaurants, and (xii) the salad production facility of PB
LP and all of its related assets.
The Purchased Assets will exclude cash and cash equivalents of PB LP and the minute books and corporate
records of PB LP. The Purchased Assets will also not include any intellectual property, trademarks or other rights of
PB LP related to the operation of the Concepts that are licensed by PB LP from the Franchisor. The Company will have
access to the books and records relating to the Purchased Assets.
The Company has agreed to assume the accounts payable and accrued liabilities relating to the Company
Restaurants existing on the Closing Date.
Taxes
PB LP has agreed to pay all transfer taxes in connection with the transfer and conveyance of the Purchased Assets.
Employees
The Company has agreed to offer the current, active employees of the Company Restaurants, as well as certain
head office employees related to the operation of the Company Restaurants, employment on terms substantially similar
in the aggregate to their current terms of employment. PB LP has agreed to remain liable for any termination, severance
or other payments to such employees arising prior to the closing date of the Acquisition or as a result of the
Acquisition. The Company will not assume any benefit or similar plans of PB LP, or any liabilities in respect of such
plans, but will arrange for replacement benefit and similar plans for such employees.
Conditions
The completion of the Acquisition is conditional upon: (i) the Offering having been completed, (ii) the
Reorganization having been completed, (iii) certain required consents, waivers and releases having been obtained,
(iv) there being no legal impediment to the Acquisition, (v) the proposed Term Facility having been entered into and
funds being drawn down under the Term Facility and (vi) execution of a Franchise Agreement for each Company
Restaurant.
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Representations, Warranties, Covenants and Indemnities
Under the Acquisition Agreement, the parties have each provided representations and warranties related to, among
other things, corporate matters, due authorization, enforceability of the Acquisition Agreement against the parties and
that there are no conflicts, legal or otherwise, to entering into the Acquisition Agreement. These representations and
warranties, as well as the representations and warranties of PB LP in respect of its title to the Purchased Assets and
environmental matters, will survive and continue in full force and effect without limitation of time. In addition, PB LP
has provided representations and warranties related to, among other things, the absence of any material adverse change
in the financial condition of PB LP since August 10, 2003, liabilities, tax matters, litigation, sufficiency of the
Purchased Assets, condition of the Purchased Assets, conduct of the business, insurance matters, employee matters and
material contracts. These representations and warranties will survive for a period of two years with the tax
representations and warranties surviving until the expiration of the applicable period for assessment or reassessment.
PB LP has also represented that this prospectus constitutes full, true and plain disclosure of all material facts relating to
the Company Restaurants and that this prospectus does not contain any misrepresentation. This representation and
warranty will survive for the period for which PB LP and the Company are liable for misrepresentations under this
prospectus pursuant to applicable Canadian securities laws.
Each of the parties has agreed to indemnify the other for any misrepresentation or failure to perform any covenant
contained in the Acquisition Agreement. Further, PB LP has separately agreed to indemnify the Company following the
Acquisition for any damages suffered as a result of any violation of any applicable environmental laws occurring prior
to the Acquisition or any environmental damages existing prior to the Acquisition, even if not discovered until after the
Closing Date.
The parties have agreed to cooperate in obtaining any required consents, waivers and releases and in making
certain filings and to deliver certain ancillary documents in respect of the Acquisition.
Priszm License Agreement
Upon completion of the Offering, PB LP will enter into an agreement with the Fund pursuant to which PB LP will
grant the Fund the exclusive world-wide right to use, sub-license, and grant to any other person the right to use, the
‘‘priszm’’ name, as well as all trademarks associated with the ‘‘priszm’’ name, for nominal consideration. The term of
the license agreement will be twenty-five years, and will contain renewal rights in favour of the Fund. PB LP has
agreed to change both its name as well as the name of its general partner immediately following the closing of the
Offering such that the name ‘‘priszm’’ will no longer be used therein.
Marketing Arrangements
Upon completion of the Offering, the Company will enter into an arrangement with the Franchisor pursuant to
which the Company will provide centralized marketing services for all Canadian KFCTM franchisees (including the
Company) of the Franchisor. Pursuant to this marketing arrangement, the Franchisor will pay, or arrange for the
payment to, the Company of a fee as agreed to between the parties. Under the terms of the marketing arrangement, the
Company will be responsible for, among other things, preparing a marketing plan, a calendar and a budget in
accordance with procedures and guidelines issued by the Franchisor and will be responsible for implementing the
marketing plan, which may include purchasing media time and space, and retaining one or more advertising agencies as
approved by the Franchisor. The Company will be responsible for including all other Canadian KFCTM franchisees of
the Franchisor in such planning and for co-ordinating the implementation of such plans, as well as local marketing
initiatives, by all such Canadian KFCTM franchisees. The Company will be required to report to the Franchisor on a
quarterly basis, or such earlier period as requested by the Franchisor, as to the Company’s marketing efforts and results
pursuant to this marketing arrangement. The marketing arrangement will be terminable by either party on six months
written notice at any time after July 1, 2004.
Lease Agreement with Yum! Canada
The Company will enter into a master lease agreement with Yum! Canada for the lease of the real property on
which approximately 140 Company Restaurants are located, which real property will be owned by Yum! Canada
immediately following the Reorganization. The master lease will provide for a term of fifteen years, with the Company
having the right to two five-year renewals at then prevailing market rates for each of the Company Restaurants leased
thereunder. The Company will pay annual base rent under the master lease of approximately $6.8 million in total and
will be responsible for all operating costs, including utilities, taxes and insurance, and all other costs and expenses
49
arising from or related to such Company Restaurants or the use or occupation thereof. The master lease will contain
covenants, terms and conditions, including events of default and remedies, standard to a commercial lease of premises
comparable to the premises of the Company Restaurants.
Lease Agreement with Scott’s Restaurants Inc.
PB LP currently leases 84 properties from either Scott’s Restaurants Inc., or a wholly-owned subsidiary of Scott’s
Restaurants Inc., under market terms and conditions (the ‘‘SRI Leases’’). The average remaining term of the SRI
Leases is approximately 14 years (assuming the exercise of all renewal options). PB LP has received the written
consent of Scott’s Restaurants Inc. to assign each of the SRI Leases to the Company. The Company has the option,
under 36 of the SRI Leases, to purchase the leased premises at fair market value (as agreed between the Company and
the lessor under the applicable SRI Leases) exercisable three months prior to the expiry of the term of the applicable
lease.
Lease Agreement with PB LP
Following the closing of the Offering, the Company’s head office will be one floor of the premises located at
101 Exchange Avenue, Vaughan, Ontario, which premises the Company will sub-lease pursuant to a five year sub-lease
with PB LP. The Company will pay base rent under the head office lease at a rate of $300,000 per year and will be
responsible for the operating costs, including utilities, taxes and insurance, and all other costs and expenses arising
from or related to the premises leased by the Company. The head office lease will contain covenants, terms and
conditions, including events of default and remedies, standard to a commercial lease of premises comparable to the
head office.
Co-operation Arrangement
For a period of one year following the closing of the Offering, Yum! Canada and KIT LP will agree to act
reasonably and in good faith in connection with the operation of the head office functions relating to both KIT LP
Restaurants and the assets acquired by Yum! Canada as part of the Reorganization. Each of KIT LP and Yum! Canada
will be responsible for the costs of the employees associated with their respective assets.
Call Centre Agreement
Upon completion of the Offering, KIT LP will enter into a call centre agreement with Yum! Canada for the
ongoing provision of call centre services including customer service inquiries and delivery orders. The agreement will
include the right to continue the use of the customer service phone numbers currently used by the Company
Restaurants, and will provide for consideration payable by KIT LP to Yum! Canada based on a fixed cost per order.
The call centre agreement will contain specified covenants, indemnities and limitations of liability, and may be
terminated by either party on 60 days’ prior written notice.
Term Facility
Concurrent with the closing of the Offering, KIT LP intends to enter into the Term Facility pursuant to a
commitment letter with each of the Canadian chartered bank affiliates of CIBC World Markets Inc., RBC Dominion
Securities Inc. and BMO Nesbitt Burns Inc. providing for a senior secured three-year, non-revolving, term facility in
the amount of $60 million. The Term Facility will provide KIT LP with $60 million to be used in the acquisition of the
Company Restaurants from PB LP and to assist with the establishment of the $25 million capital pool. See ‘‘Use of
Proceeds’’. The capital pool will be subject to certain restrictions pursuant to the terms of the Term Facility and will be
secured by a first priority security interest in favour of the lenders. Interest will be payable at the prime rate of the
administrative agent of the lenders plus 0.25% or the rate for banker’s acceptances plus 1.75%. Certain upfront,
arrangement and agency fees will also be payable. The Term Facility (including any interest rate hedging arrangements
related thereto) will be secured by a guarantee from the GP and by a first ranking security interest in all of the assets of
KIT LP and the GP and will rank senior to all other indebtedness of KIT LP and the GP. The indebtedness of KIT LP
under the Term Facility (including any interest rate hedging arrangements related thereto) will be guaranteed by the
Fund and the Trust with recourse limited to the Trust Notes in the case of the Fund, and to the LP Units and GP
Common Shares in the case of the Trust, in each case pledged to the lenders. The Note Trustee, the Trust and the Fund
will execute a subordination and intercreditor agreement in favour of the lenders under the Term Facility whereby they
will agree that, among other things, the payment of the principal amount and interest on the Trust Notes will be
subordinated in right of payment to the prior payment in full of the principal of and accrued and unpaid interest under
50
the Term Facility. PB LP, the Trust and the GP will agree, pursuant to a subordination and intercreditor agreement, to
subordinate the obligations owing to each of them by KIT LP pursuant to the Limited Partnership Agreement in favour
of the lenders under the Term Facility. The Franchisor and the lenders under the Term Facility will agree that certain
procedures will be applicable in respect of the Franchise Agreement following the occurrence of an event of default by
KIT LP. The Term Facility will be subject to customary terms, conditions, covenants, events of default and other
provisions. The terms of the Term Facility may be amended by the parties from time to time.
CIBC World Markets Inc., RBC Dominion Securities Inc. and BMO Nesbitt Burns Inc. are, and certain of the
other Underwriters may be, subsidiaries of a member of the syndicate of lenders. See ‘‘Plan of Distribution’’.
Non-Competition Agreement
Following the closing of the Offering, PB LP will agree with the Company that it will not, for a period ending on
the later of: (i) 5 years from the date of the closing of the Offering and (ii) the date on which PB LP ceases to have the
right to appoint a director of the GP, directly or indirectly, compete with the Company Restaurants by operating or
having any interest in any entity in Canada, a principal business of which is the sale of ready-to-eat chicken products
(other than the KFCTM restaurants of PB LP not being sold to the Company which are anticipated to be closed or
refranchised to non-competing franchisees within one year of the Closing Date).
Restaurant Operations Agreement
Following the closing of the Offering, the Company will agree with PB LP that it will, in respect of any Company
Restaurant for which a necessary third party consent or approval to the transfer of the assets of such Company
Restaurant (including any real property lease associated therewith) has not been obtained, manage, operate and
administer such Company Restaurant for the benefit of the Company as if it were the owner thereof and the tenant
under the applicable leases until such time as such necessary third party consent or approval has been obtained.
Administration Agreement
On the closing of the Offering, the Fund and the Trust will enter into the Administration Agreement with the GP
whereby the GP will agree to provide or arrange for the provision of services required in the administration of the Fund
and the Trust. The GP’s duties will include:
(a) ensuring compliance by the Fund and the Trust with their continuous disclosure obligations under applicable
securities legislation, including the preparation of financial statements;
(b) providing investor relations services;
(c) providing or causing to be provided to Voting Unitholders and Trust Unitholders all information to which
Voting Unitholders and Trust Unitholders are entitled under the Declaration of Trust and the Trust
Declaration of Trust, respectively, including relevant information with respect to income taxes;
(d) convening meetings of Voting Unitholders and Trust Unitholders and distributing required materials,
including notices of meetings and information circulars, in respect of all such meetings;
(e) providing for the calculation of distributions to Unitholders and Trust Unitholders;
(f) attending to all administrative and other matters arising in connection with any redemptions of Units and/or
Trust Units;
(g) using its best efforts to ensure compliance with the Fund’s limitations on non-resident ownership;
(h) attending to all administrative and other matters arising in connection with the Note Indenture, including the
payment of interest and principal on the Trust Notes and in connection with any redemption of the Trust
Notes; and
(i) providing general accounting, bookkeeping and administrative services to the Fund and the Trust.
The administration of the Fund and the Trust under the Administration Agreement may be terminated at any time
by the Fund or the Trust upon notice in writing to the GP and upon payment to the GP of all costs and expenses
incurred by the GP in terminating contracts entered into by the GP with the approval of the Fund or the Trust, as
applicable, for the performance by the GP of its duties under the Administration Agreement.
51
The Fund and the Trust will pay all expenses incurred by the GP and attributable to the exercise of its duties in the
administration of the Fund and the Trust, respectively, and no fee is payable to the GP for the services provided by it to
the Fund and the Trust under the Administration Agreement.
Governance Agreement
Concurrent with the closing of the Offering, the Trust, PB LP and the GP will enter into the Governance
Agreement, which will provide for various matters relating to the GP, including composition of the board of directors,
and the management, control and operation of the business, operations and affairs of KIT LP by the GP.
52
MANAGEMENT, TRUSTEES AND DIRECTORS
Trustees of the Fund
The initial Trustees of the Fund are Albert Gnat, Stanley Thomas and Glen Swire.
Directors and Officers
The following sets out the names, municipalities of residence, positions with the GP and principal occupations of
the directors and officers of the GP. The term of office for each of the directors will expire at the time of the next
annual meeting of securityholders of the GP.
Name and Municipality of Residence Position with GP Principal Occupation
JOHN I. BITOVE ***************** Director, Chairman & Chief Chief Executive Officer of KIT
Toronto, Ontario Executive Officer Limited Partnership
RUPERT ALTSCHULER ************* President & Chief Operating Officer Chief Operating Officer of KIT
Vancouver, British Columbia Limited Partnership
PETER WALKEY ***************** Chief Financial Officer and Chief Financial Officer of KIT
Mississauga, Ontario Corporate Secretary Limited Partnership
LILLY DI MASSIMO ************** Director Chief Financial Officer of Scott’s
Vaughan, Ontario Restaurants Inc.
ALBERT GNAT (1) **************** Director Lawyer
Caledon East, Ontario
STANLEY A. THOMAS (1) ********** Director Corporate Director
Maple, Ontario
GLEN M. SWIRE (1) ************** Director Consultant
Hamilton, Ontario
(1) Trustee of the Fund
The following are brief profiles of the directors and executive officers of the GP:
John I. Bitove: Mr. Bitove is one of Canada’s leading entrepreneurs with a distinguished record of
accomplishments in business and community service. He is the majority owner and chair of Scott’s Restaurants Inc.,
and has worked in the food service and hospitality industry in many capacities for over 20 years, including as Chairman
and Chief Executive Officer of PB LP since July 10, 2000. Mr. Bitove was the volunteer President and CEO of
Toronto’s 2008 Olympic Bid Corporation. He founded the Toronto Raptors basketball team and created the Air Canada
Centre. He also serves the community on several volunteer boards.
Rupert Altschuler: Mr. Altschuler has over 10 years of experience with the KFCTM concept. He became an Area
Manager in 1995, KFCTM Regional Director of Operations for British Columbia in 1997 and assumed the role of Senior
Regional Director, responsible for KFCTM, Pizza HutTM and Taco BellTM in British Columbia, in 2002. Mr. Altschuler
has a M.Sc. degree in hotel and restaurant management from Florida International University.
Peter Walkey: Mr. Walkey has 15 years of experience in the hospitality industry, 10 of those associated with the
KFCTM brand. He most recently held the position of Chief Financial Officer for Yum! Restaurants International
(Canada). Mr. Walkey holds a Bachelor of Commerce degree from the University of Toronto and is a Certified General
Accountant.
Lilly Di Massimo: Ms. Di Massimo has 16 years of experience in the financial accounting and analysis of KFCTM
restaurants with Scott’s Restaurants Inc. Her career at Scott’s Restaurants Inc. (which had 329 KFCTM restaurants in
2000 that it contributed to PB LP) began in 1987 and she served as Controller until 1990, Director, Planning Analysis
until 1996, Vice President Finance until 1999, and has been Chief Financial Officer since then. Ms. Di Massimo
worked in public accounting at Clarkson Gordon for 5 years prior to joining Scott’s Restaurants Inc. She has a Bachelor
of Commerce degree from the University of Toronto and is a Certified General Accountant.
Albert Gnat: Mr. Gnat has been a partner at Lang Michener, one of the leading legal firms in Canada, for the
past 30 years. He has served major private and public corporations as a senior legal advisor for more than 25 years, and
currently serves as a board member to a number of public Canadian companies.
53
Stanley A. Thomas: Mr. Thomas has been in the Canadian retail and consumer goods industries for over
30 years. He played a significant role at Shoppers Drug Mart Inc. from 1986, when he assumed the role of Senior
Executive Vice President Marketing, to 2001, when he retired as President and Chief Operating Officer. Mr. Thomas is
now an investor, shareholder and director of several private companies and continues to serve the community on
volunteer boards. He holds an MBA from York University (1971) and a BA from University of Windsor (1969).
Glen M. Swire: Mr. Swire was a KFCTM franchisee for 33 years. Prior to December 1, 2002, Mr. Swire was the
President of Swire Restaurants Limited. His family owned and operated KFCTM restaurants for an extensive period
commencing in 1960 and at one time owned and operated 17 KFCTM locations in the Province of Ontario. Mr. Swire
was an active member of the KFCTM community and served on many boards and committees including: New Products
Committee; National Advertising Committee; Ontario Marketing Committee (Past President); Operations Excellence
Committee; Presidents Council Advisory Board and Canadian KFCTM Franchisee Association Board (Past President).
He is a former recipient of the KFCTM Franchisee of the Year honour. Mr. Swire is also a successful investor and
entrepreneur outside the KFCTM business. He holds a business degree from McMaster University.
Pursuant to the provisions of the Governance Agreement, so long as PB LP owns directly or indirectly (i) at least a
35% interest in the GP, the board of directors of the GP shall consist of five individuals, two of whom may be
appointed by PB LP, (ii) at least a 20% but less than a 35% interest in the GP, the board of directors of the GP shall
consist of six individuals, two of whom may be appointed by PB LP, and (iii) an interest less than 20% but greater than
5%, the board of directors of the GP shall consist of five individuals, one of whom may be appointed by PB LP.
PB LP’s right to appoint directors will cease when PB LP has an ownership interest in the GP of 5% or less.
Each of the nominees of the Fund (which for greater certainty, does not include the PB LP nominees) on the board
of directors of the GP are to be approved by the Unitholders, may be a trustee of the Fund and must be an ‘‘unrelated’’
director within the meaning of the corporate governance policy of the TSX. The nominees of the Fund will initially be
Albert Gnat, Stanley Thomas and Glen Swire. PB LP’s nominees, who are not Trustees of the Fund, will initially be
John Bitove and Lilly Di Massimo. PB LP has agreed that at all times at least a majority of the directors must be
‘‘unrelated’’ directors within the meaning of the corporate governance policy of the TSX.
Based upon an analysis of the structure of the Fund and the applicable law, the following individuals will,
following completion of the Offering, be insiders of the Fund, and as such will have reporting obligations as ‘‘insiders’’
under the securities laws of the various provinces of Canada and be required to file ‘‘insider trading reports’’ under
those laws:
(a) the Trustees of the Fund and the Trustees of the Trust;
(b) the directors and senior officers of the GP; and
(c) PB LP and the directors and senior officers of PB LP.
It is expected that the board of directors of the GP will establish the following committees:
Audit Committee: The members of the Audit Committee will be members of the board of directors of the GP
who are ‘‘unrelated’’ directors within the meaning of the corporate governance policy of the TSX. The Committee is to
be responsible for monitoring the GP’s and KIT LP’s financial reporting, accounting systems, internal controls and
liaising with external auditors.
Governance Committee: The members of the Governance Committee will be the members of the board of
directors of the GP who are ‘‘unrelated’’ directors within the meaning of the corporate governance policy of the TSX.
The Committee is to be responsible for:
(a) annually reviewing the performance of management of the GP;
(b) developing the GP’s approach to corporate governance issues and compliance with applicable laws,
regulations, rules, policies and orders with respect to such issues;
(c) advising the board in filling vacancies on the board;
(d) periodically reviewing the composition and effectiveness of the board and the contribution of individual
directors; and
(e) considering, and providing a recommendation to the board on, any transaction involving PB LP and the GP
or KIT LP before such transaction is approved by the independent members of the board.
54
Compensation Committee: The Compensation Committee will be comprised entirely of ‘‘unrelated directors.’’
The Compensation Committee will be responsible for reviewing and recommending to the board the compensation of
the Chief Executive Officer, President and Chief Operating Officer, Chief Financial Officer and other members of
senior management.
Remuneration of Directors
Initial compensation for directors of the GP (other than officers or employees of the GP or KIT LP) will be
$35,000 per director per year and $1,000 per director for each regularly scheduled monthly meeting of the board of
directors attended and $1,000 per director for each extraordinary meeting of the board of directors or a committee of
the board of directors attended (in each case, except where the director attends a meeting of the Trustees on the same
day and for which compensation is paid). Directors who are not salaried officers of the Company will be reimbursed for
travel and other out-of-pocket expenses incurred in attending board of directors or committee meetings. These expenses
and compensation will be paid by KIT LP.
Remuneration of Trustees
Trustees of the Fund and trustees of the Trust who are also directors of the GP will not receive any compensation
additional to the compensation they receive as directors of the GP.
Insurance
The GP will obtain or cause to be obtained a policy of insurance for its directors and officers and those of its
subsidiaries (and also covering the Trustees of the Fund and trustees of the Trust). The aggregate limit of liability
applicable to all insured Trustees of the Fund, trustees of the Trust, directors and officers of the GP and KIT LP under
the policy will be $15 million inclusive of defense costs. Under the policy, the Fund, the Trust, the GP and KIT LP will
have reimbursement coverage to the extent that it has indemnified the insured Trustees of the Fund, trustees of the
Trust, directors and officers of the GP and KIT LP in excess of a deductible of $75,000 for each loss. The policy
includes securities claims coverage for the Fund, the Trust, the GP and KIT LP, insuring against any legal obligation to
pay on account of any securities claims brought against it. The aggregate limit of liability will, however, be shared
between the Fund, the Trust, the GP, KIT LP and their respective trustees, directors and officers such that the limit of
liability will not be exclusive to the Fund, the Trust, the GP, KIT LP or their respective trustees, directors and officers.
EXECUTIVE COMPENSATION
Employment Agreements
Each of the proposed Chief Executive Officer, President and Chief Operating Officer and the Chief Financial
Officer of the Company will be party to an employment agreement with the Company. Pursuant to the terms of these
initial employment agreements, each such officer will receive a base salary of $180,000 per annum, and will be entitled
to such cash performance bonuses (up to 40% of base salary) and incentives (including options and participating units
in the LTIP) as are determined from time to time by the Compensation Committee after the closing of the Offering.
Pursuant to these employment agreements, such officers will be entitled to the payment of two year’s base salary in the
event of the termination of their employment without cause or in the event of the termination of their employment
following a change of control. In addition, the employment agreements of the President and Chief Operating Officer
and Chief Financial Officer of the Company will provide that if such officers have been employed by the Company for
more than two years from the date of the closing of the Offering, then they will each be entitled to the payment of one
year’s base salary in the event of the voluntary resignation of their employment after such two-year period. These
employment agreements will also provide for, among other things, confidentiality, non-solicitation and non-
competition covenants in favour of the Company. These covenants will apply during the term of employment and for
24 months following resignation or the termination of employment by the Company for cause.
These initial employment agreements will be subject to review and change as determined by the Compensation
Committee and approved by the board of directors of the GP from time to time.
55
Long Term Incentive Plan
The Compensation Committee will retain a consultant to review and advise it with respect to the compensation
package of senior management of the Company. It is intended that this review will occur within 6 months following the
closing of the Offering. It is anticipated that key senior management of the Company and the directors, officers and
management of its affiliates will be eligible to participate in the LTIP. The purpose of the LTIP is to provide eligible
participants with compensation opportunities that will encourage ownership of Units, enhance the Company’s ability to
attract, retain and motivate key personnel, and reward key senior management for significant performance and
associated per Unit cash flow growth of the Fund. Pursuant to the LTIP, the Company will set aside a pool of funds
based upon the amount by which the Fund’s per Unit distributions exceed certain per Unit distributable cash threshold
amounts. A trustee will then purchase Units in the market with such pool of funds and will hold such Units until such
time as ownership vests to each participant. The LTIP is expected to be administered by the Compensation Committee
of the GP. The board of directors of the GP or the Compensation Committee will have the power to, among other
things, (i) determine those individuals who will participate in the LTIP, (ii) the level of participation of each participant
and (iii) the time or times when ownership of the Units will vest for each participant.
Initially, the LTIP will provide for awards that may be earned based on the amount by which distributable cash
exceeds a base distribution threshold of $1.20 per Unit per annum. The percentage amount of that excess which forms
the LTIP incentive pool will be determined in accordance with the table below:
Percentage by which Distributable Cash per Unit Maximum Proportion of Excess Distributable
Exceeds Base Distribution Threshold (1) Cash Available for LTIP Payments
5% or less ************************************* 0%
Greater than 5% and up to 10% ******************* 10% of any excess over 5%
Greater than 10% and up to 20% ****************** 10% of any excess over 5%,
plus 20% of any excess over 10% to 20%
Greater than 20% ******************************* 10% of any excess over 5%,
plus 20% of any excess over 10% to 20%,
plus 25% of any excess over 20%
(1) Annualized for fiscal periods of less than 12 months.
The base distribution threshold will be subject to adjustment by the Compensation Committee, from time to time,
as targets are met. The Compensation Committee may also in the future establish other incentive-based compensation
plans, which will also have the discretion to adjust the awards in the event of a material change to the capital structure
of the Fund, a significant acquisition or a similar event.
RETAINED INTEREST AND EXCHANGE RIGHTS
Retained Interest
Upon the completion of this Offering, PB LP will own Exchangeable LP Units and Subordinated LP Units
representing, in the aggregate, approximately 41.9% of the LP Units. Such Exchangeable LP Units and Subordinated
LP Units (assuming the exchange thereof on the date of the closing of this Offering for Units of the Fund), represent the
same proportionate ownership interest in the Fund. Each holder of Exchangeable LP Units will have the right,
exercisable on certain conditions, to require the Fund to indirectly exchange each such Exchangeable LP Unit for Units
on a one-for-one basis, subject to customary anti-dilution provisions. The Subordinated LP Units will automatically
convert into Exchangeable LP Units upon the satisfaction of certain conditions or the occurrence of certain events.
Escrow and Purchase of Exchangeable LP Units
The Subordinated LP Units and the Exchangeable LP Units are transferable. However, pursuant to the Exchange
and Escrow Agreement to be entered into between PB LP, the Fund, the Trust, KIT LP and the GP, the GP will hold all
of the unit certificates in respect of the Subordinated LP Units and the Exchangeable LP Units in escrow for 180 days
after the Closing Date. PB LP has agreed with the Underwriters not to transfer, other than to its affiliates, any
Subordinated Units held by PB LP for a period of three years after the Closing Date. In the event that the Over-
Allotment Option is exercised, it is the intention of the Fund to cause the Company to issue additional Ordinary LP
Units and GP Common Shares to the Trust, and to use the proceeds of such issuance to redeem a number of the
56
Exchangeable LP Units issued to PB LP, as well as an equivalent percentage of the GP Common Shares. The GP will
release unit certificates in respect of the Exchangeable LP Units from escrow for such purposes, and in any event will
release all such unit certificates remaining in its possession 180 days after the Closing Date.
Exchange Rights
The Exchangeable LP Units are indirectly exchangeable for Units on the basis of one Unit for each Exchangeable
LP Unit, provided that the exchange will not jeopardize the Fund’s status as a ‘‘unit trust’’ or ‘‘mutual fund trust’’
under the Tax Act. The exchange procedure may be initiated by the holder of an Exchangeable LP Unit by delivering to
the GP, as escrow agent under the Exchange and Escrow Agreement, a unit certificate in respect of the Exchangeable
LP Units to be exchanged, duly endorsed in blank for transfer, as well as a certificate representing a proportionate
number of GP Common Shares. The GP will give notice of the proposed exchange to the Trust, which will acquire
Units from the Fund in consideration for the issuance of Trust Units and Series 1 Trust Notes in the number required to
complete the exchange. The Trust will deliver to the GP as escrow agent a certificate for the requisite number of Units
duly endorsed in blank for transfer. The GP will effect the exchange procedure by causing to be issued in the name of
the Trust a unit certificate for that number of Ordinary LP Units (and a proportionate number of GP Common Shares)
to be issued on the exchange, entering the Trust in the register of limited partners of KIT LP and in the register of
shareholders of the GP in respect of such additional Ordinary LP Units and GP Common Shares, causing the
Exchangeable LP Units and GP Common Shares so tendered for exchange to be cancelled, and delivering to the
previous holder of the Exchangeable LP Units a certificate for that number of Units of the Fund to be received on the
exchange.
Subordinated Units — Conversion Rights
The Subordinated LP Units automatically convert into Exchangeable LP Units on a one-for-one basis on (and the
subordination provisions only apply until) the earlier of: (i) December 31, 2008 if, for the fiscal year of the Company
ending on such date, the Company has earned EBITDA (based on audited financial statements) of at least
$39.191 million (the ‘‘EBITDA Target’’) and the Company has paid average monthly distributions of at least $0.10 per
LP Unit (the ‘‘Distribution Target’’) for such fiscal year, and (ii) the end of any fiscal year following December 31,
2008 in respect of which the Company has earned the EBITDA Target (based on audited financial statements) and the
Company has paid average monthly distributions on the LP Units at least equal to the Distribution Target for such fiscal
year.
Notwithstanding the foregoing, a total of 50% of the Subordinated LP Units (the ‘‘Released Subordinated LP
Units’’) will automatically convert into Exchangeable LP Units on a one-for-one basis (and the subordination
provisions will not apply to the Released Subordinated LP Units thereafter) on the date of approval by the board of
directors of the Company of the audited financial statements of the Company for the fiscal year ending December 31,
2006 if, for such fiscal year the Company has earned EBITDA (based on audited financial statements) of at least
$43.110 million (the ‘‘EBITDA Acceleration Target’’) and has paid out of distributable cash earned in the fiscal year
ending December 31, 2006 average monthly distributions of at least $0.11 per LP Unit for such fiscal year (the
‘‘Distribution Acceleration Target’’).
The Subordinated LP Units will also automatically convert into Exchangeable LP Units in certain other specified
circumstances.
Voting Rights
Holders of Exchangeable LP Units and Subordinated LP Units will, in connection with the Offering, be issued
Special Voting Units of the Fund that will be attached to, and will only be evidenced by, the certificates representing
the Exchangeable LP Units and the Subordinated LP Units. The Special Voting Units will entitle the holders thereof to
vote in all votes of Voting Unitholders (including resolutions in writing) as if they were the holders of the number of
Units that they would receive if all their Exchangeable LP Units and Subordinated LP Units were exchanged for Units.
See ‘‘Description of the Fund — Units and Special Voting Units’’.
Dilution Rights and Economic Equivalence
The Exchange and Escrow Agreement will provide that in the event that there is a change in the number of
Exchangeable LP Units or the number of Units outstanding as a result of a subdivision, consolidation, reclassification,
capital reorganization or similar change in the Exchangeable LP Units or Units (other than a consolidation of Units
57
immediately following a distribution of Units in lieu of a cash distribution), the exchange ratio will be adjusted by the
Fund. The Exchange and Escrow Agreement also provides that the Fund will not issue or distribute Units to the holders
of all or substantially all of the then outstanding Units (other than a distribution of Units in lieu of cash distribution),
issue or distribute rights, options or warrants to the holders of all or substantially all of the then outstanding Units or
issue or distribute property of the Fund to the holders of all or substantially all of the then outstanding Units unless, in
each case, the economic equivalent thereof (as determined by the Trustees) is issued or distributed simultaneously to
the holders of Exchangeable LP Units and Subordinated LP Units.
Reclassification of Units
If at any time while any Subordinated LP Unit or any Exchangeable LP Unit is outstanding there is any
reclassification of the Units outstanding, any change of the Units into other units or securities or any other capital
reorganization of the Fund or any consolidation, amalgamation, arrangement, merger or other form of business
combination of the Fund with or into any other entity resulting in a reclassification of the outstanding Units, then the
Exchange Rights will be adjusted in a manner approved by the Trustees, acting reasonably, so that holders of
Exchangeable LP Units will be entitled to receive, in lieu of the number of Units which they would otherwise have
been entitled, the kind and number or amount of securities that they would have been entitled to receive as a result of
such event if, on the effective date thereof, they had been the registered holder of the number of Units which they
would have received had they exercised the Exchange Rights immediately before the effective date of any such
transaction.
If at any time while any Subordinated LP Unit is outstanding there is any reclassification of the Units outstanding,
any change of the Units into other units or securities or any other capital reorganization of the Fund as a result of any
consolidation, amalgamation, arrangement, merger or other form of business combination of the Fund with or into any
other entity resulting in a reclassification of the outstanding Units (other than any reclassification, reorganization or
transaction initiated by the Company or requested by the holders of the Subordinated Units), then notwithstanding the
terms and conditions of the Subordinated LP Units and any other provision of the Declaration of Trust or the Limited
Partnership Agreement, the outstanding Subordinated LP Units will automatically convert into Exchangeable LP Units
at the then current conversion ratio in effect under the Limited Partnership Agreement, and the holders of such
Subordinated LP Units will, immediately subsequent to such conversion, be entitled to receive, in lieu of the number of
Units which they would otherwise have been entitled to receive upon the exercise of their Exchange Rights, the kind
and number or amount of securities that they would have been entitled to receive as a result of such event if, on the
effective date thereof, they had been the registered holder of the number of Units which they would have received had
they exercised the Exchange Rights immediately before the effective date of any such transaction.
In addition, if at any time while any Subordinated LP Unit is outstanding there is any reclassification of the
Exchangeable LP Units outstanding, any change of the Exchangeable LP Units into other units or securities (other than
into Units) or any other capital reorganization of KIT LP or any consolidation, amalgamation, arrangement, merger or
other form of business combination of KIT LP with or into any other entity resulting in a reclassification of the
outstanding Exchangeable LP Units, then the holders of Subordinated LP Units will be entitled to receive, in lieu of the
number of Exchangeable LP Units which they would otherwise have been entitled, the kind and number or amount of
securities that they would have been entitled to receive as a result of such event if, on the effective date thereof, they
had been the registered holder of the number of Exchangeable LP Units that they would have received had they
converted their Subordinated LP Units for Exchangeable LP Units immediately before the effective date of any such
transaction.
The issuance by the Fund of the Exchange Rights in respect of the Exchangeable LP Units and the Subordinated
LP Units to PB LP is qualified by this prospectus.
Registration Rights
PB LP has been granted ‘‘demand’’ and ‘‘piggy back’’ registration rights by the Fund which will enable it to
require the Fund to file a prospectus and otherwise assist with a public offering of Units subject to certain limitations,
with the Fund’s expenses to be borne by PB LP (or on a pro rata basis if both PB LP and the Fund are offering Units)
pursuant to the terms and conditions of the Exchange and Escrow Agreement. In the event of a ‘‘piggy back’’ offering,
the Fund’s financing requirements are to take priority.
58
DESCRIPTION OF THE FUND
Declaration of Trust
The Fund is an unincorporated, open-ended, limited purpose trust established under the laws of the Province of
Ontario pursuant to the Declaration of Trust. It is intended that the Fund will qualify as a ‘‘unit trust’’ and ‘‘mutual
fund trust’’ for the purposes of the Tax Act, although the Fund will not be a mutual fund under applicable securities
laws. The following is a summary of the material attributes and characteristics of the Units and Special Voting Units
and certain provisions of the Declaration of Trust, which does not purport to be complete. Reference is made to the
Declaration of Trust for a complete description of the Units and Special Voting Units and the full text of its provisions.
Activities of the Fund
The Declaration of Trust provides that the Fund is a limited purpose trust and its activities are restricted to:
(a) acquiring, investing in, transferring, disposing of and otherwise dealing with securities of the Trust and
other corporations, partnerships, trusts or other persons involved, directly or indirectly, in the QSR business
(including the Company Restaurants);
(b) temporarily holding cash in interest bearing accounts, short-term government debt or investment grade
corporate debt for the purposes of paying the expenses and liabilities of the Fund, paying amounts owing by
the Fund in connection with the redemption of any Units or other securities of the Fund and making
distributions to Unitholders;
(c) issuing Units, Special Voting Units and other securities of the Fund (including securities convertible into or
exchangeable for Units or other securities of the Fund, or warrants, options or other rights to acquire Units
or other securities of the Fund), including for the purposes of: (i) obtaining cash to conduct the activities
described above, including raising funds for further acquisitions, (ii) implementing Unitholder rights plans,
distribution reinvestment plans and Unit purchase plans, incentive option plans or other compensation plans,
if any, established by the Fund, the Trust, the Company or any of their subsidiaries, (iii) making non-cash
distributions to Unitholders as contemplated by the Declaration of Trust, including pursuant to distribution
reinvestment plans, if any, established by the Fund, (iv) in satisfaction of any indebtedness of or borrowing
by the Fund, or (v) giving effect to the exercise of the Exchange Rights pursuant to the Exchange and
Escrow Agreement;
(d) issuing debt securities or otherwise borrowing and mortgaging, pledging, charging, granting a security
interest in or otherwise encumbering any of its assets as security;
(e) guaranteeing (as guarantor, surety or co-principal obligor) the payment of any indebtedness, liability or
obligation of the Trust, the Company or any of their respective subsidiaries or the performance of any
obligation of any of them, and mortgaging, pledging, granting a security interest in or otherwise
encumbering all or any part of the assets of the Fund, including securities issued by the Company or by the
Trust, as the case may be, as security for such guarantee, and subordinating its rights under the Trust Notes
to other indebtedness;
(f) issuing or redeeming rights and Units pursuant to any incentive plan or Unitholder rights plan adopted by
the Fund;
(g) disposing of all or any part of the Fund’s assets;
(h) repurchasing securities issued by the Fund, including Units, subject to the provisions of the Declaration of
Trust and applicable law;
(i) satisfying the obligations, liabilities or indebtedness of the Fund;
(j) entering into and performing its obligations under the Administration Agreement, the Exchange and Escrow
Agreement, the Underwriting Agreement, the Guarantee, the Credit Documents and such other agreements
as are contemplated by this prospectus and the Offering or ancillary thereto; and
(k) undertaking such other activities, or taking such other actions as are approved by the Trustees from time to
time, or as are contemplated by the Declaration of Trust, this prospectus or the Offering;
provided that the Fund must not undertake any activity, take any action, or make any investment which would result in
the Fund not being considered a ‘‘unit trust’’ or ‘‘mutual fund trust’’ for purposes of the Tax Act or that would result in
59
the Units constituting foreign property for the purposes of Part XI of the Tax Act or that would subject the Fund to
special taxes in respect of excess holdings of foreign property.
Units and Special Voting Units
The beneficial interests in the Fund will be divided into interests of two classes, described and designated as
‘‘Units’’ and ‘‘Special Voting Units’’, respectively. An unlimited number of Units and Special Voting Units will be
issuable pursuant to the Declaration of Trust. Each Unit will be transferable and will represent an equal undivided
beneficial interest in any distributions from the Fund whether of net income, net realized capital gains or other amounts
and in the net assets of the Fund in the event of a termination or winding-up of the Fund. The Units issued pursuant to
this Offering will not be subject to future calls or assessments and will entitle the holder thereof to one vote for each
whole Unit held at all meetings of Voting Unitholders. Except as set out under ‘‘Redemption Right’’ below, the Units
have no conversion, retraction, redemption or pre-emptive rights.
The Special Voting Units will not be entitled to any interest or share in the Fund, in any distribution from the Fund
whether of net income, net realized capital gains or other amounts, or in the net assets of the Fund in the event of a
termination or winding-up of the Fund. Special Voting Units may, however, be redeemed by the holder at any time for
nominal consideration.
Special Voting Units may be issued in series and will only be issued in connection with or in relation to
Exchangeable LP Units, Subordinated LP Units and, if the Trustees so determine, other securities exchangeable,
directly or indirectly, for Units (‘‘Exchangeable Securities’’), in each case for the purpose of providing voting rights
with respect to the Fund to the holders of such securities. Special Voting Units will be issued in conjunction with, and
will be attached to, the Exchangeable LP Units and Subordinated LP Units (or other Exchangeable Securities) to which
they relate, and will be evidenced only by the certificates representing such Exchangeable LP Units, Subordinated LP
Units or other Exchangeable Securities. Special Voting Units will not be transferable separately from the Exchangeable
LP Units and the Subordinated LP Units (or other Exchangeable Securities) to which they are attached. Each Special
Voting Unit will entitle the holder thereof to that number of votes at any meeting of Voting Unitholders that is equal to
the number of Units that may be obtained upon the exchange (direct or indirect) of the Exchangeable LP Unit,
Subordinated LP Unit or other Exchangeable Security to which it is attached. Upon the exchange or conversion of an
Exchangeable LP Unit (or other Exchangeable Security) for Units, the Special Voting Unit that is attached to such
Exchangeable LP Unit (or other Exchangeable Security) will immediately be cancelled without any further action of
the Trustees, and the former holder of such Special Voting Unit will cease to have any rights with respect thereto.
Issued and outstanding Units and Special Voting Units may be subdivided or consolidated from time to time by
the Trustees without the approval of Voting Unitholders.
No certificates will be issued for fractional Units and fractional Units will not entitle the holders thereof to
vote. The Units are not ‘‘deposits’’ within the meaning of the Canada Deposit Insurance Corporation Act
(Canada) and are not insured under the provisions of such act or any other legislation. Furthermore, the Fund is
not a trust company and, accordingly, is not registered under any trust and loan company legislation as it does
not carry on or intend to carry on the business of a trust company.
This prospectus qualifies the distribution of the Special Voting Units to the holders of Exchangeable LP Units and
Subordinated LP Units.
Issuance of Units
The Fund may issue Units or rights to acquire Units at those times, to those persons, for that consideration and on
the terms and conditions that the Trustees determine, including pursuant to any Unitholder rights plan or any incentive
option or other compensation plan established by the Fund. Units may be issued in satisfaction of any non-cash
distributions of the Fund to Unitholders on a pro rata basis. The Declaration of Trust provides that immediately after
any pro rata distribution of Units to all Unitholders in satisfaction of any non-cash distribution, the number of
outstanding Units will be consolidated such that each Unitholder will hold after the consolidation the same number of
Units as the Unitholder held before the non-cash distribution (except where tax was required to be withheld in respect
of the Unitholder’s share of the distribution as described below). In this case, each certificate representing a number of
Units prior to the non-cash distribution is deemed to represent the same number of Units after the non-cash distribution
and the consolidation. Where amounts so distributed represent income, non-resident Unitholders will be subject to
withholding tax and the consolidation will not result in such non-resident Unitholder holding the same number of Units.
60
Such non-resident Unitholders will be required to surrender the certificates (if any) representing their original Units in
exchange for a certificate representing their post-consolidation Units.
Trustees
The Fund will have a minimum of three Trustees and a maximum of six Trustees, each of whom must be a
resident of Canada (within the meaning of the Tax Act). The Trustees are to supervise the activities and manage the
affairs of the Fund. All Trustees must be ‘‘unrelated’’ within the meaning of the corporate governance policies of the
TSX, as such guidelines may be amended from time to time.
The initial Trustees, who are also directors of the GP, are Albert Gnat, Glen Swire and Stanley Thomas. See
‘‘Management, Trustees and Directors — Directors and Officers’’ for the principal occupations of the Trustees.
Trustees will be appointed at each annual meeting of Voting Unitholders to hold office for a term expiring at the
close of the next annual meeting. A quorum of the Trustees, being a majority of the Trustees then holding office, may
fill a vacancy in the Trustees, except a vacancy resulting from an increase in the number of Trustees (other than as
provided below) or from a failure of the Voting Unitholders to elect the required number of Trustees at a meeting of the
Voting Unitholders called for such purpose. In the absence of a quorum of Trustees, or if the vacancy has arisen from a
failure of the Voting Unitholders to elect the required number of Trustees at a meeting of the Voting Unitholders called
for such purpose, the Trustees must forthwith call a special meeting of the Voting Unitholders to fill the vacancy. If the
Trustees fail to call such meeting or if there are not Trustees then in office, any Voting Unitholder may call the
meeting. The Trustees may, prior to the first annual meeting of Voting Unitholders or between annual meetings of
Voting Unitholders, appoint one or more additional Trustees to serve until the next annual meeting of Voting
Unitholders, but the number of additional Trustees so appointed may not at any time exceed one-third of the number of
Trustees who held office at the later of the closing of this Offering and the expiration of the immediately preceding
annual meeting of Voting Unitholders.
A Trustee may resign upon written notice to the Fund and may be removed by a resolution passed by a majority of
the Voting Unitholders. A vacancy created by such removal may be filled at the same meeting, failing which it may be
filled by the remaining Trustees.
The Declaration of Trust provides that, subject to its terms and conditions, the Trustees will have full, absolute and
exclusive power, control and authority over the assets of the Fund and over the affairs of the Fund to the same extent as
if the Trustees were the sole and absolute legal and beneficial owners of the assets of the Fund, and may, in respect of
the assets of the Fund, exercise any and all rights, powers and privileges that could be exercised by a legal and
beneficial owner thereof. Subject to such terms and conditions, the Trustees are responsible for, among other things:
(i) supervising the activities and managing the investments and the affairs of the Fund; (ii) maintaining records and
providing reports to Voting Unitholders; (iii) effecting payments of distributable cash from the Fund to Unitholders;
(iv) acting for, voting on behalf of and representing the Fund as a holder of Trust Units and a holder of Trust Notes; and
(v) voting in favour of the Fund’s nominees to serve as trustees of the Trust.
The Declaration of Trust provides that the Trustees must act honestly and in good faith with a view to the best
interests of the Fund and in connection therewith must exercise the degree of care, diligence and skill that a reasonably
prudent person would exercise in comparable circumstances. The Declaration of Trust provides that each Trustee and
officer of the Fund, as well as former Trustees and officers, and their respective heirs and legal representatives, will be
entitled to indemnification from the assets of the Fund in respect of the exercise of that person’s powers, and the
discharge of that person’s duties, provided that the person acted honestly and in good faith with a view to the best
interest of the Fund and, in the case of a criminal or administrative action or proceeding that is enforced by a monetary
penalty, where the person had reasonable grounds for believing that his or her conduct was lawful.
Cash Distributions
The Fund intends to make monthly cash distributions of its distributable cash to the maximum extent possible to
the Unitholders. The amount of the cash available for distribution will be equal to a pro rata share of the interest and
principal repayments on the Trust Notes and the distributions (if any) on or in respect of the Trust Units owned by the
Fund less:
(a) administrative expenses and other obligations of the Fund;
(b) amounts which may be paid by the Fund in connection with any cash redemptions or repurchases of Units;
61
(c) satisfaction of debt service obligations of the Fund on account of both principal and interest; and
(d) any amount that the Trustees may reasonably consider to be necessary to provide for the payment of any
costs or expenses, including any tax liability of the Fund, that have been or are reasonably expected to be
incurred in the activities and operations of the Fund (to the extent that such costs or expenses have not
otherwise been taken into account in the calculation of the available distributable cash of the Fund).
The Fund may make additional distributions in excess of the aforementioned monthly distributions during the
year, as the Trustees may determine. The distribution declared in respect of the month ending December 31 in each
year will include such amount in respect of the taxable income and net realized capital gains, if any, of the Fund for
such year as is necessary to ensure that the Fund will not be liable for ordinary income taxes under the Tax Act in such
year.
Any income of the Fund that is unavailable for cash distribution will, to the extent necessary to ensure that the
Fund does not have any income tax liability under Part I of the Tax Act, be distributed to Unitholders in the form of
additional Units. Such additional Units will be issued pursuant to applicable exemptions under applicable securities
laws, discretionary exemptions granted by applicable securities regulatory authorities or a prospectus or similar filing.
The Fund intends to make monthly cash distributions to Unitholders of record on the last business day of each
month, and the distributions will be paid within 15 days following each month end. The initial cash distribution for the
period from the closing of the Offering to December 31, 2003 is estimated to be approximately $0.17 per Unit, and is
expected to be paid on or before January 15, 2004. See ‘‘Certain Canadian Federal Income Tax Considerations’’.
Unitholders who are non-residents of Canada will be required to pay all withholding taxes payable in respect of
any distributions of income by the Fund, whether such distributions are in the form of cash or additional Units. Non-
residents should consult their own tax advisors regarding the tax consequences of investing in the Units.
Redemption Right
Units are redeemable at any time on demand by the holders thereof upon delivery to the Fund of a duly completed
and properly executed notice requesting redemption in a form approved by the Trustees specifying the number of Units
to be redeemed. As the Units will be issued in book-entry form, a Unitholder who wishes to exercise the redemption
right will be required to obtain a redemption notice form from the Unitholder’s investment dealer. As of the close of
business on the date the Units are surrendered for redemption, all rights to and under the Units tendered for redemption
shall (subject to the following) be surrendered and the holder thereof shall be entitled to receive a price per Unit (the
‘‘Redemption Price’’) equal to the lesser of:
(a) 90% of the Market Price of the Units on the principal stock exchange on which the Units are listed (or, if the
Units are not listed on any stock exchange, on the principal market on which the Units are quoted for
trading) during the period of the last 10 trading days during which the Units traded on such stock exchange
or market ending immediately prior to the date on which the Units were tendered for redemption; and
(b) the Closing Market Price of the Units on the date on which the Units were tendered for redemption on the
principal stock exchange on which Units are listed (or, if Units are not listed on any stock exchange, on the
principal market on which the Units are quoted for trading).
For the purposes of determining the Redemption Price, ‘‘Market Price’’ will be the amount equal to the weighted
average of the trading prices of the Units on the applicable market or exchange for each of the trading days on which
there was a trade during the specified trading day period; provided that if there was trading on the applicable exchange
or market for fewer than five of the trading days during the specified trading day period, ‘‘Market Price’’ will be the
average of the following prices established for each of the trading days during the specified trading day period: the
average of the last bid and ask prices for each trading day on which there was no trading and the weighted average
trading prices of the Units for each trading day on which there was trading. For the purposes of determining the
Redemption Price, ‘‘Closing Market Price’’ will be: (i) an amount equal to the closing price of the Units on the
applicable market or exchange if there was a trade on the specified date and the applicable market or exchange provides
a closing price; (ii) an amount equal to the average of the highest and lowest prices of Units on the applicable market or
exchange if there was trading on the specified date and the applicable market or exchange provides only the highest and
lowest trading prices of Units traded on a particular day; or (iii) the average of the last bid and ask prices on the
applicable market or exchange if there was no trading on the specified date.
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The aggregate Redemption Price payable by the Fund in respect of any Units surrendered for redemption during
any calendar month will be satisfied by way of a cash payment by the Fund no later than the last day of the calendar
month following the calendar month in which the Units were tendered for redemption, provided that the entitlement of
the Unitholders to receive cash upon the redemption of their Units is subject to the limitations that:
(a) the total amount payable in cash by the Fund in respect of such Units and all other Units tendered for
redemption in the same calendar month may not exceed $50,000 (the ‘‘Monthly Limit’’), provided that the
Trustees may, in their sole discretion, waive such limitation in respect of all Units tendered for redemption
in any calendar month;
(b) at the time such Units are tendered for redemption, the outstanding Units must be listed for trading on a
stock exchange or traded or quoted on another market that, in the sole discretion of the Trustees, provides a
representative fair market value price for the Units; and
(c) the normal trading of Units must not be suspended or halted on any stock exchange on which the Units are
listed (or, if not listed on a stock exchange, on any market on which the Units are quoted for trading) on the
date that the Units are tendered for redemption or for more than five trading days during the 10 trading day
period prior to the date on which the Units are tendered for redemption.
If a Unitholder is not entitled to receive cash upon the redemption of Units as a result of the Monthly Limit, then
the Redemption Price for each Unit tendered for redemption will, subject to any applicable regulatory approvals, be
paid and satisfied by way of a distribution in specie of the assets of the Fund. If a Unitholder is not entitled to receive
cash upon the redemption of Units as a result of the other specified limitations, then each redeeming Unitholder will be
entitled to receive a price per Unit (the ‘‘In Specie Redemption Price’’) equal to the fair market value thereof as
determined by the Trustees, which may be satisfied by way of a distribution in specie of the assets of the Fund. In each
such case, a proportionate amount of the Trust Units and Series 1 Trust Notes held by the Fund having an aggregate
value equal to the Redemption Price (or, as applicable, the In Specie Redemption Price) will be redeemed in
consideration of the issuance to the Fund of Series 2 Trust Notes and Series 3 Trust Notes, respectively. The Series 2
Trust Notes and Series 3 Trust Notes will then be distributed to the redeeming Unitholder in full satisfaction of the
Redemption Price (or, as applicable, the In Specie Redemption Price). Series 2 Trust Notes and Series 3 Trust Notes
will be issued only in integral multiples of $100. Where the principal amount of Series 2 Trust Notes or Series 3 Trust
Notes to be received by a Unitholder includes a multiple of less than $100, that number will be rounded to the next
lowest integral multiple of $100. The Fund will be entitled to all interest paid on the Trust Notes, if any, and
distributions paid on the Trust Units on or before the date of the distribution in specie. Where the Fund makes a
distribution in specie of securities of the Trust on the redemption of Units, the Fund currently intends to allocate to the
redeeming Unitholder any capital gain or income realized by the Fund as a result of the redemption of the Trust Units
and Series 1 Trust Notes in exchange for Series 2 Trust Notes and Series 3 Trust Notes, respectively, or as a result of
the distribution of Series 2 Trust Notes or Series 3 Trust Notes to the Unitholder on the redemption of such Units. See
‘‘Certain Canadian Federal Income Tax Considerations’’.
It is anticipated that the redemption right described above will not be the primary mechanism for Unitholders to
dispose of their Units. The assets of the Fund that may be distributed in specie to Unitholders in connection with a
redemption (including the Series 2 Trust Notes and Series 3 Trust Notes) will not be listed on any stock exchange, no
market is expected to develop in such securities and such securities may be subject to an indefinite ‘‘hold period’’ or
other resale restrictions under applicable securities laws. Series 2 Trust Notes and Series 3 Trust Notes so distributed
may not be qualified investments for Plans. See ‘‘Certain Canadian Federal Income Tax Considerations’’.
Repurchase of Units
The Fund will be allowed, from time to time, to purchase Units for cancellation in accordance with applicable
securities laws and the rules prescribed under applicable stock exchange or regulatory policies.
Meetings of Voting Unitholders
The Declaration of Trust provides that meetings of Voting Unitholders will be required to be called and held
annually, for the purpose of: (i) the election of Trustees, (ii) the appointment of auditors of the Fund for the ensuing
year, (iii) generally, any other matter that requires a resolution of Voting Unitholders, and (iv) transacting such other
63
business as the Trustees may determine or as may be properly brought before the meeting. The Declaration of Trust
provides that the Voting Unitholders will be entitled to pass resolutions that will bind the Fund only with respect to:
(a) the election or removal of Trustees of the Fund;
(b) any amalgamation, arrangement, other merger or capital reorganization of the Fund, the Trust or the
Company with any other entity, except in conjunction with an internal reorganization or the acquisition by
the Company of the securities or assets of another entity;
(c) the appointment or removal of nominees of the Fund chosen by the Voting Unitholders to serve as trustees
of the Trust (except filling casual vacancies);
(d) the appointment or removal of the auditors of the Fund;
(e) the appointment of an inspector to investigate the performance by the Trustees in respect of their respective
responsibilities and duties in respect of the Fund;
(f) the approval of amendments to the Declaration of Trust (as described under ‘‘Description of the Fund —
Amendments to the Declaration of Trust’’);
(g) the sale of all or substantially all of the assets of the Fund;
(h) the exercise of certain voting rights attached to the securities of the Trust or the Company held directly or
indirectly by the Fund;
(i) the election of nominees of the Fund to act as directors of the GP (or the removal thereof);
(j) the ratification of any Unitholder rights plan, distribution reinvestment plan and Unit purchase plan, Unit
option plan or other compensation plan contemplated by the Declaration of Trust requiring Voting
Unitholder approval;
(k) the dissolution of the Fund prior to the end of its term; and
(l) such other business as the Trustees may determine or as may properly be brought before the meeting,
including without limitation any other matters required by securities law, stock exchange rules or other laws
or regulations to be submitted to Voting Unitholders for their approval.
No other action taken by Voting Unitholders or any other resolution of the Voting Unitholders at any meeting will
in any way bind the Trustees.
Resolutions (i) electing or removing the Trustees, (ii) electing or removing nominees of the Fund to serve as
trustees of the Trust, (iii) appointing the auditors of the Fund, (iv) with respect to the exercise of certain voting rights
attached to the securities of the Trust or the Company held, directly or indirectly, by the Fund, (v) ratifying any
Unitholder rights plan, distribution reinvestment plan and Unit purchase plan, Unit option plan or other compensation
plan contemplated by the Declaration of Trust requiring Voting Unitholder approval, and (vi) where applicable, matters
required by securities law, stock exchange rules or other laws or regulations be submitted to Voting Unitholders, must
be passed by a simple majority of the votes cast by Voting Unitholders. The balance of the foregoing matters must be
passed by a resolution of the Voting Unitholders passed by not less than 662/3% of the votes cast, either in person or by
proxy, at a meeting of Voting Unitholders called for the purpose of approving such resolution, or approved in writing
by the holders of not less than 662/3% of the Voting Units entitled to vote on such resolution (a ‘‘Special Resolution’’).
Subject to the foregoing limitations, a meeting of Voting Unitholders may be convened at any time and for any
purpose by the Trustees and must be convened if requisitioned in writing by the holders of not less than 5% of the
Voting Units then outstanding. A requisition must state in reasonable detail the business proposed to be transacted at
the meeting.
Voting Unitholders may attend and vote at all meetings of the Voting Unitholders either in person or by proxy and
a proxyholder need not be a Voting Unitholder. Two persons present in person and either holding personally or
representing by proxy in the aggregate at least 10% of the votes attached to all outstanding Voting Units will constitute
a quorum for the transaction of business at all such meetings. At any meeting at which a quorum is not present within
one-half hour after the time fixed for the holding of such meeting, the meeting, if convened upon the request of the
Voting Unitholders, will be terminated (not adjourned), but in any other case, the meeting will stand adjourned to a day
not less than 14 days later and to a place and time as chosen by the chair of the meeting, and if at such adjourned
meeting a quorum is not present, the Voting Unitholders present either in person or by proxy will be deemed to
constitute a quorum.
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The Declaration of Trust contains provisions as to the notice required and other procedures with respect to the
calling and holding of meetings of Voting Unitholders.
Limitation on Non Resident Ownership
In order for the Fund to maintain its status as a mutual fund trust under the Tax Act, the Fund must not be
established or maintained primarily for the benefit of non-residents of Canada within the meaning of the Tax Act.
Accordingly, the Declaration of Trust provides that at no time may non-residents of Canada be the beneficial owners of
more than 49.9% of the Units. This 49.9% limitation will be applied with respect to the issued and outstanding Units of
the Fund on both a non-diluted basis and a fully-diluted basis. The Trustees may require declarations as to the
jurisdictions in which beneficial owners of Units are resident. If the Trustees become aware that the beneficial owners
of 49% of the Units then outstanding are, or may be, non-residents of Canada or that such a situation is imminent, the
Trustees or the transfer agent will make a public announcement thereof and thereafter the transfer agent and registrar
will not accept a subscription for Units from or issue or register a transfer of Units to any person unless the person
provides a declaration that he or she is not a non-resident of Canada within the meaning of the Tax Act. If,
notwithstanding the foregoing, the Trustees determine that more than 49.9% of the Units are held by non-residents of
Canada, the Trustees may direct the transfer agent and registrar of the Units to send a notice to non-resident
Unitholders, chosen in inverse order to the order of acquisition or registration or in any other manner the Trustees
consider equitable and practicable, requiring them to sell their Units or a portion thereof within a specified period of not
less than 60 days. If the Unitholders receiving such notice have not sold the specified number of Units or provided the
Trustees with satisfactory evidence that they are not non-residents of Canada within the meaning of the Tax Act within
such period, the Trustees may, on behalf of such persons, sell such Units and, in the interim, the voting and distribution
rights attached to such Units shall be suspended. Upon such a sale, the affected holders shall cease to be holders of the
Units and their rights shall be limited to receiving the net proceeds of such sale.
Special Voting Units may not be owned by a non-resident of Canada within the meaning of the Tax Act. In the
event that a holder of Special Voting Units becomes a non-resident, such holder will be deemed to have exercised his
or her right of redemption in accordance with the Declaration of Trust and such Special Voting Units will immediately
be redeemed for nominal consideration.
Amendments to the Declaration of Trust
The Declaration of Trust may be amended or altered from time to time with the consent of the Voting Unitholders
by a Special Resolution.
The Trustees may, at their discretion and without the approval of the Voting Unitholders, make certain
amendments to the Declaration of Trust, including amendments: (i) for the purpose of ensuring continuing compliance
and conformity of the Declaration of Trust with applicable laws, regulations, requirements or policies of any
governmental authority having jurisdiction over the Trustees or the Fund, (ii) which, in the opinion of counsel to the
Trustees, provide additional protection or added benefits for Unitholders, (iii) to remove any conflicts or inconsistencies
in the Declaration of Trust or to make minor changes or corrections that, in the opinion of the Trustees, are necessary or
desirable and not prejudicial to the Unitholders, (iv) which, in the opinion of the Trustees, are necessary or desirable as
a result of changes in taxation laws or policies of any governmental authority having jurisdiction over the Trustees or
the Fund, or (v) for the purpose of ensuring that the Fund continues to qualify as a mutual fund trust under the Tax Act.
Notwithstanding the previous sentence, the Trustees may not amend the Declaration of Trust in a manner which
would result in (i) the Fund failing to qualify as a mutual fund trust under the Tax Act or (ii) the Units being treated as
‘‘foreign property’’ for the purposes of the Tax Act.
Term of the Fund
The Fund has been established for a term ending 21 years after the date of death of the last surviving issue of Her
Majesty, Queen Elizabeth II, alive on September 24, 2003. On a date selected by the Trustees which is not more than
two years prior to the expiry of the term of the Fund, the Trustees are obligated to commence to wind-up the affairs of
the Fund so that it will terminate on the expiration of the term. In addition, at any time prior to the expiry of the term of
the Fund, the Voting Unitholders may by a Special Resolution require the Trustees to commence the termination,
liquidation or wind-up of the affairs of the Fund.
65
The Declaration of Trust provides that, upon being required to commence the termination, liquidation or winding-
up of the affairs of the Fund, the Trustees will give notice thereof to the Voting Unitholders, which notice shall
designate the time or times at which Voting Unitholders may surrender their Voting Units for cancellation and the date
at which the register of Voting Units will be closed. After the date the register is closed, the Trustees will proceed to
wind up the affairs of the Fund as soon as may be reasonably practicable and for such purpose will, subject to any
direction to the contrary in respect of a termination authorized by a resolution of the Voting Unitholders, sell and
convert into money the Trust Units, Trust Notes and all other assets comprising the Fund in one transaction or in a
series of transactions at public or private sales and do all other acts appropriate to liquidate the Fund. After paying,
retiring, discharging or making provision for the payment, retirement or discharge of all known liabilities and
obligations of the Fund and providing for indemnity against any other outstanding liabilities and obligations, the
Trustees will distribute the remaining part of the proceeds of the sale of the Trust Units, Trust Notes and other assets
comprising the Fund together with any cash forming part of the assets of the Fund among the Unitholders in
accordance with their pro rata interests. If the Trustees are unable to sell all or any of Trust Units, Trust Notes or other
assets which comprise part of the Fund by the date set for termination, the Trustees may distribute the remaining Trust
Units, Trust Notes or other assets in specie directly to the Unitholders in accordance with their pro rata interests subject
to obtaining all required regulatory approvals.
Take-over Bids
The Declaration of Trust and the Limited Partnership Agreement contain provisions to the effect that if a take-over
bid is made for the Units and not less than 90% of the Units on a fully diluted basis (including the Units issuable upon
the exchange of all Exchangeable LP Units and any other Exchangeable Securities, but not including any Units,
Exchangeable LP Units, Subordinated LP Units or Exchangeable Securities held at the date of the take-over bid by or
on behalf of the Offeror or associates or affiliates of the Offeror) are taken up and paid for by the Offeror, the Offeror
will be entitled to acquire the Units, Exchangeable LP Units and other Exchangeable Securities held by holders who
did not accept the take-over bid, on the same terms on which the Offeror acquired Units pursuant to the take-over bid.
The Declaration of Trust and the Limited Partnership Agreement provide that if a non-exempt take-over bid from
a person acting at arm’s length to holders of the Subordinated LP Units (or any affiliate or associate thereof) is made
for the Units and a contemporaneous identical offer is not made for the Subordinated LP Units (in terms of price,
timing, proportion of securities sought to be acquired and conditions, provided that the offer for the Subordinated LP
Units may be conditional on Units of the Fund being taken up and paid for under the take-over bid), then provided that
not less than 25% of the Units (other than Units, Exchangeable LP Units, Subordinated LP Units or other Exchangeable
Securities held at the date of the take-over bid by or on behalf of the Offeror or associates or affiliates of the Offeror)
are taken up and paid for pursuant to the non-exempt bid, from and after the date of first take up of Units under the said
take-over bid in excess of the foregoing threshold, the Subordinated LP Units will, as and from such date, without any
further action on the part of the Fund or the holders of the Subordinated LP Units, and notwithstanding the terms and
conditions of the Subordinated LP Units and any other provision of the Declaration of Trust or the Limited Partnership
Agreement, automatically convert into Exchangeable LP Units at the then current conversion ratio in effect under the
Limited Partnership Agreement.
The Declaration of Trust and the Exchange and Escrow Agreement include provisions to facilitate the exchange of
Exchangeable LP Units for Units so that a holder of Exchangeable LP Units can exercise its rights to exchange all or a
portion of such holdings for Units, including conditionally, in order to tender to a take-over bid.
Restrictions on Exercise of Certain Voting Rights Attached to the Trust Securities
The Declaration of Trust provides that the Fund will not vote the Trust Units and Trust Notes that it holds, nor will
it permit the Trust to vote its holdings of GP Common Shares or Ordinary LP Units, to authorize any transaction that is
adverse to the Unitholders including, among other things:
(a) any matter that, under the Trust Declaration of Trust, requires or permits the approval of the holders of Trust
Units by a special resolution (as defined therein);
(b) any sale, lease or other disposition of all or substantially all of the direct or indirect assets of the Trust or the
Company or any of their respective affiliates except (i) in conjunction with an internal reorganization, or
(ii) pursuant to a good faith charge, pledge, mortgage, lien, security interest or other encumbrance granted
by the Trust over any assets of the Trust in the ordinary course of business, or (iii) pursuant to any guarantee
66
of any obligation of the Trust, the GP, KIT LP or any of their respective affiliates, or any charge, mortgage,
lien, security interest or other encumbrance, in each case, granted by the Trust over any of the assets
of Trust;
(c) any amalgamation, arrangement, other merger or capital reorganization of the Trust or the Company with
any other entity, except in conjunction with an internal reorganization or the acquisition by the Company of
the securities or assets of another entity;
(d) the winding-up or dissolution of the Trust or the Company prior to the end of the term of the Fund, except in
connection with an internal reorganization;
(e) any material amendment to the Note Indenture, other than in contemplation of a further issue of Trust Notes;
(f) any material amendment to the constating documents of the GP or KIT LP (other than in connection with
the acquisition of the Company Restaurants) that may be prejudicial to the Unitholders; or
(g) any change to the subordination provisions attached to the Subordinated LP Units (including a change to the
EBITDA Target, EBITDA Acceleration Target, Distribution Target or the Distribution Acceleration
Target),
without the authorization of the Voting Unitholders by a Special Resolution, except in respect of a change to the
subordination provisions attached to the Subordinated LP Units, which requires the approval of a majority of the votes
cast by Voting Unitholders, excluding any Units or Special Voting Units directly or indirectly owned by a holder of
Subordinated LP Units (or its affiliates or associates). The Declaration of Trust further provides that the Trustees must
not without the approval of Voting Unitholders by ordinary resolution, vote the Trust Units with respect to any matter
that, under the Trust Declaration of Trust, requires the approval of the holders of Trust Units by ordinary resolution (as
defined therein); provided, however, that the Trust Units must be voted by the Trustees to cause the election of the
Trustees as the trustees of the Trust.
Information and Reports
The Fund will furnish to Voting Unitholders, in accordance with applicable securities laws, such consolidated
financial statements of the Fund (including quarterly and annual consolidated financial statements) and other reports as
are from time to time required by applicable law, including prescribed forms needed for the completion of Unitholders’
tax returns under the Tax Act and equivalent provincial legislation. Prior to each meeting of Voting Unitholders, the
Trustees will provide the Voting Unitholders (along with notice of such meeting) all such information as is required by
applicable law and the Declaration of Trust to be provided to Voting Unitholders.
Each of the Trust and the Company has undertaken to the Fund to provide the Fund with a report of any material
change that occurs in the affairs of the Trust and the Company, respectively, and with quarterly and annual
consolidated financial statements accompanied by management’s discussion and analysis for the period covered by
such financial statements, in each case in form and content that it would be required to file with the Ontario Securities
Commission if it were a reporting issuer under Ontario securities law. All such reports and statements will be provided
to the Fund in a timely manner so as to permit the Fund to comply with the continuous disclosure requirements under
applicable securities laws relating to reporting of material changes in its affairs and the filing and delivery of financial
statements as required under applicable securities laws.
Book-Entry Only System
Registration of interests in and transfers of the Units will be made only through a book-based system administered
by CDS. On the date of closing of the Offering, the Trustees will deliver to CDS one or more certificates representing
the total number of Units subscribed for under this Offering. Units must be purchased, transferred and surrendered for
redemption through a participant in the CDS depository service (a ‘‘CDS Participant’’). All rights of Unitholders must
be exercised through, and all payments or other property to which the Unitholder is entitled will be made or delivered
by, CDS or the CDS Participant through which the Unitholder holds the Units. Upon a purchase of any Units, the
Unitholder will receive only a customer confirmation from the registered dealer which is a CDS Participant and from or
through which the Units are purchased. References in this prospectus to a Unitholder mean, unless the context
otherwise requires, the owner of the beneficial interest in those Units.
67
The ability of a beneficial owner of Units to pledge those Units or otherwise take action with respect to the
Unitholder’s interest in those Units (other than through a CDS Participant) may be limited due to the lack of a physical
certificate.
The Fund has the option to terminate registration of the Units through the CDS book-entry only system, in which
case certificates for the Units in fully registered form would be issued to beneficial owners of those Units or their
nominees.
Financial Year End
The fiscal year end of the Fund will be December 31.
68
DESCRIPTION OF THE TRUST
The Trust Declaration of Trust contains provisions substantially similar to those of the Declaration of Trust. The
following is a summary, which does not purport to be complete, of certain provisions of the Trust Declaration of Trust
insofar as they differ from those of the Declaration of Trust. Reference is made to the Trust Declaration of Trust for the
full text of its provisions.
General
The Trust is an unincorporated, limited purpose trust established under the laws of the Province of Ontario
pursuant to the Trust Declaration of Trust. The Trust will be a limited purpose trust and its activities will be restricted
to the conduct, directly or indirectly, of the business of, and the ownership, operation and lease of assets and property in
connection with, the operation of the Company Restaurants, including all activities ancillary or incidental thereto, and
such other businesses and activities as the trustees of the Trust may determine or as may be contemplated by this
prospectus, and having investments and other direct or indirect rights in companies or other entities involved in the
QSR business, including all activities ancillary or incidental thereto. The fiscal year end of the Trust will be
December 31.
Trustees of the Trust
The Trust will have a minimum of three trustees and a maximum of six trustees. All of the trustees of the Trust
must be residents of Canada within the meaning of the Tax Act. The trustees of the Trust are to supervise the activities
and manage the affairs of the Trust. The trustees of the Trust are the same as the Trustees.
The Trust Declaration of Trust provides that, subject to the terms and conditions thereof, the trustees of the Trust
will have full, absolute and exclusive power, control and authority over the assets of the Trust and over the affairs of
the Trust to the same extent as if the trustees of the Trust were the sole and absolute beneficial owners of the assets of
the Trust, and may, in respect of such assets, exercise any and all rights, powers and privileges that could be exercised
by a legal and beneficial owner thereof. Subject to such terms and conditions, the trustees of the Trust are responsible
for, among other things: (i) acting for, voting on behalf of and representing the Trust as a holder of LP Units and a
holder of GP Common Shares, (ii) maintaining records and providing reports to the Trust Unitholders, (iii) supervising
the activities and managing the investments and affairs of the Trust, and (iv) effecting payments of distributable cash
from the Trust to the Trust Unitholders and payments of interest and principal on the Trust Notes.
Cash Distributions
The Trust intends to make monthly cash distributions of its distributable cash to the maximum extent possible. The
amount of cash to be distributed monthly per Trust Unit to the Trust Unitholders will be equal to a pro rata share of
distributions on or in respect of Ordinary LP Units owned by the Trust and all other amounts, if any, from any other
investments from time to time held by the Trust received in such period, less amounts which are paid, payable, incurred
or provided for in such period in connection with:
(a) administrative expenses and other obligations of the Trust;
(b) any interest expense (including interest payable in respect of the Trust Notes) incurred by the Trust;
(c) principal repayments in respect of the Trust Notes considered advisable by the trustees of the Trust and any
other debt obligations of the Trust;
(d) any cash redemptions or repurchases of the Trust Units or the Trust Notes; and
(e) any amount that the trustees of the Trust may reasonably consider to be necessary to provide for the
payment of any costs or expenses, including any tax liability of the Trust, that have been or are reasonably
expected to be incurred in the activities and operations of the Trust (to the extent that such costs or expenses
have not otherwise been taken into account in the calculation of the available distributable cash of the
Trust).
Such distributions will be payable to holders of record of Trust Units on the last business day of each month and
will be paid within 15 days following each month end. The cash distributions payable by the Trust are intended to be
received by the Fund prior to its related cash distribution to Unitholders.
69
The distribution declared by the trustees of the Trust in respect of the month ending December 31 in each year will
include such amount in respect of the taxable income and net realized capital gains, if any, of the Trust for such year as
is necessary to ensure that the Trust will not be liable for ordinary income taxes under the Tax Act in such year.
Any income of the Trust which is unavailable for cash distribution will, to the extent necessary to ensure that the
Trust does not have any income tax liability under Part I of the Tax Act, be distributed to the Trust Unitholders in the
form of additional Trust Units. The value of each Trust Unit so issued will be equal to the redemption price thereof.
The Trust Declaration of Trust provides that immediately after any pro rata distribution of Trust Units in satisfaction of
any non-cash distribution, the number of outstanding Trust Units will be consolidated such that each holder of Trust
Units will hold after consolidation the same number of Trust Units as the holder held before the non-cash distribution.
Unit Certificates
As Trust Units are not intended to be issued or held by any person other than the Fund, registration of interests in,
and transfers of, the Trust Units will not be made through the book-entry only system. Rather, holders of Trust Units
will be entitled to receive certificates therefor.
Redemption Right
The Trust Units will be redeemable at any time on demand by the holders thereof upon delivery to the Trust of a
duly completed and properly executed notice requiring the Trust to redeem the Trust Units, in a form specified by the
trustees of the Trust, together with the certificates for the Trust Units representing the Trust Units to be redeemed and
written instructions as to the number of Trust Units to be redeemed. Upon tender of the Trust Units by a holder thereof
for redemption, the holder of the Trust Units tendered for redemption will no longer have any rights with respect to
such Trust Units other than the right to receive the redemption price for such Trust Units. The redemption price for
such Trust Unit tendered for redemption will be equal to:
(A × B) – C
D
Where:
A = the cash redemption price per Unit calculated as of the close of business on the date the Trust Units were so
tendered for redemption by a holder of Trust Units;
B = the aggregate number of Units outstanding as of the close of business on the date the Trust Units were so
tendered for redemption by the holder thereof;
C = the aggregate unpaid principal amount and accrued interest thereon of any indebtedness held by or owed to
the Fund (including the Trust Notes), and the fair market value of any other assets or investments held by the Fund
(other than the Trust Units) as of the close of business on the date the Trust Units were so tendered for redemption
by a holder thereof; and
D = the aggregate number of the Trust Units held by the Fund outstanding as of the close of business on the date
the Trust Units were so tendered for redemption by the holder thereof.
The Trust will also be entitled to call for redemption at any time all or any part of the outstanding Trust Units
registered in the name of holders thereof (other than the Fund) at the same redemption price as described above for
each Trust Unit called for redemption, calculated with reference to the date the trustees of the Trust approved the
redemption of the Trust Units.
The aggregate redemption price payable by the Trust in respect of any Trust Unit tendered for redemption by the
holder thereof during any calendar month will be satisfied, at the option of the trustees of the Trust in their sole
discretion:
(a) in immediately available funds by cheque;
(b) by the issuance to or to the order of the holder whose Trust Units are to be redeemed of such aggregate
amount of Series 2 Trust Notes as is equal to the aggregate redemption price payable to such holder of Trust
Units rounded down to the nearest $100, with the balance of any such aggregate redemption price not paid
in Series 2 Trust Notes to be paid in immediately available funds by cheque, or
(c) by any combination of funds and Series 2 Trust Notes as the trustees of the Trust shall determine in their
sole discretion,
70
in each such case payable or issuable on or before the last day of the calendar month following the calendar month in
which the Trust Units were so tendered for redemption.
The Trust Notes
The following is a summary of the material attributes and characteristics of the Trust Notes that will be issuable by
the Trust under the Note Indenture. This summary is qualified in its entirety by reference to the provisions of the Note
Indenture, which contains a complete statement of such attributes and characteristics.
Three series of Trust Notes will initially be authorized for issuance under the Note Indenture. On the closing of the
Offering, only Series 1 Trust Notes will be issued and outstanding, all of which will be held by the Fund. Series 2 Trust
Notes will be reserved by the Trust to be issued exclusively to holders of Trust Units as full or partial payment of the
redemption price for Trust Units, as the trustees of the Trust decide. Series 3 Trust Notes will be reserved by the Trust
to be issued exclusively as full or partial payment of the redemption price for Series 1 Trust Notes in the event of an in
specie payment of the Redemption Price for Units redeemed by Unitholders.
The Trust Notes will be issued only in Canadian currency and only as fully registered trust notes in minimum
denominations of $100 and integral multiples of $100. No fractional Trust Notes will be issued and where the number
of Trust Notes to be received by a Unitholder includes a fraction, such number shall be rounded down to the lowest
whole number.
Interest and Maturity
The Series 1 Trust Notes to be issued at closing will be payable on demand, will mature on the 15th anniversary of
the date of issuance and will bear interest at a rate of one percent per annum, payable in arrears on the 15th day of each
calendar month that such Series 1 Trust Note is outstanding. Each Series 2 Trust Note will mature on a date which is no
later than the first anniversary of the date of issuance thereof and will bear interest at a market rate to be determined by
the trustees of the Trust at the time of issuance thereof, payable in arrears on the 15th day of each calendar month that
such Series 2 Trust Note is outstanding. Each Series 3 Trust Note will mature on the same date as the Series 1 Trust
Notes and will bear interest at a market rate to be determined by the trustees of the Trust at the time of issuance thereof,
payable in arrears on the 15th day of each calendar month that such Series 3 Trust Note is outstanding.
Payment upon Maturity
On maturity, the Trust will repay the Trust Notes by paying to the Note Trustee, in cash, an amount equal to the
principal amount of the outstanding Trust Notes that have then matured, together with accrued and unpaid interest
thereon.
Redemption
The Trust Notes will be redeemable (at a redemption price equal to the principal amount thereof) payable in cash
or, in the case of a redemption of Series 1 Trust Notes on an in specie payment of the Redemption Price for Units, in
Series 3 Trust Notes) at the option of the Trust prior to maturity.
Subordination/Security
Payment of the principal amount and interest on the Trust Notes will be subordinated in right of payment to the
prior payment in full of the principal of and accrued and unpaid interest on, and all other amounts owing in respect of,
all senior indebtedness of the Trust, which will be defined as all indebtedness, liabilities and obligations of or
guaranteed by the Trust which, by the terms of the instrument creating or evidencing the same, will be expressed to
rank in right of payment in priority to the indebtedness evidenced by the Note Indenture, including, without limitation,
the Term Facility (and any interest hedging facility) but excluding any such indebtedness to trade creditors. The Trust
may also designate in writing from time to time any other obligations or liabilities or class thereof, as senior
indebtedness. The Note Indenture provides that upon any distribution of the assets of the Trust in the event of any
dissolution, liquidation, reorganization or other similar proceedings relative to the Trust, the holders of all such senior
indebtedness will be entitled to receive payment in full before the holders of the Trust Notes are entitled to receive any
payment. The Note Trustee, the Trust and the Fund will execute a subordination and intercreditor agreement in favour
of the lenders under the Term Facility whereby they will agree that, among other things, the payment of the principal
amount and interest on the Trust Notes will be subordinated in right of payment to the prior payment in full of the
principal of and accrued and unpaid interest under the Term Facility.
71
The Trust Notes will be unsecured debt obligations of the Trust.
Default
The Note Indenture provides that any of the following shall constitute an Event of Default (as defined in the Note
Indenture): (i) default in repayment of the principal amount of any of the Trust Notes when the same becomes due and
payable and the continuation of such default for a period of 10 business days, (ii) subject to the terms of any senior
indebtedness, the failure to pay the interest obligations of any of the Trust Notes, if and when issued, and continuation
of such default for a period of 90 days, (iii) certain events of dissolution, liquidation, bankruptcy, insolvency or other
similar proceedings relative to the Trust or its affiliates, or (iv) default in the observance or performance of any other
covenant or condition of the Note Indenture and the continuance of such default for a period of 30 days after notice in
writing has been given by the Note Trustee to the Trust specifying such default and requiring the Trust to rectify the
same.
Restrictions on Exercise of Certain Voting Rights Attached to GP Common Shares and LP Units
The Trust Declaration of Trust provides that the Trust must not vote its GP Common Shares or LP Units to
authorize, among other things:
(a) any sale, lease or other disposition of all or substantially all of the direct or indirect assets of KIT LP or the
GP, except (i) in conjunction with an internal reorganization, or (ii) pursuant to a good faith charge, pledge,
mortgage, lien, security interest or other encumbrance granted by the Trust over any of the assets of the
Trust in the ordinary course of business, or (iii) pursuant to any guarantee of any obligation of the Fund, the
GP, KIT LP or any of their respective affiliates, or any charge, pledge, mortgage, lien, security interest or
other encumbrance, in each case, granted by the Trust over any of the assets of the Trust;
(b) any amalgamation, arrangement, other merger or capital reorganization of KIT LP or the GP with any other
entity, except in conjunction with an internal reorganization or the acquisition by the GP or KIT LP of the
securities or assets of another entity;
(c) the winding-up or dissolution of the GP or KIT LP prior to the end of the term of the Fund, except in
connection with an internal reorganization; or
(d) any material amendment to the constating documents of the GP or KIT LP that may be prejudicial to the
Unitholders;
without the authorization of the Voting Unitholders by a Special Resolution.
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DESCRIPTION OF KIT LP
General
KIT LP is a limited partnership formed under the laws of Manitoba. The business of KIT LP is to develop,
acquire, make investments in and conduct the business and ownership, operation and lease of assets and property in
connection with, the QSR business in Canada (including the Company Restaurants), together with all activities
ancillary or incidental thereto. See ‘‘Business of the Company’’ and ‘‘Principal Agreements — The Franchise
Agreement’’. The following is a summary of the material attributes and characteristics of the LP Units and certain
provisions of the Limited Partnership Agreement, which summary is not intended to be complete. Reference is made to
the Limited Partnership Agreement and the full text of its provisions for a complete description of the LP Units. See
‘‘Material Contracts’’.
General Partner
The general partner of KIT LP is the GP. See ‘‘Description of the GP’’.
Units
KIT LP will be entitled to issue various classes of partnership interests, for such consideration and on such terms
and conditions as may be determined by the GP. Immediately following the closing of the Offering, KIT LP will have
issued and outstanding 15,000,000 Ordinary LP Units (which will be held by the Trust), 5,656,000 Exchangeable LP
Units (which will be held by PB LP) and 5,164,000 Subordinated LP Units (which will be held by PB LP). KIT LP will
also have issued and outstanding 258 GP Units (which will be held by the GP). The Exchangeable LP Units and the
Subordinated LP Units will collectively represent a 41.9% interest in KIT LP.
The Ordinary LP Units, the Exchangeable LP Units and the Subordinated LP Units will entitle the holder thereof
to one vote for each whole unit held at all meetings of holders of the Units and will have economic rights that are
equivalent in all material respects, except that: (i) Exchangeable LP Units will be exchangeable, directly or indirectly,
on a one-for-one basis (subject to customary anti-dilution protections) for Units at the option of the holder at any time,
unless the exchange would jeopardize the Fund’s status as a ‘‘unit trust’’ or ‘‘mutual fund trust’’ under the Tax Act,
(ii) KIT LP will be entitled to acquire all of the Exchangeable LP Units, in exchange for Units, in certain specified
circumstances, including there being outstanding, at any time after the date on which there are no longer any
Subordinated LP Units outstanding, fewer than 10% of the aggregate number of Exchangeable LP Units and
Subordinated LP Units (in the aggregate) originally outstanding on the Closing Date, (iii) distributions on the
Subordinated LP Units will be subject to the subordination arrangements described below, and (iv) the Subordinated
LP Units will automatically convert into Exchangeable LP Units upon the satisfaction of certain conditions and in
certain circumstances. See ‘‘Retained Interest and Exchange Rights — Exchange Rights’’ and ‘‘Description of the
Fund — Take-over Bids’’.
Distributions on the LP Units will be made in the following priority:
(a) holders of Ordinary LP Units and Exchangeable LP Units will be entitled to receive monthly cash
distributions such that each holder of Ordinary LP Units and the Exchangeable LP Units will receive a
distribution of $0.10 per unit for such month or, if there is insufficient distributable cash to make
distributions in such amount, such lesser amount as is available, on a proportionate basis,
(b) at the end of each fiscal quarter of KIT LP, including the fiscal quarter ending on the fiscal year end,
distributable cash will be distributed in the following order of priority:
(i) first, in payment of the monthly cash distribution to the holders of Ordinary LP Units and
Exchangeable LP Units as described above, for the month then ended;
(ii) second, proportionately to the holders of Ordinary LP Units and Exchangeable LP Units, to the extent
that monthly per unit distributions in respect of the 12-month period then ended were not made or
were made in amounts less than $0.10 per unit, the amount of any deficiency;
(iii) third, to holders of Subordinated LP Units in a per unit amount of $0.30 or, if there is insufficient
available cash to make distributions in such amount, such lesser amount as is distributable, on a
proportionate basis;
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(iv) fourth, proportionately to the holders of Subordinated LP Units, to the extent that per unit
distributions in respect of any fiscal quarter(s) during the 12-month period then ended were not made
or were made in amounts less than $0.30 per Subordinated LP Unit, the amount of such deficiency;
and
(v) fifth, to the extent of any excess, proportionately to the holders of Ordinary LP Units, Exchangeable
LP Units and Subordinated LP Units.
Notwithstanding the foregoing, the directors of the GP may suspend distributions to holders of Subordinated LP
Units in certain circumstances. In making such determination, the directors of the GP will consider trends or
developments in the business or operations of KIT LP then in effect or reasonably foreseeable and the likelihood that
there will be insufficient distributable cash in a future month within the next 12-month period to enable the Fund to
make distributions on the Units of at least $0.10 per Unit.
Subordinated LP Units will automatically convert into Exchangeable LP Units upon the satisfaction of certain
conditions and in certain circumstances. See ‘‘Retained Interest and Exchange Rights — Exchange Rights’’ and
‘‘Description of the Fund — Take-over Bids’’.
Distributions
KIT LP will adopt a policy to distribute its distributable cash to the maximum extent possible. Distributions will
be made on the Ordinary LP Units and the Exchangeable LP Units within 15 days of the end of each month and on the
Subordinated LP Units within 15 days of the end of each fiscal quarter and are intended to be received by the Trust
prior to its related distributions to the Fund. Distributions will be payable to the holders of LP Units of record on the
last day of the period in respect of which the distribution is to be paid. KIT LP may, in addition, make a distribution at
any other time, subject to certain limitations to preserve the subordination arrangements described above.
Distributable cash will represent, in general, all of KIT LP’s EBITDA, after:
(a) satisfaction of its debt service obligations (principal and interest) under credit facilities or other agreements
with third parties, including amounts payable under the Term Facility;
(b) paying awards under the LTIP or other incentives to management and other personnel when cash available
for distribution exceeds certain specified thresholds;
(c) retaining reasonable working capital reserves, maintenance capital expenditure reserves, renewal reserves,
upgrade and renovation reserves or other reserves, including reserves to stabilize distributions to the
partners, as may be considered appropriate by the GP; and
(d) expenditures in excess of reserves.
Allocation of Net Income and Losses
The income or loss of KIT LP for each fiscal year will be allocated to the GP and to the limited partners as to
0.001% and 99.999%, respectively. The income for tax purposes of KIT LP for a particular fiscal year will be allocated
to each limited partner by multiplying the total income allocated to the limited partners by a fraction, the numerator of
which is the total sum of the cash distributions received by that limited partner with respect to that fiscal year and the
denominator of which is the total amount of the cash distributions made by KIT LP to all limited partners with respect
to that fiscal year. The amount of income allocated to a limited partner may exceed or be less than the amount of cash
distributed by KIT LP to that limited partner.
If, with respect to a given fiscal year, no cash distribution is made by KIT LP to its partners, or KIT LP has a loss
for tax purposes, one-twelfth of the income or loss, as the case may be, for tax purposes of KIT LP for that fiscal year
will be allocated to the GP and the limited partners at the end of each month ending in that fiscal year, as to 0.001% and
99.999%, respectively, and to each limited partner in the proportion that the number of LP Units held at each of those
dates by that limited partner is of the total number of LP Units issued and outstanding at each of those dates.
Income and loss of KIT LP for accounting purposes is allocated to each partner in the same proportion as income
or loss is allocated for tax purposes.
The fiscal year end of KIT LP will be December 31.
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Reimbursement of the GP
KIT LP will reimburse the GP for all direct costs and expenses incurred in the performance of its duties under the
Limited Partnership Agreement.
Limited Liability
KIT LP will operate in a manner so as to ensure, to the greatest extent possible, the limited liability of the limited
partners. Limited partners may lose their limited liability in certain circumstances. The GP will indemnify the limited
partners against all claims arising from assertions that their respective liabilities are not limited as intended by the
Limited Partnership Agreement unless the liability is not so limited as a result of or arising out of any act of such
limited partner. The GP has no significant assets or financial resources, however, and therefore the indemnity from the
GP may have nominal value.
Transfer of Partnership Units
Subject to the prior approval of the GP, LP Units will be fully transferable; provided, however, that no LP Units
may be transferred to a person who is not resident in Canada for purposes of the Tax Act. A LP Unit will not be
transferable in part, and no transfer of a LP Unit will be accepted by the GP unless a transfer form, duly completed and
signed by the registered holder of the LP Unit, has been remitted to the registrar and transfer agent of the GP. In
addition, a transferee of a LP Unit must provide to the GP such other instruments and documents as the GP may require
in appropriate form completed and executed in a manner acceptable to the GP and must pay the administration fee, if
any, required by the GP. A transferee of a LP Unit will not become a partner or be admitted to KIT LP and will not be
subject to the obligations and entitled to the rights of a partner under the Limited Partnership Agreement until the
foregoing conditions are satisfied and such transferee is recorded on KIT LP’s register of partners.
Amendments to the Limited Partnership Agreement
The Limited Partnership Agreement may only be amended with the consent of the holders of at least 662/3% of the
outstanding partnership units voted on the amendment at a duly constituted meeting or by a written resolution of
partners holding more than 662/3% of the outstanding partnership units entitled to vote at a duly constituted meeting (a
‘‘Partnership Special Resolution’’). Notwithstanding the foregoing,
(a) no amendment will be permitted to be made to the Limited Partnership Agreement altering the ability of the
limited partners to remove the GP involuntarily, changing the liability of any limited partner, allowing any
limited partner to exercise control over the business of KIT LP, changing the right of a partner to vote at any
meeting, adversely affecting the rights, privileges or conditions attaching to any of the LP Units or GP
Units, reducing the percentage of income allocable to limited partners to below 99.999% or changing KIT
LP from a limited partnership to a general partnership, in each case, without the unanimous approval of the
partners;
(b) no amendment can be made to the Limited Partnership Agreement which would adversely affect the rights
and obligations of any particular partner without similarly affecting the rights and obligations of all other
partners without the unanimous approval of the partners; and
(c) no amendment which would adversely affect the rights and obligations of the GP, as general partner, will be
permitted to be made without its consent.
The foregoing approval requirements are subject to additional restrictions on, or conditions to the approval of,
amendments to the Limited Partnership Agreement pursuant to the Declaration of Trust. In particular, (i) any change to
the subordination provisions attached to the Subordinated LP Units (including a change to the EBITDA Target,
EBITDA Acceleration Target, Distribution Target or Distribution Acceleration Target) requires the prior approval of a
majority of the votes cast by Voting Unitholders, excluding any Units or Special Voting Units directly or indirectly
owned by a holder of Subordinated LP Units or its affiliates and associates, and (ii) the approval or authorization by the
GP or KIT LP of any action that would result in the Units constituting foreign property for the purposes of the Tax Act
requires the prior approval of Voting Unitholders by a Special Resolution.
The GP may call meetings of partners and will be required to convene a meeting on receipt of a request in writing
of the holder(s) of not less than 662/3% of the outstanding partnership units. Each partner is entitled to one vote for each
partnership unit held. A quorum of a meeting of partners consists of one or more partners present in person or by proxy.
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DESCRIPTION OF THE GP
General
The GP is a corporation established under the laws of Canada to act as the general partner of KIT LP. Following
the closing of the Offering, the Fund will indirectly, and PB LP will directly, own 58.1% and 41.9%, respectively, of
the outstanding GP Common Shares (63.9% and 36.1%, respectively, if the Over-Allotment Option is exercised in
full).
Capital of the GP
The authorized share capital of the GP consists of an unlimited number of GP Common Shares without par value.
Upon the closing of the Offering, 58.1% of the issued and outstanding GP Common Shares will be owned by the Trust
and 41.9% will be owned by PB LP. The Trust will acquire its GP Common Shares from the GP for nominal
consideration. Each GP Common Share will entitle the holder thereof to receive notice of and to attend all meetings of
shareholders of the GP and to one vote per share at such meetings (other than meetings of another class of shares of the
GP). The GP Common Shares will entitle the holders thereof to receive in any year dividends as and when declared by
the board of directors on the GP Common Shares. In the event of a liquidation of the GP, holders of the GP Common
Shares, after payment of or other proper provision for all of the liabilities of the GP, will be entitled to share rateably in
all remaining assets of the GP. The articles and by laws of the GP will contain standard restrictions, which restrict all
shareholders from transferring their GP Common Shares without the consent of the directors or shareholders of the GP.
The Governance Agreement will provide that the GP Common Shares issued to PB LP on the closing of the Offering
may not be transferred to any Person unless a corresponding percentage of the LP Units held by PB LP is also
transferred to the same Person.
Functions and Powers of the GP
The GP will have the authority to manage the business and affairs of KIT LP, to make all decisions regarding the
business of KIT LP and to bind KIT LP in respect of any such decision. The GP will be required to exercise its powers
and discharge its duties honestly, in good faith and in the best interests of KIT LP and to exercise the care, diligence
and skill of a reasonably prudent person in comparable circumstances.
The authority and power to be vested in the GP to manage the business and affairs of KIT LP will include all
authority necessary or incidental to carry out the objects, purposes and business of KIT LP, including the ability to
engage agents to assist the GP to carry out its management obligations and administrative functions in respect of
KIT LP and its business.
The Governance Agreement will provide that all material transactions and agreements involving KIT LP must be
approved by the GP’s board of directors and, where those agreements involve PB LP, they must be approved by a
majority of the independent directors of the GP.
Restrictions on Authority of the GP
The authority of the GP will be limited in certain respects under the Limited Partnership Agreement. The GP is
prohibited, without the prior approval of the other partners given by a Partnership Special Resolution, from dissolving
KIT LP or selling, exchanging or otherwise disposing of all or substantially all of the assets of KIT LP (otherwise than
in conjunction with an internal reorganization that has been approved by the Fund).
Withdrawal or Removal of the GP
The GP will be permitted to resign as general partner on not less than 180 days’ prior written notice to the
partners, provided that the GP may not resign if the effect thereof would be to dissolve KIT LP.
The GP may be removed as general partner of KIT LP, without its consent, if: (i) the shareholders or directors of
the GP pass a resolution in connection with the bankruptcy, dissolution, liquidation or winding up of the GP, or the GP
commits certain other acts of bankruptcy or ceases to be a subsisting corporation, provided that certain other conditions
are satisfied, including a requirement that a successor general partner agrees to act as general partner under the Limited
Partnership Agreement, or (ii) a Partnership Special Resolution has been passed and a successor general partner has
agreed to act as general partner under the Limited Partnership Agreement.
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PB LP REORGANIZATION
Immediately prior to the filing of the final prospectus for the Offering the nominees of Yum! Canada who are
directors of PB LP will resign from the board of directors of PB LP. Immediately prior to the closing of the Offering,
PB LP will be reorganized (the ‘‘Reorganization’’). Pursuant to the Reorganization, PB LP will transfer substantially
all of its assets, other than the Company Restaurants and certain other KFCTM restaurants not forming part of the
Company Restaurants, to Yum! Canada in consideration for the redemption of Yum! Canada’s interest in PB LP. As
part of the Reorganization, Yum! Canada will also acquire from Scott’s Restaurants Inc. its interest in Colonel’s Realty
Inc., an entity in which Yum! Canada has a 49% interest. Following the Reorganization, the Company Restaurants will
represent substantially all of PB LP’s assets, and the holder of all of its interests will be Scott’s Restaurants Inc.
Following the Reorganization, Yum! Canada will own the real property on which approximately 140 Company
Restaurants are located. See ‘‘Principal Agreements — Lease Agreement with Yum! Canada’’.
FUNDING, ACQUISITION AND RELATED TRANSACTIONS
Prior to the closing of the Offering, each of the Trust, the GP and KIT LP will be formed with minimal capital.
The Trust will be wholly-owned by the Fund and will be a limited partner of KIT LP. The GP will be owned by the
Trust and is the only general partner of KIT LP.
In connection with the closing of the Offering, the following transactions will take place:
1. The Fund will use the gross proceeds of the Offering of $150,000,000 to capitalize the Trust by subscribing
for: (a) 1,350,000 Series 1 Trust Notes in the aggregate principal amount of $135,000,000 and (b) 1,500,000
Trust Units for $15,000,000.
2. The Trust will use the proceeds from the issuance of the Series 1 Trust Notes and the Trust Units to
subscribe for 15,000,000 Ordinary LP Units for $150,000,000 and for 58.1% of the GP Common Shares to
be issued for nominal consideration.
3. The Company will use the proceeds of $150,000,000 from the issuance of Ordinary LP Units, together with
$60,000,000 borrowed pursuant to the Term Facility, to (i) pay, reimburse or contribute towards transaction
costs and pay the expenses of the Offering and the Underwriters’ fee (such fees and expenses estimated to
be $15,700,000), (ii) acquire from PB LP the Company Restaurants and (iii) create a capital pool in the
amount of $25 million. As consideration for the acquisition of the Company Restaurants, the Company will
pay to PB LP $169,300,000 in cash and will issue to PB LP 5,164,000 Subordinated LP Units and 5,656,000
Exchangeable LP Units. The $25 million capital pool created by the Company will be used for maintenance
capital expenditures, including upgrade and renovation expenditures required pursuant to the Franchise
Agreement, and to the extent funds are available, to develop multi-brand restaurants and/or construct new
KFCTM restaurants (including the four new KFCTM restaurants currently being built and planned by the
Company, should the Company choose to proceed with such construction), provided the Company has
received Franchisor approval (and paid the applicable fee) for such multi-branding or construction. The
Company may, depending on cash flow, also use the capital pool, on a temporary basis, for the purpose of
equalizing distributions to Unitholders from month-to-month. To the extent the capital pool is used to
facilitate such temporary liquidity, the Company will replenish the pool. The capital pool will be subject to
certain restrictions pursuant to the terms of the Term Facility and will be secured by a first priority security
interest in favour of the lenders. See ‘‘Use of Proceeds’’ and ‘‘Risk Factors’’ under the heading
‘‘Seasonality of the Business and Cash Receipts’’.
4. Immediately after the Offering, the Fund will hold (through its interest in the Trust) all of the issued
Ordinary LP Units, representing a 58.1% equity interest in the Company. PB LP will hold all of the issued
Subordinated LP Units and all of the Exchangeable LP Units representing a 41.9% residual equity interest in
the Company. The Fund (through its interest in the Trust) and PB LP will also hold corresponding
proportionate interests in the GP, the general partner of KIT LP.
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A simplified description of the Fund on the completion of the Offering is set out below:
Public
Unitholders
Units
Priszm Canadian
Income Fund
(“Fund”)
100%
(Trust Units and
Trust Notes)
priszm
brandz LP Priszm Canadian
(“PB LP”) Operating Trust
(“Trust”)
41.9% (1) 58.1% (2)
KIT Limited
Partnership and
KIT Inc.
(the “Company”)
Notes:
(1) Subordinated LP Units and Exchangeable LP Units representing, collectively, 41.9% of the LP Units and 41.9% of the GP Common Shares.
(2) Ordinary LP Units, representing 58.1% of the LP Units and 58.1% of the GP Common Shares.
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PLAN OF DISTRIBUTION
Pursuant to an agreement (the ‘‘Underwriting Agreement’’) dated October 31, 2003, among the Fund, CIBC
World Markets Inc., RBC Dominion Securities Inc., BMO Nesbitt Burns Inc., National Bank Financial Inc. and
TD Securities Inc. (collectively, the ‘‘Underwriters’’) and PB LP, the Fund has agreed to sell and the Underwriters
have severally agreed to purchase on November 10, 2003, or on such later date as may be agreed upon, an aggregate of
15,000,000 Units at a purchase price of $10 per Unit, for an aggregate consideration of $150,000,000 payable to the
Fund by the Underwriters against delivery of the Units. The Underwriters will be paid an aggregate fee of $8,625,000
($0.575 per Unit). See ‘‘Use of Proceeds’’.
The obligations of the Underwriters under the Underwriting Agreement may be terminated at their discretion on
the basis of their assessment of the state of the financial markets and may also be terminated in certain stated
circumstances and upon the occurrence of certain stated events. The Underwriters are, however, severally obligated to
take up and pay for all of the Units that they have agreed to purchase if any of the Units are purchased under the
Underwriting Agreement.
The Fund has granted the Underwriters an option, exercisable for a period of 30 days from the closing of the
Offering, to purchase up to 1,500,000 additional Units on the same terms as set out above, solely to cover over
allotments, if any, and for market stabilization purposes. If the Over-Allotment Option is exercised in full, the price to
the public, Underwriters’ fee and net proceeds to the Fund (before expenses) will be $165,000,000, $9,487,500 and
$155,512,500, respectively. In the event that the Over-Allotment Option is exercised, it is the intention of the Fund to
cause the Company to issue additional Ordinary LP Units and GP Common Shares to the Trust, and to use the proceeds
of such issuance to redeem a number of the Exchangeable LP Units issued to PB LP, as well as an equivalent
percentage of the GP Common Shares. This prospectus qualifies the distribution of the Over-Allotment Option and the
issuance and subsequent transfer of the Units issuable on the exercise of the Over-Allotment Option.
The Fund has agreed with the Underwriters that other than pursuant to the exercise of the Over-Allotment Option
or the exercise of the Exchange Rights with respect to the Exchangeable LP Units, the Fund will not, for the period
ending 180 days after the closing of the Offering, issue, offer, or sell, contract to sell or otherwise dispose of, directly or
indirectly, any Units or any securities convertible into or exchangeable or exercisable for Units, or publicly disclose the
intention to make any such issue, offer, sale or disposition, without the prior consent of CIBC World Markets Inc. and
RBC Dominion Securities Inc. on behalf of the Underwriters, which consent may not be unreasonably withheld.
Pursuant to policy statements of the Ontario Securities Commission and the Commission des valeurs mobili` res e
e
du Qu´ bec, the Underwriters may not, throughout the period of distribution under this prospectus, bid for or purchase
Units. The foregoing restriction is subject to certain exceptions, as long as the bid or purchase is not engaged in for the
purpose of creating actual or apparent active trading in or raising the price of such securities. These exceptions include
a bid or purchase permitted under the by laws and rules of the Toronto Stock Exchange relating to market stabilization
and passive market making activities and a bid or purchase made for and on behalf of a customer where the order was
not solicited during the period of distribution. Subject to the foregoing and applicable laws, the Underwriters may, in
connection with the Offering, over allot or effect transactions which stabilize or maintain the market price of the Units
at levels other than those which otherwise might prevail on the open market. Such transactions, if commenced, may be
discontinued at any time.
The Units have not been and will not be registered under the U.S. Securities Act and, subject to certain exceptions,
may not be offered or sold in the United States. Accordingly, the Units will only be offered or sold within the United
States pursuant to Rule 144A under the U.S. Securities Act and thereafter may only be re-offered or sold in the United
States or to a U.S. person pursuant to the registration requirements of the U.S. Securities Act and applicable state
securities laws or an exemption therefrom. In addition, until 40 days after the Closing Date, an offer or sale of the Units
within the United States by any dealer (whether or not participating in the Offering) may violate the registration
requirements of the U.S. Securities Act if such offer or sale is made other than in accordance with Rule 144A or
another exemption under the U.S. Securities Act.
There is currently no market through which the Units may be sold and purchasers may not be able to resell
securities purchased under the prospectus. Accordingly, the terms of the Offering, including the Offering price of the
Units, were established by negotiation between the Fund, PB LP and the Underwriters. The TSX has conditionally
approved the listing of the Units under the symbol ‘‘QSR.UN’’. Listing is subject to the Fund fulfilling all the
79
requirements of the TSX on or before January 19, 2004, including the distribution of the Units to a minimum number of
public Unitholders.
The Fund may be considered to be a connected issuer of CIBC World Markets Inc., RBC Dominion Securities Inc.
and BMO Nesbitt Burns Inc. within the meaning of applicable Canadian securities legislation. PB LP intends to use a
portion of the proceeds of the Offering to repay the indebtedness outstanding under a senior secured credit facility
dated January 30, 2002 among PB LP and a syndicate of lenders, including the Canadian chartered bank affiliates of
CIBC World Markets Inc. and BMO Nesbitt Burns Inc. The amount currently outstanding under the credit facility is
approximately $67 million. The credit facility is secured by a general charge over all of the assets of PB LP and its
subsidiaries. PB LP anticipates that when it reports to its lenders with respect to the fiscal quarter ended August 10,
2003, it will not meet two financial covenants required by the credit facility due to the performance of the Pizza HutTM
Division of PB LP, which is not being sold to the Company. The lenders under the credit facility have conditionally
agreed to forbear with respect to their rights in respect of these covenant defaults until completion or other termination
of the Offering. Upon closing of the Offering, the Company will enter into agreements with the Canadian chartered
bank affiliate of CIBC World Markets Inc., which may be syndicated to include the Canadian chartered bank affiliates
of certain of the other Underwriters, providing for such bank(s) to make the Term Facility to the Company. The
decision of the Underwriters to participate in the Offering was made independently of the banks, and the Offering was
not required or suggested by the banks. The decision to undertake the Offering and the determination of the terms of
the distribution were made through negotiations between PB LP, the Fund and the Underwriters. Other than as
described above, none of the Underwriters or their affiliates will receive any benefit from the Offering, except for the
Underwriters in respect of portions of the underwriting commission payable by the Fund.
USE OF PROCEEDS
The gross proceeds of $150,000,000 of the Offering will be used by the Fund to subscribe for 1,500,000 Trust
Units for $15,000,000 and Series 1 Trust Notes in the aggregate principal amount of $135,000,000. The Trust will use
the proceeds from the issuance of the Trust Units and Series 1 Trust Notes to the Fund to subscribe for 15,000,000
Ordinary LP Units for $150,000,000 and 58.1% of the GP Common Shares for nominal consideration. The Company
will use the proceeds from the subscription for Ordinary LP Units and GP Common Shares, together with the amounts
borrowed under the Term Facility, to pay the expenses of the Offering and the Underwriters’ fee and to pay, reimburse
or contribute towards transaction costs (such fees and expenses estimated to be $15,700,000), and as partial
consideration for the acquisition of the Company Restaurants. The remaining consideration for the acquisition of the
Company Restaurants will be satisfied by the issuance of the Exchangeable LP Units and the Subordinated LP Units.
In addition, the Company will create a $25 million capital pool from the gross proceeds of the Offering for
maintenance capital expenditures, including upgrade and renovation expenditures required pursuant to the Franchise
Agreement, and to the extent funds are available, to develop multi-brand restaurants and/or construct new KFCTM
restaurants (including the four new KFCTM restaurants currently being built and planned by the Company, should the
Company choose to proceed with such construction), provided the Company has received Franchisor approval (and
paid the applicable fee) for such multi-branding or construction. The Company may, depending on cash flow, also use
the capital pool, on a temporary basis, for the purpose of equalizing distributions to Unitholders from month-to-month.
To the extent the capital pool is used to facilitate such temporary liquidity, the Company will replenish the pool. The
capital pool will be subject to certain restrictions pursuant to the terms of the Term Facility and will be secured by a
first priority security interest in favour of the lenders. See ‘‘Use of Proceeds’’ and ‘‘Risk Factors’’ under the heading
‘‘Seasonality of the Business and Cash Receipts’’.
DETAILS OF THE OFFERING
The Offering consists of 15,000,000 Units. See ‘‘Description of The Fund’’ for a description of the attributes of
the Units.
Book Entry Form and Depository Service
Except as otherwise provided below, the Units will be issued in ‘‘book-entry only’’ form and must be purchased
or transferred through CDS Participants in the depository service of CDS, which include securities brokers and dealers,
banks and trust companies. At the Closing Date, the Fund will cause a global certificate or certificates representing the
Units to be delivered to, and registered in the name of, CDS or its nominee. Except as described below, no Unitholder
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will be entitled to a certificate or other instrument from the Fund or CDS evidencing that Unitholder’s ownership
thereof, and no Unitholders will be shown on the records maintained by CDS except through a book entry account of a
CDS Participant acting on behalf of such Unitholder. Each Unitholder will receive a customer confirmation of purchase
from the registered dealer from which the Unit is purchased in accordance with the practices and procedures of that
registered dealer. The practices of registered dealers may vary, but generally customer confirmations are issued
promptly after execution of a customer order. CDS will be responsible for establishing and maintaining book entry
accounts for its CDS Participants having interests in the Units.
If (i) the Fund determines that CDS is no longer willing or able to discharge properly its responsibilities as
depository with respect to the Units and the Fund is unable to locate a qualified successor, or (ii) the Fund at its option
elects, or is required by law, to terminate the book entry system, or (iii) Unitholders determine that the continuation of
the book entry system is no longer in the best interests of the Unitholders, then Units will be issued in fully registered
form to Unitholders or their nominees.
Transfer of Units
Transfers of ownership in the Units will be effected only through records maintained by CDS or its nominee for
such Units with respect to interests of CDS Participants, and on the records of CDS Participants with respect to
interests of persons other than CDS Participants. Unitholders who are not CDS Participants, but who desire to purchase,
sell or otherwise transfer ownership of or other interest in the Units, may do so only through CDS Participants.
The ability of a Unitholder to pledge a Unit or otherwise take action with respect to such Unitholder’s interest in a
Unit (other than through a CDS Participant) may be limited due to the lack of a physical certificate.
Payments of Distributions
Payments of distributions on each Unit will be made by the Fund to CDS or its nominee, as the case may be, as the
registered holder of the Units and the Fund understands that such payments will be forwarded by CDS or its nominee,
as the case may be, to CDS Participants. As long as CDS or its nominee is the registered owner of the Units, CDS or its
nominee, as the case may be, will be considered the sole owner of the Units for the purposes of receiving payments on
the Units. The responsibility and liability of the Fund in respect of the Units is limited to making payment of any
distribution in respect of the Units to CDS or its nominee.
PRIOR ISSUANCES
The only issuance of securities by the Fund in the 12 months prior to the date of this prospectus was the issuance
of the ten Units to the settlor of the Fund at a price of $10 per Unit, on September 24, 2003.
PRINCIPAL UNITHOLDER
The following table shows the name and information about the securities of the Fund directly or indirectly
beneficially owned by each person or company who, as at the date of closing of the Offering, will own of record, or
who, to the knowledge of the Fund, will own beneficially, directly or indirectly, more than 10% of any class or series of
voting securities of the Fund. The information set forth in the following table is presented on a pro forma basis
assuming the exchange of LP Units beneficially owned by PB LP for the Units of the Fund.
Number of
Units Percentage of the
of the Fund Type of Units of the Fund
Name Owned (1), (3) Ownership Owned (2)
priszm brandz LP ***************************************** 10,820,000 Indirect 41.9%
Notes:
(1) After the closing of the Offering, but before giving effect to the exercise of the Over-Allotment Option granted to the Underwriters, PB LP will
own a total of 10,820,000 LP Units, of which 5,656,000 are Exchangeable LP Units that are exchangeable indirectly at any time for Units on a
one-for-one basis, and 5,164,000 are Subordinated LP Units that will automatically convert into Exchangeable LP Units on a one-for-one basis
upon the satisfaction of certain specified conditions. See ‘‘Retained Interest and Exchange Rights — Exchange Rights’’.
(2) After the closing of the Offering, and assuming the exercise in full of the Over-Allotment Option granted to the Underwriters, PB LP will own a
total of 9,320,000 LP Units (or 36.1% of the LP Units), of which 4,156,000 will be Exchangeable LP Units and 5,164,000 will be Subordinated
LP Units. PB LP will hold an equivalent number of Special Voting Units of the Fund, which Special Voting Units will automatically be
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cancelled upon the exchange for Units of the underlying Exchangeable LP Units and Subordinated LP Units to which such Special Voting Units
are attached. See ‘‘Descriptions of the Fund — Units and Special Voting Units’’.
(3) Assuming closing of the Offering and the indirect exchange of all of the LP Units held by PB LP into Units.
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
John I. Bitove, a director and officer of the Company and the principal operator of the Company Restaurants, is a
controlling shareholder of Scott’s Restaurants Inc., which upon closing of the Offering will hold all of the interests in
PB LP. Mr. Bitove is also an officer and director of PB LP. On closing of the Offering, PB LP will assign to the
Company the SRI Leases. Pursuant to the terms of the SRI Leases, the Company will lease from Scott’s Restaurants
Inc. a total of 84 properties on which Company Restaurants are located at market terms and conditions.
CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
e
In the opinion of Borden Ladner Gervais LLP, special tax counsel to the Fund, and McCarthy T´ trault LLP,
counsel to the Underwriters, the following is, as of the date hereof, a summary of the principal Canadian federal income
tax considerations generally applicable under the Tax Act to a Unitholder who acquires Units pursuant to the Offering
and who, for purposes of the Tax Act, at all relevant times, is resident in Canada, deals at arm’s length and is not
affiliated with the Fund, the Trust or KIT LP and holds the Units as capital property. Generally, Units will be
considered to be capital property to a Unitholder provided that the Unitholder does not hold the Units in the course of
carrying on a business of buying and selling securities and has not acquired them in one or more transactions
considered to be an adventure in the nature of trade. Certain Unitholders who might not otherwise be considered to hold
their Units as capital property may, in certain circumstances, be entitled to have them treated as capital property by
making the irrevocable election permitted by subsection 39(4) of the Tax Act. This summary is not applicable to a
Unitholder that is a financial institution (as defined in the Tax Act for purposes of the mark to market rules), a
‘‘specified financial institution’’ or a Unitholder an interest in which is a ‘‘tax shelter investment’’ (both as defined in
the Tax Act).
This summary is based upon the provisions of the Tax Act in force at the date hereof and counsel’s understanding
of the current published administrative policies and assessing practices of the Canada Customs and Revenue Agency
(‘‘CCRA’’) and takes into account all specific proposals to amend the Tax Act which have been publicly announced by
or on behalf of the Minister of Finance (Canada) prior to the date hereof (the ‘‘Proposed Amendments’’), and
certificates of certain of the Underwriters and the Fund as to certain factual matters. There can be no assurance that the
Proposed Amendments will be implemented in their current form or at all. This summary does not otherwise take into
account or anticipate any changes in law or in administrative or assessing policies of the CCRA, whether by legislative,
governmental or judicial decision or action, and does not take into account other federal or any provincial, territorial or
foreign tax legislation or considerations, which may differ significantly from those discussed in this prospectus.
This summary is not exhaustive of all possible Canadian federal income tax considerations applicable to an
investment in Units. Moreover, the income and other tax consequences of acquiring, holding or disposing of
Units will vary depending on the Unitholder’s particular circumstances, including the province or provinces in
which the Unitholder resides or carries on business. Accordingly, this summary is of a general nature only and is
not intended to be legal or tax advice to any prospective purchaser of Units or any Unitholder. Prospective
Unitholders should consult their own tax advisors for advice with respect to the tax consequences of an
investment in Units based on their particular circumstances.
Status of the Fund
Mutual Fund Trust
This summary is based on the assumption that the Fund will qualify as a ‘‘mutual fund trust’’ as defined in the Tax
Act on completion of the Offering of Units hereunder, and will thereafter continuously qualify as a mutual fund trust at
all relevant times. This summary assumes that the Fund will elect to be deemed to be a ‘‘mutual fund trust’’ from the
date it is established. If the Fund were not to qualify as a mutual fund trust, the income tax considerations described
below would, in some respects, be materially different.
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Qualified Investment
The Units will be qualified investments for Plans. If the Fund ceases to qualify as a mutual fund trust, the Units
will cease to be qualified investments for Plans. Series 2 or Series 3 Trust Notes received as a result of a redemption of
Units will not be a qualified investment for a Plan, and this could give rise to adverse consequences to the Plan or the
annuitant under the Plan. Accordingly, Plans that own Units should consult their own tax advisors before deciding to
exercise the redemption rights attached to the Units.
Foreign Property
Based in part on a certificate of the Fund as to certain factual matters and provided the Fund restricts its holdings
of foreign property within the limits provided under the Tax Act, Units will not constitute foreign property for Deferred
Income Plans, registered pension plans or other persons subject to tax under Part XI of the Tax Act. Trusts governed by
registered education savings plans are not subject to the foreign property rules. If the Fund ceases to qualify as a mutual
fund trust, the Units may become foreign property.
Taxation of the Fund
The taxation year of the Fund is the calendar year. In each taxation year, the Fund will be subject to tax under
Part I of the Tax Act on its income for the year, including net taxable capital gains, less the amount that it deducts in
respect of the amounts paid or made payable in the year to Unitholders. The Fund expects to make sufficient
distributions of income in a year to Unitholders so that it will not have any liability for tax under Part I. An amount will
be considered to be payable to a Unitholder in a taxation year if the Unitholder is entitled in that year to enforce
payment of the amount. Counsel has been advised that, pursuant to the terms of the Declaration of Trust, the Fund will
make sufficient distributions in each year of its net income for tax purposes and net capital gains so that the Fund will
generally not be liable in that year for income tax under Part I of the Tax Act.
The Fund will include in its income for each taxation year all income payable in the year to it in respect of the
Trust Units and interest, if any, paid or payable on Series 1 Trust Units. The Fund will not be subject to tax on any
amount received as payment of principal on the Series 1 Trust Notes.
A distribution by the Fund of Series 2 and Series 3 Trust Notes upon a redemption of Units will be treated as a
disposition by the Fund of the securities so distributed for proceeds of disposition equal to their fair market value. The
Fund’s proceeds from the disposition of Series 2 and Series 3 Trust Notes will be reduced by any accrued but unpaid
interest in respect of those notes, which interest will generally be included in the Fund’s income in the year of
disposition to the extent it was not included in the Fund’s income in a previous year. The Fund will realize a capital
gain (or a capital loss) to the extent that the proceeds from the disposition exceed (or are less than) the adjusted cost
base of the relevant property and any reasonable costs of disposition.
In computing its income, the Fund may deduct reasonable administrative costs, interest and other unreimbursed
expenses incurred by it for the purpose of earning income. The Fund may also deduct from its income for the year a
portion of the reasonable expenses incurred by the Fund to issue Units pursuant to the Offering. The portion of such
issue expenses unreimbursed by the Fund in a taxation year is 20% of such issue expenses, pro rated where the Fund’s
taxation year is less than 365 days.
Under the Declaration of Trust, an amount equal to all of the income of the Fund for each year (determined
without reference to paragraph 82(l)(b) and subsection 104(6) of the Tax Act), together with the taxable and non
taxable portion of any net capital gain realized by the Fund in the year (but excluding (i) capital gains or income arising
on a distribution in specie of Series 2 and Series 3 Trust Notes on redemption of Units which are designated by the
Fund to redeeming Unitholders, and (ii) capital gains the tax paid or made payable on which may be offset by capital
losses carried forward from prior years or is recoverable by the Fund), will be paid or made payable in the year to the
holders of the Units by way of cash distributions, subject to the exceptions described below. Losses incurred by the
Fund cannot be allocated to Unitholders, but can be deducted by the Fund in future years, in accordance with the Tax
Act. Where the income of the Fund in a taxation year exceeds the monthly cash distributions for that year, such excess
will be distributed to Unitholders in the form of additional Units. Income of the Fund paid or made payable to
Unitholders, whether in cash, additional Units or otherwise, will generally be deductible by the Fund in computing its
taxable income.
The Fund will be entitled for each taxation year to reduce (or receive a refund in respect of) its liability, if any, for
tax on its net realized taxable capital gains by an amount determined under the Tax Act based on the redemption of
83
Units during the year (the ‘‘capital gains refund’’). In certain circumstances, the capital gains refund in a particular
taxation year may not completely offset the Fund’s tax liability for that taxation year arising as a result of the
redemption of the Trust Units in consideration for the Series 2 and Series 3 Trust Notes distributed on the redemption
of Units.
Taxation of the Trust
The taxation year of the Trust is the calendar year. In each taxation year, the Trust will be subject to tax under
Part I of the Tax Act on its income for the year, including its allocated share of the income of KIT LP, except to the
extent such income is paid or payable or deemed to be paid or made payable in such year to its unitholders, including
the Fund, and is deducted by the Trust in computing its income for tax purposes.
In computing its income for tax purposes, the Trust will generally be entitled to deduct its expenses incurred to
earn such income, provided such expenses are reasonable and otherwise deductible, subject to the relevant provisions
of the Tax Act. Under the Trust Declaration of Trust, all of the income of the Trust for each year (determined without
reference to paragraph 82(l)(b) and subsection 104(6) of the Tax Act), together with the taxable and non taxable portion
of any capital gains realized by the Trust in the year, will generally be paid or made payable in the year to holders of
the Trust Units. For purposes of the Tax Act, the Trust generally intends to deduct in computing its income the full
amount available for deduction in each year to the extent of its taxable income for the year otherwise determined.
Counsel has been advised by the Fund that the Fund does not expect the Trust to be liable for any material amount of
tax under Part I of the Tax Act. However, Counsel can provide no opinion in this regard.
Taxation of KIT LP
KIT LP is not subject to tax under the Tax Act. Each partner of KIT LP, including the Trust, is required to include
in computing the partner’s income for a particular taxation year the partner’s share of the income or loss of KIT LP for
its fiscal year ending in, or coincidentally with, the partner’s taxation year end, whether or not any of that income is
distributed to the partner in the taxation year. For this purpose, the income or loss of KIT LP will be computed for each
fiscal year as if KIT LP were a separate person resident in Canada. In computing the income or loss of KIT LP,
deductions may be claimed in respect of capital cost allowance, reasonable administrative costs, interest and other
expenses incurred by KIT LP for the purpose of earning income, subject to the relevant provisions of the Tax Act. The
income or loss of KIT LP for a fiscal year will be allocated to the partners of KIT LP, including the Trust, on the basis
of their respective share of that income or loss as provided in the partnership agreement for KIT LP, subject to the
detailed rules in the Tax Act in that regard. The Trust will be deemed to realize a capital gain to the extent the adjusted
cost base of its units in KIT LP is negative at the end of a taxation year of KIT LP.
If KIT LP does incur losses for tax purposes, the Trust will be entitled to deduct in the computation of its income
for tax purposes its share of any such losses for any fiscal year to the extent that the Trust’s investment is ‘‘at risk’’
within the meaning of the Tax Act. In general, the amount ‘‘at risk’’ for an investor in a limited partnership for any
taxation year will be the adjusted cost base of the investor’s partnership interest at the end of the year (such adjusted
cost base to be computed excluding any unpaid portion of the purchase price payable by the investor for such
partnership interest), plus any undistributed income allocated to the limited partner for the year, less any amount owing
by the limited partner (or a person with whom the limited partner does not deal at arm’s length) to KIT LP (or a person
with whom it does not deal at arm’s length) and less the amount of any benefit that a limited partner (or a person with
whom the limited partner does not deal at arm’s length) is entitled to receive or obtain for the purpose of reducing, in
whole or in part, any loss of the limited partner from the investment.
Taxation of Unitholders
Fund Distributions
A Unitholder will generally be required to include in income for a particular taxation year the portion of the net
income of the Fund for a taxation year, including the taxable portion of net realized capital gains, that is paid or payable
to the Unitholder in the particular taxation year, whether that amount is received in cash, additional Units or otherwise.
Provided that appropriate designations are made by the Fund, such portions of its net taxable capital gains are paid
or payable to a Unitholder will effectively retain their character and be treated as such in the hands of the Unitholder
for the purposes of the Tax Act.
84
The non taxable portion of any net realized capital gains of the Fund that is paid or payable to a Unitholder in a
taxation year will not be included in computing the Unitholder’s income for the year. Any other amount in excess of
the net income of the Fund that is paid or payable to a Unitholder in that year will not generally be included in the
Unitholder’s income for the year. However, where such other amount is paid or payable to a Unitholder (other than as
proceeds in respect of the redemption of Units), the Unitholder will be required to reduce the adjusted cost base of the
Units by that amount, except to the extent that the amount represents the Unitholder’s share of the non taxable portion
of the net realized capital gains of the Fund for the year, the taxable portion of which was designated by the Fund in
respect of the Unitholder. To the extent that the adjusted cost base of a Unit would otherwise be a negative amount, the
negative amount will be deemed to be a capital gain and the adjusted cost base of the Unit to the Unitholder will then
be nil. The cost to a Unitholder of additional Units received in lieu of a cash distribution of income will be the amount
of income distributed by the issue of those Units. For the purpose of determining the adjusted cost base to a Unitholder
of Units, when a Unit is acquired, the cost of the newly acquired Unit will be averaged with the adjusted cost base of all
of the Units owned by Unitholder as capital property immediately before that acquisition.
Dispositions of Units
On the disposition or deemed disposition of a Unit, whether on a redemption or otherwise, the Unitholder will
realize a capital gain (or capital loss) equal to the amount by which the Unitholder’s proceeds of disposition exceed (or
are less than) the aggregate of the adjusted cost base of the Unit and any reasonable costs of disposition. Proceeds of
disposition will not include an amount payable by the Fund that is otherwise required to be included in the Unitholder’s
income, including any capital gain realized by the Fund as a result of a redemption which has been designated by the
Fund to the redeeming Unitholder. The adjusted cost base of a Unit to a Unitholder will include all amounts paid or
payable by the Unitholder for the Unit, with certain adjustments.
Where the redemption of Units is satisfied by the distribution of Series 2 and Series 3 Trust Notes to the
redeeming Unitholder, the proceeds of disposition to the Unitholder of the Units will be equal to the fair market value
of the Series 2 and Series 3 Trust Notes so distributed less any income or capital gain realized by the Fund as a result of
the redemption of those Units (which income or capital gain will be designated by the Fund to the Unitholder). Where
income or a capital gain realized by the Fund as a result of the distribution of Series 2 and Series 3 Trust Notes on the
redemption of Units has been designated by the Fund to a redeeming Unitholder, the Unitholder will be required to
include in the Unitholder’s income for the year the income and the taxable portion of the capital gain so designated.
The cost of Series 2 and Series 3 Trust Notes distributed by the Fund to a Unitholder upon a redemption of Units will
be equal to the fair market value of such notes at the time of the distribution less any accrued interest on the note to the
extent otherwise included in that value. The Unitholder will thereafter be required to include in income interest on any
such note so distributed in accordance with the provisions of the Tax Act.
Capital Gains and Capital Losses
One half of any capital gain realized by a Unitholder and the amount of any net taxable capital gains designated by
the Fund in respect of a Unitholder will be included in the Unitholder’s income as a taxable capital gain. One half of
any capital loss realized by a Unitholder on a disposition or deemed disposition of Units may generally be deducted
only from taxable capital gains of the Unitholder in accordance with the provisions of the Tax Act.
Alternative Minimum Tax
In general terms, net income of the Fund paid or payable to a Unitholder who is an individual that is designated as
net taxable capital gains and capital gains realized on the disposition of Units may increase the Unitholder’s liability for
alternative minimum tax.
ENVIRONMENTAL MATTERS
The Company (as operator and tenant of the real properties associated with the Company Restaurants) is subject to
various federal, provincial and local laws and regulations relating to environmental matters. Under various
environmental laws and regulations, a current or previous owner or operator of real property may be liable for the costs
of removal or remediation of hazardous or toxic substances on, under or in such property. Such laws often impose
liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic
substances. Contamination for which the Company may be liable could include historic contamination and spills caused
by former tenants or prior owners of the property or neighbouring property that generated or used contaminants in the
85
course of their regular business operations. The Company is aware that 43 Company Restaurants are located on
properties that may have been, or presently are, associated with petroleum product storage, dispensing or vending. The
Company will, on closing of the Offering, lease these properties from Yum! Canada (and/or its affiliates) and Scott’s
Restaurants Inc. (and/or its affiliates). On the closing of the Offering, the Company will be added as a an additional
insured on an existing policy of pollution insurance that covers 240 Company Restaurants. Yum! Canada and Scott’s
Restaurants Inc. will be added as named insureds. The policy specifically excludes two Company Restaurants. A
further four (4) Company Restaurants are located on properties that have been assessed as having a risk of soil and
groundwater contamination following a preliminary site investigation. An approved remediation plan is currently being
implemented at one of these sites. The insurance policy provides coverage of $25,000,000 in the aggregate, subject to a
limit of $1,000,000 per incident and certain deductibles. The premiums for this policy have been fully paid to the date
of its expiry on October 29, 2009.
RISK FACTORS
An investment in the Units involves a number of risks. In addition to the other information contained in this
prospectus, prospective purchasers should give careful consideration to the following factors.
Risks Related to the Business and the Quick Service Restaurant Industry
The Restaurant Industry and its Competitive Nature
The performance of the Fund is directly dependent upon the cash distributions the Fund receives from the
Company. The amount of the cash distributions will be dependent upon cash flow from operations of the business of
the Company, which is subject to a number of factors that affect the restaurant industry generally and the quick service
segment of this industry in particular, including intense competition with respect to price, service, location and food
quality.
If the Company is unable to successfully compete in the quick service segment of the restaurant industry, cash
distributions may be adversely affected.
The restaurant business is also affected by changes in demographic trends, traffic patterns, and the type, number,
and location of competing restaurants. In addition, factors such as innovation, increased food, labour and benefits costs,
and the availability of experienced management and hourly employees may adversely affect the restaurant industry in
general and the Company in particular. Changing consumer preferences and discretionary spending patterns could force
the Company to modify its restaurant concepts and menus, with concomitant increased costs, and could result in a
reduction of revenue. Even if the Company was able to compete successfully with other restaurant companies with
similar concepts, it may be forced to make changes in one or more of its concepts in order to respond to changes in
consumer tastes or dining patterns. If the Company changes a restaurant concept, it may lose additional customers who
do not prefer the new concept and menu, and it may not be able to attract a sufficient new customer base to produce the
revenue needed to make the restaurants profitable. Similarly, the Company may have different or additional
competitors for its intended customers as a result of such a concept change and may not be able to successfully compete
against such competitors. The Company’s success also depends on numerous factors affecting discretionary consumer
spending, including economic conditions, disposable consumer income and consumer confidence. Adverse changes in
these factors could reduce customer traffic or impose practical limits on pricing, either of which could reduce revenue
and operating income.
Growth of the Business of the Company
The growth of the business of the Company is dependent upon its ability to (i) obtain the consent of the
Franchisor, (ii) maintain and grow same restaurant sales, (iii) implement its multi-branding strategy and (iv) retain
qualified managers to manage Company Restaurants. The Company faces competition for locations and managers from
its competitors and from the franchisors of other businesses. The Company’s inability to successfully obtain qualified
personnel could adversely affect its business development.
The quality of individual Company Restaurant operations may be diminished by many factors beyond the
Company’s control. Consequently, the Company, Management and RGMs may not successfully operate Company
Restaurants in a manner consistent with the Company’s standards and requirements, or may not hire and train qualified
managers and operators. If they do not, the image and reputation of the Company Restaurants may suffer, and gross
revenue and results of operations of the Company Restaurants could decline.
86
Intellectual Property
The ability of the Company to maintain or increase its operating results will depend on its ability to maintain
‘‘brand identity’’ through the use of intellectual property licensed from the Franchisor and PB LP. If the Franchisor
fails to enforce or maintain any of its intellectual property rights, or the Company fails to enforce its rights under the
Franchise Agreement with the Franchisor, the Company may be unable to capitalize on its efforts to establish and
maintain brand identity. All registered trade marks in Canada can be challenged pursuant to provisions of the Trade-
marks Act (Canada), and other intellectual property can be the subject of similar challenges. If any intellectual property
rights are ever successfully challenged, this may have an adverse impact on operating results of the Company. The
Company will not own the intellectual property rights licensed under the Franchise Agreement, it will not have
exclusive rights to use the intellectual property rights in Canada and it will not own or have any other rights to identical
or similar trade marks and other intellectual property rights owned by parties not related to the Company in other
jurisdictions. Third parties may use such trade marks and other intellectual property rights in Canada, and jurisdictions
other than Canada, in a manner that diminishes the value of such trade marks and other intellectual property rights. If
this occurs, the value of the intellectual property rights may suffer and the operating results of the Company could
decline. Similarly, negative publicity or events associated with such trade marks and other intellectual property rights in
Canada, and jurisdictions outside of Canada, may negatively effect the image and reputation of the Company
Restaurants in Canada, resulting in a decline in operating results of the Company.
Government Regulation
The Company is subject to various federal, provincial and local laws affecting its business. See ‘‘Business of the
Company — Government Regulation’’. Each Company Restaurant is subject to licensing and regulation by a number
of governmental authorities, which may include alcoholic beverage control, smoking laws, health and safety and fire
agencies. Difficulties in obtaining or failures to obtain the required licenses or approvals, or loss thereof, could harm
the operating results of the Company, or its ability to acquire additional restaurants.
Laws Concerning Employees
The operations of the Company Restaurants are subject to employment and labour laws governing such matters as
minimum wage, working conditions, overtime and tip credits. Significant numbers of the Company’s food service and
preparation personnel are paid at rates related to the minimum wage and, accordingly, further increases in the minimum
wage could increase the Company’s labour costs.
Potential Litigation, Class Actions and Other Complaints
The Company may be the subject of complaints or litigation from customers alleging food related illness, injuries
suffered on the premises or other food quality, health or operational concerns. Adverse publicity resulting from such
allegations may materially affect the sales by the Company Restaurants, regardless of whether such allegations are true
or whether the Company is ultimately held liable. In addition, due to the nature of its business, the Company may be
subject to class action suits, which may in turn subject the Fund to such litigation. QSR chains in the United States have
been the subject of class action suits concerning obesity and there can be no assurance that the Company will not be
subject to similar claims in Canada. Although Management believes such claims are without merit, litigation is
expensive, time consuming and may divert Management’s attention away from the operation of the business. The
Company cannot be certain that its insurance coverage will be sufficient to cover one or more substantial claims.
The Company’s Dependence on Key Personnel
The success of the Company depends upon the personal efforts of a small group of employees and senior
management. Although the Company believes it will be able to replace its key employees within a reasonable time
should the need arise, the loss of key personnel could have a material short term adverse effect on the Company’s
financial performance. See ‘‘Management, Trustees and Directors’’.
In addition, under the Company’s Franchise Agreement, John I. Bitove has been designated as the ‘‘Principal
Operator’’ of the Company Restaurants. In the event Mr. Bitove leaves the Company, any replacement operator must
first be approved by the Franchisor. There can be no assurance that the Franchisor will approve a replacement operator
proposed by the Company.
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The Company’s High Dependence on the Franchisor
The Company will operate the Company Restaurants as a franchisee of the Franchisor and is highly dependent on
the Franchisor for its operations. As a result of the nature of franchising and the Franchise Agreement with the
Franchisor, the long-term success of the Company will depend, to a significant extent, on the continued vitality of the
KFCTM, Pizza HutTM and Taco BellTM concepts and the overall success of the Franchisor system; the ability of the
Franchisor to identify and react to new trends in the restaurant industry, including the development of popular menu
items; the ability of the Company and the Franchisor to develop and pursue appropriate marketing strategies in order to
maintain and enhance the name recognition, reputation and market perception of KFCTM restaurants and to introduce
and develop new products; the goodwill associated with the KFCTM, Pizza HutTM and Taco BellTM trademarks; the
quality, consistency and management of the overall Franchisor system; and the continued cooperative franchise
relationship with the Franchisor. There can be no assurance that the Franchisor and Yum! will be able to compete
effectively with other QSRs.
Under the Franchise Agreement, the Company is required to comply with all of the standards and manuals issued
by the Franchisor from time to time. The Company may only prepare, market or sell products and services approved by
the Franchisor and may only use suppliers and distributors who have been approved in writing by the Franchisor. The
Franchisor may, by notice to the Company, at any time change or withdraw any approved product or add new approved
products. The Franchisor may also at any time change any of the standards or manuals or introduce new standards or
manuals. The Company is also required to pay to the Franchisor a monthly continuing fee and a monthly advertising
fee. Should the Company fail to comply with the terms of the Franchise Agreement, the Franchisor could terminate all
or any of the Franchise Agreements governing the Company Restaurants. The termination of the Franchise Agreement
would have a material adverse impact on the Company.
The Franchise Agreement does not grant the Company any exclusive territory protection or other right in the
contiguous space, area or market of any of the Company Restaurants. The Franchisor has cross-termination rights that
allow it to terminate the Franchise Agreement in respect of all of the Company Restaurants in certain circumstances.
See ‘‘Principal Agreements — The Franchise Agreement’’.
The Franchisor must approve the opening of any new restaurant by the Company, as well as any decision by the
Company to add a second brand to an existing Company Restaurant. The Franchisor must also approve the closing of
any of the Company’s existing restaurants. The Franchisor is under no obligation to grant such approval.
Yum! Brands, Inc. and its affiliates are not selling, offering for sale or underwriting all or any part of this
Offering. Yum! Brands, Inc. and its affiliates are not receiving the proceeds of this Offering. Yum! Brands, Inc.
and its affiliates do not endorse or make any recommendations with respect to this Offering or the Units offered
hereby. See ‘‘Disclaimer Regarding Yum! Brands, Inc. and its Affiliates’’.
Terms of the Franchise Agreement
The Company business will be operated as a franchise and will be governed by the Franchise Agreement. The
Franchise Agreement requires the Company to comply with a comprehensive set of terms and conditions, as more
particularly set forth in ‘‘Principal Agreements — The Franchise Agreement’’. Franchise agreements by their nature
contain terms and conditions that are onerous on franchisees and favourable to the franchisors. Moreover, the success
of a franchise significantly depends on the relationship between the franchisor and the franchisee. While every effort is
expected to be made to ensure a positive relationship between the Company and the Franchisor, there is no assurance
that events or circumstances in the future may not adversely affect that relationship, nor that the Franchisor may not
enforce its contractual rights under the Franchise Agreement in a manner that is adverse to the Company.
The Franchise Agreements have staggered initial terms of between 6 and 10 years. Each Franchise Agreement has
a 10-year renewal option, provided the Company remains in compliance with the terms of such agreement and other
conditions, including payment of the applicable renewal fee, are met. Notwithstanding compliance, there is no
guarantee that the Franchise Agreements will be renewed for any further term following the initial term.
Cash Flow for Franchise Obligations
The Franchise Agreement requires that the Company from time to time upgrade, modify, renovate or replace all or
part of the Company Restaurants or any of their fittings, fixtures or signage or any of the equipment, systems or
inventory used in the Company Restaurant in order to maintain the Company Restaurants’ compliance with the
Franchisor’s then current standards, which may require significant capital expenditures and/or periodic financial
88
commitments by the Company. Furthermore, the Franchisor can, by notice, require the Company to take such upgrade
and renovation actions with respect to one or more Company Restaurants. There can be no assurance that the Company
will have sufficient cash to meet these obligations or will be able to obtain financing at commercially reasonable rates,
or at all.
Restrictions on Change in Control
The Franchise Agreement provides that the Company may not, directly or indirectly, without first obtaining the
Franchisor’s written approval, permit any sale, transfer, gift, charge or pledge by any party of any partnership units in
KIT LP or shares in the GP, issue any new partnership units in KIT LP or shares in the GP to any party who is not a
partner of KIT LP or a shareholder of the GP, respectively, at the closing of the Offering, permit a change of control in
the Company or permit any reconstruction, reorganization, amalgamation or other material change in the structure or
financial condition of the Company. If the Company does not comply with these restrictions, then the Franchisor may,
at its option, terminate the Franchise Agreement. The Franchisor may also, at its option, immediately terminate the
Franchise Agreement by notice in writing to the Company in the event that a ‘‘take-over bid’’, as defined in the
Securities Act (Ontario), is made for the Units of the Fund (or any other securities of the Fund that are outstanding from
time to time) or the Trust Units of the Trust (or any other securities of the Trust that are outstanding from time to time),
or in the event that a ‘‘change of control’’ (as defined in the Franchise Agreement) occurs with respect to either the
Fund or the Trust, or in the event any reconstruction, reorganization, amalgamation or other material change in the
structure of either the Fund or the Trust occurs. As a result of these limitations, the Franchisor will be able to
effectively restrict the ability of any Person to acquire control of the Company or the Fund without the Franchisor’s
prior approval.
Environmental Matters
The Company (as operator and tenant of the real properties associated with the Company Restaurants) is subject to
various federal, provincial and local laws and regulations relating to environmental matters. Under various
environmental laws and regulations, a current or previous owner or operator of real property may be liable for the costs
of removal or remediation of hazardous or toxic substances on, under or in such property. Such laws often impose
liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic
substances. Contamination for which the Company may be liable could include historic contamination and spills caused
by former tenants or prior owners of the property or neighbouring property that generated or used contaminants in the
course of their regular business operations. The Company is aware that 43 Company Restaurants are located on
properties that may have been, or presently are, associated with petroleum product storage, dispensing or vending, and
that two Company Restaurants are located on properties that have been assessed a moderate risk of soil and
groundwater contamination following a preliminary site investigation. Environmental laws and regulations can change
rapidly and the Company may become subject to more stringent environmental laws and regulations in the future.
Compliance with more stringent environmental laws and regulations could have a material adverse affect on the
Company’s business, financial condition or results of operation.
Status of Certain Leases and Lease Renewal
The Company Restaurants will be comprised of 466 leased restaurants. Approximately 95 of the leases for leased
restaurants are not assignable to the Company without the prior written consent of the landlord. Accordingly, to the
extent that a consent to assignment is not obtained by the closing of the Offering, the Company will hold an equitable
interest rather than a legal interest until such time as the applicable vendor obtains a landlord consent to assignment.
Until such consent is obtained, the Company will be entitled to all benefits from such contracts, but it must rely on the
applicable vendor in respect of certain matters relating to the unassigned lease. Until consent to assignment is granted,
no assurance can be given that a landlord will not subsequently contest the Company’s authority to bind it to any
particular lease.
The majority of leases are long term, with the average term being over 15 years (assuming the exercise of all
renewal options). The leases often provide for a right of renewal, provided that the lessee remains in compliance with
the terms of the lease. Notwithstanding compliance, there is no guarantee that the Company will be able to renew such
leases on favourable terms. The potential loss of prime restaurant locations would have an adverse effect on the
financial performance, financial results and operating results of the Company and the Fund.
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Price and Supply Fluctuation
Pricing support mechanisms instituted and maintained by various provincial marketing boards keep chicken prices
at artificially high levels. Although these and other chicken pricing systems are the subject of international legal
challenges, there can be no assurance that such mechanisms will not continue indefinitely. Further, there can be no
assurance that prices of chicken will not be increased by the marketing boards in the future.
Seasonality of the Business and Cash Receipts
The seasonality of the demand for the Company’s products and its cash receipts typically results in lower cash
flow during the months of January, February and March and may impact on the ability of the Fund to make cash
distributions to Unitholders or the amount of such distributions, if any. Although the Company may mitigate the impact
of such seasonal variations in cash flow by using funds from the $25 million capital pool to be created from the gross
proceeds of the Offering and/or borrowing under the Term Facility which it expects to enter into, there can be no
assurance that such sources of funds will continue to be available or sufficient to offset the seasonal variations in the
Company’s cash flow.
Commodity Costs, Labour Shortages and Costs and Other Risks
Dependence on frequent deliveries of fresh produce and groceries subjects food service businesses to the risk that
shortages or interruptions in supply, caused by adverse weather or other conditions, could adversely affect the
availability, quality and cost of ingredients. Specifically, certain ingredients such as chicken and related products
constitute a large percentage of the total cost of the Company’s food products. Increases in the cost of these specific
ingredients could significantly increase the Company’s cost of sales and correspondingly decrease the Company’s
operating income. In addition, unfavourable trends or developments concerning factors such as inflation, increased
food, labour and employee benefit costs (including increases in hourly wage and minimum unemployment tax rates),
regional weather conditions, interest rates and the availability of experienced management and hourly employees may
also adversely affect the food service industry in general and the Company’s results of operations and financial
condition in particular.
Ability to Locate and Secure Acceptable Restaurant Sites
The success of the Company Restaurants is significantly influenced by location. There can be no assurance that
current locations will continue to be attractive, or additional locations can be located and secured, as demographic
patterns change. It is possible that the current locations or economic conditions where Company Restaurants are located
could decline in the future, resulting in potentially reduced sales in those locations. There is also no assurance that
further sites will produce the same results as past sites.
Absence of Operating History as a Public Company
Prior to the Acquisition, the business of the Company operated as a division of PB LP. Accordingly, although
Management has experience in the industry, it has limited experience operating the Company as a public company. To
operate effectively, the Company will be required to continue to implement changes in certain aspects of its business,
improve and expand its information systems and develop, manage and train management level and other employees to
comply with on-going public company requirements. Failure to take such actions, or delay in the implementation
thereof, could adversely affect the Company’s financial condition and results of operations.
Uninsured and Underinsured Losses
The Company will use its discretion in determining amounts, coverage limits and deductibility provisions of
insurance, with a view to maintaining appropriate insurance coverage on its assets at a commercially reasonable cost
and on suitable terms. This may result in insurance coverage that, in the event of a substantial loss, would not be
sufficient to pay the full current market value or current replacement cost of its assets.
90
Risks Related to the Structure of the Fund and the Offering
Dependence of the Fund on the Trust and the Company
The cash distributions to the Unitholders will be entirely dependent on the ability of the Trust to pay its interest
obligations under the Trust Notes, and to make distributions on the Trust Units. Payments by the Trust will depend, in
turn, on the ability of the Company to satisfy its debt service obligations under the Term Facility and KIT LP’s ability
to pay distributions on the Ordinary LP Units.
Distributions to the Unitholders will be entirely dependent on the ability of the Company to pay its operating
expenses and to pay distributions. The sole source of cash flow of the Company is the operation of the Company. In the
conduct of the business of the Company, it pays expenses and incurs debt and obligations to third parties, including
significant maintenance capital expenditures and upgrade and renovation expenditures required under the Franchise
Agreement. See ‘‘Principal Agreements — The Franchise Agreement’’. These expenses, debts and obligations could
impact the ability of the Company to produce positive operating results.
The Company is entirely dependent upon the operations and assets of the Company Restaurants to pay
distributions to the Trust, and the Company’s ability to do so is subject to the risks encountered by the Company in the
operation of its business, including the risks relating to the QSR industry referred to above, and the results of operations
and financial condition of the Company.
Term Facility and Restrictive Covenants
The Company will have third party debt service obligations under the Term Facility. See ‘‘Principal
Agreements — Term Facility’’. The degree to which the Company is leveraged could have important consequences to
the holders of the Units, including: (i) a portion of the Company’s cash flow from operations will be dedicated to the
payment of the principal of and interest on its indebtedness, thereby reducing funds available for distribution to the
Fund; (ii) certain of the Company’s borrowings will be at variable rates of interest, which exposes the Company to the
risk of increased interest rates. The Company’s ability to make scheduled payments of principal and interest on, or to
refinance, its indebtedness will depend on its future operating performance and cash flow, which are subject to
prevailing economic conditions, prevailing interest rate levels, and financial, competitive, business and other factors,
many of which are beyond its control.
The Term Facility will contain numerous restrictive covenants that limit the discretion of Management with
respect to certain business matters. These covenants will place restrictions on, among other things, the ability of the
Company to incur additional indebtedness, to create liens or other encumbrances, to pay distributions or make certain
other payments, investments, loans and guarantees and to sell or otherwise dispose of assets and merge or consolidate
with another entity. A failure to comply with the obligations in the agreements in respect of the Term Facility could
result in an event of default which, if not cured or waived, could permit acceleration of the relevant indebtedness and
acceleration. If the indebtedness under the Term Facility were to be accelerated, there can be no assurance that the
Company’s assets would be sufficient to repay in full that indebtedness.
Cash Distributions are Not Guaranteed and Will Fluctuate with the Company’s Performance
Although the Fund intends to distribute the income earned by the Fund less expenses of the Fund and amounts, if
any, paid by the Fund in connection with the redemption of Units, there can be no assurance regarding the amounts of
income to be generated by the Fund or the Company. The actual amount distributed in respect of the Units will depend
upon numerous factors, including profitability, fluctuations in working capital, the sustainability of margins, capital
expenditures, upgrade and renovation expenditures and payment of distributions by the Company.
Nature of Units
Securities such as the Units share certain attributes common to both equity securities and debt instruments. The
Units do not represent a direct investment in the Trust or the Company and should not be viewed by investors as units
in the Trust or the Company. As holders of Units, Unitholders will not have the statutory rights normally associated
with ownership of shares of a corporation including, for example, the right to bring ‘‘oppression’’ or ‘‘derivative’’
actions. The Units represent a fractional interest in the Fund. The Fund’s only assets will be Series 1 Trust Notes and
the Trust Units. The price per Unit is a function of anticipated distributable cash of the Fund.
91
Restrictions on Potential Growth
The payout by the Company of substantially all of its operating cash flow will make additional capital and
operating expenditures dependent on increased cash flow or additional financing in the future. Lack of such funds could
limit the future growth of the Company and the related cash flow to the Fund.
Possible Unitholder Liability
The Declaration of Trust provides that no Unitholder will be subject to any liability whatsoever to any person in
connection with a holding of Units. However, there remains a risk, which is considered by the Fund to be remote in the
circumstances, that a Unitholder could be personally liable despite such statement in the Declaration of Trust for the
obligations of the Fund to the extent that claims are not satisfied out of the assets of the Fund. It is intended that the
affairs of the Fund will be conducted to seek to minimize such risk wherever possible.
Under limited partnership legislation, a limited partner taking part in the management of a limited partnership is
potentially responsible for partnership liabilities as a general partner. The investment of the Fund in KIT LP is held
through the Trust and accordingly, the possibility of any such liability attaching to Unitholders is remote.
Absence of Prior Public Market
Prior to the Offering there has been no public market for the Units. The initial public Offering price has been
determined by negotiation between the Fund, PB LP and the Underwriters based on several factors and may bear no
relationship to the price at which the Units will trade in the public market subsequent to the Offering. See ‘‘Plan of
Distribution’’.
Distribution of Securities on Redemption or Termination of the Fund
Upon a redemption of Units or termination of the Fund, the Trustees may distribute Series 2 Trust Notes and
Series 3 Trust Notes directly to the Unitholders, subject to obtaining all required regulatory approvals. There is
currently no market for the Series 2 Trust Notes or the Series 3 Trust Notes. In addition, the Series 2 Trust Notes and
the Series 3 Trust Notes are not freely tradable and are not currently listed on any stock exchange. See ‘‘Description of
the Fund — Redemption Right’’. Series 2 Trust Notes and Series 3 Trust Notes so distributed may not be qualified
investments for trusts governed by Plans, depending upon the circumstances at the time.
The Fund May Issue Additional Units Diluting Existing Unitholders’ Interests
The Declaration of Trust authorizes the Fund to issue an unlimited number of Units and Special Voting Units for
such consideration and on such terms and conditions as shall be established by the Trustees without the approval of any
Unitholders. Additional Units will be issued by the Fund upon the exchange of the Exchangeable LP Units and
Subordinated LP Units.
Income Tax Matters
Although the Fund and the Company are of the view that all expenses to be claimed by them in the determination
of their respective incomes under the Tax Act will be reasonable and deductible in accordance with the applicable
provisions of the Tax Act and that the allocations of income and losses to be made for purposes of the Tax Act will be
reasonable, there can be no assurance that the Tax Act or the interpretation of the Tax Act will not change, or that
CCRA will agree with the expenses claimed. If CCRA successfully challenges the deductibility of expenses or the
allocation of income and losses, the Company’s allocation of taxable income and losses to the Trust, and indirectly the
Fund and the Unitholders, will increase or change.
There can be no assurance that Canadian federal income tax law or the interpretation thereof, respecting the
treatment of mutual fund trusts will not be changed in a manner which adversely affects the holders of Units. If the
Fund ceases to qualify as a ‘‘mutual fund trust’’ under the Tax Act, the income tax considerations described under the
heading ‘‘Certain Canadian Federal Income Tax Considerations’’ would be materially and adversely different in certain
respects.
92
The Declaration of Trust provides that an amount equal to the taxable income of the Fund will be payable each
year to Unitholders in order to reduce the Fund’s taxable income to zero. Where in a particular year, the Fund does not
have sufficient distributable cash to distribute such an amount to Unitholders, the Declaration of Trust provides that
additional Units must be distributed to Unitholders in lieu of cash payments. Unitholders will generally be required to
include an amount equal to the fair market value of those Units in their taxable income, notwithstanding that they do
not directly receive a cash payment. See ‘‘Certain Canadian Federal Income Tax Considerations — Taxation of
Unitholders’’.
Series 2 and Series 3 Trust Notes received as a result of the redemption of Units will not be qualified investments
for trusts governed by Plans and their acquisition may give rise to adverse consequences to a Plan and/or an annuitant
under the Plan.
Investment Eligibility and Foreign Property
There can be no assurance that the Units will continue to be qualified investments for Plans or that the Units will
not be foreign property under the Tax Act. The Tax Act imposes penalties for the acquisition or holding of non
qualified or ineligible investments and on excess holdings of foreign property.
Effect of Market Interest Rates on Price of Units
One of the factors that may influence the price of the Units in public trading markets will be the annual cash-on-
cash return from distributions by the Fund on the Units as compared to cash-on-cash returns on other financial
instruments. Thus, an increase in market interest rates will result in higher cash-on-cash returns on other financial
instruments, which could adversely affect the market price of the Units.
MATERIAL CONTRACTS
The only material contracts entered into by any of the Fund, the Trust, or the Company during the past two years
or to which any of them will become a party on or prior to the closing of the Offering, other than in the ordinary course
of business, are as follows:
(a) the Term Facility described under ‘‘Principal Agreements — Term Facility’’;
(b) the Franchise Agreement described under ‘‘Principal Agreements — The Franchise Agreement’’;
(c) the Exchange and Escrow Agreement described under ‘‘Retained Interest and Exchange Rights’’;
(d) the Limited Partnership Agreement described under ‘‘Description of KIT LP’’;
(e) the Declaration of Trust described under ‘‘Description of the Fund’’;
(f) the Trust Declaration of Trust described under ‘‘Description of the Trust’’;
(g) the Note Indenture described under ‘‘Description of the Trust — The Trust Notes’’;
(h) the Underwriting Agreement described under ‘‘Plan of Distribution’’;
(i) the Lease Agreement with Yum! Canada described under ‘‘Principal Agreements — Lease Agreement with
Yum! Canada’’;
(j) the Lease Agreement with Scott’s Restaurants Inc. described under ‘‘Principal Agreements — Lease
Agreement with Scott’s Restaurants Inc.’’; and
(k) the Acquisition Agreement described under ‘‘Principal Agreements — Acquisition Agreement’’.
Copies of the foregoing documents may be examined during normal business hours at the offices of the Fund, at
101 Exchange Avenue, Vaughan, Ontario, L4K 5R6, during the period of distribution of the Units.
93
LEGAL MATTERS
Certain legal matters relating to the issue and sale of Units offered hereby will be passed upon on behalf of the
Fund and the Company by Stikeman Elliott LLP, as counsel and Borden Ladner Gervais LLP, as special tax counsel to
e
the Fund, and on behalf of the Underwriters by McCarthy T´ trault LLP.
LEGAL PROCEEDINGS
Management of the Company is not aware of any litigation outstanding, threatened or pending as of the date
hereof by or against the Fund, the Trust or the Company which would be material to a purchaser of the Units.
PROMOTER
PB LP may be considered to be a promoter of the Fund. For more information regarding PB LP’s relationship to
the Fund, the Trust and the Company, see ‘‘Business of the Company — Background’’, ‘‘PB LP Reorganization’’ and
‘‘Funding, Acquisition and Related Transactions’’.
AUDITORS, TRANSFER AGENT AND REGISTRAR
The auditors of the Fund are PricewaterhouseCoopers LLP, Chartered Accountants, Toronto, Ontario.
The transfer agent and registrar for the Units is CIBC Mellon Trust Company at its principal transfer office in
Toronto.
PURCHASERS’ STATUTORY RIGHTS OF WITHDRAWAL AND RESCISSION
Securities legislation in certain of the provinces and territories of Canada provides purchasers with the right to
withdraw from an agreement to purchase securities. This right may be exercised within two business days after receipt
or deemed receipt of a prospectus and any amendment. In several of the provinces and territories, the securities
legislation further provides a purchaser with remedies for rescission or, in some jurisdictions, damages if the prospectus
and any amendment contains a misrepresentation or is not delivered to the purchaser, provided that such remedies for
rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the
purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of
the purchaser’s province or territory for the particulars of these rights or consult with a legal adviser.
94
GLOSSARY
‘‘Acquisition’’ means the acquisition by the Company from PB LP of all of the assets and related liabilities of the
Company Restaurants, including the salad production facility of PB LP.
‘‘Adjusted EBITDA’’ means EBITDA for the 52 weeks ended August 10, 2003 adjusted to exclude $1,184,000
of salary and other direct costs of certain employees terminated on January 20, 2003 and $1,057,000 of advertising
costs to reflect advertising at 5% of sales and include $611,000 of additional EBITDA to reflect a full 52 weeks of
operating results for recently multi-branded and new restaurants opened during the 52 weeks ended August 10, 2003.
‘‘Administration Agreement’’ means the administration agreement to be entered into among the Fund, the Trust
and the GP, pursuant to which the GP will agree to provide or arrange for the provision of services required for the
administration of the Fund and the Trust.
‘‘affiliate’’ has the same meaning as ‘‘affiliated entity’’ as set out in Ontario Securities Commission
Rule 45-501.
‘‘BOH Upgrade’’ means a comprehensive refurbishment of all fittings, fixtures, signage, equipment, systems and
inventory in the ‘‘back-of-house’’ area of a Company Restaurant to then current standards of the Franchisor.
‘‘CAGR’’ means compound annual growth rate.
‘‘CCRA’’ means the Canada Customs and Revenue Agency.
‘‘CDS’’ means The Canadian Depository for Securities Limited.
‘‘CDS Participant’’ means a participant in the CDS depository service.
‘‘CHAMPS’’ means the proprietary customer training and standards program of the Franchisor known as
‘‘CHAMPS’’ (which stands for Cleanliness, Health, Accuracy, Maintenance, Product quality and Speed).
‘‘Closing Date’’ means the date of the completion of the Offering.
‘‘Company’’ means, collectively, KIT LP and its general partner, KIT Inc.
‘‘Company Restaurants’’ means the 466 KFCTM restaurants operated in Canada by the Company as of the
Closing Date and all related assets, including, as applicable, the salad production facility acquired by the Company on
the Closing Date.
‘‘Concepts’’ means, collectively, the KFCTM Outlet restaurant concept, the Pizza HutTM Outlet restaurant concept
and the Taco BellTM Outlet restaurant concept, in each case as referred to in the Franchise Agreement. See ‘‘Principal
Agreements — The Franchise Agreement’’.
‘‘Credit Documents’’ means (i) the subordination and intercreditor agreement dated as of the Closing Date
between, inter alia, the Fund, the Trust, the Note Trustee and Canadian Imperial Bank of Commerce, as administrative
agent; (ii) the limited recourse guarantee and pledge agreement regarding the Trust Notes of the Fund in favour of
Canadian Imperial Bank of Commerce, as administrative agent dated as of the Closing Date.
‘‘CREST’’ means Consumer Reports Eating Share Trends, prepared by the NPD Foodservice Information Group,
the foodservice industry standard for the determination of market size, segment patterns and brand share trends.
‘‘CRFA’’ means the Canadian Restaurant and Foodservices Association, a non-profit organization that represents
the foodservice industry.
‘‘Declaration of Trust’’ means the Declaration of Trust dated September 24, 2003 pursuant to which the Fund
was established, as the same may be amended, supplemented or restated from time to time. See ‘‘Description of the
Fund — Declaration of Trust’’.
‘‘Deferred Income Plans’’ means registered retirement savings plans, registered retirement income funds and
deferred profit sharing plans.
‘‘Distribution Target’’ means average monthly distributions of at least $0.10 per LP Unit.
‘‘Distribution Acceleration Target’’ means average monthly distributions of at least $0.11 per LP Unit.
G-1
‘‘EBITDA’’ means earnings before provisions for interest, income taxes, depreciation and amortization and
certain non-recurring items.
‘‘EBITDA Target’’ means annual EBITDA of the Company (based on audited financial statements) of at least
$39.191 million.
‘‘EBITDA Acceleration Target’’ means annual EBITDA of the Company (based on audited financial
statements) of at least $43.110 million.
‘‘Exchange and Escrow Agreement’’ means the exchange agreement to be entered into among the Fund, the
Trust, the Company and PB LP providing for, among other things, the Exchange Rights, demand and piggy-back
registration rights and the escrow of the Exchangeable LP Units. See ‘‘Retained Interest and Exchange Rights’’.
‘‘Exchange Rights’’ means the right of a holder of Exchangeable LP Units to exchange one Exchangeable LP
Unit for one Unit by delivering such Exchangeable LP Unit in exchange for a Unit. See ‘‘Retained Interest and
Exchange Rights’’.
‘‘Exchangeable LP Units’’ means the exchangeable limited partnership units of KIT LP held by PB LP on the
Closing Date.
‘‘Exchangeable Securities’’ means any securities that are exchangeable, directly or indirectly, for Units.
‘‘FOH Upgrade’’ means a comprehensive refurbishment of all fittings, fixtures, signage, equipment, systems and
inventory in the ‘‘front-of-house’’ area of a Company Restaurant to then current standards of the Franchisor.
‘‘Franchise Agreement’’ means, with respect to each Company Restaurant, the franchise agreement dated as of
the Closing Date between the Company and the Franchisor with respect to the operation of such Company Restaurant
and with respect to the Company means all such agreements, collectively.
‘‘Franchisor’’ means Yum! Restaurants International (Canada) LP, a limited partnership established pursuant to
the laws of Ontario, and an affiliate of Yum!.
‘‘Fund’’ means Priszm Canadian Income Fund, an unincorporated, open-ended, limited purpose trust established
under the laws of the Province of Ontario.
‘‘GAAP’’ means Canadian generally accepted accounting principles.
‘‘FPM’’ means the Franchise Policies Manual issued by the Franchisor under the Franchise Agreement.
‘‘Governance Agreement’’ means the agreement to be entered into among the Trust, the GP and PB LP
providing for, among other things, the governance of the GP.
‘‘GP’’ means KIT Inc., a corporation incorporated under the Canada Business Corporations Act.
‘‘GP Common Shares’’ means the common shares in the capital of the GP.
‘‘GP Units’’ means the ordinary general partnership units of KIT LP held by the GP.
‘‘Guarantee’’ means the guarantee required by the Franchisor under the Franchise Agreement.
‘‘Guarantors’’ means each of the Trust, the Fund, the GP and any other Person holding from time to time more
than 20% of the issued and outstanding Units of the Fund (or securities exchangeable, directly or indirectly, for Units)
on a non-fully diluted basis that is required under the Franchise Agreement to guarantee the obligations of the
Company under the Franchise Agreement.
‘‘KIT LP’’ means KIT Limited Partnership, a limited partnership formed under the laws of the Province of
Manitoba.
‘‘Limited Partnership Agreement’’ means the limited partnership agreement, as amended, supplemented or
restated from time to time, between PB LP, the GP and the Trust, by which KIT LP will be governed.
‘‘LP Units’’ means, collectively, the Ordinary LP Units, the Exchangeable LP Units and the Subordinated LP
Units.
‘‘LTIP’’ means the long-term incentive plan of KIT LP.
G-2
‘‘Management’’ means senior management of the GP.
‘‘Non-resident’’ means a non-resident of Canada within the meaning of the Tax Act.
‘‘Note Indenture’’ means the note indenture to be made between the Trust and the Note Trustee, providing for
the issuance of the Trust Notes.
‘‘Note Trustee’’ means the trustee under the Note Indenture.
‘‘Offering’’ means the offering of Units under this prospectus.
‘‘Ordinary LP Units’’ means the ordinary limited partnership units of KIT LP.
‘‘Over-Allotment Option’’ means the option of the Underwriters, exercisable for a period of 30 days from the
closing of the Offering, to purchase up to a total of 1,500,000 additional Units at a price of $10.00 per Unit solely to
cover over allotments, if any, and for market stabilization purposes.
‘‘Partnership Special Resolution’’ means a resolution of the partners of KIT LP passed with the consent of the
holders of at least 662/3% of the LP Units and GP Units, in the aggregate, voted on such resolution at a duly constituted
meeting or by a written resolution of partners holding more than 662/3% of the LP Units and GP Units, in the aggregate,
entitled to vote at a duly constituted meeting.
‘‘PB LP’’ means priszm brandz LP, a limited partnership formed under the laws of the Province of Ontario.
‘‘Person’’ means a natural person, partnership, limited partnership, limited liability partnership, corporation, joint
stock company, trust, unincorporated association, limited liability company, joint venture or other entity or
governmental or regulatory authority or entity.
‘‘Plans’’ means, collectively, registered retirement savings plans, registered retirement income funds, deferred
profit sharing plans and registered education savings plans.
‘‘Purchased Assets’’ means the assets of the Company Restaurants, as well as the salad production facility of PB
LP, to be acquired by the Company from PB LP upon the closing of the Offering.
‘‘QSR’’ means a quick service restaurant or other retail prepared food vendor.
‘‘Redemption Price’’ has the meaning given to that term under ‘‘Description of the Fund — Redemption Right’’.
‘‘Released Subordinated LP Units’’ means the 50% of the Subordinated LP Units to be issued to PB LP on
closing of the Offering that will automatically convert into Exchangeable LP Units if, for the fiscal year ending
December 31, 2006, the Company has earned the EBITDA Acceleration Target and has paid average monthly
distributions on the LP Units equal to the Distribution Acceleration Target.
‘‘Reorganization’’ means the reorganization of PB LP that will take place immediately prior to the closing of the
Offering.
‘‘Revenues’’ as defined in the Franchise Agreement, means all gross receipts received by the Company as
payment for the sale of approved products and for all other goods and services sold at or from each Company
Restaurant, but excluding sales tax or other tax receipts required by law to be remitted, and in fact remitted by the
Company, to any government authority. In calculating Revenues, no adjustment for cash shortages from cash registers,
the cost of debit cards, credit cards or any other form of credit payment is made.
‘‘RGM’’ means restaurant general manager.
‘‘Series 1 Trust Notes’’ means the interest bearing Series 1 unsecured subordinated demand notes of the Trust
issued under the Note Indenture.
‘‘Series 2 Trust Notes’’ means the interest bearing Series 2 unsecured subordinated notes of the Trust issued
under the Note Indenture.
‘‘Series 3 Trust Notes’’ means the interest bearing Series 3 unsecured subordinated notes of the Trust issued
under the Note Indenture.
G-3
‘‘Special Resolution’’ means a resolution of the Voting Unitholders passed by not less than 662/3% of the votes
cast, either in person or by proxy, at a meeting of Voting Unitholders called for the purpose of approving such
resolution, or approved in writing by the holders of not less than 662/3% of the Voting Units entitled to vote on such
resolution.
‘‘Special Voting Unit’’ means a special voting unit of the Fund to be issued to the holders of securities
exchangeable into Units, and which shall entitle the holder to one vote at any meeting of Voting Unitholders.
‘‘SRI Leases’’ means the leases with respect to 84 properties currently leased by PB LP from either Scott’s
Restaurants Inc. or a wholly-owned subsidiary of Scott’s Restaurants Inc., which leases will be assigned to the
Company upon the closing of the Offering.
‘‘subsidiary’’ has the meaning set out in the Securities Act (Ontario) and includes a partnership or other entity.
‘‘Subordinated LP Units’’ means the subordinated exchangeable limited partnership units of KIT LP held by
PB LP on the Closing Date.
‘‘Tax Act’’ means the Income Tax Act (Canada) and regulations thereunder, as amended.
‘‘Term Facility’’ means the $60 million three-year, non-revolving, term facility of the Company to be entered
into upon the closing of the Offering, as amended, restated, supplemented or replaced from time to time.
‘‘Trust’’ means Priszm Canadian Operating Trust, an unincorporated, limited purpose trust established under the
laws of the Province of Ontario pursuant to the Trust Declaration of Trust.
‘‘Trust Declaration of Trust’’ means the Declaration of Trust dated September 24, 2003 pursuant to which the
Trust was established, as the same made by amended, supplemented or restated from time to time. See ‘‘Description of
the Trust’’.
‘‘Trust Notes’’ means, collectively, the Series 1 Trust Notes, Series 2 Trust Notes and Series 3 Trust Notes.
‘‘Trust Unitholders’’ means, at the relevant time, the holders of the Trust Units.
‘‘Trust Units’’ means the units of the Trust.
‘‘Trustees’’ means, at the relevant time, the trustees of the Fund.
‘‘TSX’’ means the Toronto Stock Exchange.
‘‘Underwriters’’ means, collectively, CIBC World Markets Inc., RBC Dominion Securities Inc., BMO Nesbitt
Burns Inc., National Bank Financial Inc. and TD Securities Inc.
‘‘Underwriting Agreement’’ means the underwriting agreement dated October 31, 2003 among the Fund, the
Underwriters and PB LP.
‘‘Unit’’ means a unit of the Fund, each such unit representing an equal undivided beneficial interest therein.
‘‘Unitholders’’ means, at the relevant time, the holders of the Units.
‘‘UPGC’’ means UPGC, Inc.
‘‘U.S. Securities Act’’ means the Securities Act of 1933 (United States), as amended.
‘‘Voting Units’’ means the Units and the Special Voting Units.
‘‘Voting Unitholders’’ means the Unitholders and the holders of Special Voting Units.
‘‘weighted average price’’ means, for any period, the amount obtained by dividing the aggregate sale price of all
of the Units traded on the relevant Stock Exchange during such period divided by the total number of Units so traded.
‘‘Yum!’’ means Yum! Brands, Inc. a publicly held North Carolina company listed on the New York Stock
Exchange.
‘‘Yum! Canada’’ means Yum! Brands Canada Management LP, a limited partnership established pursuant to the
laws of Ontario, and an affiliate of Yum!.
G-4
FINANCIAL STATEMENT INDEX
Page
Priszm Canadian Income Fund
Auditors’ Report **************************************************************************** F-2
Balance Sheet as at September 24, 2003 ******************************************************** F-3
Notes to Balance Sheet*********************************************************************** F-4
Priszm Canadian Income Fund
Compilation Report************************************************************************** F-5
Pro Forma Consolidated Balance Sheet as at August 10, 2003*************************************** F-6
Pro Forma Consolidated Statement of Income for the 36 weeks ending August 10, 2003 ***************** F-7
Pro Forma Consolidated Statement of Income for the year ended December 1, 2002 ******************** F-8
Notes to Pro Forma Consolidated Financial Statements********************************************* F-9
KFCTM Division of PB LP
Auditors’ Report **************************************************************************** F-12
Balance Sheets as at August 10, 2003 (unaudited), December 1, 2002 and December 2, 2001 ************* F-13
Statements of Income and Equity in Net Assets for the 36 weeks ended August 10, 2003 (unaudited) and
August 11, 2002 (unaudited), the years ended December 1, 2002 and December 2, 2001 and the period
from July 10, 2000 to December 3, 2000 ****************************************************** F-14
Statements of Cash Flows for the 36 weeks ended August 10, 2003 (unaudited) and August 11, 2002
(unaudited), the years ended December 1, 2002 and December 2, 2001 and the period from July 10, 2000
to December 3, 2000 ********************************************************************** F-15
Notes to Financial Statements ***************************************************************** F-16
F-1
AUDITORS’ REPORT
To the Trustees of
PRISZM CANADIAN INCOME FUND
We have audited the balance sheet of Priszm Canadian Income Fund (the Fund) as at September 24, 2003. This
balance sheet is the responsibility of the Fund’s management. Our responsibility is to express an opinion on this
balance sheet based on our audit.
We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards
require that we plan and perform an audit to obtain reasonable assurance whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
balance sheet. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation.
In our opinion, this balance sheet presents fairly, in all material respects, the financial position of the Fund as at
September 24, 2003 in accordance with Canadian generally accepted accounting principles.
(Signed) PRICEWATERHOUSECOOPERS LLP
Chartered Accountants
Toronto, Ontario
September 24, 2003 (except as to Note 2,
which is as of October 31, 2003)
F-2
PRISZM CANADIAN INCOME FUND
Balance Sheet
As at September 24, 2003
$
Cash*************************************************************************************** 100
Unitholders’ Equity ************************************************************************** 100
On behalf of the Fund by its attorney KIT Inc.
(Signed) Lilly Di Massimo (Signed) Albert Gnat
Director Director
The accompanying notes form an integral part of this balance sheet.
F-3
PRISZM CANADIAN INCOME FUND
Notes to Balance Sheet
September 24, 2003
(in thousands of dollars)
1 The Fund
Priszm Canadian Income Fund (the Fund) is an unincorporated open-ended limited purpose trust established under the laws of the Province of
Ontario pursuant to the Declaration of Trust dated September 24, 2003. The Fund has been established to hold, directly or indirectly,
investments in entities engaged in the Quick Service Restaurant (QSR) business (including certain restaurants of the KFCTM Division of priszm
brandz LP), and such other investments as the Trustees may determine.
2 Subsequent event
The Fund filed a prospectus dated October 31, 2003 relating to the initial public offering of units of the Fund (the Offering).
Concurrent with the closing of the Offering, the Fund will use gross proceeds of the Offering of $150,000 to capitalize the Priszm Canadian
Operating Trust (the Trust) by subscribing for 1,350,000 Series 1 Trust Notes in the aggregate principal amount of $135,000 and 1,500,000
Trust Units for $15,000.
The Trust will use the proceeds from the issuance of the Series 1 Trust Notes and the Trust Units to subscribe for 15,000,000 Ordinary LP Units
of KIT Limited Partnership (KIT LP) for $150,000 and for all of the common shares in KIT Inc. (the general partner of KIT LP) for nominal
consideration (collectively, the Company).
The Company will use the proceeds of $150,000 from the issuance of Ordinary LP Units, together with $60,000 borrowed pursuant to a new
term facility, to pay, reimburse or contribute towards transaction and Offering costs, estimated to be $15,700 and to acquire from priszm brandz
LP (priszm) certain KFCTM restaurants (the Acquisition). As consideration for the Acquisition, the Company will pay $169,300 in cash and issue
5,164,000 Subordinated LP Units and 5,656,000 Exchangeable LP Units to priszm.
Immediately after the Offering, the Fund will hold (through its interest in the Trust) all of the issued Ordinary LP Units, representing a 58.1%
equity interest in the Company. priszm will hold all the issued Subordinated LP Units and all of the Exchangeable LP Units representing a
41.9% residual equity interest in the Company.
F-4
COMPILATION REPORT
To the Trustees of
PRISZM CANADIAN INCOME FUND
We have read the accompanying unaudited pro forma consolidated balance sheet of Priszm Canadian Income Fund (the Fund)
as at August 10, 2003 and the unaudited pro forma consolidated statements of income for the 36 weeks ended August 10, 2003 and
the year ended December 1, 2002, and have performed the following procedures.
1. Compared the figures in the columns captioned ‘‘KFCTM Division of priszm brandz LP’’ to the unaudited financial
statements of the KFCTM Division of priszm brandz LP (the Division) for the 36 weeks ended August 10, 2003 and to the
audited financial statements of the Division for the year ended December 1, 2002, and found them to be in agreement.
2. Made enquiries of certain officials of the Fund who have responsibility for financial and accounting matters about:
a. the basis for determination of the pro forma adjustments;
b. the basis for determination of the elimination of restaurant assets not transferred and non-KFCTM Restaurants to be
included in the column captioned ‘‘Pro forma adjustments — restaurants.’’;
c. the basis for determination of the elimination of all land and building owned by the Division not transferred
included in the column captioned ‘‘Pro forma adjustments — other.’’
d. whether the unaudited pro forma consolidated financial statements comply as to form in all material respects with
the requirements of the Ontario Securities Commission.
The officials:
a. described to us the basis for determination of the pro forma adjustments;
b. described to us the basis of determination of the elimination of assets not transferred and the inclusion of certain
other assets; and
c. stated that the unaudited pro forma consolidated financial statements comply as to form in all material respects with
the requirements of the Ontario Securities Commission.
3. Read the notes to the unaudited pro forma consolidated financial statements and found them to be consistent with the
basis described to us for determination of the pro forma adjustments and elimination of assets not transferred and the
inclusion of certain other assets.
4. Recalculated the application of the elimination of restaurant assets not transferred and the inclusion of certain other assets
to the amounts in the column captioned ‘‘KFCTM Division of priszm brandz LP’’ in the unaudited proforma consolidated
balance sheet as at August 10, 2003 and found the amounts in the column ‘‘Pro forma KFCTM Division of priszm brandz
LP’’ to be arithmetically correct.
5. Recalculated the application of the elimination of restaurant sales and expenses not transferred and to be included to the
amounts in the column captioned ‘‘KFCTM Division of priszm brandz LP’’ in the pro forma consolidated statements of
income for the 36 weeks ended August 10, 2003 and the year ended December 1, 2002 and found the amounts in the
column ‘‘Pro forma KFCTM Division of priszm brandz LP’’ to be arithmetically correct.
6. Recalculated the application of the adjustments to the amounts in the column ‘‘Pro forma KFCTM Division of priszm
brandz LP’’ in the unaudited pro forma consolidated balance sheet as at August 10, 2003 and found the amounts in the
column captioned ‘‘Pro forma Priszm Canadian Income Fund’’ to be arithmetically correct.
7. Recalculated the application of the adjustments to the amounts in the column captioned ‘‘Pro forma KFCTM Division of
priszm brandz LP’’ in the unaudited pro forma consolidated statements of income for the 36 weeks ended August 10,
2003 and the year ended December 1, 2002 and found the amounts in the column captioned ‘‘Pro forma Priszm Canadian
Income Fund’’ to be arithmetically correct.
A pro forma financial statement is based on management assumptions and adjustments, which are inherently subjective. The
foregoing procedures are substantially less than either an audit or review, the objective of which is the expression of assurance with
respect to management’s assumptions, the pro forma adjustments, and the application of the adjustments to the historical financial
information. Accordingly, we express no such assurance. The foregoing procedures would not necessarily reveal matters of
significance to the unaudited pro forma consolidated financial statements, and we therefore make no representation about sufficiency
of the procedures for the purposes of a reader of such statements.
(Signed) PRICEWATERHOUSECOOPERS LLP
Chartered Accountants
October 31, 2003
Toronto, Ontario
F-5
PRISZM CANADIAN INCOME FUND
Pro Forma Consolidated Balance Sheet
(Unaudited — see Compilation Report)
As at August 10, 2003
Pro forma Priszm
KFCTM KFCTM Canadian
Division of Pro forma Pro forma Division of Priszm Pro forma Income Fund
priszm adjustments — adjustments — priszm Canadian adjustments — pro forma
brandz LP restaurants other brandz LP Income Fund Income Fund consolidated
(note 3) (note 4) (note 5)
(in thousands of dollars)
Assets
Current assets
Cash***************************** $ 511 $ (25) $ — $ 486 $ — $ 25,000 (i) $ 25,486
Trade and other accounts receivable *** 1,647 (1) — 1,646 — — (vi) 1,646
Inventories************************ 4,265 (189) — 4,076 — — (vi) 4,076
Prepaid expenses******************* 2,296 (107) — 2,189 — — (vi) 2,189
Other assets*********************** 21 — — 21 — — (vi) 21
8,740 (322) — 8,418 — 25,000 33,418
Deferred financing costs *********** — — — — — 975 (iii) 975
Land, buildings and equipment ***** 135,736 (5,903) (93,528) 36,305 — 43,455 (vi) 79,760
Franchise rights ****************** 74,389 (120) — 74,269 — 5,731 (vi) 80,000
Goodwill ************************* — — — — — 132,036 (vi) 132,036
$218,865 $(6,345) $(93,528) $118,992 $ — $207,197 $326,189
Liabilities
Current liabilities
Accounts payable and accrued
liabilities *********************** 22,547 (933) — 21,614 — — (vi) 21,614
Deferred gain********************* 3,478 — — 3,478 — (3,478)(vi) —
Long term debt ******************* — — — — — 60,000 (v) 60,000
26,025 (933) — 25,092 56,522 81,614
Unitholders’ Equity
Trust units ************************ — — — — — 136,375 (ii)(iv) 136,375
KIT LP Exchangeable units********** 56,560 (vi) 56,560
KIT LP Subordinated units ********** 51,640 (vi) 51,640
Equity in net assets **************** 192,840 (5,412) (93,528) 93,900 — (93,900) —
$218,865 $(6,345) $(93,528) $118,992 $ — $207,197 $326,189
The accompanying notes are an integral part of this pro forma consolidated balance sheet.
F-6
PRISZM CANADIAN INCOME FUND
Pro Forma Consolidated Statement of Income
(Unaudited — see Compilation Report)
For the 36 weeks ended August 10, 2003
Pro forma Priszm
KFCTM KFCTM Canadian
Division of Pro forma Pro forma Division of Priszm Pro forma Income Fund
priszm adjustments — adjustments — priszm Canadian adjustments — pro forma
brandz LP restaurants other brandz LP Income Fund Income Fund consolidated
(note 3) (note 4) (note 5)
(in thousands of dollars)
Restaurant sales ******************** $328,828 $(12,267) $ — $316,561 $ — $ — $316,561
Cost of restaurant sales *************** 197,098 (8,298) — 188,800 — — 188,800
Restaurant operating expenses ********** 71,516 (3,400) 4,733 72,849 — — 72,849
Franchise royalty expense ************* 19,756 (738) — 19,018 — — 19,018
Depreciation and amortization ********** 12,607 (409) (2,800) 9,398 — 1,749 (vi)(ix) 11,147
300,977 (12,845) 1,933 290,065 — 1,749 291,814
Income from restaurant operations **** 27,851 578 (1,933) 26,496 — (1,749) 24,747
General and administrative expenses***** 14,051 — — 14,051 — — 14,051
Income before interest and undernoted
items **************************** 13,800 578 (1,933) 12,445 — (1,749) 10,696
Employee severance ****************** 2,583 — — 2,583 — — 2,583
Loss on sale of land and buildings ****** 2,652 — — 2,652 — — 2,652
Income before interest *************** 8,565 578 (1,933) 7,210 — (1,749) 5,461
Interest expense, net ****************** — — — — — 2,023 (viii) 2,023
Net income for the period ************ $ 8,565 $ 578 $ (1,933) $ 7,210 $ — $ (3,772) $ 3,438
The accompanying notes are an integral part of this pro forma consolidated statement of income.
F-7
PRISZM CANADIAN INCOME FUND
Pro Forma Consolidated Statement of Income
(Unaudited — see Compilation Report)
For the year ended December 1, 2002
Pro forma Priszm
KFCTM KFCTM Canadian
Division of Pro forma Pro forma Division of Priszm Pro forma Income Fund
priszm adjustments — adjustments — priszm Canadian adjustments — pro forma
brandz LP restaurants other brandz LP Income Fund Income Fund consolidated
(note 3) (note 4) (note 5)
(in thousands of dollars)
Restaurant sales ******************* $482,354 $(18,246) $ — $464,108 $ — $ — $464,108
Cost of restaurant sales ************** 287,958 (12,198) 275,760 — — 275,760
Restaurant operating expenses ********* 98,796 (4,830) 6,836 100,802 — — 100,802
Franchise royalty expense ************ 28,979 (1,097) 27,882 — — 27,882
Depreciation and amortization ********* 19,573 (536) (4,952) 14,085 2,015 (vi)(xi) 16,100
435,306 (18,661) 1,884 418,529 — 2,015 420,544
Income from restaurant operations *** 47,048 415 (1,884) 45,579 — (2,015) 43,564
General and administrative expenses**** 19,966 — — 19,966 — — 19,966
Income before interest ************** 27,082 415 (1,884) 25,613 — (2,015) 23,598
Interest expense, net ***************** — — — — — 2,922 (x) 2,922
Net income for the year************* $ 27,082 $ 415 $(1,884) $ 25,613 $ — $ (4,937) $ 20,676
The accompanying notes are an integral part of this pro forma consolidated statement of income.
F-8
PRISZM CANADIAN INCOME FUND
Notes to Pro Forma Consolidated Financial Statements
(Unaudited — see Compilation Report)
August 10, 2003 and December 1, 2002
(in thousands of dollars)
1 The Fund
Priszm Canadian Income Fund (the Fund) is an unincorporated open-ended limited purpose trust established under the laws of Ontario pursuant
to a Declaration of Trust dated September 24, 2003. The Fund has been formed to indirectly acquire a 58.1% interest in certain assets of the
KFCTM Division of priszm brandz LP (the Division). priszm brandz LP will hold the remaining 41.9%.
2 Basis of presentation and proposed transaction
The accompanying unaudited pro forma consolidated balance sheet and unaudited pro forma statements of income of the Fund have been
prepared by the management of the Fund in accordance with Canadian generally accepted accounting principles.
The unaudited pro forma consolidated financial statements may not be indicative of the financial position and results of operations that would
have occurred if the transactions had been in effect on the dates indicated or of the financial position or operating results which may be obtained
in the future. The unaudited pro forma consolidated financial statements are not a forecast or projection of future results. The actual financial
position and results of operations of the Fund for any period following closing of the transactions contemplated by this prospectus will likely
vary from the amounts set forth in the pro forma consolidated financial statements and such variation may be material.
The unaudited pro forma consolidated financial statements should be read in conjunction with the audited consolidated balance sheet of the Fund
as at September 24, 2003, the unaudited financial statements of the Division for the 36 weeks ended August 10, 2003, the unaudited financial
statements of the Division for the 36 weeks ended August 11, 2002 and the audited financial statements of the Division for the years ended
December 1, 2002 and December 2, 2001 and the period from July 10, 2000 to December 3, 2000.
The unaudited pro forma consolidated balance sheet has been prepared from information derived from the unaudited balance sheet of the Fund
as at August 10, 2003 and the unaudited balance sheet of the Division as at August 10, 2003 and the adjustments and assumptions outlined
below. The unaudited pro forma consolidated statements of income for the 36 weeks ended August 10, 2003 and the year ended December 1,
2002 has been prepared from information derived from the unaudited statement of income of the Division for the 36 weeks ended August 10,
2003 and from the audited statement of income of the Division for the year ended December 1, 2002 and the adjustments and assumptions
outlined below.
The Fund will complete a public issuance of its units (the Offering). The Fund will use the gross proceeds of the Offering to capitalize the
Priszm Canadian Operating Trust, which will then acquire units in KIT Limited Partnership (KIT LP). KIT LP will acquire certain assets of the
Division with that portion of the net proceeds from the sale of its units which exceeds the $25 million required to establish a capital funding
pool, funds from a new $60 million credit facility (the Facility) and the issuance of exchangeable and subordinated units which when converted
into units of the Fund will represent a 41.9% interest in the Fund.
Prior to the completion of the Acquisition, priszm brandz LP will complete a reorganization which will result in the transfer of all owned real
estate, including substantially all of the Division’s real estate (Yum Real Estate), and the Pizza HutTM and Taco BellTM operation to Yum Brands
Canada Management LP (Yum) in exchange for all of its interest in priszm brandz LP. In conjunction with the transfer of the Yum Real Estate,
KIT LP will enter into a long term lease for the Yum Real Estate.
The Fund will also acquire 3 non-KFCTM restaurants which are scheduled for multi-branding development subsequent to August 10, 2003. In
addition, KIT LP will not acquire certain KFCTM restaurants (31 restaurants as at August 10, 2003) which are scheduled for closure subsequent
to August 10, 2003.
3 Unaudited pro forma assumptions and adjustments — restaurants
The unaudited pro forma consolidated financial statements have been prepared to reflect the following proposed transactions and adjustments:
The unaudited pro forma balance sheet of the Division as of August 10, 2003 has been prepared to exclude 31 KFCTM restaurants which
are scheduled for closure subsequent to August 10, 2003 and to include 3 non-KFCTM restaurants scheduled to be multi branded prior to
January 1, 2004.
(i) As at August 10, 2003 the net book value of the 31 excluded KFCTM restaurants is $5,794 and the 3 non-KFCTM included restaurant
is $382.
The unaudited pro forma statement of income of the Division for the 36 weeks ended August 10, 2003 and for the year ended
December 1, 2002 have been prepared as if the restaurant exclusions and inclusions were effective as at December 3, 2001.
(ii) The adjustments represent restaurant sales and expense which are directly attributable to the 31 KFCTM excluded restaurants and
includes historical restaurant sales and expenses of the 3 non KFCTM included restaurants.
F-9
PRISZM CANADIAN INCOME FUND
Notes to Pro Forma Consolidated Financial Statements (Continued)
4 Unaudited pro forma assumptions and adjustments — other
The unaudited pro forma consolidated financial statements have been prepared to reflect the following proposed transactions and adjustments:
The unaudited proforma balance sheet of the Division has been prepared as if the following transactions and adjustments had been
completed as at August 10, 2003.
(i) The net book value of the restaurant land and buildings owned by the Division not being acquired by KIT LP as at August 10, 2003
is $93,528 after deducting depreciation expense of $2,800 and $4,952 for the 36 weeks ended August 10, 2003 and the year ended
December 1, 2002 respectively.
The unaudited pro forma statements of income of the Division for the 36 weeks ended August 10, 2003 and the year ended December 1,
2002 have been completed as if the transactions and adjustments had been completed as at December 3, 2001.
(ii) The adjustments represent the depreciation on the buildings not acquired by KIT LP as indicated in (i) above and rents on these
properties leased from Yum of $4,733 and $6,836 respectively.
5 Unaudited pro forma assumptions and adjustments — Income Fund
The unaudited pro forma consolidated financial statements of the Fund have been prepared to reflect the following proposed transactions and
adjustments:
The unaudited pro forma consolidated balance sheet of the Fund as at August 10, 2003 has been prepared as if the proposed transactions
were completed on August 10, 2003.
(i) Represents cash received and paid in connection with the transactions described in (ii), (iii), (iv), (v) and (vi) below.
(ii) Represents the issuance of 15,000,000 units for total proceeds of $150,000 on the closing of the Offering.
(iii) Represents $975 of direct costs related to the Facility which are included in deferred financing fees.
(iv) Represents payment of the underwriters fee and other costs of the Offering, estimated to be $13,625.
(v) Represents $60,000 of drawing on the Facility in connection with the acquisition.
(vi) Purchase accounting.
The acquisition of the KFCTM Division of priszm brandz LP has been accounted for under the purchase method of accounting with
assets acquired and liabilities assumed recorded at fair value. The purchase price of $278,600 (including $1,100 of assumed
liabilities) has been accounted for on a preliminary and tentative basis in these unaudited pro forma consolidated financial
statements as follows:
Fair value of the consideration
Cash (including settlement of $1,100 of assumed liabilities) ************************************* $170,400
KIT LP exchangeable units *************************************************************** $ 56,560
KIT LP subordinated units **************************************************************** $ 51,640
Net assets acquired
Net working capital ********************************************************************** $ (13,196)
Equipment and Leasehold improvements***************************************************** $ 79,760
Franchise rights ************************************************************************* $ 80,000
Goodwill ****************************************************************************** $132,036
The allocation of the purchase price will be based on the assets and liabilities purchased at the effective date of the acquisition and
other information available as at the date based upon internal and/or independent asset valuations. For purposes of these unaudited
pro forma consolidated financial statements, management has made estimates of the fair value to be allocated to the assets and
liabilities acquired, as indicated below. The actual amounts for each of the assets and liabilities will vary from the pro forma
amounts and the variations could be material.
Net working capital includes trade and other accounts receivable, inventories, prepaid expenses and other assets and accounts
payable and accrued liabilities, the carrying values of which approximates their fair values. For the purposes of these unaudited
pro forma consolidated financial statements, no adjustment has been made to the net working capital to reflect certain liabilities of
the business assumed as part of the acquisition but not reflected in the financial statements of the KFCTM Division of priszm brandz
LP. For the purposes of these unaudited pro forma consolidated financial statements, management has ascribed $43,455 of
additional value to equipment and leasehold improvements, based on an estimate of depreciated replacement cost.
Intangible assets acquired by the Fund include franchise rights, supplier agreements, supplier arrangements, proprietary operating
systems and license agreements. In addition, certain restaurant operating lease terms may be at rates both higher and lower than
current market rates.
F-10
PRISZM CANADIAN INCOME FUND
Notes to Pro Forma Consolidated Financial Statements (Continued)
5 Unaudited pro forma assumptions and adjustments — Income Fund (Continued)
Management has determined a preliminary fair value for the franchise rights of $80,000 based on that portion of the future cash
flows which are attributable to these rights. Management believes that all supplier agreements and arrangement terms are at fair
market value, accordingly, no value has been assigned to these agreements and arrangements in these unaudited pro forma
consolidated financial statements. Proprietary operating systems and license agreements include customized point-of-sale software
used in the business. Management estimates the value of these systems and licenses are not significant, accordingly, no value has
been assigned to these assets in these unaudited pro forma consolidated financial statements. Given that a significant portion of the
restaurant operating lease agreements assumed by the Fund have been entered into in the last two years, management believes that
any potential adjustment for certain lease terms that may be at rates both higher and lower than current market rates will not be
significant. Accordingly, no fair value adjustment for restaurant operating leases has been made in these unaudited pro forma
consolidated financial statements.
After allocating the purchase price to all identified tangible and intangible assets and liabilities, the excess amount of $132,036 is
allocated to goodwill in these unaudited pro forma consolidated financial statements.
Amortization expense on the assumed increase in the value to equipment and leasehold improvements and franchise rights would
increase by $1,749 and $2,015 for the 36 weeks ended August 10, 2003 and the fiscal year ended December 1, 2002 respectively,
based on assumed average lives of 7 and 17 years respectively.
(vii) Includes $25 million of cash that will be segregated at closing to fund certain non-recurring capital expenditures for the
development, renovation and upgrade of restaurants.
The unaudited pro forma consolidated statement of income of the Fund for the 36 weeks ended August 10, 2003 has been prepared as if
the proposed transaction were completed as at December 3, 2001.
(viii) Represents net interest expense on the Facility including amortization of deferred financing costs of $225.
(ix) Represents additional depreciation and amortization expense of $1,749, as described in (vi).
The unaudited pro forma consolidated statement of income of the Fund for the year ended December 1, 2002 has been prepared as if the
proposed transactions had been completed as at December 3, 2001.
(x) Represents net interest expense on the Facility including amortization of deferred financing costs of $325.
(xi) Represents additional depreciation and amortization expense of $2,015, as described in (vi).
F-11
AUDITORS’ REPORT
To the Partners of
PRISZM BRANDZ LP
We have audited the balance sheets of the KFCTM Division of priszm brandz LP (the Division), as described in
note 1 of these financial statements, as at December 1, 2002 and December 2, 2001 and the statements of income and
equity in net assets and cash flows for the years ended December 1, 2002 and December 2, 2001 and for the period
from July 10, 2000 to December 3, 2000. These financial statements are the responsibility of priszm brandz LP’s
management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards
require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material respects, the financial position of the
Division as at December 1, 2002 and December 2, 2001 and the results of its operations and its cash flows for the years
ended December 1, 2002 and December 2, 2001 and the period from July 10, 2000 to December 3, 2000 in accordance
with Canadian generally accepted accounting principles.
(Signed) PRICEWATERHOUSECOOPERS LLP
Chartered Accountants
Toronto, Ontario
January 31, 2003 (except as to note 8(b)(i)
which is as of March 31, 2003 and note 17 which is as of October 31, 2003)
F-12
KFCTM DIVISION OF PRISZM BRANDZ LP
Balance Sheets
August 10, December 1, December 2,
2003 2002 2001
(Unaudited)
(in thousands of dollars)
Assets
Current assets
Petty cash ************************************************** $ 511 $ 520 $ 497
Trade and other accounts receivable (note 8(e))******************** 1,647 1,357 1,275
Inventories************************************************** 4,265 4,188 3,985
Prepaid expenses********************************************* 2,296 2,159 1,779
Other assets ************************************************* 21 947 —
8,740 9,171 7,536
Land, buildings and equipment (note 5) ************************ 135,736 160,210 173,604
Franchise rights (note 6) ************************************* 74,389 77,025 79,316
$218,865 $246,406 $260,456
Liabilities
Current liabilities
Accounts payable and accrued liabilities (notes 7 and 8(a)) ********** 22,547 32,303 31,988
Deferred gain (note 8(b)) ************************************* 3,478 — —
26,025 32,303 31,988
Equity in net assets (note 1) ********************************** 192,840 214,103 228,468
$218,865 $246,406 $260,456
Subsequent event (note 17)
On behalf of priszm brandz Inc. as general partner of priszm brandz LP
(Signed) John I. Bitove (Signed) James Burns
Director Director
The accompanying notes are an integral part of these financial statements.
F-13
KFCTM DIVISION OF PRISZM BRANDZ LP
Statements of Income and Equity in Net Assets
Period from
July 10,
36 weeks ended Year ended 2000 to
August 10, August 11, December 1, December 2, December 3,
2003 2002 2002 2001 2000
(Unaudited) (Unaudited)
(in thousands of dollars)
Restaurant sales ************************** $328,828 $333,074 $482,354 $477,551 $197,628
Costs and expenses:
Cost of restaurant sales (note 9) ************ 197,098 199,802 287,958 286,625 118,510
Restaurant operating expenses (note 9) ******* 71,516 67,074 98,796 96,524 38,899
Franchise royalty expense (note 8 (a)) ******* 19,756 20,006 28,979 28,687 11,868
Depreciation and amortization (note 9) ******* 12,607 13,696 19,573 22,335 9,086
300,977 300,578 435,306 434,171 178,363
Income from restaurant operations ********** 27,851 32,496 47,048 43,380 19,265
General and administrative expenses********* 14,051 15,275 19,966 17,834 9,796
Income before undernoted items ************ 13,800 17,221 27,082 25,546 9,469
Employee severance (notes 14 (a) and (b)) ***** 2,583 — — — 2,260
Loss on sale of land and buildings (note 8(b))*** 2,652 — — — —
Net income for the period ****************** 8,565 17,221 27,082 25,546 7,209
Equity in net assets — Beginning of period***** 214,103 228,468 228,468 260,903 290,154
Net transfer of cash to priszm **************** (29,828) (15,854) (41,447) (57,981) (36,460)
Equity in net assets — End of period ******** $192,840 $229,835 $214,103 $228,468 $260,903
The accompanying notes are an integral part of these financial statements.
F-14
KFCTM DIVISION OF PRISZM BRANDZ LP
Statements of Cash Flows
Period from
July 10,
36 weeks ended Year ended 2000 to
August 10, August 11, December 1, December 2, December 3,
2003 2002 2002 2001 2000
(Unaudited) (Unaudited)
(in thousands of dollars)
Cash provided by (used in)
Operating activities
Net income for the period ******************* $ 8,565 $ 17,221 $ 27,082 $ 25,546 $ 7,209
Add: Non-cash items
Amortization of buildings, equipment and
leasehold improvements ***************** 9,657 10,701 15,234 18,168 7,501
Amortization of franchise rights ************ 2,950 2,995 4,339 4,167 1,585
Writedown of leasehold improvements (note 9) 410 — 300 — —
Loss on sale of assets (note 8(b)) *********** 2,652 — 171 697 —
Cash provided by operations ***************** 24,234 30,917 47,126 48,578 16,295
Net change in non-cash working capital (note 15) (9,173) (7,606) (1,220) 8,285 21,423
Cash provided by operating activities ********** 15,061 23,311 45,906 56,863 37,718
Investing activities
Purchase of land, buildings and equipment****** (3,049) (7,143) (22,391) (10,601) (1,254)
Business acquisitions (note 10) *************** — — (2,473) — —
Franchise fees paid (note 8(c)) *************** (315) (351) (584) (301) —
Cash used in investing activities ************** (3,364) (7,494) (25,448) (10,902) (1,254)
Financing activities
Proceeds on sale of assets (note 8(b))********** 18,122 55 21,012 12,021 —
Net transfer of cash to priszm **************** (29,828) (15,854) (41,447) (57,981) (36,460)
Cash used in financing activities ************** (11,706) (15,799) (20,435) (45,960) (36,460)
Net change in cash ************************ (9) 18 23 1 4
Cash — Beginning of period**************** 520 497 497 496 492
Cash — End of period ********************* $ 511 $ 515 $ 520 $ 497 $ 496
The accompanying notes are an integral part of these financial statements.
F-15
KFCTM DIVISION OF PRISZM BRANDZ LP
Notes to Financial Statements
August 10, 2003, December 1, 2002 and December 2, 2001 (Information as of
August 10, 2003 and the 36 weeks ended August 10, 2003 and August 11, 2002 are unaudited)
1 Basis of presentation
The KFCTM Division of priszm brandz LP (the Division) owns and operates KFCTM restaurants in seven provinces in Canada. The Division
comprises stand-alone KFCTM restaurants, multi-brand restaurants that include a KFCTM outlet and a salad production facility. These financial
statements present the financial position, results of operations and cash flows of the Division. These financial statements have been prepared by
management of priszm brandz LP (priszm or the Partnership) for inclusion in a prospectus of Priszm Canadian Income Fund (the Fund). The
financial position, results of operations and cash flows are not necessarily indicative of the financial position, results of operations or cash flows
of the business in the future or that would have occurred had the Division been a separate legal or operating entity.
The Division operates KFCTM Restaurants under franchise agreements with Yum! Restaurants International (Canada) LP (Yum Franchise). The
Partnership was formed on July 10, 2000 by Scott’s Restaurants Inc. (Scott’s) and Yum! Brands Canada Management LP (Yum Canada) to
acquire restaurants from the two partners operating as KFCTM, Pizza HutTM and Taco BellTM. The two partners contributed a total of 649
restaurants including 507 KFCTM restaurants to the Partnership on inception of the Partnership. The fair values of each of the limited partners’
restaurant businesses was agreed to by the partners, as at July 10, 2000. The amounts assigned to the assets and liabilities of the Division as at
July 10, 2000 in these financial statements on a specific identification basis were as follows:
$
Petty cash************************************************************************************************* 492
Working capital ******************************************************************************************** 5,048
Land, building, leasehold improvements and equipment *********************************************************** 202,099
Franchise rights ******************************************************************************************** 84,371
Accrual for restaurant closure costs **************************************************************************** (1,856)
290,154
As the Division is not a legal entity, these financial statements report the equity in the business as equity in net assets. The Division is part of a
limited partnership, accordingly, no provision for income taxes is made as the income from the Partnership is taxed directly to the partners and
these financial statements do not include all of the assets, liabilities, revenue and expenses of its partners.
All assets, liabilities, revenues and expenses directly attributable to the Division have been presented in these financial statements. These
financial statements include certain assumptions and allocations of assets, liabilities, and expenses, as described below. The Partnership’s
management believes that these allocations have been made on a reasonable basis.
Cash, Debt and Interest Expense
The Partnership has a centralized treasury management system, and accordingly, no cash or credit facility balances (other than restaurant petty
cash) or any interest expense allocation for the Division have been reported in these financial statements. The security on the Partnership credit
facilities includes a first priority lien on substantially all of the property of the Division. In the event the Partnership does not achieve certain
performance targets, the Partnership may be required to increase the principal payments.
Franchise rights
Franchise rights relating to restaurants contributed to the Partnership have been allocated to the Division based on the relative fair values of the
rights related to the KFCTM restaurants contributed.
General and administrative expenses
The Partnership general and administrative expenses include services, which are not directly attributable to the Division, for human resources,
finance, area and regional management, information technology, purchasing, development, advertising administration and other general
expenses. Accordingly, all such costs have been allocated based on a percentage of sales.
2 Basis of presentation for the periods ended August 10, 2003 and August 11, 2002
The accompanying unaudited interim financial statements have been prepared in accordance with the requirements of Canadian Institute of
Chartered Accountants (CICA) Handbook Section 1751, ‘‘Interim Financial Statements’’. Accordingly, certain information and footnote
disclosure normally included in the annual financial statements of the Division, prepared in accordance with Canadian generally accepted
accounting principles have been omitted or condensed.
In the opinion of management, the interim financial statements include all adjustments (consisting of normal recurring accruals) considered
necessary by management to present a fair statement of the results of operations, financial position and cash flows. The unaudited interim
financial statements were prepared using the same accounting policies and methods as those used in the financial statements of the Division for
the year ended December 1, 2002.
F-16
KFCTM DIVISION OF PRISZM BRANDZ LP
Notes to Financial Statements — (Continued)
August 10, 2003, December 1, 2002 and December 2, 2001 (Information as of
August 10, 2003 and the 36 weeks ended August 10, 2003 and August 11, 2002 are unaudited)
3 Summary of significant accounting policies
These financial statements have been prepared in accordance with Canadian generally accepted accounting principles, and include the following
significant accounting policies:
Use of estimates
The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the
date of the financial statements and sales and expenses for the periods reported. Actual results may differ from those estimates.
Inventories
Inventories are valued at the lower of cost and net realizable value. Cost is determined on a first-in, first-out basis.
Land, buildings and equipment
Land, buildings and equipment, acquired after the formation of the Partnership, are recorded at cost of acquisition reduced to fair market value,
where cost is higher than the net recoverable amount. Effective with the fiscal year commencing on December 3, 2001, the Partnership adopted
the new provisions of the CICA Handbook Section 3063 ‘‘Impairment of Long-lived Assets.’’ Net recoverable amount is the undiscounted
projected future cash flow to be generated by the asset, net of any directly attributable carrying costs throughout its useful life, including its
residual value. On the disposal of assets, the resulting gains and losses are included in income. Repairs and maintenance that do not enhance the
service potential of the related assets are charged to expenses as incurred.
Properties under development
Properties under development consist of restaurants under construction. The cost of property under development includes direct costs associated
with the site acquisition and restaurant construction, including direct internal payroll and payroll-related costs. Only those site-specific costs
incurred subsequent to the time that the site acquisition is considered probable are capitalized. Acquisitions are considered probable upon final
site approval. If a subsequent determination is made that a site for which internal development costs have been capitalized will not be acquired
or developed, any previously capitalized internal development costs are expensed and included in general and administrative expenses.
Properties under development are recorded at the lower of cost and net realizable value, reduced for impairment losses where appropriate, and
are included in land, buildings and equipment.
Franchise rights
The cost of franchise rights are amortized on a straight-line basis over the full term of the related agreements, typically 20 years.
The carrying value of unamortized franchise rights are assessed each year by considering current operating results, trends and prospects. In the
year of impairment in value, the franchise rights will be reduced to fair value by a charge to income.
Foreign currency translation
Monetary assets and liabilities denominated in foreign currencies are translated at the exchange rate in effect at the balance sheet date and non-
monetary items are translated at historical exchange rates. Operating expenses are translated at average exchange rates prevailing during the
year. Gains or losses arising from these transactions are included in income.
Revenue recognition
Revenues from the sale of food and beverages at operating restaurants are recognized as the goods and services are delivered.
Amortization
Amortization is computed primarily on a straight-line basis, at rates sufficient to amortize the cost of the assets over their estimated useful lives:
Buildings ************************************* 10 to 20 years
Leasehold improvements ************************ initial lease term plus the first renewal period, if applicable, up to 10 years
Furnishings and equipment ********************** 3 to 10 years
Long-term incentive compensation plans
The Partnership has certain long-term incentive compensation plans, which provide benefits over a four to five-year period based on the increase
in value of the Partnership throughout that period. The benefits earned under these plans do not vest until the end of the plan term. The costs
associated with the plans are accrued as earned over the vesting periods.
F-17
KFCTM DIVISION OF PRISZM BRANDZ LP
Notes to Financial Statements — (Continued)
August 10, 2003, December 1, 2002 and December 2, 2001 (Information as of
August 10, 2003 and the 36 weeks ended August 10, 2003 and August 11, 2002 are unaudited)
Definition of fiscal year
The fiscal year-end of the Division is the same as the Partnership’s year-end, ending on the Sunday closest to November 30.
4 Fair value of financial instruments
Financial instruments that potentially subject the Division to concentrations of credit risk consist primarily of trade and other accounts
receivable. Periodic credit evaluations are performed of the financial condition of customers. Allowances are maintained for potential credit
losses consistent with the credit risk of specific customers, historical trends and other information.
The carrying amounts of cash, trade and other accounts receivable, and accounts payable and accrued liabilities approximate their fair values
because of the near-term maturity of these instruments.
5 Land, buildings and equipment
August 10, 2003
Accumulated
Cost amortization Net
(Unaudited) (Unaudited) (Unaudited)
Land ********************************************************************** $ 47,909 $ — $ 47,909
Buildings ****************************************************************** 62,576 12,804 49,772
Leasehold improvements ****************************************************** 30,592 12,644 17,948
Furnishings and equipment **************************************************** 39,007 20,060 18,947
Properties under development ************************************************** 1,160 — 1,160
$181,244 $45,508 $135,736
December 1, 2002
Accumulated
Cost amortization Net
Land ********************************************************************** $ 56,690 $ — $ 56,690
Buildings ****************************************************************** 72,198 12,418 59,780
Leasehold improvements ****************************************************** 27,981 8,474 19,507
Furnishings and equipment **************************************************** 38,164 17,173 20,991
Properties under development ************************************************** 3,242 — 3,242
$198,275 $38,065 $160,210
December 2, 2001
Accumulated
Cost amortization Net
Land ********************************************************************** $ 64,699 $ — $ 64,699
Buildings ****************************************************************** 78,850 8,692 70,158
Leasehold improvements ****************************************************** 23,905 5,413 18,492
Furnishings and equipment **************************************************** 30,166 10,918 19,248
Properties under development ************************************************** 1,007 — 1,007
$198,627 $25,023 $173,604
F-18
KFCTM DIVISION OF PRISZM BRANDZ LP
Notes to Financial Statements — (Continued)
August 10, 2003, December 1, 2002 and December 2, 2001 (Information as of
August 10, 2003 and the 36 weeks ended August 10, 2003 and August 11, 2002 are unaudited)
6 Franchise rights
Franchise rights are net of accumulated amortization of $13,041 (unaudited) as at August 10, 2003 (2002 — $10,091; 2001 — $5,752).
7 Accounts payable and accrued liabilities
Accounts payable and accrued liabilities are comprised of the following:
August 10, December 1, December 2,
2003 2002 2001
(Unaudited)
Trade accounts payable ***************************************************** $14,357 $24,991 $23,633
Royalties payable ********************************************************** 2,361 2,203 2,259
Advertising payable ******************************************************** 1,612 1,055 1,049
Payroll accrual ************************************************************ 3,290 3,082 3,243
Other accrued liabilities ***************************************************** 927 972 1,804
$22,547 $32,303 $31,988
F-19
KFCTM DIVISION OF PRISZM BRANDZ LP
Notes to Financial Statements — (Continued)
August 10, 2003, December 1, 2002 and December 2, 2001 (Information as of
August 10, 2003 and the 36 weeks ended August 10, 2003 and August 11, 2002 are unaudited)
8 Related party accounts and transactions
The Division entered into the following transactions, which were in the normal course of operations and were measured at the exchange amount,
which is the amount of consideration established and agreed to by the related parties. The terms of trade with related parties are similar to those
with other third parties.
August 10, December 1, December 2,
2003 2002 2001
(Unaudited)
Balance sheets
Royalties payable to Yum Franchise (a) *************************************** $2,361 $2,203 $2,259
Rebates receivable (e) ****************************************************** 1,146 702 665
Period from
July 10,
36 weeks ended Year ended 2000 to
August 10, August 11, December 1, December 2, December 3,
2003 2002 2002 2001 2000
(Unaudited) (Unaudited)
Statements of income
Royalties to Yum Franchise (a)******************* $19,756 $20,006 $28,979 $28,687 $11,868
Rent to Scott’s (b) ***************************** 2,969 1,075 1,714 1,091 243
Expenses incurred by Partnership for services (f) **** 227 262 420 170 69
Period from
July 10,
36 weeks ended Year ended 2000 to
August 10, August 11, December 1, December 2, December 3,
2003 2002 2002 2001 2000
(Unaudited) (Unaudited)
Other
Franchise fees paid to Yum Franchise (c) ****** $315 $351 $584 $301 $ —
(a) On July 10, 2000, the Partnership entered into a master franchise agreement with Yum Franchise, an affiliate of Yum Canada controlled
by the same ultimate parent company, dealing with the right to use certain trademarks and other intellectual properties in Canada.
Royalties are payable at a rate of 6% of eligible sales.
(b) The Division paid rents for certain leased properties to Scott’s, which is included in restaurant operating expenses.
i) On March 31, 2003, the Division entered into a sale-leaseback transaction with Scott’s for 36 properties. The properties were sold at
their fair market value, for total consideration of $18,122, resulting in a gain on sale of $3,577 on 21 properties which has been
deferred and will be amortized over the term of the related leases and a loss on sale of $2,652 on 15 properties, which is charged to
income. These properties were leased back to the Division for a term of 15 years under a net lease, wherein the Division is
responsible for all costs, charges, expenses and outlays of any nature arising from the leased properties.
Commitments under non-cancellable operating leases related to these 36 restaurants, excluding common costs such as real estate
taxes and utilities, payable to Scott’s are as follows:
$
2003 ******************************************************************************************** 1,369
2004 ******************************************************************************************** 2,054
2005 ******************************************************************************************** 2,054
2006 ******************************************************************************************** 2,054
2007 ******************************************************************************************** 2,054
Thereafter**************************************************************************************** 22,790
32,375
ii) During 2002, the Division entered into a sale-leaseback transaction with Scott’s for 29 properties (2001 — 14 properties). The
properties were sold at their fair market value, which approximated book value, for total consideration of $19,341 (2001 —
F-20
KFCTM DIVISION OF PRISZM BRANDZ LP
Notes to Financial Statements — (Continued)
August 10, 2003, December 1, 2002 and December 2, 2001 (Information as of
August 10, 2003 and the 36 weeks ended August 10, 2003 and August 11, 2002 are unaudited)
8 Related party accounts and transactions (continued)
$10,035). These properties were leased back to the Division for a term of 15 years under a net lease wherein the Division is
responsible for all costs, charges, expenses and outlays of any nature arising from the leased properties.
(c) Under the master franchise agreement with Yum Franchise, the Partnership paid fees for opening new restaurant locations, which are
included in franchise rights.
(d) Under the master franchise agreement with Yum Franchise, the Partnership is required to spend a minimum of 5% of restaurant sales on
eligible marketing initiatives.
(e) UPGC Inc. (UPGC), a cooperative, was established to act as a central procurement service. UPGC manages all the purchasing for
participating Canadian franchisees of the KFCTM, Pizza HutTM and Taco BellTM brands in Canada, but does not take title to goods delivered
to franchisees. UPGC earns a fee from suppliers for their services and generally rebates any excess over their cost of operations to
participating franchisees based on its volume of purchases. The Partnership exercises significant influence over the operations of UPGC
through its ownership of common shares and their volume of procurement.
(f) Expenses incurred by the Partnership for travel services provided by a company controlled by a shareholder of one of the partners are
included in general and administrative expenses.
9 Costs and expenses
Cost of restaurant sales, restaurant operating expenses and depreciation and amortization consisted of the following:
Period from
July 10,
36 weeks ended Year ended 2000 to
August 10, August 11, December 1, December 2, December 3,
2003 2002 2002 2001 2000
(Unaudited) (Unaudited)
Cost of restaurant sales:
Food and supplies ***************************** $123,052 $125,279 $181,112 $183,058 $ 76,012
Labour ************************************** 74,046 74,523 106,846 103,567 42,498
$197,098 $199,802 $287,958 $286,625 $118,510
Restaurant operating expenses:
Occupancy, utilities and maintenance (note 8(b)) **** $ 36,121 $ 32,620 $ 48,088 $ 46,146 $ 17,133
Advertising (note 8(d)) ************************* 17,069 17,969 25,986 26,710 11,690
Other (i) ************************************* 18,326 16,485 24,722 23,668 10,076
$ 71,516 $ 67,074 $ 98,796 $ 96,524 $ 38,899
Depreciation and amortization:
Depreciation of restaurant assets****************** $ 9,657 $ 10,701 $ 15,234 $ 18,168 $ 7,501
Amortization of franchise rights ****************** 2,950 2,995 4,339 4,167 1,585
$ 12,607 $ 13,696 $ 19,573 $ 22,335 $ 9,086
(i) Other restaurant operating expenses for the 36 weeks ended August 10, 2003 include a writedown of $410 (unaudited) (2002 — $300) to
adjust the net book value of six (unaudited) (2002 — three) restaurant leasehold improvements to their fair value due to poor current and
expected operating cash flows from these restaurants. In addition, for the 36 weeks ended August 10, 2003, the Division recorded a
provision of $901 (unaudited) in respect of the severance, lease cancellation and other cash costs of closing 7 restaurants. In the period
from the date of formation of the Partnership, July 10, 2000, the Division has closed 37 restaurants and fully utilized the July 10, 2000
liability established for such planned closures of $1,856.
10 Business acquisitions
During the year ended December 1, 2002, the Partnership acquired various businesses. The following are directly attributable to the Division:
i) On November 4, 2002, the Partnership acquired the assets, including related franchise rights, of two KFCTM restaurants and the land and
building for one of the Partnership’s existing leased KFCTM restaurants for total cash consideration of $2,039.
ii) On November 18, 2002, the Partnership acquired the assets, including related franchise rights, of one KFCTM restaurant for total cash
consideration of $436.
F-21
KFCTM DIVISION OF PRISZM BRANDZ LP
Notes to Financial Statements — (Continued)
August 10, 2003, December 1, 2002 and December 2, 2001 (Information as of
August 10, 2003 and the 36 weeks ended August 10, 2003 and August 11, 2002 are unaudited)
10 Business acquisitions (continued)
The acquisitions have been accounted for using the purchase method. The results of operations of these businesses have been included in these
financial statements commencing on their respective acquisition dates.
The net assets acquired in these acquisitions attributable to the Division are summarized as follows:
$
Net assets acquired at fair value
Cash ***************************************************************************************************** 2
Inventories/prepaids***************************************************************************************** 43
Land, buildings and equipment******************************************************************************** 967
Franchise rights ******************************************************************************************** 1,463
2,475
11 Contingent liabilities
The Partnership is subject to various claims and disputes from time to time. Management does not expect the Division to incur any material
losses with respect to such matters.
12 Commitments
The Division’s portion of the Partnership’s commitments under non-cancellable operating leases for operated restaurants and its share of
corporate facilities are noted below. Total annual minimum lease payments in the table below exclude the Division’s share of common costs,
such as real estate taxes and utilities, which cannot be determined in advance.
$
2003 ***************************************************************************************************** 16,212
2004 ***************************************************************************************************** 14,088
2005 ***************************************************************************************************** 12,254
2006 ***************************************************************************************************** 10,830
2007 ***************************************************************************************************** 10,103
Thereafter************************************************************************************************* 61,555
125,042
Included in the amounts above are the following commitments to Scott’s:
$
2003 ****************************************************************************************************** 3,420
2004 ****************************************************************************************************** 3,420
2005 ****************************************************************************************************** 3,361
2006 ****************************************************************************************************** 3,303
2007 ****************************************************************************************************** 3,344
Thereafter************************************************************************************************** 33,069
49,917
13 Benefit plans
The Division’s share of costs under the Partnership’s group registered retirement savings plan and a registered pension plan, which is a defined
contribution plan for select members was $244 (unaudited) for the 36 weeks ended August 10, 2003 (36 weeks ended August 11, 2002 — $145
(unaudited); 2002 — $243; 2001 — $301; 2000 — $162).
14 Employee severance
(a) During the period ended December 3, 2000, the Partnership recorded a charge of $3,029 representing employee severance associated with
duplication of functions and processes in the businesses contributed by Scott’s and Yum, of which $2,260 has been allocated to the
Division based on percentage of the Division’s sales to total sales of the Partnership.
(b) On January 20, 2003, the Partnership restructured certain functions and processes of its businesses resulting in a charge to income of
approximately $3,900 related to employee severance, of which $2,583 has been allocated to the Division based on a percentage of the
Division’s sales to total sales of the Partnership.
F-22
KFCTM DIVISION OF PRISZM BRANDZ LP
Notes to Financial Statements — (Continued)
August 10, 2003, December 1, 2002 and December 2, 2001 (Information as of
August 10, 2003 and the 36 weeks ended August 10, 2003 and August 11, 2002 are unaudited)
15 Supplemental disclosures of cash flow information
Net change in non-cash working capital is comprised of the following:
Period from
July 10,
36 weeks ended Year ended 2000 to
August 10, August 11, December 1, December 2, December 3,
2003 2002 2002 2001 2000
(Unaudited) (Unaudited)
Trade and other accounts receivable *************** $ (290) $(1,743) $ (82) $(1,073) $ (162)
Inventories************************************ (77) (701) (160) 51 (388)
Prepaid expenses******************************* (137) (221) (380) 37 (408)
Other assets*********************************** 926 (875) (947) — —
Accounts payable and accrued liabilities *********** (9,595) (4,066) 349 9,270 22,381
$(9,173) $(7,606) $(1,220) $ 8,285 $21,423
16 Segmented information
For financial reporting purposes, management believes the Division to be in one business segment as its various restaurant operations have
similar economic and business characteristics. These financial statements include the results attributable to KFCTM multi-brand restaurants,
which are KFCTM restaurants with another concept including Pizza HutTM and/or Taco BellTM. These financial statements include results of all
multi-brand restaurants provided a KFCTM concept was introduced prior to August 10, 2003.
17 Subsequent event
On October 31, 2003 the Fund filed a prospectus for an offering of units. On the closing of its public issuance of units (the Offering), the Fund
will use the gross proceeds thereof to indirectly acquire units in the KIT Limited Partnership (KIT LP). KIT LP will then pay the fees and costs
of the Offering and will use the net proceeds thereof to acquire substantially all of the restaurants of the Division from the Partnership.
Immediately prior to the Offering, the Partnership will be reorganized such that substantially all of its assets will consist of the restaurants of the
Division and the holder of all of the Partnership’s interests will be Scott’s.
F-23
CERTIFICATE OF THE FUND AND THE PROMOTER
Date: October 31, 2003
The foregoing constitutes full, true and plain disclosure of all material facts relating to the securities offered by
this prospectus as required by Part 9 of the Securities Act (British Columbia), by Part 9 of the Securities Act (Alberta),
by Part XI of The Securities Act, 1988 (Saskatchewan), by Part VII of The Securities Act (Manitoba), by Part XV of the
Securities Act (Ontario), by Section 13 of the Security Frauds Prevention Act (New Brunswick), by Section 63 of the
Securities Act (Nova Scotia), by Part II of the Securities Act (Prince Edward Island), by Part XIV of the Securities Act
(Newfoundland and Labrador), by the Securities Act (Yukon), by the Securities Act (Northwest Territories) and by the
Securities Act (Nunavut) and the respective regulations under those acts. This prospectus, as required by the Securities
e
Act (Qu´ bec) and the regulations under that act, does not contain any misrepresentation that is likely to affect the value
or the market price of the securities to the distributed.
PRISZM CANADIAN INCOME FUND
by its attorney
KIT Inc.
By: (signed) JOHN I. BITOVE By: (signed) PETER WALKEY
Chairman and Chief Executive Officer Chief Financial Officer
By: (signed) LILLY DI MASSIMO By: (signed) ALBERT GNAT
Director Director
On behalf of the Promoter, priszm brandz LP,
by its general partner priszm brandz Inc.
By: (signed) JOHN I. BITOVE
Director
C-1
CERTIFICATE OF THE UNDERWRITERS
Date: October 31, 2003
To the best of our knowledge, information and belief, the foregoing constitutes full, true and plain disclosure of all
material facts relating to the securities offered by this prospectus as required by Part 9 of the Securities Act (British
Columbia), by Part 9 of the Securities Act (Alberta), by Part XI of The Securities Act, 1988 (Saskatchewan), by Part VII
of The Securities Act (Manitoba), by Part XV of the Securities Act (Ontario), by Section 13 of the Security Frauds
Prevention Act (New Brunswick), by Section 64 of the Securities Act (Nova Scotia), by Part II of the Securities Act
(Prince Edward Island), by Part XIV of the Securities Act (Newfoundland and Labrador), by the Securities Act
(Yukon), by the Securities Act (Northwest Territories) and by the Securities Act (Nunavut) and the respective
e
regulations under those acts. To our knowledge, this prospectus, as required by the Securities Act (Qu´ bec) and the
regulations under that act, does not contain any misrepresentation that is likely to affect the value or the market price of
the securities to be distributed.
CIBC WORLD MARKETS INC. RBC DOMINION SECURITIES INC.
By: (signed) PHIL EVERSHED By: (signed) WILLIAM WONG
BMO NESBITT BURNS INC.
By: (signed) HAROLD M. WOLKIN
NATIONAL BANK FINANCIAL INC. TD SECURITIES INC.
By: (signed) PETER JELLEY By: (signed) PETER GIACOMELLI
C-2
