Elephant & Castle Group Inc. Announces Litigation Settled and Balance Sheet Strengthened

Business Wire, Oct 26, 1999

VANCOUVER, British Columbia--(BUSINESS WIRE)--Oct. 26, 1999--

Elephant & Castle Group Inc. (Nasdaq:PUBSF) (PCX:PUB) announced today that it had:

-- Resolved its long outstanding litigation with Shilo Inns of

Portland, Ore.

-- Negotiated conversion of certain convertible notes into shares of

the company's Common Stock

-- Substantially resolved its outstanding tax case with Revenue

Canada

-- Executed a Security Agreement with GEIPPP II under terms

previously announced.

-- Successfully concluded its 1999 Annual General Meeting following

settlement with a shareholder group.

-- Elected its present Chief Executive Officer, Richard Bryant, as

President of the Company

Bryant stated, "Today marks a watershed for the Company. The agreements reached will strengthen the Company's balance sheet, reduce its interest costs, bring certainty and closure to some very threatening past issues and allow management to focus on building the Company's brands and its profitability." He added, "I appreciate the responsibilities I am undertaking and I hope and expect to be a part of a significant turnaround in the fortunes of the Group."

AGM Concluded

The Company's adjourned AGM was concluded on Friday, 22 October. All of the management nominees were elected to serve an additional term of one year until the next AGM. A bid by a shareholder group for certain changes in the Board structure was resolved by settlement with such shareholder group pursuant to which, after the meeting, David Matheson and William McEwen are expected to be added to the Board of Directors. Matheson is a Chartered Accountant and is Executive Vice-President and a Director of a Toronto Stock Exchange-listed public Canadian oil and gas company. McEwen is an independent entrepreneur and was previously a director of the Company for the period from 1993 to Aug. 24, 1999. Richard Bryant was elected President of the Company immediately following the AGM. Bryant was formerly Chief Financial Officer of the Company and has been serving as Chief Executive Officer since Aug. 2, 1999.

Shilo Inns Settlement

Bryant announced that the Company had resolved its longstanding litigation with Shilo Inns of Portland, Ore. The dispute revolved around two hotel restaurants the Company operated in Shilo Inn Facilities which were closed in 1995. The Company settled the case for a US$300,000 cash payment, US$100,000 in deferred payments and 150,000 shares of the Company's Common Stock. The Shilo settlement will result in a charge against earnings of approximately C$775,000 in the current quarter. Bryant stated that the litigation had been lengthy and very expensive, and he believed settlement was a far better course than continued costly litigation.

Conversion of Convertible Notes

Bryant also announced that the Company had made an arrangement with certain noteholders, pursuant to which such noteholders are converting a portion of their notes into the Company's Common Stock at a conversion price of US$1.00. He stated that this conversion will increase the Company's equity by approximately C$2.4MM and reduce its annual interest expense by in excess of C$350,000. Bryant said, "This arrangement is a very attractive one to both sides. The noteholders found the opportunity to convert a portion of their notes into equity at $1.00 per share was an attractive one for them, while on the Company's part, it is a very significant step in the path to stability and return to profitability."

Tax Dispute Substantially Resolved

A portion of a tax dispute that arose in 1989 has been resolved in the Company's favour. A recent court ruling on a similar case may impact the remainder of the disputed tax and the Company now estimates that the dispute can be fully resolved for C$125,000. The dispute has been carried by the Company as a contingent liability of C$785,000. Bryant observed that while he was still optimistic that liability could be avoided, he was very pleased that the amount in dispute was now of much more modest proportions.

Execution of Security Agreement

A security agreement between the Company and GEIPPP II has been executed on the terms previously announced. This agreement, to grant security over substantially all of the Company's assets, was in exchange for a waiver of six months' interest, waiver of existing defaults and relaxation of certain financial covenants. Bryant said, "Critically, we have maintained our long-standing cooperative relationship with GEIPPPII. GEIPPPII is participating in the conversion of the subordinated Notes, and we have reason to believe, will be supportive of the Company's future efforts to build its brand identities."

Elephant & Castle(R) Group Inc. is the largest operator of authentic British-style pubs with 20 locations throughout North America. In addition, the company owns and operates the Southwestern-theme restaurant concept called Alamo Grill(TM), currently located at the mall of America in Bloomington, Minn., and Franklin Mills Mall in Philadelphia, Pa. These two brands are franchised throughout the United States and Canada. Elephant & Castle Group Inc. also has a joint venture agreement with Rainforest Cafe Inc. (Nasdaq:RAIN) to develop, own and operate the Rainforest Cafe restaurant and retail facilities in Canada.