Empire Industries announces Private Placement and creation of a 51% controlled Chinese Joint Venture Company

WINNIPEG, May 15, 2013 – Empire Industries Ltd. (“Empire” or the “Company“) (TSX-V: EIL) today announced that it intends to complete a non-brokered private placement of units and a convertible debenture (the “Private Placement”) to Canada Zhoufa Agricultural Holding Company Limited (“Canada Zhoufa”), a subsidiary of Zhejiang ZF Investment Co. Ltd. (“ZZG”) of China, and enter into a joint venture with ZZG. The Company anticipates closing the Private Placement and joint venture capitalization identified below early in the second quarter, subject to usual closing conditions including obtaining required regulatory approvals. It is expected that the two Credit Facilities identified below will require more time to complete, and close later.

Unit Private Placement:  The Company will issue up to 60,000,000 Units at a price of $0.05 per Unit for gross proceeds of up to $3,000,000 with each Unit consisting of one common share and one-half of one warrant.  Each whole warrant will entitle the holder to purchase one additional common share at a price of $0.05 per share on or before the date that is one (1) year from the closing, and thereafter at an exercise price of $0.10 per share on or before the date that is five (5) years from the closing.  Canada Zhoufa has subscribed for 50,400,000 Units for gross proceeds of up to $2,520,000.  Insiders of the Company will also be subscribing for up to 9,600,000 Units for gross proceeds of up to $480,000 or approximately 16% of the private placement. All securities issued pursuant to the Private Placement will be subject to a four month hold pursuant to applicable securities legislation.

Convertible Debenture Private Placement – Canada Zhoufa has also subscribed for a $2.0 million convertible debenture from Empire.  The convertible debenture will bear interest at the rate of 7% per annum, have a term of 4 years and be convertible at $0.10 per share any time until maturity.

Credit Facility for Empire – The parties intend that Empire will seek a $3MM loan on a secured, subordinate and postponed basis.  If the loan is obtained from a certain Chinese financial institution, ZZG intends to provide a guarantee of Empire’s obligations thereunder, subject to execution of definitive documents and completion of due diligence.

Joint Venture – Empire and ZZG have also agreed to enter into a joint venture agreement whereby a new company will be incorporated in China that will be owned 51% by Empire and 49% by ZZG.  The jointly owned company, will be capitalized initially with $2.0 million from Empire and $1.9 million from ZZG. The joint venture’s business will include the exclusive licensing of Empire’s intellectual property in China, including the design and manufacturing of Empire’s products, and oversight and licensing of manufacturing operations to produce and supply its proprietary entertainment attractions and the licensing of its industrial products to selected manufacturers in the Zhoushan Archipelego New Area, just south of Shanghai. Both Empire and ZZG executed a Framework for Cooperation Agreement with the City of Zhoushan on March 5th, 2013 that laid out a long term plan to significantly enhance the tourism industry by leveraging Empire’s unique intellectual property and industrial manufacturing competency. The City of Zhoushan has been approved by China State Council as the fourth New Area economic zone after Shanghai Pudong District, Tianjin Binhai District, and Chongqing Liangjiang District and as a consequence is undertaking diversification initiatives such as the Framework for Cooperation Agreement just entered into with Empire and ZZG.

Credit Facility for the Joint Venture– ZZG intends to guarantee an operating loan facility to support the working capital requirements needed to fund the growth of the new joint venture on reasonable commercial terms. This credit facility is important to Empire because a significant portion of Empire’s exports are to China and financing growing working capital requirements has been constrained. This guarantee and the conditions it will be subject to will need to be mutually agreed among the Joint Venture, it’s senior creditors and ZZG.

A finder’s fee of $350,000 cash will be paid to an arm’s length third party for helping to identify and arrange the financing identified in this press release. It will be a condition of the convertible debenture and the exercise of the warrants that conversion or exercise by Canada Zhoufa can only take place to a cap of 19.9% of the issued and outstanding shares of Empire.  Conversion or exercise to obtain more than 19.9% is subject to the prior approval of the TSX Venture Exchange and the shareholders of Empire.

“I am very pleased to announce this multi-faceted, strategic alliance with ZZG, establishing Empire’s launching pad for Asia, in the City of Zhoushan, China,” said Guy Nelson, CEO of Empire Industries. “We have invested heavily in expanding and enhancing our proprietary intellectual property and this strategic alliance validates how valuable and exciting a future its deployment in Asia can be. The guarantees will allow Empire to pursue senior credit facilities in Canada and China to  help grow its business in these two markets.  This in turn will strengthen Empire’s balance sheet, allowing us to pursue our growth strategy with confidence, focus and aggressiveness.”

Zhejiang ZF Investment Co., Ltd. (ZZG)

Mr. Junliang Xie is the founder and Chairman of ZZG, a personal holding company with private equity investments in over ten independently operated industrial and service companies, predominately in China. Mr. Xie was in the first class of the Private Equity Investment Program offered by Peking University. Mr. Xie holds an Executive MBA degree from Zhejiang University. Mr.Xie is a director of three private equity funds in China; Zhoushan Rongsheng Investment Co., Ltd., Zhoushan Marine Economy Venture Capital Co., Ltd. and Beijing Qianzhou Qingyuan Investment Fund Management Co., Ltd. He is also the Managing Director of a recently created, RMB ¥5 billion (USD $800 million) private equity fund called the Zhoushan Restructuring Private Equity Fund, whose purpose is to invest for financial returns and improve Zhoushan industries’ global competitiveness.