WINNIPEG – October 13, 2020 – Empire Industries Ltd. (TSX-V: EIL, OTC:ERILF) (“Empire”, “EIL” or the “Company”) is pleased to announce that it has completed the internal reorganization (the “Reorganization”) and the private placement by its subsidiary (the “Private Placement” and together with the Reorganization, the “Transactions”) described in its news release of October 8, 2020.
Guy Nelson, CEO of Empire commented, “I am delighted that we have successfully created a company dedicated to continue our rich tradition of innovation through our development activities which have been and will continue to focus on creating proprietary technologies that are leverageable in the marketplace. These developmental activities are expected to continue to drive revenue in the ride and the non-ride business. The potential customers that DSL will appeal to, will be seeking to add value to their business by engaging DSL’s world class development engineers. Empire’s right to repurchase the DSL shares sold to the Investors and the Investors’ right to exchange the DSL shares being purchased into Empire common shares are important features built into the financing because it positions Empire to be able to reacquire the DSL shares sold to the Investors for CDN$5 million at a capped price per share after three years.”
The Reorganization has created a new research and development subsidiary named Dynamic Structures Ltd. (“DSL”). Pursuant to the Reorganization, Dynamic Attractions Ltd (“DAL”), Empire’s wholly owned ride manufacturing subsidiary transferred: (i) the employment of a sub-set of highly skilled development engineers (the “R&D Employees”) to DSL; and (ii) certain intangible property consisting of all the knowledge and experience of the R&D Employees used in the engineering design business including all trade secrets, technical, scientific and other knowledge, skills and ideas (the “Know-How”), the Dynamic Structures website (the “Other Intangible Property”) and goodwill associated with the Know-How and Other Intangible Property valued at CDN$5 million.
DSL’s operations in the short-term will be funded by the proceeds of the Private Placement that closed immediately following the completion of the Reorganization. New investors (the “Investors”) purchased Class C Shares in the capital of DSL for aggregate gross proceeds of CDN$5 million giving the Investors 50% ownership of DSL and effectively dilute Empire’s ownership of DSL to 50%. CDN$3 million of the Private Placement was funded in Renminbi (“RMB”) and an arm’s-length third party finder was paid a cash finder’s fee equal to 7% of the RMB.
Empire and the Investors have entered into a Shareholder Agreement governing the operation of DSL. The Shareholder Agreement provides Empire and/or DSL the right to call the Investor’s Class C Shares for an aggregate price of CDN$5 million plus 12% per annum after 3 years. Subject to the approval of the TSX Venture Exchange as such time, the Shareholder Agreement provides the Investors the following rights: (i) to put the Investors’ Class C Shares to DSL for an aggregate price of CDN$5 million plus 9% per annum after 3 years; (ii) to require Empire to exchange the Class C Shares for common shares of the Issuer (“Common Shares”) at the Discounted Market Price after 3 years; and (iii) in the event that Empire completes a private placement in the future, the Investors have the right to exchange the Class C Shares and accrued dividends for Common Shares at the price per Common Share that such future private placement is completed.
DSL will continue to be responsible for R&D of ride systems for DAL as well as applications outside of the ride industry. DSL will sell development engineering services to DAL pursuant to an Engineering Services Agreement. DSL will also provide development engineering services to third party customers outside of the ride business. DSL will also have the ability to serve non-ride business customers and to develop and own newly created proprietary intellectual property (“IP”), which it can license. DAL has the exclusive right to license any ride business technologies developed by DSL. DAL will continue to employ all of its highly skilled product engineers, key to its product applicable, manufacturing, installation and commissioning services.
Empire and DAL will handle DSL’s corporate and administrative functions including, but not limited to, accounting, tax, human resources, legal, information technology, sales and marketing and all executive level managerial, supervisory and consulting functions pursuant to the terms of a Management Services Agreement.
MI 61-101 Disclosure
James Chui is a Director of Empire and also owns or controls 18.43% of the issued and outstanding shares of the Company and as such his participation in the Transactions, specifically as one of the Investors in the Private Placement, is a “related party transaction” within the meaning of TSX Venture Exchange Policy 5.9 and Multilateral Instrument 61-101. The Company relied upon on an exemption from the formal valuation and minority approval provisions of Multilateral Instrument 61-101 pursuant to sections 5.5(a) and 5.7(a) on the basis that the aggregate fair market value of the Private Placement, insofar as the interested party is involved, did not exceed 25% of the market capitalization of the Company. A material change report was filed less than 21 days before the closing date of the Transactions. The Company considered the shorter period to be reasonable and necessary in the circumstances to allow the Company to close the transaction as soon as possible for sound business reasons, including the difficulties with raising capital during the Covid-19 pandemic.
About Empire Industries Ltd.
Empire focuses on designing, supplying, and installing iconic media-based attractions and ride systems for the global theme park industry. Empire also uses these same turn-key integration services for special projects such as large optical telescopes and enclosures. Empire also has commenced an initiative to leverage its world class flying theater and attraction development capability on a co-venture ownership basis. Empire was selected as a 2020 TSX Venture 50 company. The 2020 TSX Venture 50 is a ranking of top performers on the TSX Venture Exchange over the past year. The ranking is comprised of 10 companies from each of 5 industry sectors, with Empire being selected in the Diversified Industry category. Selection was based on three equally weighted criteria; share price, trading and market capitalization. Empire’s common shares are listed on the TSX Venture Exchange under the symbol EIL.
For more information about the Company, visit empind.com or contact:
Guy Nelson
Chief Executive Officer
Phone: (416) 366-7977
Email: gnelson@empind.com
Allan Francis
Vice President – Corporate Affairs and Administration
Phone: (204) 589-9301
Email: afrancis@empind.com
Reader Advisory
This news release contains forward-looking statements, within the meaning of applicable securities legislation, concerning Empire’s business and affairs. In certain cases, forward-looking statements can be identified by the use of words such as ‘‘plans’’, ‘‘expects’’ or ‘‘does not expect’’, ‘‘budget’’, “booked”, ‘‘scheduled’’, “positions”, ‘‘estimates’’, “forecasts’’, ‘‘intends’’, ‘‘anticipates’’, “believes” or variations of such words and phrases or state that certain actions, events or results ‘‘may’’, “may be”, ‘‘could’’, “should”, ‘‘would’’, ‘‘might’’ or ‘‘will’’, ‘‘occur’’ or ‘‘be achieved’’. Such statements include statements with respect to: (i) the Company’s financial ability to reacquire the DSL shares being sold today for an aggregate price as low as CDN$6.35 million and capped at a high of CDN$6.8 million after three years; and (ii) the ability of the Company to obtain approval by the TSX Venture Exchange upon the future exercise of the rights contained in the Shareholder Agreement by the Company or the Investors. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. Although Empire believes these statements to be reasonable, no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this news release should not be unduly relied upon. Actual results could differ materially from those anticipated in these forward-looking statements as a result of prevailing economic conditions, and other factors, many of which are beyond the control of Empire. The forward-looking statements contained in this news release represent Empire’s expectations as of the date hereof, and are subject to change after such date. Empire disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as may be required by applicable securities regulations.
Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.