Empire Industries Creates and Funds New R&D Subsidiary
October 13 2020 - 2:05PM
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 |
Allan Francis |
Chief
Executive Officer |
Vice
President – Corporate Affairs and Administration |
Phone:
(416) 366-7977 |
Phone:
(204) 589-9301 |
Email:
gnelson@empind.com |
Email:
afrancis@empind.com |
Reader AdvisoryThis 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.
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