consolidate its capital on a 2:1
60% of CD manufacturing business to be acquired
Markatech Industries Corporation MKD
Shares issued 8,327,149 Apr 8 close $0.15
Wed 8 Apr 98 News Release
Mr Douglas McLean reports
The company has reached an agreement for the proposed acquisition of 80% of
the common voting shares of CDI Manufacturing Inc, a recently incorporated
BC company that will be in the business of manufacturing and replicating
pre-recorded formats including CD-Audio, CD-ROM and CD-Video. CDI will use
state-of-the-art optical disc manufacturing equipment which will perform
the desired digital formatting (stamper making), high speed replication,
printing, packaging and quality control tasks. CDI's management team has
been and continues to be engaged in many aspects of this industry and
operations will mature rapidly, given the prior experience and existing
industry contacts of the principals.
The company's proposed purchase of 60% of CDI will be in consideration of
750,000 escrowed shares of the company plus a 4% royalty payable on gross
sales of CDI. All escrowed shares shall be released from escrow on the
proposed basis of two shares for every $0.60 of net after-tax cumulative
cash flow from operations. The company has also been granted the right of
first refusal to acquire the remaining 40% of CDI on an independently
evaluated basis to be determined by third party business evaluators.
CDI will offer an initial bond to private investors using exemptions
available in BC to raise up to $500,000 to provide for the purchase of
certain equipment, marketing capital and inventories. The bond will bear
interest at 12% per year, payable semi-annually. Bondholders will also be
entitled to a bonus interest payment to be calculated as 5% of the gross
sales of CDI.
The company has agreed that each of the bondholders may have the right to
convert all or part of the face value of their investment in the bond to
shares of the company after one year from purchasing the bond. When the
bondholders convert their bonds into shares, the company will secure, by
assignment, all security agreements and registered charges over the assets
of CDI in such manner as is identical to that held by the bondholders prior
to conversion. A purchase of the bond will qualify for RRSP eligibility.
The company also proposes to consolidate its capital on a 2:1 basis
coincident with this acquisition.
The company and CDI have entered into an agreement to form an alliance with
a Los Angeles, California based compact disc manufacturing company with
many years of experience in the compact disc business. The agreement
provides for the US company to lease certain compact disc production
equipment on a production-drive lease/purchase agreement valued at
approximately $500,000 to the company. The company will sub-lease the
equipment to CDI in consideration of CDI assuming the company's obligations
pursuant to the lease. Furthermore, the US company will provide compact
disc mastering services to CDI on a preferentially priced basis, thereby
enhancing CDI's price competitiveness.
Pursuant to the equipment sub-lease, CDI has agreed to pay, as lease
payments, a revenue production payment subject to the following minimum
guarantees for four years:
Year 11.5 million discs, or $ 75,000
Year 22.5 million discs, or $125,000
Year 33.5 million discs, or $175,000
Year 44.5 million discs, or $220,000
In addition, CDI will pay a revenue production payment to the US company
after payment of the minimum guarantees noted above, for four years, to a
maximum of $1 00,000 per year.
The company has also arranged a convertible debenture of $345,000 which
will be used to provide for the initial down payment on the lease as to
$75,000, to provide for additional Autonet product development and to
provide for continuing working capital. The debenture is convertible at
$0.30 per post-consolidated share and provides for a warrant exercisable at
$0.30 and $0.35 respectively, in years one and two. All shares issued
pursuant to this debenture shall be post-consolidated.
The company will also pay a bonus and guarantee fee as to 20% each to the
debenture holders and guarantor respectively. The fee will be $135,000 and
will be payable in post-consolidated shares or 450,000 post-consolidated
free trading shares.
The company has settled employee and directors share purchase options of
500,000 shares at a post-consolidated price of $0.30 per share.
The company will file a corporate business plan, share purchase agreement
and related documents in respect of this acquisition.
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