Artaflex to Acquire US-based EMS Provider MTI International and to Receive a $15.3M Financing Package from Kilmer Capital Partners

TORONTO, ONTARIO--(Marketwire - July 17, 2012) - Artaflex Inc. (TSX VENTURE:ATF) ("Artaflex"), a specialist at delivering integrated product solutions and support to the global technology and electronics industry, announced today that it entered into a definitive agreement (the "Acquisition Agreement") to acquire MTI International, Inc. ("MTI") pursuant to a plan of merger under Delaware laws with an indirect wholly-owned subsidiary of Artaflex (the "Acquisition").

Located in Milwaukee, Wisconsin and founded in 1975, MTI, much like Artaflex, operates in the electronics manufacturing services (EMS) industry and specializes as a full service provider of high value, complex, low to medium volume assemblies including printed circuit boards, final box build and system integration and to a lesser extent thick film hybrid circuits manufacturing. MTI focuses on delivering these services to four under penetrated markets: defense / aerospace, industrial, medical and automotive which are characterized by having high barriers to entry.

Pursuant to the terms of the Acquisition Agreement, Artaflex has agreed to pay the shareholders and other security holders of MTI a cash purchase price of up to US $12,750,000 plus cash held by MTI as of the closing date less excluded liabilities and subject to certain closing working capital adjustments.

"We are extremely pleased to begin our expansion into the US with the acquisition of MTI. Their focus on manufacturing high mix, high reliability products in segments such as defence, aerospace and medical, as well as being centrally located in Milwaukee were key factors in our decision making process" says Paul Walker, CEO of Artaflex. "Our management team at Artaflex has had significant experience acquiring and growing operations in the US over the past 20 years, and with MTI as a base, we will be able to leverage that combined knowledge again".

Greg Martinek, President of MTI said "We are thrilled to join forces with Artaflex and serve as their gateway to the US marketplace. I've known Paul for several years and have been very impressed with what he has accomplished in the EMS industry". He added, "the similarities between our two organizations are amazing from our customer-centric cultures to business doctrines to our focus on high reliability products. Artaflex is an excellent fit for MTI". Southwest Securities Inc. of Dallas, Texas, acted as financial advisors to MTI in connection with the acquisition.

Artaflex also announced that it has entered into letters of intent with Kilmer Capital Partners Limited in respect of the proposed issuance to Kilmer Capital Fund II L.P. (together with its affiliates, "Kilmer") of a Cdn. $10,300,000 secured convertible debenture (the "Debenture") as well as the proposed issuance of a Cdn. $5,000,000 secured promissory note (the "Promissory Note"). The net proceeds of the Debenture and the Promissory Note will be used to fund the Acquisition and related expenses.

Anthony Sigel, President and Managing Partner of Kilmer Capital Partners Limited comments: "This is a particularly exciting new opportunity for us. Not only do we see this as a great starting point for Artaflex in executing its US expansion, but on an overall level this gives us the chance to partner with Paul Walker and Phil Woodard for a second time. During the 1990's we worked side by side with Paul and Phil building SMTC into an internationally recognized EMS Player. We're really looking forward to this opportunity to support them once again in their efforts to build a successful Canadian electronics company".

Pursuant to the letter of intent, the Debenture is to mature on the date that is four (4) years from the date of issue and is to bear interest of 12% per annum, calculated and compounded annually. Interest is to accrue during the two (2) years following the date of issue and is to be paid in cash monthly in arrears thereafter. All accrued and unpaid interest would be fully due and payable in cash upon the earlier of (i) maturity, (ii) date of conversion, (iii) event of default or (iv) a liquidity event.

The Debenture is to be convertible at the option of the holder into common shares of Artaflex at any time after July 31, 2014 but earlier in the event of default or upon a liquidity event. Furthermore, the Debenture is to provide Artaflex with the ability to force conversion if the company surpasses certain financial targets in respect of the 12-month period ended January 31, 2015. Upon conversion of the Debenture, the initial principal amount of $10,300,000 would be convertible into common shares of Artaflex and all accrued and unpaid interest would become payable. The final conversion ratio will be determined at the time of conversion and based upon Artaflex achieving certain financial milestones. The final conversion price will not be less than the Market Price (as defined under the policies of the TSX Venture Exchange) being $0.35, subject to adjustment in certain events. Following a conversion, Kilmer could own between 20% and 45% of the issued and outstanding shares of Artaflex on a fully diluted basis which would make it a "control person" of Artaflex pursuant to the policies of the TSX Venture Exchange. Kilmer currently does not own any securities of either Artaflex or MTI. The Debenture and any common shares issued on conversion of the Debenture within four months from the date of issue of the Debenture are subject to a four month hold period.

Pursuant to the letter of intent, the Promissory Note is to mature on the date that is ten (10) months from the date of issue and bear interest at the rate of: (i) 12% during the first four (4) month period following the date of issue; (ii) 18% during the subsequent five (5) month period; and (iii) 22% plus the applicable default rate premium (2% per annum) during any period thereafter. Interest is to be calculated and compounded annually and paid in cash monthly in arrears.

Both the Debenture and the Promissory Note are to be secured against all current and after-acquired property and assets of Artaflex and its material subsidiaries (including MTI).

As a condition to the issuance of the Debenture and the Promissory Note to Kilmer, Artaflex and shareholders of Artaflex holding not less than 75% of the outstanding voting securities of Artaflex (being Artaflex Holdings Inc.) propose to enter into a stakeholders agreement with Kilmer containing, among other things, customary restrictions on transfer, restrictive covenants as well as pre-emptive and liquidity rights. Furthermore, the stakeholders agreement is to provide that one or more nominees of Kilmer shall be appointed to the board of directors of Artaflex.

The Acquisition and the issuance of the Debenture and Promissory Note is expected to close on or about August 1, 2012. The Acquisition is subject to TSX Venture Exchange acceptance and receipt of certain third party consents, including from the senior lender of Artaflex. The issuance of the Debenture and the Promissory Note is subject to TSX Venture Exchange acceptance, shareholder approval, the entering into of definitive documentation and the receipt of third party consents, including from the senior lender of Artaflex, among other conditions.

About Artaflex:

Artaflex is a specialist at delivering integrated product solutions and support to the global technology and electronics industry. As a leading global provider of complete Electronics Manufacturing Services (EMS), Artaflex offers world class manufacturing facilities and global partners throughout Canada, the United States, Israel and China, allowing Artaflex to provide its customers the flexibility and scalability to competitively achieve total solutions to their present and future electronics outsourcing needs. Visit Artaflex at: www.artaflex.com.

About MTI:

MTI International, Inc. is a leading provider of electronic manufacturing services to aerospace, defense, medical, industrial, and automotive companies. It provides end-to-end manufacturing solutions from new product introduction through box-build product manufacturing while providing flexibility and support to its customers' operations.

About Kilmer:

Kilmer Capital Partners is a leader in making private equity investments in small to mid-sized Canadian businesses undergoing periods of rapid growth, significant change or ownership transition. Our team has a long history of partnering with entrepreneurs and executives with vision. We have built a successful track record backing Canada's strongest business leaders to effect plans that transform their businesses from entrepreneurially-run, small to mid-sized Canadian companies, to professionally run national and international success stories. Our capital is provided by both leading Canadian institutional investors and Kilmer Van Nostrand Co. Limited, the sponsor of our Fund, with management of over $1 billion in assets with a focus on private equity, infrastructure, brownfield, sports and media.

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