Rainmaker Entertainment Inc.
TSX VENTURE : RNK

Rainmaker Entertainment Inc.

October 25, 2016 17:13 ET

Rainmaker Entertainment Announces Agreement for a Transformative Transaction with Frederator Networks and Ezrin Hirsh Entertainment

And an $11 million Underwritten Private Placement and a Proposed Corporate Reorganization to Create WOW! Unlimited Media Inc.

Combination creates a next generation kids & animation business with a focus on digital platforms and content under a new leadership team

VANCOUVER, BRITISH COLUMBIA--(Marketwired - Oct. 25, 2016) -

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES

  • Michael Hirsh, award winning animation executive, former Executive Chairman of DHX Media and co-founder of Nelvana Limited and Cookie Jar Entertainment to lead the company as CEO and Chairman of the Board

  • Fred Seibert, founder of Frederator Networks and an animation industry leader and pioneer to join the company as Chief Creative Officer

  • Frederator Networks is the world's #1 digital animation network with over 450 million monthly views, 30 million subscribers, 2,800 channels and numerous relationships in the digital distribution segment including Netflix, Amazon and the Chernin Group

  • Combination is expected to provide immediate benefits and synergies with opportunities for co-production, access to top talent and IP as well as a broad digital audience base

  • All of Rainmaker's $13.5 million convertible debentures to be eliminated with $11.6 million to be converted into equity and the remaining $1.9 million to be redeemed

  • Michael Hirsh, other incoming insiders and existing shareholders are anticipated to subscribe for approximately $6.0 million of the Offering

Rainmaker Entertainment Inc. ("Rainmaker" or the "Company") (TSX VENTURE:RNK) today announced that it has, through certain of its subsidiaries, entered into an arm's-length merger agreement with Broadway Frederator Networks Inc., Frederator Allied Media, Inc. and Fred Seibert, collectively doing business as "Frederator Networks" (collectively, "Frederator"), at an implied enterprise value of approximately $17.0 million to be paid by: (i) the issuance of 83 million common shares of Rainmaker, subject to adjustment, at a deemed issue price of $0.20 per share; and (ii) the grant of options to certain employees of Frederator with an aggregate value of $0.4 million. Rainmaker has also agreed to concurrently acquire, pursuant to an arm's-length share purchase agreement, Ezrin Hirsh Entertainment Inc. ("EH") at an implied enterprise value of approximately $5.2 million to be paid by the issuance of 26 million common shares of Rainmaker at a deemed issue price of $0.20 per share (collectively, with the Frederator merger, the "Transaction"). Following the completion of the Transaction, the Company intends to change its name to WOW! Unlimited Media Inc. ("WOW!"), reconstitute its board of directors, implement a 10:1 share consolidation (the "Consolidation") and reorganize its capital structure to meet Broadcasting Act (Canada) requirements regarding Canadian control. The Transaction is a transformational event for the Company and will combine its existing animation infrastructure with the world's largest animation multi-channel network and an industry leading management team.

Frederator, launched in 2012 and headquartered in New York, manages the Channel Frederator Network, the world's largest digital animation-only multi-channel network on YouTube. From December 2014 to June 2016, Frederator has grown from 109 million monthly views to 450 million monthly views. Fred Seibert, founder and CEO of Frederator will become the Chief Creative Officer at WOW! and will continue to focus on building the YouTube platform and other upcoming platforms, as well as top end content creation. Mr. Seibert, who will become the largest shareholder in WOW!, stated: "Frederator's goal of pursuing world class talent will be increased exponentially by creating WOW! Unlimited with Michael Hirsh and his team, and Rainmaker Entertainment. The vertical integration will facilitate discovery of new digital filmmakers, leveling them up to produce premium, global programming, while simultaneously growing digital platforms with both advertising and subscription support."

Michael Hirsh, the largest shareholder of EH and the incoming CEO and Chairman commented on the business combination: "WOW! Unlimited is combining Frederator, the world's leading digital animation network, Rainmaker, a leading and innovative animation production platform with the management team from Ezrin Hirsh including Bob Ezrin, Neil Chakravarti, and Christian Davin, all superstars in their own right. Through partnerships with great media and telecom companies around the world, we will build the definitive next generation global kids and youth company."

Craig Graham, the current Chairman and CEO of Rainmaker commented on the combination: "I appreciate the efforts and cooperation of the Rainmaker bondholders, shareholders, and management in consummating this transformational transaction. We have worked hard at Rainmaker to build a great animation studio with the support of our clients, and we welcome the Frederator and Ezrin Hirsh teams to work together with us as we grow to the next level."

Transaction Highlights

  1. Business combination creates a North-American pure-play kids and youth entertainment company poised to capitalize on favourable industry trends. The combination of Frederator and Rainmaker partners the world's #1 digital animation network with a fully integrated animation studio. The combined business will focus on leveraging Frederator's established audience and creator base as well as Rainmaker's production capabilities to develop, create and distribute animation and children's content across multiple distribution platforms including video-on-demand, mobile platforms and linear channels. The Company believes that it will be well positioned to become an invaluable partner for platform owners and operators across the world, who are seeking to serve the ever-growing children and youth market.

  2. WOW! Unlimited Media to be governed by a team of proven industry executives with successful track records. Michael Hirsh, the incoming CEO and Chairman, has produced over 6,000 TV episodes and 10 features with titles including Inspector Gadget, Babar and Rolie Polie Olie. Fred Seibert, the incoming Chief Creative Officer, has produced two $100+ million franchises through Adventure Time and The Fairly OddParents. Bob Ezrin, the incoming Vice Chairman, possesses over four decades of music production experience and has produced music, games and films for Pink Floyd, Monty Python and Jay-Z among others. Neil Chakravarti will enter as President and COO of WOW!, Bryant Pike will become CFO of WOW!, while Michael Hefferon will become Executive Vice President at WOW! and continue in his role as President of Rainmaker Studio.

  3. Transaction results in a well-capitalized business with funds available to pursue growth opportunities. Following the completion of the Transaction and the elimination of Rainmaker's convertible debentures, WOW! will possess an estimated net cash position of approximately $11 million. WOW! intends to use the net proceeds of the Offering for growth opportunities including future acquisitions and organic initiatives.

  4. WOW! will pursue a targeted growth strategy and capitalize on previously established opportunities. Michael Hirsh and the team at EH have developed industry relationships to entrench near-term growth opportunities. Following the completion of the Transaction, WOW! plans to begin finalizing distribution agreements and additional platform launches while pursuing complementary acquisitions to its existing assets as well as organically developing marquee franchises.

Acquisition of Frederator Networks and EH Entertainment

The Company will acquire, directly or indirectly, 100% of the outstanding shares of Frederator and EH. The total consideration for Frederator will consist of $17.0 million in equity to be paid by: (i) the issuance of 83 million common shares, subject to adjustment, of Rainmaker valued at $0.20 per share; and (ii) $0.4 million of options granted to certain employees of Frederator. The total consideration for EH consists of $5.2 million in equity to be paid by the issuance of 26 million common shares of Rainmaker valued at $0.20 per share.

In connection with the closing of the transaction, the board of directors of Rainmaker will be reconstituted to include: (i) Michael Hirsh (ii) Bob Ezrin (iii) Fred Seibert (iv) Craig Graham and certain other individuals to be nominated at the Annual and Special Meeting of the shareholders to approve the transaction. Appointment of any new directors is subject to approval by the TSXV. Rainmaker's existing board of directors will remain in place until such time as the transaction is completed.

The Transaction is subject to approval of the TSX Venture Exchange ("TSXV") and subject to the Company fulfilling all of the requirements of the TSXV.

Underwritten Private Placement

In connection with the Transaction, Rainmaker has entered into an agreement with Cormark Securities Inc. (the "Lead Underwriter") and including Canaccord Genuity Corp. (together with the Lead Underwriter, the "Underwriters") pursuant to which the Underwriters have entered into an underwritten private placement for 61,112,000 subscription receipts of the Company (the "Subscription Receipts"), at a price of $0.18 per Subscription Receipt for gross proceeds of C$11,000,160 (the "Offering").

In addition, the Company has granted the Underwriters an option (the "Over-Allotment Option") to purchase up to an additional 22,222,000 Subscription Receipts at the Offering price exercisable in whole or in part at any time up to 48 hours prior to the Offering Closing Date (as defined below).

The gross proceeds from the sale of the Subscription Receipts less 50% of the Underwriters' commission (the "Escrowed Proceeds"), will be held by an escrow agent pending, among other things, the satisfaction or waiver of all conditions precedent to completing the Transaction other than such conditions that by their nature may only be satisfied at the closing time of the Transaction and the delivery of a joint written notice from the Company and the Lead Underwriter to the subscription receipt agent confirming that the Release Condition has been satisfied or waived (the "Release Conditions").

Each Subscription Receipt will entitle the holder thereof to receive, for no additional consideration and without further action, one common share of the Company (a "Common Share") (on a pre-Consolidation basis) upon satisfaction of the Release Conditions. If (i) the Release Conditions are not satisfied on or prior to the date that is 90 days following the Offering Closing Date (the "Release Deadline"), or (ii) the Company advises the Underwriters and the subscription receipt agent, or announces to the public by way of a news release, that it does not intend to proceed with the Transaction, holders of Subscription Receipts will be entitled to receive the full purchase price of their Subscription Receipts.

The closing of the Offering is expected to occur on or about November 16, 2016 (the "Offering Closing Date").

The Company intends to use the net proceeds of the Offering for growth initiatives including future acquisitions as well as general working capital purposes.

The Subscription Receipts are being offered on a private placement basis in all provinces of Canada and may be offered in the United States on a private placement basis pursuant to an exemption from the registration requirements of the United States Securities Act of 1933, as amended, and in certain other foreign jurisdictions as the Company and the Underwriters may agree on a private placement basis.

Michael Hirsh, other incoming insiders and existing shareholders are anticipated to subscribe for approximately $6 million of Subscription Receipts in connection with the Offering (collectively, the "President's List").

The Underwriters will be paid a cash commission equal to 6.0% of the gross proceeds and will be granted compensation options equal to 6.0% of the number of securities issued pursuant to the Offering at the issue price. A reduced cash commission of 3.0% and compensation options of 3.0% will be payable to the Underwriters with respect to any securities issued and sold to persons identified on the President's List.

Convertible Debt Restructuring

Concurrent with the Transaction, the Company will restructure its outstanding convertible debentures. The convertible debentures will be amended to provide that they will mature on the business day immediately preceding the closing date of the Transaction and that, prior to maturity, the principal amount and all accrued interest owing to the holders of the convertible debentures will be repaid through the payment to each holder of convertible debentures of not more than such holder's pro rata portion of approximately $1,900,000 and the conversion of the remainder of the principal amount and accrued interest owing to such holder into Common Shares at a conversion price of $0.18 per share (on a pre-Consolidation basis). Such cash redemptions will be funded with existing cash and excess working capital.

The Company has entered into support agreements with various debenture holders representing approximately 80% of aggregate principal amount of debentures outstanding, which holders have agreed to vote in favour of the proposed amendments. The approval of the debenture holders will be sought in conjunction with the approval of the Transaction.

Share Structure Reorganization

In conjunction with the Transaction, the Company intends to seek approval from its shareholders to complete the Consolidation and to adopt a dual class of voting shares to be comprised of common voting and variable voting shares. The dual class share structure is intended to ensure compliance with the Canadian control restrictions contained within the Investment Canada Act and the Broadcasting Act (Canada).

Shareholder approval will be sought in conjunction with the approval of the transaction as a Special Meeting of the shareholders. The Company has entered into support agreements with various shareholders representing approximately 63% of the aggregate number of Common Shares outstanding, which shareholders have agreed to vote in favour of the reorganization and the Transaction. A meeting date will be scheduled as early as possible in accordance with applicable regulations.

Trading Halt

The Company's Common Shares are currently halted from trading and will remain so until completion of a satisfactory review of supporting materials related to the Transaction by the TSXV.

Conditions to Complete the Transaction

Completion of the Transaction will be subject to approval by Rainmaker's shareholders and debenture holders, as well as other conditions customary for a transaction of this nature as set out in the merger agreement and the share purchase agreement, copies of which will be made available on Rainmaker's profile at www.sedar.com. The Transaction is expected to close in December 2016.

Advisors

Cormark Securities Inc. acted as financial advisor to the Company and EH. Dentons Canada LLP acted as counsel to the Company.

This announcement does not constitute an offer of securities for sale in the United States, nor may any securities referred to herein be offered or sold in the United States absent registration or an exemption from registration as provided in the U.S. Securities Act of 1933 as amended (the "Securities Act") and the rules and regulations thereunder. The securities referred to herein have not been registered pursuant to the Securities Act and there is no intention to register any of the securities in the United States or to conduct a public offering of securities in the United States.

About Rainmaker Entertainment

Based in Vancouver, British Columbia, Rainmaker Entertainment Inc. is a multifaceted animation studio and one of Canada's largest producers of CG animation. Rainmaker's first feature film, Escape From Planet Earth (distributed by The Weinstein Company), opened on 3,200 screens across North America. Originally established as Mainframe Entertainment, the company produced the first ever CG animation series, ReBoot, and over the course of its 15+ years of innovative history, Rainmaker has continued to break new ground in animation, telling engaging stories and creating compelling characters for all media. In addition to projects Rainmaker has produced with partners and clients including Mattel, The Weinstein Company, Hasbro, Lionsgate and Sony, Rainmaker also develops proprietary projects. In Fall 2013, the company announced its plans to develop a new version of its iconic CG-animated ReBoot series and in April 2014, the company began production for HIT Entertainment of 104 10-minute episodes of the new CG-animated Bob the Builder series.

About Frederator Networks

Frederator operates Frederator Studios and Frederator Networks. Frederator Studios makes cartoons for television, movies and the internet and was founded by serial media entrepreneur and former Hanna-Barbera president Fred Seibert in 1998 as a unique incubator for big animation ideas by producing original cartoons. More than 250 short films have resulted in 16 hit series, including Butch Hartman's The Fairly OddParents on Nickelodeon and Pendleton Ward's Adventure Time on Cartoon Network. Frederator Networks manages the Channel Frederator Network, the world's largest animation-only multi-channel network on YouTube; has a joint venture (with Ánima Estudios, Mexico) in Átomo Networks, the world's first Hispanic animation multi-channel network; and programs online channels such as Channel Frederator and Cartoon Hangover. The channels feature the hit series Bravest Warriors created by Pendleton Ward, Natasha Allegri's Bee and PuppyCat, (second most funded animation on Kickstarter), the factual series 107 Facts, as well as many new shorts from the world's future animation superstars. Frederator has offices in Burbank, CA and New York, NY.

About Ezrin Hirsh Entertainment

Ezrin Hirsh Entertainment is a developer of global entertainment and media properties. The Company was founded by Michael Hirsh and Bob Ezrin, internationally renowned and award-winning producers and entrepreneurs. Subsequent partners include seasoned media executives Neil Chakravarti and Christian Davin. The EH team are united by a common vision to develop the next-generation global kids and youth entertainment company based out of Canada.

U.S. Securities Laws Disclosures

The distribution of this announcement may be restricted by law in certain jurisdictions and persons into whose possession any document or other information referred to herein come should inform themselves about and observe any such restriction. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction.

This announcement does not constitute an offer of securities for sale in the United States, nor may any securities referred to herein be offered or sold in the United States absent registration or an exemption from registration as provided in the U.S. Securities Act of 1933 as amended (the "Securities Act") and the rules and regulations thereunder. The securities referred to herein have not been registered pursuant to the Securities Act and there is no intention to register any of the securities in the United States or to conduct a public offering of securities in the United States.

Forward-Looking Statements

Certain information set forth in this press release contains "forward-looking statements", and "forward-looking information" under applicable securities laws. These statements relate to future events or future performance and include, but are not limited to, (i) statements regarding the anticipated closing date of the Proposed Transaction, and (ii) the proposed use of proceeds from the Offering. The words "may", "would", "could", "will", "intend", "plan", "anticipate", "believe", "estimate", "expect", and similar expressions are often used to identify forward-looking statements. Since forward-looking statements address future events and conditions, by their very nature, they involve inherent risks and uncertainties, both general and specific. In evaluating these statements, readers should specifically consider risks which may cause actual results to differ materially from any forward-looking statement. These risks include, but are not limited to, risks relating to the possibility that the Proposed Transaction may not be completed. The forward-looking statements contained herein are based upon certain assumptions considered reasonable at the time they were prepared. Such assumptions include, but are not limited to, assumptions regarding: (i) general economic conditions, (ii) Rainmaker's future business prospects and opportunities, (iii) Rainmaker's ability to complete any or all of its proposed production work, and (iv) the completion of the Proposed Transaction. Should one or more of the risks or uncertainties identified herein materialize, or should the assumptions underlying the forward-looking statements prove to be incorrect, then actual results may vary materially from those described herein. In respect of Rainmaker's business generally, readers should also refer to Forward-looking Statements in the Management Discussion & Analysis for the second quarter of 2015. Readers are cautioned not to place undue reliance on forward-looking statements. Except as required by applicable securities laws, Rainmaker does not assume any obligation to update the forward-looking statements contained herein.

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 press release.

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