Rainmaker Income Fund

Rainmaker Income Fund

July 05, 2005 12:32 ET

Rainmaker Income Fund Announces the Acquisition of the Businesses of EP Canada and Comweb Film Capital

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - July 5, 2005) - Rainmaker Income Fund (TSX:RNK.UN) (the "Fund") a leading provider of post production and visual services for film and television is pleased to announce that its subsidiaries have signed a definitive agreement to acquire the businesses of EP Canada Ltd ("EP Canada") and Comweb Film Capital Corporation ("CFCC") from Comweb Group, Inc. for $19 million in cash, subject to certain adjustments.

Mark Prior, CEO of EP Canada and CFCC will be appointed CEO of the Fund upon the closing of the transaction.

The acquisitions are being financed by the issue, by way of private placement, of 5,846,155 trust units of the Fund at $3.25 per trust unit for total proceeds of $19 million.

Hugh McKinnon, acting CEO of Rainmaker stated "I am absolutely delighted with these acquisitions. This is the transaction we have been waiting for. It strengthens our management team and provides geographic and service offering diversity to Rainmaker Limited Partnership ("Rainmaker")." "There is an excellent cultural fit between the Rainmaker and the EP Canada/CFCC employees and management teams," said Mark Prior. Mr. McKinnon added, "We are very pleased with the participation of the existing major unitholders of the Fund in supporting this transaction through the purchase of units."

The Acquisitions

EP Canada provides payroll services to the film and television production industry across Canada from offices in Toronto and Vancouver. EP Canada and its predecessors have been in operation for over 20 years and has approximately 80 employees. EP Canada delivers some of its services under license from GEP Administrative Services, Inc. an affiliate of Entertainment Partners of Los Angeles. EP Canada believes it has the dominant market share of providers of payroll services to the Canadian film and television industry.

CFCC provides film tax credit administration services and financing through factoring tax credits. CFCC has been in operation since 1997 when tax credits for film and television productions were first introduced. CFCC provides these services in provinces offering film tax credits from its office in Toronto, where it has approximately 10 employees.

Although EP Canada and CFCC experienced a slowdown in business in 2004 inline with the general slowdown in the film and television production business in Canada, EP Canada and CFCC's business volumes are expected to be better in 2005 versus 2004 and based on this trend the Fund believes the transaction is accretive to distributable cash earned.

The acquisitions will be completed by the indirect purchase by subsidiary entities of the Fund of the all of the partnership units of EP Canada Limited Partnership ("EP LP") and Canada Film Capital Limited Partnership ("CFC LP"). Immediately prior to the acquisition the assets used in the business of EP Canada will be transferred to EP LP and the assets used in the business of CFCC will be transferred to CFC LP. Subsidiary entities of the Fund will then purchase all of limited and general partnership units of each of EP LP and CFC LP.

In addition to the terms and conditions usual to a transaction of this nature the completion of the acquisition is subject to the following:

- approval and transfer to CFC LP of the credit facilities currently provided by a Canadian chartered bank to CFCC; and

- approval of unitholders of the Fund to the issuance of the trust units under the private placement.

Assuming all conditions are satisfied, the acquisitions and the financing are expected to close on August 4, 2005.

Management Changes

Upon completion of the transactions Mark Prior will be appointed CEO and a trustee of the Fund and move to Vancouver. Hugh McKinnon will continue as Chairman of the Trustees. Mark was co-founder of the predecessor company to EP Canada in 1976 which has been providing payroll services to the film and entertainment industry ever since. In 2001 Mark led EP Canada's acquisition of TVD Televector in Vancouver which expanded EP Canada's scope to a "coast to coast" service in Canada. Mark has also been President of CFCC since its inception in 1997. EP Canada and CFCC serve the very same customers as Rainmaker and Mark is well known to the LA based studios and producers who make up the vast majority of Rainmaker's clients. Mark sits on the boards of Film Ontario and the Canadian Film Centre.

Transaction Benefits

- EP Canada and CFCC are excellent well established, highly regarded businesses serving the same customers as Rainmaker;

- The transaction brings a new CEO to the Fund and adds management depth;

- EP Canada and CFCC have similar cultures to Rainmaker of integrity, service to clients, financial discipline and care for employees;

- The transaction provides Rainmaker with a substantial presence in the Toronto market providing geographic diversification;

- The transaction provides Rainmaker with additional services to provide to film and television producers in Canada, mitigating its reliance on the post production and visual effects services; and

- The Fund believes the transaction will be accretive.

The Financing

To finance the acquisitions, the Fund will be undertaking a private placement to raise a total of $19 million. The Fund has received irrevocable subscription agreements for the issue of 5,846,155 trust units at $3.25 per trust unit. The issue of trust units to trustees and to unitholders already owning more than 10% of the issued and outstanding units will be submitted for approval of the other unitholders at a special meeting of unitholders that will be held on August 3, 2005.

Certain trustees and subscribers who own over 10% of the issued and outstanding units of the Fund are subscribing for a total of 2,753,014 trust units. Their names and their holding of units before and after the issue are set out below:

Units Percentage(1)
Subscrip- After After
Current tion Issue Current Issue
Burgundy Asset
Management Ltd 1,284,900 1,500,000 2,784,900 11.3 16.2
Management Ltd 1,250,000 1,200,000 2,450,000 11.0 14.3
Hugh McKinnon(2) 167,193 18,014 185,207 1.5 1.1
Bruce Hodge(3) 136,875 35,000 166,875 1.2 1.0


(1) Percentage of issued units - 11,340,686 prior to the issue and
17,186,841 following the issue.
(2) Mr. McKinnon is acquiring his trust units indirectly through
Norscott Holdings Ltd., a company with which he is associated.
Mr. McKinnon holds 25,000 trust units directly and has an
economic interest in Norscott Holdings Ltd. that is equivalent to
a beneficial interest in 142,193 trust units.
(3) Mr. Hodge indirectly beneficially owns 11,875 trust units and has
an economic interest in Campbell Hodge Financial Inc., a company
with which he is associated that is equivalent to a beneficial
interest in 120,000 trust units.

The Fund is an unincorporated open-ended limited purpose trust which is located in Vancouver, British Columbia. Rainmaker, through its predecessors, was established in 1979 and is one of North America's leading film and video post production and visual organizations using innovative technology, superior service and world-class talent to design, build and shape content for film, television and new media productions.

This press release and any related attachments may contain forward-looking statements that involve a number of risks and uncertainty. Among the important factors that could cause actual results to differ materially from those indicated by such forward-looking statements are market and general economic conditions and the risk factors detailed from time to time in the periodic reports and documents filed by Rainmaker with the Toronto Stock Exchange and other regulatory authorities. Forward-looking statements are based on the estimates and opinions of management on the date the statements are made, and Rainmaker undertakes no obligation to update the forward-looking statements should there be a change in conditions, or in management's estimates or opinions.

The contents of this press release have neither been approved nor disapproved by any regulatory authority.

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