VANCOUVER: Avcorp Industries Inc. (“Avcorp” or the “Company”) (TSX:AVP) today announced that it has entered into an investment agreement with Panta Holdings B.V. (“Panta”) of the Netherlands providing for a private placement to Panta of 50,000,000 shares of the Company at a price of Cdn.$0.10 per share for total gross proceeds of $5,000,000 and the issuance of a three-year 8% convertible debenture having an aggregate principal amount of Cdn.$2,500,000 convertible into common shares at a conversion price of Cdn.$0.10 per share (the “Offering”). Panta has agreed that interest on the convertible debenture will be deferred for 24 months and that the accumulated interest will be added to the then outstanding principal amount and similarly convertible into shares at Cdn.$0.10 per share. Approximately Cdn.$1,600,000 of the proceeds of the offering will be utilized to retire an interim loan to be provided by Panta to Avcorp upon their entry into the investment agreement. In aggregate, assuming conversion of the convertible debenture, the Offering results in 79,000,000 common shares being issued or made issuable representing approximately 245% of the currently outstanding common shares. Upon completion of the Offering, Panta will immediately own approximately 61% of the then outstanding shares of the Company, representing a change in control pursuant to the policies of Toronto Stock Exchange (“TSX”).
Avcorp has determined to proceed with the Offering with Panta in response to the global economic downturn, and in particular the rapid contraction in the demand for manufactured commercial, business and military aircraft parts from Avcorp’s customers, who include The Boeing Company, The Cessna Aircraft Company, Aviation Partners Boeing and Bombardier Aerospace. This shrinking demand for these customer products has in turn resulted in a significant decline in the orders for manufactured parts produced by the Company. Management of the Company believes that the long term prospects for the Company are reasonable as a result of certain anticipated projects which will increase revenue in 2010 sufficient to sustain operations. The current financial circumstances of the Company are described in detail in the Company’s press release of May15, 2009.
As a result of the financial situation described above, the Company, through its management, reviewed the cash requirements for 2009 and determined that the Company will require an immediate cash infusion in order to adequately sustain itself as a going concern until such time as its operating revenues supplant the requirement for outside debt and/or equity financing.
The Company deems it to be in its best interest to complete the financial restructuring with Panta owing to the enhanced prospect for long term financial viability offered by Panta. No insiders of the Company are participating in the Panta financial restructuring.
Panta is a private investment vehicle, the principal of which is Mr.Jaap Rosen Jacobson. Mr.Jacobson, through Panta, was formerly the principal of VLM Airlines, a regional airline based in Europe, and has extensive knowledge of the manufacturing business and aircraft industry. In view of Panta’s industry experience, management believes that the proposed investment by Panta will contribute to the long term viability of the Company in addition to addressing its immediate liquidity requirements.
The proposal by Panta was considered by a Special Committee of the Board of Directors. The Special Committee received advice from TD Securities Inc. as financial advisor. The Special Committee was comprised of Mr. David Levi, Mr. Earnest Beaudin and Ms. Liz Otis. However, Mr. Beaudin resigned from the Company’s Board of Directors on June12, 2009 and Mr. Levi resigned from Special Committee duties to avoid any perception of conflict of interest.
In advance of closing the proposed transactions, Panta has agreed to advance an interim loan of approximately CDN$1.6million to address certain immediate liquidity concerns. This loan will be advanced on or about June16, 2009 and will be secured as a charge subordinate to all existing encumbrances. Part of the proceeds of the Offering will retire this loan. The convertible debenture under the Offering will be secured subordinate to existing senior secured indebtedness of the Company
The completion of the Offering is subject to a number of conditions including financial due diligence, required third party approvals and final TSX approval. Deferral of dividend payments on the Company’s outstanding Series A preferred shares until 2011 is also a condition, with respect to which the Board of Directors resolved to make such deferral in accepting the arrangements with Panta.
Pursuant to the policies of the TSX, the Company is required to obtain shareholder approval for an issuance of listed securities in excess of 25% of the current issued and outstanding share capital of the Company. Further, the Company is also required to obtain shareholder approval of the Offering based on the material effect on control since the proposed transaction will result in Panta holding approximately 61% of the issued and outstanding shares of the Company following completion of the private placement. There are currently 32,314,929 shares of the Company issued and outstanding.
However, Section 604(e) of the TSX Company Manual contains an exemption from the requirement to obtain shareholder approval if a listed issuer is in financial hardship. To rely on this exemption the listed issuer must make specific application to the TSX for this exemption.
Accordingly, Avcorp will apply to the TSX under the provisions of Section 604(e) of the TSX Company Manual, on the basis of the Company’s financial hardship, for an exemption from the securityholder approval requirements for the transactions contemplated by the Panta investment agreement. The application to the TSX will be made upon the recommendation of a Special Committee of the Board of Directors of the Company, the sole member of which is free from any conflict of interest with respect to the Panta agreement, and who has concluded that this transaction is reasonable for the Company in the circumstances.
There are no assurances that the TSX will accept the application for the use of the financial hardship exemption. The TSX has advised the Company that, if approved by the TSX, its reliance on Section 604(e) of the TSX Company Manual for an exemption from securityholder approval requirements in connection with the Offering will result in the initiation of a de-listing review by the TSX as is customary in such circumstances. The Company believes that, following completion of the Offering, it will be in compliance with TSX listing requirements.
Changes to the Board of Directors
The Company also announced the resignations of both Michael C. Scholz and Earnest C. Beaudin from the Board of Directors of the Company. Mr. David Levi has been appointed Chairman of the Board and Mr. Eric Frank Kohn has been appointed Chairman of the Audit Committee. The Company wishes to thank both Mr. Scholz and Mr. Beaudin for their contributions to the Company.
Following the closing of the transactions with Panta, Panta will have the right to a nominee on the Board of Directors.
This news release does not constitute an offer to sell or a solicitation of an offer to buy any of the shares in the United States. The shares have not been and will not be registered under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”) or any state securities laws and may not be offered or sold within the United States to U.S. persons unless registered under the U.S. Securities Act and applicable state securities laws or an exemption from such registration is available.
Any securities issued in connection with the Offering will be subject to a restriction from resale for a period of four months and one day from the date of issue in accordance with applicable Canadian securities laws.
About Avcorp
Avcorp designs and builds major airframe structures for some of the world’s leading aircraft companies, including Boeing, Bombardier, and Cessna. With more than 50 years of experience, approximately 500 skilled employees and 354,000 square feet of facilities, Avcorp offers integrated composite and metallic aircraft structures to aircraft manufacturers, a distinct advantage in the pursuit of contracts for new aircraft designs, which require lower-cost, light-weight, strong, reliable structures.
MARK VAN ROOIJ
CHIEF EXECUTIVE OFFICER
Investor Relations Contact: Sandi DiPrimo 604-587-4938