DISCOVERY AIR ANNOUNCES AGREEMENT TO ISSUE $70 MILLION OF SECURED CONVERTIBLE DEBENTURES

Dino D'Amore
By Dino D'Amore July 22, 2011 19:28

DISCOVERY AIR ANNOUNCES AGREEMENT TO ISSUE $70 MILLION OF SECURED CONVERTIBLE DEBENTURES

Discovery Air, a specialty aviation services company operating across Canada and in select locations internationally, has announced it has entered into an agreement to complete a private placement of an aggregate of C$70,000,000 principal amount of secured convertible debentures. Net proceeds of the transaction will be used to repay existing debt. The Debentures will be issued to Clairvest Group Inc. and certain of its affiliates. Collectively known as Clairvest, it owns, directly and indirectly, 595,207 Common Shares of Discovery Air, representing less than 0.5% of the Corporation’s issued and outstanding Common Shares. Upon closing of the Private Placement, and before giving effect to the Corporation’s share consolidation plan, the Debentures will be convertible into 93,333,333 Class A common shares for an initial effective issue price of $0.75 per Common Share, subject to anti-dilution adjustment provisions. The 93,333,333 Common Shares represent 64.12% of the Corporation’s currently issued and outstanding shares and, on a fully diluted and “as converted” basis, represent 32.33% of the Corporation’s issued and outstanding shares. Clairvest acts at arm’s length to the Corporation.

The Debentures will mature 5 ½ years from issuance, subject to earlier redemption rights in favour of the Corporation relating to certain milestone events by Discovery Air’s Top Aces Inc. subsidiary. The Corporation may also redeem the debentures three years after issuance providing the Common Share weighted average trading price exceeds 116% of the then-applicable conversion price over an agreed trading period prior to issuance of the redemption notice. Interest on the Debentures will accrue at a rate of 10% per annum and will be payable annually commencing 12 months after closing on an “in kind” basis through the issuance of additional Debentures. The original conversion price of the Debentures, $0.75 per Common Share, will also increase at 10% per annum, and as a result, the original face amount of the Debentures plus all paid-in-kind interest will continue to be convertible into 93,333,333 Common Shares (subject to customary anti-dilution adjustments).

Dave Jennings, president and CEO of Discovery Air, says: “We are very pleased with this financing and are excited to have the Clairvest team as financial partners going forward. While our cash flow and liquidity have been strong under our existing capital structure, the terms of this deal will greatly enhance our cash flow, allowing us to pursue the aggressive growth we’re targeting in the short and medium term future. The in kind interest combined with the escalating conversion price make this convertible debt deal as close to an equity deal at appropriate prices as is reasonably practical in today’s market. The terms allow us to eliminate many of the cumbersome financial and other restrictions in our legacy senior debt arrangements. This will give us significantly more flexibility to deploy assets and manage the business effectively. Clairvest’s agreement to subordinate its security position in favour of new senior debt is important in positioning us to raise funding as required for future projects that support our growth strategy. And finally, the addition of Clairvest’s nominees will bring additional depth to the Corporation’s already-strong Board of Directors. Closing of this transaction will complete the capital structure overhaul we began early in 2011, and will position Discovery Air to both better support our existing customers and to target aggressive growth in new markets.”

Dino D'Amore
By Dino D'Amore July 22, 2011 19:28
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