Discovery Air announces issuance of $70 million of senior secured convertible debentures and 10:1 share consolidation

/NOT FOR DISSEMINATION IN THE UNITED STATES OR OVER UNITED STATES NEWSWIRE SERVICES/

YELLOWKNIFE, Sept. 23, 2011 /CNW/ - Discovery Air Inc. ("Discovery Air" or the "Corporation") (www.discoveryair.com) announced today that it has closed the Cdn $70,000,005 private placement of senior secured convertible debentures (the "Debentures") announced in its press release of July 21, 2011. Net proceeds will be used to repay certain of the Corporation's existing lenders and for working capital purposes. The Debentures were issued to investors (the "Investors") including Clairvest Equity Partners IV Limited Partnership, Clairvest Equity Partners IV Co-Investment Limited Partnership, Clairvest Equity Partners IV-A Limited Partnership (hereinafter the "Clairvest Entities"), DA Holdings Limited Partnership and a private investor, all of whom acted at arm's length to Discovery Air.

Before giving effect to the Corporation's share consolidation discussed below, the Debentures are convertible into 93,333,333 Class A common shares ("Common Shares") of Discovery Air for an initial effective issue price of $0.75 per Common Share, subject to anti-dilution adjustment provisions. Additional details regarding the Debenture terms are provided in "Other Debenture Provisions" below, and in the Corporation's press release dated July 21, 2011. With closing of the Debenture issuance, the Corporation's Board will be increased by two directors. Clairvest intends to nominate Ken Rotman and John Krediet as directors. Clairvest will also have the right to nominate one additional director to the Corporation's Board at the Corporation's 2012 annual general meeting, thereby increasing the Board to nine directors.

Dave Jennings, President and CEO of Discovery Air, commented, "This investment represents a significant milestone in our ongoing efforts to structure a balance sheet that is appropriate for our aggressive growth objectives. The valuation represented by the conversion feature of this investment is much closer to what we feel is an appropriate valuation, but more importantly, we now have substantially improved financial flexibility going forward. We are very pleased to have the Clairvest team and board nominees as partners, and are confident their experience, skills, and alignment with our objectives will contribute to our ultimate success."

Ken Rotman, Co-CEO of Clairvest, commented, "The Company is on a strong upward trajectory and has tremendous growth opportunities.  However, it is the management, many of whom are significant shareholders and thereby our partners, that make us most excited about this investment and Discovery Air's future."

Discovery Air also announced that it has received TSX approval to effect a share consolidation (the "Consolidation") on the basis of 10 "old" Common Shares for every 1 "new" Common Share. The Shareholders of the Corporation approved the Consolidation on June 7, 2011 at the Corporation's annual and special meeting of shareholders. It is currently anticipated that the Common Shares will commence trading on a post-consolidated basis on or about September 30, 2011. The consolidation will reduce the number of shares outstanding from approximately 145,556,150 to approximately 14,555,615. No fractional shares will be issued as a result of the Consolidation. If the Consolidation results in a registered shareholder having a fractional interest of less than .5 of a share, such fractional interest will be rounded down to the nearest whole number. Registered shareholders of Discovery Air will receive instructions by mail (via a letter of transmittal) on how to obtain a new share certificate representing their consolidated common shares. Discovery Air shares held through a broker, bank, trust company, nominee or other financial intermediary will be adjusted by that firm. Note that the disclosure in this document of the terms of the Debenture issuance does not reflect the Consolidation.

Other Debenture Provisions

The Debentures will mature on March 23, 2017, subject to earlier redemption rights in favour of the Investors relating to certain milestone events by Discovery Air's Top Aces Inc. subsidiary. The Corporation may redeem the debentures three years after issuance provided the Common Share weighted average trading price exceeds 116% of the then-applicable conversion price during a defined 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 93,333,340 Common Shares (subject to customary anti-dilution adjustments).

On closing of the Debenture issuance, the Clairvest Entities will hold, in the aggregate, $55,000,005 principal amount of Debentures. As of the date hereof, affiliates of the Clairvest Entities, own directly and indirectly, 595,207 Common Shares of the Corporation. The Debentures held by the Clairvest Entities are, before giving effect to the Consolidation, convertible into 73,333,340 Common Shares. The 595,207 Common Shares held by affiliates of the Clairvest Entities, together with the 73,333,340 Common Shares issuable on conversion of the Debentures, represent 50.8% of the Corporation's current issued and outstanding shares and, on a "as converted" basis, represents 25.8% of the Corporation's issued and outstanding shares.

Pursuant to agreements amongst the Investors, Clairvest Group Inc. or its affiliates will exercise control and direction over the Debentures (and any Common Shares issued upon conversion of the Debentures) held by such other Investors.  As a result, for the purposes of National Instrument 62-103, such other Investors may be considered "joint actors" of the Clairvest Entities.  After giving effect to the issuance of Debentures, the Clairvest Entities and their affiliates, together with such other Investors, hold 595,207 Common Shares and $70,000,005 of Debentures, convertible into an aggregate of 93,333,340 Common Shares (prior to giving effect to the Consolidation), representing in aggregate 64.5% of the Corporation's current issued and outstanding shares and, on a "as converted" basis, representing 32.8% of the Corporation's issued and outstanding shares.

The Debentures are being purchased by the Investors for investment purposes.  The address of the Clairvest Entities is 22 St. Clair Avenue East, Suite 1700, Toronto, Ontario.

In connection with the Closing and other than documents relating to the lending arrangements, the Corporation also entered into: (i) a merchant banking agreement with Clairvest in respect of which the Corporation will pay an annual fee for the provision of certain advisory services by Clairvest (which agreement can be terminated by Discovery Air after two years), (ii) an investor liquidity agreement which provides the Investors certain "demand" and "piggy back" registration rights should they wish to sell their Common Shares by way of prospectus, and (iii) a shareholders agreement ("Shareholders Agreement") among the Investors and certain management shareholders of the Corporation. Among other things, the Shareholders Agreement provides the Investors with the right to have certain nominees appointed to the Discovery Air Board, committee participation, expense reimbursement and the benefit of certain negative covenants for so long as the Investors hold Debentures or Common Shares representing at least 10% of the outstanding Common Shares (calculated on a fully-diluted basis).  In addition, the parties to the Shareholders Agreement have certain "rights of first offer" and "rights of first refusal" in the event they propose to transfer any of their Common Shares. The Shareholders Agreement also provides "pre-emptive" rights and "liquidity rights" commencing after the fifth year anniversary of the Shareholders Agreement.

ABOUT DISCOVERY AIR AND ITS SUBSIDIARIES

Founded in 2004, Discovery Air is a specialty aviation services company operating across Canada and in select locations internationally. With over 130 aircraft, it is one of the largest air operators in Canada, employing more than 600 flight crew, maintainers and support staff to deliver a variety of air transport, maintenance and logistics solutions to a wide range of government, airline and business customers. Discovery Air's subsidiaries include Top Aces, which delivers airborne training and special mission services to the Canadian military; Hicks & Lawrence, a supplier of airborne fire management services to the Ontario government and charter services to government agencies and corporate customers; Discovery Air Technical Services, which provides a range of aircraft maintenance, repair, overhaul, modification, engineering and certification services; Great Slave Helicopters, one of the largest VFR helicopter operator in the country; Air Tindi, the largest fixed-wing aircraft charter provider based in Northern Canada; Discovery Mining Services, which supplies all-weather exploration camps as well as expediting and logistics support services; and Discovery Air Innovations, the innovations arm of Discovery Air that identifies and captures large, new market opportunities.

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

Discovery Air's public communications may include written or oral forward-looking statements (as defined in applicable securities laws) regarding the future performance of the company and/or its subsidiaries. Forward-looking statements by definition are based on assumptions and are as a result subject to risks and uncertainties, including those identified in the Management's Discussion and Analysis section of Discovery Air's financial statements for the fiscal year ended January 31, 2011, available at www.sedar.com. As a result of such risks and uncertainties, actual results may differ materially from those discussed in forward-looking statements, and readers should not place undue reliance on such statements. Forward-looking statements represent expectations as of the date they are made, and Discovery Air disclaims any intention or obligation to update or revise any forward-looking statements it may make, whether as a result of new information, future events or otherwise, except as required under applicable securities laws.

Discovery Air's Class A common voting shares and the Existing Debentures currently trade on the Toronto Stock Exchange (Symbols "DA.A" and "DA.DB.A" respectively).


SOURCE Discovery Air Inc.

For further information:

Investor Relations
Sheila Venman
Investor Relations
sheilavenman@discoveryair.com
Toll Free (866) 903 3247


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