Avcorp announces convertible loan


Common Stock Listed


Trading Symbol: AVP

VANCOUVER, April 16 /CNW/ - Avcorp Industries Inc. ("Avcorp" or the "Company") (TSX:AVP) today announced that it has completed a secured subordinated convertible loan in a principal amount of $1,771,000, which, subject to shareholder approval, is convertible into a maximum of 29,516,666 common shares. Funding of the principal amount is to occur by April 19, 2010.

The secured subordinated convertible loan, which is effective April 12, 2010, has been provided by Panta Holdings B.V. ("Panta"), through a wholly-owned subsidiary. The loan, which is evidenced by a note, has a five year term with an interest rate initially of 6% per year. The $1,771,000 principal amount is convertible into common shares at a conversion price of $0.06 per common share in the first two years of the loan, $0.07 per common share in the third and fourth years of the loan, and $0.08 per common share in the fifth year of the loan. Accumulated interest will not be convertible.

As per the requirements of the Toronto Stock Exchange, exercise of the conversion right of the loan is subject to disinterested shareholder approval, and the Company will seek such approval at its 2010 annual meeting of shareholders to be held on May 18, 2010. If the conversion right is not approved at the meeting, the interest rate on the loan will be changed from 6% per year to 12% per year, and the loan will become a demand loan.

After completion of the private placement announced in March 2010, Panta holds 88,314,176 common shares, representing approximately 45.2% of Avcorp's outstanding shares. Assuming conversion of the loan into the maximum 29,516,666 common shares, Panta will hold 117,830,842 common shares, representing approximately 52.4% of Avcorp's outstanding shares.

The proceeds from the convertible loan will be used for working capital purposes, and to fund tooling and equipment. As stated in its rights offering prospectus filed in August 2009, the Company has revised its operating plans as a result of a forecasted reduction in revenues, primarily as a result of the market deferral of business jet deliveries. The Company forecasted its operating and financing requirements for 2010 would exceed the availability of its operating lines of credit, and that it would continue to seek to obtain additional debt financing to increase the likelihood that it will have liquidity in excess of forecasted requirements. The Company expects that it will continue to seek to raise additional capital in 2010.

This convertible loan constitutes a "related party transaction" as defined in Multilateral Instrument 61-101 - Protection of Minority Securityholders in Special Transactions ("MI 61-101"), as Panta is a "related party" under MI 61-101 by virtue of its significant share ownership position. However, the transaction is exempt from the formal valuation and minority shareholder approval requirements of MI 61-101 as neither the fair market value of the convertible loan and the March private placement to Panta, nor the fair market value of the consideration for these transactions, exceeded 25% of Avcorp's market capitalization, as per section 5.5 and 5.7 of MI 61-101. A material change report in respect of this transaction was not filed at least 21 days in advance of the closing of this transaction. Avcorp believes a shorter period between this disclosure and the closing of these transactions is reasonable, in light of its need to ensure it has sufficient working capital to properly manage and operate its business. The board of directors of Avcorp unanimously approved the convertible loan transaction, with Jaap Rosen Jacobson, a director of Avcorp and an insider of Panta abstaining from voting.

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.



Forward-Looking Statements

Certain statements in this release and other oral and written statements made by the Company from time to time are forward-looking statements, including those that discuss forecasted revenues and financing requirements. These forward-looking statements based on management's projections of customer orders and operating needs, and are subject to risks and uncertainties that may cause actual results to differ materially from those contained in the statements, including the following: (a) the extent to which the Company is able to achieve savings from its restructuring plans; (b) uncertainty in estimating the amount and timing of restructuring charges and related costs; (c) changes in worldwide economic and political conditions that impact interest and foreign exchange rates; (d) the occurrence of work stoppages and strikes at key facilities of the Company or the Company's customers or suppliers; (e) government funding and program approvals affecting products being developed or sold under government programs; (f) cost and delivery performance under various program and development contracts; (g) the adequacy of cost estimates for various customer care programs including servicing warranties; (h) the ability to control costs and successful implementation of various cost reduction programs; (i) the timing of certifications of new aircraft products; (j) the occurrence of further downturns in customer markets to which the Company products are sold or supplied or where the Company offers financing; (k) changes in aircraft delivery schedules or cancellation of orders; (l) the Company's ability to offset, through cost reductions, raw material price increases and pricing pressure brought by original equipment manufacturer customers; (m) the availability and cost of insurance; (n) the Company's ability to maintain portfolio credit quality; (o) the Company's access to debt financing at competitive rates; and (p) uncertainty in estimating contingent liabilities and establishing reserves tailored to address such contingencies.

SOURCE Avcorp Industries Inc.

For further information: For further information: Sandi DiPrimo, Investor Relations Contact, (604) 587-4938

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