Discovery Air Announces Intention to Complete Rights Offering

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TORONTO, Feb. 24, 2014 /CNW/ - Discovery Air Inc. (DA.A) ("Discovery Air" or the "Corporation") today announced that, subject to the receipt of applicable regulatory approvals, it intends to complete a rights offering (the "Offering") in order to raise $15,000,000 of equity capital through the sale of its Class A common voting shares (the "Class A Shares") and Class B common variable voting shares (the "Class B Shares", and together with the Class A Shares, the "Common Shares").

Under the Offering, Discovery Air anticipates that it will distribute rights to its shareholders to subscribe for Common Shares (the "Rights") at a price (the "Exercise Price") per Common Share which is the lesser of (i) a 20.01% discount to the prevailing per share market price at the time the final short form prospectus in connection with the Offering is filed with securities regulators and (ii) $1.257. The Corporation intends to list the Rights and the Class A Shares issuable upon the exercise of the Rights on the Toronto Stock Exchange (the "TSX"). Shareholders will receive one Right for each Common Share held. The number of Rights required to purchase one Common Share will be a function of the Exercise Price ultimately used for the Offering. Each holder of Rights that subscribes for the maximum number of Common Shares to which the holder is entitled to subscribe will have an additional subscription privilege pursuant to which such holder will be entitled to subscribe for additional Common Shares, if available, at the Exercise Price. The record date for the determination of those shareholders entitled to receive the Rights and certain other terms of the Rights will be announced at the time of filing the final short form prospectus. The Corporation expects to launch the Offering during its first quarter of Fiscal 2015.

In connection with the Offering, Discovery Air has entered into a standby purchase agreement (the "Standby Agreement") with Clairvest Group Inc. ("Clairvest"). Under the Standby Agreement, Clairvest has agreed, subject to certain conditions, to purchase from the Corporation such number of Common Shares that are available to be purchased, but not otherwise subscribed for under the Offering, up to a predetermined cap. The cap is equal to that number of Common Shares equal to the difference between (i) 49.0% of the number of Common Shares issued and outstanding upon the closing of the Offering, and (ii) the number of Common Shares beneficially owned, directly or indirectly, by Clairvest and any persons acting jointly and in concert with Clairvest immediately prior to the closing of the Offering (the "Purchase Limit"). In the event that Clairvest is unable to purchase all of the Common Shares issuable pursuant to the Offering without exceeding the Purchase Limit and Discovery Air has raised less than gross proceeds of $15,000,000 (before transaction costs) from the Offering (taking Clairvest's backstop into account), Clairvest has committed, subject to and in accordance with applicable laws, to provide funding on commercially reasonable terms to Discovery Air in an amount equal to such shortfall through a subordinated, secured loan. Clairvest owns or exercises direction or control over 59,520 Class A Shares.

In connection with the Offering, the Corporation's operating lender has, subject to the receipt of consents from certain of the Corporation's other lenders, provided a commitment to increase the borrowing limit under Corporation's operating facility by $10,000,000 until May 24, 2014 (the "Operating Bridge").

Clairvest and its affiliates and investors in certain of its funds currently own or exercise control or direction over the Corporation's 10.00% senior secured debentures (the "Secured Debentures"), which are convertible into approximately 39% of the Corporation's currently issued and outstanding Common Shares at a price per Common Share which significantly exceeds the current market price of the Common Shares. Discovery Air has received waivers from the debt leverage and pledged asset ratio covenants in the Secured Debentures for the quarters ending April 30, 2014 and July 31, 2014 (the "Q1/Q2 Waivers"). Discovery Air has, in exchange for the Q1/Q2 Waivers, agreed to provide the holders of the Secured Debentures with a first charge against all of the real property owned by the Corporation and its subsidiaries in Canada until at least the periods covered by those waivers and, during those same periods, refrain, without the consent of the Secured Debenture holders, from granting or incurring any liens (except for certain customary permitted liens) against any new assets that may be acquired by the Corporation or its subsidiaries. Furthermore, Discovery Air has agreed not to request, and the holders of the Secured Debentures will not be required to effect, a subordination of their security during the six month period following the expiry of the Q1/Q2 Waivers, unless the Corporation is, at the relevant time, in compliance with all of its covenants in the Secured Debentures for at least two consecutive fiscal quarters (without regard to the Q1/Q2 Waivers or the value of the real property pledged as security to the holders of the Secured Debentures).  The security agent for and on behalf of the Secured Debenture holders has agreed to grant further waivers for the same covenants for the periods ending October 31, 2014 and January 31, 2015 (the "Q3/Q4 Waivers") following the closing of the Offering. The Q3/Q4 Waivers are expected to be on substantially the same terms as the Q1/Q2 Waivers.

Discovery Air intends to use the net proceeds from the Offering to repay the Operating Bridge, provide working capital and fund growth initiatives. Details regarding the use of proceeds, risk factors and other matters required to be addressed under applicable securities laws will be included in the prospectus for the Offering.

In addition to the net proceeds expected from the Offering, the Corporation will require additional financing over the next 12 months to continue the pursuit of growth initiatives and is continuing to explore financing options.

This offering is subject to regulatory approval, including the approval of the TSX.

This news release does not constitute an offer to sell or a solicitation of an offer to buy any securities, nor will there be any offer, solicitation or sale of any securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to the registration or qualification of the securities under the securities laws of such jurisdiction.

Caution Regarding Forward-Looking Statements

This news release includes forward-looking statements (as defined in applicable securities laws) regarding Discovery Air and/or its subsidiaries. Forward-looking statements by definition are based on assumptions and, as a result, are subject to risks and uncertainties. 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.

With respect to the matters described in this news release, specific risks include the risk that all regulatory approvals required to complete the Offering are not obtained, that the conditions precedent contained in the Standby Agreement are not satisfied, and/or that the Corporation is unsuccessful in its efforts to obtain the additional financing required to fund growth initiatives over the next 12 months on terms acceptable to the Corporation.

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.

ABOUT DISCOVERY AIR AND ITS SUBSIDIARIES

Discovery Air is a Canadian specialty aviation company operating over 160 aircraft with approximately 850 team members. Its subsidiaries provide airborne training to the Canadian military, helicopter operations, air ambulance services, airborne fire services, fixed-wing air charter services, expediting and logistics support, and a range of maintenance, repair, overhaul, modification, engineering and certification services.

Discovery Air's Class A common voting shares and unsecured convertible debentures trade on the Toronto Stock Exchange (symbols DA.A and DA.DB.A, respectively).

SOURCE: Discovery Air Inc.

Sheila Venman
Investor Relations
[email protected]
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