Delta's Avcorp Industries Inc. (TSX:AVP) has injected needed cash into its operations by completing a revised financial restructuring plan with Holland-based Panta Holdings BV.
In mid-June, Avcorp had inked a deal where Panta would provide $7.5 million in exchange for 50 million Avcorp shares valued at $0.10 each and a $2.5 million three-year convertible debenture.
But the TSX rejected the deal by not agreeing to provide the necessary rule exemptions to close the deal that would have allowed Avcorp to triple the number of shares outstanding and give Panta a 61% stake in the company.
Under an amended agreement, Panta will purchase 16.2 million Avcorp shares at $0.15 per share in a private placement grossing $2.4 million.
Panta will also guarantee a rights offering where Avcorp shareholders will have the right to purchase 2.5 Avcorp shares for every share they hold at $0.06 per share. Avcorp said the offering is expected to raise $7.3 million. Panta will be paid a fee in rights equal to 10% of the gross number of rights issued under the offering, excluding the portion of rights attributable to shares already held by Panta.
Panta has also agreed to provide Avcorp an interim loan of $4 million during the period up to the closing of the rights offering. Avcorp will repay the loan either with the proceeds of the rights offering or settled against the rights Panta may exercise.
Due to the private placement, Panta will own 50% of the current number of Avcorp shares outstanding. However, after closing of the rights offering, Panta's stake is expected to drop to 33.3%. Panta will have the right to nominate one director to Avcorp's board.
To obtain TSX approval, Avcorp obtained written consent in support of the deal by at least 50% of existing shareholders.
Funds of the amended private placement will be used for working capital and to repay a $1.5 million bridge loan advanced by Panta in mid-June and a $400,000 loan from Michael Scholz, a former director of the company.
Avcorp said it needed to proceed with the offering because of the rapid decline in demand for manufactured commercial, business and military aircraft parts from Avcorp's main customers, which include Boeing, the Cessna Aircraft Company and Bombardier Aerospace.
The rapid decline in orders forced the company to look for an immediate cash infusion to continue operating.
Avcorp reported a net first-quarter loss of $2 million compared with net earnings of $183,000 in the same quarter last year. Revenue fell to $22.1 million from $31.1 million.
Avcorp consumed $681,000 in cash in the quarter compared with saving up $1.5 million in 2008's first quarter. Its working capital deficit rose to $5.7 million from $2 million as a result of classifying its $4.1 million convertible debenture held by Export Development Canada (EDC) as a current portion of long-term debt.
In its first-quarter release, Avcorp announced that by March 31, the company no longer complied with covenants associated with a number of loans from creditors that include a chartered Canadian bank and EDC.
Avcorp's share price range during the past week: between $0.125 and $0.155; 52-week high: $1.25; 52-week low: $0.115.