Avcorp announces $6,000,000 loan with Panta and extension of banking agreement

VANCOUVER, May 26, 2011 /PRNewswire/ - Avcorp Industries Inc. ("AVP" or the "Company") today announced that it has entered into an extension to its banking agreement, which will provide the Company's operating lines of credit through to April 2012.  In conjunction with the renewal of the operating lines of credit agreement, the Company has entered into a $6,000,000 principal amount, 10% secured term loan agreement with Panta III B.V. (a wholly-owned subsidiary of Panta Holdings B.V., a private investment vehicle, the principal of which is Mr. Jaap Rosen Jacobson, a director and controlling shareholder of the Company) ("Panta").

The term loan contains a conversion right to convert all or any portion of the principal amount of the Term Loan as elected by Panta, at a conversion price of $0.07 per Common Share, into up to 85,714,286 Common Shares (the "Term Loan").  The Term Loan may be converted on or before the date which is 60 months from the date of advance of the Term Loan. Interest on the Term Loan is not convertible.

The Term Loan is secured by the assets of the Company however is subordinate to other pre-existing debt instruments. The proceeds of the Term Loan will provide the Company with further financial operational flexibility to carry out the Company's business plan, the proceeds to be used specifically for the reduction of the Company's operating facility.

As partial consideration for the Term Loan, the Company will issue to Panta, 19,550,532 common share purchase warrants (the "Panta Warrants"), each Panta Warrant exercisable on or before January 1, 2015 with respect to one Common Share at an exercise price of Cdn.$0.0713 per Common Share.

The policies of the Toronto Stock Exchange (the "TSX") require that shareholder approval be obtained for private placements where, during any six month period, result in the number of listed securities being issued or made issuable to insiders of greater than 10% of the number of securities of the listed issuer which are outstanding, prior to the date of closing of the first private placement to an insider during the six month period.

As a result of the conversion feature of the Term Loan and the issuance of the Panta Warrants, a total of 105,264,818 Common Shares are being made issuable to Panta (representing approximately 53.8% of the current issued and outstanding Common Shares).  The Company has made application to the TSX for approval to the issuance of up to 85,714,286 Common Shares on conversion under the Term Loan; however, TSX approval will be conditional upon the Company obtaining shareholder approval of such conversion pursuant to TSX Exchange policies.

Currently Mr. Rosen Jacobson (the principal of Panta) beneficially owns or exercises control over 88,314,176 Common Shares (representing approximately 45.2% of the current issued and outstanding Common Shares) and also, through Panta Canada B.V., holds a $1,771,000 principal amount 6% secured convertible note, convertible for up to 29,516,666 Common Shares (which note received both TSX approval and shareholder approval at the Company's May 28, 2010 annual meeting) (the "Convertible Securities").  Assuming, the conversion of the Convertible Securities, the exercise of the Panta Warrants and the conversion of the Term Loan, Mr. Rosen Jacobson would then beneficially own or exercise control over 223,095,660 Common Shares (representing approximately 67.5% of the Common Shares outstanding after given effect to all such exercises and conversions).

The Board is seeking shareholder approval at its June 16, 2011 Annual Meeting for the issuance of Common Shares to Panta on the conversion of the Term Loan.  In the event that shareholder approval is not obtained, the interest rate under the Term Loan will be 15% per annum commencing July 1, 2011.  Until such shareholder approval is obtained, the Term Loan will not be convertible into Common Shares.

The issuance of Common Shares on the exercise of the Panta Warrants does not require shareholder approval but is subject to TSX approval, which the Company is currently seeking.

The Company deems it to be in its best interest to complete the transactions referenced in this news release. No other insiders of the Company are participating in these transactions.

Any securities issued in connection with the Term Loan and Panta Warrant will be subject to a restriction from resale for a period of four months and one day from the date of issue in accordance with applicable Canadian securities laws.

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 565 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. Avcorp is a Canadian public company traded on the Toronto Stock Exchange (TSX: AVP).

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 strategies, goals, outlook or other non-historical matters; or projected revenues, income, returns or other financial measures. These forward-looking statements 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.