Air Canada`s Board of Directors at a
meeting today selected Trinity Time Investments, controlled by Victor T.K. Li,
from the two equity plan sponsor finalists. The Agreement contemplates a $650
million equity investment, which will represent approximately 31% of the
common equity in a restructured Air Canada.
As previously announced, rights will be offered to all creditors of Air
Canada to acquire new shares on the same economic terms as Trinity. The Rights
Offering, in an amount of $450 million, will close contemporaneously with the
Trinity Investment and will be underwritten by Deutsche Bank as standby
purchaser. Rights not purchased by creditors will be purchased by Deutsche
Bank at a premium determined in accordance with a formula not to exceed 15%,
to benefit non-exercising creditors.
Between the Trinity Investment and the Rights Offering, an additional
$100 million is being raised over the previously announced $1 billion which
would avoid having to issue certain convertible debt instruments on emergence.
The Agreement contemplates that creditors with aggregate claims of $8-$10
billion will receive approximately 56% of the common equity, after taking into
account the Rights Offering. Existing shareholders of Air Canada will receive
in the aggregate a nominal .01% stake.
“I am extremely pleased that we received two firm investment commitments
from leading international investors at this difficult time in the history of
the airline industry,” said Robert Milton, President & Chief Executive Officer
of Air Canada. “Both offers valued the company in a similar fashion and both
supported the company`s restructuring business plan and its management. Given
the success of Victor Li in his global business endeavors, we look forward to
the opportunity to benefit from his participation in fully realizing Air
Canada`s true potential.”
“We are very excited to have been selected as equity plan sponsor to work
with Air Canada to complete its restructuring,” said Frank J. Sixt, speaking
on behalf of Mr. Li and Trinity. “We believe Air Canada is a solid platform
and can successfully emerge from the current process as an industry leader in
terms of service standards as well as in terms of profitability and growth. We
have full confidence in the company`s senior management team, and will
continue to work with them over the coming months to complete the steps which
will reshape Air Canada into a leading competitor in the air transportation
sector globally.”
The Agreement is subject to a number of conditions including : (i)
satisfactory resolution of the funding of the pension deficit; (ii) the
obtaining of regulatory approvals and understandings; (iii) the entering into
of satisfactory agreements to acquire and finance the 70-110 seat aircraft
acquisition program; (iv) approval of the Plan by Creditors and the Court;
and, (v) the absence of various facts and events that would depreciate equity
value. The Agreement provides for a closing date of no later than April 30,
2004.
Under the Agreement, Air Canada`s Board upon emergence will consist of 11
members of whom five will be designated by Trinity, two by Deutsche Bank, two
members of management and two others by a selection committee which will
include a representative of creditors.
Upon closing, base salary and bonus programs for continuing executives is
to be no higher than currently in effect. A management stock option program
will be established of up to 5% of total issued and outstanding shares, of
which no more than 3% shall be issued on emergence at an exercise price equal
to Trinity`s buy-in price. As was the case in both offers, so as to ensure the
continued long term commitment of Robert Milton, President and CEO and Calin
Rovinescu, Executive Vice President to implement Air Canada`s Business Plan,
Trinity will provide these senior officers from its own holdings with 1% each
of new equity vesting in stages over four years. This ownership interest will
come from Trinity`s equity stake following emergence.
Trinity has required various transaction protection provisions. Air
Canada has agreed not to solicit any competing proposals for an equity plan
sponsor. Under certain circumstances up to $19.5 million may be payable as a
“break fee”. In addition, Air Canada has agreed to pay Trinity certain closing
fees and to reimburse Trinity for certain expenses until closing.
Air Canada anticipates seeking Court approval for the Agreement and for
the Rights Offering and will seek Court direction for convening the requisite
meeting of stakeholders in the near future. Periodic reports as to this
process will be provided in the ordinary course.
The Investment will be funded from Mr. Li`s personal financial resources
and may include investment from other family holdings and foundations and is
not subject to financing conditions. Mr. Victor T.K. Li, a Canadian citizen,
is the Deputy Chairman of Cheung Kong (Holdings) Limited. Mr. Li and his
family hold controlling interests in Cheung Kong as well as such other widely
held companies as Hutchison Whampoa Limited, Hongkong Electric Holdings
Limited and Husky Energy Inc. of Calgary. The Cheung Kong Group`s businesses
encompass such diverse areas as property development and investment, real
estate agency and estate management, hotels, telecommunications and e-
commerce, finance and investment, retail and manufacturing, ports and related
services, energy, infrastructure projects and materials, media, and
biotechnology. The Cheung Kong Group ranks among the top 100 corporations in
the world, with businesses in close to 40 countries and over 165,000
employees.
Air Canada is proceeding with other components of its restructuring
concurrent with the final stage of the equity sponsorship process and will
continue to report progress from time to time.
This discussion contains certain forward-looking statements, which
involve a number of risks and uncertainties. As a result of many factors
including acts or potential acts of terrorism, international conflicts,
government regulations and government mandated restrictions on operations and
pricing, fuel prices, industry restructuring, labour negotiations, the
economic environment in general including foreign exchange and interest rates,
the airline competitive and pricing environment, industry capacity decisions
and new entrants as well as external events, actual results could differ from
expected results and the differences could be material

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