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September 19, 2008

In cash squeeze, Davie Yards eyes alternatives

Levis, Quebec, based shipbuilder Davie Yards Inc. (TSX:DAV) today revealed that it is facing a cash crunch and said that it has retained Pareto Securities AS as financial advisors to assist the company in "evaluating strategic alternatives to maximize shareholder value."

"As part of its financial restructuring," says a company statement, "Davie is negotiating the financial participation by its clients. Pending negotiations, clients have ceased paying instalments under their contracts, resulting in a cash shortfall for the company."

Davie says that restoring the company's capital base will be of great importance, but the company will also look at additional actions such as establishing a joint venture with an industrial partner and other similar strategic transactions.

To bridge the interim cash shortfall situation during negotiations with clients, the company has entered into a loan agreement with Offshore Holding AS, for an amount of NOK 17.8 million (CDN$3,323,426) repayable within three years and bearing interest at a rate of 2% per month. The loan is secured by a hypothec in the amount of CDN$10.0 million charging all of the company's property.

[Under the Quebec Civil Code, a "hypothec," says is "a real right on a movable or immovable property made liable for the performance of an obligation. It confers on the creditor the right to follow the property into whosoever hands it may be, to take possession of it or to take it in payment, or to sell it or cause it to be sold and, in that case, to have a preference upon the proceeds of the sale ranking as determined in" the Quebec Civil Code.]

Davie's independent directors approved entering into the loan agreement. Davie says their approval was based on their belief that the company will arrive at a financial solution with its clients, the funds obtained pursuant to the loan agreement will improve the Company's financial situation and the terms and conditions of the loan agreement are reasonable for the Company in the circumstances.

Offshore Holding AS is the controlling shareholder of Davie Holding AS, which holds 71.88% of the common shares of the company. Davie says the loan is a related party transaction for the purposes of Multilateral Instrument 61-101 and the company is relying on exemptions from the formal valuation and minority approval requirements of Multilateral Instrument 61-101 based on a determination of financial hardship.

Multilateral Instrument 61-101 is a rule for the protection of minority shareholders.


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