Destiny Resource Services Corp. Working Capital Financing; Backstopped Rights Offering.

Business Editors

CALGARY, ALBERTA--(BUSINESS WIRE)--Jan. 18, 2001

DESTINY (TSE:DSC.TO)

Destiny Resource Services Corp. announced that it has obtained working capital financing. Destiny is immediately applying over $4 million to accounts payable, including all accounts over 60 days.

Bruce Libin, Chairman and Managing Director of Destiny, said "that the matters announced today, together with the strong environment for Destiny's operating businesses, make Destiny's management and Board very confident that 2001 will be a strong year for the Company. Our operations have been hampered by our corporate liquidity problems. The support announced today by our major shareholder, our Board, our senior management and our principal lenders puts Destiny in a position to seize the many opportunities in front of us to provide quality and value to our customers, stability in our relationships with our suppliers and meaningful returns to our shareholders."

"This support, together with the sale or discontinuation of certain businesses by Destiny at year end, recent management changes and the provision for the prudent valuation of non-core assets, establishes the basis for a strong, focused operation in 2001. I am confident that our operations will generate cash and profits to let Destiny be viewed by our suppliers as a preferred customer and by our customers as a preferred supplier. Our continuing businesses, Wolf Survey and Mapping, Destiny Line Clearing, Double R Drilling, Battle River Construction, the McConnell Group of Companies and Destiny Drilling Overseas, collectively had a strong year in 2000, and are positioned to deliver sustainable earnings and cash flow in 2001 and beyond."

Destiny also announced that it has entered into agreements with its largest shareholder and with its two principal lenders in relation to a bridge loan in anticipation of a rights offering, decreasing its near-term obligations to its major equipment financier and the previously announced conversion of accrued interest to equity.

First Reserve Fund VIII, L.P. has advanced $3.5 million to Destiny as a bridge loan, the proceeds of which are immediately being applied to the payment of accounts payable. The loan bears interest at 13% per annum, is due June 30, 2001 and is secured by a subordinated debenture. Destiny has agreed to conduct a rights offering to its shareholders, entitling them to purchase additional Common Shares at $0.28 per share, with potential proceeds of almost $4 million. The proceeds will be used to repay the loan. If the proceeds are not sufficient to repay principal and interest on the loan, the unpaid balance will be converted to Common Shares at $0.28 per share. First Reserve and certain directors and officers of Destiny have committed to fully subscribe rights issued to them.

First Reserve has converted interest on an existing debenture accrued to December 31, 2000 in the amount of $1,257,032 into Common Shares of Destiny at $0.25 per share (the closing price of Destiny shares on the date the conversion was approved by the Board of Directors of Destiny). Interest accruing from January 1, 2001 to June 30, 2001 will be converted to Common Shares on a monthly basis at a weighted average trading price, calculated monthly. As a result of the interest conversion, GMAC Commercial Credit Corporation - Canada, the Company's working capital lender, has released reserves of $900,000. Over $500,000 of this amount is being applied to the payment of accounts payable.

RoyNat Inc., the Company's principal equipment lender has agreed to an amortization schedule for the payment of Destiny's approximately $8,000,000 obligation to RoyNat that provides for Destiny to repay RoyNat over 54 months, instead of approximately 30 months as per the prior arrangement. The impact of this is to reduce Destiny's debt service obligations to RoyNat by approximately $1.5 mm per year.

Destiny also announced that it expects to report a net loss for 2000 of approximately $7 million. This amount includes approximately $5.9 million of losses from operations that were closed or sold in 2000 and provisions against the carrying value of non-core assets. The Company expects that it will report cash flow for 2000 from on-going operations of approximately $4.8 million and EBITDA for 2000 from on-going operations of approximately $9 million. The operations that were closed or sold in the fourth quarter of 2000 are Sharp Environmental, Destiny Oilfield Construction (formerly Fitzpatrick Contracting) and JD & ME Oilfield Construction.

Mr. Libin expressed the appreciation of Destiny to First Reserve for, in effect, backstopping the planned rights offering. "The bridge loan enables us to move past some liquidity pressures while permitting all shareholders to equitably participate in the share issue we are planning." With the conversion of the accrued interest owed to First Reserve and the conversion of interest for the first half of 2001, and in the event of full conversion of the bridge loan principal and interest to Common Shares, First Reserve's ownership interest in Destiny would increase from approximately 34% to approximately 61%. "Like First Reserve, I and other members of Management have committed to fully exercise our rights. I anticipate other shareholders will as well as they understand Destiny's capacity and ability to produce sustainable earnings and cash flow" said Mr. Libin. Destiny expects to issue the rights, with accompanying disclosure material, to its shareholders in late first quarter or early second quarter 2001.

The financing transactions described above were approved by Destiny's Board of Directors, with the representatives of First Reserve abstaining. The Board of Directors noted that Destiny had minimal availability on its credit lines, had a working capital deficiency and was in need of an immediate cash injection to meet its obligations to its customers and suppliers. The Board also noted that other alternatives such as monetization of non-core assets could not be accomplished on a timely basis.

The Company relied on the "financial hardship" exemption from the valuation and minority approval requirements of OSC Rule 61-501. The Rule states that the exemption is available where: (1) the Company is in serious financial difficulty; (2) the transactions are designed to improve the financial position of the Company; (3) the "bankruptcy, insolvency or reorganization" exemption under the Rule is not applicable; and (4) the Board of Directors and not less than two-thirds of the independent Directors of the Company acting in good faith determine that paragraphs (1) and (2) are applicable and that the terms of the transactions are reasonable given the Company's circumstances. The material change report for the transactions will be filed less than 21 days before the expected date of closing of the transactions given the Company's immediate need for financing.

First Reserve has advised Destiny that it has acquired the bridge loan convertible debenture and the 5,028,128 Common Shares of Destiny on the conversion of the accrued interest (and will acquire Common Shares on the further conversion of interest during the first six months of 2001) for investment purposes only and that unless Destiny requires additional financing, First Reserve has no immediate intention to acquire additional securities of Destiny except by virtue of the exercise of rights and conversion of the bridge loan convertible debenture. The number of shares to be issued on future interest conversion is dependent upon the price of Destiny's Common Shares on The Toronto Stock Exchange for each month through June, 2001. The number of shares that will be issued if the average price is $0.40, $0.35, $0.30 or $0.25 is approximately 992,000, 1,113,000, 1,322,000 and 1,587,000, respectively.

Destiny is the only service company in Canada and internationally providing geophysical survey, line clearing and shothole drilling services from a single source, thereby offering its clients greater convenience and accountability in a complete front-end package. With over 25 years of operating experience in front-end services, together with a strategic presence in oilfield construction and maintenance, Destiny provides quality, integrated services to the oil and gas exploration and production industry in Canada and internationally.