New Flyer Announces Details of Non-Cash Rights Offering, Common Share Conversion, New Distribution Policy and Declaration of July 2011 Distribution

Pursuant to the Offering, NFI will issue to holders of its common shares (“Shares”), substantially all of which are represented by IDSs, rights (“Rights”) to subscribe for and purchase additional Shares.  Each IDS consists of one Share and C$5.53 principal amount of 14% subordinated notes of NFI ULC (the “Subordinated Notes”).  Each holder of record of Shares as of the close of business on the record date of July 20, 2011 will receive one Right for each Share held:

• Each Right will entitle the holder to subscribe for and purchase nine (9) additional Shares, such that a holder exercising a Right, following the completion of the Offering, will hold ten (10) Shares;
• Each Right is exercisable only on delivery of C$5.53 principal amount of Subordinated Notes;
• The Rights may not be exercised for cash or any other consideration and subscriptions for Shares will be irrevocable; and
• The Rights will not be independently listed or posted for trading on the Toronto Stock Exchange (the “TSX”).

These Rights must be exercised prior to 5:00 p.m. Eastern Time (the “Expiry Time”) on August 18, 2011 (the “Expiry Date”).  Rights not exercised at or before the Expiry Time on the Expiry Date will be void and have no value.  

A subscriber may subscribe for Shares by instructing the CDS participant (or their brokers or securities dealers) holding the subscriber’s Rights to exercise all or a specified number of such Rights.  Such intermediaries will have an earlier deadline for receipt of instructions.

The TSX has conditionally approved the listing of the Shares (including those issuable upon exercise of Rights) and New Flyer expects that the Shares will be listed and posted for trading on the TSX shortly following the completion of the Offering. Following the completion of the Offering, if the IDSs do not meet the TSX listing requirements, or if New Flyer determines that the market for IDSs is not sufficiently liquid or that the additional costs and complexity of maintaining the listing of the IDSs outweigh the potential benefits of the listing, the IDSs will be delisted from the TSX. Furthermore, following the completion of the Offering New Flyer intends to propose a 10:1 consolidation of the Shares at a meeting of shareholders.

New Distribution Policy

Effective with the July 2011 distribution, payable on or about August 15, 2011 to IDS holders of record on July 29, 2011, New Flyer intends to pay an annualized distribution of C$0.86 per IDS (the “Special Distribution”). The Special Distribution is expected to consist of an annual dividend payment of C$0.086 per Share and an annual interest payment of C$0.774 per Subordinated Note (compared to the old annual distribution level of C$1.17 per IDS, comprised of an annual dividend payment of C$0.396 per Share and an annual interest payment of C$0.774 per Subordinated Note). A holder of IDSs that exercises a Right and continues to hold all corresponding Shares can expect to receive, during the period in which the Special Distribution is paid, cumulative annual dividends of C$0.86 per IDS previously held, comprised entirely of dividend income.  If the Minimum Condition (defined below) is satisfied or waived, the Board of Directors of NFI (the “Board”) expects to maintain this Special Distribution on a monthly basis until no later than August 2012, the month during which NFI ULC first has the option to redeem the Subordinated Notes, although such distributions are not assured.  On a pre-tax basis, exercise of Rights will not change the aggregate amount of distributions that a current holder of an IDS can expect to receive (based on the aggregate number of Shares held by such holder immediately following such exercise for the period during which the Special Distribution is paid), relative to an IDS holder that does not exercise Rights.

For dividends to be paid after August 2012, New Flyer currently anticipates establishing an annualized dividend equal to approximately 50% of the previous annual IDS distribution level of C$1.17 per IDS (based on the aggregate number of Shares held by an IDS holder immediately following the exercise of one Right). Compared to other common share issuers listed on the TSX, the Board believes this level of dividend will provide investors with an attractive level of current income. This new dividend policy reflects a shift from the previous distribution policy, pursuant to which substantially all of New Flyer’s available cash flow was distributed to IDS holders. The Board believes that this new dividend level will enhance the financial flexibility of New Flyer to fund growth capital expenditures, acquisitions and other internal financing needs.

For holders of Shares following the completion of the Offering, management expects all dividends paid will consist entirely of eligible dividend income. For Canadian residents, “eligible dividends” are entitled to the enhanced gross-up and dividend tax credit under Canadian income tax legislation (the “Tax Act”) which should result in a more favourable rate of taxation relative to the pre-conversion IDS distribution which consists of a combination of interest and dividend income.

The following table illustrates the before-tax and after-tax consequences of the Offering, during the period in which the Special Distribution is paid, to an individual IDS holder who is a resident of Ontario for purposes of provincial taxation in the event that such holder exercises or fails to exercise a Right.  On an after-tax basis, such an investor who fully exercises his or her Rights should realize income that is approximately 30% higher compared to an investor that does not exercise any Rights.  IDS holders should refer to the Prospectus for more details and should consult their own tax advisors regarding the income tax considerations applicable to them.  The following table does not illustrate the material dilution and immediate loss of equity value that will be experienced if such holder fails to exercise such Right.

	Securities Held	Dividend per Share1	Interest	Total Before  Tax	Total After Tax2
Pre-Offering
IDS
Common Share	1	C$0.086	–	C$0.086	C$0.0623
Subordinated Note	C$5.53	–	C$0.774	C$0.774	C$0.4154
Total				C$0.860	C$0.477
Post Offering5
Exercise Right
Common Share	10	C$0.086	–	C$0.860	C$0.6183
Subordinated Note	–	–	–	–	–
Total				C$0.860	C$0.618
Fail to Exercise Right
Common Share	1	C$0.086	–	C$0.086	C$0.0623
Subordinated Note	C$5.53	–	C$0.774	C$0.774	C$0.4154
Total				C$0.860	C$0.477

Notes:

1. Assuming that NFI will designate all dividends that it pays as “eligible dividends” for purposes of the Tax Act.  Eligible dividends are entitled to the enhanced gross-up and dividend tax credit under the Tax Act.
2. Assuming that the holder is an Ontario resident for purposes of provincial taxation who is taxed at the top marginal income tax rate.  The tax consequences in Canada, the United States or elsewhere will vary depending on each holder’s specific circumstances.
3. In 2011, the combined federal/provincial tax rate on eligible dividends for an Ontario resident who is taxed at the top marginal income tax rate is 28.19% (after taking into account the Ontario dividend tax credit on eligible dividends of 6.4%).  The figures in the table above are based on the combined Canadian federal/provincial 2011 tax rate.
4. Interest income on the Subordinated Notes will be taxed at a combined Canadian federal/provincial tax rate of 46.41% in 2011 for an Ontario resident for purposes of provincial taxation who is taxed at the top marginal income tax rate.
5. Assuming the Minimum Condition has been satisfied. If the Minimum Condition has not been satisfied or waived, NFI intends to suspend the declaration and payment of dividends on the Common Shares effective with the August 2011 distribution, which would have been payable on or about September 15, 2011, resulting in an annualized distribution of C$0.774 per IDS (representing only the interest payment on the Subordinated Notes).

Benefits of Participation for IDS Holders

The Board recommends that holders of Shares (including holders of IDSs) exercise the Rights and believes that Rights should be exercised on the basis that:

• Holders of Shares (including holders of IDSs) who participate fully in the Offering by exercising all of their Rights will not experience any ownership or equity value dilution;
• Taxable Canadian resident IDS holders who reside in Ontario for provincial tax purposes and who exercise their Rights can expect after-tax dividend income, during the period in which the Special Distribution is paid, to be approximately 30% higher (based on estimated combined 2011 Canadian federal and Ontario highest marginal tax rates for individuals) compared to after-tax combined interest and dividend income to IDS holders who fail to exercise their Rights;
• The exercise of Rights does not require a cash payment; and
• Holders who exercise Rights and are residents of Canada for tax purposes and hold their IDSs as capital property may obtain a full or partial tax-deferred rollover for Canadian income tax purposes in respect of any capital gain.

IDS holders should consult their own tax advisors regarding the income tax considerations applicable to them.

Consequences of Failure to Exercise Rights for IDS Holders

IDS holders who fail to exercise Rights should be aware of the following consequences:

• If a holder does not exercise all of its Rights, then the holder will experience material ownership dilution and an immediate loss of equity value as a result of the exercise of Rights by others;
• Rights not exercised prior to the Expiry Time on the Expiry Date will be void and have no value;
• After the completion of the Offering, the IDSs will be delisted from the TSX if the IDSs fail to meet the TSX’s minimum listing requirements or if New Flyer determines that such delisting is advisable (based on insufficient liquidity of the IDSs or because the cost and complexity of maintaining the listing outweigh the benefits of the listing). As a result, there may not be a market through which holders of IDSs that did not exercise all or any portion of their Rights can trade their IDSs; and
• Taxable Canadian resident IDS holders who reside in Ontario for provincial tax purposes and who fail to exercise Rights can expect to receive, during the period in which the Special Distribution is paid, after-tax combined interest and dividend income that is approximately 30% lower (based on estimated combined 2011 Canadian federal and Ontario highest marginal tax rates for individuals) compared to after-tax dividend income to IDS holders who exercise their Rights.

The Offering is conditional upon a minimum of 50% of the total number of Rights issued being exercised (the “Minimum Condition”).  In the event the Minimum Condition is not satisfied, or the Offering is otherwise not completed on the basis that the Board determines prior to the Expiry Date that such a course of action is in the best interest of NFI, the subscription price will be returned to each exercising holder of Rights.  NFI reserves the right to waive the Minimum Condition.  If the Minimum Condition is not satisfied or waived, NFI intends to suspend the declaration and payment of dividends on the Shares effective with the August 2011 distribution which would be payable on or about September 15, 2011, resulting in an annualized distribution of C$0.774 per IDS (representing only the interest payment on the Subordinated Notes).

Benefits of the Common Share Conversion to New Flyer

As previously stated, management and the Board believe a conversion to a traditional common share structure is in the best interests of New Flyer, its investors and other stakeholders, and is a natural evolution of the company to build a stronger platform and provide the financial flexibility needed to pursue strategic opportunities.  The benefits of the conversion to New Flyer are expected to include:

• Enhanced financial flexibility to pursue strategic growth and revenue diversification opportunities;
• Materially reduces total third party indebtedness;
• Reduces risks associated with C$ appreciation against the US$;
• Enhances access to capital and broadens investor base;
• Lowers cost of capital; and
• Facilitates comparison of New Flyer to other publicly-traded companies.

New Flyer has engaged BMO Capital Markets to act as financial advisor in respect of the Offering and the conversion and as dealer manager to solicit the exercise of Rights and has engaged Georgeson Shareholder Communications Canada Inc. to act as information agent in respect of the Offering.  Enquiries can be addressed to BMO Capital Markets via the New Flyer non-cash offering enquiries line at 1-855-666-4355 or to Georgeson Shareholder Communications Canada Inc. at 1-866-676-2882.

Further details concerning the non-cash rights offering and the procedures to be followed by holders are contained in the Prospectus. Copies of the Prospectus may be obtained from the dealer manager or are available electronically from New Flyer’s website at www.www.newflyer.com or electronically under New Flyer’s name at www.sedar.com.

Final Short Form Prospectus

No securities regulatory authority has expressed an opinion about the Rights or the Shares issuable upon the exercise of the rights and it is an offence to claim otherwise. The Prospectus constitutes a public offering of Rights and the Shares issuable upon the exercise of the rights only in those jurisdictions where such securities may be lawfully offered for sale and therein only by persons permitted to sell such securities. The Rights and the Shares issuable upon the exercise of the rights have not been and will not be registered under the United States Securities Act of 1933, as amended, or any state securities laws. Accordingly, the Rights and the Shares issuable upon the exercise of the Rights may not be offered or sold in the United States except in transactions exempt from registration under such laws.

Declaration of July 2011 Distribution

In accordance with the new distribution policy, New Flyer today announced the declaration of a cash distribution on the IDSs for the month of July 2011 in the amount of $0.07167, payable on August 15, 2011, to holders of record of IDSs at the close of business on July 29, 2011.

The total distribution of C$0.07167 per IDS reflects a cash dividend of C$0.00715 per Share and an interest payment of C$0.06452 per Subordinated Note for the period from July 1, 2011 to July 31, 2011.

The dividends on the Shares are designated as “eligible dividends” for purposes of the enhanced dividend tax credit rules contained in the Tax Act and any corresponding provincial and territorial tax legislation.

About New Flyer

New Flyer is the leading manufacturer of heavy-duty transit buses in Canada and the United States. The Company’s three manufacturing facilities – in Winnipeg, MB; St. Cloud, MN; and Crookston, MN – are all ISO 9001, ISO 14001 and OHSAS 18001 certified.  The Company currently operates a parts fabrication facility in Elkhart, IN and three parts distribution centers in Winnipeg, MB; Erlanger, KY; and Fresno, CA. A fourth PDC is expected to open in Ontario in 2011.

With a skilled workforce of over 2,000 employees, New Flyer is a technology leader, offering the broadest product line in the industry, including drive systems powered by clean diesel, LNG, CNG and electric trolley as well as energy-efficient diesel-electric hybrid vehicles.  All products are supported with an industry-leading, comprehensive parts and service network. The Company’s income deposit securities are traded on the TSX under the symbol NFI.UN.  Further information is available on New Flyer’s web site at www.www.newflyer.com.

Forward-Looking Statements

Certain statements in this press release are “forward looking statements”, which reflect the expectations of management regarding New Flyer’s future growth, results of operations, performance and business prospects and opportunities.  The words “believes”, “anticipates”, “plans”, “expects”, “intends”, “projects”, “estimates” and similar expressions are intended to identify forward looking statements. These forward looking statements reflect management’s current expectations regarding future events and operating performance and speak only as of the date of this press release.  Forward-looking statements involve significant risks and uncertainties, should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not or the times at or by which such performance or results will be achieved.  A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements.  Such differences may be caused by factors which include, but are not limited to, the ability to complete the conversion to a common share structure, competition in the heavy-duty transit bus industry, availability of funding to New Flyer’s customers to purchase buses, parts or services at current levels or at all, competition and aggressive and reduced pricing in the industry, material losses and costs may be incurred as a result of product warranty issues, material losses and costs may be incurred as a result of product liability claims, changes in Canadian or United States tax legislation, reliance on a limited number of key executives who New Flyer may not be able to adequately replace in the event that they leave New Flyer, the absence of fixed term customer contracts and the termination of contracts by customers for convenience, the current “Buy-America” legislation and the Ontario government’s Canadian content purchasing policy may change and/or become more onerous, production delays may result in liquidated damages under New Flyer’s contracts with its customers, New Flyer’s ability to execute its planned production targets as required for current business and operational needs, New Flyer’s ability to generate cash from the planned reduction in excess work in process, currency fluctuations could adversely affect New Flyer’s financial results or competitive position in the industry, New Flyer may not be able to maintain performance bonds or letters of credit required by its existing contracts or obtain performance bonds and letters of credit required for new contracts, third party debt service obligations may have important consequences to New Flyer, the covenants contained in NFI ULC’s senior credit facility and subordinated note indenture could impact the ability of New Flyer to continue to fund distributions and take certain other actions, interest rates could change substantially and materially impact New Flyer’s profitability, the dependence on limited sources of supply, the timely supply of materials from suppliers, the possibility of fluctuations in the market prices of the pension plan investments and discount rates used in the actuarial calculations will impact pension expense and funding requirements, New Flyer’s profitability and performance can be adversely affected by increases in raw material and component costs, the availability of labour could have an impact on production levels, the ability of New Flyer to successfully execute strategic plans and maintain profitability and risks related to acquisitions. New Flyer cautions that this list of factors is not exhaustive.  These factors and other risks and uncertainties are discussed in New Flyer’s press releases and materials filed with the Canadian securities regulatory authorities (including the Prospectus discussed in this press release) and are available on SEDAR at www.sedar.com.

Although the forward looking statements contained in this press release are based upon what management believes to be reasonable assumptions, investors cannot be assured that actual results will be consistent with these forward looking statements, and the differences may be material.  These forward looking statements are made as of the date of this press release and New Flyer assumes no obligation to update or revise them to reflect new events or circumstances, except as required by applicable securities laws.

For further information, please contact:

New Flyer Industries Inc.
Glenn Asham, Chief Financial Officer
Tel: 1-866-574-4940