Jetlines Announces Closing of SmartLynx Financing

Provided by Canada Jetlines

December 27, 2018, Canada Jetlines Ltd. (JET: TSX-V) (the “Company” or “Jetlines”) is pleased to announce that further to its press release of November 27, 2018, it has closed a private placement with SmartLynx Airlines SIA (“SmartLynx”) pursuant to which it has sold an aggregate of 22,727,272 subscription receipts (each, a “Subscription Receipt”) at a price of $0.33 per Subscription Receipt (the “Offering Price”) for gross proceeds of $7.5 million (the “Offering”). Jetlines entered into a subscription agreement with SmartLynx for a financing of up to $15 million. With the closing of the initial $7.5 million, SmartLynx retains the option to acquire an additional $7.5 million of the Company’s shares at the maximum discounted market price permitted under TSX.V rules at the time the option is exercised.

In connection with the Offering, Jetlines Operations and SmartLynx also entered into an agreement whereby SmartLynx shall provide ACMI (Aircraft-Crew-Maintenance-Insurance) services to Jetlines Operations during the following eight winter seasons. This agreement will allow Jetlines to increase its fleet capacity in the market during the very busy Canadian winter season.  In addition, SmartLynx and the Company have entered into a two-year agreement that will provide Jetlines with services meant to support Jetlines during the early stage of their operations.

SmartLynx specializes in full-service ACMI (Aircraft-Crew-Maintenance-Insurance) aircraft lease services and is the leading ACMI provider in Europe for Airbus A320 aircraft. SmartLynx aircraft has been utilized by major airlines including Norwegian, EasyJet, Thomas Cook and TUI.

Executive Chairman, Mark Morabito stated, “I would like to thank the SmartLynx group and our entire operations, finance and legal team at Jetlines, led by CEO Javier Suarez, for their support and effort in achieving this significant corporate milestone. We look forward to working with SmartLynx and leveraging their knowledge and expertise as a seasoned European airline that flies aircraft for some of the most successful ultra-low-cost carrier airlines in the world.”

Details of the Offering

The Offering resulted in the issuance of 22,727,272 Subscription Receipts at the Offering Price, for gross proceeds of $7.5 million. The Subscription Receipts were issued pursuant to the terms of a Subscription Receipt Agreement (the “Subscription Receipt Agreement”) between the Company, SmartLynx and Computershare Trust Company of Canada (the “Escrow Agent”). SmartLynx also has the option exercisable for a period of twelve months following the closing of the Offering to complete a second financing for variable voting shares for additional gross proceeds of up to $7.5 million at the discounted market price at the time it exercises its option (the “Option”).

Each Subscription Receipt entitles SmartLynx to receive, without payment of additional consideration or further action on the part of the holder, one unit of the Company (each a “Unit” and collectively the “Units”), upon receipt by the Escrow Agent, prior to August 31, 2019 (the “Deadline”) of a release notice from the Company and SmartLynx (the “Release Notice”), confirming that: (a) the Company has raised additional gross proceeds of $40 million (the “Funding Milestone”) from a subsequent financing by May 31, 2019 (such completion date subject to waiver by SmartLynx); (b) the receipt by the Company’s subsidiary, Canada Jetlines Operations Ltd. (“Jetlines Operations”), of its air operator certificate from Transport Canada; and (c) no termination event has occurred.

Each Unit will consist of one variable voting share of the Company and one common share purchase warrant (each, a “Warrant”).  Each Warrant shall entitle the holder thereof to purchase one variable voting share of the Company at a price of $0.45 at any time up to 5:00 p.m. (Vancouver time) on the date which is 36 months from the closing date.

If: (i) the Release Notice is not delivered by the Deadline, or (ii) the Offering is terminated in accordance with the terms of the Subscription Receipt Agreement, then SmartLynx will be entitled to receive an amount per Subscription Receipt equal to the Offering Price and an entitlement to the interest earned thereon. Any shortfall will be funded by the Company. In addition, the Company is obligated to pay a termination fee of US$250,000 if the Company has not achieved the Funding Milestone by May 31, 2019 or commits certain other material breaches and SmartLynx terminates the Subscription Agreement.

The net proceeds of the Offering will be used to further the business objectives of Jetlines in launching an ultra-low cost airline carrier in Canada, including advancing the licensing process, augmenting the leadership team with operations and commercial personnel, branding and marketing activities, as well as advance internet, digital media, and IT systems initiatives.

It is expected that SmartLynx will become an insider of the Company on conversion of the Subscription Receipts. The Subscription Receipts, and any Units acquired on the conversion thereof, are subject to a statutory four month hold period expiring on April 22, 2019.

The Company, Jetlines Operations and SmartLynx also entered into a framework agreement (the “Framework Agreement”) that governs aspects of the relationship between the parties. The Framework Agreement covers matters including the right of SmartLynx to appoint a single Board member to the Company and Jetlines Operations, rights to participate on Board committees, arrangements regarding the review of aircraft leases, the grant of a pro-rata right to SmartLynx to participate in future financings and certain other rights detailing with operational and expenditure matters of the Company and Jetlines Operations.