Canada Jetlines Ltd. (TSX-V: JET; JETMF: OTCQB) (the “Company” or “Jetlines”) is pleased to announce that it has entered into a definitive subscription agreement (the “Agreement”) with InHarv Partners Ltd. (“InHarv”), on behalf of a Korean special purpose fund to be called InHarv ULCC Growth Fund (the “SPV Fund”), for a financing of $7 million (the “Principal Amount”).
InHarv is a hybrid of venture capital and private equity based in Seoul, South Korea whose strategic stance is to raise capital in South Korea for investment in cutting edge start-ups overseas. InHarv will be acting as lead & general partner for the Korean special purpose fund, and also investing as principal. The SPV Fund is to include the investment divisions of a number of leading Korean manufacturing and financial institutions as its group of limited partners. The SPV Fund will be created by InHarv to facilitate the investment into Jetlines.
Mr. Jong Chang, Founder and Chairman of InHarv, was previously Lead Partner of Booz Allen Hamilton, a global general management consultancy in the U.S., and a Senior Vice President and founding member of KBRI (now Moody’s Korea Inc.), the first credit rating agency in Seoul. Jong used to be one of the Economic Council Members for the President of South Korea, He also held positions as an independent board member of LG Chemical Co. of the LG Group based in Seoul and as an independent board member of Saint-Gabain Korea, a leading flat glass maker. Presently, Jong is the Chairman of the Board of ToolGen, Inc. a world leading DNA editing company based in Seoul Korea, and a Board Director of Verseau Therapeutics Inc. a world leading macrophage company based in Lexington, MA, USA, and of Chromis Optical Fiber Company based in Warren, NJ, USA.
Mark Morabito, Executive Chairman, commented “As we continue to advance our financing initiative, I am pleased to announce the signing of the definitive agreement with InHarv. Mr. Chang and his team are seasoned in identifying high potential start-up companies and I look forward to welcoming Mr. Chang to the Board of Directors of Jetlines after funding is complete.”
Details of the Offering
The offering (the “Offering”) will consist of 7,000 units (each, a “Unit”), with each Unit comprised of one $1,000 principal amount 10.00% senior secured convertible debenture of Jetlines (each, a “Debenture”) and 2,439.02439 variable voting share purchase warrants (each, a “Warrant”), and with each Warrant entitling the holder thereof to acquire one variable voting share of Jetlines (each, a “Warrant Share”) at a price of $0.41 per Warrant Share for a period of 36 months from the date of closing. The Company will issue a total of 17,073,170 Warrants to the SPV Fund as part of the Units subscribed for by the SPV Fund.
The terms of the Debentures include:
a maturity date on such date that is 36 months from the date of issuance of the Debentures (the “Maturity Date”) and the principal amount of the Debentures, together with any accrued and unpaid interest thereon, will be payable on the Maturity Date, unless earlier converted in accordance with its terms;
each draw of the Principal Amount will accrue interest (“Interest”) from the drawdown date of such draw at the rate of 10% per annum, which Interest will be payable in cash annually on the anniversary date of the drawdown date of such draw, and on the conversion date or the Maturity Date, as the case may be;
all or a portion of the Principal Amount outstanding is convertible into variable voting shares of the Company (each, a “Share”) at the option of the holder at a conversion price of $0.41 per Share; and
the Debentures are subject to an origination fee of 5%, payable in Shares on each drawdown date at an issue price equal to the market price at the time of such drawdown date.
The funds will be available for drawdown based on the satisfaction of certain conditions. $4.9 million (70%) of the proceeds shall be available for drawdown by the Company once it receives from the Canada Transportation Agency an order allowing it to sell tickets for airline travel and the Company has completed additional financings for gross proceeds of $33 million. Jetlines intends to apply for this order in time to receive it in September 2019, approximately three months ahead of first flight. The remaining $2.1 million (30%) of the proceeds shall be available for drawdown upon the receipt by the Company’s subsidiary, Jetlines Operations, of its air operator certificate from Transport Canada.
The obligation of the Company to repay the Principal Amount and all unpaid Interest thereon to the SPV Fund will be secured by a security interest granted by Jetlines to the SPV Fund over all of the Company’s present and after-acquired property pursuant to a general security agreement to be entered into.
The SPV Fund is an arm’s length party to the Company and it is expected that the SPV Fund will become an insider of the Company on full conversion of the Principal Amount outstanding under the Debentures. Finders’ fees may be payable in connection with the Offering in accordance with the policies of the TSX Venture Exchange.
The Company will also grant the SPV Fund certain rights in connection with the closing of the Offering that will govern aspects of the relationship between the parties. These include the right of the SPV Fund to appoint two Board members, one of which must be a Canadian resident, and the grant of a pro-rata right to the SPV Fund to participate in future financings.
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.
The closing of the Offering is conditional the satisfaction of conditions to closing that will be contained in the Subscription Agreement. These conditions will include, among other things, approval of the TSX Venture Exchange for the Offering and the receipt of all other necessary consents, approvals and authorizations required by either party.