Canada Jetlines Ltd. (JET: TSX-V; JETMF: OTCQB) (the “Company” or “Jetlines”) announces that SmartLynx Airlines SIA (“SmartLynx”) and Jetlines have entered into a letter of intent to amend the terms of the $7.5 million subscription receipt financing that was completed in December 2018. Under the revised terms of the financing, SmartLynx will provide $7.5 million in financing under the terms of a convertible debenture. The amended offering terms are set to match the financing terms agreed to with InHarv ULCC Growth Fund (“InHarv”).

Mark Morabito, Executive Chairman, commented “I am pleased that we have been able to restructure the financing terms with SmartLynx so that there is direct alignment between our two principal financing partners at SmartLynx and InHarv. Moving to a single structure will help facilitate the completion of the balance of the financing required to launch airline operations. I would also like to thank SmartLynx for its continued support as a true partner of Jetlines.”

Details of the Offering

The terms of the offering (the “Offering”) are set out in a letter of intent between SmartLynx and Jetlines. The Offering will consist of 7,500 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 18,292,682 Warrants to SmartLynx as part of the Units subscribed for by SmartLynx.

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 (the “Principal Amount”), 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.

Under the amended terms with SmartLynx, the gross proceeds of the Offering will be released after Jetlines achieves certain milestones as described below. $5.25 million (70%) of the proceeds shall be released upon the Company raising additional funds (the “Funding Milestone”) from a subsequent financing by September 1, 2019 (such completion date subject to waiver by SmartLynx). The Funding Milestone will be calculated by adding the amount realized through the exercise of previously issued warrants since November 1, 2018 and the final amount committed under the InHarv financing at closing, and subtracting that total number from $40 million. In addition, the Company will be required to receive from the Canada Transportation Agency an order allowing it to sell tickets for airline travel.

The remaining $2.25 million (30%) of the proceeds shall be released upon the receipt by 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 SmartLynx will be secured by a security interest granted by Jetlines to SmartLynx over all of the Company’s present and after-acquired property pursuant to a general security agreement to be entered into. These financial terms match the terms agreed to with InHarv. The Company intends to close both the InHarv and SmartLynx financings concurrently, with an expected closing date before the end of July, 2019.

Certain aspects of the relationship between the parties will continue to be governed the framework agreement (the “Framework Agreement”) entered into by the parties in December 2018. 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. Certain consequential amendments will be made to the Framework Agreement to reflect the new terms of the Offering.

The funds that were placed in escrow under the original terms of the subscription receipt financing will be released to SmartLynx, along with an extension fee payment of US$250,000. The Company will no longer have the obligation to issue units at $0.33 to SmartLynx under the prior financing terms.

The closing of the Offering is conditional upon 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, execution of definitive documentation, disinterested shareholder approval and the receipt of all other necessary consents, approvals and authorizations required by either party.