Stingray Acquires Newfoundland Capital Corporation Limited, One of Canada’s Leading Radio Broadcasters

Stingray Digital Group Inc. (“Stingray”) (TSX:RAY.A) (TSX:RAY.B) today announced that it has signed a definitive agreement to acquire all of the issued and outstanding shares of Newfoundland Capital Corporation Limited (“NCC”) (TSX:NCC.A) (TSX:NCC.B), one of Canada’s leading radio broadcasters with 101 licences (82 FM and 19 AM) across Canada. A major addition to Stingray’s current offering, which includes specialty television channels and multiplatform music and video services, this transaction is expected to significantly strengthen its position as the leading independent music business in the Canadian media landscape while continuing to build its global reach, and support its growth strategy through a complementary vertical and new revenue sources.

Stingray will acquire all of the Class A Subordinate Voting Shares and Class B Common Shares of NCC for $14.75 per share, representing a premium of approximately 16% based on NCC’s volume-weighted average closing share price on the TSX for the last 20 trading days (the “Transaction”). The Transaction is valued at approximately $506 million (the “Purchase Price”), including the assumption of a net debt of approximately $112 million as at December 31, 2017. Management expects the combination to be more than 30% accretive to Stingray’s Adjusted net income per share within the first full fiscal year of operations after closing.

NCC reaches millions of listeners each week through a variety of formats and is a recognized industry leader in radio programming, sales, and networking. NCC operates 72 local radio stations and 29 repeating stations — also available on web and mobile — in seven (7) provinces from coast to coast. NCC holds the second largest number of radio licences in Canada. NCC is headquartered in Dartmouth, Nova Scotia and employs approximately 800 radio professionals nationwide.

Transaction Rationale

Unique opportunity to create Canada’s largest public independent media company

• Confirms Stingray’s leading position as a multiplatform music products and services provider by adding 72 local radio stations and 29 repeating stations also available nationally through the web and mobile apps
• Well-positioned to continue to pursue strategic acquisitions across all platforms and geographies, including fragmented Canadian regional radio market
• Strengthens Stingray's position as the leading independent music business in the Canadian media landscape
• Increases Stingray’s reach by millions of weekly listeners across Canada
• Provides a national promotion platform to accelerate Stingray’s mobile subscriber growth, a new channel to promote Stingray’s SVOD products and specialty TV channels

Diversifies Stingray’s revenue profile with complementary advertising revenues

• Provides Stingray with a balanced mix of revenues from telcos, cablecos, commercial music (retailers) and national and local advertising
• Leverages NCC’s advertising client base and sales force to grow Stingray's TV specialty channels advertising revenues
• $5 million of expected incremental advertising revenues within 18 to 24 months post-closing

Acquisition of a leading radio operator with a strong financial profile

• #2 private radio player in Canada by number of radio stations and #3 by revenue
• Coast to coast geographical reach with a presence in seven (7) provinces
• CRTC regulated business providing stable returns with best-in-class operating metrics
• Experienced management and sales team

Expected cost synergies and cross-selling opportunities

• $8 million expected head office cost reductions and public company cost savings within the first year
• Provides Stingray instant access to an experienced advertising sales team and existing national and local client base
• Opportunity to cross-sell Stingray’s products across established retail client base, including: restaurant chains, grocery stores, consumer staples, car dealerships, telcos and financial institutions

Bolsters Stingray’s financial profile to accelerate its acquisition strategy

• Expected to significantly increase Stingray’s Adjusted EBITDA and Adjusted free cash flow
• Expected significant first year accretion to Adjusted net income per share of more than 30%
• Robust free cash flow generation expected to support Stingray’s growth and dividend Policy
• Financial flexibility expected to be maintained to pursue ongoing tuck-in acquisition strategy

For each NCC share, shareholders will receive between $13.17 and $13.28 in cash with the balance of the price to be paid in Stingray subordinate voting shares (or Stingray variable subordinate voting shares, as applicable). This will result in between 0.15371 and 0.14294 Stingray shares for each share of NCC owned, based on the total number of NCC shares outstanding at closing. They will also be entitled to continue to receive regular semi-annual dividends in the amount of $0.25 per share that would be expected to be declared by NCC until closing of the Transaction.

The Transaction will be effected through a plan of arrangement and will be subject to the approval of 66⅔% of the votes cast by NCC shareholders, voting together as a single class, at a special meeting of NCC shareholders expected to be held in July 2018 (the “Special Meeting”). In addition to NCC shareholder approval, the Transaction is subject to customary closing conditions, including court, Canadian Radio-television and Telecommunications Commission (CRTC) and other regulatory approvals.

The Board of Directors of NCC, having received a unanimous recommendation from a special committee comprised solely of independent directors (the “Special Committee”), has unanimously (excluding any director not entitled to vote) approved the Transaction and recommends that NCC shareholders vote in favour of the Transaction. The financial advisor to the Special Committee, Blair Franklin Capital Partners, has provided an opinion to the Board of Directors and the Special Committee to the effect that the consideration to be received by NCC shareholders is fair, from a financial point of view, to such shareholders.

Members of the Steele Family, representing approximately 87% of the outstanding shares and approximately 93% of the voting rights of NCC, have entered into irrevocable voting support agreements in favour of the Transaction, and a 5-year lockup and voting trust agreement in favour of Eric Boyko for the Stingray shares to be received by them as consideration in the Transaction. In addition, directors and senior officers of NCC that beneficially own NCC shares have also entered into voting support agreements pursuant to which, subject to certain terms and conditions, they have agreed to vote all of their NCC shares in favour of the Transaction at the Special Meeting.

The agreement between Stingray and NCC provides for a non-solicitation covenant on the part of NCC, subject to customary "fiduciary out" provisions, and a right in favour of Stingray to match any superior proposal. If Stingray does not exercise its right to match, Stingray would receive a termination fee of $12 million should NCC support any superior proposal. A reverse termination fee of $12 million would also be payable by Stingray to NCC under certain circumstances.

Upon closing, Mr. Rob Steele will step down as President and Chief Executive Officer of NCC and Mr. Ian S. Lurie will continue to assume leadership responsibilities with regards to Stingray’s new radio operations.

Further information regarding the Transaction will be contained in a management proxy circular that NCC will prepare, file and mail to NCC shareholders in advance of the Special Meeting. Copies of the arrangement agreement, voting support agreement and management proxy circular will be available on SEDAR at www.sedar.com.

Closing of the Transaction is expected to occur by the end of 2018, but no later than May 2, 2019.

Financial Considérations

The Transaction is being funded through a combination of:

• $83 million bought deal public offering (the “Offering”) of subscription receipts of Stingray (the “Subscription Receipts”) at a price of $10.40 per Subscription Receipt and additional gross proceeds of up to $12 million pursuant to an Over-Allotment Option (as defined below);
• $40 million private placement (the “Concurrent Private Placement”) of subscription receipts of Stingray (the “Private Placement Subscription Receipts”) at a price of $10.40 per Private Placement Subscription Receipt with the Caisse de dépot et placement du Québec (“La Caisse”) and additional gross proceeds of up to $6 million in the event the Over-Allotment Option is exercised;
• $17 million in subscription receipts (the "MVS Subscription Receipts") through the exercise by members of the Boyko Group of subscription rights attached to their multiple voting shares of Stingray;
• $40 million through a share exchange as part of the consideration payable to NCC shareholders; and
• $450 million of new committed credit facilities.

Management expects the Transaction to be more than 30% accretive to Stingray’s Adjusted net income  per share within the first full fiscal year of operations after closing.

Assuming the realisation of expected cost and revenue synergies described above, without considering any restructuring, integration expenses and transaction-related costs, management estimates the enterprise value multiple to represent approximately 7.7x the trailing twelve months Adjusted EBITDA of NCC for the period ended December 31, 2017.

Pro forma Net debt to Adjusted EBITDA is expected to be approximately 3.6x at closing and stand at approximately 2.5x Net debt to Adjusted EBITDA 18 to 24 months after closing.

Public Offering of Subscription Receipts on a Bought Deal Basis

To finance the payment of a portion of the Purchase Price and related expenses, Stingray has entered into an agreement with National Bank Financial Inc. and BMO Capital Markets, on behalf of a syndicate of underwriters (the “Underwriters”) under which they have agreed to purchase on a bought deal basis from Stingray 7,981,000 Subscription Receipts at a purchase price of $10.40 per Subscription Receipt for gross proceeds of $83 million. Each Subscription Receipt will entitle the holder thereof to receive, upon the satisfaction of certain conditions and without payment of additional consideration or further action, either one subordinate voting share of Stingray or one variable subordinate voting share of Stingray, depending on whether the holder is a “Canadian” under the Broadcasting Act (Canada).

In addition, Stingray has granted the Underwriters an option to purchase up to an additional 1,197,150 Subscription Receipts at any time up to 30 days after closing of the Offering (the “Over-Allotment Option”), for additional gross proceeds of up to $12 million. The Subscription Receipts will be offered in all provinces and territories of Canada pursuant to a short form prospectus to be filed by Stingray in accordance with National Instrument 44-101 - Short Form Prospectus Distributions.

The issuance of the Subscription Receipts pursuant to the Offering is subject to customary approvals of applicable securities regulatory authorities, including the Toronto Stock Exchange. Closing of the Offering is expected to occur on or about May 23, 2018. The Offering and the Concurrent Private Placement (described below) are conditional upon each other. The Offering is also conditional upon there being no termination of the Transaction or announcement of such termination prior to the closing of the Offering.

Private Placement of Subscription Receipts

Concurrently with the Offering, Stingray has entered into a subscription agreement pursuant to which it will complete the Concurrent Private Placement with La Caisse who will acquire, on a private placement basis and at a price of $10.40 per receipt, 3,846,100 Private Placement Subscription Receipts, for aggregate gross proceeds of $40 million. Each Private Placement Subscription Receipt will entitle the holder thereof to receive, upon the satisfaction of certain conditions and without payment of additional consideration or further action, one subordinate voting share of Stingray.

In addition, La Caisse will be entitled to purchase up to an additional 576,915 Private Placement Subscription Receipts if and when the Over-Allotment Option is exercised by the Underwriters, for additional gross proceeds of up to $6 million. The Private Placement Subscription Receipts will be subject to a four month hold from the closing date of the Concurrent Private Placement..

The issuance of the Private Placement Subscription Receipts pursuant to the Concurrent Private Placement is subject to the approval of the TSX. Closing of the Concurrent Private Placement is scheduled to occur concurrently with the closing of the Offering. The Concurrent Private Placement is conditional upon closing of the Offering. The Concurrent Private Placement is also conditional upon there being no termination of the Transaction or announcement of such termination prior to the closing of the Concurrent Private Placement.

New Credit Facilities

Stingray currently has in place a $100 million credit facility (the "Credit Facility") with a syndicate of financial institutions. Concurrently with the announcement of the Transaction, Stingray has entered into an underwritten financing with National Bank of Canada, as sole lead arranger and sole bookrunner, providing for:

• A senior secured revolving credit facility in the maximum amount of $300 million to amend and restate the Credit Facility, and maturing on the third anniversary of the closing date of the Transaction; and
• A senior secured non-revolving term credit facility consisting of a maximum principal amount of $150 million available as a single drawdown and maturing on the third anniversary of the closing date of the Transaction.

             
The net proceeds of the Offering, the Concurrent Private Placement, the private placement to Boyko Group and part of the New Credit Facilities will be used by Stingray to finance (i) the Purchase Price payable in respect of the Transaction on the closing date of the Transaction (ii) the repayment of the existing Credit Facility, and (iii) the financing and transaction costs incurred as part of the Transaction.

Financial and Legal Advisors

National Bank Financial Inc. is acting as financial advisor to Stingray on the Transaction. Legal advice is being provided to Stingray by Davies Ward Phillips & Vineberg LLP. Legal advice is being provided to the Underwriters by Fasken Martineau Dumoulin LLP. Marckenz Group Capital Partners and Scotiabank are acting as financial advisors to NCC on the Transaction. Legal advice is being provided to NCC by Stewart McKelvey. Blair Franklin Capital Partners are acting as financial advisors to the Special Committee of NCC. Legal advice is being provided to La Caisse by McCarthy Tétrault LLP.

Conference Call

Stingray will host a listen-only conference call to discuss the Transaction on Wednesday, May 2 at 4:00 PM (Eastern). Media are welcome to participate. A live audio webcast, including an investor presentation will be available on Stingray’s website at (www.stingray.com). To listen to the call without the investor presentation, please dial (877) 223-4471 or (647) 788-4922. A replay will be available for one week by dialing (800) 585-8367 or (416) 621-4642 and entering passcode 7957258.

Availability of Documents

Copies of related documents, such as the preliminary short form prospectus, underwriting agreement, subscription agreement and arrangement agreement will be available on SEDAR (www.sedar.com) as part of the public filings of Stingray and on Stingray's website at www.stingray.com
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About Stingray Digital Group Inc.

Stingray Digital Group Inc. (TSX:RAY.A) (TSX:RAY.B) is the world-leading provider of multiplatform music and video services, and digital experiences for pay TV operators, commercial establishments, OTT providers, mobile operators, consumers, and more. Its services include audio television channels, premium television channels, 4K UHD television channels, karaoke products, digital signage, in-store music, and music apps. Stingray reaches 400 million subscribers (or users) in 156 countries and its mobile apps have been downloaded over 90 million times. Stingray is headquartered in Montreal and currently has close to 400 employees worldwide. For more information: www.stingray.com.

About Newfoundland Capital Corporation Limited

Newfoundland Capital Corporation Limited (TSX:NCC.A) (TSX:NCC.B) owns and operates Newcap Radio which is one of Canada's leading radio broadcasters with 101 broadcast licences (72 radio stations and 29 repeating signals) across Canada. The Company reaches millions of listeners each week through a variety of formats and is a recognized industry leader in radio programming, sales and networking.

Forward-Looking Information

This news release contains forward-looking information within the meaning of applicable Canadian securities laws, including regarding the acquisition of NCC (the “Acquisition”). This forward-looking information includes, but is not limited to, statements with respect to management’s expectations regarding the future growth, results of operations, performance and business prospects of Stingray, statements with respect to the expected timing and completion of the Acquisition, and statements with respect to the anticipated benefits of the Acquisition and Stingray’s ability to successfully integrate NCC’s business, which include, without limitation, cost saving synergies, future revenues, economic performance, accretion to adjusted net income per share, accretion to adjusted free cash flow, leverage post-Acquisition, management strategy and growth prospect following the Acquisition. This presentation also contains forward-looking information with respect to the Offering, the Concurrent Private Placement, the issuance of MVS Subscription Receipts to holders of multiple voting shares of Stingray and the indebtedness to be incurred under the existing Credit Facility and new committed credit facilities as well as the aggregate purchase price payable in connection with the Acquisition. This forward-looking information relates to, among other things, our objectives and the strategies to achieve these objectives, as well as information with respect to our beliefs, plans, expectations, anticipations, estimations and intentions, and may also include other statements that are predictive in nature, or that depend upon or refer to future events or conditions. Statements with the words “could”, “expect”, “may”, “will”, “anticipate”, “assume”, “intend”, “plan”, “believes”, “estimates”, “guidance”, “foresee”, “continue” and similar expressions are intended to identify statements containing forward looking information, although not all forward-looking statements include such words. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances contain forward-looking information. Statements containing forward-looking information are not historical facts but instead represent management’s expectations, estimates and projections regarding future events.

Although management believes the expectations reflected in such forward-looking statements are reasonable, forward-looking statements are based on the opinions, assumptions and estimates of management at the date the statements are made, and are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements. These factors include, but are not limited to the risk factors disclosed in Stingray’s Annual Information Form for the year ended March 31, 2017 available on SEDAR. In addition, these risk factors include, but are not limited to: the possible failure to successfully integrate NCC with Stingray’s business, failure to close the Acquisition, loss of certain key personnel of NCC, failure to obtain the necessary financing to complete the Acquisition, increased indebtedness, the assumption of unknown liabilities associated with the Acquisition, the assumption of pension and other employee benefit obligations from NCC, the information provided by NCC not being accurate or complete and changes in the terms of the Acquisition.

In addition, if any of the assumptions or estimates made by management prove to be incorrect, actual results and developments are likely to differ, and may differ materially, from those expressed or implied by the forward-looking statements contained in this news release. Such assumptions include, but are not limited to, the following: our ability to generate sufficient revenue while controlling our costs and expenses; our ability to manage our growth effectively; the absence of material adverse changes in our industry or the global economy; trends in our industry and markets; the absence of any changes in law, administrative policy or regulatory requirements applicable to our business, including any change to our licenses with the CRTC; minimal changes to the distribution of the pay audio services by Pay-TV providers in light of recent CRTC policy decisions; our ability to manage risks related to international expansion; our ability to maintain good business relationships with our clients, agents and partners; our ability to expand our sales and distribution infrastructure and our marketing; our ability to develop products and technologies that keep pace with the continuing changes in technology, evolving industry standards, new product introductions by competitors and changing client preferences and requirements; our ability to protect our technology and intellectual property rights; our ability to manage and integrate acquisitions; our ability to retain key personnel; and our ability to raise sufficient debt or equity financing to support our business growth. In relation to the Acquisition and the Offering, Stingray makes the following material assumptions, without limitation: availability of capital resources, strength of market conditions, customer demand and satisfactory of customary closing conditions, including CRTC and competition approval and receipt of regulatory approval with respect to the Offering. If these assumptions are inaccurate, Stingray’s or the combined entity’s actual results could differ materially from those expressed or implied in such forward-looking statements. Accordingly, prospective purchasers are cautioned not to place undue reliance on such statements.

All of the forward-looking information in this document is qualified by these cautionary statements. Statements containing forward-looking information contained herein are made only as of the date of this news release. Stingray expressly disclaims any obligation to update or alter statements containing any forward-looking information, or the factors or assumptions underlying them, whether as a result of new information, future events or otherwise, except as required by law.

Non-IFRS Financial Measures

Stingray believes that Adjusted EBITDA and Adjusted EBITDA margin are important measures when analyzing its operating profitability without being influenced by financing decisions, non-cash items and income taxes strategies. Comparison with peers is also easier as companies rarely have the same capital and financing structure. Stingray believes that Adjusted net income and Adjusted net income per share are important measures as it demonstrates its core bottom-line profitability. Stingray believes that Adjusted free cash flow is an important measure when assessing the amount of cash generated after accounting for capital expenditures and non-core charges. It demonstrates cash available to make business acquisitions, pay dividends and reduce debt. Stingray believes that Net debt including and excluding contingent considerations and Net debt to Adjusted EBITDA are important measures when analyzing the significance of debt on Stingray’s statement of financial position. Each of these non-IFRS financial measures is not an earnings or cash flow measure recognized by IFRS and does not have a standardized meaning prescribed by IFRS. Our method of calculating such financial measures may differ from the methods used by other issuers and, accordingly, our definition of these non-IFRS financial measures may not be comparable to similar measures presented by other issuers. Investors are cautioned that non-IFRS financial measures should not be construed as an alternative to net income determined in accordance with IFRS as indicators of our performance or to cash flows from operating and investing activities as measures of liquidity and cash flows. Please refer to the Company’s Management Discussion and Analysis for the year ended December 31, 2017 and for the nine-month period ended December 31, 2017 incorporated by reference in the Prospectus and available on SEDAR at www.sedar.com for the definitions of all non-IFRS financial measures and additional IFRS measures and, when applicable, a clear quantitative reconciliation from the non-IFRS financial measures to the most directly comparable measure calculated in accordance with IFRS.