Neuberger Berman, Palos Capital and Fintech Ventures to Acquire IOU at C$0.22 per Share in an All-Cash Transaction

MONTREAL, July 14, 2023 /PRNewswire/ - IOU Financial Inc. ("IOU" or the "Company") (TSXV: IOU) today announced that it has entered into an arrangement agreement (the "Arrangement Agreement") with 9494-3677 Québec Inc. (the "Purchaser"), a corporation created by a group composed of funds managed by Neuberger Berman ("Neuberger"), Palos Capital ("Palos") and Fintech Ventures ("FinTech") for the acquisition of IOU through a statutory plan of arrangement (the "Arrangement").

Under the terms of the Arrangement Agreement, the Purchaser has agreed to acquire all of the issued and outstanding common shares in the capital of IOU (the "Shares") other than Shares (the "Rolling Shares") to be re‐invested by Neuberger, Palos, FinTech and certain representatives of management of IOU (collectively, the "Rolling Shareholders"), for an all-cash consideration of C$0.22 per Share (the "Consideration"). The Consideration represents a 83.3% premium to the closing price of the Shares on the TSX Venture Exchange (the "TSX-V") on July 13, 2023, the last trading day immediately prior to the announcement of the Arrangement, and a 90.6% premium to the 30-day volume-weighted average price of the Shares on the TSX-V for the period ended on July 13, 2023, the last trading day immediately prior to the announcement of the Arrangement. The Rolling Shareholders, taken together, own, control or direct an aggregate of 48,621,313 Shares (representing approximately 46.1% of the issued and outstanding Shares on a non-diluted basis) and will be re-investing in IOU an aggregate of 42,487,414 Rolling Shares (representing approximately 40.3% of the issued and outstanding Shares on a non-diluted basis).

Evan Price, Chairman of IOU, stated "This transaction provides our shareholders with immediate liquidity at a compelling premium to our current trading price, and serves to unlock the long-term value that we have been building through the elaboration of our solid business model."

Robert Gloer, President and Chief Executive Officer of IOU, added "We are excited about this vote of confidence from our business partner Neuberger Berman and our long-term shareholders, and about the prospects for taking this partnership to the next level by developing new market opportunities together."

Peter Sterling, head of Neuberger's Specialty Finance team, said "We are excited to expand our relationship with Robert and the entire IOU team. We believe our collective strengths and funding stability will enable IOU to unlock significant market opportunities."

Philippe Marleau, the CEO of Palos, a founder of the Company, expressed "We are proud to continue participating in the success of IOU."

"We see this as an important opportunity for IOU to provide a meaningful return to its shareholders and to position itself for future growth as a private company," added Lucas Timberlake, Co-Founder and General Partner of FinTech.

The Arrangement Agreement was approved unanimously by the IOU board of directors (the "Board") (with Philippe Marleau and Lucas Timberlake abstaining from voting due to their relationships with Palos and FinTech, respectively, and Robert Gloer abstaining from voting due to his participation in the Arrangement as a Rolling Shareholder), after taking into account, among other things, the unanimous recommendation of a special committee (the "Special Committee") of the Board comprised of Evan Price, Yves Roy, Neil Wolfson and Kathleen Miller, each an independent director of the Company. The Special Committee and the Board (with the abstentions referred to above) determined that the Arrangement is in the best interests of IOU and recommend that shareholders of IOU (other than the Rolling Shareholders) vote in favour of the Arrangement at the Meeting (as defined below). In making their respective determinations, the Special Committee and the Board each considered, among other factors, a valuation from Evans & Evans, Inc. and an opinion of Evans & Evans, Inc. to the effect that the cash purchase price of C$0.22 per Share to be received by IOU shareholders (other than the Rolling Shareholders) under the Arrangement is fair, from a financial point of view, to the IOU shareholders (other than the Rolling Shareholders).

The Arrangement is to be effected by way of a court-approved plan of arrangement pursuant to the Business Corporations Act (Québec) and is expected to close in the third quarter of 2023, subject to shareholder, court and regulatory approvals and other customary closing conditions. Completion of the Arrangement is not subject to any financing condition.

The Arrangement Agreement includes customary provisions relating to non-solicitation, subject to customary "fiduciary out" provisions that entitle the Board to consider and, subject to certain conditions, accept a superior proposal if the Purchaser does not match the superior proposal. A termination fee of C$885,000 (representing approximately 3.5% of undiluted equity value of the Company) will be payable by IOU to the Purchaser in certain customary circumstances.

A special meeting of IOU shareholders to consider and, if deemed advisable, approve the Arrangement (the "Meeting") is expected to be held on or about September 15, 2023. In order to be approved by IOU shareholders at the Meeting, the Arrangement will need the approval of at least two‐thirds (66 ?%) of the votes cast at the Meeting in person or by proxy by holders of Shares and by a simple majority of the votes cast at the Meeting in person or by proxy by holders of Shares (other than Shares required to be excluded under Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions and applicable TSX-V rules). Additional details regarding the Arrangement, the background to the Arrangement, the reasons for the Board's and Special Committee's recommendations of the Arrangement, and how IOU shareholders can participate in and vote at the Meeting, together with a copy of the Evans & Evans, Inc. valuation and fairness opinion, will be set out in IOU's management information circular and other proxy-related materials to be prepared, filed and sent to IOU shareholders in connection with the Meeting. Copies of the Arrangement Agreement and the management information circular will be filed by the Company under its profile on SEDAR at www.sedar.com (and following the launch of SEDAR+ on July 25, 2023, at www.sedarplus.ca).

In connection with the Arrangement, the Rolling Shareholders and certain other shareholders, directors and officers of IOU, who hold in aggregate 50,808,054 Shares (or approximately 48.1% of the issued and outstanding Shares (on a non‐diluted basis)), have entered into voting support agreements with the Purchaser providing for such shareholders to vote all Shares beneficially owned by them in favour of the Arrangement.

In connection with the Arrangement Agreement, in addition to the voting support agreements described above, the Purchaser and the Rolling Shareholders have entered into a letter agreement and rollover agreements, each dated July 13, 2023, whereby each of NB Specialty Finance Fund LP ("NBSF 1") (an entity managed by Neuberger Berman Investment Advisers LLC ("NBIA")), Palos IOU Inc. (an entity formed by certain affiliates of Palos and representatives of management of IOU, "Palos IOU") and Fintech Ventures Fund, LLLP ("Fintech Ventures Fund"), acting jointly, have agreed to contribute 15,665,839 Rolling Shares, 14,321,575 Rolling Shares and 12,500,000 Rolling Shares, respectively, to the Purchaser in exchange for common shares of the Purchaser upon the completion of the Arrangement.

Both immediately before and immediately after the execution of the Arrangement Agreement: (i) NBIA, through NBSF-1, held or exercised control or direction over 15,665,839 Shares, representing approximately 14.8% of the issued and outstanding Shares (on a non-diluted basis); (ii) Palos and its affiliates (collectively, the "Palos Group") held or exercised control or direction over 19,362,803 Shares, representing approximately 18.3% of the issued and outstanding Shares (on a non-diluted basis), and Philippe Marleau, Robert Gloer, Madeline Wade and Carl Brabander, each an affiliate, associate and/or joint actor of Palos IOU, held options to acquire an aggregate of 4,785,000 Shares, and (iii) Fintech Ventures Fund held or exercised control or direction over 13,592,671 Shares, representing approximately 12.9% of the issued and outstanding Shares (on a non-diluted basis), and Lucas Timberlake, principal of Fintech Ventures Fund, held options to acquire an aggregate of 185,000 Shares. The Shares held by Palos and Fintech Ventures Fund that are not Rolling Shares will be disposed of pursuant to the Arrangement under the same terms as for the other IOU shareholders.

In connection with the Arrangement Agreement, on July 13, 2023, Palos IOU entered into a share exchange agreement (the "Share Exchange Agreement") with certain shareholders of the Company (collectively, the "Palos IOU Rolling Shareholders") whereby Palos IOU acquired from the Palos IOU Rolling Shareholders 14,321,575 Shares (including 240,433 Shares from Robert Gloer) at a price of $0.22 per Share in exchange for common shares in the capital of Palos IOU ("Palos IOU Shares") at a deemed price of C$0.22 per Palos IOU Share on a one-for-one basis (the "Acquisition"). Prior to the Acquisition, the Palos Group owned, controlled or directed, directly or indirectly, 10,041,228 Shares, representing approximately 9.5% of the issued and outstanding Shares (on a non-diluted basis). After giving effect to the Acquisition, the Palos Group owned, controlled or directed, directly or indirectly, 19,362,803 Shares, representing approximately 18.3% of the issued and outstanding Shares (on a non-diluted basis).

In addition, NBSF 1 and IOU are party to an Investor Rights Agreement dated as of December 3, 2020, pursuant to which, among other things, (i) for such time as NBSF 1 (collectively with its affiliates) owns at least 7.5% of the issued and outstanding Shares, NBSF 1 has the right, subject to customary requirements, to nominate one (1) nominee to be included in the list of nominees proposed as directors by IOU, and (ii) for such time as NBSF 1 (collectively with its affiliates) owns at least 7.5% of the issued and outstanding Shares or continues to purchase loans under and in accordance with the terms of that certain loan purchase agreement dated October 22, 2020 between NBSF 2018-2 and IOU Central Inc., a subsidiary of the Company, NBSF 1 has the right, subject to customary requirements, to designate one (1) individual to attend meetings of the Board as a non-voting observer.

Davies Ward Phillips & Vineberg LLP is acting as legal advisor to the Company and Blake, Cassels & Graydon LLP is acting as independent legal advisor to the Special Committee.

Evans & Evans, Inc. is acting as financial advisor to the Special Committee and has provided a fairness opinion and an independent valuation in connection with the Arrangement.

Stikeman Elliott LLP is acting as legal advisor to Neuberger and the Purchaser. McMillan LLP is acting as legal advisor to Palos.

IOU Financial Inc. is a wholesale lender that provides quick and easy access to growth capital to small businesses through a network of preferred brokers across the US and Canada. Built on its proprietary IOU360 technology platform that connects underwriters, merchants and brokers in real time, IOU Financial has become a trusted alternative to banks by originating over US$1 billion in loans to fund small business growth since 2009. IOU was named one of the 50 Best Places to Work in Fintech for 2022 by American Banker and trades on the TSX-V under the symbol "IOU", and on the US OTC markets as "IOUFF". To learn more about IOU Financial's corporate history, financial products, or to join our broker network please visit www.IOUFinancial.com.

Neuberger Berman, founded in 1939, is a private, independent, employee-owned investment manager. The firm manages a range of strategies—including equity, fixed income, quantitative and multi-asset class, private equity, real estate and hedge funds—on behalf of institutions, advisors and individual investors globally. Neuberger Berman's investment philosophy is founded on active management, engaged ownership and fundamental research, including industry-leading research into material environmental, social and governance factors. Neuberger Berman is a PRI Leader, a designation awarded to fewer than 1% of investment firms. With offices in 26 countries, the firm's diverse team has over 2,700 professionals. For nine consecutive years, Neuberger Berman has been named first or second in Pensions & Investments Best Places to Work in Money Management survey (among those with 1,000 employees or more). The firm manages $436 billion in client assets as of March 31, 2023. For more information, please visit our website at www.nb.com.

Palos Capital, based in Montreal, Quebec, is a boutique financial services firm that primarily operates through two subsidiaries: Palos Wealth Management Inc. (PWM) and Palos Management Inc. (PMI). PWM offers wealth management services, including discretionary portfolio management and separately managed account services to individual, corporate and institutional clients. PMI is an independent, investment fund manager and portfolio manager. For more information, please visit the company`s website at www.palos.ca.

Fintech Ventures is an early-stage venture capital firm founded in 2015 and headquartered in Atlanta, GA, with offices in New York, NY. The firm focuses exclusively on investing in and partnering with entrepreneurs building promising technology-enabled companies in the banking, capital markets, and lending sectors. The Fintech Ventures team has multiple decades of collective operational and investment experience, with numerous successful exits. For more information, please visit www.fintechv.com.

Certain statements made in this press release are forward-looking statements within the meaning of applicable securities laws, including, but not limited to, statements with respect to the rationale of the Special Committee and the Board for entering into the Arrangement Agreement, the expected benefits of the Arrangement, the timing of various steps to be completed in connection with the Arrangement, and other statements that are not material facts. Often, but not always, forward-looking statements can be identified by the use of forward-looking terminology such as "may", "will", "expect", "believe", "estimate", "plan", "could", "should", "would", "outlook", "forecast", "anticipate", "foresee", "continue" or the negative of these terms or variations of them or similar terminology.

Although the Company believes that the forward-looking statements in this press release are based on information and assumptions that are reasonable, including assumptions that parties will receive, in a timely manner and on satisfactory terms, the necessary court, shareholder and U.S. State regulatory approvals, and that the parties will otherwise be able to satisfy, in a timely manner, the other conditions to the closing of the Arrangement, these forward-looking statements are by their nature subject to a number of factors that could cause actual results to differ materially from management's expectations and plans as set forth in such forward-looking statements, including, without limitation, the following factors, many of which are beyond the Company's control and the effects of which can be difficult to predict: (a) the possibility that the Arrangement will not be completed on the terms and conditions, or on the timing, currently contemplated, and that it may not be completed at all, due to a failure to obtain or satisfy, in a timely manner or otherwise, required shareholder, regulatory and court approvals and other conditions of closing necessary to complete the Arrangement or for other reasons; (b) risks related to tax matters; (c) the possibility of adverse reactions or changes in business resulting from the announcement or completion of the Arrangement; (d) risks relating to the Company's ability to retain and attract key personnel during the interim period; (e) the possibility of litigation relating to the Arrangement; (f) the potential of a third party making a superior proposal to the Arrangement; (g) risks related to diverting management's attention from the Company's ongoing business operations; and (h) other risks inherent to the business carried out by the Company and factors beyond its control which could have a material adverse effect on the Company or its ability to complete the Arrangement.

The Company cautions investors not to rely on the forward-looking statements contained in this press release when making an investment decision in their securities. Investors are encouraged to read the Company's filings available under its profile on SEDAR at www.sedar.com for a discussion of these and other risks and uncertainties. The forward-looking statements in this press release speak only as of the date of this press release and IOU undertakes no obligation to update or revise any of these statements, whether as a result of new information, future events or otherwise, except as required by law.

Neither TSX-V nor its Regulation Services Provider (as that term is defined in policies of the TSX-V) accepts responsibility for the adequacy or accuracy of this release.

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SOURCE IOU Financial Inc.