EARLY WARNING NEWS RELEASE OF CO-OPERATORS FINANCIAL SERVICES LIMITED

GUELPH, ON, March 10, 2022 /CNW/ - Co-operators Financial Services Limited ("CFSL") has acquired, ownership of a 12% senior secured convertible debenture in the principal amount of $5,000,000 (the "Debenture") issued by Smart Employee Benefits Inc. (the "Issuer"). CFSL is a wholly owned subsidiary of The Co-operators Group Ltd.

The principal amount of the Debenture is convertible into common shares of the Issuer ("Common Shares") at a conversion price of $0.25 per Common Share, subject to adjustment (the "Conversion Price"). The Debenture is convertible at the option of CFSL at any time, and from time to time, prior to the close of business on the last business day immediately preceding the Maturity Date (as defined below). The Debenture, or any part thereof, is convertible at the option of the Issuer if all of the following conditions are satisfied: (i) the Common Shares are listed for trading on the Toronto Stock Exchange; (ii) the Common Shares trade for at least 200% of the Conversion Price based on a volume weighted average price basis for any twenty consecutive trading days; and (iii) the EBITDA of the Issuer for four trailing quarters exceeds $5,000,000 for any two consecutive quarters. If the conditions precedent to the Issuer's right to convert the Debenture are satisfied, the Issuer must provide written notice to CFSL no later than 15 business days following the date that such conditions precedent are first met. If written notice is not provided by the Issuer within 15 business days of such date, then the Issuer's right to convert the Debenture is extinguished.

The Debenture has an interest rate of 12% per annum, paid quarterly in arrears on the last day of May, August, November and February of each year, with the principal payment due at the maturity date (the "Maturity Date"), being November 30, 2025.  Interest accrued until February 28, 2023, shall be paid quarterly in Common Shares at the then market price, subject to approval of the TSX Venture Exchange (the "TSXV").  To the extent TSXV approval is not obtained, such interest shall be capitalized and added to the principal of the Debenture.

For interest accrued after February 28, 2023 until the Issuer's operating credit facility is terminated (the "Termination Date"), interest shall be paid quarterly in Common Shares at the then market price, subject to TSXV approval. To the extent TSXV approval is not obtained, such interest shall be paid in cash, provided that if the Issuer would be in breach of its operating credit facility by making such a cash payment, then such interest would be added to the principal of the Debenture.

For interest accrued after the Termination Date until the Maturity Date, CFSL shall be entitled to elect, at the beginning of each quarterly period during which interest is payable, whether to receive interest for such quarterly period in cash or Common Shares. If the TSXV does not consent to payment of interest in Common Shares on any interest payment date, then interest will be paid by the Issuer in cash for such payment date.

An additional fee of 3% per annum of the outstanding principal amount of the Debenture ("Pik Fee") shall be paid to CFSL on the last day of May and November in each year.

For Pik Fees relating to a Pik Fee payment date on or prior to the Termination Date, such Pik Fees shall be paid in Common Shares at the then market price, subject to TSXV approval.  To the extent TSXV approval is not obtained, such Pik Fee shall be capitalized and added to the principal of the Debenture.

For Pik Fees relating to a Pik Fee payment date after the Termination Date until the Maturity Date, the Issuer shall be entitled to elect on each payment date whether to pay such Pik Fee in cash or Common Shares.  If the TSXV does not consent to payment of the Pik Fee in Common Shares on any such payment date, then such Pik Fee will be paid by the Issuer in cash for such payment date.

CFSL acquired the Debenture on March 8, 2022 on a private placement basis for an aggregate purchase price of $5,000,000. If converted in full (at an assumed conversion price of $0.25 per Common Share), CFSL would receive 20,000,000 Common Shares.

The Debenture was purchased pursuant to a debenture purchase agreement entered into between the Issuer and CFSL dated March 8, 2022.  

CFSL also owns a 10% senior secured convertible debenture in the principal amount of $20,000,000 (the "2020 Debenture") that it acquired on November 30, 2020 on a non-brokered private placement basis pursuant to a debenture purchase agreement entered into between the Issuer and CFSL dated November 15, 2020. The 2020 Debenture has an interest rate of 10% per annum, paid semi-annually with the principal payment due at the maturity date (the "2020 Maturity Date"), being November 30, 2025. The principal amount of the 2020 Debenture is convertible into Common Shares at a conversion price of $0.25 per Common Share, subject to adjustment (the "2020 Conversion Price"). The 2020 Debenture is convertible at the option of CFSL at any time prior to the close of business on the last business day immediately preceding the 2020 Maturity Date. If the volume weighted average trading price of the Common Shares on the TSX Venture Exchange is equal to at least 175% of the 2020 Conversion Price for a period of 30 consecutive trading days, then the 2020 Debenture will be convertible at the option of the Issuer.

Immediately before the transaction, CFSL owned the 2020 Debenture and on an as converted basis (at an assumed conversion price of $0.25) owned 80,000,000 Common Shares representing approximately 32% of the outstanding Common Shares on an as converted basis. Immediately following the transaction, CFSL owned the 2020 Debenture and the Debenture and on an as converted basis (at an assumed conversion price of $0.25) owned 100,000,000 Common Shares representing approximately 37% of the outstanding Common Shares on an as converted basis.

CFSL acquired the Common Shares for investment purposes and CFSL may, depending on market and other conditions, increase or decrease its beneficial ownership, control or direction over additional securities of the Issuer, through market transactions, private agreements, treasury issuances, exercise of convertible securities or otherwise.

In connection with the issuance of the Debenture, CFSL entered into an amendment to CFSL's existing investor rights agreement with the Issuer and SEB Administrative Services Inc.  providing for, among other things, the right for CFSL to have three nominees appointed to the board of directors of the Issuer, including one member on the governance and compensation committee of the Issuer and the right to appoint one observer to attend the meetings of the audit committee of the Issuer.

The head office of CFSL is located at 130 Macdonell Street, Guelph Ontario N1H 6P8, The head office of the Issuer is located at 5500 Explorer Drive, 4th Floor, Mississauga, Ontario L4C 5C7.

SOURCE Co-operators Financial Services Limited

For further information please refer to the Early Warning Report to be posted on the Issuer's SEDAR profile at www.sedar.com or which may be obtained by contacting Conor Quinn, VP Group Benefits Insurance of CFSL at 306-347-6375 ext. 606375.