SEB Smart Employee Benefits Inc

Smart Employee Benefits Inc. (“SEB” or the “Company”) (TSXV: SEB) a leader in benefits processing solutions and services today announced that it has entered into a non-binding agreement with Co-operators Financial Services Limited (“The Co-operators”), a large existing strategic investor, for a convertible debenture (the “Debenture”) on a non-brokered private placement basis to raise gross proceeds of $5,000,000 (the “Financing”). The proceeds of the Financing will be used for general working capital purposes including the repayment of select payables.

Terms of The FinancingThe principal amount of the Debenture, or any part thereof, will be convertible into common shares of SEB (“Shares”) at a conversion price of $0.25 per Share (the “Conversion Price”), at the option of the holder, 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), including upon a change of control of the Company. The Debenture, or any part thereof, will be convertible at the option of the Company if all of the following conditions are satisfied: (i) the Shares are listed for trading on the Toronto Stock Exchange; (ii) the 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 Company for four trailing quarters exceeds $5,000,000 for any two consecutive quarters. If the conditions precedent to the Company’s right to convert the Debenture are satisfied, the Company must provide written notice to The Co-operators no later than 15 business days following the date that such conditions precedent are first met. If written notice is not provided by the Company within 15 business days of such date, then the Company’s right to convert the Debenture is extinguished.

The Debenture will have 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 Shares at the then market price, subject to approval of the TSX Venture Exchange (the “TSXV”). For interest accrued after February 28, 2023, The Co-operators 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 Shares. If the TSXV does not consent to payment of interest in Shares on any interest payment date then interest will be paid by the Company in cash on such payment date.

During the term of the Debenture, an additional 3% per annum of the outstanding principal amount of the Debenture shall be paid to The Co-operators in cash, or, at the Company’s option, be paid-in-kind (“PIK”), instead of cash, on the last day of May and November in each year. Such PIK shall be determined on the last day of May and November of each year and if PIK is selected by the Company then the PIK interest accrued up to the last day of May and November (as applicable) of such year shall be paid in Shares at the then market price, subject to the approval of the TSXV in each case. If PIK is not selected by the Company, or if PIK is selected by the Company but the TSXV does not consent to PIK, then the Company shall make such payment in cash.

The Debenture and any Shares issued upon its conversion will be subject to a hold period expiring four months and one day after the closing of the Financing.

The Debenture will be guaranteed by the material subsidiaries of the Company (the “Guarantors”) and secured by a first ranking pledge of the shares of SEB Administrative Services Inc. (“SEB Admin”), a wholly-owned subsidiary of the Company, and first ranking security over the software owned by SEB Admin, and second ranking security over all other undertaking, property and assets of the Company and of each Guarantor which such security will be subject only to a first ranking security over such security in favour of SEB’s operating credit facility lender. The Company, The Co-operators and the operating credit facility lender are parties to an intercreditor agreement governing, among other things, the priority of the first and second ranking security and the relationship of The Co-operators and such operating credit facility lender with the Company and vis a vis each other. The Company anticipates that the intercreditor agreement will be amended and restated in connection with the Financing.

On a change of control of the Company (a “Change of Control”), the Company shall notify The Co-operators of the Change of Control in writing, and The Co-operators shall, in its sole discretion, have the right to require the Company to, either: (i) purchase the Debenture, in whole or in part, at a price equal to 101% of the principal amount thereof plus unpaid interest; or (ii) convert the Debenture, in whole or in part, at the Conversion Price.

Pursuant to an amendment to The Co-operators’ existing investor rights agreement, The Co-operators will have the right to have three nominees appointed to the board of directors of the Company, including one member on the governance and compensation committee of the Company and the right to appoint one observer to attend the meetings of the audit committee of the Company, inclusive of the two board seats presently held by The Co-operators.

There are currently approximately 170,000,000 Shares issued and outstanding. The Co-operators currently owns a convertible debenture entitling it to convert into 80,000,000 Shares. If The Co-operators were to convert the principal amount of the convertible debenture which it currently owns, as well as the principal amount of the Debenture to be issued to it pursuant to the Financing, then The Co-operators would beneficially own or control, directly or indirectly, 100,000,000 Shares, representing approximately 37% of the approximately 270,000,000 then issued and outstanding Shares.

In connection with the Financing, the Company will pay an origination fee, which is customary for such financing.

Issuance of the Debenture to The Co-operators may be considered a related party transaction within the meaning of TSXV Policy 5.9 and Multilateral Instrument 61-101 (“MI 61-101”). The Company intends to rely on the exemptions from the valuation and minority shareholder approval requirements of MI 61-101 contained in Sections 5.5(b) and 5.7(1)(a) of MI 61-101 in respect of such transaction.

Completion of the Financing is subject to, among other things, approval of the TSXV, final definitive documentation and the consent of SEB’s operating credit facility lender. The Company is targeting to close the Financing on or around February 25, 2022.

About Smart Employee Benefits Inc.:SEB is a proven provider of leading-edge IT and benefits processing software, solutions and Services for the Life and Group benefits marketplace and government. We design, customize, build, and manage mission critical, end-to-end technology, people and infrastructure solutions using SEB’s proprietary technologies and expertise and partner technologies. We manage mission critical business processes for over 150 blue chip and government accounts, nationally and globally. Over 90% of our revenue and contracts are multi-year recurring revenue streams contracts related to government, insurance, healthcare, benefits and e-commerce. Our solutions are supported nationally and globally by over 600 multi-certified technical professionals in a multi-lingual infrastructure, from 8 offices across Canada and globally.

Our solutions include both software and Services driven ecosystems including multiple SaaS solutions, cloud solutions & Services, managed Services offering smart sourcing (near shore/offshore), managed security Services, custom software development and support, professional Services, deep systems integration expertise and multiple specialty practice areas including AI, CRM, BI, Portals, EDI, e-commerce, digital transformation, analytics, project management to mention a few. The Company has more than 20 strategic partnerships/relationships with leading global and regional technology and consulting organizations.

Forward-Looking StatementsCertain information in this release, may constitute forward-looking information. In some cases, but not necessarily in all cases, forward-looking information can be identified by the use of forward-looking terminology such as “plans”, “targets”, “expects” or “does not expect”, “is expected”, “an opportunity exists”, “is positioned”, “estimates”, “intends”, “assumes”, “anticipates” or “does not anticipate” or “believes”, or variations of such words and phrases or state that certain actions, events or results “may”, “could”, “would”, “might”, “will” or “will be taken”, “occur” or “be achieved”. 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.

THE FORWARD-LOOKING INFORMATION CONTAINED IN THIS RELEASE REPRESENTS THE COMPANY’S CURRENT EXPECTATIONS AND, ACCORDINGLY, IS SUBJECT TO CHANGE. HOWEVER, THE COMPANY EXPRESSLY DISCLAIMS ANY INTENTION OR OBLIGATION TO UPDATE OR REVISE ANY FORWARD-LOOKING INFORMATION, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE, EXCEPT AS REQUIRED BY APPLICABLE LAW.

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

This news release does not constitute an offer to sell or a solicitation of an offer to sell any of the securities described herein in the United States. The securities described in this news release have not been and will not be registered under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”) or any state securities laws and may not be offered or sold within the United States or to U.S. Persons unless registered under the U.S. Securities Act and applicable state securities laws or an exemption from such registration is available.

All figures are in Canadian dollars unless otherwise stated.

Media and Investor ContactJohn McKimmPresident/CEO/CIOOffice (888) 939-8885 x 2354Cell (416) 460-2817john.mckimm@seb-inc.com