Qwave Capital LLC

June 25, 2015 15:40 ET

Qwave Capital LLC Formally Commences All-Cash Offer to Purchase 34,000,000 Common Shares of IOU Financial Inc. for $0.50 Per Common Share

MONTREAL, QUEBEC--(Marketwired - June 25, 2015) - Qwave Capital LLC ("Qwave"), a venture capital firm focused on promising technologically advanced companies, announced today that it has formally commenced an all-cash offer (the "Offer") to acquire 34,000,000 of the outstanding common shares (the "Common Shares") of IOU Financial Inc. ("IOU") for $0.50 per Common Share. The formal offer including the bid circular and related materials have been filed with Canadian securities regulators and Qwave has commenced the mailing of its offer and related documents to IOU shareholders.

Pursuant to the Offer, IOU shareholders will receive $0.50 in cash for every Common Share tendered and accepted under the Offer. The Offer will be open for acceptance until 5:00 p.m. (Eastern Standard Time) on July 31, 2015. The Offer represents a premium of 33.3% over the closing price of the Common Shares on the TSX Venture Exchange ("TSX-V") on June 12, 2015, and a 28.7% premium above the volume weighted average market price of the Common Shares on the TSX-V over the last 20 trading days prior to the announcement of the Offer on June 15, 2015.

The size of the Offer was increased from 30,000,000 Common Shares, as announced on June 15, 2015, to 34,000,000 Common Shares, following IOU's announcement on June 19, 2015, that it had closed a private placement of 7,795,000 Common Shares at an issue price of $0.40 per Common Share. The Common Shares subject to the Offer represent approximately 55.3% of the outstanding Common Shares as at the date of the Offer and 50.7% of the Common Shares as at the date of the Offer on a fully-diluted basis. If more than the maximum number of Common Shares are deposited and not withdrawn, the Common Shares to be purchased from each depositing shareholder will be determined on a pro rata basis, disregarding fractions by rounding down to the nearest whole share.

The Offer is subject to certain conditions, including, without limitation there being no adverse material change to IOU and there being validly deposited under, and not withdrawn from the Offer at its expiry time, that number of Common Shares which, when combined with all shares then held by Qwave and its affiliates, represents not less than a majority of the then outstanding Common Shares on a fully-diluted basis.

Full details of the terms and conditions of the Offer are set out in the formal offer and take-over bid circular. In addition, a letter to IOU shareholders has been included with this announcement, setting out Qwave's rationale for the Offer.

QWAVE URGES IOU SECURITY HOLDERS TO READ THE LETTER TO SHAREHOLDERS, THE OFFER AND TAKE OVER BID CIRCULAR AND ANY OTHER RELEVANT DOCUMENTS TO BE FILED WITH CANADIAN SECURITIES REGULATORY AUTHORITIES, BECAUSE THEY CONTAIN IMPORTANT INFORMATION.

LETTER TO SHAREHOLDERS OF IOU FINANCIAL INC. FROM QWAVE CAPITAL LLC

"June 25, 2015

Dear IOU Shareholder:

As a shareholder of IOU Financial Inc. ("IOU"), you have an important decision to make.

On the strength of an all-cash offer from Qwave Capital LLC ("Qwave") to purchase 34,000,000 Common Shares of IOU for $0.50 per common share, you have a choice between:

  • An opportunity to realize a significant premium and immediate liquidity for your investment in IOU; or

  • The status quo at IOU - continued underperformance and missed growth opportunities in an increasingly competitive market.

We believe the choice is clear.

The Premium Offer

On June 25, 2015, Qwave, a venture capital firm focused on promising technologically advanced companies, formally commenced an all-cash offer to acquire up to 55.3% of IOU's outstanding Common Shares at $0.50 per share. The Qwave offer, which is fully funded, represents a premium of 33.3% over the closing price of the IOU Common Shares on June 12, 2015 and a premium of 28.7% over IOU's 20-day volume-weighted average price on the TSX-V. It provides IOU shareholders with certainty of value and immediate liquidity for all or a portion of their IOU Common Shares tendered and accepted under the Qwave offer.

Additionally, the Qwave offer presents an opportunity for the remaining shareholders of IOU to partner with an experienced technology investor focused on realizing the potential of IOU. Qwave draws upon a management group with more than 20 years of experience finding and investing in companies with breakthrough technologies and excellent potential for growth and value creation. We have a strong track record of success in doing so.

The Status Quo is NOT an Option

In IOU, we see the potential for a market-leading online lending platform. But we also see a business in IOU with a capital structure that is not optimized to support its growth potential. Today, IOU cannot attract the inexpensive capital it requires to lend out, grow profitably and compete effectively. Consequently, IOU is losing ground to its competitors and missing opportunities to deliver value to its shareholders.

Consider the following:

  • Prior to Qwave announcing its offer on June 15, 2015, IOU Common Shares had lost approximately 36% of their value over the preceding 12 months.

  • The company has been unable to raise the money it so clearly needs at a fair price for IOU and its shareholders. On June 19, 2015, IOU announced that it completed a private placement financing for $3.1 million, which was less than half the $7 million initially sought by IOU in February 2015, and the final $0.40 share price represented a 19% discount to the closing price of IOU shares on June 19, 2015 and a 20% discount to Qwave's offer (see below under "Background to the Offer"). Moreover, parties related to IOU management subscribed to roughly 17% of the offering at the discounted offer price. In all, this raises serious questions about IOU's commitment to creating value for you and the rest of IOU's shareholders.

  • Due to the company's inability to raise sufficient capital at a fair price, IOU's growth has stagnated and its ability to compete is suffering. If this trend continues, IOU's survival will be at risk.

Background to the Offer

Privately, Qwave has presented the IOU board of directors and management team with several opportunities to address this challenge:

  • On February 17, 2015, we presented IOU with a term sheet outlining an investment of $15,000,000 in IOU. The IOU board of directors rejected the offer without explanation.

  • On February 26, 2015, Qwave expressed interest in investing $2,000,000 in IOU under the terms of the proposed $7,000,000 private placement at an issue price of $0.50 per Common Share. This offer was rejected without explanation, and IOU subsequently closed the June 19, 2015, $3.1-million private placement at a $0.10 discount per Common Share to the original $0.50 issue price.

  • On June 3, 2015, Qwave wrote to IOU with an offer to renew discussions regarding an investment in IOU at an offer price greater than what had been proposed under the revised private placement. Again, IOU refused to enter into meaningful discussions regarding terms of an alternative, mutually acceptable transaction.

For this reason, we are now presenting our premium offer directly to you and all IOU shareholders. If we are successful in completing our Offer, we intend to ensure that the IOU board of directors possesses the skills, knowledge and expertise necessary to grow the company, increase market share and create value for Shareholders. If you want to realize a significant premium and immediate liquidity for a substantial portion of your investment in IOU and partner with an experienced technology investor focused on IOU realizing its full potential, tender your shares to the offer.

How to Tender Your Shares to the Qwave Offer

The takeover bid circular contains a detailed explanation of the terms of the offer and a more fulsome explanation of the proposed benefits to IOU shareholders. We encourage you to take the time to read the circular carefully and make an informed decision. This is an important juncture for your company.

If you have any questions regarding our offer and how to tender shares, please call our Depositary and Information Agent, Laurel Hill Advisory Group, at 1-877-452-7184 or 416-304-0211, or email assistance@laurelhill.com.

TENDER YOUR SHARES TO THE QWAVE OFFER TODAY!

I thank you in advance for taking the time to carefully consider the details of the offer contained in the circular.

On behalf of Qwave Capital LLC,
(Signed) Serguei Kouzmine"

This press release does not constitute an offer to buy or an invitation to sell, or the solicitation of an offer to buy or invitation to sell, any of the securities of IOU. Such an offer may only be made pursuant to an offer and take-over bid circular filed with the securities regulatory authorities in Canada.

Additional Information - How to Tender Your Shares to the Qwave Offer

IOU shareholders wishing to accept the Offer are encouraged to tender their shares by completing the yellow letter of transmittal accompanying the documents mailed to them and returning it together with certificates representing their IOU shares and all other documents to the offices of Laurel Hill Advisory Group in accordance with the instructions provided in the yellow letter of transmittal. If IOU shares are held by a broker or other financial intermediary, IOU shareholders should contact such intermediary and instruct them to promptly tender their IOU shares.

Market Purchases by Qwave

During the term of the Offer, Qwave intends and reserves the right to purchase Common Shares of IOU through the facilities of the TSX-V other than under the terms of the Offer, provided: the number of common shares of IOU beneficially acquired does not exceed 5% of the outstanding Common Shares as of the date of the Offer; the purchases are made in the normal course through the facilities of the TSX-V; Qwave issues and files a news release containing the information required under Section 2.2(3) of Multilateral Instrument 62-104 and Section 2.1 of OSC Rule 62-504 immediately after the close of business of the TSX-V on each day in which Common Shares have been purchased; no broker acting for Qwave performs services beyond the customary broker's function in regards to the purchases; no broker acting for Qwave receives more than the usual fees or commissions in regard to the purchases that are charged for comparable services performed by the broker in the normal course; Qwave or any person acting for Qwave does not solicit or arrange for the solicitation of offers to sell Common Shares, except for the solicitation by Qwave or members of the soliciting group under the Offer; and the seller or any person acting for the seller does not, to the knowledge of Qwave, solicit or arrange for the solicitation of offers to buy securities of the class subject to the Offer. Such purchases of Common Shares through the facilities of the TSX-V shall be counted in any determination as to whether the minimum tender condition to the Offer has been fulfilled.

Shareholder Questions

Shareholders may obtain a free copy of the offer and take-over bid circular and other documents filed by Qwave with the Canadian securities regulators at www.sedar.com. The offer and take-over bid circular and other documents may also be obtained for free by contacting the Depositary and Information Agent, Laurel Hill Advisory Group, toll free in North America at 1-877-452-7184, collect outside North America at 416-304-0211, or by email at assistance@laurelhill.com.

About Qwave

Qwave is a venture capital firm focused on promising, technologically advanced companies. Qwave draws upon a management group with more than 20 years of experience and a strong track record of finding and investing in companies with breakthrough technologies and excellent potential for growth and value creation.

ON BEHALF OF QWAVE CAPITAL LLC

"Serguei Kouzmine"

Serguei Kouzmine
Manager

Forward-Looking Information

Information and statements contained in this news release that are not historical facts are "forward-looking information" within the meaning of Canadian securities legislation that involves risks and uncertainties. Forward-looking information included herein is made as of the date of this news release and Qwave does not intend, and does not assume any obligation, to update forward-looking information unless required by applicable securities laws. Forward-looking information relates to future events or future performance and reflects management of Qwave's expectations or beliefs regarding future events. In certain cases, forward-looking information can be identified by the use of words such as "plans", or "believes", or variations of such words and phrases or statements that certain actions, events or results "may", "could", "would", "might" or "will be taken", "occur" or "be achieved" or the negative of these terms or comparable terminology. Examples of forward-looking information in this news release include, but are not limited to, statements with respect to the completion of the Offer; IOU's prospects in the event that the Offer is completed; IOU's prospects in the event that the Offer is not completed; Qwave's anticipated actions with respect to IOU if the Offer is completed; the Expiry Time of the Offer; IOU's continued inability to secure financing if the Offer is not completed; Qwave's assessment of the effect of the Offer on IOU and the shareholders of IOU, the timing and prospects for shareholder acceptance of the Offer and the implementation there of and the continued listing of Common Shares on the TSX-V. This forward-looking information is based, in part, on assumptions and factors that may change or prove to be incorrect, thus causing actual results, performance or achievements to be materially different from those expressed or implied by forward-looking information. Such factors and assumptions include, but are not limited to: the number of Common Shares validly deposited under, and not withdrawn from, the Offer at the expiry time of the Offer, our ability to obtain and maintain timely receipt of regulatory approvals including approval of the TSX-V of the Offer and approval of the Autorité des Marchés Financiers of the Offer; dilution; competition; loss of key employees; and additional funding requirements.

By its very nature, forward-looking information involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by forward-looking information. Such factors include, but are not limited to: the need to satisfy regulatory and legal requirements with respect to the Offer; dilution to shareholders from any equity financings; and influence of significant shareholders. Although Qwave has attempted to identify important factors that could cause actual actions, events or results to differ materially from forward-looking information, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking information will prove to be accurate, as actual results and future events could differ materially from those anticipated by such forward-looking information. Accordingly, readers should not place undue reliance on forward-looking information.

The TSX-V has neither approved nor disapproved the form or content of this release. Information concerning IOU contained in this news release and has been taken from, or is based upon, publicly available information and records on file with Canadian securities regulatory authorities and other public sources. IOU has not reviewed this news release and has not confirmed the accuracy and completeness of the information in respect of IOU contained herein. Although Qwave has no knowledge that would indicate that any statements contained herein concerning IOU taken from or based on such documents and records are untrue or incomplete, neither Qwave nor its manager Dr. Kouzmine assumes any responsibility for the accuracy or completeness of such information or for any failure of IOU or its directors or officers to disclose events or facts which may have occurred or which may affect the significance or accuracy of any such information but which are unknown to it. The information presented regarding the percentage of Common Shares subject to the Offer is based upon publicly available information and records on file with Canadian securities regulatory authorities.

You may call our Depositary and Information Agent, Laurel Hill Advisory Group, if you have questions or requests for additional copies of the take-over bid circular and other documents filed by Qwave with the Canadian securities regulators. Questions and requests should be directed to the following telephone numbers:

Laurel Hill Advisory Group
North American Toll-Free: 1-877-452-7184
Collect Calls Outside North America: 416-304-0211
Email: assistance@laurelhill.com

Contact Information

  • Qwave Capital LLC
    3445 Stratford Road NE, 3902
    Atlanta, GA 30326

    Laurel Hill Advisory Group
    North American Toll-Free: 1-877-452-7184
    Collect Calls Outside North America: 416-304-0211
    assistance@laurelhill.com

    Media Inquiries:
    Ian Noble
    Edelman Canada
    604-561-3675
    ian.noble@edelman.com