Mr. Justin Hartzman reports

COINSMART ANNOUNCES ACQUISITION BY COINSQUARE, CREATING ONE OF CANADA'S LARGEST CRYPTO ASSET TRADING PLATFORMS

Coinsmart Financial Inc. has entered into a definitive agreement dated Sept. 22, 2022, with Coinsquare Ltd., a leading Canadian crypto asset trading platform, pursuant to which Coinsmart has agreed to sell to Coinsquare all of the issued and outstanding shares of its wholly owned operating subsidiary, Simply Digital Technologies Inc.

The acquisition and integration of these two businesses will establish Coinsquare as one of Canada's largest crypto asset trading platforms with a diversified and compliant offering across various business lines, including both retail and institutional trading, crypto payment processing, and digital asset custody. Coinsmart will hold an approximately 12-per-cent ownership in Coinsquare on a pro forma basis. The combined company has transacted over $10-billion since January, 2018, and will have over $350-million in assets under custody with a combined user base in excess of one million.

Coinsquare is in the final stages of its approval to become Canada's first crypto asset trading platform regulated as an Investment Industry Regulatory Organization of Canada (IIROC) dealer and marketplace member.

"Today is an exciting day for all of us at Coinsmart," said Coinsmart chief executive officer Justin Hartzman. "We are thrilled to be working alongside the Coinsquare team to build one of the largest regulated crypto asset trading platforms in Canada and I could not be more proud of what we have accomplished so far. With a diversified product suite, exceptional crypto talent and one of the largest user bases in Canada, the combined company will be well positioned to pursue its aggressive expansion plans. While the crypto market is in the building phase of its life cycle, this transaction will provide the torque needed to be in a favourable position entering the next bull run."

"This acquisition represents a monumental and exciting milestone for both companies and brings together two industry leading management teams," said Coinsquare CEO Martin Piszel. "We are excited to work together to shape how the crypto industry in Canada grows and evolves, and together we will be able to offer our clients the most innovative and secure products backed by the highest standards of regulation in the industry."

Key transaction benefits

• One of Canada's largest crypto asset trading platforms: The combined company will have transacted over $10-billion in crypto transactions since January, 2018, and will have over $350-million in assets under custody, together with a diversified and regulated platform across trading, payments, asset management and digital asset custody.
• Acquisition of cash and shares with upside to shareholders: The consideration payable to Coinsmart at closing is $3-million in cash and the issuance of 5,222,222 common shares of Coinsquare, with an aggregate deemed value of approximately $26,215,555, plus the ability to receive up to approximately $20-million in additional cash consideration on the achievement of SmartPay business earnout targets and 1.1 million Coinsquare shares on the achievement of over-the-counter (OTC) business earnout targets. It is further anticipated that Coinsmart will hold cash (or crypto assets) of approximately $10-million on completion of the transaction.
• Investment in Canada's only qualified custodian for digital assets: Backed by Coinsquare, Coinbase Ventures and other financial institutions, Tetra Trust is Canada's only qualified custodian for digital assets, and represents significant potential upside for Coinsquare shareholders.
• Exposure to diversified investment portfolio: Coinsquare, through its subsidiary, Coinsquare Investments Ltd., holds a diversified investment portfolio in assets, such as FRNT Financial and two Blockchange Ventures funds.
• Management team to join Coinsquare: Coinsmart co-founders Mr. Hartzman, Jeremy Koven and Michael Koral, among others, will join Coinsquare. Mr. Hartzman will join the Coinsquare executive team and Coinsmart will be entitled to a nominee to join the Coinsquare board of directors upon completion of the transaction.
• Voting support by senior officers and directors of approximately 45 per cent: All of the directors and certain senior officers of Coinsmart have entered into support and voting agreements with Coinsquare pursuant to which they have agreed to vote in favour of the transaction.

Transaction details

Pursuant to the terms of the purchase agreement, Coinsquare will acquire all of the issued and outstanding shares of Simply Digital on a cash-free, debt-free basis.

The purchase price, which is subject to standard postclosing adjustments as set out in the purchase agreement, will be satisfied on closing by (i) the payment to Coinsmart of $3-million in cash; and (ii) the issuance of 5,222,222 Coinsquare shares to Coinsmart. Coinsquare's largest shareholder, Mogo Inc., disclosed in its most recent financials that it valued the Coinsquare shares at approximately $5.02 per Coinsquare share as of June 30, 2022. There can be no assurance that such value per Coinsquare share has not changed since June 30, 2022.

Subject to the terms set forth in the purchase agreement, additional consideration will be payable to Coinsmart pursuant to the transaction upon the achievement of certain revenue-based earnout targets related to Coinsmart's SmartPay business and OTC trading business. Up to an additional $20-million in cash may be payable pursuant to the SmartPay earnout (over a period of three years following closing of the transaction) and up to an additional 1.1 million Coinsquare shares may be issuable pursuant to the OTC earnout (over a period of one year following closing of the transaction).

On completion of the transaction, Coinsmart will hold approximately 12 per cent of the issued and outstanding Coinsquare shares. Coinsquare is a privately held company incorporated under the laws of Canada. Other than its interest in Coinsquare shares and cash, Coinsmart will hold no other material assets immediately following the completion of the transaction. The transaction has been unanimously approved by the board of directors of the company.

Under the terms of the purchase agreement, the board may respond to an unsolicited bona fide written proposal that, having regard to all relevant terms and conditions of such proposal, constitutes or could reasonably be expected to constitute or lead to a superior proposal (as defined in the purchase agreement).

The transaction will constitute the sale of all or substantially all of the undertaking of Coinsmart pursuant to the Business Corporations Act (British Columbia) and, accordingly, will require approval by not less than two-thirds of the votes cast at a special meeting of the shareholders of Coinsmart. Coinsmart currently expects to mail the management information circular in connection with the meeting to shareholders on or before Oct. 29, 2022, and to hold the meeting on or before Nov. 29, 2022. Subject to the satisfaction (or waiver) of applicable closing conditions as set forth in the purchase agreement, the closing of the transaction is anticipated to occur in the fourth quarter of 2022.

The management of Coinsmart will be employed by Coinsquare following the closing of the transaction and will continue to play an active role in the continuing and future business of Simply Digital (including the SmartPay business and the OTC business).

Board recommendation

The board has unanimously determined that the transaction is in the best interests of Coinsmart. Accordingly, the board approved the purchase agreement and recommends that shareholders vote in favour of the resolution to approve the transaction at the meeting.

All of the directors and certain senior officers of the company, collectively holding approximately 45 per cent of the issued and outstanding common shares of the company, have entered into support and voting agreements with Coinsquare pursuant to which they have agreed to support and vote in favour of the transaction. In making its determination, the board considered, among other things, an opinion provided to the board by Eight Capital to the effect that, based upon and subject to the limitations, assumptions and qualifications stated in such opinion, the consideration to be received by Coinsmart pursuant to the transaction is fair, from a financial point of view, to Coinsmart.

Financial advisers and counsel

In connection with the transaction, Coinsmart has engaged Eight Capital as its financial adviser and Wildeboer Dellelce LLP as its legal adviser. Coinsquare has engaged Origin Merchant Partners as its financial adviser and Goodmans LLP as its legal adviser.

Additional information

Complete details of the terms and conditions of the transaction are set out in the purchase agreement, which will be filed by Coinsmart under its profile on SEDAR.

In addition, further information regarding the transaction will be contained in the management information circular in respect of the meeting, which will be filed on SEDAR at the time that it is mailed to shareholders. All shareholders are urged to read the information circular once it becomes available, as it will contain additional important information concerning the transaction.

About Coinsmart Financial Inc.

Coinsmart is a leading Canadian-headquartered crypto asset trading platform dedicated to providing customers with an intuitive way for buying and selling digital assets, like bitcoin and ethereum. Coinsmart is one of the few crypto asset trading platforms in Canada to be registered as a securities dealer and marketplace with the Ontario Securities Commission. Coinsmart is also one of the first Canadian-headquartered trading platforms to have an international presence, accepting customers across over 40 countries at a time when the digital asset industry continues to rapidly expand. Coinsmart further builds on its mission to make cryptocurrency accessible by providing educational resources tailored to every level of cryptocurrency knowledge and unparalleled 24-hour-a-day-and-seven-day-a-week omnichannel customer support. Offering instant verification, industry-leading cold wallet storage, advanced charting with order book functionality and over-the-counter premium services, Coinsmart ensures every client's needs are met with the highest level of quality and care.

About Coinsquare Ltd.

Founded in 2014, Coinsquare, a private company incorporated under the laws of Canada, provides customers with a proprietary platform engineered to deliver a robust, secure and intelligent interface for trading bitcoin, ethereum, litecoin, and other digital assets. Coinsquare has grown to become Canada's oldest operating digital asset firm, trading on behalf of over half a million Canadians. Coinsquare has raised over $100-million in capital and has successfully executed trades in excess of $8-billion to date.

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