Mr. David Kivitz reports

XS FINANCIAL ENTERS INTO DEFINITIVE AGREEMENT TO BE TAKEN PRIVATE

XS Financial Inc. has entered into a definitive arrangement agreement dated June 24, 2024, pursuant to which XS Acquisition Portfolio LLC, an affiliate of a U.S. alternative asset fund, will acquire all of the issued and outstanding subordinate voting shares (SV shares) and proportionate voting shares (PV shares) of XS, by plan of arrangement for a cash purchase price of 5.265 cents per SV share and $52.65 per PV share. Upon completion of the arrangement, XS will become a privately held company.

Benefits to XS shareholders

In making its determination to unanimously recommend approval of the arrangement to the board of directors of XS, the special committee of the board of directors of XS and, in the board's determination to approve the arrangement, the board considered, among other things, the following reasons for the arrangement:

• The consideration is entirely cash, providing XS shareholders with immediate liquidity and certainty of value;
• Eliminates the need to raise capital to continue financing future operating expenses and overhead costs of XS;
• Offers compelling value relative to other alternatives considered by the company;
• The arrangement is expected to be completed within a reasonable time frame;
• The terms of the arrangement were subject to arm's-length negotiations with the purchaser, which has significant financial capabilities.

David Kivitz, chief executive officer of XS, commented: "We are pleased to have reached an agreement to sell XS. This transaction delivers immediate liquidity and certainty of value for our shareholders through all-cash consideration while addressing the company's need to raise additional financing in a challenging capital markets environment. We are incredibly proud of the business we have built to date, and this transaction is a testament to our unique positioning in the equipment finance industry."

Transaction conditions and timing

XS intends to convene an annual general and special meeting of shareholders to be held in Q3 2024 to seek securityholder approval for the arrangement. The transaction will be effected by way of a court-approved plan of arrangement under Section 288 of the Business Corporations Act (British Columbia) and will require:

• Approval of at least 66-2/3 per cent of the votes cast by holders of SV shares at the meeting, voting separately as a class;
• Approval of at least 66-2/3 per cent of the votes cast by holders of PV shares at the meeting, voting separately as a class;
• Approval of at least 66-2/3 per cent of the votes cast by holders of SV shares, PV shares, outstanding stock options of XS and outstanding share purchase warrants of XS at the meeting, voting together as a single class;
• A simple majority of the votes cast by holders of SV shares at the meeting, excluding votes from certain shareholders as required under Multilateral Instrument 61-101; and
• A simple majority of the votes cast by holders of PV shares at the meeting, excluding votes from certain shareholders as required under MI 61-101.

The completion of the transaction is also subject to the receipt of court, stock exchange and other required regulatory approvals, along with customary closing conditions for transactions of this nature. The arrangement does not require approval of the purchaser shareholders. Upon completion of the arrangement, an application will be made to delist the SV shares from the Canadian Securities Exchange and the OTCQB, and the company will submit an application to cease to be a reporting issuer under applicable Canadian securities laws.

The directors, senior officers and certain other shareholders of XS, holding in aggregate over 48 per cent of the issued and outstanding SV shares, over 99 per cent of the issued and outstanding PV shares, over 84 per cent of the issued and outstanding XS options, and 10 per cent of the issued and outstanding XS warrants, have entered into voting support agreements with the purchaser, pursuant to which they have agreed to vote their respective securities of XS in favour of the arrangement.

The transaction is expected to close before the end of Q3 2024.

XS warrants and XS options

Pursuant to the arrangement, each XS option and XS warrant outstanding immediately prior to the effective time of the arrangement shall be automatically cancelled without any payment by the purchaser.

Advisers and counsel

In connection with the arrangement, Compass Point Research & Trading LLC Inc. is acting as financial adviser to the special committee; Gramercy Capital Group LLC (through INTE Securities LLC, member of FINRA (Financial Industry Regulatory Authority)/SIPC (Securities Investor Protection Corp.)) is acting as financial adviser to XS; Fogler, Rubinoff LLP is acting as legal adviser to XS; and Michael Bluestein is acting as legal adviser to the special committee. Compass Point also prepared the fairness opinion delivered to the special committee in connection with the arrangement.

The purchaser has engaged Schulte Roth & Zabel LLP, and Blake, Cassels & Graydon LLP as its legal advisers in connection with the arrangement.

Fairness opinion and recommendation

Compass Point was engaged by the special committee to prepare the fairness opinion, evaluating the fairness of the arrangement from a financial perspective for the holders of SV shares, PV shares, XS options and XS warrants (other than certain persons who are excluded from voting in respect of the arrangement in accordance with MI 61-101). The special committee has received the fairness opinion from Compass Point, stating that, based on and subject to the limitations, assumptions and qualifications noted therein, the consideration to be received by the XS securityholders under the arrangement is fair from a financial perspective.

Following its review and, in consideration of, amongst other things, the fairness opinion, the special committee has unanimously recommended that the board approve the arrangement. The board, following the receipt and review of recommendations from the special committee, has approved the agreement, and has concluded that the arrangement is fair to the XS securityholders and is in the best interests of XS, recommending XS securityholders vote in favour of the arrangement.

Additional information

Full details of the arrangement are outlined in the agreement, which will be filed by XS under its profile on SEDAR+. Further information regarding the arrangement will be contained in a management information circular to be prepared in connection with the meeting and filed on SEDAR+ at the time that it is mailed to XS securityholders. All XS securityholders are urged to read the management information circular once it becomes available as it will contain additional important information about the arrangement.

This press release is also being issued pursuant to National Instrument 62-103 -- The Early Warning System and Related Take-Over Bid and Insider Reporting Issues (NI 62-103) in connection with the transaction. The purchaser will file an early warning report pursuant to NI 62-103 with the securities regulators in each of the provinces and territories of Canada in which it is a reporting issuer with respect to the foregoing matters, a copy of which will be filed by the company under its SEDAR+ profile. A copy of the purchaser's early warning report may also be obtained by contacting Joshua Whitford at joshua.whitford@blakes.com.

Completion of the arrangement is subject to various conditions, including, but not limited to, Canadian Securities Exchange acceptance as well as court and XS securityholder approval. The arrangement cannot close until the required securityholder, regulatory and court approvals are obtained. There can be no assurance that the arrangement will be completed as proposed or at all. Investors are cautioned that, except as disclosed in the management information circular to be prepared in connection with the arrangement and the meeting, any information released or received with respect to the arrangement may not be accurate or complete and should not be relied upon. Trading in the securities of XS should be considered highly speculative.

About XS Financial Inc.

Founded in 2017, XS Financial specializes in providing capex financing solutions to cannabis companies in the United States, including cultivators, processors, manufacturers and testing laboratories. In addition, XS has partnered with over 250 original equipment manufacturers (OEM) through its network of preferred vendor partnerships. This powerful dynamic provides an end-to-end solution for customers which results in recurring revenues, strong profit margins and a proven business model for XS stakeholders. The company's subordinate voting shares are traded on the Canadian Securities Exchange under the symbol XSF.

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