PEEK Peeks Social Ltd

Peeks Social Ltd. (TSXV:PEEK) (OTCQB:PKSLF) (“Peeks Social” or the “Corporation”). The purpose of this press release is to provide supplemental disclosure to the Corporation's management information circular and proxy statement dated March 19th, 2018, (the “Circular”) in respect of the Annual and Special Meeting of the Shareholders of the Corporation to be held at 4:00 pm (Toronto time) on April 18, 2018. This release should be read in conjunction with the Circular as a whole. Capitalized terms not otherwise defined herein have the meaning ascribed to such terms in the Circular.  The Corporation also wishes to advise that it has extended the time for shareholders to submit proxies for online voting to 12:00 pm (Toronto time) on April 18, 2018, the day of the meeting, and for valid paper copies up to the start of the meeting.

The Corporation entered into an agreement dated February 3, 2018, as amended (the “Transaction Agreement”), with Mark Itwaru, Riavera Corporation (“Riavera”), 2615870 Ontario Corp., a subsidiary of Riavera (“Riavera Subco”), and Personas.com Corporation (“Personas”).  Pursuant to the Transaction Agreement, a subsidiary of the Corporation will amalgamate (the “Amalgamation”) with Riavera Subco and Personas to acquire the technology assets used in the Peeks Social livestreaming platform, along with certain other related technology assets. The technology is currently licensed by the Corporation from Personas pursuant to an agreement dated August 14, 2015, as amended October 18, 2016, and is the source of the Corporation’s current revenue.

The Amalgamation is structured as a three-cornered amalgamation, pursuant to which the amalgamated corporation (“Amalco”) will become a wholly-owned subsidiary of Peeks Social on closing and the former shareholders of Personas and Riavera Subco shall become shareholders of Peeks Social and receive common shares of Peeks Social. The Corporation will issue 175,150,520 common shares to the shareholders of Personas and Riavera Subco at a negotiated price of $0.7308 per common share, an acquisition cost of $128,000,000. The closing price of the Corporation’s common shares on the TSX Venture Exchange on April 11, 2018, was $0.265.

While Mr. Itwaru is currently a “control person” for the purposes of applicable securities legislation, holding approximately 24% of the Common Shares and his ability to sell his shares is restricted. Upon completion of the Transaction, Mr. Itwaru would beneficially own or have control and direction over 132,289,237 common shares of the Corporation, or approximately 55%. See “Ownership Following the Transaction” below.

Background of the Transaction

In August 2015, in connection with an investment made by Personas, the Corporation entered into a technology license agreement (the “Technology License”) which has given the Corporation access to a variety of established technologies including livestreaming technology and technology designed to facilitate monetary transactions (the “Technology”). The Technology License was amended in October 2016, to increase the Corporation’s percentage of the gross profit earned through the use of the Corporation’s platforms from 10% to 30%. 

Personas is a “related party” of the Corporation as that term is defined in Multilateral Instrument 61-101- Protection of Minority Security Holders in Special Transactions (“MI 61-101”) by virtue of it being a subsidiary of Riavera Corp. (“Riavera”), a “control person” of the Corporation.  Mr. Mark Itwaru (“Itwaru”), the Chairman and CEO of the Corporation is also the sole director and an officer of Riavera and Personas and controls and directs the operations of each of them.

Since the increase in the percentage to the Technology License in October 2016, the Corporation has been interested in obtaining 100% of the revenue stream. The Corporation, after consultation with certain disinterested shareholders and its own management, initiated more formal discussions with Personas in July 2017, regarding the possibility of either increasing the percentage interest in the revenue stream under the license agreement or acquiring the Technology.

As the Transaction was deemed to be a related party transaction, on July 25, 2017, the board of directors of the Corporation (the “Board”) established an independent special committee (the “Committee”) to explore and negotiate the Transaction.

Special Committee Composition and Mandate  

The mandate of the Committee was to evaluate the Transaction and to consider potential alternatives including, without limitation, maintaining the status quo.  In addition, the Committee was charged with ensuring that the terms of the Transaction were negotiated in a manner which provided protection to minority shareholders. The Committee was comprised of Messrs. Vincent McLeod, Ahmed Khan and Fareed Amin, each of whom were independent, and it was chaired by Mr. Amin who was elected chair of the Committee. 

Engagement of Independent Advisors

On or about August 8, 2017, the Committee considered Evans & Evans, Inc. ("Evans") as a potential financial advisor and investigated the qualifications and experience of Evans and its expertise in advising special committees in respect of related party transactions. Mr. Amin had a detailed discussion with Jen Lucas, MBA, CBV, ASA (“Lucas”), the managing partner of Evans, and subsequently recommended to the Committee that it engage Evans to advise the Committee in respect of valuation of the license agreement, the intellectual property assets of Personas and the underlying technology.  Evans was retained on November 23, 2017.

On September 12, 2017 the Committee engaged Allan J. Ritchie BA, JD, LLM, MBA, CS, CF, ICD.D (“Ritchie”) as independent legal adviser to the Committee. Ritchie is the Managing Partner of Loopstra Nixon LLP and is certified by the Law Society of Ontario as a Specialist in Corporate and Commercial Law and by the Chartered Professional Accountants of Canada as a Specialist in Corporate Finance. He also holds the ICD.D designation granted by the Institute of Corporate Directors.

Negotiations and Deliberation

On September 14, 2017, the Committee convened a meeting with Lucas and Ritchie, to discuss Evans’ process and their initial impressions of value.  Evans made a detailed presentation to the Committee and the Committee had a number of technical questions on the valuation process and the analytics used by Evans. The Committee then went “in-camera” to further discuss the Transaction. On September 19, 2017, the Committee convened a follow-up call with Evans to follow-up on matters arising from the first meeting. On September 25, 2017 the Committee convened a meeting with Itwaru as CEO of Personas to commence preliminary discussions and negotiations. 

A proposal from Itwaru was presented to the Committee on September 29, 2017.  During the period from September 29 to October 5, 2017, the Committee undertook a comprehensive review of the proposal. On October 5, 2017, the Committee met with Itwaru to review the proposal. On October 9, 2017, Mr. Amin discussed the proposed transaction with Ritchie. Ritchie advised that the Transaction was a related party transaction and would require the approval of disinterested shareholders and that a valuation or fairness opinion would also likely be required. In addition, Ritchie advised that the applicable regulators and stock exchange may require specific relief from rules as they relate to shareholder concentration and public float requirements. Ritchie also advised that additional representations and warranties should be provided as are consistent with an arm’s length transaction of this nature. Such representations and warranties were added and remain in the final form of transaction agreement. Ritchie also advised the Committee in detail of its fiduciary duties owed to the Corporation.

On November 14, 2017, the Corporation entered into a letter of intent (the "LOI") with Personas and Riavera to acquire the Technology. A portion of the Technology was owned by Riavera, while Personas was a party to the Technology License. Since the date of the LOI, the Transaction’s structure has been modified in order to be more tax efficient (as more fully described in the Circular).

On February 3, 2018, the Corporation and its wholly owned subsidiary, 2615868 Ontario Corp., entered into the Transaction Agreement, as amended and restated on March 14, 2018, to include a newly formed subsidiary of Personas as a party to the agreement.

Reasoning and Analysis of the Special Committee

The summary view of the Committee is that, in their best business judgement, the Transaction is in the best interests of the Corporation because it builds full shareholder value through a single entity that owns all intellectual property and assets related to the Peeks Social platform. It also provides for 100% of the revenue earned from the technology license agreement to accrue ultimately to the Corporation. This gives certainty to the marketplace that the Corporation is a self-sustaining entity. The Committee has relied upon its business judgement which was confirmed by the advice of Evans that the pricing and terms of the Transaction are fair.  

The Committee identified the following non-exhaustive points as factors in favour of the Transaction:

• The proposed Transaction will result in a significant increase in the Corporation’s revenues as it will record 100% of revenues from the Peeks Social platform instead of 30%;
• The completion of the proposed Transaction may remove confusion in the market with respect to royalty payments and revenue recognition for the Corporation;
• Following completion of the proposed Transaction, the Corporation will own the Technology which may make it a more attractive acquisition target if its user base continues to grow; and
• The Corporation’s current market capitalization per user is well below its peers. With the Technology being held in place following the completion of the proposed Transaction, this may improve.

In making their respective determinations and recommendations, the Committee and the Board also observed that a number of procedural safeguards were and are present to permit the Committee and the Board to represent effectively the interests of the Corporation  and the shareholders, other than Itwaru and Personas, and the Corporation’s other stakeholders, including, among others:

• The evaluation and negotiation process was conducted by the Committee, being members of the Board who are independent of management and Itwaru and Riavera. The Committee met regularly with its advisors and management and retained its own independent legal and financial advisors.
• The Transaction was approved by the independent directors of the Corporation in accordance with MI 61-101.
• The requirement for approval by a majority of the votes cast on the resolution by shareholders who vote at the Meeting, excluding for this purpose votes attached to the Common Shares held by Itwaru and Riavera, as provided by MI 61-101.
• The Committee retained Evans to provide the Personas Valuation and the Fairness Opinion (as defined below). The fee payable to Evans was not contingent on the completion of the Transaction and such fee is payable to Evans in respect of the Fairness Opinion irrespective of the substance or conclusions of the Fairness Opinion.
• The process undertaken by the Committee included the retention of Loopstra Nixon LLP as its independent legal advisor and the retention of Evans as its independent financial advisor, and there was no interference from Itwaru or Riavera or their representatives.
• While the approval of the Transaction by a majority of the minority itself does not trigger dissent rights, the ancillary matters being considered by the shareholders provide that any registered shareholders who oppose the ancillary matters may, upon compliance with certain conditions, exercise dissent rights and, if ultimately successful, receive the fair value of their Common Shares.  Accordingly, dissent rights are available in connection with the transaction.

Concerns and Dissenting Views of the Special Committee

Throughout the negotiation of the Transaction, the members of the Committee retained the view that the Transaction remained desirable and that the agreed upon final pricing terms were fair and that the terms of the Transaction were appropriate and consistent with arm’s length transactions of similar size and scope.

There were no dissenting views among the members of the Committee.

The Committee did note that as a result of the Transaction, the resulting beneficial ownership of Itwaru would exceed 50% of the outstanding Common Shares. As a result, Itwaru will be able to determine who the directors of the Corporation will be and will have significant influence over most matters that require approval by the Corporation’s shareholders, including the approval of significant corporate transactions, even if other shareholders oppose them. This concentration of ownership might also have the effect of delaying or preventing a change of control of the Corporation that other shareholders may view as beneficial. The Committee weighed this risk against risks to the Corporation that would be mitigated by acquiring of the core technology to the Corporation’s business. In the judgment of the Committee the perceived increase in risk caused by greater ownership concentration would be more than offset by risk mitigation achieved by acquiring the technology. In addition, the Committee considered the fact that the pre-transaction beneficial ownership interest held by Itawru exceeded 20% and therefore already represented de facto control. As such, the Committee felt that the further concentration of control does not introduce a new category of risk to minority shareholders. It was acknowledged by the Committee that the degree of concentration risk would increase, however, in the judgement of the Committee, this fact would be more than outweighed by the elimination of the risks associate with the Corporation holding a mere licence.

Consideration of Alternatives

Given the unique nature of the Transaction, the alternative consideration was to maintain the status quo and undertake no transaction with Personas. This option was a consideration throughout the Committee’s deliberations. The Committee expended efforts to compare the current licensing arrangements with the long term strategic and economic value of acquiring the Personas technology assets. It was determined that the Transaction provided significant advantages to the Corporation over the long term as compared to the status quo (as detailed under “Reasoning and Analysis” above).

Fairness Opinion, Valuation Opinion, and Role of the Financial Advisor

Evans was retained by the Committee to act as an independent advisor to the Committee and to prepare and deliver a “Comprehensive Valuation Report” dated December 20, 2017 (the “Valuation Report”) and an opinion dated January 31, 2018, in respect of the fairness of the Transaction, from a financial point of view, to the Corporation’s shareholders other than Riavera and Personas (the “Fairness Opinion”). Evans was compensated on the basis of a fixed fee, agreed upon in advance of their engagement and were not provided any form of contingent compensation tied to success or completion or approval of the Transaction. The Committee believed that a fixed fee without any amounts contingent on approval or completion of the Transaction would ensure that the fee structure did nothing to compromise Evans' independence. There existed no economic or personal relationship between Evans and the Committee or any of the parties to the Transaction.

The views expressed in both the Valuation Report and the Fairness Opinion were an important consideration for the Committee in their decision to recommend that the Corporation proceed with the Transaction. In considering fairness, from a financial point of view, Evans considered the Transaction from the perspective of the disinterested shareholders, as a group, and did not consider the specific circumstances of any particular shareholder, including with regard to income tax considerations. The valuation methodologies used by Evans were the same in both the Fairness Opinion and the Valuation Report. The Committee was comfortable that Evans has conducted a thorough review of available valuation methodologies and had exercised its professional expertise in applying these valuation methods.

The Valuation Report provided an estimate for the fair market value of 100% of Personas as at November 30, 2017, of between $106.9 million to $109 million.

The Committee reviewed and placed weight on the following elements common to both the Fairness Opinion and the Valuation Report.  Evans believed it was appropriate to value Personas on a going concern basis. A going concern approach was deemed appropriate given Personas is generating revenue through the Technology License. Given the status of Personas at the valuation date (the “Valuation Date”) it was the view of Evans that that the most appropriate approaches in determining the range of the fair market value of Personas at the Valuation Date was a weighting of the following approaches:

1. A Net Asset Value Method using a Relief from Royalty (“RFR”) Method to determine the fair market value of the Technology. The RFR Method determines value by reference to the hypothetical royalty payments that would be saved through owning the asset, as compared with licensing the asset from a third party.
2. The Guideline Public Company (“GPC”) Method was determined appropriate given the history of revenues and the lack of positive earnings, cash flow or earnings before interest, taxes, depreciation and amortization (“EBITDA”). Furthermore, the GPC Method captures the market sentiment towards companies in Personas’ space as at the Valuation Date.
3. Mergers & Acquisitions Method based on a review of mergers and acquisitions in the social media and ad tech space.

             Evans also attempted to use a variety of other confirmation approaches. This was important to the Committee as it demonstrated the comprehensive nature of the approach taken by Evans. In this regard, Evans examined and considered the following traditional valuation approaches, but were unable to use any of them:

(1)	Asset-Based Approach. The Asset-Based Approach is generally utilized where either: (i) the company is not deemed to be a going concern; (ii) the nature of the business is such that asset values represent the largest portion of the company’s worth (e.g., real estate holding companies); and, (iii) there are no earnings or cash flow to be capitalized. In the case of Personas, given its primary asset is intangible, this approach was not considered appropriate.
(2)	Cost Approach. The Cost Approach is generally appropriate under certain circumstances where an asset is still under development, there is no history of generating cash flows, and future cash flows are so uncertain as to be speculative. A weakness of the Cost Approach is that the cost of the opportunity may bear little relationship to the economic benefits that a purchaser might anticipate to derive from such opportunity upon commercial exploitation of the asset. In the case of the Company, given that Personas has primarily intangible assets, the Cost Approach was deemed inappropriate.
(3)	Income Approach - Capitalized Earnings / Cash Flow / EBITDA Method. The Company does not have a history of positive income or cash flow and accordingly, this approach could not be utilized.
(4)	Market Approach – Historical Transactions. Personas did conduct an equity issuance in June of 2015 raising approximately $1.6 million. However, given the advancement in the Peeks Social product since the date of the financing, combined with the new revenue model, Evans did not believe the value implied by the financing in 2015 was reflective of the current fair market value.

The Committee was comfortable that Evans has conducted a thorough review of available valuation methodology and had exercised its professional expertise in applying these valuation methods. The Valuation Report will be filed on SEDAR on April 13, 2018, and available at www.sedar.com under the Corporation’s profile.

A complete copy of the Fairness Opinion (as defined in the Circular) is attached to the Circular at Appendix F, and is subject to the assumptions and limitations contained therein and should be read in its entirety. The Fairness Opinion addresses only the fairness of the transaction to the Shareholders of the Corporation, other than Personas and Riavera, from a financial point of view, and was prepared for the information of the Committee and the Board of Directors in connection with its consideration of the transaction and any recommendation to the Shareholders with respect to the transaction that the Board of Directors may make.

In addition to the Valuation Report and the Fairness Opinion, the Committee was provided with a copy of a report entitled “Estimate Of The Fair Market Value Of The Patent Applications Owned By 2615868 Ontario Corporation” dated January 19, 2018 (the “Patent Report”).  The Patent Report addressed the estimate of fair market value of three patent applications relating to Technology (the “Patent Applications”), namely: 

Patent App’n No.	Filing Date	Expected Decision  Date(1)	Filing Region	Description
2,893,984	June 4, 2015	December 2018	Canada	Social Network Messaging with Integrated Advertising
15170793.2	June 5, 2015	December 2019	Europe
14/732,486	June 5, 2015	December 2018	United States

Note: (1) Based on expectations of management of the Corporation.

These Patent Applications relate to the portion of the Technology used in the Peeks Social platform known as the “Offer Box”.

Importantly, the Patent Report was not prepared in contemplation of the Transaction and was not intended for any other purpose other than in connection with the internal reorganization of Riavera and Personas which was a prerequisite to the Transaction. While the Committee acknowledged that the Patent Report was not intended to value the Patent Applications for their purposes, the Committee recognized that both Riavera and Personas had reason to ensure that the Patent Report accurately reflected the value of the Patent Applications for the purpose intended, namely, regulatory filings with tax authorities. In light of the existence of the Patent Report, the Committee considered the efficacy of obtaining an additional valuation covering the Patent Applications. The Committee determined that, as it was not required under application regulations to obtain one, an additional valuation would not be necessary. These factors, taken as whole, resulted in the Committee reaching a conclusion that in their best business judgement, the cost and delay in obtaining an additional valuation was not warranted in the present circumstances.

Finally, the Committee noted that notwithstanding the deemed transaction value of $128 million determined by the parties, the estimate of value set forth in existing Valuation Report of $106.9 to $109 million, placed the aggregate value of the transferred assets far in excess of share consideration being offered by the Corporation therefor (estimated at $57 to $70 million in the Fairness Opinion). Further still, the share value of $0.7308 ascribed to each share by the parties as consideration far exceeded the trading price of the Corporation’s Common Shares as detailed in the Fairness Opinion and as at the time the Information Circular was issued ($0.32). The Committee felt that these facts provided further confirmation of the fairness of the current transaction to shareholders of the Corporation, other than Itwaru and Riavera.

Votes Excluded

To the knowledge of the Corporation, after reasonable inquiry, votes attached to a total of 15,602,388 Common Shares (representing in the aggregate approximately 24% of the issued and outstanding Common Shares) will be excluded in determining whether minority approval for the proposed related party transaction is obtained. The Common Shares to be excluded are held as follows:

Mark Itwaru	1,990,055 Common Shares
Riavera Corporation	13,612,333 Common Shares

Ownership Following the Transaction

To the knowledge of the directors and officers of each of Peeks Social and Personas, no persons will beneficially own, directly or indirectly, or exercise control or direction over voting securities carrying more than 10% of the voting rights attached to any class of voting securities of Peeks Social after the closing of the Transaction, except as follows:

Name and municipality of residence	Type of ownership	Number of common shares upon completion of the Transaction	% of common shares
Mark ItwaruToronto, Ontario	Registered and beneficial	63,330,377	26.37%
	Control or direction(1)	68,958,860	28.72%
	Total	132,289,237	55.09%

Note:

1. Represents 68,958,860 of the common shares of Peeks Social expected to be held by Riavera pursuant to the Transaction.

While Mr. Itwaru is currently a “control person” for the purposes of applicable securities legislation, holding approximately 24% of the Common Shares and his ability to sell his shares is restricted. Upon completion of the Transaction, Mr. Itwaru will beneficially own or have control and direction over 132,289,237 common shares of the Corporation, or approximately 55%.  This ownership position, being over 50% of the outstanding voting Common Shares, provides Mr. Itwaru with the sole ability to determine who is elected as directors of the Corporation. As a majority shareholder, there may be conflicts of interest that arise between Mr. Itwaru and the Corporation.

For further information, please contact:

Peeks Social Ltd.
Mark Itwaru	David Vinokurov
Chairman & Chief Executive Officer	Director Investor Relations
416-815-7000	416-716-9281
mark@peeks.com	davidv@peeks.com

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