ZIP : Announces Acquisition of Sezzle

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ASX Release

28 February 2022

ZIP ANNOUNCES DEFINITIVE AGREEMENT TO ACQUIRE SEZZLE, SUPPORTING

SUSTAINABLE GROWTH STRATEGY AND PATH TO PROFITABILITY AND EQUITY CAPITAL

RAISE OF UP TO A$198.7 MILLION1

Zip Co Limited (ASX: Z1P) ("Zip") and Sezzle Inc. (ASX:SZL) ("Sezzle") are pleased to announce they have entered into a definitive agreement under which Zip has agreed to acquire Sezzle in an all-scrip transaction by way of a statutory merger under the laws of the State of Delaware (the "Proposed Transaction"). Subject to the satisfaction or waiver of specified closing conditions, Sezzle stockholders will be entitled to receive 0.98 Zip ordinary shares for every share of Sezzle common stock owned (including as represented by a CHESS depository interest ("CDI") in Sezzle)2. The total consideration for the Sezzle shares in the Proposed Transaction represents an implied value of Sezzle of approximately A$491 million (based on the trading price of Zip ordinary shares on the Australian Securities Exchange ("ASX") as of the close at 25 February 2022)3. The Proposed Transaction values Sezzle at a 22.0% premium based on current spot prices of A$1.78 (Sezzle) and A$2.21 (Zip) as of 25 February 2022, and a 31.7% premium based on a 30-day volume weighted average price ("VWAP") of Sezzle's common stock on the ASX4. Upon implementation of the Proposed Transaction and the Placement (as defined below), Zip shareholders will own approximately 78% of the combined group and Sezzle stockholders will own approximately the remaining 22%5. Closing of the Proposed Transaction is expected to occur by the end of the third quarter of CY2022.

Zip is also pleased to announce a A$148.7 million fully underwritten placement to eligible institutional, professional and sophisticated investors (the "Placement"), and a non-underwritten share purchase plan to eligible Zip shareholders in Australia and New Zealand to raise up to A$50 million (the "SPP")6,7. Proceeds of the Placement and SPP will help Zip strengthen its balance sheet and positions Zip for sustainable growth by providing more capital runway to execute on the potential synergies from the Proposed Transaction8.

Zip is a leading global "buy now, pay later" ("BNPL") provider9, creating innovative, responsible and fair payments products that help businesses grow and allow consumers to take control of their finances. With a footprint across 14 geographies, Zip is a global leader in digital retail finance and payments. Zip offers innovative solutions and people-centred products that connect millions of customers with its global network of tens of

• Equity capital raise comprises the fully underwritten Placement for A$148.7 million and a non-underwritten SPP for up to A$50 million (subject to Zip's right to increase or decrease the size of the SPP).
  2 As part of the Proposed Transaction, Zip is also establishing an American Depository Receipts program (with the Zip ADRs required to be listed on a U.S. exchange as a condition to closing of the Proposed Transaction), and Sezzle stockholders outside of Australia may elect under the definitive merger agreement to receive 0.98 Zip ADRs for every share of Sezzle common stock owned in lieu of receiving Zip ordinary shares. To the extent that eligible Sezzle stockholders do not elect to receive Zip ADRs by a prescribed election date before closing of the Proposed Transaction, they will receive Zip ordinary shares.
  3 Implied value calculated on a fully diluted basis and excludes the impact of any permitted equity financing that may be undertaken by Sezzle before closing of the Proposed Transaction in accordance with the merger agreement (which is capped at a maximum amount of 24.7m Sezzle shares at a minimum price of A$1.53).
  4 Based on Zip's spot price of A$2.21 per share and 30-day VWAP of A$2.95 per share, and Sezzle's spot price of A$1.78 per share and 30- day VWAP of A$2.19 per share, in each case as of 25 February 2022.
  5 Estimated ownership percentage calculated on a fully diluted basis and assumes the inclusion of 78.3m shares issued under the Placement, and excludes the impact of any permitted equity financing that may be undertaken by Sezzle before closing of the Proposed Transaction in accordance with the merger agreement (which is capped at a maximum amount of 24.7m Sezzle shares at a minimum price of A$1.53).
  6 Zip reserves the right to increase or decrease the size of the SPP at its discretion.
  7 Eligible shareholders are those registered in Australia and New Zealand subject to exceptions noted in the SPP offer booklet.
  8 If the Proposed Transaction does not complete after settlement of the Placement and/or SPP, Zip will use the proceeds from the Placement and/or SPP to improve its balance sheet strength to support growth and for general working capital purposes.
  9 Zip has recorded A$4.5bn TTV in the half yearly period to 31 December 2021, representing a 93% growth vs the prior year period.

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thousands of merchants. Sezzle, a certified B Corp headquartered in the United States ("U.S.") and listed on the ASX, is a U.S. BNPL player with strength in small and medium businesses ("SMB") supported by omni-channel solutions. Sezzle's payments platform increases the purchasing power for millions of consumers by offering interest-free installment plans at online stores and in-store locations. Sezzle also has a long-term installment capability off balance sheet supported by its proprietary technology, and pioneered Sezzle Up, a product that allows users to buy now, pay later while building their credit scores. The combination of Zip and Sezzle is expected to result in pro forma 8.8 million customers and pro forma 60.5k merchants in the U.S.10.

The Proposed Transaction, which has been unanimously approved by both companies' boards of directors, and the mergers and acquisitions committee of the board of directors of Sezzle, capitalises on Zip and Sezzle's shared mission to financially empower the next generation. It advances both companies' strategic objectives to be a global and U.S. leader in the BNPL industry and to drive a high growth ecosystem that brings merchants and customers together. The Proposed Transaction brings together industry leading BNPL talent and has the potential to generate substantial synergy benefits to accelerate both companies' path to profitability.

"We are delighted to be bringing Zip and Sezzle together under a transformational transaction that is expected to deliver immediate scale and enhanced growth, which will support our path to profitability. Combining with Sezzle positions us as a leading global BNPL provider and prioritises our ability to win in the important U.S. market," said Larry Diamond, Co-Founder and Global CEO of Zip. "Pete and I have known Charlie and Paul (co- founders of Sezzle) for some time, and we've been impressed by what the Sezzle team has achieved. Their responsible lending, their Sezzle Up credit builder programme, as well as their B Corp certification is to be admired. We're excited to welcome the entire Sezzle team on our journey, as we continue our mission towards being the first payment choice, everywhere and every day."

"We are extremely excited about the opportunity to create a leader in the financial services industry by combining with Zip and its management team led by Larry and Pete. Paul and I believe it will be a great cultural fit for both our organisations and we're excited to be part of Zip's next chapter," stated Charlie Youakim, Co- founder, Executive Chairman, and CEO of Sezzle. "I believe the transaction will position us to win in the U.S. and globally."

A summary of the key terms of the Proposed Transaction is included in Appendix A to this announcement. An Investor Presentation, which includes additional information regarding the Proposed Transaction (including a summary of certain key risks associated with the Proposed Transaction) has also been lodged with the ASX and should be read together with this announcement, together with a copy of the merger agreement in Appendix D. Shareholders are also referred to the 'Important Notices' section of this announcement, and in particular to the paragraph titled 'Cautionary Statement Regarding Forward-Looking Statements' in relation to the risks and uncertainties associated with the targeted potential synergies and other forward-looking statements in connection with the Proposed Transaction.

10 Zip and Sezzle pro forma metrics exclude potential synergies and any customer or merchant overlap. Customer and merchant numbers are based on Zip and Sezzle's definition of customers and merchants: Zip (number of active customer accounts and accredited merchants) and Sezzle (number of active customer and merchant accounts transacting within the last 12 months).

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Compelling strategic and financial rationale

The Proposed Transaction is expected to deliver the scale to support sustainable growth and the path to profitability, creating enhanced value for Zip and Sezzle securityholders, as summarised below.

1. Significantly enhances Zip's scale and product offering, with the capabilities to accelerate in the U.S.
2. • Significant untapped market potential as BNPL represents 2.1% of global eCommerce spend in a $25 trillion addressable retail market11.
   • As one of the largest BNPL markets globally, the U.S. continues to be the highest priority for Zip and Sezzle.
   • With enhanced scale across 8.8 million customers and 60.5k merchants in the U.S., approximately 60% of the TTV of the combined business is estimated to be derived from the U.S., up from Zip's 48% as of 31 December 202112.
3. Provides meaningful customer benefits unlocking BNPL anywhere for Sezzle customers and provides Zip customers access to Sezzle's U.S. merchant network
4. • Broadened product suite to drive increased customer engagement in a combined ecosystem with merchants, thereby reducing customer acquisition costs.
   • Complementary models and flexible solutions that enable Zip and Sezzle customers access to BNPL everywhere, expected to drive increased customer engagement across both app and checkout.
   • Potential benefits across improved unit economics, expected to attract new customers and support higher frequency of usage.
5. Brings together highly complementary enterprise and SMB merchant networks with a strengthened set of capabilities to win together, across a diverse set of verticals
6. • Combining Zip's strength in global enterprise and Sezzle's SMB focus to create deeper merchant experiences and offerings.
   • Enhanced proposition for U.S. merchants through breadth of product suite, channels and industry verticals.
   • Risk management bolstered by combined proprietary credit platforms that drive informed decision making for merchants in an effort to deliver profitable outcomes.
7. Enables potential material cost synergies to be achieved and opportunities for improved unit economics, supporting Zip's path to profitability
8. • Potential material cost synergies and opportunities for revenue and margin uplift with targeted potential EBTDA benefits of up to c. A$130 million EBTDA in FY24, of which A$60-80 million EBTDA are expected to be cost synergies13, 14.

1. WorldPay Global Payments Report, 2021 and eMarketer Global Ecommerce Forecast, 2021.
2. See footnote 10.
3. Refer to page 16 of the Investor Presentation lodged with the ASX together with this announcement for more details on the composition of the potential synergies, including the material assumptions. Investors are also referred to the 'Key Risks' in Appendix B of that presentation (including, without limitation, the risks in section 1.6 (Integration risk and realisation of synergies) and section 1.7 (Future earnings risk) and the 'Important Notices' section of this announcement, and in particular to the paragraph titled 'Cautionary Statement Regarding Forward- Looking Statements' in relation to the risks and uncertainties associated with the targeted potential synergies and other forward-looking statements in connection with the Proposed Transaction.
4. EBTDA is a non-international financial reporting standards term ("IFRS") and non-Generally Accepted Accounting Principles ("GAAP") financial measure. This measure is only used by Zip management to assess performance of the business. Investors should consider these non-IFRS and non-GAAP measures only as a supplement to, not as a substitute for or as superior to, measures of financial performance prepared in accordance with IFRS or GAAP, as applicable. In addition, these non-IFRS and non-GAAP measures are unlikely to be comparable with non-IFRS and non-GAAP information provided by other companies. For additional information, please refer to 'Financial and Other Information' in the 'Important Notices' section of this announcement.

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• First realisation of potential synergies targeted in FY23 with initiatives across two key categories: (1) operating expenses and (2) revenue and net transaction margin opportunities.
• Zip and Sezzle are engaging in integration planning for the businesses including across key functions, brands and technology. Zip intends on retaining a significant footprint in Minneapolis, Minnesota, where Sezzle is headquartered in the U.S..

5. Integration path to deliver near-term financial benefits including accretion and balance sheet support to deliver sustainable growth and realisation of potential synergies; potential to create significant value for Zip and Sezzle securityholders

• The Proposed Transaction is expected to be accretive to revenue per share and EBTDA per share in FY24F, assuming the full impact of the targeted potential synergies15.
• Supports path to EBTDA profitability with expected EBTDA and cash flow positive during FY24, assuming the full impact of the targeted potential synergies16.
• Balance sheet strength positioned for sustainable growth following the Placement, with more capital runway to execute on the potential synergies.
• Improved capital recycling driven by an increase in volume coming from Pay in 4 to c. 60% (an increase from c. 50% in volume coming from Pay in 4 for Zip).

Management and Board

Zip and Sezzle strongly believe that it is important to combine with culturally aligned partners that have common vision and shared objectives. Sezzle's culture of empowering customers through products such as Sezzle Up is fully aligned with Zip's own ethos.

In order to ensure alignment on delivery of the combined company strategy, as part of the Proposed Transaction Zip will expand the Zip board of directors to nine members, comprising three persons appointed by Sezzle (being, Co-Founder & CEO of Sezzle, Charlie Youakim as an Executive Director, Paul Lahiff and Mike Cutter as Non- Executive Directors), and an independent director mutually agreed between Zip and Sezzle. Diane Smith-Gander will remain the Independent Chairperson of Zip. Upon closing, Charlie Youakim will become President and CEO of the Americas (U.S., Mexico and Canada) and Executive Director & President of Sezzle, Paul Paradis will join the U.S. leadership team.

Board Recommendations

The Zip board of directors has unanimously determined that the Proposed Transaction is in the best interests of Zip and its shareholders and recommends that Zip shareholders vote in favour of the resolutions necessary to implement the Proposed Transaction.

The Sezzle board of directors established a special committee of the board consisting solely of independent directors of Sezzle (the "Mergers and Acquisitions Committee") to review, analyse and make recommendations to the Sezzle board of directors with respect to potential opportunities for business combinations, mergers, acquisitions, dispositions, divestitures and other similar change of control transactions involving Sezzle, and determine whether any such transaction is in the best interests of Sezzle and Sezzle's minority stockholders. The Sezzle board of directors (acting upon the unanimous recommendation of the Mergers and Acquisitions Committee) unanimously determined that the Proposed Transaction is fair and in the best interests of Sezzle and its stockholders and those materially affected by Sezzle's conduct, and promotes the public benefit. Sezzle's directors unanimously recommend that Sezzle stockholders vote in favour of the Proposed Transaction.

1. See footnote 13 and 14.
2. See footnote 13 and 14.

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Indicative Timetable and Next Steps

Subject to the receipt of the requisite Zip and Sezzle securityholder approvals, and the satisfaction or waiver of the other conditions to closing, Zip expects to complete the Proposed Transaction by the end of the third quarter of CY2022.

Zip and Sezzle securityholders do not need to take any action at the present time.

A notice of the meeting and proxy statement for the required meeting of Sezzle stockholders, when available, will contain additional details regarding the Proposed Transaction. Zip will also provide Zip shareholders with a notice of extraordinary general meeting in respect of the required Zip shareholder approvals in due course.

Further information about the date of the securityholder meetings to consider the necessary resolutions required to proceed with the Proposed Transaction will be provided in due course.

In connection with the Proposed Transaction, Zip will also file with the U.S. Securities and Exchange Commission (the "SEC") a registration statement on Form F-4 (which will include a definitive proxy statement of Sezzle and a prospectus of Zip with respect to the Zip ordinary shares and Zip ADRs to be issued to Sezzle stockholders in the Proposed Transaction) that will be provided to Sezzle stockholders.

Subject to certain exceptions, each of Sezzle's co-founders, Charlie Youakim and Paul Paradis (accounting for 48% of Sezzle's outstanding shares of common stock as at 25 February 2022), and Zip's co-founders, Larry Diamond and Peter Gray (accounting for 12% of issued Zip ordinary shares as at 25 February 2022), have agreed to vote in favour of the Proposed Transaction.

As part of the Proposed Transaction, Zip is also establishing an American Depository Receipts program, with such securities required to be listed on a U.S. exchange as a condition to closing of the Proposed Transaction (the "Zip ADRs")17. American Depository Receipts allow U.S. investors to invest in non-US companies (such as Zip) and give non-U.S. companies easier access to the U.S. capital markets. As Zip will have undertaken this process as part of the Proposed Transaction, this provides Zip with a pathway to explore a U.S. IPO in the future and/or a greater opportunity to access new pools of capital in the U.S..

Placement

Zip is undertaking a fully underwritten institutional Placement to eligible institutional, professional and sophisticated investors to raise approximately A$148.7 million at a fixed price of A$1.90 (the "Placement Price"). This represents a:

• 14% discount to Zip's last closing price on 25 February 2022 of A$2.21 per share; and
• 15% discount to the VWAP of Zip ordinary shares traded during the 5 trading days up to and including 25 February 2022 of A$2.23 per share.

The Placement is fully underwritten18. The Placement will result in the issue of approximately 78.3 million Zip ordinary shares (the "Placement Shares"), representing approximately 13.3% of Zip's existing shares on issue19.

1. See footnote 2.
2. Refer to Appendix C of the Investor Presentation lodged with ASX with this announcement for a summary of the key terms and conditions of the underwriting agreement.
3. Based on Zip's current ordinary shares on issue as at 25 February 2022.

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