LawFinance : Independent Expert's Report

LawFinance Limited

Independent Expert's Report and Financial Services Guide

19 April 2021

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The Independent Directors

LawFinance Limited

Level 16,

56 Pitt Street,

Sydney, NSW 2000

19 April 2021

Dear Directors

Independent Expert's Report and Financial Services Guide

Introduction

LawFinance Limited ("LawFinance" or "the Company") provides funding for out of pocket expenses (disbursements) for law firms in Australia and personal injury related medical liens for accident victims in the United States through the following two divisions:

• National Health Finance Holdco, LLC ("NHF"), USA-basedMedical lien funding division, which was purchased by LawFinance on 28 September 2018. The carrying value of medical lien funding receivables was US$53.3 million as at 31 December 2020 which is broken down as outlined below:
• • Back Book - Acquired in conjunction with the NHF acquisition in 2018 with a carrying value of US$29.5 million as at 31 December 2020. It is funded via the Efficient Frontier Investing facility ("EFI Facility") which is drawn down to US$25.3 million ("Back Book"). The Company was in technical breach of the EFI Facility as at 31 December 2020.1
  • Front Book - Which has a carrying value of US$23.7 million as at 31 December 2020 which is funded via the Atalaya facility ("Atalaya Facility") which is drawn down to US$17 million ("Front Book").
• JustKapital Financing Pty Ltd ("JKF") is the Australian disbursement funding division and it was purchased in January 2016. The carrying value of the disbursement funding receivable was US$16.1 million as at 31 December 2020 which is funded via Assetsecure Pty Limited facility
  ("Assetsecure Facility") drawn down for US$17 million ("Australian Book").

The Company also owns a litigation funding business that has been in run-off for a number of years ("Litigation Portfolio"). On 29 January 2021, the Company entered into an agreement to sell the

1 We also note that this includes the Michigan Sidecar Receivables, constituting to c. 27% of the underlying book balance that was refinanced alongside the new EFI Facility. This "Back Book" herein is inclusive of the Michigan Sidecar receivables.

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Litigation Portfolio to Legal Equity Partners Pty Ltd ("LEP"), a subsidiary of Lucerne Composite Master Fund ("Lucerne") a major shareholder and related party to the Company. Grant Thornton Corporate Finance prepared a separate Independent Expert's Report and a Supplementary IER in relation to this transaction ("Litigation Portfolio Sale IER") and concluded that the sale was fair and reasonable for the shareholders of the Company not associated with Lucerne. Completion of the sale of the Litigation Portfolio is subject to meeting certain conditions precedent, including shareholder's approval. In the remainder of this report ("Report"), we have assumed that the sale of the Litigation Portfolio will complete.

Whilst the sale of the Litigation Portfolio will assist in reducing working capital requirements and allow for a more congruent and streamlined operational strategy, the Company is still forecast to experience continued operational losses due to the legacy debt burden, which has recently placed the Company in both debt service and technical default. We note that for the year ending 31 December 2020, LawFinance paid interest expenses of US$16.8 million and generated a loss of c. US$80.0 million. Post Restructure, the Company is expected to have gross debt of US$58.3 million or A$76.1 million based on the fixed exchange rate of 0.7650 stipulated in all the agreements ("Exchange Rate"). We have set out below a break-down of the debt facilities:

• SAF Facility - The largest corporate debt facility is the Syndicated Acquisition Facility ("SAF"), which had outstanding principle and accrued interest, including side loans, of US$43.2 million or A$56.4 million2. These lenders of the SAF Facility ("Lenders") agreed to a formal standstill agreement until the end of April 2021 whilst the Company works toward a restructure of the business to reduce the debt burden and preserve shareholder value. As part of the debt restructure discussed below, an additional A$3.0 million secured bridging loan ("New Debt Facility") will be advanced by AquAsia (one of the SAF members).
• Promissory Notes - Totalling US$8.2 million or A$10.8 million owed by LawFinance to six separate US promissory note holders.
• Unsecured creditors - The total value of the outstanding amount owed to Australian and US unsecured creditors is US$5.6 million or A$7.3 million.

In addition to the above, the Company also has convertible bonds on issue to various sophisticated and professional investors pursuant to a capital raising undertaken in July 2016. The Company's outstanding exposure is approximately A$1.7 million ("Convertible Bonds") and these will be converted into equity alongside the Proposed Restructure.

On 19 April 2021, LawFinance announced a proposed restructure ("Proposed Restructure") of the Company to be implemented by way of three interdependent transactions as outlined below:

• Refinancing of the Front Book ("Refinancing") - The existing Atalaya Facility (US$17.0 million) will be refinanced with a new interest bearing facility provided by Partners for Growth VI, L.P ("PFG").
  PFG is a US based growth fund and the new facility will have an initial draw down of US$30.0 million which can be extended up to US$70.0 million (subject to meeting certain conditions) ("PFG Facility"). As part of the proposed Refinancing, the Company has agreed to issue to PFG unlisted warrants ("PFG Warrants") with an exercise price of A$4.4 cents per share and maturity of 7

2 Based on the fixed exchange rate of 0.7650 stipulated in all the agreements "Exchange Rate".

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years which on exercise will entitle PFG to be issued with 104.5 million Shares (Pre- consolidation).

• Debt for Equity Swap - A total debt for equity conversion of US$42.3 million or A$55.3 million at a weighted average share price of A$3.7 cents per share for the issue of 1,483,859,929 Shares comprising the following:
• • SAF Facility - US$27.2 million or A$35.6 million of the SAF Facility will convert into 1,011,233,270 Shares at a price of A$3.52 cents per share. We note that the shares will be issued to 14 different lenders.
  • Promissory Notes - US$8.2 million or A$10.8 million of the Promissory Notes will convert into 269,201,399 Shares at a price of A$4.0 cents per share.
  • Unsecured Creditors - US$5.6 million or A$7.2 million of the Unsecured Creditors will convert into 165,332, Shares at a price of A$4.4 cents per share.
  • Convertible Bonds - US$1.3 million or A$1.7 million of the Convertible Bonds will convert into 38,091,751 Shares at a price of A$4.4 cents per share.
• Placement - The Company has obtained commitments to raise approximately A$20.2 million at A$1.30 cents per share by way of Placement to raise at least approximately $17.2 million (before costs) from certain sophisticated and professional holders of debt in the Company participating in the Debt Restructure, and certain new and existing sophisticated and professional investors of the Company. The remaining A$3.0 million will be committed by AquAsia pursuant to the New Debt Facility. Per the terms of the New Debt Facility, the Company and AquAsia may agree for AquAsia to take an additional A$3.0 million of new Shares under the Placement which will take the total amount raised to c. A$20.2 million. Given the uncertainty in relation to AquAsia's intention, for the purpose of the IER, we have assumed that the Company will raise A$17.2 million (before costs).

Following completion of the Proposed Restructure the corporate debt of the Company will reduce from US$58.5 million to US$15.9 million or from A$76.1 million to A$20.8 million and the Company will have a cash balance of c. US$13.63 million which is expected to be utilised to fund the growth of the business.

Any LawFinance Shares issued to certain lenders participating in the debt restructure and/or the Placement will be subject to voluntary escrow arrangements, the terms of which are summarised in the Key Terms of the Restructure Transaction section of the Explanatory Memorandum ("Escrow Arrangements").

The Proposed Restructure is subject to a number of conditions precedents including the shareholders of LawFinance ("LawFinance Shareholders") approving the various resolutions in relation to the Debt for Equity Swap, the Placement and the Refinancing. Notably, these

3 Based on Pro Forma financial statement of position as at 17 May 2021 and assuming a Placement of A$20.2 million before adviser costs of c. US$2.5 million.

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aforementioned resolutions are independent of one another and should one not be ratified, the Proposed Restructure will not proceed.

The Board of LawFinance has unanimously recommended that LawFinance Shareholders vote in favour of the resolutions to effect the Proposed Restructure and each Director of LawFinance intends to vote all LawFinance Shares held or controlled by them in favour of the Proposed Restructure.

Purpose of the report

If the Proposed Restructure is approved, no shareholder will increase its interest in the Company either from below 20% to more than 20%, or from a starting point between 20% and 90%. Accordingly, the Proposed Restructure is not considered a change of control transaction in accordance with the Corporations Act and there is not legal requirement for the commissioning of an IER in relation to the Proposed Restructure.

Notwithstanding the above, the Directors have engaged Grant Thornton Corporate Finance Pty Ltd ("Grant Thornton Corporate Finance") to prepare an independent expert's report stating whether the Proposed Restructure is fair and reasonable to the LawFinance Shareholders in order to assist them in their deliberations of the Proposed Restructure.

Summary of opinion

Grant Thornton Corporate Finance has concluded that the Proposed Restructure is FAIR AND REASONABLE of the Non-Associated Shareholders.

In forming our opinion, Grant Thornton Corporate Finance has considered whether the Proposed Restructure is fair and reasonable to the LawFinance Shareholders and other quantitative and qualitative considerations.

Fairness Assessment

Whilst there is no legal requirement for the preparation of an IER in relation to the Proposed Restructure, we have followed the requirements of the Australian Securities and Investment Commission ("ASIC") Regulatory Guide 111 Contents of expert reports ("RG 111"). Given that the Proposed Restructure is not a change of control transaction, in our fairness assessment we have compared the value per LawFinance Share before the Proposed Restructure to the assessed value of the Company after the Proposed Restructure on a like for like basis.

The following table summarises our valuation assessment:

Fairness summary	Section
Figures in A$	Reference	Low Case	High Case
Value per share	pre-restructure (cents, minority basis)	7	0.0	0.0
Value per share	post-restructure (cents, minority basis)	8.5	2.0	2.7
FAIRNESS	ASSESSMENT		FAIR

Source: GTCF analysis

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