NewtekOne to sell Newtek Technology Solutions subsidiary to Paltalk

NewtekOne (NEWT) has entered into a definitive agreement to sell its wholly owned subsidiary Newtek Technology Solutions to Paltalk (PALT). As previously disclosed, in connection with Company’s acquisition of Newtek Bank and transition to a financial holding company, the Company made a commitment to the Board of Governors of the Federal Reserve System to divest or terminate the activities of NTS, which manages information technology hardware and software for approximately 17,000 customers. Pursuant to the Agreement, Paltalk has agreed to pay to the Company at the closing of the NTS Sale: $4,000,000 in cash, subject to certain purchase price adjustments, and issue to the Company 4,000,000 shares of a newly created series of Paltalk non-voting preferred stock, the Series A Non-Voting Common Equivalent Stock. Upon the occurrence of certain specified transfers of the Preferred Stock, each share of Preferred Stock will automatically convert into one share of common stock of Paltalk, subject to certain anti-dilution adjustments. In addition to the Closing Consideration, the Company may be entitled to receive an earn-out amount of up to $5,000,000, payable in cash or Preferred Stock, based on the achievement of certain cumulative average Adjusted EBITDA thresholds for the 2025 and 2026 fiscal years. The issuance of Preferred Stock to the Company as Stock Consideration or as consideration for the earn-out, if any, shall be subject to the limitation that any such issuance of Preferred Stock may not result in the Company’s equity interest in Paltalk exceeding one third of Paltalk’s “total equity,” determined in accordance with the Bank Holding Company Act of 1956, as amended, and to the extent necessary a corresponding increase in the Cash Consideration or cash paid in respect of the earn-out will be made. In addition, following the close, the Company will be entitled to one representative on the Paltalk board of directors. The parties currently anticipate consummating the NTS Sale in the fourth quarter of 2024 or the first quarter of 2025, subject to approval by Paltalk’s stockholders, regulatory approvals and the satisfaction of other closing conditions, including the completion of the divestiture of certain specified assets by Paltalk. At the closing of the NTS Sale, based on the number of shares of Paltalk common stock outstanding as of August 8, 2024, the Company’s equity interest in Paltalk would represent, on an as-converted and fully-diluted basis, approximately 30.3% of Paltalk’s total equity.