Mr. Sheldon Kales reports
HOPE WELL ENTERS INTO DEFINITIVE AGREEMENT WITH PAYFARE INC. AND PAYFARE CLOSES $5.1 MILLION SUBSCRIPTION RECEIPTS FINANCING
Hope Well Capital Corp. and its wholly owned subsidiary have entered into an amalgamation agreement dated July 27, 2018, with Payfare Inc. to provide for the completion of a business combination with Hope Well, as more particularly described herein. The proposed transaction and the offering (as defined herein) were initially announced in a Hope Well press release dated Nov. 20, 2017, indicating that Hope Well and Payfare had entered into a letter of intent in respect of the transaction.
In connection with the transaction, Payfare completed, on July 27, 2018, a private placement of 7,850,878 subscription receipts for gross proceeds of approximately $5.1-million through a combination of a brokered offering led by Mackie Research Capital Corp. and a non-brokered offering.
Payfare's chairman, Chris Seip, commented: "This is another milestone for Payfare and an endorsement of our potential. Payfare's proven in-market and rapidly expanding solution is revolutionizing the way people get paid."
The transaction is subject to a number of terms and conditions as set forth in the definitive agreement, including (among other things) the approval of the TSX Venture Exchange. If completed, the transaction will constitute Hope Well's qualifying transaction (as such term is defined in TSX-V Policy 2.4, Capital Pool Companies).
Payfare is a Toronto-based fintech (financial technology) start-up providing mobile banking and instant payment solutions for today's work force. Payfare's technology and partnership with MasterCard are driving financial inclusion and empowerment to millions of next-generation workers around the globe by providing a full-service mobile bank account with instant access to their earnings.
Payfare was incorporated under the Business Corporations Act (Ontario) on June 15, 2012. The company is headquartered in Toronto, Ont., with its head office located at 67 Mowat Ave., Suite 402, Toronto, Ont., M6K 3E3. Payfare also has wholly owned operating divisions in the United States, the United Kingdom and Mexico.
Based on the definitive agreement, Payfare currently has 112,735,984 common shares issued and outstanding. Payfare also has outstanding 6,860,694 restricted share units, 15,174,479 options, 18,917,874 warrants, convertible debt to acquire 1,666,667 Payfare shares and a commitment to issue 1,538,462 Payfare shares to a finder, with all such convertible securities to acquire an aggregate of 44,158,176 Payfare shares. Payfare currently does not have any principal shareholder holding more than 10 per cent of its issued and outstanding shares. Payfare's co-founders, Keith McKenzie and Ryan Deslippe, are both residents of Ontario.
Based on audited financial statements prepared in accordance with Canadian generally accepted accounting principles, for the fiscal years ended Dec. 31, 2017, and Dec. 31, 2016, Payfare's gross sales were $1,160,620 and $23,929, respectively, and Payfare's comprehensive loss was $11,130,646 and $4,563,356, respectively. As at Dec. 31, 2017, Payfare had assets of $8,230,044, liabilities of $8,338,636 and shareholder deficit of $108,592.
Pursuant to the transaction, Hope Well and Payfare will complete a three-cornered amalgamation under the provisions of the Business Corporation Act (Ontario), pursuant to which Payfare will amalgamate with a wholly owned subsidiary of Hope Well.
Immediately prior to the closing of the amalgamation, Hope Well will complete a consolidation of the common shares of Hope Well on the basis of 1.580113 preconsolidation shares for one postconsolidation share. The consolidation reflects a deemed transaction value of 41 cents per Hope Well common share on a preconsolidation basis. Upon closing of the amalgamation, Hope Well will also change its name to Payfare Corp. or such other name approved by Hope Well and Payfare and acceptable to the applicable regulatory authorities. Pursuant to the amalgamation, the outstanding Payfare shares will be exchanged for postconsolidation common shares of Hope Well on a 1:1 basis, resulting in the existing holders of Payfare shares (including investors under the offering) becoming holders of postconsolidation common shares of Hope Well after the transaction. Subject to TSX-V approval, the outstanding convertible securities of Payfare will be exchanged pursuant to the amalgamation for comparable securities of Hope Well having substantially the same terms and conditions (and, for greater certainty, being economically equivalent to the exchanged convertible securities of Payfare). The amalgamated entity will be a wholly owned subsidiary of Hope Well after the transaction and Hope Well on a posttransaction basis will be the resulting
Based on the definitive agreement, a total of 122,801,807 resulting issuer common shares will be issued to existing Payfare shareholders, the holders of Payfare restrictive share units, the Payfare finder and the Payfare convertible debt holder, all at a deemed issue price of 65 cents per share. Resulting issuer convertible securities to acquire a total of 34,092,353 postconsolidation shares will be issued to replace the outstanding Payfare options and warrants. In addition, all subscription receipts issued in the offering will be converted into Payfare units (as defined herein), which will be replaced by resulting issuer shares and resulting issuer warrants on closing of the transaction.
The material conditions required to be fulfilled by the parties prior to completion of the transaction include the following: (i) the entering into of the definitive agreement and other agreements necessary in connection with the transaction; (ii) receipt of all required approvals, including TSX-V approval, the approval of the shareholders of Payfare in respect of the transaction and related matters, and all necessary consents of lenders and other third parties; (iii) completion of the consolidation and the name change; (iv) upon completion of the transaction, the resulting issuer meeting the applicable minimum listing requirements as a technology issuer, including, without limitation, the public float requirements of the TSX-V; (v) immediately prior to the closing of the transaction, each of the parties required by the TSX-V shall have entered into an escrow agreement upon the terms and conditions imposed pursuant to the policies of the TSX-V; and (vi) certain other customary conditions for a transaction of this nature.
It is intended that the resulting issuer will be listed as a technology issuer. The parties will be seeking an exemption from the requirement for sponsorship of the transaction, but in the event an exemption is not available, they will seek a sponsorship relationship for this transaction with Mackie and will update the markets accordingly.
The transaction will constitute an arm's-length transaction, and as such, the transaction will not require approval by the shareholders of Hope Well. However, Hope Well held a shareholder meeting on June 28, 2018, and received shareholder approval for, among other things, the consolidation and the name change. Hope Well intends to prepare and submit a filing statement in connection with the transaction in due course.
Payfare closed the offering of 7,850,878 subscription receipts for aggregate gross proceeds of approximately $5.1-million on July 27, 2018. Approximately $2.01-million of the subscription receipts was sold in the brokered offering pursuant to an agency agreement dated July 27, 2018, with a syndicate led by Mackie and including Haywood Securities Inc. and Canaccord Genuity Corp. The agency agreement provides for a minimum of $5-million and a maximum of $12-million of gross proceeds of the offering, from both the brokered offering and the non-brokered offering, at an issue price of 65 cents per subscription receipt, subject to an option of the agents to purchase up to an additional 2,769,230 subscription receipts at the same issue price. Approximately $3.09-million of the subscription receipts were sold in the non-brokered offering by Payfare.
Each subscription receipt will entitle the holder thereof to one unit of Payfare upon the satisfaction of certain escrow release conditions, as discussed as follows, which must be satisfied within 120 days following the closing of the offering. Each Payfare unit will comprise one Payfare share and one warrant to acquire one Payfare share, with each Payfare warrant exercisable for a period of 24 months from the transaction closing date at an exercise price of $1.25 per share. The expiry date of the Payfare warrants may be accelerated by the resulting issuer at any time following the six-month anniversary of the transaction closing date and prior to the expiry date of the Payfare warrants, if the volume-weighted average trading price of the resulting issuer shares is greater than $1.65 for any 20 consecutive trading days. The gross proceeds of the offering (other than the agents' expenses, a $65,000 advisory fee payable to Mackie and 50 per cent of the agents' commission) are held in escrow until the release conditions have been satisfied.
In connection with the transaction, the Payfare shares issued pursuant to conversion of the subscription receipts will be converted into an equivalent number of resulting issuer shares on a postconsolidation basis. Assuming the release conditions are satisfied, each subscription receipt will ultimately entitle the holder thereof to one resulting issuer share and one warrant to purchase one resulting issuer share on the same terms as the Payfare warrants. The release conditions include: (i) the definitive agreement between Payfare and Hope Well regarding the transaction shall have been entered into on terms acceptable to the agents and all conditions precedent to the amalgamation shall have occurred; (ii) the TSX-V shall have conditionally approved the listing of the resulting issuer shares issuable pursuant to the transaction; (iii) the receipt of all regulatory, shareholder and third party approvals, if any, required in connection with the amalgamation; (iv) Payfare shall have raised a minimum of $5-million gross proceeds in the offering; and (v) Payfare and Hope Well shall not be in breach of any conditions of the subscription receipt agreement relating to the subscription receipts, and all conditions set out in the agency agreement and subscription receipt agreement shall have been fulfilled.
Following the completion of the transaction, assuming there is no further issuance of subscription receipts, the Payfare shareholders will own approximately 90.6 per cent of the issued and outstanding resulting issuer shares, existing Hope Well shareholders will own approximately 3.61 per cent of the issued and outstanding resulting issuer shares, and purchasers of subscription receipts will own approximately 5.79 per cent of the issued and outstanding resulting issuer shares, on a non-diluted basis.
The agents are entitled to a cash commission in the amount of 7 per cent of the gross proceeds raised under the brokered offering, 50 per cent of which was paid to the agents on closing of the offering, and 50 per cent of which is held in escrow to be released when the release conditions are satisfied. Mackie is entitled to an advisory fee of $65,000, which was paid on the closing of the offering. In addition, the agents received compensation warrants in an amount equal to 7 per cent of the number of subscription receipts sold pursuant to the brokered offering, each of which will entitle the holder to acquire one resulting issuer share upon the payment of 65 cents for a period of two years following the closing of the transaction. The agent warrants are only exercisable upon satisfaction of the release conditions on or before the deadline.
the resulting issuer
The existing directors of Payfare are Chris Seip, Paul Haber and Keith McKenzie. The current officers of Payfare are Brian Miller, chief operating officer and chief information officer, and Fareed Sheik, chief financial officer.
Set forth herein is information on each individual that is currently anticipated to be a director or officer of the resulting issuer upon closing of the transaction.
Chris Seip (director and chairman)
In 2016, Mr. Seip retired as global chief operating officer and head of investor and treasury market services for RBC, Canada's largest bank as measured by assets and market capitalization, and among the largest banks in the world, based on market capitalization. From 2012, Mr. Seip oversaw the global management of deposit taking, liquidity management and short-term financing, as well as foreign exchange, securities lending and asset management (liquidity portfolio of over $50-billion (U.S.) and over $40-billion (U.S.) of liability insurance plus $100-billion (U.S.) of intraday liquidity for RBC). Prior to this, Mr. Seip held other senior-level positions at RBC and RBC Capital Markets over his 16-year-plus career with the bank. Today, Mr. Seip mentors early-stage tech companies in Canada and the United Kingdom through preaccelerator programs in the payments, lending and health care segments. He is also actively involved in multiple charities. Mr. Seip holds a master of business administration from McGill University, a bachelor of arts in economics from the University of Western Ontario and holds a chartered financial analyst designation.
Paul Haber (director)
Mr. Haber is the managing director of Haber and Co. Ltd., which provides corporate finance and capital market advisory services to small- and medium-sized businesses. From June, 2013, to June, 2015, Mr. Haber served as the chief financial officer and corporate secretary of Cline Mining Corp. Until December, 2012, Mr. Haber had previously served as chief financial officer of New Sage Energy Corp. (and subsequently suspended from trading), chief financial officer of Oremex Silver Inc. and chief financial officer of Oremex Gold Inc. He previously served as interim chief financial officer at Migao Corp. and Silverbirch Inc. Currently, Mr. Haber was a former director of Trimetals Mining Inc. and is a current director of Chinapintza Mining Corp. (formerly Black Birch Capital Acquisition II Corp.). From 2004 through March, 2007, Mr. Haber was vice-president, chief financial officer and corporate secretary of QuStream Corp. Mr. Haber was a director of a capital pool company named Penfold Capital Acquisition Corp., a capital pool company called China One Corp. and a capital pool company named Black Birch Capital Acquisition I Corp. Each of these capital pool companies successfully completed a qualifying transaction. Mr. Haber holds an honours BA from the University of Toronto and is both a chartered accountant and certified public accountant.
Co-founder and director Keith McKenzie and Payfare co-founder Ryan Deslippe were industry pioneers as co-founders of one of Canada's leading prepaid financial services companies. They were instrumental in managing and driving the growth of the company, which became public in 2006, growing to a market cap of $120-million within five years as one of the top traded stocks on the TSX-V. The company's exponential growth to $100-million in annual sales resulted in its being ranked four times as one of the fastest-growing companies in Canada by Profit 100, one of North America's fastest-growing tech companies on the Deloitte 500, as well as one of Canada's top technology firms. Most notably, Mr. McKenzie and Mr. Deslippe partnered with MasterCard to launch North America's first prepaid Europay, MasterCard and Visa (EMV) government disbursement solution for the City of Toronto and Ontario Works, which received the prestigious award of Best Global Prepaid Card Program.
Bill Hong Ye (director)
Mr. Ye is the chief executive officer, chief financial officer and a director of Hope Well. Mr. Ye is an experienced investment professional and an acclaimed professor in finance and economics in Toronto and China. Mr. Ye has been the chief executive officer of Nine Fortune Assets Co. Ltd., a Toronto-based investment firm, since 2011 and chairman of VVinv Inc., another Toronto-based investment firm, since 2016. He was chief executive officer of Hangzhou SeePad Communications Equipment Co. Ltd., a telecommunication equipment firm based in Hangzhou, China, from 2006 to 2011. Mr. Ye has also been a visiting professor at the Victoria College of Business and Technology in Toronto for courses in investment funds, options and foreign exchange since 2013. Mr. Ye has a bachelor's degree from Zhejiang University in China.
Brian Miller (chief operating officer and chief information officer)
With over 20 years of experience as a technology leader, Mr. Miller has held executive positions in private and public companies spanning a range of industries that includes financial services, health care and logistics. Following a technical career at IBM, Mr. Miller held leadership roles at Algorithmics, Grocery Gateway (acquired by Longo's), Indigo, Points International and Nightingale Informatix (acquired by Telus). Mr. Miller has a bachelor of computer science from the University of British Columbia and an MBA from Ivey School of Business at Western University.
Fareed Sheik (chief financial officer)
Mr. Sheik is a CPA/CA and member of the Institute of Chartered Accountants of Ontario. Mr. Sheik is also a CPA from the United States and also from the Indian Institute of Chartered Accountants and a certified fraud examiner. He has over 20 years of experience in audit, tax and consulting engagements across different industries. He is currently the principal at Fareed Sheik & Co. CPAs, a full-service accounting, assurance, tax and business consulting firm. Mr. Sheik has worked for Ernst & Young in India and Deloitte in Canada, handling audit, internal controls and compliance engagements. Prior to joining Payfare, Mr. Sheik has been an interim chief financial officer at Selectcore Ltd. and Loyalist Group, which are TSX-V-listed companies. Mr. Sheik's areas of expertise include financial reporting, internal control compliances (COSO and SOX framework), audit and corporation tax.
On closing of the transaction, Payfare will appoint a chief executive officer and a corporate secretary acceptable to the TSX-V and Hope Well. Biographies for the chief executive officer and corporate secretary will be provided in subsequent press releases or in the filing statement in connection with the transaction.
Hope Well Capital Corp.
Hope Well is a capital pool company formed under the TSX-V capital pool company program. Hope Well's common shares will remain halted until Hope Well satisfies the requirements of the TSX-V for resuming the trading of the Hope Well shares or until completion of the transaction.
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