New “Go Public” platform for medium-sized growth companies: NEO Exchange introduces G-Corp ™ pilot program

NEO Exchange Inc. (“NEO“Has a new pilot program (the”program“) For a publicly traded vehicle known as Growth Acquisition Corporation ™ (the”G-Corp“), Which was developed by NEO to enable private medium-sized growth companies with an enterprise value between C $ 50 million and C $ 500 million to access capital and go public with significantly reduced risks, including the elimination of the well-known” repayment risk ” with target acquisition companies (“SPACs“). The program is NEO’s answer to the established Capital Pool Corporate Program launched by the TSX Venture Exchange.

NEO’s existing SPAC program for senior issuers has influenced the structure of the program, which uses the existing SPAC rules and frameworks, subject to certain exceptions and additional requirements specific to the G-Corp. The requirements are determined by NEO employees on a case-by-case basis, depending on the specifics of the G-Corp.

Main features of the program

NEO sets certain thresholds for G-Corp vehicles, namely:

  • Minimum IPO of at least C $ 2 million and up to C $ 30 million, with all IPO proceeds held in trust

    G-Corp must file a prospectus to complete its initial public offering of shares or units (the “initial public offering“) To achieve a minimum total revenue of CAD 2 million up to a maximum of CAD 30 million, which must be fully held in trust to identify one or more target companies and fund the G-Corp qualifying transaction (the”QT“).

  • 20% limit on founding capital after going public, with the exception of securities bought at IPO price

    The founders’ equity stake in G-Corp may not exceed 20% after the IPO has been completed, with the exception of securities that were purchased at or before the IPO was completed at at least the IPO price.

  • Founders raise C $ 300,000 in working capital upon completion of IPO

    Founders must purchase sufficient securities to ensure that G-Corp will have at least $ 300,000 of free working capital upon completion of the IPO.

  • 24-month limit for identifying target companies, 27-month limit for completing the acquisition (s)

    After the IPO is complete, the G-Corp must identify a QT within 24 months of the IPO and complete the QT within 27 months of the IPO. If the G-Corp does not complete the QT within the prescribed time frame, the deposited proceeds will be paid back proportionally to the investors.

  • QT requires prospectus filing and shareholder approval – no redemption function

    In order to complete its QT, G-Corp must file an additional prospectus and information circular to obtain shareholder approval. While there is no redemption feature at the time of the QT, the QT is subject to shareholder approval, except for all holders of non-IPO securities.

  • QT minimum market capitalization C $ 30 million

Upon completion of the QT, the resulting issuer must have a market capitalization of at least CAD 30 million and meet the NEO initial listing standards that apply to senior (Tier 1) issuers listed on NEO.

How do you become a G-Corp founder?

To reap the benefits of the program and act as the founder of a G-Corp, applicants must schedule a pre-filing meeting with NEO staff to assess the potential issuer’s eligibility for the program. As a management team, founders of a G-Corp must have experience with pooled capital vehicles and / or private equity.

If a management team of NEO employees is deemed eligible to be eligible for the program, NEO employees will request a waiver from the management team outlining the proposed structure of the G-Corp. A waiver will be required, among other things, in connection with the minimum public float requirement and the removal of the take-back functions and the associated fiduciary requirements according to the NEO rules. After clarifying any comments from NEO employees, NEO coordinates approval with the Ontario Securities Commission (the “OSC“) On the suitability of the waiver. The OSC may require the applicant to submit a prospectus in advance before NEO receives the OSC’s approval of the waivers requested. Upon receipt of the OSC’s approval, NEO employees will request the applicant to submit a prospectus to the OSC, if they have not already done so, disclose the waivers granted in connection with the listing of G-Corp, and NEO employees materials for the initial listing.

SPAC vs. G-Corp

Below is a comparison between NEO listing standards that apply to SPAC and G-Corp vehicles:

Listing standard

SPAC

G-Corp

Minimum price

Both G-Corp and SPAC have a minimum price of C $ 2 per security.

Minimum payout

Both a G-Corp and SPAC must have a public holding of 1 million stocks, along with at least 150 public stockholders holding one board lot each.

Public float value

In the case of a SPAC, the expected market value in public free float must be at least CAD 30 million at the time of listing.

A G-Corp must apply for a waiver to allow an initial total increase of at least $ 2.5 million that includes at least $ 500,000 from the founders and at least $ 2 million from the public offering.

Working capital

While both a SPAC and a G-Corp must have sufficient working capital to fund operations, the founders of a G-Corp must also purchase sufficient securities to secure at least $ 300,000 in free working capital upon completion of the IPO. The founders can do this simultaneously with the completion of the IPO. If the G-Corp needs additional funds for current expenses, the G-Corp can receive an unsecured loan from its founders or carry out a rights offering for shares.

Redemption function

Shares or units of SPACs proposed for listing in the NEO must include a redemption function which, in the event of a QT deal, shareholders (other than incorporation paper holders) may choose to hold any share or unit within the permitted time frame to be redeemed.

In the case of a G-Corp there is no redemption function; Instead, the completion of the QT is subject to shareholder approval, with the exception of the votes held by the founders.

Trust funds

A SPAC must deposit at least 90% of the gross proceeds from its IPO or a subsequent rights offering, including 50% of the consortium commission in connection with the IPO, in trust.

A G-Corp must hold in trust 100% of the gross proceeds generated on its IPO or subsequent rights offering, including 50% of the lead management commission in connection with the IPO.

Shareholder approval

In the case of a SPAC, the QT generally must be approved by a majority of the directors unrelated to the QT and the majority of the shareholders at a duly convened meeting. However, if 100% of the gross proceeds from an IPO of a SPAC, including all subsequent financings, are deposited in trust, the shareholder approval requirement can be avoided.

In the case of a G-Corp, the QT is subject to the approval of the shareholders in all cases. In addition, G-Corp foundation paper holders cannot vote on the QT.

Qualifying Disclosure of Transactions

A prospectus can be requested in connection with the QT, even if the consent of the shareholders is not required. If shareholder approval is required (if 100% of gross proceeds of the IPO are not held in trust) or if items related to the QT require shareholder approval (e.g. adoption of a new stock option plan or changes to inventory documents), will an information circular is required in connection with the QT.

A prospectus and information circular are required in connection with the QT.

Allowable time for the qualifying transaction to complete

A SPAC must complete the QT within 36 months of the completion of the IPO (or shorter if specified in its prospectus).

G-Corp has up to 24 months to identify and complete a QT. A G-Corp can add up to three months to the schedule to complete an ongoing QT. Failure to complete the QT within the permitted time frame will result in a liquidation distribution to shareholders.

Qualifying Transaction Value

A SPAC must complete a QT with an aggregate fair market value of at least 80% of the value of the funds on deposit (excluding deferred underwriter commissions and any taxes payable on interest or other income in the escrow account at the time of entry) into a final Agreement).

A G-Corp is expected to enter into a QT that will result in an issuer with a market capitalization of at least C $ 30 million.

Permissible start-up remuneration

For both a SPAC and a G-Corp, NEO will consider compensatory measures proposed by the founders, provided that they: (i) do not constitute rights of recourse to the deposited proceeds; (ii) only become due in connection with the conclusion of a QT; and (iii) will be disclosed in the IPO prospectus.

NEO is willing to consider a percentage success fee based on the market capitalization of the resulting issuer or the size of the QT, although this may be considered novel from a securities regulators perspective. Currently, NEO allows payment of: (i) a monthly cash fee to a G-Corp sponsor as compensation for providing administrative and related services to facilitate a QT; (ii) a mandate to directors of a G-Corp; and (iii) Advisory fees of a target to affiliates of the G-Corp sponsor in connection with a QT. NEO will also enable the founders to reimburse any expenses.

Debt financing

A SPAC is prohibited from obtaining any form of debt financing other than unsecured loans on reasonable commercial terms, up to a maximum total nominal amount of 10% of the fiduciary proceeds, which will be repayable in cash at the earliest after the QT is closed or may be in connection with the closure of the QT can be converted into shares and / or warrants, provided this limit is specified in the IPO prospectus.

In the case of a G-Corp, NEO will consider waiving this requirement on a case-by-case basis given the lower amount of fiduciary proceeds, provided that no credit is drawn on the fiduciary proceeds in all cases.

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