Quantum International Income Corp.

Quantum International Income Corp.

August 08, 2014 13:55 ET

Quantum International Income Corp. Provides Further Details on Change of Business Transactions and Concurrent Financing

TORONTO, ONTARIO--(Marketwired - Aug. 8, 2014) -


Quantum International Income Corp. ("QIIC" or the "Company") (TSX VENTURE:QIC.H) is providing an update on matters announced in QIIC's June 27, 2014 news release (the "Initial News Release") regarding its previously-announced transactions (the "Transactions") which, collectively, will constitute a "change of business" (within the meaning of the policies of the TSX Venture Exchange (the "Exchange")) and which would see the Company reactivated and thereby graduate from a listing on the NEX board ("NEX") of the Exchange to a listing on the Exchange as a Tier 2 issuer.

The Company is pleased to announce that Quantum CSS Holdings Corp. ("Quantum US"), a wholly-owned Delaware subsidiary of the Company, has entered into a limited liability company operating agreement (the "CSS Agreement") with DGAT Partners, LLC ("DGAT") a New York limited liability company, through which Quantum US and DGAT will form Centers for Special Surgery, LLC ("CSS"), a Delaware limited liability company. Quantum expects that a wholly-owned subsidiary of CSS, Center for Special Surgery of Essex County, LLC ("CSS-Essex"), a New Jersey limited liability company, will ultimately complete the previously-announced acquisition of certain assets comprising the Roseland Ambulatory Surgery Center ("RASC"). DGAT is controlled by Dr. David Greuner and Dr. Adam Tonis, the principals of NYC Surgical Associates ("NYCSA"), a medical group practice headquartered in New York City. Pursuant to the CSS Agreement, conditional upon the closing of the acquisition of the RASC, it is expected that the member surgeons of NYCSA will begin performing surgical procedures at the RASC. CSS-Essex has additionally entered into a management agreement with an affiliate of DGAT (the "RASC Management Agreement") pursuant to which, conditional upon the closing of the acquisition of the RASC by CSS-Essex, such affiliate will manage and operate the RASC.

QIIC is also pleased to announce it has entered into definitive documentation with respect to its previously-announced acquisition of a controlling interest in Multiple Media Entertainment Inc. ("MME"), a full service independent media content creation and distribution company located in Toronto, Ontario. Pursuant to an investment agreement (the "Investment Agreement") between QIIC, MME and the two current shareholders of MME, Michael Taylor and J. Drew Craig, QIIC will subscribe for securities in the capital of MME that carry a voting interest in MME equivalent to two-thirds of the issued and outstanding voting securities for an aggregate purchase price of $500,000 (the "MME Acquisition"), subject to the terms and conditions described further below.

Separately, QIIC is also providing additional details to those outlined in the Initial News Release on the concurrent offering (the "Financing") of subscription receipts ("Subscription Receipts") of QIIC at the price of $0.35 per Subscription Receipt (the "Subscription Price"). QIIC is pleased to announce that it has revised the proposed minimum and maximum gross proceeds of the Financing and, upon completion thereof, expects now to raise minimum gross proceeds of $5,000,000 and up to $7,000,000.

Upon completion of the Transactions, subject to certain conditions, it is intended that QIIC will complete its reactivation from NEX. Though the Transactions constitute a "change of business" pursuant to Exchange rules, the directors and officers of QIIC are not expected to change as a result of the Transactions. QIIC expects the closing of the Transactions to take place not later than August 31, 2014. Completion of the proposed Transactions is subject to, among other things, receipt of all necessary regulatory approvals and approval of the shareholders of QIIC, which approval is expected to be satisfied through receipt by QIIC of written consent resolutions from holders of common shares of QIIC representing not less than 50.1% of those issued and outstanding.

CSS Agreement

Quantum US and DGAT (the "Members") have entered into the CSS Agreement primarily to pursue healthcare-related opportunities, including the development of the RASC and other ambulatory surgery centers to be identified in a geographic area determined by the Members. The Members hold all economic, voting, or other interests in CSS and the CSS Agreement establishes certain restrictions on the transfer, or granting of, membership interests to other parties.

The management and control of CSS is vested in the board of managers (the "Board of Managers"), and the Board of Managers may make all decisions and take all actions for CSS, except in matters for which approval of the Members is required by the CSS Agreement or as otherwise required by applicable law. The Board of Managers will initially consist of four members, two nominees of Quantum US and two nominees of DGAT. The managers are initially expected to be Grant White, Chief Executive Officer of QIIC, Manu Sekhri, President of QIIC, Dr. Greuner and Dr. Tonis.

The Members expect to initially capitalize CSS with an investment of US$4,000,000 to be comprised of debt from Quantum US (the "Debt Advance") and equity from both Members which capital CSS or its operating subsidiary will use to complete the acquisition of the RASC and fund initial working capital requirements. Once operations at the RASC have commenced, it is expected that most surgical procedures performed at the RASC will generate two types of fees - a facility fee and a professional fee. The facility fee will be paid directly to the RASC for the use of its infrastructure, surgical equipment, nursing staff, non-surgical professional services and other support services. It is expected that the revenue from such facility fees will form the basis of distributions of cash flow to CSS and the Members. Professional fees earned through procedures performed at the RASC will be paid directly to the physician performing such procedure and will not be included in the revenue or expenses of the RASC.

QIIC expects and the CSS Agreement requires that the Debt Advance be repaid by CSS in its entirety prior to any distributions being made to Members on account of their respective equity interests in CSS. Following the repayment of the Debt Advance, and provided no additional debt is then payable by CSS to Quantum US, distributions from CSS shall be paid to the Members according to distribution formulae set out in the CSS Agreement, which provides for distributions on a 50:50 basis to each of Quantum US and DGAT. In each fiscal year, if specified distribution levels to CSS are realized, the CSS Agreement provides for the distribution of 80% of cash flow to DGAT and 20% of cash flow to Quantum US.

Proceeds received by CSS from the sale of any of its assets, including but not limited to the sale of any ownership interest in a subsidiary of CSS, including CSS-Essex or any interest held by CSS plus proceeds received by CSS in liquidation or dissolution of any subsidiary of CSS or any entity in which CSS held an ownership interest shall be distributed amongst the Members in equal proportion. There are also certain events which are set out in the CSS Agreement which provide Quantum US with the option to purchase the membership interest of another Member.

CSS shall continue in existence and shall terminate only upon the approval of all Members to dissolve, the entry of a decree of judicial dissolution pursuant to the Delaware Limited Liability Company Act, or the occurrence of an event that makes it unlawful for all or substantially all of the business of CSS to be continued.

RASC Management Agreement

CSS-Essex has entered into the RASC Management Agreement with DGAT Management Limited Liability Company ("DGAT Manager"), an affiliate of DGAT, pursuant to which CSS-Essex has delegated responsibility for the management and operation of the RASC to DGAT Manager, save and except for certain specified matters for which the approval of CSS as the sole member of CSS-Essex will be required.

Pursuant to the RASC Management Agreement, DGAT Manager expects to, on behalf of CSS-Essex and in connection with the operation of the RASC, set fee schedules for surgical procedures, establish billings and collections for such procedures, provide accounting, financial management, budget reporting and human resources services, manage records and technology for the RASC and otherwise provide the administrative services required to manage the facility. In connection with these services, DGAT Manager is authorized to acquire, sell or otherwise deal with all or any part of CSS-Essex's property and personal property, incur debt, enter into insurance arrangements, employ attorneys, brokers, consultants or accountants, enter into supply or service contracts, bring or defend claims or arbitrations, establish funding reserves for operations, perform all obligations under any agreement to which CSS-Essex is party and execute any agreements or instruments to give effect to the performance of such duties. DGAT Manager may also subcontract any of the foregoing services to third parties, provided such subcontractor abide by the terms of the RASC Management Agreement.

DGAT Manager is, in respect of the performance of any of the specified duties, required to provide appropriately qualified personnel to ensure the provision of quality services at the RASC. CSS-Essex also retains the authority to approve the operating budget and certain other budgetary matters with respect to the RASC and the responsibility for quality assurance and quality control.

In consideration for the provision of these services, DGAT Manager is entitled to retain a billings fee of 6% of all collections in respect of the RASC services and an annual management fee as agreed by CSS-Essex, which shall initially be set at US$20,000 per month. DGAT Manager shall also be entitled to the reimbursement of out-of-pocket expenses including wages, salary and benefits for personnel of DGAT Manager who perform services for or on behalf of the RASC.

Terms of Agreement for MME

Pursuant to the Investment Agreement, QIIC will subscribe for securities in the capital of MME that carry a voting interest in MME equivalent to two-thirds of the issued and outstanding voting securities. The consideration to be paid by QIIC for the MME Interest is $500,000. Following the closing of the MME investment, the current shareholders of MME, corporate entities controlled by Messrs. Taylor and Craig, will each retain one-sixth of the voting interest in MME.

QIIC and Messrs. Taylor and Craig have also agreed on a form of unanimous shareholder agreement ("Shareholders' Agreement") setting out the terms and conditions pursuant to which MME will be governed and operated going forward. Pursuant to the Shareholders' Agreement, following completion of the MME Acquisition, the board of directors of MME is expected to be comprised of three directors, one nominee of Messrs. Taylor and Craig, and two nominees of QIIC. The initial directors are expected to be Mr. Taylor, Mr. White and Mr. Sekhri.

It is a condition of the MME Acquisition that QIIC, Messrs. Taylor and Craig enter into the Shareholders' Agreement. The MME Acquisition is further conditional upon the execution of an employment agreement between Mr. Taylor and MME on terms satisfactory to each and the adoption by the board of directors of MME of a cash performance plan (the "Incentive Plan") to govern the distribution of cash incentives from MME's operations to Incentive Plan participants, initially expected to be Mr. Taylor.

The Incentive Plan will be administered by QIIC and QIIC shall have authority to determine and approve participants in the Incentive Plan. Pursuant to the Incentive Plan, MME will grant cash incentive awards ("Incentives") to participants equal to a certain percentage of cash flow distributed to QIIC in the event that MME meets certain pre-determined internal rate of return targets or in the event that QIIC determines to sell all or any part of the MME Interest to a third party. MME will deposit Incentives into a segregated bank account and any amount of Incentives in such account will vest and become available for payment to participants on the basis of 1/48th of such amount per month. QIIC believes the Incentive Plan will align participants' performance with MME's success and provide participants, including Mr. Taylor, with appropriate inducements to successfully implement MME's business strategy.

Following completion of the MME Acquisition, QIIC expects the infusion of capital will allow MME to pursue higher calibre productions which will, in turn, enable it to generate increased revenues because of enhanced commercial marketability. By focusing on the acquisition of commercially viable completed productions, QIIC believes that MME's new media expertise will give it an advantage in generating increased revenue streams for the business going forward.

Additional Financing Details

QIIC has revised the proposed minimum and maximum gross proceeds of the Financing and, upon completion thereof, expects now to raise minimum gross proceeds of $5,000,000 and up to $7,000,000. As previously announced, the Financing will be carried out through Global Securities Corporation, as agent (the "Agent") on a commercially reasonable efforts private placement basis pursuant to an agency agreement (the "Agency Agreement") to be entered into between QIIC and the Agent.

As compensation for acting as agent in respect of the Financing, the Agent will receive a cash commission equal to 6% of the aggregate gross proceeds of the Financing, payable upon satisfaction of the previously disclosed escrow release conditions and the release of the escrowed funds to QIIC. The Agent will also receive, upon satisfaction of the previously disclosed escrow release conditions, options (the "Compensation Options") to purchase that number of common shares of QIIC equal to 6% of the number of Subscription Receipts sold pursuant to the Financing at an exercise price equal to the Subscription Price at any time prior to the date that is 24 months from the date of issuance of the Compensation Options. A portion of the Financing may be conducted as non-brokered, in which case QIIC expects certain finders will be entitled to compensation no more favourable than the compensation of the Agent.

Other Key Conditions to Completion of the Transactions

Completion of the Transactions is subject to a number of other key conditions, including Exchange acceptance and disinterested shareholder approval. As there is no Non-Arm's Length Party (as defined under Exchange rules) to the Transactions, it is not expected that any holders of common shares will be excluded from voting. The Transactions cannot close until the required shareholder approval is obtained. There can be no assurance that the Transactions will be completed as proposed, or at all.

Investors are cautioned that, except as disclosed in the filing statement to be prepared and filed by QIIC in connection with the Transactions (the "Filing Statement"), any information released or received with respect to the change of business may not be accurate or complete and should not be relied upon. Trading in the securities of QIIC should be considered highly speculative.

Trading of the common shares of QIIC was halted in connection with the dissemination of the Company's news release on June 27, 2014. Together with Initial News Release, this news release constitutes QIIC's comprehensive news release with respect to the Transactions for the purposes of Exchange rules.

About QIIC

QIIC is an Ontario corporation which was originally amalgamated on August 15, 1995. After engaging in several ventures over the subsequent decade, the Company divested itself of substantially all of its assets in February, 2005. The Company has traded on the NEX since March 16, 2005. Since 2005, the Company has had no active operations and its primary business has been to identify and evaluate businesses or assets with a view to completing a reactivation from the NEX pursuant to the policies of the Exchange.

On June 18, 2013, QIIC entered into a reorganization and investment agreement with Mr. Grant White, pursuant to which the Company agreed to: (i) appoint Mr. White as Chief Executive Officer; (ii) nominate new directors for election to the Company's board of directors; (iii) consolidate its issued and outstanding share capital on the basis of one (1) post-consolidation share for each ten (10) pre-consolidation shares; (iv) undertake to complete a non-brokered private placement of common shares and warrants of the Company; and (v) change its name from "E.G. Capital Inc." to "Quantum International Income Corp." (collectively, the "Reorganization"). The Reorganization was entered into in order to better position the Company to complete its reactivation from the NEX. Mr. White's appointment as CEO was effective on June 18, 2013; Mr. Manu Sekhri joined as President and a new slate of directors were elected at the annual and special meeting of the shareholders of QIIC held on November 21, 2013; the consolidation and name change became effective on March 13, 2014 and the Company completed the non-brokered private placement to raise aggregate gross proceeds of $1,160,000 on March 19, 2014.

As of the date hereof, there are 25,460,105 common shares of QIIC issued and outstanding, as well as 23,200,000 warrants to purchase common shares of QIIC at a price of $0.10 per common share at any time prior to March 19, 2015. As of the date hereof, no person owns, controls or directs 10% or more of the outstanding common shares of QIIC.

QIIC intends to seek opportunities to acquire and grow businesses in order to generate stable distributions for its shareholders, as well as to achieve overall capital appreciation. The Company will seek to acquire operating businesses with a proven track record, an opportunity for growth and whose management wishes to continue to operate the business going forward. The Company's acquisition approach will be to grow through the acquisition of "platform" businesses that are consistent with its business strategy and acquisition criteria and then to continue to build revenues and earnings within these businesses. Potential acquisition targets may be private or public companies in a variety of industries, thereby allowing for diversification. Acquisition of all or a majority of the ownership of each such business is preferred. Value will be created by seeking out high growth, high margin opportunities where the acquired businesses can maintain and develop the deep knowledge, expertise and understanding of their customers' needs required to deliver superior service and command higher pricing and margins than the competition.

Cautionary Note Regarding Forward-Looking Statements

Certain statements contained in this press release constitute forward-looking statements and forward-looking information (collectively, "Forward-Looking Statements") and QIIC cautions investors about important factors that could cause QIIC's actual results to differ materially from those expressed, implied or projected in any Forward-Looking Statements included in this press release. Any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of words or phrases such as "will likely result", "are expected to", "expects", "will continue", "is anticipated", "anticipates", "may", "could", "believes", "estimates", "intends", "plans", "forecast", "projection" and "outlook") are not historical facts and may be Forward-Looking Statements that involve projections, estimates, assumptions, known and unknown risks and uncertainties which could cause actual results or outcomes to differ materially from those expressed in such Forward-Looking Statements or otherwise materially inaccurate. No assurance can be given that these expectations or assumptions will prove to be correct and such Forward-Looking Statements included in this press release should not be unduly relied upon. These Forward-Looking Statements speak only as of management's beliefs and expectations as of the date of this press release. In addition, this press release may contain Forward-Looking Statements drawn from or attributed to third party sources. Accordingly, any such statements are qualified in their entirety by reference to the information discussed throughout this press release.

In particular, this press release contains Forward-Looking Statements regarding anticipated future financial, structural, growth and operating performance of QIIC, including as it pertains to the current acquisitions set out in this press release and the deployment of capital into new acquisitions. These Forward-Looking Statements reflect the current beliefs of management with respect to, among other things, the completion of the current transactions and acquisitions set out in this press release, the completion of related financing of the acquisitions, qualifying as an "investment issuer" for Exchange purposes, and other future events. Actual results may differ materially due to a number of risks and uncertainties faced by QIIC, including, but not limited to: general economic and business conditions; global financial conditions; the failure of QIIC to identify acquisition targets or complete announced acquisitions; third parties honouring their contractual obligations with QIIC and its subsidiaries; relationships with operating and/or joint venture partners; inaccuracy, incompleteness or omissions in any of the financial and other information upon which management bases its analysis of potential acquisitions; the failure to realize the anticipated benefits of QIIC's current and future acquisitions; factors relating to the healthcare industry, including reliance on third-party payors for revenue; licensing, certification and accreditation risk; healthcare regulatory requirements; dependence on physician relationships; litigation, professional liability claims; insurance coverage limitations and uninsured risks; dependence on key personnel at the QIIC and operations level; competition from other healthcare providers; factors relating to the media content generation and distribution industry, including ability to deliver services in a timely manner; changes in technology, consumer markets or demand for media services; changes in federal, provincial and foreign content laws and regulations; dependence on third party content producers; competition for, among other things, capital, equipment and skilled personnel; the inability to generate sufficient cash flow from operations to meet future obligations; the inability to obtain required debt and/or equity financing for future acquisitions on suitable terms; competition for acquisition targets; seasonality and fluctuations in results; and limited diversification of QIIC's business industries, structures and operations.

QIIC cautions that the list and description of Forward-Looking Statements, risks, assumptions and uncertainties set out above is not exhaustive. All Forward-Looking Statements contained in this press release are qualified by these cautionary statements.

Unless otherwise specified in this press release, information contained in this press release is current as of the date of this press release. Unless otherwise specified, all dollar amounts herein refer to Canadian dollars. Additional information on these and other factors that could affect the operations or financial results of QIIC and its subsidiaries are included in disclosure documents filed by QIIC with the securities regulatory authorities, available under QIIC's profile on SEDAR at www.sedar.com.

The TSX Venture Exchange Inc. has in no way passed upon the merits of the proposed transaction and has neither approved or disapproved the contents of this press release.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Contact Information

  • Grant White
    Chief Executive Officer

    Manu K. Sekhri