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Quantum arranges $11M (U.S.) loan for Lucky Bucks buy
2016-08-18 00:22 ET - News Release
Ms. Vera Janakievski reports
QUANTUM INTERNATIONAL INCOME CORP. PROVIDES UPDATE ON LUCKY BUCKS INC. ACQUISITION
Quantum International Income Corp. has entered into a non-binding term sheet with a lender to provide financing to the corporation, the proceeds of which would be used to finance the acquisition by the corporation of a controlling interest in the business of Lucky Bucks Inc. (LBI). LBI is a highly profitable digital skill-based gaming terminal operator based in and incorporated under the laws of the U.S. state of Georgia. LBI assembles, distributes, owns and operates over 650 skill-based digital gaming terminals in over 130 locations throughout Georgia. LBI’s terminals are fully licensed and governed by the Georgia State Lottery and offer players a variety of skill-based coin-operated amusement machines.
The entering into of a letter agreement with respect to the acquisition was previously announced by the corporation in a news release dated April 27, 2016. The letter agreement was the result of negotiations between the corporation and Anil Damani, an individual resident in the state of Georgia, who currently owns 100 per cent of LBI. Under the terms of the acquisition, the corporation would partner with Mr. Damani to operate and expand LBI’s business going forward. Mr. Damani is currently an arm’s-length party to the corporation but is expected to be appointed director of operations of LBI at closing.
The corporation has entered into the term sheet with a New York-based asset management firm. The term sheet describes a transaction pursuant to which the lender would provide a first-lien senior secured term loan to a wholly owned subsidiary of the corporation in the amount of $11-million (U.S.). Pursuant to the term sheet, the loan would be issued with an 8-per-cent original issue discount and bear interest at a fixed rate of 16 per cent per annum based on the financed amount. The term sheet also provides for the lender to be granted warrants to purchase 1.5 million common shares of the corporation at the reference price (as defined below) for a period of 30 months from the date of the advance of the loan. The loan is to mature on the date which is 30 months after the date on which funds are advanced under the loan. The loan is to be secured by first-priority mortgage liens and first-priority security interests in all of the tangible and intangible assets of the borrower and the corporation, including the equity interest in LBI the corporation will acquire pursuant to the acquisition, but excluding the surgery centre assets of Centers for Special Surgery LLC (a subsidiary of the corporation), as well as all permits and contracts with the State of Georgia and all owner/operator gaming machine contracts.
LBI’s unaudited gross revenue and pretax net income were $10.6-million (U.S.) and $7.6-million (U.S.), respectively, for the 12-month period ended Dec. 31, 2015. As of that date, LBI had total assets of approximately $667,000 against nil liabilities. Readers are cautioned that the foregoing information was provided to the corporation by LBI and has not been audited and should not be relied upon. There can be no certainty that the foregoing information will remain unchanged after having been audited. Completion of the acquisition is subject to a number of conditions, including but not limited to the negotiation and execution of a definitive purchase and sale agreement (PSA) between the corporation and Mr. Damani and the completion of due diligence of LBI to the corporation’s satisfaction in its sole discretion. The PSA will contain provisions customary for a transaction of this nature, including payment of purchase price, transaction structure, representations, warranties, covenants, closing conditions, indemnities and non-competition provisions in favour of LBI. The corporation currently expects that it (or its designated affiliate) will acquire a 51-per-cent equity interest in LBI, but the definitive acquisition structure to be set out in the PSA is subject to change based on relevant corporate, tax, regulatory or securities law considerations. Completion of the acquisition is also conditional on the negotiation of a shareholders’ agreement to govern LBI going forward, as well as the determination of mutually satisfactory employment arrangements with Mr. Damani as chief operating officer, which arrangements are also expected to include customary non-competition and non-solicitation provisions in favour of LBI.
The purchase price for the acquisition is expected to be $13.5-million (U.S.), composed of $10.0-million (U.S.) payable in cash at closing of the acquisition, $3.0-million (U.S.) payable in common shares of the corporation, to be valued based on the volume-weighted average trading price of the corporation’s common shares on the TSX Venture Exchange during the 20-trading day period prior to the closing of the acquisition, and $500,000 (U.S.) of deferred consideration, payable in cash at the end of the first year following the closing of the acquisition. Since the price at which the common shares are to be issued to Mr. Damani will not be determined until closing (subject to a floor price of five cents per common share), the corporation cannot, at this time, determine the precise number of common shares that will form part of the purchase price. It is probable that the ultimate price per common share will result in the issuance of a number of common shares to Mr. Damani that will result in the creation of Mr. Damani as a control person of the corporation pursuant to the rules of the TSX Venture Exchange. Mr. Damani will also become an insider of the corporation for securities law purposes, along with Jamie Boyden, who is expected to become chief executive officer of the subsidiary of the corporation that will hold the 51-per-cent LBI investment. Mr. Boyden has several years of experience in the gaming industry in the United States and internationally, including nine years of operational, advisory and corporate finance work in the gaming technology industry, three years of business development work in the Italian gaming industry, and two years of business development work in the Georgia market in which LBI operates. In addition to the 1.5 million common shares that may be issued to the lender upon exercise of the warrants referred to above, on the basis of the floor price of five cents per share of the TSX Venture Exchange, as well as the noon rate of exchange published by the Bank of Canada on Aug. 16, 2016, for the conversion of U.S. dollars, the maximum number of common shares that would be issuable to Mr. Damani as a result of the acquisition is 77,172,000 common shares, though readers are cautioned that the ultimate number of common shares issuable will depend on the rate of exchange at the time of closing of the acquisition, and cannot be determined at this time.
Completion of the acquisition, including for greater certainty the issuance of any securities of the corporation as consideration and any concurrent financing of the acquisition, is subject to the approval of the TSX Venture Exchange.
Separately, the corporation announces that, following the anticipated resumption of trading in its common shares on the TSX Venture Exchange, it expects to complete an additional drawdown under its existing exchangeable note facility in the principal amount of up to $500,000, which will be exchangeable into common shares of the corporation following the resumption of trading. Additionally, the corporation also announces that it is no longer pursuing the previously announced transaction, whereby it would acquire an interest in Advanced Surgery Center.
More information on Quantum International Income is available at the company’s website.
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