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VHQ Positioning for Growth

10 Jan, 2002 By: Hive News

Canadian chain VHQ has repurchased all partnership units of the Video Limited Partnership, created in December 1999, for a total consideration of C$2.1 million, subject to final Toronto Stock Exchange approval.

"In repurchasing the Limited Partnership, we have freed up a tremendous amount of cash flow, and when these funds are combined with the C$1.25 million gain to be received over the next 18 months from the sale of our position in E-Trend Networks, Inc., we are well positioned to commence our planned expansion initiatives," said Trevor Hillman, chairman and c.e.o. of VHQ.

The Limited Partnership units were created in connection with a C$4 million asset sale transaction between VHQ and Video Revenue Sharing Management Ltd. The C$2.1 million was paid issuance to the limited partners of 546,336 units of VHQ, with each unit comprising one common share of VHQ and half a common share purchase warrant with an exercise price of C$2 to December 1, 2003; and a convertible debenture in the principal amount of C$1.28 million.

The annual rate of interest on the debenture is 8 percent with blended principal and interest payments payable monthly over a 3-year term to Dec. 1, 2004. The outstanding principal value of the debenture is convertible into VHQ common stock at any time at the option of the holder at C$2.50 per common share to December 1, 2003 and at C$3 per common share to December 1, 2004.

The repurchase has resulted in the cancellation of net cash flow obligations totaling C$1.5 million per year, previously payable in connection with the Limited Partnership. Net of the monthly blended repayment costs in connection with the Debenture, VHQ has realized an addition to discretionary cash flow of approximately C$1 million per year. The annual average interest expense associated with the Debenture is approximately C$54,000 per year over the 3-year term, as compared to the C$1.5 million annual expense associated with the Limited Partnership.

"In repurchasing the Limited Partnership, we have significantly reduced the expense drag on VHQ's net earnings by approximately C$1.45 million per year," c.f.o. Derrek Wong said. "As well we have freed up in excess of $C1 million in cash flow that can be used to fund ongoing initiatives."

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