Edited by Michael Switow
Small-cap companies are almost always expected to provide unusual drama, but tiny QT Vascular, with a market capitalisation of just under S$16 million, is delivering a truly unique Catch-22.
The company is stuck in a conundrum.
SGX-listed companies are required to have at least two directors on their board at all times.
But QT Vascular faces an extraordinary general meeting (EGM) Wednesday that appears likely to result in the company becoming director-less.
The medical technology company doesn’t appear to be legally able to cancel the EGM as it was requisitioned by substantial shareholders opposed to current management.
SGX did not respond to Shenton Wire’s emailed questions about the regulatory issues. QT Vascular informed Shenton Wire that it has been advised by its lawyers not to provide comments for this article.
The requisitioning shareholders – the investment vehicle Mission Well and Tansri Saridju Benui — had sought two separate EGMs, the first on 6 December to approve their slate of new directors, and the second, set for 15 December, to remove the existing directors.
The resolutions for the first meeting called for appointing Tansri Saridju Benui as executive director, Christian Kwok-Leun Yau Heilesen, the sole shareholder of Mission Well, as a non-independent non-executive director, and Leung Yu Tung Stanley, Chay Yiowmin and Zhou Jia Lin as independent non-executive directors.
In the lead up to the first EGM, QT Vascular issued several filings to the exchange containing unusual all-caps paragraphs, underlining and red highlights.
On 6 December, QT Vascular’s shareholders voted by a razor-slim majority, just barely above 50 percent, to reject Mission Well’s and Tansri Saridju Bensi’s proposal to appoint the slate of new directors to QT’s board; the challengers, who registered 49.85 percent in favour of the proposal, fell short by approximately 1.69 million votes.
One day after the resolutions failed, Mission Well reported to SGX that it had acquired an additional 37 million shares, more than enough to sway the balance, on 2 December, after the voting cut off.
Heilesen, Mission Well’s owner, promptly emailed QT Vascular to seek another EGM to vote on the same resolutions. QT Vascular has dubbed Heilesen’s request a “second attempt EGM.”
‘Surprised and disappointed’
“The company is surprised and disappointed that the requisitioning shareholders have blatantly ignored and disrespected the decision and will of shareholders voting at the EGM on 6 December 2021, which ought to have been final in respect of the matters then considered,” QT Vascular said in a 7 December statement.
The requisitioning shareholders, perturbed by QT Vascular’s stance, countered with their own media release: “We are appalled that the current board and management made use of SGX Net to market their opinions to the public without giving a fair, unbiased and balanced view. We do not think this approach is professional for using SGX Net as a channel.”
The statement also referred to the unusual use of highlighting in QT Vascular’s filings to SGX.
“Being significant shareholders ourselves, we are exceedingly disappointed with the level of shareholder communication and treatment by the current board and management,” the requisitioning shareholders added.
It noted the current regulations give it the right, as a holder of at least 10 percent of the company’s shares, to call as many EGMs as it wants, without limitation. Shenton Wire was informed the cost to the requisitioning shareholders per EGM is around S$15,000.
In the 7 December statement, QT Vascular said it was conferring with advisers to determine the validity of the second attempt EGM.
On 8 December, in response to queries from SGX, QT Vascular said the 15 December EGM vote to remove the existing directors would proceed.
When Shenton Wire queried the requisitioning shareholders on how they would square the circle of a director-less company, a spokesperson said via email: “Being the current board and management, it is their responsibility to deal with this issue, not the requisitioning shareholders.”
The struggle over QT Vascular’s board of directors is set against the backdrop of the company’s plans to acquire a majority stake in Asia Dental Group.
QT Vascular is planning to issue 4.06 billion new shares at S$0.0018 each in a private placement. The placement will raise S$7.3 million, part of which will be used to purchase 60 percent of Asia Dental Group. The proposed placement share price, though, is far below QT Vascular’s current market level. Shares of QT Vascular ended Monday at S$0.007.
Mission Well, upset by the gulf between QT Vascular’s share and placement prices, is challenging the deal.
The company quoted Mission Well and Tansri Saridju Benui in its responses to SGX: “The requisitioning shareholders are of the opinion that it would be timely for there to be a reconstitution of the board and that the newly reconstituted board comprising the proposed directors has the relevant expertise and knowledge to set and develop effective strategies and explore new opportunities to grow and expand the group which will, in turn, help to maximise shareholders’ value. This includes improving the deal structure that was proposed in the previous acquisition announcement for the benefit of all shareholders.”
In that statement, the requisitioning shareholders also claimed that Kelvin Tong, QT Vascular’s chief financial officer, has twice failed to announce an EGM notice for 22 December on SGX, a meeting aimed at re-proposing the slate of new directors.
The 15 December EGM
Before getting to the acquisition, the company faces the next EGM.
QT Vascular, in the 8 December statement, said: “The board would like to take this opportunity to raise its objections to the continued holding of the 15 December EGM and express its disquiet with the conduct of the requisitioning shareholders.”
“It may no longer be legally viable to put into effect the resolutions for the removal of the incumbent directors, as proposed by the requisitioning shareholders,” QT Vascular said. The company cited regulations stating that every Singapore-incorporated company must have at least one director based in Singapore, and that a resolution to remove directors without doing so is invalid.
“It is questionable if the 15 December EGM can be considered as validly held,” or the resolutions, if passed, can be considered validly passed, QT Vascular said.
QT Vascular also took aim at Mission Well’s claim it would be able to improve the terms of the Asia Dental acquisition: “The company would not have any legal basis to unwind or seek to change the terms of previously agreed to contractual agreement(s), and may even be liable for potential breach of contract should it unilaterally seek to do so.”
To add to the suspense, the long-stop date for the deal is fast-approaching: 31 December.
QT Vascular has repeatedly said the proposed change in management could scuttle the deal entirely, while Mission Well counters that the company’s current directors are scaremongering.
In a What’sApp message sent to respond to Shenton Wire’s questions, Heilesen said: “The current board and management has been using SGX Net to market their opinions and using it as a scare tactic to influence shareholders to vote in favour of them staying on board despite the poor financial and operational performance over the years. Their demands are absurd and unnecessary.”
The requisitioning shareholders’ spokesperson didn’t provide a response to a question about whether they had spoken with Asia Dental Group.
The struggle for control of QT Vascular present a lot of drama for a company that stated it had material uncertainty over its ability to continue as a going concern when it released its third quarter results in mid-November.
For the third quarter, QT Vascular reported its net loss narrowed to US$596,000 from a net loss of US$3.01 million in the year-ago quarter. The company posted no revenue for the three months ended 30 September, compared with US$145,000 in revenue in the year-ago period.
QT Vascular’s biggest deal of late came in August 2020, when its TriReme Medical subsidiary sold the intellectual property behind a drug-coated balloon catheter called Chocolate Touch to Genesis MedTech. Two years earlier, QT Vascular, sold the Chocolate percutaneous transluminal angioplasty balloon to Medtronic. Chocolate Touch is a drug-coated version of the product sold to Medtronic, according to media reports.
QT Vascular reported it has net current liabilities of US$2.65 million at the group level as of end-September.
In the financial statement, the company said it was assuming it could continue as a going concern, in part due to the Asia Dental Group deal and the private placement to raise funds. The company also said it expected to continue receiving support from a short-term lender and that it had commitments for up to US$2 million of loans from third-party lenders.
In an April response to questions from SGX, QT Vascular said it would be providing support services to Genesis MedTech’s subsidiary G Vascular until the product receives pre-market approval from the U.S. Food and Drug Administration.
The company said it will also receive royalty payments once the product is on the market.
What’s in the Asia Dental deal?
QT Vascular plans to acquire the 60 percent Asia Dental stake from Dr. Gian Siong Lin Jimmy, who will hold the remainder, for up to S$7.65 million in a deal that would diversify the company into dental and general medical services.
Asia Dental Group provides dental services, general medical services and consultancy services to some government entities; it operates three clinics in Singapore.
Currently, QT Vascular specialises in developing products for the minimally invasive treatment of vascular diseases.
The deal is structured as a “scheme of arrangement,” which would create a new holding company. QT Vascular’s shareholders would receive an equivalent number of shares in the NewCo, which would take over the listing status.
The consideration for the deal will be paid by S$3 million in cash, S$500,000 in NewCo shares at S$0.0018 each and an earn-out payment of up to S$4.15 million, the May filing said.
QT Vascular had said the earn-out would be structured as S$1.38 million in cash on the first anniversary of the deal’s completion, S$1.38 million in cash on the second anniversary, and up to S$1.38 million in cash after the company’s auditor determines the aggregate audited earnings before interest, tax, depreciation and amortisation (ebidta) is at least S$3.6 million for the three years following the acquisition.
If the aggregate ebitda falls short, the third earnout payment will be reduced by the shortfall amount, the filing said.
A draft valuation of Asia Dental Group by Vallaris Deal Advisory valued the 60 percent stake at S$5.5 million to S$7.2 million as of end-2020, according to a May filing to SGX; the pro forma net profit before tax for the 60 percent stake for 2020 would be around S$600,000, the filing said.
In the same May filing, QT Vascular had announced the issuance of 4.06 billion new NewCo shares at S$0.0018 each in a private placement to raise S$7.3 million.
Around 48.4 percent of the private placement net proceeds will be used to finance the acquisition, while the remainder is earmarked for general working capital, the company said.
The investors in the placement are Tan Gim Chua Thomas, Quek Chin Thean and Chong Leong Fah Derrick, who collectively would hold 61.7 percent of the enlarged share capital of the NewCo if the deal is completed, the May filing estimated. All three are private investors referred by QT Vascular’s legal advisors, Rajah & Tann Singapore, the filing said.
The issue price of the new shares was a whopping 64 percent discount to the volume-weighted average price (VWAP) of S$0.005 of trades on 25 May, just before the announcement of the deal.
At the time, QT Vascular said it was due to the company’s net tangible liabilities of US$710,000 at end-2020, and as the deal will provide the financial resources to expand into a new business and strengthen its working capital.
The consideration in the deal also represents an as much as 39 percent premium to Asia Dental Group’s draft valuation range, QT Vascular said at the time, noting it was taking into consideration the company’s future prospects.
In an April filing to SGX, QT Vascular had said it was continuing to develop its Chocolate Heart product for the U.S. market.
In addition, under the deal, up to around 66 million NewCo shares will be issued for the exercise of outstanding options, vesting of share awards and outstanding unlisted warrants issued to GEM Global Yield Fund LLC SCS.
A debt subplot
Another wrinkle to the potential outcome of this week’s EGM: Some of QT Vascular’s creditors can seek repayment on demand.
On 9 December, QT Vascular said it entered a debt-for-equity deal to allot 217.86 million new shares, issued at S$0.0063 each, to repay US$1.0 million, or around S$1.37 million, in debt owed to MDIE, Emerald Apex and former CEO Eitan Konstantino.
Another US$200,368 may also be paid via issuing another 43.57 million new shares, for a total of 261.43 million new shares to be issued, the filing said.
All in, the new shares represent 10.33 percent of QT Vascular’s enlarged share capital, the company said.
Outstanding amounts of US$333,842 and US$137,500 are still owed to MDIE and Konstantino, respectively, are payable on demand, the filing said.
The spokesperson for the requisitioning shareholders told Shenton Wire they believed the loan arrangement was “worth further investigation and audit,” citing the discount to the market price for the new shares.
The spokesperson did not provide a response to a question about how the requisitioning shareholders would handle a demand for re-payment.
The shares have a six-month lockup period, unless the current directors cease to form the majority on the board, any person nominated by Mission Well is appointed to the board or the company’s key management changes, the filing said.
That means that if Mission Well wins its second attempt EGM, or even succeeds in removing directors at the 15 December EGM, the creditors could choose to exit their shares.
The spokesperson for the requisitioning shareholders indicated to Shenton Wire they weren’t concerned about the potential for the creditors to sell off their shares.
According to the statement from QT Vascular, the creditors had expressed concerns about the unexpected EGM requisitions to appoint new directors, as well as the time needed for the company’s transformation plans given its current financial position, the unclear intentions of the requisitioning shareholders, and the proposed new directors’ multiple commitments.
MDIE, a management consultancy, had held around 36.8 percent of TriReme Medical, a subsidiary of QT Vascular; QT Vascular had owed MDIE US$833,842 for a long-standing bridging loan, due end-December, which was secured by the company’s around 50 percent stake in TriReme Medical.
Emerald Apex, which is a medical technology research company, holds around 13.2 percent of TriReme Medical, and it was owed US$201,841 from a short-term loan due April 2022, the filing said.
The amounts owed to Konstantino related to his unpaid remuneration, the filing said.
For now, though, the primary concern for both the current slate of QT Vascular directors, and those who propose to replace them, is the vote on Wednesday on whether to dismiss the current board, as well as the reaction by Singapore regulators, should the vote succeed, leaving the listed company be director-less.