Quest Capital Corp. (TSX: QC)(NYSE Amex: QCC) (the "Corporation" or
"Quest") announced today that it has signed a letter of intent (the
"LOI") with Sprott Consulting Limited Partnership ("Sprott")
pursuant to which Sprott will manage a rebranded Quest.
Quest will change its lending strategy from real estate lending
to natural resource lending and rebrand itself changing its name to
reflect its new affiliation. The Corporation will convene a
shareholders' meeting in August 2010 to approve the transaction
contemplated by the LOI and the Corporation's change of name to
Sprott Resource Lending Corp. ("Sprott Resource Lending").
Mr. Eric Sprott, Chief Executive Officer of Sprott Inc., stated,
"The Sprott group is excited at the prospect of capitalizing and
managing a classic resource lending entity. As a natural resource
lender, Sprott Resource Lending will provide bridge and mezzanine
lending to mining and oil & gas companies. The business plan of
this company will seek to establish a track record of conservative
credit policies and methodical growth in its overall credit
facilities. We believe that, by combining Quest's asset base and
lending expertise together with the deal flow, contacts and
execution abilities of the Sprott organization, Sprott Resource
Lending will be a dominant player in the business of natural
resource lending."
Mr. A. Murray Sinclair, Chairman of Quest added, "The transition
marks the return of Quest to its roots in the resource lending
business. Quest and Sprott management believe that there is a
substantial untapped potential within the resource sector for
credit, both due to the global credit contraction and diminished
activities of the global banks once active in the area and to the
much larger mid-tier component of the sector. Quest intends to
initiate a substantial issuer bid that, while not dependent on the
rebranding of Quest, will accommodate the needs of shareholders who
are focused on real estate; whereas shareholders who favour
resource lending will be able to take advantage of renewed growth
and the reinstated dividend."
Kevin Bambrough, President of Sprott Inc., remarked, "The
build-out of the resource lending book is expected to produce
shorter term durations with above average interest yields, however
as Mr. Sprott noted, Sprott Resource Lending will operate with
conservative lending practices with the additional upside of bonus
arrangements that are generally tied to the upside of the
underlying property or shares of the borrower. We believe there is
strong potential in establishing a portfolio of bonus arrangements
which will add incremental profitability to core lending as
resource properties or commodities perform well."
Substantial Issuer Bid
Subject to any applicable regulatory or other approvals, Quest
intends to initiate a substantial issuer bid pursuant to which
Quest will offer to repurchase up to $60 million of its currently
issued and outstanding common shares (the "Substantial Issuer
Bid").
The Substantial Issuer Bid will proceed by way of a so-called
"Dutch Auction" with a range of purchase prices, depending on
prevailing market conditions, not to exceed $1.60 per common share.
The intent would be to have shares tendered under the Substantial
Issuer Bid taken-up shortly after the shareholders' meeting.
The Substantial Issuer Bid will not be conditional on the
transaction contemplated by the LOI. Further information will be
made available in due course as to the timing and terms of the
Substantial Issuer Bid, including through the mailing of an issuer
bid circular.
Letter of Intent and Reinstatement of Dividend
The LOI contemplates a management services agreement between
Quest and Sprott (the "MSA"), which would include, among others,
the following terms:
-- Quest will discontinue real estate lending and will focus instead on
lending to natural resource companies including those active in the
mining and oil & gas sectors;
-- Sprott will covenant and undertake that until the MSA is terminated,
neither Sprott, nor any affiliate thereof, shall manage any entity that
is principally engaged in providing bridge or mezzanine loans to
businesses in the natural resource sector;
-- Quest's existing real estate loan book will be monetized and redeployed
into new resource loans;
-- An annual management fee of 2% of net assets would be payable to Sprott
together with an incentive fee of 20% of annual pre-tax profits above a
hurdle rate equal to the average 30-year Government of Canada bond
interest rate;
-- Quest will reinitiate a dividend policy to pay out to its shareholders
the above noted "hurdle rate", that being the average 30-year Government
of Canada bond interest rate;
-- Sprott will be responsible for the management of the Corporation and
would provide to Sprott Resource Lending managerial services including
those of a CEO CFO and COO, as well as two directors. These directors
will, subject to shareholders' approval, initially be Peter Grosskopf
and John Embry, President of Cormark Securities Inc. and Chief
Investment Strategist of Sprott Asset Management LP, respectively;
-- The Chairman and other executives of Sprott Resource Lending will be
announced at a later date; however it is currently envisioned that A.
Murray Sinclair and Brian Bayley, Quest's Chairman and President/ CEO,
respectively, will resign from these positions. Messrs. Sinclair and
Bayley will remain as directors of the Corporation following closing and
enter into consulting contracts with Sprott for future services;
-- An initial term of 3 years after which the MSA may be terminated by
either party;
-- A change of control fee, equal to 5% of net asset value plus 20% of the
excess of market value over net asset value, would be payable to Sprott
during the first four years of the MSA in the event of a change of
control of Quest. After four years, no change of control fee would be
payable; and
-- No fees will be charged by Sprott on Quest's existing real estate loan
portfolio.
Pursuant to the terms of the LOI, Sprott will be entitled to the
payment by Quest of a break fee of $1.5 million in the event that
Quest enters into a competing transaction. Shareholders
representing approximately 24% of the outstanding common shares of
Quest have provided voting and support agreements favouring the
acceptance of the proposed transaction.
The board of directors of Quest has authorized management to
pursue the negotiation and settlement of the definitive terms of
the MSA and other necessary documentation. The completion of the
proposed transaction contemplated under the LOI is subject to the
satisfaction of a number of conditions including any applicable
regulatory or other legal requirements, the settlement of
definitive documentation and approval by Quest's shareholders, as
noted herein.
Shareholder Approval
Quest anticipates seeking the approval of its shareholders at a
meeting in August 2010. Shareholder approval would be sought with
respect to the change of name from Quest to Sprott Resource
Lending, the new board composition, the MSA, and any other matters
which Quest determines are required by applicable law or stock
exchange requirements to be approved by its shareholders in
relation to the proposed transaction.
Private Placement
Subsequent to the Substantial Issuer Bid, Sprott, Sprott Inc.
and its affiliates (including its employees and clients) will make
an investment in Quest/Sprott Resource Lending through a private
placement of up to $25 million. The Private Placement will be
subject to any applicable regulatory, stock exchange or other
approvals. Participation in the Private Placement, which will be
priced at the lower of (i) the Substantial Issuer Bid clearing
price and (ii) $1.60 per common share, will be restricted to
Sprott, its affiliates, its employees and its clients.
About Sprott
Sprott Consulting Limited Partnership is a wholly-owned
subsidiary of Sprott Inc., the parent of Sprott Asset Management
LP, a leading Canadian independent money manager that has
approximately $5 billion of assets under management. Sprott
Consulting Limited Partnership currently manages Sprott Resource
Corp., a TSX listed corporation that invests and operates in the
natural resource sector. Sprott Consulting Limited Partnership is
also in the process of launching Sprott Power Corp., a renewable
energy development company, which it will also manage.
About Quest
Quest Capital Corp. is a publicly traded mortgage investment
corporation. As a natural resource lender, Quest will ultimately
cease to be a mortgage investment corporation. Accordingly, Quest
will provide further guidance as to its ability or intention to
remain a mortgage investment corporation for the remainder of the
current fiscal year.
At present, Quest can quantitatively be summarized as
follows:
-- Number of shares currently outstanding: 139,529,934
-- Cash on hand: $31.9 million
-- Standby debt facility (in respect of Substantial Issuer Bid): $35.0
million (undrawn)
-- Loans: 28 with a carrying value of $216.0 million
-- Shareholders' equity (as of March 31, 2010 and including normal course
issuer bid completed thereafter): $258.6 million
-- Tax losses (as of March 31, 2010):
-- Non-capital / income: $32.7 million
-- Capital: $60.7 million
It is currently estimated that Quest's second quarter financial
results will be published on August 5th and that the Corporation
will host a conference call to discuss such results on August 6th;
these dates both being prior to the estimated dates of the (i)
shareholders' meeting, (ii) taking up and paying for shares under
the Substantial Issuer Bid and (iii) concluding the private
placement as previously described herein.
For more information about Quest, please visit our website
(www.questcapcorp.com) or SEDAR (www.sedar.com).
Forward Looking Statements
This press release may include certain statements that
constitute "forward-looking statements", and "forward looking
information" within the meaning of applicable securities laws
("forward-looking statements" and "forward-looking information" are
collectively referred to as "forward-looking statements", unless
otherwise stated). Such forward-looking statements involve known
and unknown risks and uncertainties that may cause our actual
results, performance or achievements to be materially different
from any future results, performance or achievements expressed or
implied by such forward looking statements. Forward-looking
statements may relate to the Corporation's future outlook and
anticipated events or results and may include statements regarding
the Corporation's future financial position, business strategy,
budgets, litigation, projected costs, financial results, taxes,
plans and objectives. We have based these forward-looking
statements largely on our current expectations and projections
about future events and financial trends affecting the financial
condition of our business. These forward-looking statements were
derived utilizing numerous assumptions regarding expected growth,
results of
operations, performance and business prospects and opportunities
that could cause our actual results to differ materially from those
in the forward-looking statements. While the Corporation considers
these assumptions to be reasonable, based on information currently
available, they may prove to be incorrect. Forward-looking
statements should not be read as a guarantee of future performance
or results. Forward-looking statements are based on information
available at the time those statements are made and/or management's
good faith belief as of that time with respect to future events,
and are subject to risks and uncertainties that could cause actual
performance or results to differ materially from those expressed in
or suggested by the forward looking statements. To the extent any
forward-looking statements constitute future-oriented financial
information or financial outlooks, as those terms are defined under
applicable Canadian securities laws, such statements are being
provided to describe the current potential of the Corporation and
readers are cautioned that these statements may not be appropriate
for any other purpose, including investment decisions.
Forward-looking statements speak only as of the date those
statements are made. Except as required by applicable law, we
assume no obligation to update or to publicly announce the results
of any change to any forward-looking statement contained or
incorporated by reference herein to reflect actual results, future
events or developments, changes in assumptions or changes in other
factors affecting the forward looking statements. If we update any
one or more forward-looking statements, no inference should be
drawn that we will make additional updates with respect to those or
other forward-looking statements. You should not place undue
importance on forward-looking statements and should not rely upon
these statements as of any other date. All forward looking
statements contained in this press release are expressly qualified
in their entirety by this cautionary notice.
Contacts: Quest Capital Corp. A. Murray Sinclair Chairman (800)
318-3094 or (604) 687-8378 Quest Capital Corp. Jim Grosdanis CFO
(800) 318-3094 or (604) 687-8378 (604) 682-3941 (FAX)
www.questcapcorp.com
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