The following information is being disclosed for the purposes of AIM Rules for Companies, Rule 26.
DESCRIPTION OF BUSINESS
General
Quest’s expertise is providing mortgages in the real estate sector. Quest’s objective is to become Canada’s largest Mortgage Investment Corporation (“MIC”) in terms of equity, loan generation and profitability.
A MIC is a special-purpose corporation defined under Section 130.1 of the Income Tax Act (Canada). MIC’s do not pay corporate-level taxes when their taxable income is paid out to shareholders as dividends every year. Canadian resident individual shareholders who hold their shares outside of registered plans (such as RRSPs, RRIFs or RESPs) will have dividend payments taxed as interest income.
In order to maintain MIC eligibility, the Company must meet the following criteria at all times:
- at least 50% of its assets must consist of residentially oriented mortgages and/or cash;
- it must not hold any foreign assets, including investments secured by real property located outside of Canada;
- it must not engage in operational activities outside of the business of lending and investing of its funds; and
- the Company’s shares must be widely held, whereby no person may own more than 25% of the issued and outstanding shares.
Real Estate Loans
The characteristics of the real estate loans that comprise Quest’s current loan portfolio are as follows:
Borrowers
The borrowers are typically private companies and high net worth individuals who are located in Canada.
Purposes of the Real Estate Loans
The loan funds are typically advanced to private companies and high net worth individuals who require funds on a relatively short term basis.
Principal Amounts
The principal amounts of the mortgages vary, but are typically in the range of $500,000 to $35,000,000.
Interest
Quest’s real estate loans typically bear interest at rates in the range of 9% - 15% per annum. Interest rates will vary depending on the risk exposure to Quest in advancing the loan and prevailing rates for real estate loans at the time of negotiation and advance of the loans.
Commitment Fees
Quest typically takes a commitment fee in the range of 1% to 2% of the principal amount of the real estate loan advanced to the borrower which is paid to Quest as consideration for the advance of the loan.
Maturity Dates
The terms of real estate loans are typically in the range of six months to 24 months.
Security
Real estate loans are primarily secured by first mortgages and on occasion by a second mortgage against real estate assets that have a fair market value in excess of the amount advanced, as of the date of the advance of the loan. Real estate assets are located in Canada. Additional security such as guarantees, general security agreements and assignment of rents or sale agreements may also be taken. The exact nature of the security granted by the borrower is largely dependent on the value of the real estate assets pledged as security, their value in relation to the loan and the nature of the business and asset base of the borrower.
Competitive Conditions
Quest carries out lending activities in Canada with the majority of its loans being located in British Columbia, Alberta and, to a lesser extent, Ontario. With the buoyant economy in particular in Western Canada, there has been a marked increase in liquidity destined for real estate. For Quest, this has translated into increased competition in particular, from high net worth investors looking for a home for their capital, and from smaller mortgage lending institutions.
Not withstanding the above, Quest is well positioned to compete in these markets. By providing quick response and flexibility, Quest has developed a following from repeat borrowers. Quest’s products fill a void in that it will lend in areas that traditional lenders are not active in.
BOARD OF DIRECTORS
The Board of Directors of Quest currently consists of eight directors, four of whom are independent directors. W. David Black, Dale C. Peniuk, Walter M. Traub and and Frank B, Mayer are independent directors, Brian E. Bayley, A. Murray Sinclair, Robert G. Atkinson and Stephen C. Coffey are not considered independent.
Management directors are comprised of :
Brian E. Bayley has served as Co-Chair of Quest since January 2008 and Chief Executive Officer from 2003 to 2008. Mr. Bayley was formerly a director and chief executive officer of Quest Investment, an asset backed lender from July 2002 to June 2003. He was also co-founder of Quest Ventures Ltd. a privately held asset backed lender specializing in bridge loan lending primarily to public companies in the resource sector. Mr. Bayley holds an MBA from Queen’s University.
A. Murray Sinclair has served as Co-Chair of Quest since January 2008 and previously Managing Director from 2003 to 2007. Previously, Mr. Sinclair served as the chairman and director of Quest from November 2002 to July 2003. Mr. Sinclair was formerly a director and president of Quest Investment from July 2002 to June 2003. He was a co-founder of Quest Ventures Ltd. Mr. Sinclair obtained a B.Comm (Honours) from Queen’s University in 1984.
Stephen C. Coffey has served as President of Quest since January 2008 and Chief Executive Officer since March 2008. From 2001 to September 2007, Mr. Coffey served as the Senior Vice President and Chief Financial Officer of Equitable Group Inc. (TSX: ETC) and its wholly-owned subsidiary The Equitable Trust Company, a substantial deposit taker and mortgage lender. Prior thereto, from 1998 to 2001, he served as a Co-Founder and Chief Financial Officer of Creditwave Corporation, an instant credit adjudication and application service provider.
Non-management directors are comprised of:
Robert G. Atkinson has been a director of Quest since 2003. He was previously Co-Vice Chairman of Quest Investment Corp. from July 2002 to July 2003; President and CEO of Bradstone Equity Partners, Inc., a public merchant banking firm, from 1997 to July 2002; President & CEO of Peruvian Gold Limited from January 2001 to July 2002
W. David Black has been a director of Quest since 1984. Mr. Black is retired and was previously a partner of the law firm DuMoulin Black LLP from 1968 to December 2003.
Frank B. Mayer has been a director of Quest since May 2008. Mr. Mayer is currently the Chairman of Vision Capital Corporation, an investment counselor and portfolio manager and limited market dealer. Mr. Mayer is a very well known analyst in the real estate sector and is the former Vice Chairman of Desjardin Securities Corporation, an investment bank. Prior to that he was Vice Chairman of HSBC Securities, Canada
Dale C. Peniuk has been a director of Quest since May 2007. Mr. Peniuk received his Chartered Accountant designation in British Columbia in 1986. Previously, Mr. Peniuk was a Chartered Accountant with KPMG LLP, Vancouver BC from 1989 to 2006 (Assurance Partner at KPMG from 1996 to 2006; Senior Manager from 1989 to 1996).
Walter M. Traub has been a director of Quest since April 2007. Mr. Traub is a lawyer specializing in commercial lending matters with the firm of Goldman, Sloan, Nash and Haber LLP in Toronto, Ontario.
The role of the Board is to supervise management and to approve major and strategic decisions. The Board relies on management for periodic reports, and to provide the support and information necessary to enable the Board to fulfill its obligations effectively. Major matters are to be analysed in reports prepared by management and submitted to the Board for its approval. All material transactions must be reviewed and approved by the Board prior to implementation. Any responsibility that is not delegated to senior management or a Board committee remains with the full Board. One of the Board’s responsibilities is to review and, if thought fit, to approve opportunities as presented by management and to provide guidance to management.
The Board also meets to plan for the future growth of Quest; identify risks of Quest’s business, thus ensuring the implementation of appropriate systems to manage these risks; monitor senior management; and ensure timely disclosure of material transactions. Frequency of Board meetings as well as the nature of agenda items change depending upon the state of Quest’s affairs and in light of opportunities or risks that Quest faces. When necessary and appropriate, issues may be approved and adopted by the Board by way of written resolutions.
Audit Committee
The Audit Committee currently consists of three members, all of whom are independent with the meaning of NI 58-101. The members of the Committee are W. David Black, Frank B. Mayer and Dale C. Peniuk.
The Board has adopted an Audit Committee Charter. A copy of the Charter is available under “Investor”, “Corporate Governance”.
The Committee’s purpose is to assist the Board in the oversight of:
- The integrity of all financial reporting by the Company, including a review of financial statements, MD&A and annual and interim earnings press releases before public disclosure thereof;
- The Auditors' qualifications and independence;
- The performance of the Company’s internal audit function and Auditors; and
- The compliance by the Company with all relevant financial reporting requirements.
Corporate Governance Committee
The Corporate Governance Committee currently consists of three members, all of whom are independent with the meaning of NI 58-101. The members of the Committee are W. David Black, Robert G. Atkinson and Walter M. Traub.
The Board has adopted a Corporate Governance Committee Charter. A copy of the Charter is available under “Investor”, “Corporate Governance” tab on the Quest website.
The Committee’s purpose is to:
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Review and report to the Board on matters of corporate governance;
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Provide oversight review of Quest’s systems for achieving compliance with legal and regulatory requirements;
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Identify individuals qualified to become Board members;
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Recommend candidates to fill Board vacancies and newly created Director positions; and
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Recommend whether incumbent Directors should be nominated for re-election to the Board upon expiration of their terms.
Compensation Committee
The Compensation Committee currently consists of three members, all of whom are independent. The members of the Committee are W. David Black, Dale C. Peniuk and Walter M. Traub.
The Board has adopted a Compensation Committee Charter. A copy of the Charter is available under “Investor”, “Corporate Governance” on the Quest website.
The Committee is established by the Board of Directors of Quest to assist the Board in fulfilling its responsibilities relating to the compensation of Company personnel. The primary objective of the Committee is to ensure Quest’s compensation policies and practices support the successful recruitment, development, and retention of executive talent in order to achieve Quest’s business objectives. Among other things, the Committee will establish and administer Quest’s policies, programs and procedures for compensating and incentivizing its executive officers.
Credit Committee
The Credit Committee currently consists of four members, all of whom are independent. The members of the Committee are Robert G. Atkinson, Frank B. Mayer and Walter M. Traub.
The Board has adopted a Credit Committee Charter. A copy of the Charter is available under “Investor”, “Corporate Governance” on the Quest website.
The purpose of the Credit Committee the Committee is, on behalf of the Board, to
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review and approve, or recommend to the Board for approval all proposed loans and mortgages to be made by Quest, subject to the Committee's specific authority and responsibilities;
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monitor all related party loans and mortgages made by Quest from time to time;
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review from time to time, and make recommendations to Management and the Board regarding allocation of available credit facilities to loans and mortgages, related party transactions (within the meaning of OSC Rule 61-501), performance of loans and the administration and effectiveness of, and compliance with, the applicable policies and controls; and
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report to the Board or other Committees of the Board on such matters as they may request.
COUNTRY OF INCORPORATION AND UK SHAREHOLDER RIGHTS
Quest was continued under the Canada Business Corporations Act (the “Act”) on August 22, 2007 and its corporate offices are located at Suite 1028, 550 Burrard Street, Vancouver, B.C. Canada, V6C 2B5. Quest’s main country of operation is Canada.
A Canadian company trading on AIM, the rights of shareholders may be different from rights of shareholders in a UK incorporated company.
A copy of Quest’s constitutional documents may be found at “Investors”, “Corporate Governance” on Quest’s website.
Stock Exchanges
Quest’s shares are listed and posted for trading on the TSX Exchange in Canada, AMEX in the United States and AIM of the London Stock Exchange in the United Kingdom.
A copy of Quest’s AIM Admission Document may be found at “Investors”, “Corporate Governance” on Quest’s website.SHARE CAPITAL
Quest’s authorized capital is an unlimited number of common shares. As at May 27, 2008, the issued and outstanding share capital of Quest was 146,789,711 common shares of which an aggregate of 3,918,539 shares or 2.66% are held by directors and officers of Quest. There are a total of 17,211,394 shares or 11.72% of shares not in public hands.
To Quest’s knowledge, the following are significant shareholders (>3% of the issued share capital of Quest):
| Name | No. of Shares | Percentage |
| Exploration Capital Partners 2000 Limited Partnership/Rick Rule(1) | 13,292,855(1) | 9.06% |
(1) Primarily held through Exploration Capital Partners 2000 Limited Partnership (a Nevada limited partnership) and through the Rule Family Trust whereby Arthur Richards Rule (“Rick”) and Bonnie Rule are co-trustees. The general partner of Exploration Capital Partners 2000 Limited Partnership is Resource Capital Investment Corporation ("Resource Capital"). Rick is the President and Director of Resource Capital which is controlled by the Rule Family Trust.
ANNUAL REPORT AND FINANCIAL STATEMENTS
A copy of Quest’s latest Annual Report and financial statements may be found at “Investors”, “ Financial Reports” on Quest’s website.
PRESS RELEASES
A copy of Quest’s press releases may be found at “Investors”, “Press Releases” on Quest’s website.Restrictions on Share Transfer
The shares of the Company are freely transferable. The transfer of shares may, however, be restricted in certain circumstances by applicable securities laws.
COMPANY ADVISER
Nominated Adviser |
Canaccord Adams Limited |
Legal Counsel |
Stikeman Elliott LLp |
Auditors |
PricewaterhouseCoopers LLP |
Transfer Agent |
Computershare Investor Services Inc. |