Folkstone Capital Corp.

September 07, 2012 14:03 ET

Folkstone Capital Corp. Announces Proposed Qualifying Transaction

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Sept. 7, 2012) - Kirk Shaw, CEO of Folkstone Capital Corp. (TSX VENTURE:FKS.P) ("Folkstone", the "CPC" or the "Corporation"), is pleased to announce details concerning Folkstone's proposed qualifying transaction by which it will acquire (the "Transaction") all of the issued and outstanding shares of USA Property Direct (the "Target Company"). The Target Company is a private company that holds real estate assets in the United States.

Folkstone has entered into a letter agreement with the Target Company August 20, 2012, pursuant to which Folkstone will acquire, directly or indirectly, from the shareholders of the Target Company 100% of the issued and outstanding common shares of the Target Company (the "Target Company Common Shares") and the Target Company will become a direct or indirect wholly-owned subsidiary of the CPC.

It is intended that the Transaction, when completed, will constitute the qualifying transaction of the Corporation pursuant to Policy 2.4 of the TSX Venture Exchange (the "Exchange") Corporate Finance Manual. The Transaction is subject to the policies of the Exchange relating to qualifying transactions, as well as shareholder approval of Folkstone and the Target Company.

About the Target Company

The following is based upon information provided by the Target Company.

The Target Company is a private corporation incorporated under the laws of Bulgaria on September 27, 2010. The Target Company is based in Cheshire, the United Kingdom. The principal shareholders of the Target Company are its founders.

The Target Company executes high-yield real estate investments principally in the United States. The Company targets, acquires, renovates and tenant properties such that they are suitable to be sold to investors looking for higher than average rates of return. These properties are also suitable for the Target Company to retain for its own high yield book.

The Target Company is particularly taking advantage of the large number of repossessed state and bank owned homes that have resulted from the much publicised sub-prime lending situation.

Industry Background

The effects of the sub-prime lending boom are widely known but unlike in Canada and the UK where the housing markets have been fairly resilient over the last three years or so, the US housing market has been hit much harder and in some cases such as Detroit, Atlanta, and Chicago prices have dropped in excess of 50%.

US house prices peaked in 2006 and then dropped dramatically until 2009, whereupon there was slight uptick before further fall, commencing around mid-2010, which levelled off approximately August/September 2011.

Mortgage lending has continued to drop as banks tightened their credit underwriting rules and the Mortgage Bankers Association (MBA) expect that mortgage originations will decrease to $966 billion in 2011, the lowest level of originations since 1997. This is a decline from $1.5 trillion in 2010 and a little under $2 trillion in 2009.

Whilst home ownership has dropped by 6 million since 2007, rental demand is at an all-time high. There are several reasons for this.

  1. People who have suffered from a foreclosure still need somewhere to live and therefore their only option is to rent.
  2. First-time buyers cannot get a mortgage to buy a property so they are forced to rent instead.
  3. Voluntary default, whereby a regular borrower hands back the keys because they are in a negative equity position and they decide they would be better off renting.

As more people are forced to become renters, the demand for rental property increases and this creates upward pressure on rental prices.

A number of hot-spots now exist, mainly across the US, where housing prices have dropped particularly low and rental demand is particularly high. There are many tens of thousands of properties available in these locations which are currently released to the market by the owning institutions.

Financial Information of USA Property Direct

USA Property Direct
Statement of Financial Position
As at April 30, 2012
(unaudited, US$)
As at December
31, 2011
(audited, US$)
Amounts receivable and other assets
Due from related parties 498,574 404
Cash and cash equivalents 501,612 437,045
Total Assets $1,056,193 $744,241
Amounts payable and other liabilities 1,423 77,720
Total Liabilities 1,423 77,720
Share capital 203 198
Retained earnings 1,054,567 666,323
Total Equity 1,054,770 666,521
Total Equity and Liabilities $1,056,193 $744,241
Statement of Income and Comprehensive Income For the four months ended April 30, 2012 (unaudited, US$) For the year ended December 31, 2011 (audited, US$)
Property $741,778 $2,082,627
Interest income 0 3,504
741,778 2,086,131
Administration 351,502 1,338,319
Foreign exchange loss 2,032 9,156
353,534 1,347,475
Net income before the following 388,244 738,656
Income taxes 0 76,954
Income and comprehensive income for the period $388,244 $661,702
Retained earnings, beginning of period 666,323 4,621
Retained earnings, end of period $1,054,567 $666,323

Summary of the Proposed Qualifying Business Combination

The Transaction will be effected by way of a plan of arrangement, whereby the CPC will acquire, directly or indirectly, from the shareholders of the Target Company 100% Target Company Common Shares and the Target Company will become a direct or indirect wholly-owned subsidiary of the CPC. However, the parties may agree to adopt a different legal form for the Transaction, such as an amalgamation, reorganization, sale of assets or exchange of assets or securities in a similar transaction, if the parties agree that such form would better satisfy the following objectives and not be materially more adverse to one Party than the other:

(a) Tax efficiency to the parties and their shareholders;
(b) Simplification of securities law compliance issues;
(c) Timeliness of completion; or
(d) Avoidance of unnecessary complexity and expense.

Concurrently with or immediately prior to the closing of the Transaction, the CPC will complete a consolidation (the "Consolidation") of its common shares on a 2 for 1 basis.

The CPC will acquire from the shareholders of the Target Company, directly or indirectly, the Target Company Common Shares, and in consideration thereof, subject to Exchange approval, the CPC will issue to each shareholder of the Target Company one (1) post-Consolidation common share in the capital of the CPC in exchange for each Target Company Common Share held by such shareholder.

For greater certainty, and subject to Exchange approval, the CPC will issue approximately 44,000,000 post-Consolidation common shares to the Target Company shareholders on a pro-rata basis in exchange for their Target Company Common shares.

The Target Company currently has approximately 44,000,000 Target Company Common Shares issued and outstanding. The Target Company will ensure that no additional common shares, options or warrants are issued prior to the closing of the Transaction, other than in respect of the proposed Private Placement and the Side Car Financing, as described below.

Side Car Financing and Private Placement

Prior to October 31, 2012, the Target Company will complete a private side car financing for an estimated minimum amount of gross proceeds of $1.2 million at an estimated price of $0.22 per Target Company Share (on a pre-Consolidation basis) (the "Side Car Financing").

The Target Company will, concurrently with the Transaction, complete a private placement of securities, subject to the approval of the Exchange, for gross proceeds in the minimum amount of $1,000,000, and the maximum amount of $20,000,000, (the "Private Placement") at a price per common share or unit to be determined by the Target Company and the lead agent (if any), but subject to a minimum price of $0.25 per share or unit (on a pre-Consolidation basis). In this regard, the Target Company is currently in discussions with one or more agents with a view to settling the terms of an engagement letter in connection with the Private Placement and it is the intention of the Target Company to have an offering price of not less than $0.40 for the purposes of the Private Placement. The Private Placement may be brokered or non-brokered. In the event that the Private Placement is brokered, the lead agent retained by the Target Company for the Private Placement will be paid customary compensation for such agency services.

Summary of Proposed Directors and Officers

It is the intention of the parties to establish and maintain a board of directors of the resulting issuer (the "Resulting Issuer") that has a mix of appropriate skill sets and is compliant with all regulatory and corporate governance requirements. The board of directors of the CPC currently consists of four (4) members. Upon completion of the Transaction the board of directors of the Resulting Issuer will likely be four (4) members, all of whom will be nominated by the Target Company. On completion of the Transaction, the directors, senior officers and insiders of the Resulting Issuers are anticipated to be:

Adam Bishop, Director and Chairman

With a physics and engineering background for over 25 years Adam held various executive business positions in the telecommunications industry most notably with British Telecom where he restructured their inter-carrier division to address competition in their high margin global carrier business. In 1996 Adam left British Telecom to pursue entrepreneurial opportunities in international markets for traffic and data transport. This included projects buying and selling over $200 million of transatlantic cable and creating the program that is now Sydney Australia's largest data centre, at the old government printing works at Darling Harbour. Most recently Adam was part of a team that set up a new water business that became the worldwide water experts for one of the world's largest homecare-to-food product companies with over 200 factories in all parts of the globe.

Mike Patterson, Director, President and COO

Mike Patterson is the founder and CEO of the Target Company. A degree in Institutional Management culminated in his appointment as Managing Director of Edinburgh's prestigious Roxburghe Hotel. Following this Mike was a Director of Glasgow Rangers Football Club during which time Mike gained his MBA. Following a successful career at Rangers football club, Mike decided to make a career change into what had always been a personal interest, that of real estate. This change manifested itself in Mike creating Dream Homes Worldwide, a company which grew to become one of Europe's top property sales organizations, regularly selling up to 120 properties per month, across eight different countries to include the Middle East, Asia, as well as Northern, Eastern and Southern Europe.

Larry Whitehead, Director and CEO

Mr. Whitehead is an executive experienced in general management, corporate finance and real estate development. He has founded several TSX-V listed companies and served as an Officer and Director. He has completed industry related courses including the Canadian Securities Course, Continuous Disclosure and Going Public and holds a Master of Business Administration degree conferred by the University of Washington in Seattle.

Nick Blashill, Director

Nicholas Blashill is a Founder and a Non-Executive Director of the Target Company. Prior to this Nick formed Bulgarian Developments LTD, a company which sold over 1000 properties in Bulgaria, bought and sold land and built a number of complexes of in total 350 apartments that it sold to overseas investors. His company profitably turned over in excess of EUR60 million. Prior to this Nick had other successful property ventures. For the past 20 years Mr. Blashill has worked solely in property markets.

Kirk Shaw, David Hagemoen, James Boyce and Amar Balaggan, the current directors and officers of the CPC, will resign their positions concurrently with the completion of the Transaction.

Information Concerning Folkstone

Folkstone is a capital pool company that completed its initial public offering and the common shares of Folkstone (the "Folkstone Common Shares") are listed for trading on the Exchange. Folkstone currently has outstanding 4,750,000 Folkstone Common Shares and stock options to acquire 400,000 Folkstone Common Shares at a price of $0.10 per share and agent's options to purchase 200,000 Folkstone Common Shares at a price of $0.10 per share. As at August 22, 2012, Folkstone had cash and near cash assets, net of liabilities, of approximately $183,720.49.

Other Matters Concerning the Qualifying Transaction

Subject to the approval of the Exchange, immediately prior to the closing of the Transaction, the existing Folkstone Board of Kirk Shaw, David Hagemoen, James Boyce and Amar Balaggan will transfer in the aggregate 2,000,000 Folkstone Common Shares at an average price per Folkstone Common Share of $0.075 ($150,000 in total) to the incoming Principals of the Resulting Issuer or their designate(s) (the Escrow Transfer").

The CPC acknowledges that the Target Company is required to effect the issue of up to 250,000 post-Consolidation common shares in the capital of the Resulting Issuer as a finder's fee upon the closing of the Transaction.

The completion of the Transaction is subject to the approval of the Exchange and all other necessary regulatory approval. The completion of the Transaction is also subject to additional conditions precedent, including completion of the Private Placement for gross proceeds of a minimum of $1,000,000 million, shareholder approval of Folkstone and the Target Company, satisfactory completion of due diligence reviews by the parties, board of directors approval of Folkstone and the Target Company, completion of the Escrow Transfer, and certain other usual conditions.

The Transaction will be an arm's length transaction as none of the directors, officers or insiders of Folkstone own any interest in the Target Company.

Trading of the Folkstone Common Shares will not resume until all documents required by the Exchange have been filed. Folkstone will issue a further news release when the Exchange has received the necessary documentation and trading of the Folkstone Common Shares is to resume.

As indicated above, completion of the Transaction is subject to a number of conditions, including but not limited to, Exchange acceptance and if applicable pursuant to Exchange Requirements, majority of the minority shareholder approval. Where applicable, the Transaction cannot close until the required shareholder approval is obtained. There can be no assurance that the Transaction will be completed as proposed or at all.

Investors are cautioned that, except as disclosed in the Information Circular or Filing Statement, as applicable, of the Corporation to be prepared in connection with the Transaction, any information released or received with respect to the Transaction may not be accurate or complete and should not be relied upon. Trading in the securities of the Corporation should be considered highly speculative.

Except for historical information contained herein, this news release contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially. Neither the Target Company nor Folkstone will update these forward-looking statements to reflect events or circumstances after the date hereof. More detailed information about potential factors that could affect financial results is included in the documents filed from time to time with the Canadian securities regulatory authorities by Folkstone.

The securities of Folkstone being offered have not been, nor will be, registered under the United States Securities Act of 1933, as amended, and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons absent U.S. registration or an applicable exemption from U.S. registration requirements. This release does not constitute an offer for sale of securities in the United States.

The TSX Venture Exchange Inc. has in no way passed upon the merits of the proposed transaction and has neither approved nor disapproved the contents of this press release.

Contact Information

  • Folkstone Capital Corp.
    Kirk Shaw
    (604) 623-3369

    USA Property Direct
    Adam Bishop
    44(0) 161 486 5060