(CDN: NGCO)
GENERAL OVERVIEW
 Nova Growth Corp. (the “Company”) was incorporated under the laws of the Province of Ontario in June of 1987. Win North Gaming Corporation is a wholly owned subsidiary of the Company.
 The Company’s year-end is July 31st and its most recent Annual and General Meeting of Shareholders was held on October 15, 1999. The Company’s shares are traded on the Canadian Dealing Network under the symbol “NGCO”.
 The primary business of the Company since March of 1998 has been its litigation through the Ontario Superior Court of Justice to enforce the Company’s right to an equity and royalty interest in Falls Management Company, operators of Casino Niagara (since November 1, 1998) and the developer/operator of the permanent Niagara Falls Casino - Gateway Project (the “Niagara Casino - Gateway Project”).
 The Niagara Casino – Gateway Project is comprised of a five-member consortium operating under the name Falls Management Company. Falls Management Company was selected by the Ontario Government as the winning bidder for the project on February 18, 1998. Its shareholders include Hyatt Development Corporation, Highland Gaming L.P., which is owned by Neil Bluhm, co-founder and president of JMB Realty Corporation, one of the largest real estate and development firms in North America, Toronto-based Shiplake Gaming Company owned by Toronto’s Latner family, Olympic V Associates L.P., controlled by Buffalo businessman, Paul Snyder and Toronto-based Falls Entertainment Corporation owned by Andrzej Kepinski and Richard Boxer (Falls Entertainment Corporation, Kepinski, Boxer and other of their related companies are the defendants in Nova Growth’s legal action).
LITIGATION PROCEEDINGS
The Company filed suit March 13, 1998 (Ontario Court - General Division, #99-CL-3473) against Falls Entertainment Corporation, Andrzej Kepinski (a former President and Director of the Company), Richard Boxer (a former director and officer of the Company’s subsidiary) and other companies associated with Mssrs. Kepinski and Boxer.
The Company claims as against all of the defendants jointly and severally, among other things, specific performance of the sale, transfer or assignment of fifty (50%) of the interest in the project owned by the defendants to Nova and an accounting of all right, title and interest, as well as all proceeds and benefits held or obtained, directly or indirectly, by the defendants, or any of them, in and to Falls Entertainment, Falls Management or the Niagara Casino – Gateway Project. [The fifty (50%) interest claimed in Falls Entertainment, represents a direct 5% equity and a 4.5% royalty interest in the Niagara Casino – Gateway Project].
In addition, the Company is seeking damages for breach of contract of $10,000,000, cancellation of debentures issued to the defendants by the Company in the amount of $800,000, cancellation of all debt owing the defendants or owing and incurred by the defendants in the Company, delivery to Nova for cancellation, 1,900,000 common shares of Nova issued to the defendants (which shares have been consolidated on 3 old for 1 new basis i.e. 633,334 common shares or 7% of the issued capital in Nova).
The defendants have filed a counter claim against the Company, seeking payment of the debentures, management fees and damages totaling approximately $41,000,000. It is the Company’s position that this counterclaim has no merit.
CURRENT STATUS
Since filing the statement of claim in March of 1998, the parties have completed a number of motions during 1998 – 2000, several witnesses were deposed in September 1999, discoveries were held during November and December of 1999 and a Pre-Trial conference was completed in August 2000. It is anticipated that a trial date will be scheduled in the fall of 2000, to commence during the first quarter of 2001.
The Court has ordered that the action proceeds in two phases. First, the issue of Nova Growth’s entitlement to an equity and royalty interest in the Niagara Casino - Gateway Project will proceed. Second, the remainder of the issues raised in the litigation and in the defendants’ counterclaim will proceed after the entitlement issue is resolved.
ESTIMATED NET PRESENT VALUE RE: ENTITLEMENT ISSUE
The entitlement issue relates specifically to Nova Growth’s entitlement to a 5% equity and a 4.5% royalty ownership interest in the Niagara Casino - Gateway Project.
The Company retained an independent valuator, Mintz and Partners Financial Services (“Mintz”) to review its claim and establish a net present value for the equity and royalty ownership the Company is seeking to enforce through its litigation. To this end, Mintz has reviewed publicly available information on the Niagara Casino – Gateway Project to complete its report titled, “ Nova Growth Corp.’s Lost Opportunity in the Niagara Falls Casino/Gateway Project.”
It is important to note, that the Ontario Court has granted leave to the defendants to not produce any documents or answer any questions at discovery in relation to documents within the requirements for confidentiality of the Request for Proposals for the project or that fall within the meaning of confidentiality between Falls Entertainment and its co-bidders. Therefore, the preliminary indication of value calculated will change upon an analysis of these agreements. Therefore, the values presented below could increase/decrease, accordingly.
The Mintz report establishes a net present value range of $185,000,000 to $213,000,000, representing the range of value of the 5% equity and 4.5% royalty interest the Company is claiming in the Niagara Casino – Gateway Project. In addition, the discount rates used to achieve the Net Present Value range were estimated at 9% - 10%. The discount rates assume a conservative P/E multiple of approximately 10 - 11 times. No consideration has been attributed to other damages the Company is seeking from the defendants.
POTENTIAL GAINS
In June of 1998, the Ontario Government cancelled the Ontario Charitable Gaming Clubs Project (the “Project”) which included the charitable casinos that Gaming Venture Group (“GVG”) had been selected to develop. Nova Growth’s position is that it is entitled to an equity interest of 33-1/3% and a 5% royalty entitlement in GVG. The Company has recently become aware, through information published in the press, that the Ontario Government may have paid the winning proponents, including GVG, financial compensation for the cancellation of the Ontario Charitable Gaming Clubs Project. As a result, the Company may have a potential claim against GVG or the GVG partners in respect of payments made under the government compensation package. The Company is assessing its potential rights in respect thereof.
No assessment of potential damages can be made at this time.
SUMMARY
Management of the Company is vigorously pursuing its claim to enforce its right to ownership in the Niagara Casino – Gateway Project. Management believes that this action will ultimately be resolved in the Company’s favour.
CORPORATE INFORMATION
Capitalization: Basic 9,829,383
Fully Diluted 11,904,383
Corporate Offices: Nova Growth Corp.
155 University Avenue, Suite 1450
Toronto, Canada M5H 3B7
Attn: Brian L. Hamm, President
Legal Counsel: Macleod Dixon
Canada Trust Tower, BCE Place
Suite 3900,
161 Bay Street
Toronto, Canada M5J 2S1
Attn: Charles L.K. Higgins, Partner, Corporate and Securities Counsel, Leslie D. Manley, Litigation Counsel
Auditors: Finkelstein, Bossin, Chartered Accountants
1210 Sheppard Avenue East, Suite 200,
Toronto, Canada M2K 1E3
Attn: Brian Bossin
Bankers: Toronto Dominion Bank
141 Adelaide Street West,
Toronto, Canada M5H 3M7
Transfer Agent: Equity Transfer Services Inc.,
120 Adelaide Street West, Suite 420,
Toronto, Canada M5H 3V1
Management: Brian L. Hamm, President, and Director
William K. Hamm, Director
Charles L. K. Higgins, Director |
