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Lenders of Nexus Project
March 19, 2000
Subject: Nexus Project Status Update
Dear Lenders:
Further enquiries and investigations completed since our October 1999 meeting with the Nexus Project Lenders Committee ("NLC") have confirmed that the estimated recovery to the Nexus Lenders will be zero. During the October 1999 meeting, the NLC members were advised that the likelihood of recovery was remote.
We provide you with the following update for the Nexus Project:
A. Agreement
At the October 1999 NLC meeting, a settlement agreement (the "Agreement") between PricewaterhouseCoopers Inc. in its capacity as Judicial Trustee of Eron Mortgage Corporation and others ("PwCI"), Nexus Ventures Ltd., Brookmar Investments Ltd. and Michael Keith Graye ("MKG") was recommended by PwCI and its counsel, Campney & Murphy. The Agreement was approved by the NLC.
The Agreement was recommended on the basis that it brought an end to the significant costs that were being incurred in order to pursue the Nexus claims and it would eliminate the substantial resistance from MKG and others.
As Statutory Declaration was demanded and obtained from MKG dated October 12, 1999 stating that MKG has no material assets. PwCI relied on the Statutory Declarationn when it entered into the Agreement. If it is subsequently determined that the Statutory Declaration is untrue, steps can be taken to pursue MKG.
This Agreement entitled Nexus Project to:
1. Receive the Whistler property funds without a legal dispute with Bakrop as to priority. Funds in the amount of $159,000 were received in December 1999;
2. Obtain a Court Order in Ontario confirming that the $300,000 bail money was the property of Nexus Project. This Order was granted in December 1999. The money remains in trust for the Court in an interest bearing account and will be released when MKG's trial is completed. Should MKG abscond, the bail would be forfeited to the Crown;
3. Receive $25,000 from MKG in November 1999 and require MKG to pay an additional $225,000 on April 5, 2000;
4. MKG will provide all reasonable assistance to PwCI and Nexus Ventures Ltd. in their efforts to resolve the France and Hong Kong litigation; and
5. Obtain a $5,000,000 judgement in B.C. against MKG for his failure to repay the loans from Nexus Project. As long as MKG provides the required assistance, no actions will be commenced pursuant to the judgement.
B. France
To identify and evaluate the assets of Nexus Project in France, significant legal and forensic challenges had to be overcome. For example:
- Legal disputes as to Nexus project's rights have been raised in France and B.C. and are ongoing;
- DIVM, the entity that was to hold all the wineries, went into liquidation (bankruptcy) in France;
- Prior to DIVM's insolvency, an attempt was made to transfer shares pledged to Nexus Ventures Ltd. to one of MKG's entities;
- DIVM was a public company in France and as a result of its insolvency, the French securities commission became involved; and
- The cooperation of MKG was non-existent until the execution and approval of the Agreement, therefore access to financial records and ownership information was difficult.
We have been extremely frustrated with the expenses and length of time related to the proceedings in France.
Our analysis of the potential assets that may be claimed by PwCI in France indicates that the possibility of a substantial recovery is remote. After the lengthy and complex investigation, it appears that the only remaining asset is a winery. A secured creditor has security over virtually all of the winery assets. We are assessing the value of winery and the existing claims against it. In addition, there is a legal dispute with Global Equities as to the validity and existence of the various claims against the winery asset.
C. Hong Kong
The Nexus Project had approximately US$1,000,000 diverted from a Nexus Project account to a third party account in Hong Kong. The money was then removed from the third party account and therefore we were unable to have the money returned.
The Judicial Trustee and legal counsel incurred significant time and expense in unravelling the events which led to the diversion of the US$1,000,000.
Nexus Ventures Ltd. has commenced a legal action in Hong Kong against the fiduciaries who allowed the funds to be removed and is suing for the return of the US$1,000,000 plus damages and costs. This action is being vigorously defended.
Nexus Ventures Ltd. is responsible for the legal costs of the Hong Kong action. Nexus Project and Nexus Ventures Ltd. will share any recovery from the litigation.
D. Other Assets
Nexus Project also has investments in other Eron projects. The estimated recovery from these projects, subject to clarification on distribution, is approximately $900,000.
E. Summary
Any improvement in the estimated recoveries will be absorbed by the allocated indirect costs and therefore no funds will be available for distribution even under a "best case" estimate.
The Nexus Project encountered significant legal challenges every time efforts were attempted to realized on an asset. Legal counsel was required in France, Hong Kong, Ontario and B.C. in order to preserve the interests of the Nexus Project in the assets. As previously reported, the entire process has been complicated due to the limited records and lack of co-operation which incurred considerable time and expense.
Should you have any questions, please contact your representative on the Nexus Project Lender Committee (D'ann Madsen @ 733-1410 or Steve Ripley @ 222-1646).
Yours very truly,
PricewaterhouseCoopers Inc.,
Judicial Trustee for
Eron Mortgage Corporation and Others
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