The Communications and Meetings over the November 2003 - January 2004 Period Between Mr Sharp and Mr Hutchings Broso and/or Mr Riley
30 Mr Sharp visited Mr Hutchings Broso and Mr Riley in the Canberra offices of APIR on 12 November 2003. They discussed details of the various registers that APIR maintained on behalf of the industry, including a relatively new product called SPIN, which registered superannuation funds including industry, government and private funds. The SPIN registration details were more extensive than the current registration of products and included the registration of the bank account. Mr Sharp thought there was a commercial application for the industry and was interested in this opportunity.
31 At that meeting, Mr Sharp also learnt that APIR was finalising a new system called Advisor Management Centre ('AMC'). He was shown the system including the rule-based software by one of their developers. During the course of the meeting Mr Sharp was advised that the AMC system was funded by a loan of approximately $1 million from a government body that he came to know to be the Industry Research and Development Board ('IRDB').
32 During the course of the 12 November 2003 meeting, Mr Sharp was advised by either Mr Hutchings Broso or Mr Riley, or both of them, that APIR had engaged a company called Newport Capital to raise capital for APIR and that they had introduced a man named Charles Gibbon to the company as an investor. They advised Mr Sharp that APIR had entered into a Term Sheet with Mr Gibbon and another investor to invest in convertible notes.
33 On 24 November 2003, Mr Sharp had a further meeting with Mr Hutchings Broso in Sydney. They discussed the intention of APIR to be an independent organisation within the industry that is not tied to any fund manager or tied to any financial products or systems. During the course of the 24 November 2003 meeting, they had a discussion about the capital raising objectives of APIR and the possibility of Mr Sharp becoming involved as an investor in APIR.
34 Two days later on 26 November 2003, Mr Sharp sent an email to Mr Hutchings Broso with an investment proposal in relation to APIR. The email read:
'Subject Equity In APIR
I would like to confirm that interest associated with myself are interested to subscribe up to 200000 shares (or equate to 20% of the new enlarged issue capital of the company) at a price that you are currently negotiating [sic] with another party. We are prepared to subscribe to Ordinary shairs [sic].
In addition we are prepared to offer to existing shareholders the same price for another 30% of the company with the understanding that no individual shareholder will control more than 20%
What we need to complete the transaction is the latest set of Financial accounts, Budgets & pricing strategies. We also need a copy of the existing & proposed Shareholder agreements
We are in a position to settle ASAP'
Mr Hutchings Broso forwarded the email to each of the members of the APIR board.
35 Between about 28 November 2003 and 5 December 2003, Mr Riley on behalf of APIR sent Mr Sharp a note attaching a profit and loss statement and balance sheet of APIR as at 28 November 2003, a draft audit report for the year ended 30 June 2003, pricing policies for codes and various budgets being for the code business of APIR only for 2003 - 2004, budget for 2003 - 2004 taking into account the code business and AMC, and a budget for 2004 - 2005 taking into account the code business and AMC. Relevantly, the draft audit report for the year ended 30 June 2003 contained, among the notes to and forming part of the financial statements for the year ended 30 June 2003, the following item:
'NOTE 17 EVENTS SUBSEQUENT TO BALANCE DATE
In September 2003 the Company entered into an arrangement with two external investors whereby $350,000 of 1 year Convertible Notes were issued together with an option to acquire further shares upon the conversion of the notes. The Convertible Notes convert at a price of $2.65 per share at time of conversion, attract an interest rate of 12% pa paid at the end of 12 months or convertible into equity and have first charge over the assets of the Company similar to existing Promissory Notes.'
36 On 3 December 2003 and prior to receiving the documents from Mr Riley referred to in [35] above, Mr Sharp had a short meeting with Mr Hutchings Broso at 11.30 a.m. followed by lunch on a boat as part of a luncheon meeting with the Financial Managers and Advisors ('FMAA'). Mr Sharp's purpose in inviting Mr Hutchings Broso was to enable him to meet other people in the industry. According to Mr Sharp, Mr Hutchings Broso and he did not have any further discussion concerning APIR during that afternoon other than Mr Sharp's request that Mr Hutchings Broso arrange for a copy of a list of APIR shareholders and the number of shares held by each shareholder to be provided to him.
37 After receiving the documents from Mr Riley referred to in [35] above, Mr Sharp made notes of the key matters that concerned him. After completing his consideration of the documents and his notes, Mr Sharp contacted Mr Hutchings Broso by telephone and arranged to meet him. To the best of his recollection he met with Mr Hutchings Broso on 8 December 2003 in the coffee shop of a hotel that is now known as the Sydney Harbour Marriott in Pitt Street, Sydney.
38 According to Mr Sharp, during the meeting they had a conversation in words to the following effect:
'Hutchings Broso: I have a list of the shareholdings here. There are 11 foundation shareholders and 7 others. There were 478,750 shares issued at $1 each. There are 239,375 shares issued at $2 each and 45,857 shares issued at $3.50 each. That makes the total shares issued 763,982 and the capital value is $1,118,000.
…
Sharp: Who are the likely sellers?'
39 Mr Hutchings Broso tore a page out of the notebook that he was holding and handed it to Mr Sharp. The initials indicated the shareholders and the percentages indicated the size of their stake in APIR. They had a discussion about the existing shareholders in relation to whether or not they were likely to be interested in selling their shares at the price of $2.65. Mr Sharp noted either 'no' or '?' according to what Mr Hutchings Broso told him. The use of 'no' indicated that Mr Hutchings Broso had told Mr Sharp that the particular shareholder would not be interested in selling at a price of $2.65 per share and '?' indicated that he was unsure as to whether or not they would be interested in selling at that price. The remaining comments of 'unlikely' or 'not well off' and 'unlikely - some' reflected what Mr Hutchings Broso told Mr Sharp about those shareholders. Mr Hutchings Broso told Mr Sharp that 'DM' referred to a syndicate of an accountant, David McGregor, who was also a director of APIR, and that he was not sure if any of the syndicate would be sellers, but that David was not a seller at that price.
40 Mr Hutchings Broso says he did have the conversations and discussions with Mr Sharp referred to in [38] and [39] above, but that those all occurred at their meeting on 3 December 2003.
41 According to Mr Sharp, they then discussed the convertible notes investors as reflected in item 17 of the financial statements of APIR. According to Mr Sharp, he was concerned to find out the terms and conditions by which these investors were going to be holding a stake in the company. He cannot recall precisely what was said but the effect of the conversation was as follows:
'Sharp: Who are the investors?
Hutchings Broso: The investors are Charles Gibbon and another investor known to him.
Hutchings Broso: The conversion price of the convertible notes was dependent on meeting certain milestones and that if they were not met the conversion price would be less than $2.65
Sharp: The offer to invest was made on the assumption that the convertible note offer to Charles Gibbon does not proceed, that if the convertible notes are dependent on meeting milestones this could be highly dilutionary to existing shareholders, particularly if the milestones are not met as more shares could be issued. I don't want that to happen because I won't know how many shares will be issued
Hutchings Broso: The Charles Gibbon deal hasn't been completed'
Mr Hutchings Broso disputes the terms of this conversation but agrees that it was apparent to him from that conversation that Mr Sharp would not proceed if the deal proceeded with Mr Gibbon on the basis he (Mr Hutchings Broso) had outlined.
42 Mr Sharp also recalls Mr Hutchings Broso saying:
'There is an agreement that Andrew and I will be receiving 50,000 shares at no cost'
Mr Hutchings Broso deposes that this was in response to Mr Sharp asking:
'Are there any other shares on issue?'
To which he, Mr Hutchings Broso, responded:
'No, but there will probably be about 50,000 shares issued to Andrew and I in our remuneration packages as we are going to become full time employees.'
In cross-examination, Mr Sharp categorically denied that Mr Hutchings Broso's response included the words 'as we are going to become full time employees'. It is common ground that Mr Sharp did not respond to whatever Mr Hutchings Broso said. Mr Sharp said that he did not consider it useful to respond because he knew from the disclosure in Note 19 to the financial statements for the year ended 30 June 2003 that Messrs Hutchings Broso and Riley were consultants. Note 19 relevantly provided:
'EW Systems Pty Limited, of which Mr Andrew Riley is a director, was paid consulting fees of $86,130 from entities in the economic entity during the year (2002 : $84,750).
Gundenham House Pty Limited, of which Mr Andrew Hutchings Broso is a director, was paid consulting fees of $89,349 from entities within the economic entity, during the year (2002 : $78,000).'
43 After being told by Mr Hutchings Broso that the convertible notes deal had not been concluded, Mr Sharp raised the other matters that he had noted down for consideration with Mr Hutchings Broso. According to Mr Sharp, they had a conversation to the following effect:
'Sharp: What is the term and interest rate for the promissory notes?
Hutchings Broso: Between 3 and 6 months and between 12% and 15%.
Sharp: What is the interest rate and the term and the amount of the AusIndustry loan?
Hutchings Broso: The maximum loan is $982,000. No repayments for 42 months. We have four years to repay. The interest rate is 3.2%. As at 31 November we owe $634,000.'
Their conversation continued to the following effect:
'Sharp: Do you have a shareholders agreement?
Hutchings Broso: No.'
Mr Hutchings Broso's version of the conversation in relation to the AusIndustry loan was slightly, but not substantively, different.
44 After the meeting with Mr Hutchings Broso on 8 December 2003, Mr Sharp considered the information that had been given to him and made a decision on behalf of DFE to make an offer to invest in APIR. He reduced that offer to writing and sent it to Mr Hutchings Broso in an email on 9 December 2003. It read:
'Thanks for your time in the last 24 Hours.
I confirm that my previous offer was on the assumption that the proposed convertible offer did not proceed. As you are aware the offer was debt with an option to convert to Equity. This could put the note holders at a significant advantage to existing shareholders.
My offer is amended to
A) 200,000 shares at $2.65 ($530,000)
B) My nominee for one Director
C) The board to be reduced to 5 over the next 12 Months
D) Shareholders agreement to include that existing shareholders can sell to existing Shareholders. If they which [sic] to sell to none Shareholders then they must offer to existing shareholders at the same price
E) I will offer to all existing Shareholder $2.65 to sell up to 50% of the enlarged capital of the company
F) No one shareholder will hold more than 20% If I exceed this level than [sic] I will undertake to sell down to 20% within 6 Months'
45 A short time after sending his email to Mr Hutchings Broso, Mr Sharp received an acknowledgment advising him that the proposal he had made on behalf of DFE would be discussed with the APIR Board which was to occur that day and that Mr Hutchings Broso would be organising a Board Meeting for Friday at around lunch time if the Board was agreeable to what Mr Sharp had proposed.
46 On 12 December 2003, Mr Sharp sent a further email to Mr Hutchings Broso noting a need to draft a letter to shareholders for the Board to consider and other points. The email read:
'We also need to draft a letter to shareholders for the Board to consider today. The following are the points that should be included.
1) Don Sharp or his nominee is prepared to offer to all shareholders, on a first come priority, $2.65 per share.
2) The offer is for approximately 300,000 shares & subject to the number of acceptances.
3) If as a result of this offer his interests exceed 20% he agrees to sell down his interest to 20% within 6 months at the same price offered to shareholders.
4) This offer will allow those shareholder the opportunity of cashing out part or all of their share-holding thus giving liquidity to all shareholders at the same price that the new capital has been issued ie $2.65
5) The directors will shortly be requesting shareholders to sign a Shareholder agreement with the following terms (set out the terms in the Board resolution)'
47 Later the same day, 12 December 2003, Mr Sharp received an email from Mr Hutchings Broso forwarding an email that had been sent to him by Mr Riley containing the final form of the resolution passed by the Board of APIR that day. It read:
'RESOLUTION: DON SHARP OFFER
It was RESOLVED that the Executive directors are authorized to implement the following as follows
A. That the Company issue 200,000 new Ordinary shares to "Nominee of Don Sharp" as soon as the following Conditions are met:
1. Receipt of $530,000 in cleared funds by the Company
2. Execution of an Agreement (draft attached) by Don Sharp and "Nominee of Don Sharp" which includes the following agreements:
i. That Don Sharp will use best endeavors to support and enhance the position of APIR Systems Limited in the Financial Services Industry as a neutral and even-handed provider of non competitive infrastructure services.
ii. That Don Sharp will resign from and not occupy positions or roles in the Financial Services Industry which could be perceived as in conflict with APIR's neutral position as in i. above.
and the Secretary is authorised to take the actions required to implement this decision.
B. On issue of the shares Don Sharp or his nominee will be appointed a Director of the Company to fill a casual vacancy in accordance with the Constitution of the company.
C. On implementation of B. above, the Board of Directors will move to reduce to five members, including Don Sharp or nominee, within twelve months, except that a Chairperson may be an additional member.
D. Other than for remuneration arrangements, no other issue of shares or agreements to issue shares will be authorized for a period of two weeks or until Don Sharp is appointed a Director whichever first occurs.
E On completion of A. above, The Board will make best endeavors to achieve a binding Agreement by then current Shareholders, and a precedent requirement for future Shareholders, that the following conditions attach to the ownership, sale or transfer of shares in the Company:
a. That existing shareholders may sell shares to existing. Shareholders.
b. That any shareholder wishing to dispose of shares in the Company must give first right of refusal to the existing shareholders at the same price which that shareholder has been offered by a non-shareholder.
c. That no shareholder may hold more than 20% of the shares of the Company, and that if this situation occurs, they will sell down to 20% as quickly as possible and in any event within 6 months.
d. That a shareholder who controls more than 20% of the shares in the Company will not vote more than 20% of those shares in the period before sell-down.
In particular, the Directors agree to these conditions for the shares they own or control.
F. On completion of B above, the Secretary will notify all existing shareholders that "Nominee of Don Sharp" is offering $2.65 per share for their shares to bring its holding up to a maximum of 50% of the total number of shares on issue including the shares issued in A. above, noting that E.c. and E.d. above will apply.'
48 According to Mr Sharp, he understood the reference to 'remuneration arrangements' in D was a reference to the 50,000 shares that were to be issued between Mr Riley and Mr Hutchings Broso which Mr Hutchings Broso told him about at his meeting with Mr Hutchings Broso on 8 December 2003 (see [42] above). According to Mr Sharp, he was not told of any other proposal to provide anything else by way of remuneration to either Mr Riley or Mr Hutchings Broso.
49 The minutes of the APIR Board meeting on 12 December 2003 also records the following:
'EQUITY RAISING Charles Gibbon Offer
The Managing Director briefed the meeting on the progress of the negotiations with Charles Gibbon to invest in the Company via Convertible Note. The correspondence from Charles Gibbon dated 11 December 2003 and sent separately to each Director was discussed.
It was noted that the offer was now for $500,000 by Convertible Note in two tranches of $2.10 and $3.25 with a milestone hurdle for the second tranche. Charles Gibbon also indicated that he was willing to revert to an offer of $350,000. It was noted that the terms offered with the Convertible Note involved significant risks to the existing shareholders of the Company.
The Directors reviewed the advice from the company solicitor (David Toole of Deacons) and from Jay Hennock (Jacanda Capital).
RESOLVED that the offer from Charles Gibbon and associated parties was not acceptable to the Company in its current form and that negotiations on that offer should be terminated.
(Proposed M. Cane, seconded N. Wicks)
It was noted that an association with Charles Gibbon was still considered desirable and that the Executive Directors should continue to strive to arrange an agreement with him that reflected the Directors' view of the value of the Company.'
50 On 18 December 2003, Mr Sharp met with Mr Hutchings Broso and Mr Riley at the offices of APIR in Canberra. They had a general discussion about APIR's business. One of the matters discussed was Note 17 to the financial statements of APIR for the year ended 30 June 2003 (see [35] above). Mr Sharp asked that the terms of the note be changed so that it did not convey the impression that the convertible notes had actually been issued and Mr Riley responded that he would have Duesburys make the change. During the course of that meeting, there was discussion about the letter that was to go out to the shareholders concerning the offer Mr Sharp had made on behalf of DFE to purchase shares in APIR. Mr Sharp subsequently received a copy of the letter, which to his knowledge, was sent to the shareholders dated the next day, 19 December 2003. It read:
'19 December 2003
«FirstName»«LastName»
«Address 1»
«CITY»«State»«PostalCode»
Dear «FirstName»,
We have received an offer to subscribe to new equity from a new shareholder, Don Sharp. Don is taking 200,000 shares at $2.65 per share for $530,000 and is willing to extend this offer to existing shareholders to purchase all or part of their shares at $2.65 per share.
Don is, as they say, a veteran of the industry who is well known for establishing the very successful Bridges financial planning business and more recently as the Chairman of Investors' Mutual Limited, a successful wholesale manager. It is proposed that Don will fill a casual vacancy on the Board, bringing considerable drive and experience in the distribution side of the industry. The other Directors look forward to his participation on the Board.
Don's initial approach was separate from the Newport Capital initiative; he was interested in APIR and enquired as to whether any existing shareholders would be looking to sell down their holdings. As a consequence of those discussions Don will take up the new equity and his holding will equate to approximately 20 percent of the equity.
With such a sizeable shareholding now being held by other than foundation shareholders the Board has decided a formal shareholders' agreement needs to be put in place. Existing shareholders will be asked to sign one early in the New Year and it will apply to all new shareholders. Conditions will include:
a. That existing shareholders may sell shares to existing shareholders.
b. That any shareholder wishing to dispose of shares in the Company must give first right of refusal to the existing shareholders at the same price which that shareholder has been offered by a non-shareholder.
c. That no shareholder may hold more than 20% of the shares of the Company, and that if this situation occurs, they will sell down to 20% as quickly as possible and in any event within 6 months.
d. That a shareholder who controls more than 20% of the shares in the Company will not vote more than 20% of those shares in the period before sell-down.
The Directors will agree to these conditions for the shares they own or control.
As stated above Don has now reiterated his offer to all existing shareholders and has asked we inform everyone of the terms. They are that:
1. He is willing to purchase any shares you may wish to sell, on a first come first serve basis, at the same price as the new equity, that is $2.65 per share. For your holding of «TotalShares» the purchase price would be «Total Value».
2. The offer is for approximately 300,000 shares & subject to the number of acceptances.
3. If as a result of this offer his interest exceeds 20% he agrees to sell down his interest to 20% within 6 months at the same price offered to shareholders.
The Directors note that the offer does provide shareholders with liquidity at the same price as the new capital has been issued.
If you are interested in the offer please complete, sign and return the attached form to APIR Systems.
Cheers,
Andy Hutchings Broso
Managing Director'
51 On 23 December 2003, Mr Sharp had a meeting with Mr Hutchings Broso, Mr Riley, Mr Gibbon and Mr Hennock, formerly from Newport Capital. That meeting took place at the offices of Mr Hennock at the ABN AMRO building on Phillip Street, Sydney. At the commencement of the meeting, Mr Sharp was present during a conversation between Mr Riley and Mr Gibbon to the following effect:
'Riley: The Board has resolved not to proceed with the convertible notes.
Gibbon: I have not been advised by APIR that they have terminated the 15th September agreement'
Mr Gibbon also raised the issue that the agreement called for APIR to put on hold any discussions with any other party. Mr Gibbon subsequently emailed a letter later that night in which he indicated his position to Mr Sharp. Mr Sharp did not respond to Mr Gibbon's letter.
52 Later that day, 23 December 2003, Mr Sharp received a copy of a fax that had been sent to APIR from a shareholder agreeing to sell 69,904 shares under the terms of letter of offer to all shareholders at a price of $2.65 each.
53 The next day, 24 December 2003, Mr Sharp received a telephone call from Mr Hutchings Broso to discuss the meeting on the previous day with Mr Gibbon and others. According to Mr Sharp, they had a conversation to the following effect:
'Sharp: I've had an opportunity to read the agreement with IRDB and it is clear that the raising of $1 million in additional capital is a condition of the loan and APIR is in breach of this condition. You didn't tell me about this.
Hutchings Broso: I believe that IRDB will not treat the failure to raise funds as a breach of the loan.
Sharp: On my reading of the agreement this would be a breach.
Hutchings Broso: I don't think they're concerned about that.'
Mr Hutchings Broso denies that he had this conversation on 24 December 2003. Rather, he claims that on 6 January 2004, he met with Mr Sharp at the APIR office in Kingston and a conversation occurred to the following effect:
'Sharp: I've had the opportunity to read the agreement with IRDB and it states that APIR is supposed to raise a million dollars to match the loan.
Hutchings Broso: Yes, that's right, it's why we are raising money.
Sharp: On my reading of the agreement you are in breach.
Hutchings Broso: In theory, but they are happy that we are in the process of raising capital and have been meeting our obligation to match them dollar for dollar. That's why they've already given us over $650,000.
Sharp: I've also had a good look at your financials and I believe that APIR needs more money to achieve its objectives.
Hutchings Broso: It would be good to have it in reserve but we don't want it until later in the year.
Sharp: I think I should take out options for about $600,000 to cover that need and meet the IRDB requirement.
Hutchings Broso: I'll have to take that to the board.
Sharp: It will need to be included in the share deed.'
54 On or about 20 January 2004, Mr Sharp telephoned Mr Hutchings Broso to raise with him Mr Sharp's preferred position - for DFE to have an option to purchase 200,000 additional shares in APIR at $2.65. According to Mr Sharp, they had a conversation to the following effect:
'Sharp: I would like an option to purchase 200,000 additional shares at $2.65. I have two reasons for wanting to do this. The acceptance of shares from the existing shareholders has been less than I expected. If I or my nominee took up the additional shares then the total holding, after allowing for the free shares of 50,000 to be issued to you and Andrew will take the total holding to just under 40%. I am also concerned about the non-compliance with the IRDB loan in not raising the $1 million capital and taking out this option would make APIR compliant.
Hutchings Broso: Okay I'll put this to the Board.'
55 According to Mr Sharp, not long after this conversation they had a further telephone conversation in which Mr Hutchings Broso said words to the effect:
'Hutchings Broso: The Board will agree provided that the exercise price is $3.25. The reason for this higher price is that it's likely that David Adams will take up a position as Chairman and he will be offered options at $3.25.'
Mr Sharp cannot remember what he said precisely in response to this, but he agreed to the higher price and to the amendment to the SSD accordingly. He was not concerned about further options being given to Mr Adams because it was at a price that was greater than the price that he was paying for the shares and was payable in cash. It was, in any event, not going to take place until sometime in the future when Mr Sharp was already a shareholder and would have a position on the Board of APIR.
56 Mr Hutchings Broso denies that he had these telephone conversations with Mr Sharp but accepts that a conversation in similar terms took place at his meeting with Mr Sharp on 21 January 2004. On 21 January 2004, Mr Sharp travelled to Canberra and went to the APIR offices on the afternoon of that day and the following day. He had numerous discussions with Mr Hutchings Broso and Mr Riley on the topic of the future direction of the company. At that meeting, Mr Hutchings Broso said he had a conversation with Mr Sharp to the following effect:
'Sharp: The company will need more funding.
Hutchings Broso: The terms of the Options are 200,000 at $3.25 and they will lapse six months after the deed is signed. … They are priced at $3.25 because David Adams is already looking to invest at $3.25 and is looking to invest at the end of the first quarter.
Sharp: So you want me to pay $3.25?
Hutchings Broso: Yes.
Sharp: Ok.'
57 There was no further discussion of shareholding or of any shares being issued to anybody else or of any agreement or other arrangement to provide further shares to either Mr Hutchings Broso or Mr Riley.
58 The next day, 23 January 2004, Mr Sharp went to the offices of APIR in the morning. He was greeted by Mr Hutchings Broso and Mr Riley. On a table at the APIR offices were a number of documents that turned out to be those required to complete the deal. A final settlement with Mr Gibbon had not taken place.
59 Mr Sharp had a conversation with Mr Riley to the following effect:
'Riley: The cost of resolving the dispute has been agreed in principle and it is for a reasonable dollar amount.'
The conversation then turned to the investment deal that Mr Sharp was about to enter into with APIR.
'Sharp: Can I have an up to date budget summary and cash flow forecast for the year ended 30 June 2004?.'
This document was provided to Mr Sharp. When he read it he discovered APIR had only $56,633 in cash as at 31 December 2003 and that APIR was running out of funds.
60 Mr Sharp's conversation with Mr Hutchings Broso and Mr Riley continued to the following effect:
'Sharp: You are running out of funds. Do you have enough to pay the wages this month?
Hutchings Broso: Yes, we do.'
Mr Sharp signed the SSD and initialled the attachments.
61 Attached to the SSD were financial statements for the year ended 30 June 2003. The only difference between those accounts and those that had been provided to Mr Sharp at the end of 2003 was a change to Note 17 - 'Events subsequent to balance date', where the wording had been changed from [35] above to make it clear that the convertible note issue proposal was no more than that, a proposal, and to include a statement referring to an offer received for investment of at least $500,000, which was a reference to the investment offer Mr Sharp made on behalf of DFE. It read:
''NOTE 17 EVENTS SUBSEQUENT TO BALANCE DATE
In September 2003 the Company entered into a Term Sheet with two external investors envisaging $350,000 of 1 year Convertible Notes with an option to acquire further shares upon the conversion of the notes. The Convertible Notes would convert at a price of $2.65 per share at the time of conversion of the notes, attract an interest rate of 12% and have first charge over the assets of the company. Subsequently other investment offers have been received and the company is currently negotiating for investment arrangements of at least $500,000, either by Convertible Note or Direct Equity.'
62 Also attached to the SSD were profit and loss accounts and a balance sheet dated 30 November 2003. Mr Sharp also signed an application for shares and provided a cheque for the full investment amount of $530,000.
63 According to Mr Sharp, he had not been expecting the deal to proceed that day and had not placed sufficient funds in the account on which the cheque was drawn. He asked that the cheque not be banked until the following Monday. On the other hand, Mr Hutchings Broso understood the request to mean that Mr Sharp did not want APIR to bank the cheque until a resolution of the Gibbon situation was achieved.