30 October 1998

Our Ref: ANA BUB242/1

Direct Line: 8205-3394

23 Pinewood Place

BEECHBORO WA 6063

By Certified Mail

Dear Sir

Edyosavan Pty Ltd Trading as the Cue Club

We are instructed by Mr G J Bubner.

Our client is extremely concerned by the current position of the Cue Club business which you have been managing, for a fee, since February 1996.

More particularly, our client is disappointed, and reserves all his rights to claim against you, in that you have:

• neglected your duties as manager of the Cue Club business;

• breached your duties as a director under the Corporations Law and the general law;

• failed to comply with the agreements reached at the "informal" meeting between you and our client on 9 January 1997 and with fundamental terms of the original agreement between shareholders;

• conducted the affairs of the company oppressively to our client as a shareholder.

As a result, our client has lost all confidence in you as a manager and director of the company, and no longer wishes to be associated with you.

This letter contains the reasons for our client’s position, and some proposals for your consideration and response within the next 7 days. First there are some matters which our client requires to be attended to immediately.

Immediate Action requested

Our client as a director and shareholder of the company requires that, whether or not you accept the proposal, you forthwith:

1. Make no further payments on the account of the company except with the prior approval of our client, after having submitted to him a copy of the invoice proposed to be paid and such other details as he may reasonably require.
2. You place all historic records of the company with the company’s accountant, Peter Martin, for safekeeping, except for those records required for day to day trading. In our client’s view, the records required for day to day trading would only include the current unpaid invoices, the cheque book and the current bank statement. All other historic records are historic and new records should be created and maintained to record transactions of the company from the date of receipt of your letter.

• The ledger for all completed months of trading.

• The current till roll and all complete till rolls in your possession. A new one can be inserted.

• All paid invoices in your possession.

• All daily trading figures (Cue Club tables total and Cue Club gross total).

• The daily summary sheets completed by staff.

• The business diaries for 1994-1997 inclusive.

Our client as director has authorised Mr Martin to receive these records.

We also ask on behalf of our client that as soon as practicable you supply to him through us:

1. A copy of all invoices which you or your trust have rendered to the company since February 1996, together with an indication of which have been paid and which not.
2. A copy of all invoices outstanding, and not just those referred to in Mr Martin’s "schedule of creditors requiring payment" accompanying his letter to our client of 22 October.
3. A copy of the most recent bank statement of the company, together with a note of all cheques drawn but not presented as at the time of that bank statement.
4. A copy of the company ledger for December 1996.

Our Client’s Proposal

Our client proposes that within 7 days you agree to either:

or

• (pending any sale of the assets of the company) resume the keeping, and supplying to our client, of the usual records of the company;
• instruct a solicitor to prepare subordinated loan agreements for loans made by shareholders;
• instruct an accountant to prepare a business plan for an assessment of the profitability of the company;
• instruct the preparation of the 1997/1998 accounts;
• on the basis that the expenses of the lawyers and accountants referred to above to be provided for by you and our client equally and jointly, as a (subordinated) loan to the company;
• agree to consider at a future directors’ meeting the sale of the assets of the company following receipt of the information referred to above.

If you do not confirm your agreement to either alternative (a) or (b) above, our client will feel at liberty to proceed without further notice to you. One of the options open to our client is to seek an order for you to purchase the shares of our client in the company at an effective price equivalent to that sought under alternative (a), or alternatively an order that the company be wound up.

If the company is wound up other than by consent, our client would have no hesitation in presenting to the liquidator for his consideration the comprehensive dossier of events, documents, records of your telephone messages and notes of your conversations with our client relating to the company which our client has prepared.

The Matters Complained of

Our client has lost confidence in you because of your breach of duty, oppressive conduct and breach of agreement over a number of years, namely:

1. You have had responsibility for and custody of the accounting and financial records of the company. You have refused to make available accounting information to our client, contrary to your duty under Section 290 of the Corporations Law, which provides that "a director of the company ... has the right of access to the financial records at all reasonable times". Our client requested financial records by letters of 16 September, 13 October and 18 November 1997. By your letter of 2 December 1997 you refused to supply the information. You imperiously asserted that any information supplied in the past had been supplied only "as a courtesy". You grossly misunderstand your role and responsibilities as a director.

Our client renewed his request for information in his letter of 9 January 1998 and 28 September 1998. You have continued to fail to supply to our client the financial information requested.

2. Our client was extremely perturbed to be advised by your letter of 1 October 1998 that you had, without reference to our client as a fellow director, as long ago as November 1997 decided to cease compiling the key data which our client had been requesting and which had been accepted to be the basis of the system of monitoring their financial performance of the Cue Club.

Our client views this as a serious breach of your duties as a director and manager.

3. By your letters, combined with your refusal to recognise our client’s entitlement and interests in the company, you are showing an oppressive and dismissive attitude to our client’s substantial investment in the company.
4. Our client is further concerned by the declining performance of the Cue Club under your management. It is a fact that over the period from March 1998 to date the business has grossed $23,000 less than for the same period in the previous year. Takings appear to have been on a steady decline since reaching a plateau between May 1997 and April 1998.
5. You have refused adequately to explain to our client the reason for such decline, notwithstanding his requests by telephone calls and by a letter of 28 September, and nor have you recognised that such a decline requires any different action on your behalf as a manager.
6. Since inception of the venture, you have been responsible for the preparation of accounting records. Our client’s confidence in your role in this area has been shaken by the two significant errors which occurred in the allocation of shareholders’ loans as between yourself and our client. Both errors were adverse to our client’s interest. The total involved was some $11,000.
7. As the letter of 18 December 1996 from Jackson McDonald recognised, it always has been, and remains, a principal foundation of the venture between you and our client that there would be an equal contribution to the operating expenses to the extent that they were not covered by revenue generated by the business.

It is not our client but you who has failed to honour the fundamental commitment of the two shareholders to subscribe equally any capital required by the company. At the meeting of 9 January 1997 you announced that you would not invest further funds in the company.

Since the meeting (as well as before) our client has complied with all requests to subscribe further loan capital to the company (except for the most recent request, because of his concern with the manner of your management of the company).

Our client is not aware of the nature of your contribution since the meeting of 9 January, whereas you are aware of the amount of his contribution. We ask that you forthwith advise us of the amount and nature of the contribution which you claim to have made to the company since the meeting of 9 January 1997, and details of that contribution.

8. One of the matters agreed at the meeting of 9 January 1997 was that after 6 months if the business had not been sold you and our client were to reconvene to consider further course of action. During his visits to Perth in June and July, our client attempted to discuss with you suggestions to improve the business, such as the employment of an external manager, but you peremptorily refused to discuss any changes to the way in which the business was run.
9. Further, you neglected properly and diligently to pursue the interest in the business shown by Lachlan McCrea. Without consultation with our client, you too readily brusquely rejected his very substantial offer on the ground that it involved vendor finance, when this requirement had been known to you and the other parties from the commencement of Mr McCrea's interest. You failed to keep our client fully informed at all times of the efforts to sell the business and in particular the dealings with Mr McCrea.

In this, not only were you acting oppressively to our client you were in breach of the spirit if not the letter of the arrangements struck at the meeting of 9 January 1997.

10. Your actions and inaction have at the moment caused our client substantial loss, which can only be rectified if you purchase our client's interest in the company offered, and if this does not occur, all rights against you are reserved.

In conclusion, we confirm that our client will not consider subscribing further loan moneys to the company, (if you do not agree to buy our client’s shares and interest in the company), until such time as his concerns expressed above are removed and resolved and the information which he has requested supplied.

In view of past experience, our client is not prepared to attend any meeting with you except in the presence of legal advisers. In any event, in our client’s view the position is clear and can be dealt with adequately in correspondence.

Our client recognises that the situation is urgent and that the position of the company is precarious, and that it is therefore urgent for you and our client to attempt to agree on a future direction for the company and your respective interests in the company.

We therefore request that you respond urgently to the proposals contained in this letter.

We are sending a copy of this letter to Jackson McDonald if they are still acting for you.

Yours faithfully

PIPER ALDERMAN

Per:

A N Abbott

cc Jackson McDonald

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