Subject: Re: Thanks for dinner!
Date: 13 November 20–
To: Katy Plunkett <email@example.com>
Thanks for the mail, sorry for the delay in getting back to you. We’d love to come to you sometime.
Thanks for the offer to recommend someone to carry out the due diligence. I was owed a favour by another lawyer friend whose son needed some emergency dental work last year, so he did this for me. Actually, it has raised a number of issues.
I don’t feel I can ask my friend for any more favours, so have pasted some of the details concerning the company’s liabilities and future financing below. There’s a free bleaching1 in it for you if you can get back to me with any comments – thanks!
PS Hannah sends her love. Oh, and hi to Nigel from both of us.
From the due diligence report:
Has the team prepared properly for future financing?
The current strategy for raising funds is based on the issuance of debentures. The coupon of 7% will be paid to debenture holders at six-monthly intervals.
NB While the holder of a debenture will usually not benefit if the company makes large profits, debenture interest is payable out of capital and can, therefore, be a safer investment. Unlike shareholders, debenture holders may have their principal money repaid as long as the company is a going concern. See pp. 3-4 on the likelihood that Pearl-e-whites.net will function without the threat of liquidation for the foreseeable future.
It is understood that further bonds will be issued once the company has begun to earn a comfortable profit. As with the proposed debentures, the coupon will be paid to bondholders semi-annually until maturity, at which time a fixed sum will be paid to cover the principal.
The company also has the option to issue further shares without alteration to the capital clause in the memorandum of association2 . The capital clause currently states that ‘The share capital of the company is £600 000 divided into 600 000 shares of £1 each.’ To date, only 300 000 of these shares have been released.
Any excessive current liabilities?
The directors of Pearl-e-whites.net have failed to certify that no events leading to crystallisation3 of any floating charges have occurred (i.e. when a floating charge becomes fixed). Any investment would, therefore, be of a potentially very high risk.
NB Crystallisation occurs on the appointment of an administrative receiver, on the presentation of a winding-up petition, or as otherwise provided for in the document creating the charge. A certificate of non-crystallisation is a necessary guarantee that no recent events have occurred which may lead to the realisation of assets secured by the company’s creditors.
It is understood that the company has at least one major debt secured under a General Security Agreement with its main creditor, Capital Ventures plc. All the assets of the company that are not already secured by other creditors will be captured by this General Security Agreement, should crystallisation of any floating charges occur.
See annex for details of all charges.
1A technique to whiten heavily stained teeth.
2US articles of incorporation
3 US crystallization