FOLLOWING IS AN APPROXIMATION OF THE CONTENTS OF BD2, ATTACHMENT TO DEPOSITION OF BARRY DOWNEY. SOME REFORMATTING IS DONE FOR READABILITY. CONTENTS ARE CONCATONATED FROM VARIOUS EMAILS AND ARE NOT NECESSARILY THE CONTENTS OF THE ACTUAL DEPOSITION. ON REQUEST, NAMES OF SOME PEOPLE HAVE BEEN OBSCURED. =============================================================== =============================================================== 1 Date: Tue, 7 Nov 2000 15:44:29 -0500 (EST) Subject: (fwd) From: implacable@hushmail.com To: iang@hushmail.com Cc: bdowney@hushmail.com Ian I'm concerned by the fact there has been no reply to this. Doug ---------- Forwarded message ---------- Date: Sun, 22 Oct 2000 18:56:44 -0500 (EDT) Subject: From: implacable@hushmail.com Reply-to: implacable@hushmail.com To: iang@hushmail.com Cc: bdowney@hushmail.com Ian I understand the Jackson Family Trust and the Downey Family Trust, who as shareholders of Systemics Inc. are in a 3:1 relationship between themselves, have never received share certificates. My recollection is that they own (at least) 15% and 5% respectively. They (their trustees) have also never seen any financial statements from Systemics Inc. Unaudited statements would be fine. Doug Free, encrypted, secure Web-based email at www.hushmail.com =============================================================== =============================================================== 2-6 (reordered) Date: Tue, 22 May 2001 18:35:00 -0500 (EDT) Subject: From: To: "implacable" , reid__@hushmail.com, hdefrias@hushmail.com, ddesmarais@hushmail.com Cc: I just sent the following to Ian at his systemics.com e-mail address. I will prepare an additional summary of all that has transpired for the lawyer in Anquilla for her to move forward quickly if no adequate response is received from Ian by Thursday. Barry Subject: response Date: Tue, 22 May 2001 18:33:39 -0400 From: "Barry K. Downey" To: Ian Grigg CC: Douglas Jackson , Reid Jackson , "Barry K. Downey" Ian: I did not receive a copy of your e-mail. Apparently, it went to bdowney@mithdowney.com instead of bdowney@smithdowney.com. Please confirm that you did send the e-mail copied at the end of this correspondence. Barry CONFIDENTIAL DISPUTE NEGOTIATION DOCUMENT DigiGold.net Ltd. Nevis, West Indies Douglas L. Jackson, M.D. Barry K. Downey May 22, 2001 Response to May 21, 2001 letter from Systemics, Inc., Anquilla, to Douglas Jackson titled "WITHOUT PREJUDICE". DigiGold has on several occasions attempted to continue the funding specified in the Agreement between DigiGold.net Ltd. and Systemics, Inc., and has never suspended funding payments. Systemics has made no demands for further payments and, on the several occasions since May 2000, when DigiGold asked why Systemics had made no funding requests, no adequate answer was provided by Systemics and no request for funding was made by Systemics. DigiGold has not terminated, and does not now terminate, the Agreement between Systemics, Inc. and DigiGold.net Ltd. DigiGold, through its US Counsel, Barry Downey, has repeatedly, in writing and by telephone, asked Systemics, Inc. to confirm it would accept continued funding under the Agreement, but has received no response to these repeated requests. Without limiting in any way its rights under the Agreement, DigiGold.net Ltd. repeats below its willingness to continue the Agreement and, in the alternative, offers an alternative resolution to this dispute. DigiGold requirements The business of DigiGold, as described in multiple international conferences and publications, is to serve as a worldwide financial currency. This requires, at a minimum, two things: a) trading books on the Systemics Market server: DigiGold traded against any and all instruments that can be traded in nymous and/or bearer form b) emergence of issuance and trading of gold-denominated securities The emergence and trading of a variety of gold-denominated securities are essential because the revenue model for DigiGold is based solely on income from its treasury function. The use of DigiGold as a trading currency however is not to be restricted to trading against gold-denominated securities. From the beginning, a clearly articulated part of the DigiGold strategy has been for CyberDepositary Receipts - Ricardian instruments representing and backed by conventional exchange traded securities - to be issued and trade against DigiGold. DigiGold.net Ltd itself has a long stated intent of raising equity capital via the shares trading on the Systemics Market Server. An additional requirement of the basic SOX Ricardo system is a low level API enabling more convenient programmatic use of the protocol, for instance automating the processes involved with initiation/submission of spend orders and notification of receipt of payment. A further requirement is the ability to make use of blinded protocols that are developed to be compatible with the SOX paradigm. Douglas Jackson and Barry Downey funded the commercial development of SOX Ricardo and the Systemics Market Server. There is a two fold consideration for this investment: 1) a minority interest in Systemics, primarily in order that Doug and Barry could keep finger on pulse of Systemics strategy such that it remain in harmony with 2) the business of DigiGold as worldwide financial currency. Systemics, through Ian Grigg, has confirmed that the interests of Barry Downey and Douglas Jackson as owners were the factor that compelled development of the Market Server at a higher priority than work on a web-based interface, known as the Pumphouse Project. It is well established that Doug and Barry agreed to inject capital into Systemics in the form of an above market price for the DigiGold license [given that it was still in a pre-commercial state of development, which in fact it still is], in order that Systemics could show revenue and the various Doug/Barry companies could show assets. Requirements as shareholders of Systemics and under the Agreement: 1) DigiGold should not be excluded from trading against any technically compatible instruments on the Systemics Market Server. Restated positively, trading books should be mounted enabling DigiGold to trade against any/all other Ricardian instruments that are nymous. 2) Doug/Barry interests must be able to participate in the development and emergence of Ricardian DBS securities. Doug and Barry are interested in raising capital for several of the companies they have caused to be organized, and also wish to function as underwriters in suitable circumstances, for instruments regardless of whether they are part of the Doug/Barry sphere or derive from alternate issuance sources. 3) DigiGold's exclusive right for issuing gold and silver denominated currency instruments should be extended because critical elements enabling the commercial viability of DigiGold have not emerged as of yet, namely trading against other currency instruments and securities. The very moment where such issuance and trading approached the threshold of feasibility (Fall 2000) was the same time that Ian unilaterally announced that Doug and Barry (or their designees) no longer were owners of Systemics. 4) Doug and Barry's (or their designees) minority ownership of Systemics must be formalized as stipulated in hushmail to Ian October 2000. 5) Business-like communication channels must be re-established to enable the negotiation and coordination of business strategies and requirements. An example of additional strategic direction that languishes for lack of discussion is the ability of the Market to automate margin accounts that would enable short positions. Alternative to these Requirements: If Systemics and Ian Grigg are unwilling to proceed in business relationships that honor these requirements, an acceptable alternative is for Systemics/Ian Grigg to: a) deliver all source code to Doug/Barry necessary for construction and operation of systems [including but not limited to the Ricardo server and the Systemics Market Server ] systems for issuance, circulation of Ricardian instruments and trading in RTGS fashion. b) this shall include building suitable hardware and training technical people in the logic and operation of this software DigiGold.net Ltd./Doug and Barry will resume funding the balance of funds previously agreed upon, that is, the remaining $130,000 worth of e-gold, upon confirmation of Sytemics' agreement to honor the requirements for a continued relationship, or upon compliance with the Alternative proposal (i.e., the provision of software and support needed for a complete separation of interests). Please respond before Thursday, May 24, 2001. DigiGold.net Ltd. By: Barry K. Downey, U.S. Counsel From: iang@pyyl.pair.com [mailto:iang@pyyl.pair.com] Sent: Monday, May 21, 2001 5:20 PM To: bdowney@mithdowney.com; djackson@jackson-trading.com; reid@e-gold.com Subject: 21 May 2001 SYSTEMICS Old Ta Anguilla 21st May 2001 WITHOUT PREJUDICE To: Douglas Jackson CC: Barry Downey CC: Reid Jackson DigiGold Ltd. Dear Douglas, We refer to the agreement of 2nd August 1999 between DigiGold Ltd. and Systemics Inc. Under the Agreement DigiGold committed to the payment of US$500,000 for the right to use the Ricardo Issuance Server product of Systemics Inc. and which payment was to be made in instalments. Payments were made as required up to and including May of 2000. Since that time demand has been made but no further payments were received. Likewise we continued to perform our obligations under the agreement by providing support in Anguilla and Melbourne but you terminated this aspect by having Systemics Inc. staff removed from your Melbourne premises on 23rd October 2000, status of which was confirmed in telephone calls and email of 21st February 2001. Notwithstanding many discussions to try to resolve the matter of your voiding the agreement, it is apparent that DigiGold has no intention of honouring or re-instating and as such we hereby accept, without prejudice to our rights thereunder, your termination of the agreement. We cannot afford to continue to cover the costs for services consumed by DigiGold Ltd. including but not limited to Internet servers, the main software licence, administration, and bandwidth. Therefore we will no longer provide our services effective as of Friday May 25, 2001 at 11:00 a.m. AST, nor can we expect the third-party provision of service to continue past that date. Without prejudice to our rights thereunder we accept your termination of the agreement. Please govern yourself accordingly. For Systemics Inc Ian Grigg =============================================================== =============================================================== 8-10 MOID Date: January 18, 2001 Client: G&SR/e-gold/DigiGold Matter: Systemics Issues Issues: Discussion with Ian Grigg Party(ies): Doug Jackson, Reid Jackson, Barry Downey and Ian Grigg Atty.: BKD While at a Board meeting in Florida, Doug, Barry and Reid called Ian Grigg to attempt to further the discussions that had begun in September 2000 immediately after the IRS II conference in Melbourne, FL USA. We also called to discuss additional projects we would like to move forward on with Ian Grigg/ Systemics and with Rachel Wilmer/Intertrader. Summary of Discussion. We called to discuss possible joint ventures with Systemics and Intertrader. We would like to discuss a CashBox deal with Rachel of Intertrader for G&SR/ Omnipay exchange between e-gold and Mondex. Ian says we will need to discuss this directly with Rachel, but he will need to coordinate the SOX stuff for this project. Systemics/DigiGold development. What developments have you made in the Napsterization of DigiGold (i.e., Client based system, vs. Web based system? Ian: None. Doug: We want to continue development of DigiGold under the software agreement. We are wanting to proceed with the Digital Bearer project and just about have all the legal entities formed that will be able to implement and fund this project. Ian: No response. Doug: We need and want to push forward on these and other projects: 1. DigiGold will want to negotiate a renewal of the software license, which includes its exclusive rights to issue DigiGold family of currencies. 2. Digital Bearer CDRs 100% backed and Bearer form for various exchange instruments. Needs a non exclusive license. We don't care about other licenses, pricing of other licenses, etc. Needs a contract to serve as Operator. Future projects however must be contingent on clarifying the prior problems. Ian: Doug and Barry as shareholders in Systemics. He confirms his agreement that we owned [he says 20%] of Systemics. He claimes there was an ongoing requirement for this to continue. He claims we did not continue funding the last 1/2 of 2000, therefore the shareholder agreement was breached. He agrees he never asked for additional funds. He says he felt he could not ask because the conversations were too difficult which indicated he could not ask for funds. He claims he thought he was getting the message that no money was available unless we were getting a piece of the project. Doug: The only discussion we had since May when we last sent funds was a discussion concerning the CoLo project when Doug and Ian flew to Puerto Rico for conference and meetings and shared a room and discussed the possible participation by us in that project. We told you at that time we could be counted on for $100,000 of funding, which certainly would have entitled us to a piece of ownership of that project. Doug/Barry: What amount of funds can we send now to constitute what you think will bring us up to date on the funding requirements? We have always understood our agreement was that the funding specified in the Agreement [$500,000] would be paid in as you asked for funds, which is how we operated from the beginning through May 2000. Ian: He does not respond to our request to let us send funds to get us up to date. Rather, he says: "I think I have made other arrangements and I have gone down the road with them to return to the DigiGold project." Doug: Are you interested in any other projects. We want to repair our relationship with Systemics, which we don't understand how it could have deteriorated to this point. We also want to move forward on the original and some additional projects. Ian: He will respond if we have a specific proposal. We restated the specific proposal in 1 and 2 above. He agrees to respond to this proposal by e-mail. Doug/Barry: We will put in writing our position re: our ownership of Systemics. He tells us to send it by e-mail. This is the best way for us to communicate, he says. We agree to do so. We investigate a little further after hanging up and discover a link from Ian to a project with James Nesfield and Co., Nags Head, NC 252 XXX XXXX. We call Mr Nesfield and he confirms that Ian has not sold any piece of Systemics to him, only a license to do trading in the US using Ian's SOX system. =============================================================== =============================================================== 11-23 Subject: further Date: Tue, 25 Feb 2001 15:31:03 -0800 From: "Barry K. Downey" To: Ian Grigg CC: "Barry K. Downey" , Douglas Jackson , Reid Jackson Ian: I would like to move forward. In light of this, I will respond to your note by only answering the direct questions you ask. I don't want to argue about facts that you have no interest in discussing further, however, and I will not be offended if you wish to ignore my answers altogether. I would like to then proceed with a discussion of how we can continue to work together on several projects. My answers to your questions follow each question below. Because I copied your message into a word document, I have put my answers in CAPS to highlight them, not to give them any special emphasis. We do not regard the various personal issues, hurt feelings and damaged relationships, as material to the central issues in this dispute. We are not saying these personal matters are unimportant and in fact it is hoped that some understanding or even reconciliation can be achieved over time. The pertinent fact though is that the Jackson/Downey interests, having invested over $370,000 in the development of Ricardo, Sox, WebFunds, Exchange Server and related technologies are not going to simply fade away as these developments are finally approaching commercial value. The central issues are contractual business matters. 1) Jackson/Downey own an equity interest in Systemics Inc. If any intellectual property has somehow migrated to successors or assigns these interests must still be satisfied. 2) The use of Ricardo/Sox and other Systemics technologies are central to the business plans of DigiGold Ltd. and it is imperative that DigiGold Ltd. have secure rights to continued use of these technologies as they continue to be developed. 3) DigitalBearer, a designated interest of Jackson/Downey has been formed and has undertaken to assure that other companies have been formed (to serve as governance contractors) in order to issue digital bearer securities. A critical element of the plans for DigitalBearer is the ability to secure a non-exclusive license for issuance of DBS securities by means of a Ricardo license and the ability for those securities to trade via the Systemics Exchange Server. It is anticipated that the consideration for this new license and related business will be negotiated. Please let me know by e-mail when you might be available to begin negotiations on Systemics' involvement in these projects. Barry (410) 321 9351 (410) 925 2746 Subject: comments Date: Mon, 5 Feb 2001 17:08:00 -0400 (AST) From: Ian Grigg To: bdowney@smithdowney.com Barry, thanks for your note. In detail and in summary, I found the note to be full of errors in fact and in judgement. More in addressing this, I have noted some of the issues below. Of course, you will recognise that without moving this discussion onto a sound basis, there is little else possible. iang (In the below, I simply refer to the combined Florida companies as 'the group'.) Mr Charles Evans. I continue to be surprised at the Charles Evans situation. Even you cannot avoid the facts - you wrote that I had advised twice that you should let Mr Evans go. I recall your suspicions that he was conspiring against the company when in Nevis. I recall many other things that might be more damning. But you didn't sack him. Why not? It's your job to sack him, not to blame me for some imagined crime in keeping him there, or for tying us into some conspiracy. Let's do a facts check. Did you ever reprimand Mr Evans for behaviour unfitting? YES. I PERSONNALY REPRIMANDED CHARLES ON AT LEAST THREE OCCASIONS. I CAN GIVE YOU THE SPECIFICS IF YOU DESIRE. THESE REPRIMANDS WERE WITH THE KNOWLEDGE AND APPROVAL OF DOUG AND REID. He has mentioned that the only reprimands he ever received were from me. Iang. Which is odd, given the depth of the dissatisfaction. And who's running the show. Did Mr Evans push Ms KKKK and Jeroen together, so that they could spend all their time flirting? Or with the sister for that matter? I DO NOT HAVE WRITTEN PROOF OF THIS, ONLY THE FACT THAT CHARLES PUT JEROEN IN THE SAME OFFICE WITH WWWWWW FACE TO FACE ACROSS A DESK. No. Mr Evans tried to keep them apart, because Ms KKKK worked for him, and should have been doing that work. Now, of these two alternative universes, which is more likely? The facts generally make more sense. Did Mr Evans get assigned work on a digital bearer exchange project? YES. WE HAVE THE HTML PAGES HE STARTED TO PREPARE ON THIS PROJECT. DOUG SPECIFICALLY ASSIGNED THIS AND OTHER DIGITAL BEARER TASKS TO CHARLES, BUT HE DID NOT COMPLETE THEM, OR EVEN START SOME OF THEM. No. He never got assigned much of anything at all. He simply worked on stuff, and told his boss at the time what he was working on. It doesn't matter who his boss was because his boss simply nodded and let him get on with it. Did Mr Evans try and sack Ms KKKK? No, she tried to resign, and was brought back to the company by Mr Evans, under instruction from the management. Her resignation letter is on file. He initially advised that the resignation be accepted. He was over-ruled. CHARLES DID TRY TO SACK WWWWWW. I HAVE THE LETTER CHARLES DRAFTED WHICH CLEARLY SPELLS THIS OUT. IF YOU WOULD LIKE A COPY I CAN PROVIDE IT TO YOU. Which makes your email quite odd. In one section, you claim that Mr Evans at least advised that Ms KKKK should be sacked, and you had to save her from this fate. Later on, you decided to evidently accept his advice and sacked her, along with him. So what is the precise complaint here? Did Mr Evans conspire against the company? No. Or, I at least have never ever seen one shred of evidence for that. I CAN DIRECT YOU TO DISINTERESTED PARTIES WHO CAN PROVIDE THIS EVIDENCE IF YOU WANT IT. And I've looked. In fact, as Douglas suggested, I spend some time at IR2000 backtracking all the information in order to work out what the problem was. I found, in general, that Charles Evans' work for the company was positive. I found some mistakes. But nothing out of the ordinary. I found things that I would have reprimanded him for. Apparently, I was alone in that assessment. What I have heard against are hearsay, rumour and frankly, nonsense: staff reporting that the guilty parties were found to be ... gossiping? Business associates advising you that behaviour was ... inappropriate? I'm wise enough to be able to spot when information is bad. That's one of the benefits of seeing the world as a contractor. After close to a hundred different company situations, I can see when something's important and when it's not. The so-called evidence that you have mentioned is insubstantial. Charles Evans made normal, human mistakes. As time went on, I became convinced that the problems were elsewhere. Where there is smoke, there is fire. I looked for the fire, and I'd be interested to swap notes. But, I can assure you, I didn't find any evidence of that fire from that quarter. Sacking of Systemics. In IR2000, several things happened. These are facts. Firstly, Jeroen faced a poaching attempt. Yes, I've seen Reid's "misunderstanding" but I don't buy it for one moment. Reid is a babe in the woods in this stuff, I've seen poaching dozens of times before ? I'm in the fast moving IT game, recall ? and I coach my people on it. Jeroen was very well aware of how it worked because he saw what happened to Erwin, poached by hushmail, and never really got over the shock of seeing his best friend defect in such a damaging way. So Jeroen was coached in how poaching occurs, and to his credit recognised the stupidity of the approach in an instant. It was never a danger to him or Systemics, other than indicating what the management of the group considered important. And yes, I check up on the information. We are not just talking about "his word against mine." I should hasten to point out that I do not hold Reid responsible for this, I was always prepared to waive the poaching issue as a minor point. But, as it is the one and only attempt at reproachment, I must by rights point out the reasons that this will not help. What we are talking about is an absolute, group-wide, loss of respect that lulled Reid into thinking that assets that were on loan could be kept. DJ canned our pumphouse project in November of 1999. His lack of respect for our capabilities in producing this project was on display for all of the staff to consider. DOUG HAS AGREED THAT HE DIRECTED YOU AWAY FROM THE PUMPHOUSE PROJECT IN ORDER TO OBTAIN UPGRADES TO THE OTHER PROJECT. WE DON'T DISAGREE THAT THERE WAS FRUSTRATION ABOUT THE PROGRESS THAT WAS BEING MADE, BUT THERE STILL HAS BEEN NO DECISION ON OUR PART TO CAN THE PUMPHOUSE PROJECT. THERE ARE OTHER PROJECTS WE THINK SHOULD HAVE PRIORITY, BUT THIS IS ONE OF THE SETS OF ISSUES WE WOULD LIKE TO HAVE A PRODUCTIVE DISCUSSION ABOUT. I ASSURE YOU THAT NO ONE LACKS RESPECT FOR YOUR CAPABILITIES ON THIS OR ON ANY OTHER PROJECTS. Such lack was easy to display, but not easy to accept, considering that we were also doing DigiGold, a project of a higher order of complexity. As a relationship, I was prepared to accept the canning of the pumphouse project. I was less prepared to accept that your group would then go into competition with Systemics and start selling software systems. I NEED YOU TO BE MORE SPECIFIC HERE, BECAUSE WE ARE NOT GOING INTO COMPETITION WITH SYSTEMICS ON SELLING SOFTWARE SYSTEMS. WE WOULD RATHER CONTINUE TO WORK WITH YOU ON THE DEVELOPMENTOF SYSTEMS SO WE DO NOT HAVE TO DEVELOP THEM OURSELVES. Another fact. Jeroen was ejected from the office for being a spy. Leaving aside the idiocy of that reaction, this was a completely solid signal. It is now clear to me that Systemics people cannot ever go to Melbourne again. If it were to have been otherwise, I would have been properly notified of a problem. As it was, I was only indirectly notified of a serious charge against my company, my employees, and myself. As the charge was repeated when it was brought up in our phone calls, there is no doubt that Systemics is branded as contrary to the interests of the group. As the email includes reference to Jeroen's visit as being a disaster, still with an absence of formal or quantifiable complaint, I am still in the same position: unspecified and unverified charges are brought, and they can only be understood within the context of the sacking of Systemics. A more difficult fact. At some personal effort, I worked hard to introduce Rachel Willmer of Intertrader to the concept of DigiGold market making and facilitation. I envisaged some working together between those two companies to build effective payments market making. It was something that both parties only had a half of, and could have benefitted by working together. But, in bringing this to the table I was forced to witness a debilitating event. As Rachel attempted to describe what her company did and how it could help Omnipay to do their market making, she was faced with insults, ridiculing, lack of respect, all in the classic DJ mold. Bullying is not an inappropriate term. You were there, as was Reid. At the same table. I guess you have been innured to such over time, we were all somewhat innured to it, and it took it happening to someone close to me for me to realise just how dangerous this approach was to your group. Katrina was there as well, but thankfully she was in the kitchen I think and wasn't exposed to this. I brought this lack of respect up before in our conversations, and I think we agreed to label it as a "devil's advocate" approach. (Such a term is an a liberty with the truth, but we need a more neutral term than bullying.) Luckily Rachel can look after herself, and recognises when she is not to blame and should not fuss overly about something. You should however be assured that you will find it difficult to do business ever again with any of the many erstwhile partners that you've treated in this way. And, as you were there, as was Reid, you three are all equally implicated in this. I was scared by it all. In a sense, it was a relief to me to find out that we were sacked as well as the employees of the group. Monetary issues. The cash flow that dried up during the year 2000 was indeed a complex affair. That it dried up there was no doubt. That it should have, I don't know, but I have to work with realities and practicalities. I and my people don't eat promises. There were several confirmations of the "no cash for Systemics" policy. The only conversations that went well were new business spinoffs. This should have alerted me to the change, but it did not. It was only possible to discuss money when talking about a new business, so I found myself pushed in the direction of the colo business, simply in order to bring in new funds. To an extent that was fine, as it may have made sense to undertake that project on its own merits, but what I was faced with was more than that: the invention of new projects for acquiring money is not something that is sensible under all circumstances. Discussions of money led to being told that there were no more funds available. After that May transfer, I got a series of complaints against the project, coupled with difficulties in funds. The office drained all the funds, then the new machines drained all the funds. There was indeed a willingness to talk about how money was being spent on new deals, but that quickly turned around when I started discussing the availability of funds for Systemics, under the existing licence regime. I backtracked this through my normal sources and it was confirmed. The only funds going out were for new ventures in which stakes or shares were being handed out. And money for other projects was being cut out. I lost count of how many other new ventures were being whispered about. WHAT SOURCES ARE YOU TALKING ABOUT? DURING THIS PERIOD OF TIME, STEVE, WITH THE ENCOURAGEMENT OF CHARLES, WAS SEVERLY CRITICAL OF YOUR CAPABILITIES FOR PRODUCING ON THESE PROJECTS. BOTH CONTINUALLY CRITICIZED DOUG FOR HIS SUPPORT OF THE SYSTEMICS PROJECTS. I also tried to put the whole arrangement on a more formal footing. No such luck: when I discussed the possibility of charging DigiGold for the costs, as was expressely envisaged in our contract, I was told that there was no money for that. Which was doubly annoying as I was being pushed into a colo venture in order to extract money for paying for DigiGold projects. There was apparently money for other colo suppliers. Staff of the group were working over those months to secure other suppliers of this service, and thus a clear signal that the group was prepared to invest in us for a cut, but unwilling to actually push business in our direction. The San Juan trip was so strained that no discussion was possible. DJ criticised the WebFunds so much for what was essentially bandwidth issues over the phone line (there was some problem with the way the phones worked, I talked to the owner of the hotel about it) that Jeroen was on the verge of walking out and not helping to get the laptop on line. Jereon, being a techie, is not the most patient of types, but he was definately on his best behaviour that night; he and Steve were forced to leave the room after an hour on some pretext or other. It was just enough to go through the plans for the colo. Actually, here, something occurred that was my fault, in that the other investor had pulled out at a late stage. I should have asked DJ to can the trip, but ommitted due to lack of foresight and busy-ness. A good relationship would have survived that issue, but what I had to deal with was not that. To ask for money would have brought the scorn of a thousand lay preachers onto my ignorant peasant head. Another issue I'll mention in passing ? discussions on bringing in new issuances were very difficult. Basically DJ refused to permit any variations in approach to securing new issuances. One of the things that was written into the contract was that the value of the licence was fixed upwards. Douglas refused to accept any negotiation on that. Unfortunately, that was too strong a position, and had the effect of basically blocking any marketing efforts I might have made. Douglas will of course wave contracts around and talk about how one must stick to the letter of the agreement. When it is convenient. Recall that, whilst the contract is not paid out (so the claims made by DJ have no legal leg to stand upon), this did not stop DJ attempting to stop the marketing of Systemics product except via his own approved channels. Faced with such a difficult situation in attempting to market the product, and faced with an uncompromising attitude on cash, what I was seeing here was treatment that was inappropriate given the contract and the nature of the relationship. Relationship. DJ switched over the year 2000 from being someone that I could work with to someone that was impossible. I know this might sound surprising, but you, Barry, have never had to be on that side of him. You may be surprised to know, but the actual drift apart started in late 1999, around December. At that time, I was engaged in a long, protracted discussion concerning the support of the group for scams and ponzi schemes that were being facilitated by the group. I based my objection on fundamental points: that schemes were illegal and any regulator could shut down the system or the company on that basis alone. I secured expert advice on those points, on an informal basis. My concern for the survival of the system should have elicited a favourable response. And a discussion of the merits of one approach or another. I did not get that. I got denials, rebuffals, downright insults, in a series of emails that went on for at least a month. THIS RESPONSE WAS BASED ON MY DISCUSSIONS WITH U.S. GOVERNMENTAL AGENCIES. THEY WERE NOT CONCERNED ABOUT E-GOLD OR G&SR, BUT WITH THOSE SCAMS AND PONZI SCHEME OPERATORS. THE PAST TWO YEARS OF EXPERIENCE ON THIS ISSUE HAS CONFIRMED MY INFORMATION AND THE ACTION YOU RECOMMENDED WOULD HAVE BEEN THE WRONG APPROACH. THIS IS NOT TO SAY THAT THE ADVICE YOU GAVE WAS DISREGARDED OR UNAPPRECIATED. AT FIRST WE DID FOLLOW YOUR ADVICE, BUT THIS TACT VERY QUICKLY SHOWED ITSELF TO BE THE WRONG APPROACH. At that point I decided to withdraw from activity in your group. I decided that there was no point in advising the group on issues if there was no ability to discuss such issues, and no willingness to accept points of view contrary to the 'party line'. I considered it was not worth my time to save a group that was intent on destroying itself by supporting illegal activity. Nor one that had no desire to work with its supporters. I WOULD BE DELIGHTED TO GIVE YOU AN OFFLINE UPDATE ON THE PROGRESS WE HAVE MADE IN AVOIDING EVEN THE APPEARANCE OF ANY SUPPORT BY THE COMPANIES OF ANY ILLEGAL ACTIVITY. Is this an issue? I fail to see why - at no time was I offered a position, due consideration, or a stake in any of the companies that I was advising on. In fact, when considering the nature of funding during the year of 2000, I was told, in no uncertain terms, that there was no way that I could be rewarded for any work done for the group. OUR IMPRESSION WAS THAT YOU MADE IT CLEAR FROM THE BEGINNING THAT YOU DID NOT WANT ANY STAKE IN THE COMPANIES BECAUSE YOU THOUGHT IT WOULD IMPAIR YOUR ABILITY TO SELL YOUR PRODUCT TO OTHER COMPANIES. DO YOU WANT TO DISCUSS YOUR GETTING A STAKE IN THE COMPANIES? And at the same time, DJ also stopped advising me on issues to do with the group. Maybe it was the difficult conversations to do with scams and other illegal activity. Or maybe it was due to desire to concentrate on the increasing number of deals that were being done. Or, as suggested by some, maybe it was that DJ had decided that Systemics was no longer loyal. Whatever it was, I was no longer in the loop. What also became apparent was that Systemics was very quickly becoming secondary even as a supplier of software. WE WOULD LIKE TO BRING YOU AND SYSTEMICS BACK ON LINE AND WOULD LIKE TO IMMEDIATELY START SERIOUS DISCUSSIONS WITH YOU TO GET YOUR RESPONSE TO OUR PROPOSALS. =============================================================== =============================================================== 24-31 Date: Fri, 26 Jan 2001 14:05:13 -0800 (PST) Subject: From: bdowney@hushmail.com To: iang@hushmail.com Cc: implacable@hushmail.com, reid__@hushmail.com bcc: hdfrias@hushmail.com Dear Ian: Here is the summary you requested when we spoke last week. At the outset, our position is that, for the following reasons, a combination of Douglas Jackson and Barry Downey (or related entities) own between 20- 25% of Systemics and the Anguilla projects. You asked me to provide a summary of our position and the reasoning behind it. I have erred on the side of overinclusiveness, which, I hope, is helpful. Please let me know if you have any questions and please let me know your response as soon as possible. At the end of this message are several questions about our current understanding and future planned projects. I understand you also will be able to respond to our proposal for the additional projects we would like to begin immediately. Thanks for your attention to these issues. Ownership of Systemics operating on Anguilla. Formation of the Systemics enterprise on Anguilla July 1998 Douglas Jackson played a critical role as one of the founders of the Systemics enterprise on Anguilla. At a conference in Boston July 1998 Doug and Barry met Ian Grigg and Ryan Lackey and Doug invited Ian and Ryan to Florida to discuss formation of a company to develop digital cash. Ian and Ryan stayed for about a week in Doug's home. Discussions were held in Doug's living room relating to location, personnel, funding and the naming of the enterprise. At this time the following was decided: 1. Douglas Jackson would provide seed capital until the enterprise had advanced to the point where it could fund itself from operating profits or attract outside investment on terms acceptable to the founders. Ian and Ryan relocated to Anguilla. On the direction of Doug, they purchased equipment using Doug's personal credit cards and later using company credit cards from Jackson Trading Company. Workstations, monitors, servers, UPS's, network equipment and other equipment amounting to about USD 50,000 was purchased using Doug's credit cards. In addition Doug gave cash to help bootstrap the operations, at least USD 3,000 initially. Around September 1998 when Doug visited Anguilla he brought and left with Ian an additional USD 9,000. 2. It was agreed that the primary funding would be done in the form of license fees and other flows from companies associated with Douglas Jackson and Barry Downey. The purpose of funding in this fashion would be to: a) enable recognition of income by the company, making for a more robust P&L b) enable recognition of assets (license, etc.) by the companies providing the money c) avoid the difficulties of passing assets into family trusts (thereby allowing direct capital contributions) since there was no mechanism for doing that without severe adverse tax consequences. d) To keep the stated capital of the firm modest to hold down the costs of registration September 1998 In September 1998, Douglas Jackson visited the Anguilla location and stayed several days. During that visit he proposed ownership of the enterprise in a ratio of: Douglas Jackson and Barry Downey designated owners - 25% Ryan Lackey - 30% Ian Grigg - 35%. The logic of the proposal would be to prevent any single holder from majority control. There is a PGP signed agreement memorializing this ratio of ownership. October 1998 to present From October 1998 through May 2000, the companies in the Douglas Jackson Barry Downey sphere did in fact provide additional funding to Systemics by paying to Systemics e-gold payments exceeding USD 300k value. At least until the summer of 2000, Ian kept Doug up to date on issues that were relevant to his and Barry's interests as owners, such as: 1) offers of equity to employees 2) separation from Ryan Lackey and re-organization as a Nevis Corporation 3) potential capital investments such as rights to the Brands patent and other intellectual property commissioned by the company (which was entirely dependent on the continued flow of funds from Doug) 4) outside work, such as a development project for Hush Communications Intervening Crisis G&SR had an employee, Charles Evans, who was exerting a destructive effect on the company. This process increased in August 2000 when Charles was not permitted to summarily fire or "humble" an employee named WWWWWW KKKK as Charles insisted on doing in an emotional and reckless memo. G&SR directors had on multiple occasions been advised that Charles should be let go. In fact the first such recommendation was from Ian Grigg in late February 1999 after observing deceitful behaviors by Charles at the FC99 conference. Ian repeated this recommendation after the FC 2000 conference wherein Charles had made a presentation that Ian characterized as flippant and goofy and which reflected badly on G&SR and e-gold as serious business endeavors. In late September 2000, Ian arranged for Jeroen to come to Melbourne FL for some off-island recreation. This visit turned into a disaster. Initially unbeknownst to Doug, Charles used the visit as an opportunity to drive a wedge between Doug and Ian, whom Doug had always regarded as a most valuable strategic ally and confidant. Charles arranged for Jeroen to share an office with WWWWWW (whom had been previously described (correctly) by Charles as a person who would use her physical attractiveness as a tool for manipulation of men). Jeroen was well and thoroughly seduced by WWWWWW and her attractive younger sister. As the several weeks went by, all work for G&SR and for e-gold by Charles, WWWWWW (her sister and brother) and Jeroen ceased and increasing time at the office was spent in discussions where the principal topic was the foolish and destructive way that Douglas Jackson was mis-managing G&SR and e-gold, in conjunction with Reid Jackson, who had been appointed Managing Director in July 2000 (at the initial recommendation of Charles, who late regretted his recommendation when it became apparent that Reid would require effective management practices and demonstrable productivity from Charles and other senior G&SR management). Two other executive employees approached their immediate supervisor, one of them in tears, expressing distress at hearing the mocking and unproductive chatter all day long as Charles Evans, WWWWWW and KKKKKKK KKKK would take turns entertaining Jeroen with criticism of the Jacksons and flattery of Jeroen. [At this time it was not known that Charles Evans, SSSSSS BBBBBB- EEEEE, WWWWWW KKKK and KKKKKKK KKKK had been working at G&SR expense for months to form a company to undertake issuance of digital securities - a project which Charles had been assigned to perform for G&SR but on which he was making no inroads]. The cabal was also actively working to create antagonism of the various independent market makers against G&SR, taking the stance that the foolish and authoritarian Jacksons were pursuing policies that were inimical to G&SR's most important customers. It was decided that Charles, SSSSSS, and the KKKKs would have to be let go. It had become clear that a departure was planned by this group of employees and management had decided to confront them with its knowledge of this plan. Unfortunately, G&SR was due to host an international conference in October and it was felt that the conference would have to be cancelled if the staff reorganization was done in the days immediately preceding the conference. The week before the conference, Charles announced that he was leaving for several days to visit family, even though a significant amount of planning remained to be completed for the conference. We later discovered that both Charles and SSSSSS lied to Doug and to Reid about Charles' whereabouts and Charles had, in fact, gone to London for some sort of business that he has never disclosed the purpose of to us. The IRSII conference was the climax of Charles' and company's pernicious campaign against G&SR. They took pains to meet in secret with all major groups who attended the conference without the approval or discussion with the Directors. Several groups approached the Directors after such meetings in shocked dismay and strongly recommended immediate dismissal of the people involved in this cabal. One ally that did not discuss his meetings with Charles was Ian. Doug became concerned that the campaign to seduce Jeroen and present Douglas and Reid in the worst light might have had an effect on Ian. The Saturday morning after the IRSII conference Doug had breakfast with Ian and Rachel hoping they would volunteer to inform him of the activities they had observed. Doug was expecting that Ian would reiterate his recommendation for dismissal of Charles. To his dismay, Doug discovered that every aspect of his ability to communicate with Ian had changed. Rather than recognize the game that Charles had been playing, he joined in the criticism. Doug was concerned that if Ian could demonstrate what he regarded as severe lapse of judgment that Doug had better reassess his relationship and assay the degree of damage. The following day Doug sent an email informing Ian of the dismissals of Charles Evans and other employees and indicating that pending a restoration of trust that we would expect the sort of formalization of our business relationships that is customary. For the first time ever, we learned over the next few weeks that Ian no longer regarded Doug Jackson and Barry Downey as shareholders. Ian never again initiated any calls to Doug or Barry. Ian ceased to respond to email. When Barry, Reid and Doug finally called Ian by conference call Ian said that we had breached our agreement and forfeited ownership rights in Systemics. Ian's claims a) Douglas stopped sending money to sustain Systemics b) Douglas made it clear that he was unhappy with the value he was getting from Systemics and thereby communicated that Ian should not ask for any more money c) Douglas is a harsh bully that does not listen to other people's opinions d) Ian had been estranged from Doug for a long time but Doug was too insensitive to even recognize it e) Douglas had indicated plans to have Systemics develop the next generation e-gold system but later decided to develop the system in-house f) Douglas had influenced Systemics to abandon the Pumphouse project, which was a bad move because it was interfering with the marketability of the Ricardian/WebFunds system Our position on each of these points: Did Douglas stop sending money to Systemics, or signal that no more money would be forthcoming if asked? The simple answer is no. All along, Douglas has sent money even when his personal solvency and the viability of his more proximal companies was threatened. On March 15 Ian wrote: ""Date: Thu, 16 Mar 2000 15:25:53 -0400 (GMT-04:00) Subject: metal junction From: iang@hushmail.com To: "Douglas Jackson" Doug, any joy in shaking out some metal for over here? 101615... Did the "foreign" lump come through? You mentioned that half was in and half was coming from offshore?" In response, Doug sent USD 50,000 worth of e-gold on 3/21/2000. On 5/22/2000 Ian wrote: "Subject: Ian Date: Mon, 22 May 2000 10:44:01 -0400 From: Douglas Jackson Organization: G&SR / OmniPay 1. any chance of some dosh? 101615 is looking dry. $50k would be nice, but whatever is burning a whole in your pocket?" Same day, Douglas clicked USD 50,000 worth. CoLo initiative Throughout summer 2000, Ian did not ask for any more money except for a commitment to participate in a CoLo project. Douglas indicated repeatedly that, although G&SR was not out of the woods yet financially, it could be relied on to contribute as much as USD100,000 to this project. On two occasions, Douglas asked why Ian was not asking for more money for Systemics. On the latter occasion, he asked if Systemics had a new customer or investor. In the discussion that ensued , Ian was evasive. Douglas felt some concern that Ian was not disclosing information that would be appropriate to discuss with a minority shareholder who was also the only reliable and longstanding customer. The discussion modulated into the need to eventually formalize the ownership issue. For the first time, Ian indicated that even though the only agreement had been a 25:30:35 split, he was thinking it would be more appropriate for Douglas/Barry interests to own 20% combined. Doug did not push for a resolution of the discussion because he figured: a) there would eventually be enough value to make everybody wealthy b) Doug/Barry had a lot of other enterprises that were starting to show their economic potential c) Ongoing development issues were the more critical subjects d) Ian was a trustworthy person So Doug and Barry allowed the ownership topic to go without formal resolution of any change to the original agreement. As time went by it was not obvious that Ian had stopped asking for money. For the two to three months immediately following the payment of USD 50, 000, we were talking about sending USD 100,000 for the CoLo project, which seemed imminent. The Colo planning went on for a long time (see below) and the absence of sending money (or anything else) is not as perceptible as an active act. Longstanding estrangement This was certainly not evident. Ian had Doug go to the Digital Money conference in the spring and the EFCE conference in the summer. He introduced Doug to his friend at the Central Bank. He had Doug go to Puerto Rico for a presentation relating to the CoLo project in September (where they roomed together). He sent Jeroen for R&R in our shop, as was the custom for several years with the young programmers who would periodically get island fever. He came to the IRSII conference. We exchanged the normal frequency of email with the usual informality and cordial tone as ever. [Until October]. Our position is we have an agreement giving us 20-25% of Systemics in return for sustaining the Systemics enterprise throughout a lengthy development process, paying a purposefully excessive license cost so as to finance the company. Now, as there is finally a product that may allow our investment of over USD 350,000 to have a chance of generating a return, Ian has unilaterally decided that (without informing us at the time, or any time until December) that we forfeited our ownership by not sending money. Moreover, Ian also is expressing reticence to even allow us to proceed with the projects that have been the well discussed goal of this lengthy investment, that is: a) continuation of exclusive right to issue metal denominated currencies (now that the market server exists, which is the whole point of DigiGold's niche as a financial currency) b) ability to set up an entity for issuing digital bearer securities, even though we have kept Ian informed at every step of the lengthy, laborious and expensive process of establishing suitable entities for the governance of such securities. Our Questions. We need to know Ian's position in response to the above, and to the following: 1. Has Systemics/Ian agreed to sell any ownership interests in the enterprise to any other person or entity? If so, does this sale prevent your honoring our agreement? 2. Has Systemics/Ian agreed to sell or grant any license or licenses to any other person? Is so, what is the nature of the license or licences? 3. Are you working on other projects that would prevent our obtaining a renewal of the exclusive license for issuing the DigiGold family of metal backed currencies? 4. Are you able to sell us a digital bearer license (non-exclusive) and enter into a contract to serve as the Operator for Digital Bearer (the entity issuing 100% backed CDRs and other exchange instruments in bearer form)? I would appreciate your attention to these issues as soon as possible. You indicated that you would be able to provide your response within a week. Do you still think that is possible? Barry 410 321 9351 410 925 2746 cell 410 489 9794 home office