-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FDr/E2B8qyJ0E4SoaqwgJmLt6Fr6J+ZOZ8CislBazf4elWdYY9lyqCqR5zev9PzY NGzeXP0k153S3KzTE8Ujbg== 0001290785-05-000009.txt : 20050815 0001290785-05-000009.hdr.sgml : 20050815 20050815144727 ACCESSION NUMBER: 0001290785-05-000009 CONFORMED SUBMISSION TYPE: RW PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 20050815 DATE AS OF CHANGE: 20050815 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MyZipSoft, Inc. CENTRAL INDEX KEY: 0001290785 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 562335301 STATE OF INCORPORATION: FL FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: RW SEC ACT: SEC FILE NUMBER: 000-50783 FILM NUMBER: 051025756 BUSINESS ADDRESS: STREET 1: 100 VILLAGE SQUARE CROSSING STREET 2: SUITE 202 CITY: PALM BEACH GARDENS STATE: FL ZIP: 33410 BUSINESS PHONE: 561-207-6395 MAIL ADDRESS: STREET 1: 100 VILLAGE SQUARE CROSSING STREET 2: SUITE 202 CITY: PALM BEACH GARDENS STATE: FL ZIP: 33410 FORMER COMPANY: FORMER CONFORMED NAME: Freedom 4 Wireless, Inc. DATE OF NAME CHANGE: 20040518 RW 1 myzip10rw.txt WITHDRAWAL OF MYZIPSOFT, INC FORM 10-SB12G VIA EDGAR August 15, 2005 Mr. John Reynolds, Assistant Director Office of Emerging Growth Companies United States Securities and Exchange Commission Mail Stop 3561 Washington, D.C. 20549 RE: MyZipSoft, Inc. Registration Statement on Form 10-SB12G File Number: 000-50783 Filed: July 8, 2005 Dear Mr. Reynolds: Please let this letter confirm our withdrawal of our Form 10SB12G filed on July 8, 2005. Attached is the requested preliminary legal analaysis made pursuant to your correspondence dated July 18, 2005. Sincerely, /s/ Barney A. Richmond ________________ Barney A. Richmond President MyZipSoft, Inc. EX-1 2 response1.txt CORRESPONDENCE TO SEC LETTER DATED JULY 18, 2005 Barney A. Richmond 100 Village Square Crossing Suite 202 Palm Beach Gardens, FL 33410-4531 561.207.6395 Telephone 561.207.6399 Facsimile 561.262.5158 Cellular August 15, 2005 Via SEC EDGAR FILING SYSTEM & Via United States Postal First Class Certified Mail No. 70041160000529735608 RETURN RECEIPT REQUESTED Mr. John Reynolds, Assistant Director Office of Emerging Growth Companies United States Securities & Exchange Commission Mail Stop 3561 Washington, DC 20549 Re: eCom eCom.com, Inc. SEC Commission File No. 000-23617 United States Southern District of Florida Bankruptcy Court In Re: Case No. 04-35435-BKC-SHF Pro Card Corporation Registration Statement of Form 10SB12G File Number 000-51415 Filed July 7, 2005 AAB National Company, Inc. Registration Statement of Form 10SB12G File Number 000-51416 Filed July 7, 2005 A Classified Ad, Inc. Registration Statement of Form 10SB12G File Number 000-51417 Filed July 7, 2005 A Super Deal.com, Inc. Registration Statement of Form 10SB12G File Number 000-51419 Filed July 7, 2005 Swap and Shop.net Corp Registration Statement of Form 10SB12G File Number 000-51421 Filed July 7, 2005 eSecureSoft Company Registration Statement of Form 10SB12G File Number 000-51422 Filed July 7, 2005 USAS Digital, Inc. Registration Statement of Form 10SB12G File Number 000-51424 Filed July 8, 2005 MyZipSoft, Inc. Registration Statement of Form 10SB12G File Number 000-50783 Filed July 8, 2005 Dear Mr. Reynolds: I want to thank you and Mr. Jay Ingram for allowing the above-referenced companies the opportunity to discuss with bankruptcy and securities counsel your letter requesting a legal analysis supporting the issuance of shares in the above-referenced companies. It is my understanding from Steve Cunningham Esq's telephone discussion with Mr. Michael K. Wolensky, Esq. last Friday afternoon (who I understand had spoken to the Atlanta and Washington D.C. SEC offices on my/our behalf), please let this letter confirm our withdrawal of these Form 10SB filings. Over and above these Form 10SB withdrawal's, we were asked to forward an analysis by way of this reply to your correspondence dated July 18, 2005, which was sent in response to the Form 10-SB filings on behalf of the above-referenced companies. Please consider this as a preliminary analysis as we would like to have Mr. Wolensky's expertise in reviewing further, which will be under separate cover. In opening, please bear in mind that the events involving eComeCom.com, Inc. ("eCom") and its above referenced subsidiaries leading up to these filings which certainly has not been a simple issue for us to deal with as the creditors and shareholders of these companies were forced into this situation. These Form 10SB filings were an effort by us to be totally transparent with the SEC and with the United States Southern District of Florida Bankruptcy Court. Notwithstanding these points, we feel it is of paramount importance to provide you with the background factual information, which we felt supported a legal basis of the stock issuances, which have been questioned under Section 5 of the Securities Act of 1933, as amended. In case you did not know, eCom is currently in Bankruptcy Proceedings under Title 11, Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court in the Southern District of Florida (In Re: eComeCom.com, Inc. Case No. 04-35435-BKC-SHF). The SEC's Washington and Miami offices have been notified no fewer than five (5) times about these Bankruptcy proceedings and yet have not elected to comment or enter an appearance in the proceedings. Your participation would always be greatly appreciated and welcomed by us as we do not want to do anything but stay within your agency's guidelines. It is our respectful opinion that the above- referenced spin off companies are included as part of these bankruptcy proceedings. This November 29, 2004 Chapter 11 filing was an Involuntary Petition filing brought by several creditors. American Capital Holdings, Inc. was one of those creditors. I am the Chairman of American Capital and I am also an individual petitioning creditor. There are several other petitioning creditors as well. This case languished for several months due to the fact the then Chairman/CEO and controlling shareholder of eCom, Mr. David Panaia, was ill and his attorneys asked for three (3) separate extensions. Naturally, after being informed of Mr. Panaia's sickness, all the petitioning creditors accepted the Debtor's requested extensions. Unfortunately, on March 20, 2005 Mr. Panaia passed away from illness complications. A Status Conference for the case was set for May 16, 2005 by the Honorable Steven H. Friedman in which an Order was entered by the United States Bankruptcy Court adjudicating eCom bankrupt under Title 11 Chapter 11 of the United States Bankruptcy Code based on the aforementioned involuntary petition. Inclusive in this Order were instructions from the Honorable Judge Steven Friedman for eCom to obtain legal counsel by June 5, 2005 with an additional status conference being set on June 6, 2005. On June 6, 2005, Judge Friedman entered an Order for the retention of the law firm of Kluger, Peretz, Kaplan & Berlin, P.L. to become eCom's legal counsel. Judge Friedman also entered an Order appointing the undersigned, Barney A. Richmond, as eCom's President and CEO. Additionally, a preliminary Order was entered whereby American Capital provided $100,000 Debtor-In-Possession Convertible Note Financing to eCom, with a July 25, 2005 final hearing date on the Debtor-In-Possession Financing. On July 25, 2005 an Order was entered approving the aforementioned $100,000 Debtor-In-Possession Financing by American Capital Holdings, Inc. to the Debtor, eCom. During this hearing on July 25, 2005, several items were shown by the Debtor's counsel to Judge Friedman, which are incorporated into the court transcript record, including eight (8) February 25, 2005 legal opinions by licensed Florida Attorney James Volpi, Esq. which were addressed to eCom's stock transfer agent, Florida Atlantic Stock Transfer Company ("FAST"). Each of these letters advised FAST the following specific legal opinion language regarding each of the above referenced spin-off companies. The spin-off company letter from which we are quoting below is to USAS Digital, Inc. For your review, copies of these February 23, 2005 eight (8) separate legal opinions (which were obtained by former CEO David Panaia) are appended herein as Composite Exhibit No. 1. JAMES VOLPI, ESQ. LEGAL OPINION "On December 1, 2003, the Board of Directors of eCom eCom.com, Inc. approved the spin-off of one of its subsidiaries, USAS Digital Inc. (USASD) as a separate company. They voted to issue their shareholders one share of USASD for every one share of eCom owned with a record date to be announced. No fractional shares will be issued. The decision to spin-off USASD was primarily due to eCom changing its business plan to allow the management of the subsidiary to focus on its primary market which is dissimilar from its other markets. USASD's core business was distribution of digital compression software products and it was the Board's view that USASD's growth has been constrained due to this company being so dissimilar. Pursuant to Staff Legal Bulletin 4 issued September 16, 1997, the SEC has addressed the Division of Corporation Finance's views regarding whether the registration requirements of Section 5 of the Securities Act of 1933 applies to spin-offs. The Division has taken the view that the subsidiary does not have to register a spin-off under the Securities Act when it meets certain requirements. 1. The parent company's shareholders do not provide consideration for the spun-off shares; 2. The spin-off is pro-rata to the parent company's shareholders.; 3. The parent company provides adequate information about the spin-off and the subsidiary to its shareholders and to the trading markets; 4 The parent company has a valid business purpose for the spin-off; 5. If the parent company spins-off "restricted securities", it has held those securities for at least two years. Based on my review of the transaction and ancillary documents and the representations of management of eCom eCom.com, Inc., I am of the opinion that the spin-off of USASD shares to shareholders of eCom meets the above requirements and does not have to register the spin-off company under the Securities Act. As a result, the common shares to be issued pursuant to the spin-off company may be issued without restriction except for affiliates of eCom furnished you under separate cover. In the issuing opinion, I am aware that FAST, company shareholders and broker-dealers may rely upon this opinion, and I hereby give my permission and consent to rely and exhibit this opinion to those concerned. Very truly yours, James C. Volpi, Esq." The July 25, 2005 court transcript record reflects eCom's legal counsel's oral description relating to of all of the aforementioned Form 10SBs, 10Qs, tax returns, etc. on the above-referenced companies, which have been filed with the appropriate agencies, including the SEC, IRS, etc. Another noteworthy point, according to the court matrix, as well as the June 6, 2005 and July 25, 2005 court transcripts, is that the attorneys involved in this case informed Judge Friedman that your agency was noticed in these hearings. It is my understanding from the court transcripts that both the Washington and Miami offices of the SEC were sent Notices of these hearings and that Michael Seese, Esq. and Ronald B. Kaniuk, Esq. placed telephone calls to your offices. At the conclusion of the July 25, 2005 hearing, Judge Friedman secured a copy of a letter from Gordon Robinson of your SEC Atlanta offices, which I understand was also placed in the court file. However, we sincerely appreciate your current comments and we have noted your request for a substantive legal analysis. Following in this letter, we wish to address the matter of our legal basis for effecting the distributions of shares (the "Distributions") without registration in connection with the spin-offs of the above-referenced companies (the "Companies") to the shareholders of eCom. As noted below, we are discussing our reasoning of the legal underpinnings for the distributions separately under both our understanding of federal securities laws and federal bankruptcy laws. I. BACKGROUND INFORMATION The Companies are wholly-owned subsidiaries of eCom, all of which had varying business plans and assets. Due to eCom's primary business (e-commerce) being so dissimilar from that of its subsidiaries, eCom decided to spin off its subsidiaries into independent companies in the belief that independent companies would be better able to obtain funding and develop their separate business plans. Consequently, on December 1, 2003, the Board of Directors of eCom unanimously approved to the spin-off of eCom's ten operating subsidiary companies. The Date of Record for the first spin-off, USA SportsNet, Inc., Cusip No. 02503V 10 9/SEC CIK No. 0001288010) was January 5, 2004, and the shares were issued on January 6, 2004. The Date of Record for the second spin-off, MyZipSoft, Inc. (Standard & Poor's Cusip No. 628703 10 0/SEC CIK No. 0001290785) was February 23, 2004, and the shares of MyZipSoft were distributed to its shareholders on June 2, 2005. On March 2, 2004, the Board of Directors of eCom approved the spin-off of the remaining eight companies in which the Board of Directors voted to issue to their shareholders one share of the company for every one share of eCom owned, with a record date to be announced, pursuant to the SEC Staff Legal Bulletin No. 4. On March 29, 2004, eCom' then Chairman and CEO David Panaia prepared and issued a Press Release announcing the appointment of Barney A. Richmond as President of eCom. Paragraph two of this release stated the following: "The plan to spin-off eCom's wholly-owned subsidiaries has been completed and the Company is now in the process of acquiring certain businesses for each spin-off. To date, the Company has accomplished two (2) acquisitions and has four (4) more under agreement. When announced, eCom shareholders as of the Date of Payment (distribution of stock) for each spin-off will receive new shares in that company." On June 4, 2004, a corporate resolution was proposed, passed and signed by David Panaia Chairman/Secretary/CEO, Richard C. Turner Director and the then at the time Treasurer, Barney A. Richmond, Director and President. Based on Mr. Richmond's past restructuring experience, the new Board of Directors re-adopted the December 1, 2003 spin-off plan, pursuant to SEC Staff Legal Bulletin No.4, for the remaining subsidiaries of eCom. The plan was to create individual public corporations, and take whatever actions necessary to complete the process of enhancing shareholder value, including financing acquisitions and/or mergers. The individual companies are listed below: USA Performance Products, Inc. FL Corp. No. P98000006586 Fed. ID. 65-0812050 eSecureSoft Company FL Corp. No. P03000138385 Fed. ID. 20-1068608 USAS Digital, Inc. FL Corp. No. P03000147667 Fed. ID. 20-1069232 Pro Card Corporation FL Corp. No. P04000015631 Fed. ID. 20-1442373 AAB National Company FL Corp. No. P04000019818 Fed. ID. 20-1442771 A Classified Ad, Inc. FL Corp. No. P04000038403 Fed. ID. 20-1447963 A Super Deal.com, Inc. FL Corp. No. P04000040174 Fed. ID. 20-1449410 Swap and Shop.net Corp. FL Corp. No. P04000040176 Fed. ID. 20-1449332 The motion in the above-described June 4, 2004 Board Resolution included instructions for the distribution of stock by eCom's Transfer Agent, Florida Atlantic Stock Transfer (FAST) to the eCom shareholders when the share certificates were properly exercised and costs relating to the issuance of these shares were paid in full. Notwithstanding, contrary to that which Board members Richard Turner and Barney A. Richmond had been previously advised by Chairman Panaia, eCom was not able to pay FAST the amounts required to send out the stock certificates to the shareholders, and accordingly, the shares were not issued as stated. Because of the aforementioned financial difficulties, eCom's telephone lines were disconnected. eCom's shareholders then contacted American Capital Holdings, Inc. in an effort to obtain information on the status of the situation. Since late June 2004, American Capital Holdings, Inc. has been inundated with hundreds, perhaps thousands, of telephone calls from eCom shareholders, requesting delivery of the promised spin-off shares. Numerous shareholders made demands to be sent their promised shares, many of them threatening legal action against eCom and all of the above described spin-off entities, which would have created substantial contingent liabilities for eCom. Subsequent to eCom's December 3, 2003 public press release regarding the spin- off of USA SportsNet, the management of American Capital discovered that eCom owed past due balances to its accountants, Wieseneck & Andres, P.A. As required by the Sarbanes-Oxley Act, auditors cannot remain independent and simultaneously be a creditor. This undisclosed liability cost American Capital an additional $75,000, as American Capital was forced to pay the auditing firm in order to complete its own audits, since American Capital was an early 2004 spin-off of eCom. Additionally, American Capital has been forced to continue this financial assistance to bring all of the spin-off companies current with their SEC qualified accountants and other creditors so that eCom and American Capital could continue with operations. In order to comply with Generally Accepted Accounting Principles ("GAAP") with respect to American Capital's audits, Mr. Panaia had previously agreed to sign promissory notes for the loans provided by American Capital as soon as all parties could determine the exact amounts of the then forthcoming invoices (the amounts of which were unknown until received) by the registered independent accounting firm, Wieseneck & Andres, P.A. When these accounting invoices and other expense invoices were received in early August 2004, Mr. Panaia would not return telephone calls and would not sign accounting confirmation requests from American Capital accountants, nor would he sign the necessary promissory notes. American Capital made numerous attempts (e.g., letter Dated September 29, 2004, Certificate of Mailing No. 2004188) requesting to have the promissory notes signed by Mr. Panaia, which were not successful. On November 16, 2004, an additional letter was sent to David Panaia (Certificate of Mailing No. 2004201) requesting the signature of the promissory notes and the additional information needed for the accountants to provide the necessary American Capital audits needed for its ongoing SEC filings. Mr. Panaia continually ignored the requests for confirmation letters and further information needed to complete the financial audits. Due to the above-described dilemma caused as a direct result of Mr. Panaia's refusal to address the monies advanced by American Capital to eCom, on November 22, 2004, Barney A. Richmond resigned as an Officer and Director of eCom. Having no other options, on November 29, 2004, an involuntary petition was filed against eCom. in the United States Bankruptcy Court for the Southern District of Florida (In Re: Case No. 04-34535 BKC- SHF) under Title 11, Chapter 11 of the United States Bankruptcy Code by petitioning creditors, American Capital Holdings, Inc., Richard C. Turner, Barney A. Richmond, and ACHI, Inc. The Bankruptcy proceedings were initiated in an effort to create and implement a viable plan for 100% reimbursement of costs incurred by American Capital Holdings, Inc., the petitioning creditors, and all other creditors/vendors who had not been paid, as well as to restore shareholder value lost by approximately 6,000 shareholders. The aforementioned creditors are owed in excess of $1 million dollars and lost aggregate shareholder value is in the many millions of dollars. In an effort of good faith and in order to avoid additional bankruptcy claims from shareholders, which could number in the thousands, American Capital's management undertook the responsibility and the costs of issuing the spin-off shares to eCom shareholders. On March 20, 2005, then Chairman/CEO and majority shareholder of eCom, David J. Panaia, died from health complications. Richard C. Turner assumed the role of CEO in the interim, pending bankruptcy court approval of an alternate person to assume that role. Due to American Capital's unique twofold role as the petitioning creditor and the entity acting on behalf of the debtor, eCom, and in light of American Capital's status as a public company, it was clearly in American Capital's best interests to achieve full regulatory compliance with regard to the spin-off companies. This endeavor included the preparation of (a) thirty 10-QSB's; (b); ten 10- KSB's; (c) ten Form 10-SB's Registration Statements; (d) twenty-six State and Federal Tax Returns; (e) ten applications for the required SEC EDGAR CIK Numbers; (f) and ten of the Transfer Agent- required Standard & Poor's Cusip Numbers. Additionally, there has been enormous administrative time and effort expended to bring all of the spin-off companies current with respect to public company reporting requirements, including those mandated by Sarbanes-Oxley. American Capital's management and the petitioning creditors accomplished these many tasks in a concerted effort to eliminate any further liabilities to eCom shareholders and it's creditors. Pursuant to SEC Staff Legal Bulletin No.4 and the Legal Opinion of James Volpi, Esq., the share certificates of the above referenced spin-off companies were issued in the utmost good faith, and sent via certified mail on June 2, 2005 to the eCom shareholders of record as of May 27, 2005. II. LEGAL ANALYSIS A. POSITION OF THE COMPANY UNDER THE FEDERAL SECURITIES LAWS 1. SEC Staff Legal Bulletin No. 4 It is the Company's position (as noted above) that the spin-off distributions of stock (the "Distribution") were in material compliance with Staff Legal Bulletin No. 4 (Sept 1997), which states the Division of Corporation Finance's views regarding whether Section 5 of the Securities Act of 1933 applies to spin-offs and also addresses related matters, including how securities received in spin-offs may be resold under the Securities Act. Bulletin No. 4 and a series of no-action letters involving spin-offs confirm that registration of the shares being distributed in the spin-off is not required where: (1) the parent shareholders do not provide consideration for the spun-off shares; (2) the spin-off is pro rata to the parent shareholders; (3) the parent provides adequate information about the spin-off and the spun-off company to its shareholders and to the trading markets; (4) the parent has a valid business purpose for the spin-off; and (5) the spun-off shares are not "restricted securities" or if the parent spins-off "restricted securities," it has held those securities for at least two years (unless it formed the subsidiary being spun-off). See Bulletin No. 4; Trelleborg AB (available Apr. 26, 1999) ("Trelleborg"); AB Electrolux (available Apr. 28, 1997) ("Electrolux"); Hanson II (available Jan. 22, 1997) ("Hanson II"); Ralcorp Holdings, Inc. (available Dec. 27, 1996) ("Ralcorp"); E.W. Scripps (available July 3, 1996) ("Scripps"); Envoy Corporation (available Feb. 16, 1995) ("Envoy"); English China Clays (available Sept. 1, 1994) ("English China Clays"); AMAX Inc. (available Aug. 27, 1993) ("AMAX"); Grasso Corporation (available Aug. 20, 1993) ("Grasso"); Marriott Corporation (available Mar. 19, 1993) ("Marriott"); Asea AB (available Apr. 25, 1991) ("Asea"); BAT Industries plc (available July 5, 1990) ("B.A.T"); and Summit Energy (available Mar. 29, 1988) ("Summit Energy"). In the Form 10-SBs which gave rise to your letter to us, we stated the spin-off transactions were effectuated pursuant to SEC Staff Legal Bulletin No. 4. This conclusion was based on the legal opinion (the "Opinion") we received from our legal counsel at the time, James C. Volpi, Esq. We, in good faith, in reliance upon the Opinion, proceeded with the spin-off transactions and the Distributions, having believed we had satisfied the criteria in the five requirements described in Bulletin No. 4, as discussed below. It remains our position that those requirements have been satisfied in all material respects. Bulletin No. 4 Requirement 1 - The parent company's shareholders do not provide consideration for the spun-off shares The shares of the spin-off companies were issued to shareholders of eCom at the expense of eCom, with no consideration from the eCom shareholders. Those shareholders received the spin-off shares without consideration of any kind. Further, each spin-off is not a disposition of securities for value and therefore is not a "sale" under Section 2(3) of the Securities Act, as discussed in depth below. Bulletin No. 4 Requirement 2 - The spin-off is pro-rata to the parent company's shareholders Each Distribution was pro rata to eCom shareholders of record as of the Record Date, May 27, 2005. Each shareholder of record on that date received one share of the Company's common stock for each share of common stock of eCom. Following each Distribution, the distributed shares were owned directly and in the same proportion by the same eCom shareholders who owned the common stock of eCom on the Record Date. Consequently, as a result of each spin-off, the Company's shareholders have the same proportionate interest as they did immediately prior to each Distribution. That the record date of a spin-off is the appropriate date to determine whether the spin-off is pro rata is confirmed in McKesson Corporation (available Sept. 23, 1994) ("McKesson"), and Ramada Incorporated (available May 3, 1989) ("Ramada"), each involving a parent that proposed to spin-off a subsidiary to its shareholders in connection with the acquisition of the parent by a third-party through a tender offer and merger. In both cases, the Staff took no-action positions even where the consummation of the tender offer and merger involving the parent occurred between the record date and distribution date of the spin-off. Implicit in these no-action positions is the view that the record date of the spin-off is the proper date for determining whether a spin-off is pro rata. Changes in share ownership (or the business and assets) of the parent in the period between the record and distribution dates of the spin-off as a result of the concurrent transactions were not relevant because all the shareholders on the record date were treated equally. The eCom situation is actually more favorable than either McKesson or Ramada where the tender offer and related merger closed before the distribution date of the spin-off. In the eCom situation, both the Record Date and the Distribution Date will have occurred prior to the completion of the reorganization of eCom under the auspices of the United States Bankruptcy Court. The eCom situation falls within the ambit of McKesson and Ramada and presents fewer concerns relating to the requirement that each Distribution be pro rata than either of the situations in McKesson or Ramada. Bulletin No. 4 Requirement 3 - The parent company provides adequate information about the spin-off and the subsidiary to its shareholders and to the trading market. eCom issued numerous Press Releases, most notably on December 3, 2003 and March 29, 2004, regarding the spin-off of the Company. This information was also posted on its website, www.ecomecom.net. eCom also filed multiple 8-Ks (SEC File no. 000-23617) with the SEC providing public information regarding the spin-off transactions. The March 2, 2004 8-K recites the appropriate Board Approval for the spin-off. The June 4, 2004 8-K again clarifies the spin-off. The 8-K filed May 31, 2005 outlines the March 23, 2005 SEC CIK acceptance filings. Further, 10-QSB and 10KSB filings, which were filed January 22, 2004, April 14, 2004, September 21, 2004, October 25, 2004, and June 6, 2005 continue to address the business purpose of the spin-off. With respect to ongoing reporting, the Companies will become subject to the reporting requirements under the Exchange Act and will be obligated to file periodic reports with the Commission accordingly. Consequently, it is our opinion that the information regarding the Distribution and the Company provided to the eCom shareholders satisfies the adequate information requirement of Bulletin No. 4 and the Staff's no-action letters issued in connection therewith. Additionally, the Distribution shareholders will receive a summary of all material events in the Disclosure Statement, Plan of Reorganization, and any other disclosures that would be contained in an information statement. Bulletin No. 4 Requirement 4 - The parent company has a valid business purpose for the spin-off The Distributions are distinguishable from the situations presented in SEC v. Datronics Engineers, Inc., 490 F.2d 250 (4th Cir. 1973) ("Datronics"), and SEC v. Harwyn Industries Corp., 326 F. Supp. 943 (S.D.N.Y. 1971) ("Harwyn"), in which corporations used spin-offs without any valid business purpose to create public markets in their securities without registration of the shares. In both Datronics and Harwyn, the spin-offs were accomplished without dissemination of adequate information to either the marketplace or the shareholder-recipients. The courts liberally construed the words "for value" under Section 2(3) in Datronics and Harwyn in order to prevent violations of the "spirit and purpose of the registration requirements." Harwyn, 326 F. Supp. at 954. In the Datronics case, the court was concerned that, contrary to the purposes of the Securities Act, a public trading market would develop in the securities of the newly-public company for which no public information was yet available. The policy concerns that led to the decisions in Datronics and Harwyn and the position of the Commission expressed in Securities Act Release No. 4982 (July 2, 1969) are not present in the Distributions. The Distributions were motivated by valid business purposes rather than by a desire to evade the registration requirements of the securities laws. Further, the Companies have commenced quarterly and annual filings with the Commission, thereby providing public information before any trading market should develop. The business purposes of the spin-offs is consistent with at least two of the examples of valid business purpose given in the Staff Legal Bulletin: (I) allowing management of each business to focus solely on that business and (ii) enhancing access to financing by allowing the financial community to focus separately on each business. This conclusion is also supported in the no-action letter Re: Sanpaolo IMI S.p.A. ("Sanpaolo IMI") (available October 27, 1999). As stated in eCom's February 28, 2005 Form 10-QSB: "Pursuant to SEC Staff Legal Bulletin No. 4, eCom decided to spin off its subsidiaries into independent companies in the belief that independent companies, each with a distinct business, would be better able to obtain necessary funding and develop their business plans. This belief was based in part on eCom's experience with potential business partners which sought involvement with only one of eCom's subsidiaries, rather than involvement with the multi-faceted eCom." eCom has pursued various courses of business in its tenure as a publicly traded entity, from sports memorabilia to data compression technology. The Board of Directors determined that, whereas the concepts and assets behind the Companies were of value, the operations and business plan of the subsidiaries fell outside of the eCom's long-term strategic plan of concentrating on e-commerce activities, and it would be in the best interests of eCom and its shareholders to spin off each Company's assets into separate entities whereby they could obtain financing. Moreover, each Company did in fact receive assets and subsequent cash infusion as a direct, positive result of the spin-off transaction. Bulletin No. 4 Requirement 5 - If the parent company spins-off "restricted securities," it has held those securities for at least two years. eCom had owned the assets spun off through the Distributions since May 31, 2000; thus the two-year holding period was satisfied. Further, since the "parent" formed the "subsidiary" being spun-off, rather than acquiring the business from a third-party, Requirement No. 5 is not applicable. In the case of Digital Commerce Corporation, to which the Commission granted a no-action request in a letter dated June 21, 2000, Digital Commerce Corporation confirmed that Requirement No. 5 is not applicable if the parent company formed the subsidiary being spun-off, as it did with its spin-off of Power Trust. 2. "No Sale" of a Security However, even should the Commission decide that the Distributions do not fall within the four corners of Bulletin 4, the Distributions still qualify for the "no sale" rule under section 2(3) of the Securities Act of 1933, as amended, and therefore did not violate the registration requirements of Section 5. Section 2(3) provides: "The issue or transfer of a right or privilege, when originally issued or transferred with a security, giving the holder of such security the right to convert such security into another security of the same issuer or of another person, or giving a right to subscribe to another security of the same issuer or of another person, which right cannot be exercised until some future date, shall not be deemed to be an offer or sale of such other security." It is the position of eCom that none of the Distributions constitutes an "offer to sell" or "sale" of securities within the meaning of Section 2(a)(3) of the Securities Act and, consequently, that registration of the Distribution transactions is not required. The term "sale" is defined in Section 2(3) as a disposition for "value." The Distributions by eCom to its stockholders did not constitute dispositions of securities for value. The eCom stockholders merely received, by way of the Distributions, that which they already indirectly owned, i.e., the assets of eCom. Moreover, the Distributions are unlike the contrived spin-offs that have been deemed dispositions for "value" under Section 2(3). In SEC v. Datronics Engineers, Inc., 490 F.2d 250 (4th Cir. 1973), cert. denied, 416 U.S. 937 (1974)("Datronics"), and SEC v. Harwyn Industries Corp., 326 F. Supp. 943 (S.D.N.Y. 1971)("Harwyn"), corporations used spin-offs without any valid business purpose to create public markets in their securities without registration of the shares. In both Datronics and Harwin, the creation of a trading market in the stock of a company for which no information was publicly available was held to constitute "value" as contemplated by Section 2(3). Further, the spin-off transactions in Datronics and Harwyn were held to lack any valid business purpose. In contrast, adequate public information about eCom is available by virtue of eCom being a reporting company under the Securities Exchange Act of 1934 (the "Exchange Act"). Additionally, as noted above, each Distribution was motivated by valid business purposes rather than by a desire to evade the registration requirements of the securities laws. Moreover, no trading market will develop in the common stock of any Company until such time as an active business may be placed into such Company, by way of development of such business from capital which may be invested in the Company or by way of an acquisition of a business by the Company for cash or through an exchange of securities. At that time and at that time only would the Company undertake the appropriate filings (e.g., a 15c-2(11) filing) to become a publicly trading entity. Furthermore, the Division has concluded in a series of prior no-action letters that it would not recommend enforcement action in spin-offs accomplished without registration if: (I) adequate information concerning the business and financial condition of each entity was available to the public or was to be provided prior to the distribution; and (ii) the distributed securities were registered under the Exchange Act either prior to, or shortly after, the distribution. St. George Minerals, Inc. (avail. June 12, 1990); Silver King Mines, Inc. and Pacific Silver Corporation (avail. January 11, 1989); Eaton Corporation (avail. August 8, 1983); Beneficial Corporation (avail. September 6, 1982); Aaminex Gold Corp. (avail. June 15, 1981); Englehard Minerals & Gold Corp. (avail. May 8, 1981); Metro-Goldwyn, Inc. (avail. April 7, 1980). As discussed above, adequate information about eCom was available to the public by virtue of it being a reporting company under the Exchange Act. In addition, as also noted above, adequate public information about the Company and each spin-off transaction itself (i.e., each Distribution) has been made available to the Distribution shareholders and the public at large through the eCom website, www.ecomecom.net, 8-Ks filed June 4, 2004, March 23, 2005, and May 31, 2005, and in 10-QSB and 10-KSB filings made by eCom January 22, 2004, April 14, 2004, September 21, 2004, October 25, 2004, and June 6, 2005. Furthermore, all Distribution shares being registered by way of the Form 10-SBs and all Distribution shareholders will be provided the information that would otherwise be included in an Information Statement, along with a summary of material information set forth in the Disclosure Statement and Plan of Reorganization to be filed with the bankruptcy court. Rule 145 under the Securities Act For the reasons set forth below, we also do not believe that the Distributions involve a transfer of assets or other transaction covered by Rule 145 under the Securities Act that would result in the spin-offs being deemed to involve an "offer to sell" or "sale" of securities within the meaning of Section 2(3) of the Securities Act by virtue of such Rule. The Division recognized in, among others, INA, British Gas, Hafslund Nycomed AS and English China Clays, that spin-off distributions similar to the Distributions did not constitute an "offer to sell" or "sale" of securities within the meaning of Section 2(3) of the Securities Act by virtue of Rule 145. The Preliminary Note to Rule 145 makes clear that the Rule was designed to provide the protections of registration under the Securities Act to persons who are making a new investment decision regarding a new or different security in connection with any of the forms of business combination listed in the Rule. Subparagraph (a)(3)(B) of Rule 145 lists as a business combination subject to the Rule a transaction in which (unlike the Distributions) there is submitted to a shareholders' vote a plan for a transfer of assets of a corporation to another person in consideration of the issuance of securities of such other person, if the plan provides for a pro rata or similar distribution of such securities to the voting shareholders. The protections provided by Rule 145 are unnecessary here. No new investment decision was made by the existing eCom Shareholders; no sale of assets to an independent third party in the sense intended in Rule 145 took place; and eCom shareholders were giving no "value" under Section 2(3) of the Securities Act. The result here is simply a rearrangement of the form of ownership rather than a new investment. Moreover, the Staff has granted no-action requests in cases where a spin-off distribution of a subsidiary's shares is made to the parent's shareholders concurrently with a business combination involving the parent, including cases where shareholders were asked to vote on the spin-off. See Ralcorp; Scripps; Grasso; and Summit Energy. B. POSITION OF THE COMPANY UNDER THE FEDERAL BANKRUPTCY LAWS As discussed in section I of this letter eCom is involved in an involuntary Chapter 11 Bankruptcy proceeding. The debtor, as "debtor-in-possession," operates the business and performs many of the functions that a trustee performs in cases under other chapters. 11 U.S.C. Section 1107(a). Section 1107 of the Code places the debtor-in-possession in the position of a fiduciary, with the rights and powers of a chapter 11 trustee, and requires the performance of all but the investigative functions and duties of a trustee. These duties are set forth in the Bankruptcy Code and Federal Rules of Bankruptcy Procedure. 11 U.S.C. Sections 1106, 1107. Such powers and duties include accounting for property, examining and objecting to claims, and filing informational reports as required by the court and the United States trustee, such as monthly operating reports. The debtor-in-possession also has many of the other powers and duties of a trustee including the right, with the court's approval, to employ attorneys, accountants, appraisers, auctioneers, or other professional persons to assist the debtor during its bankruptcy case. Other responsibilities include filing tax returns and filing such reports as are necessary or as the court orders after confirmation, such as a final accounting. The United States trustee is responsible for monitoring the compliance of the debtor in possession with the reporting requirements. The cases and statutory language evidence a clear intent on the part of Congress to allow debtors in possession to conduct business as usual after the filing of Chapter 11. Recent cases indicate that Chapter 11 debtors acting in the place of the Trustee act for the benefit of creditors, and it is the debtor's duty to protect and preserve assets. In re Halux, Inc., 665 F.2d 213, 216 (8th Cir.1981). It is this duty to protect and preserve assets, which prompted the timing of the Distribution. eCom has approximately 6,000 shareholders, some of which purchased or held the stock based on public information distributed via Mr. Panaia's press releases and SEC filings regarding the spinoff transaction. In order to avoid additional claims, which could number in the tens of thousands, from the shareholders of eCom due their respective spinoff shares, the spinoff shares were issued June 2, 2005 with the full understanding these shares were subject to the aforementioned bankruptcy proceedings. Every court document, including the court transcripts, has been posted to eCom's web site. This share issuance transaction was executed in good faith, and in the spirit of protecting the creditors and estate of eCom. The shareholders, as claimants, were preemptively satisfied, subject to a final approval of the Bankruptcy Court, in order to position the debtor corporation for reorganization. It is our personal opinion, if the shareholders had not received the spinoff shares, it is likely that the resulting claims and potential Class Action lawsuits would prolong or impede the reorganization process with the most likely result the creditors receiving zero and the shareholders losing their entire investment. Under Section 363(c) of the Bankruptcy Code, it is our understanding the business of the debtor is authorized to be operated under Sections 721, 1108, or Section 1203 (among others) of this title, unless the court orders otherwise. Section 363(c) also prohibits the trustee from using, selling, or leasing cash collateral (as defined below) unless each entity that has an interest in such cash collateral consents, or the court authorizes such use. Cash collateral is defined as cash, negotiable instruments, documents of title, securities, deposit accounts, or other cash equivalents. It was our opinion the spin-off shares qualify as cash collateral under 363(c). Each entity that has an interest in these shares, which includes the debtor and the creditors, preliminary consented to the distribution of the spin-off shares due to the liabilities that would be eliminated as a result of the Distribution. In our forthcoming plan of reorganization we fully recognized all of this is subject to receipt of a final order from the Bankruptcy Court. Section 1145 of the Bankruptcy Code provides certain exemptions from the securities registration requirements of federal and state securities laws with respect to the distribution of securities used as "cash collateral" under section 363(a). Equity securities issued for allowed claims are exempt from registration requirements. Per Senate Report 95-989, paragraph (2) of subsection (a) of 1145 states that the registration exemption is limited to prevent distribution of securities to other than claim holders or equity security holders of the debtor of the estate. The section of Section 1145 applicable to eCom states: "Except with respect to an entity that is an underwriter as defined in subsection (b) of this section, section 5 of the Securities Act of 1933 and any State or local law requiring registration for offer or sale of a security or registration or licensing of an issuer of, underwriter of, or broker or dealer in, a security do not apply to (1) the offer or sale under a plan of a security of the debtor, of an affiliate participating in a joint plan with the debtor, or of a successor to the debtor under the plan - (A) in exchange for a claim against, an interest in, or a claim for an administrative expense in the case concerning, the debtor or such a affiliate. eCom is not seeking exemption in order to facilitate distribution to parties other than claim holders or equity security holders. The exempt shares were expressly issued for in what we perceived were to be allowed contingent claims, as permitted by section 1145, and this information has been disclosed to the bankruptcy court, as evidenced in court transcripts which attached as Composite Exhibit No. 2. When you review these transcripts, in an abundance of caution and in an effort of full disclosure to the court, you will notice on several occasions whereby it was stated, in the event for some reason these spin-offs did not qualify under SEC guidelines, we would bring it before the Court's attention in allowing Judge Friedman to make a final decision with Bankruptcy guidelines. The Executive Committee chosen to oversee the bankruptcy proceedings and reorganization plan is a group of former Congressmen, a former member of the New York Stock Exchange, former State Insurance Commissioners and attorneys specializing in regulatory matters, securities and business law. This Executive Committee will be extremely cautious in their leadership and guidance to insure that all government and regulatory requirements are followed as the purchase of many millions of dollars in operating assets will be included in our reorganization plans, to which we want to insure complete success in creating value for everyone. For information purposes, the biographies of the Executive Committee members are attached as Exhibit No. 3. In closing, we sincerely appreciate the time and the consideration you have devoted to this matter. Rest assured, we are very sensitive to your agency's concerns and we certainly welcome additional questions, suggestions or any comments you may have as it is our absolute desire to be good corporate law abiding citizens in the eyes of everyone. With kindest regards, I remain. Most sincerely, Barney A. Richmond Chief Executive Officer Enc. cc: Steve Cunningham, Esq. Michael K. Wolensky, Esq. Michael Seese, Esq. Gordon Robinson, Esq. Jay Ingram, Esq. Clerk of the United States Southern District Bankruptcy Court File/chrono EX-1 3 bulltn4.txt EXH. 1. ATTORNEY OPINON REGARDING STAFF BULLETIN 4 ATTORNEY JAMES VOLPI 57 East Blue Heron Boulevard Riviera Beach, FL 33404 (561) 844-5727 February 28, 2005 Florida Atlantic Stock Transfer, Inc. (FAST) 7130 Nob Hill Road Tamarac, FL 33321 Re: eSecureSoft Company Issuance of common shares pursuant to spin-off Dear Mr. Garcia: On December 1, 2003, the Board of Directors of eCom eCom.com, Inc. (eCom) approved the spin-off of one of its subsidiaries, eSecureSoft Company (eSecure) as a separate company. They voted to issue to their shareholders one share of eSecure for every one share of eCom owned with a record date to be announced. No fractional shares will be issued. The decision to spin-off eSecure was primarily due to eCom changing its business plan to allow the management of the subsidiary to focus on its primary market which is dissimilar from its other markets. eSecure's core business was distribution of digital encryption software products and it was the Board's view that eSecure's growth has been constrained due to this company being so dissimilar. Pursuant to Staff Legal Bulletin No. 4 issued September 16, 1997, the SEC has addressed the Division of Corporation Finance's views regarding whether the registration requirements of Section 5 of the Securities Act of 1933 applies to spin-offs. The Division has taken the view that the subsidiary does not have to register a spin-off under the Securities Act when it meets certain requirements. 1. The parent company's shareholders do not provide consideration for the spun-off shares; 2. The spin-off is pro-rata to the parent company's shareholders; 3. The parent company provides adequate information about the spin-off and the subsidiary to its shareholders and to the trading markets; 4. The parent company has a valid business purpose for the spin-off; and 5. If the parent company spins-off "restricted securities," it has held those securities for at least two years. Based on my review of the transaction and ancillary documents and the representations of management of eCom eCom.com, Inc., I am of the opinion that the spin-off of eSecure shares to the shareholders of eCom meets the above requirements and does not have to register the spin-off company under the Securities Act. As a result, the common shares to be issued pursuant to the spin-off company may be issued without restriction except for affiliates of eCom furnished you under separate cover. In the issuing of this opinion, I am aware that FAST, company shareholders and broker-dealers may rely upon this opinion, and I hereby give my permission and consent to rely on and exhibit this opinion to those concerned. Very truly yours, /s/ James C. Volpi James C. Volpi ATTORNEY JAMES VOLPI 57 East Blue Heron Boulevard Riviera Beach, FL 33404 (561) 844-5727 February 28, 2005 Florida Atlantic Stock Transfer, Inc. (FAST) 7130 Nob Hill Road Tamarac, FL 33321 Re: A Classified Ad, Inc. Issuance of common shares pursuant to spin-off Dear Mr. Garcia: On December 1, 2003, the Board of Directors of eCom eCom.com, Inc. (eCom) approved the spin-off of one of its subsidiaries, A Classified Ad, Inc. (ACA) as a separate company. They voted to issue to their shareholders one share of ACA for every one share of eCom owned with a record date to be announced. No fractional shares will be issued. The decision to spin-off ACA was primarily due to eCom changing its business plan to allow the management of the subsidiary to focus on its primary market which is dissimilar from its other markets. ACA's core business was the marketing of online classified advertising and it was the Board's view that ACA's growth has been constrained due to this company being so dissimilar. Pursuant to Staff Legal Bulletin No. 4 issued September 16, 1997, the SEC has addressed the Division of Corporation Finance's views regarding whether the registration requirements of Section 5 of the Securities Act of 1933 applies to spin-offs. The Division has taken the view that the subsidiary does not have to register a spin-off under the Securities Act when it meets certain requirements. 1. The parent company's shareholders do not provide consideration for the spun-off shares; 2. The spin-off is pro-rata to the parent company's shareholders; 3. The parent company provides adequate information about the spin-off and the subsidiary to its shareholders and to the trading markets; 4. The parent company has a valid business purpose for the spin-off; and 5. If the parent company spins-off "restricted securities," it has held those securities for at least two years. Based on my review of the transaction and ancillary documents and the representations of management of eCom eCom.com, Inc., I am of the opinion that the spin-off of ACA shares to the shareholders of eCom meets the above requirements and does not have to register the spin-off company under the Securities Act. As a result, the common shares to be issued pursuant to the spin-off company may be issued without restriction except for affiliates of eCom furnished you under separate cover. In the issuing of this opinion, I am aware that FAST, company shareholders and broker-dealers may rely upon this opinion, and I hereby give my permission and consent to rely on and exhibit this opinion to those concerned. Very truly yours, /s/ James C. Volpi James C. Volpi ATTORNEY JAMES VOLPI 57 East Blue Heron Boulevard Riviera Beach, FL 33404 (561) 844-5727 December 1, 2003 Florida Atlantic Stock Transfer, Inc. (FAST) 7130 Nob Hill Road Tamarac, FL 33321 Re: A Super Deal.com, Inc. Issuance of common shares pursuant to spin-off Dear Mr. Garcia: On December I, 2003, the Board of Directors of eCom eCom.com, Inc. (eCom) approved the spin-off of one of its subsidiaries, A Super Deal.com, Inc. (ASD) as a separate company. They voted to issue to their shareholders one share of ASD for every one share of eCom owned with a record date to be announced. No fractional shares will be issued. The decision to spin-off ASD was primarily due to eCom changing its business plan to allow the management of the subsidiary to focus on its primary market which is dissimilar from its other markets. ASD's core business was the marketing of guaranteed authentic, hand-signed sports memorabilia and it was the Board's view that ASD's growth has been constrained due to this company being so dissimilar. Pursuant to Staff Legal Bulletin No. 4 issued September 16, 1997, the SEC has addressed the Division of Corporation Finance's views regarding whether the registration requirements of Section 5 of the Securities Act of 1933 applies to spin-offs. The Division has taken the view that the subsidiary does not have to register a spm-off under the Securities Act when it meets certain requirements. 1. The parent company's shareholders do not provide consideration for the spun-off shares: 2. The spin-off is pro-rata to the parent company's shareholders; 3. The parent company provides adequate information about the spin-off and the subsidiary to its shareholders and to the trading markets; 4. The parent company has a valid business purpose for the spin-off; and 5. If the parent company spins-off "restricted securities," it has held those securities for at least two years. Based on my review of the transaction and ancillary documents and the representations of management of eCom eCom.com, Inc., I am of the opinion that the spin-off of ASD shares to the shareholders of eCom meets the above requirements and does not have to register the spin-off company under the Securities Act. As a result, the common shares to be issued pursuant to the spin-off company may be issued without restriction except for affiliates of eCom furnished you under separate cover. In the issuing of this opinion, I am aware that FAST, company shareholders and broker-dealers may rely upon this opinion, and I hereby give my permission and consent to rely on and exhibit this opinion to those concerned. Very truly yours, /s/ James C. Volpi James C. Volpi ATTORNEY JAMES VOLPI 57 East Blue Heron Boulevard Riviera Beach, FL 33404 (561) 844-5727 February 28, 2005 Florida Atlantic Stock Transfer, Inc. (FAST) 7130 Nob Hill Road Tamarac, FL 33321 Re: AAB National Company Issuance of common shares pursuant to spin-off Dear Mr. Garcia: On December 1, 2003, the Board of Directors of eCom eCom.com, Inc. (eCom) approved the spin-off of one of its subsidiaries, AAB National Company (AAB) as a separate company. They voted to issue to their shareholders one share of AAB for every one share of eCom owned with a record date to be announced. No fractional shares will be issued. The decision to spin-off AAB was primarily due to eCom changing its business plan to allow the management of the subsidiary to focus on its primary market which is dissimilar from its other markets. AAB's core business was the marketing of rights to the high school senior football all-star game and it was the Board's view that AAB's growth has been constrained due to this company being so dissimilar. Pursuant to Staff Legal Bulletin No. 4 issued September 16, 1997, the SEC has addressed the Division of Corporation Finance's views regarding whether the registration requirements of Section 5 of the Securities Act of 1933 applies to spin-offs. The Division has taken the view that the subsidiary does not have to register a spin-off under the Securities Act when it meets certain requirements. 1. The parent company's shareholders do not provide consideration for the spun-off shares; 2. The spin-off is pro-rata to the parent company's shareholders; 3. The parent company provides adequate information about the spin-off and the subsidiary to its shareholders and to the trading markets; 4. The parent company has a valid business purpose for the spin-off; and 5. If the parent company spins-off "restricted securities," it has held those securities for at least two years. Based on my review of the transaction and ancillary documents and the representations of management of eCom eCom.com, Inc., I am of the opinion that the spin-off of AAB shares to the shareholders of eCom meets the above requirements and does not have to register the spin-off company under the Securities Act. As a result, the common shares to be issued pursuant to the spin-off company may be issued without restriction except for affiliates of eCom furnished you under separate cover. In the issuing of this opinion, I am aware that FAST, company shareholders and broker-dealers may rely upon this opinion, and I hereby give my permission and consent to rely on and exhibit this opinion to those concerned. Very truly yours, /s/ James C. Volpi James C. Volpi ATTORNEY JAMES VOLPI 57 East Blue Heron Boulevard Riviera Beach, FL 33404 (561) 844-5727 February 28, 2005 Florida Atlantic Stock Transfer, Inc. (FAST) 7130 Nob Hill Road Tamarac, FL 33321 Re: Pro Card Corporation Issuance of common shares pursuant to spin-off Dear Mr. Garcia: On December 1, 2003, the Board of Directors of eCom eCom.com, Inc. (eCom) approved the spin-off of one of its subsidiaries. Pro Card Corporation (Pro Card) as a separate company. They voted to issue to their shareholders one share of Pro Card for every one share of eCom owned with a record date to be announced. No fractional shares will be issued. The decision to spin-off Pro Card was primarily due to eCom changing its business plan to allow the management of the subsidiary to focus on its primary market which is dissimilar from its other markets. Pro Card's core business was distribution of prepaid telephone card products and it was the Board's view that Pro Card's growth has been constrained due to this company being so dissimilar. Pursuant to Staff Legal Bulletin No. 4 issued September 16, 1997, the SEC has addressed the Division of Corporation Finance's views regarding whether the registration requirements of Section 5 of the Securities Act of 1933 applies to spin-offs. The Division has taken the view that the subsidiary does not have to register a spin-off under the Securities Act when it meets certain requirements. 1. The parent company's shareholders do not provide consideration for the spun-off shares; 2. The spin-off is pro-rata to the parent company's shareholders; 3. The parent company provides adequate information about the spin-off and the subsidiary to its shareholders and to the trading markets; 4. The parent company has a valid business purpose for the spin-off; and 5. If the parent company spms-off "restricted securities," it has held those securities for at least two years. Based on my review of the transaction and ancillary documents and the representations of management of eCom eCom.com, Inc., I am of the opinion that the spin-off of Pro Card shares to the-shareholders of eCom meets the above requirements and does not have to register the spin-off company under the Securities Act. As a result, the common shares to be issued pursuant to the spin-off company may be issued without restriction except for affiliates of eCom furnished you under separate cover. In the issuing of this opinion, I am aware that FAST, company shareholders and broker-dealers may rely upon this opinion, and I hereby give my permission and consent to rely on and exhibit this opinion to those concerned. Very truly yours, /s/ James C. Volpi James C. Volpi ATTORNEY JAMES VOLPI 57 East Blue Heron Boulevard Riviera Beach, FL 33404 (561) 844-5727 February 28, 2005 Florida Atlantic Stock Transfer, Inc. (FAST) 7130 Nob Hill Road Tamarac, FL 33321 Re: USA Performance Products, Inc. Issuance of common shares pursuant to spin-off Dear Mr. Garcia: On December 1, 2003, the Board of Directors of eCom eCom.com, Inc. (eCom) approved the spin-off of one of its subsidiaries, USA Performance Products, Inc. (USAPP) as a separate company. They voted to issue to their shareholders one share of USAPP for ever}' one share of eCom owned with a record date to be announced. No fractional shares will be issued. The decision to spin-off USAPP was primarily due to eCom changing its business plan to allow the management of the subsidiary to focus on its primary market which is dissimilar from its other markets. USAPP's core business was the manufacturing and distribution of paintball marker products and it was the Board's view that USAPP's growth has been constrained due to this company being so dissimilar. Pursuant to Staff Legal Bulletin No. 4 issued September 16, 1997, the SEC has addressed the Division of Corporation Finance's views regarding whether the registration requirements of Section 5 of the Securities Act of 1933 applies to spin-offs. The Division has taken the view that the subsidiary does not have to register a spin-off under the Securities Act when it meets certain requirements. 1. The parent company's shareholders do not provide consideration for the spun-off shares; 2. The spin-off is pro-rata to the parent company's shareholders; 3. The parent company provides adequate information about the spin-off and the subsidiary to its shareholders and to the trading markets; 4. The parent company has a valid business purpose for the spin-off; and 5. If the parent company spins-off "restricted securities," it has held those securities for at least two years. Based on my review of the transaction and ancillary documents and the representations of management of eCom eCom.com, Inc., I am of the opinion that the spin-off of USAPP shares to the shareholders of eCom meets the above requirements and does not have to register the spin-off company under the Securities Act. As a result, the common shares to be issued pursuant to the spin-off company may be issued without restriction except for affiliates of eCom furnished you under separate cover. In the issuing of this opinion, I am aware that FAST, company shareholders and broker-dealers may rely upon this opinion, and I hereby give my permission and consent to rely on and exhibit this opinion to those concerned. Very truly yours, /s/ James C. Volpi James C. Volpi ATTORNEY JAMES VOLPI 57 East Blue Heron Boulevard Riviera Beach, FL 33404 (561)844-5727 February 28, 2005 Florida Atlantic Stock Transfer, Inc. (FAST) 7130 Nob Hill Road Tamarac, FL 33321 Re: USAS Digital Inc.. Issuance of common shares pursuant to spin-off Dear Mr. Garcia: On December 1, 2003, the Board of Directors of eCom eCom.com, Inc. (eCom) approved the spin-off of one of its subsidiaries, USAS Digital Inc. (USASD) as a separate company. They voted to issue to their shareholders one share of USASD for every one share of eCom owned with a record date to be announced. No fractional shares will be issued. The decision to spin-off USASD was primarily due to eCom changing its business plan to allow the management of the subsidiary to focus on its primary market which is dissimilar from its other markets. USASD's core business was distribution of digital compression software products and it was the Board's view that USASD's growth has been constrained due to this company being so dissimilar. Pursuant to Staff Legal Bulletin No. 4 issued September 16, 1997, the SEC has addressed the Division of Corporation Finance's views regarding whether the registration requirements of Section 5 of the Securities Act of 1933 applies to spin-offs. The Division has taken the view that the subsidiary does not have to register a spin-off under the Securities Act when it meets certain requirements. 1. The parent company's shareholders do not provide consideration for the spun-off shares; 2. The spin-off is pro-rata to the parent company's shareholders; 3. The parent company provides adequate information about the spin-off and the subsidiary to its shareholders and to the trading markets; 4. The parent company has a valid business purpose for the spin-off; and 5. If the parent company spins-off "restricted securities," it has held those securities for at least two years. Based on my review of the transaction and ancillary documents and the representations of management of eCom eCom.com, Inc., I am of the opinion that the spin-off of USASD shares to the shareholders of eCom meets the above requirements and does not have to register the spin-off company under the Securities Act. As a result, the common shares to be issued pursuant to the spin-off company may be issued without restriction except for affiliates of eCom furnished you under separate cover. In the issuing of this opinion, I am aware that FAST, company shareholders and broker-dealers may rely upon this opinion, and I hereby give my permission and consent to rely on and exhibit this opinion to those concerned. Very truly yours, /s/ James C. Volpi James C. Volpi ATTORNEY JAMES VOLPI 57 East Blue Heron Boulevard Riviera Beach, FL 33404 (561)844-5727 February 28, 2005 Florida Atlantic Stock Transfer, Inc. (FAST) 7130 Nob Hill Road Tamarac, FL 33321 Re: Swap and Shop.net.Corp. Issuance of common shares pursuant to spin-off Dear Mr. Garcia: On December 1, 2003, the Board of Directors of eCom eCom.com, Inc. (eCom) approved the spin-off of one of its subsidiaries, Swap and Shop.net Corp. (SAS) as a separate company. They voted to issue to their shareholders one share of SAS for every one share of eCom owned with a record date to be announced. No fractional shares will be issued. The decision to spin-off SAS was primarily due to eCom changing its business plan to allow the management of the subsidiary to focus on its primary market which is dissimilar from its other markets. SAS's core business was the marketing of an online sales distribution system and it was the Board's view that SAS's growth has been constrained due to this company being so dissimilar. Pursuant to Staff Legal Bulletin No. 4 issued September 16, 1997, the SEC has addressed the Division of Corporation Finance's views regarding whether the registration requirements of Section 5 of the Securities Act of 1933 applies to spin-offs. The Division has taken the view that the subsidiary does not have to register a spin-off under the Securities Act when it meets certain requirements. 1. The parent company's shareholders do not provide consideration for the spun-off shares; 2. The spin-off is pro-rata to the parent company's shareholders; 3. The parent company provides adequate information about the spin-off and the subsidiary to its shareholders and to the trading markets; 4. The parent company has a valid business purpose for the spin-off; and 5. If the parent company spins-off "restricted securities," it has held those securities for at least two years. Based on my review of the transaction and ancillary documents and the representations of management of eCom eCom.com, Inc., I am of the opinion that the spin-off of SAS shares to the shareholders of eCom meets the above requirements and does not have to register the spin-off company under the Securities Act. As a result/the common shares to be issued pursuant to the spin-off company may be issued without restriction except for affiliates of eCom furnished you under separate cover. In the issuing of this opinion, I am aware that FAST, company shareholders and broker-dealers may rely upon this opinion, and I hereby give my permission and consent to rely on and exhibit this opinion to those concerned. Very truly yours, /s/ James C. Volpi James C. Volpi ATTORNEY JAMES VOLPI 57 East Blue Heron Boulevard Riviera Beach, FL 33404 (561) 844-5727 December 17, 2003 Florida Atlantic Stock Transfer, Inc. (FAST) 7130 Nob Hill Road Tamarac, FL 33321 Re: MyZipSoft, Inc. Issuance of common shares pursuant to spin-off Dear Mr. Garcia: On December 1, 2003, the Board of Directors of eCom eCom.com, Inc. (eCom) approved the spin-off of one of its subsidiaries, MyZipSoft, Inc. (MZS) as a separate company. They voted to issue to their shareholders one share of MZS for every one share of eCom owned with a record date to be announced. No fractional shares will be issued. The decision to spin-off MZS was primarily due to eCom changing its business plan to allow the management of the subsidiary to focus on its primary market which is dissimilar from its other markets. MZS's core business was digital image compression software sales and it was the Board's view that MZS's growth has been constrained due to this company being so dissimilar. Pursuant to Staff Legal Bulletin No. 4 issued September 16, 1997, the SEC has addressed the Division of Corporation Finance's views regarding whether the registration requirements of Section 5 of the Securities Act of 1933 applies to spin-offs. The Division has taken the view that the subsidiary does not have to register a spin-off under the Securities Act when it meets certain requirements. 1. The parent company's shareholders do not provide consideration for the spun-off shares; 2. The spin-off is pro-rata to the parent company's shareholders; 3. The parent company provides adequate information about the spin-off and the subsidiary to its shareholders and to the trading markets; 4. The parent company has a valid business purpose for the spin-off; and 5. If the parent company spins-off "restricted securities," it has held those securities for at least two years. Based on my review of the transaction and ancillary documents and the representations of management of eCom eCom.com, Inc., I am of the opinion that the spin-off of MZS shares to the shareholders of eCom meets the above requirements and does not have to register the spin-off company under the Securities Act. As a result, the common shares to be issued pursuant to the spin-off company may be issued without restriction except for affiliates of eCom furnished you under separate cover. In the issuing of this opinion, I am aware that FAST, company shareholders and broker-dealers may rely upon this opinion, and I hereby give my permission and consent to rely on and exhibit this opinion to those concerned. Very truly yours, /s/ James C. Volpi James C. Volpi EX-2 4 tran0516.txt COMPOSITE EXH. 2 - ECOM COURT TRANSCRIPT DATED MAY 16, 2005 36 1 2 CERTIFICATE 3 4 The State of Florida 5 County of Palm Beach 6 7 I, JACQUELYN ANN JONES, Court Reporter, certify 8 that I was authorized to and did stenographically report 9 the foregoing hearing; and that the transcript is a true 10 record of my stenographic notes. 11 J farther certify that I am not a relative, 12 employee, attorney or counsel of any of the parties, nor 13 am I a relative or employee of any of the parties' 14 attorney or counsel connected with the action, nor am I 15 financially interested in the action. 16 17 In witness whereof I have hereunto set my hand 18 and seal this 5th day of June, 2005. 19 20 21 MY COMMISSION 100382130 EXPIRES: February 18,2009 JACQUELYN ANN JONES Bonded "Thru Notay Public Undwwrtten 22 Commission No- CC 995956 23 Expires Feb 18, 2005 24 25 1 2 3 4 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF FLORIDA Judge Steven H. Friedman In Re :Case No. 04-35435-BKC-SHF ECOM ECOM.COM, INC., Debtor STATUS CONFERENCE RE: INVOLUNTARY CASE May 16, 2005 The above entitled cause came on for hearing before the HONORABLE STEVEN H. FRIEDMAN, one of the Judges in the UNITED STATES BANKRUPTCY COURT, in and for the SOUTHERN DISTRICT OF FLORIDA, at 1675 Palm Beach Lakes Boulevard, West Palm Beach, Palm Beach County, Florida, on May 16, 2005, commencing on or about 1:00 p.m., and the following proceedings were had: Reported by: Jacquelyn Ann Jones, Court Reporter OUELLETTE & MAULDIN COURT REPORTERS (305) 358-8875 1 APPEARANCES: 2 3 GAMBERG & ABRAMS By: JAY GAMBERG, ESQUIRE 4 On behalf of the Shareholder Company 5 6 TAPLIN & ASSOCIATES By: RONALD S. KANIUK, ESQUIRE 7 On behalf of the petitioning creditor/ American Capital Holdings 8 9 10 11 12 13 INDEX 14 Page 15 WITNESS: BARNEY RICHMOND 16 DIRECT EXAMINATION BY MR. KANIUK 9 17 CROSS EXAMINATION BY MR, GAMBERG 19 18 19 20 EXHIBITS 21 22 ACH Exhibit No. 1 marked 14 23 24 25 1 THE COURT: ECom eCom.com, Inc. This is a 2 status conference regarding the involuntary case. Now, 3 Mr. Kaniuk, you're representing the petitioning creditor. 4 MR. KANIUK: Yes. 5 THE COURT: And now, Mr. Gamberg, you are 6 here -- 7 MR. GAMBERG: Ifm representing the shareholder 8 family, not the company. 9 THE COURT: Okay, shareholder family. Can I 10 get names on that? 11 MR. PANAIA: P-a-n-a-i-a. 12 MR. GAMBERG: As Your Honor will hear, his 13 father was the chief operating officer of the company. 14 He passed away. The family is one of the major 15 shareholders of the company. 16 THE COURT: I'm sorry to learn that. 17 MR, PANAIA: Thank you, Your Honor. 18 THE COURT: This case was filed initially 19 November of 2004, and the involuntary Chapter 11 petition 20 was filed on that date. The matter remains a Chapter 11 21 case. 22 MR. KANIUK: And we are pleased to report today 23 that we've had conversations, all the parties in interest 24 and Barney Richmond, who is the principal of American 25 Capital Holdings and one of the creditors, and Mr. 26 Panaia, and therefs a general consent to the entry of an 27 order for relief in the bankruptcy case, 3 By way of background, these cases, ECom 4 eCom.com, Ifm going to let Mr. Richmond expand on the 5 history, but they had issued press releases for the 6 spin-off of ten companies. Those shares are out there 7 and traded but had never been issued. Ifm going to let 8 Mr. Richmond expand on that by"way of background, and 9 then I'll tell you where we are. 10 THE COURT: And Mr. Richmond? 11 MR. RICHMOND: Yes. 12 THE COURT: And your first name, sir, is? 13 MR. RICHMOND: Barney. 14 THE COURT: And are you counsel or you're just 15 involved with the company? 16 MR. RICHMOND: We're involved as a petitioning 17 creditor, 18 THE COURT: Then youfre an officer of American 19 Capital Holdings? 20 MR. RICHMOND: Yes, sir. 21 THE COURT: What is your position with American 22 Capital Holdings? 23 MR. RICHMOND: Chairman. CEO. 24 THE COURT: But Mr. Richmond, you're not an 25 attorney, just so I'm clear? 1 MR. RICHMOND: No, sir, 2 THE COURT: Then how can Mr. Richmond speak on 3 behalf of American Capital Holdings? 4 MR, KANIUK: Ifm representing them, I was just 5 going to -- to the extent that I may be incorrect or may 6 make a misstatement, I'll let him correct me, but what 7 happened was - Ifm representing American Capital, I'm 8 representing the petitioning creditors. 9 THE COURT: I understand that. 10 MR. KANIUK: Including American Capital. If 11 you have a problem with him making any statements'on the 12 record, I'll make them for him. 13 THE COURT: Unless you're going to call him as 14 a witness. 15 MR. KANIUK: I don't think we're going to need a 16 witness today, so I'll take care of everything. I 17 apologi ze 18 THE COURT: This is a status conference on an 19 involuntary Chapter 11 that was filed on November 29th, 20 2004, and this case has gone absolutely nowhere. If you 21 would like to know my input on it, that's the way I look 22 at it. 23 MR. KANIUK: I understand, Your Honor. The 24 untimely death of the chairman, David Panaia, was part of 25 the reason for the delay in getting us to this point. 26 I think now we're at a point where we believe we're going 27 to be able to propose a plan within the next 45 to 60 28 days. 4 THE COURT: Propose a plan? You don't even 5 have an adjudicated debtor, 6 MR. Kaniuk: Well, everybody is assuming -- 7 THE COURT: You have an involuntary case in a 8 Chapter 11 that's just sitting. And I was ready to sua 9 sponte dismiss this case today, and I stand ready to 10 dismiss this case. 11 MR. Kaniuk; I understand that. 12 THE COURT: So you're going to have to convince 13 me why I shouldn't. 14 MR. KANIUK: ECom eCom.com had issued, and I 15 have copies of them, but they had announced and filed 16 form 10 SB 12 registration statements for the spin-off of 17 ten companies. Those stocks were never issued, but those 18 shareholders have traded those stocks. What our hope 19 was, was to be able to recapture those shares and then 20 in the context of a bankruptcy case fund those companies, 21 American Capital Holdings is willing to fund those 22 companies for acquisitions of - those companies have no 23 assets, they just traded stocks. 24 THE COURT: Let me be sure I understand what 25 you just said. ECom eCom.com, Inc., was prepared to do 1 what with this ten companies? 2 MR. KANIUK: They had announced a spin-off of 3 shares of ten companies. Those companies do not have any 4 assets, but those shares had been traded and are trading. 5 What the hope was -- 6 THE COURT: Is ECom eCom.com, Inc. a publicly 7 registered company? 8 MR. KANIUK: Yes. And 10Q's and all the 9 appropriate SEC documents have been filed. 10 THE COURT: And that would thus permit these 11 other ten companies to have their shares publicly traded? 12 MR. KANIUK: Yes. 13 THE COURT: Really? 14 MR. KANIUK: That's my understanding. And 15 then -- and that they have been traded. 16 THE COURT: Well, I'll accept your 17 representation that they have been traded. That doesn't 18 mean that they're not in violation of Regulation 19 Securities and Exchange Commission, or the securities 20 laws. And that's what I'm concerned about. 21 - MR. KANIUK: I don't believe that they are. 22 THE COURT: Are you a securities law expert? 23 MR. KANIUK: No, Your Honor. I've consulted 24 with securities lawyers, but I am not, and I do not 25 profess to be a securities lawyer or securities expert. 1 THE COURT: So you don't know for a fact 2 whether the trading of these shares is proper or isn't 3 proper. 4 MR. KANIUK: No, 1 don't. I know what my 5 understanding is, but I can't -- I'm not going to profess 6 to be an expert. But those companies have no assets. 7 THE COURT; That makes it even more worrisome 8 to me. 9 MR, KANIUK: It is worrisome. What we wanted to 10 was to be able to recapture those shares based on SEC 11 regulations, and fund those companies to make real 12 acquisitions to provide to the underlying shareholder 13 creditors, and exempt those shares under 1145 of the 14 Bankruptcy Code and avoid the expenses that would be in 15 connection with those, if we were going to proceed under 16 normal SEC regulations, 17 THE COURT: And Mr. Kaniuk, am I pronouncing 18 that correctly? 19 MR. KANIUK: Yes. 20 THE COURT: How does one recapture those 21 shares? 22 MR. KANIUK: It's my understanding that, and if 23 necessary I'll call Mr. Richmond as a witness, but it's 24 my understanding that those shares, because they've been 25 spun-off within a year, may be recaptured. 1 THE COURT; Do you have to pay for them, or you 2 just decide to take them back, or do you know? 3 MR. Kaniuk: I don't know the answer. My 4 preference would be at this time to call Mr. Richmond as 5 a witness to allow the Court or myself to ask any 6 questions of him as necessary. 7 THE COURT: Mr. Gamberg, do you have any 8 objection to having - 9 MR, GAMBERG: No objections. 10 THE COURT: Mr. Richmond, if you'll please 11 rise, come on over to the chair over here, please. 12 Remain standing while my court reporter administers an 13 oath. 14 THEREUPON, 15 BARNEY RICHMOND, 16 being by the undersigned notary first duly sworn to 17 testify the whole truth, as hereinafter certified, 18 testified as follows: 19 THE WITNESS: Yes, I do. 20 THE COURT: Please be seated. Proceed, 21 DIRECT EXAMINATION 22 BY MR. KANIUK: 23 Q. Please state your name for the record. 24 A. Barney A. Richmond, 25 Q. And your capacity -- are you an officer with 10 1 American Capital Holdings? 2 A. I'm chairman of American Capital Holdings, 3 Q. Could you describe for the Court what American 4 Capital Holdings is? 5 A. American Capital Holdings is an insurance and 6 financial services company. 7 Q. Could you describe for the Court the 8 relationship between American Capital Holdings and ECom 9 eCom.com, Inc. 10 A. Yes. American Capital Holdings was derived 11 from the spin-off out of ECom eCom, a company called USA 12 Sports, which was a wholly owned subsidiary of eCom. 13 Q. And presently is American Capital Holdings a 14 creditor of ECom eCom.com? 15 A. Yes, it is. 16 Q. And could you explain what circumstances, other 17 than moneys owed, led American Capital Holdings to be 18 concerned about Ecom eCom.com? 19 A. What first occurred is that the accounting firm 20 was deemed, regarding the spin off, was deemed to be not 21 independent because they were owed money by Ecom eCom, 22 and when an auditor is a creditor they're deemed not to 23 be independent. And so we ended up paying the accounting 24 bills, past due accounting bills, as well as other 25 expenses that in order to honor what had already been put 11 1 out in the form of press releases by the former CEO of 2 ECom. And so we had to get audits off. We're a public 3 company as well. 4 Q. In the context of spin-offs, ECom eCom, it's my 5 understanding, that ECom eCom.com had announced spin-offs 6 in addition to the prior spin-off of American Capital? 7 A. Right, There's several press releases that are 8 in these books that you have there, were put out to the 9 public, I think a couple of A-Ks, which is Information 10 statements that were filed with the SEC. They said the 11 companies had been - the spin-offs had been completed. 12 And subsequently that - for the spin-offs to actually be 13 completed the shares have to be, we discovered later, 14 have to be actually mailed to the shareholders. The date 15 of record is one day after they're actually put in the 16 mail. 17 MR* KANIUK; Your Honor, these are copies, these 18 are marked for the record, if you would allow the witness 19 to look at, they're copies of several press releases. 20 Additionally the creditors were around 7 or 21 $800,000, I think in accounts payable and bills that we 22 discovered were past due as well, over and above us. 23 THE COURT: How much in bills? 24 THE WITNESS: 7 or $800,000. 25 THE COURT: Owed by ECom eCom? 12 1 THE WITNESS: Yes. To various vendors that are 2 in the schedules. 3 BY MR. KANIUK: 4 Q. Could you explain the potential recapture of 5 the shares of the spin-offs? 6 A. Sure. I would like to make one statement here. 7 One of the things, and I understand, Your Honor, the 8 concern for the delay, but Mr. Panaia became ill towards 9 last November. He was in the hospital, in and out three 10 or four times, and we granted, every time an extension 11 was asked by us we went along with it, because we didn't, 12 number one, didn't want to be here in the first place, 13 but secondly, we didn't feel it was fair, him being 14 in the hospital he couldn't respond. 15 THE COURT: Who is Mr. Panaia? 16 THE WITNESS: Dave Panaia, the person that 17 passed away. He was the CEO. He went in about, I think 18 December. When was the first time - 19 THE COURT: You're testifying, sir. 20 THE WITNESS: I'm sorry, I didn't mean to -- 21 THE COURT: If you don't know the answer to a 22 question, then just simply say you don't know. 23 THE WITNESS: Approximately around December he 24 went in the hospital, and it was two or three times 25 thereafter. And so we did - we were asked to grant 13 1 extensions and we did. 2 THE COURT: Yes, I did. Even though the -- 3 BY MR. Kaniuk: 4 Q, Could you explain the recapture of the -- the 5 proposed recapture of the shares and the reassurance -- 6 A. Number one - 7 THE COURT: Excuse me, but what qualifications 8 does this man have to discuss recapture? All I know is 9 that he's the chairman of the board of some entity by the 10 name of American Capital Holdings. 11 MR. KANIUK: Withdrawn. I'll do background. 12 THE COURT: I don't know what American Capital 13 Holdings is, I donft know anything about that. So with 14 due respect, I don't know what ability he has to testify 15 to that. By the way, sir, do you want these documents 16 marked? 17 MR. KANIUK: If I could, marked as Exhibit A. 18 THE COURT: Mr, Gamberg, do you have any 19 objection? 20 MR. GAMBERG: No objection. 21 THE COURT: Do you have other exhibits that 22 you're going to have marked? 23 MR, KANIUK: No. That's all. And I just got 24 them today. I apologize for not getting them to Your 25 Honor in advance. 14 1 THE COURT: I allowed you to appear pro hac 2 vice in this case, sir? 3 MR. KANIUK: Yes. I was subsequently admitted 4 to the Southern District by examination and submitted an 5 affidavit to that effect. 6 THE COURT: So then you're familiar with our 7 local rules? 8 MR. Kaniuk: Yes, I am. 9 THE COURT: Particularly the rules regarding 10 premarking of exhibits? 11 MR. Kaniuk: Yes. The exhibits were only 12 provided to me via fax an hour before the hearing, and I 13 apologize for not being able to get anything together 14 earlier. 15 THE COURT: One moment. Madame Court Reporter, 16 would you please mark that document as ACH Exhibit 1, 17 please. 18 (ACH Exhibit 1 marked.) 19 THE COURT: And I'll have an exhibit register 20 made, since you haven't done that. 21 MR. Kaniuk: I'll have one made afterwards. I 22 apologize again to the Court. 23 THE COURT: I'll have it taken care of, sir. 24 Do you have any other questions? 25 MR. KANIUK: Yes. If you'll allow. 15 1 BY MR. Kaniuk; 2 Q. Mr. Richmond, could you set forth to the Court 3 your education and business experience? 4 A, Ifve got a high school education. If?e been in 5 business since, and for myself, since 1970. Ifve worked 6 on, over the years, many type of financings, 7 restructurings such as this one here. Currently we have, 8 American Capital has insurance operations, we're licensed 9 in 49 states right now. We have two other insurance 10 acquisitions that are under way. And pretty much my 11 experience has been through just hard work and 12 financing. 13 Q. What experience in the area of stock and SEC 14 involvement? 15 A. We've carried numerous companies over the 16 years, via some reverse mergers, via some underwriting 17 from the different underwriters that we assisted over the 18 years, and we've done numerous of those. 19 Q. What experience in terms of recapture of spun 20 off stocks? 21 A. What it amounts to is that American Capital 22 merged with USA Sports Net, which is basically some of 23 the same shareholders of ECom for American Capital 24 shareholders. Those were handled accordingly and they 25 were issued and held in escrow. Because of health 16 1 reasons and other various reasons the balance of these 2 spin-offs did not get actually issued from the transfer 3 agent. The reason was primarily, I think financial 4 constraints by the company. Notwithstanding that, many 5 people purchased shares based on information that was 6 filed in a public domain through either press releases or 7 AKl's, and once they were announced then a lot of 8 additional trading began, 9 Q. I'm showing you a document marked ACH No. 1. 10 Are you familiar with these? 11 A. Uh-huh. 12 Q. Could you set forth to the Court what they 13 are? 14 A. Basically they're just press releases that came 15 from, it says ECom spin-offs filed to registration 16 statement to the SEC, which was one of those which -- two 17 of them that were companies that we - that were spun-off 18 out of ECom that we controlled and we filed the form 19 lOSBs with the SEC. It goes on in these releases to say 20 that the balance of them, you know, the spin-offs had 21 been completed. 22 Q. But itfs your understanding those spin-offs 23 were not complete? 24 A, No- 25 Q. What is the consequence of those spin-offs 17 1 having been announced but not completed? 2 A. It's my opinion, I'm not an attorney, but my 3 opinion is that there could be some contingent 4 liabilities that based on those spin offs, I mean the 5 purchase shares based on whether they were going to get a 6 dividend with these shares maybe that they might have a 7 contingent liability. 8 What we were trying to do, is in order, because 9 all the things we had done to, Mr. Panaia quit talking to 10 us, so what we were trying to do is complete what had 11 been said and what had been put out in public domain. 12 And we didn't have really standing to do that at that 13 particular point. We owned, as American Capital, a 14 million and a half shares of ECom stock, friends that we 15 know, family, different people had bought in, and what we 16 were trying to do is get it completed. 17 We did take care of all the SEC auditing 18 requirements. We advanced those. We did many, many 19 things administratively trying to get it done, and then 20 when it came time for American Capital to get their audit 21 we couldn't get confirmation done under the management of 22 ECom to confirm our statements of money we advanced, 23 certain other things that were done, and so we were 24 forced at the end to, you know, file an involuntary 25 because there was nowhere to go. I mean, ECom had shut 18 1 their phones off. People were calling our offices 2 because they were the only phones that were ringing and 3 people would answer, and we became totally inundated with 4 that. 5 We discovered that none of the tax returns were 6 done. Those two books are nothing but tax returns that 7 we had SEC auditors do. Our name kind of got attached to 8 it, and I didn't want our name to be -- that, you know, 9 we didn't do all of these things, and so we got all the 10 lOQs ready, which is about at least 18 to 20, we had to 11 get some lOKs ready, we had to get - eCom was four years 12 of tax returns hadn't been filed. We went in and paid 13 for those to get done just to bring in compliance what 14 they had said they were going to do. And we were getting 15 a tremendous amount of pressure, not a tremendous, a lot 16 of pressure every day from different people contacting us 17 to do something, do something about it, 18 The equity value of this company at one time, 19 ECom, was $250,000,000. And we have been contacted by 20 shareholders that, you know, bought shares as high as 21, 21 all the way down to 4 and $5, $3, that are actually 22 economically devastating, and nothing was happening, and 23 you know, Mr. Panaia helped certain - he wasn't able, as 24 we discovered later, to maybe do this and do what was 25 said. So we kind of inherited a lot of this by reverse 19 1 osmosis trying to do the right thing and do what was said 2 and properly get it into a form that we could basically 3 reorganize under the court supervision, submit a plan 4 that makes sense, not only for creditors, which we are, 5 but as well as other creditors that are employees that 6 mortgaged their house, to pay credit card bills they paid 7 for on behalf of the company that are just really upside 8 down on the whole thing. 9 So you know, we know how we think we can 10 present a plan that is win win for everybody that works 11 out to, including with the SEC is not a problem, it works 12 out with what we deal with them daily, but all this lost 13 value has a shot at being recaptured. We're in the 14 middle of a lot of deals and deal flow, people come to 15 us, and we have that pretty substantial companies that 16 have talked to us about being acquired and merging to 17 recapture this value thatfs been lost. 18 MR. GAMBERG: I have a few questions. 19 CROSS EXAMINATION 20 BY MR. GAMBERG: 21 Q". Are you somewhat familiar with the financial 22 affairs of ECom? 23 A. I've seen the audits, yes. Mr. Turner is more 24 than I am because hefs the CPA, but I'm familiar with 25 them, yes, sir 20 1 Q. And at one time you were an officer of the 2 company? 3 A. Yes, sir. He asked me to become an officer of 4 the company, and we did in order to help, and after that 5 the relationship, because of health and various reasons, 6 just deteriorated, and I resigned way back in November, 7 something like that, October. 8 Q. You've examined the financial affairs of the 9 company as best you could as they exist today? 10 A. Yes, sir. 11 Q. And the company has liabilities that you're 12 aware of? 13 A. Yes, sir. 14 Q. And the company has assets of any kind that 15 you're aware of? 16 A. Well, they've got some assets, but those assets 17 are pretty much, because of the passing away has 18 discontinued operations, and I don't know what value you 19 would place on that in liquidation. It couldn't be much. 20 Q. But you believe there are assets that could be 21 developed through the course of a Chapter 11 22 proceeding? 23 A. Yes, sir, I think we can recapture a lot of 24 value. 25 Q. And today if the company were liquidated would 21 1 there be any kind of distribution to creditors? 2 A. Nor to any equity security as well. I don't 3 think you'd get - very little, 4 Q. And if the company has a chance to reorganize 5 and your plan were successful if approved by the Court do 6 you believe there would be available money to pay 7 creditors? 8 A. I believe we could pay a hundred percent pay 9 out to the creditors, and more importantly, restore some 10 of the equity security holders value. Because a lot of 11 people have got their retirement in this company, at 12 least I've been told, and you know, it's pretty 13 compelling when they get you on the phone. 14 Q. And you've done a lot of the work internally in 15 preparation to getting the plan of reorganization filed 16 with the court? 17 A. There's books with every current tax return, 18 every 10Q, the current 10K or year ends, 531, which is 19 just around the corner -- 20 Q. Are are you referring to these two volumes 21 which I had Federal Expressed to me on Friday 22 afternoon? 23 A. Yes. And there is just a tremendous amount of 24 legal and accounting been put in to bring in compliance 25 what we had to do, and we did this just because you know, 22 1 with the SEC you have got to do your filings, you have to 2 file your tax returns, you have to do these type of 3 things. And so our office, we do that up there, and 4 that's what we did, and we went out and got the audits 5 done by SEC independent auditors and tried our best to 6 clean it up in preparation of trying to do something 7 here. 8 Q. Just two more questions. Could you have been 9 in a position to file a plan before this work had been 10 accomplished? 11 A, No, not really, because in your disclosure 12 statement, you know, with the SEC and with the Court, you 13 know, it's got to be very accurate and precise 14 information and with audits, and we now have that. 15 Q. Do you have the source of funding to make a 16 plan feasible? 17 A. Yes. As far as the parent company, it's got 18 about a 6 and a half million dollar tax law secured for 19 it, itfs been certified by the accountants. We've got a 20 company that we're talking to, First Commercial 21 Insurance, good friends of ours, and they did 140 million 22 last year and very profitable, based on a market capital 23 comparable, which is Sea Bright (phonetic), it would be 24 120 to 150 million market cap based on that comparable, 25 you know, for the shareholders that could be recaptured. 23 1 And we're -- 2 Q. My question was, do you personally - does your 3 company have the sources and the actual funding? 4 necessary 5 A. Yes, sir. 6 THE COURT: Mr. Richmond, please wait until Mr. 7 Gamberg asks his question before you answer the 8 question. 9 THE WITNESS: Sorry. 10 BY MR. GAMBERG: 11 Q. Is there cash available for funding to fund 12 both the cost of the reorganization and any capital 13 contribution that needs to be made to remove the debtor 14 from Chapter 11? 15 A. Yes- 16 Q. Do you have those funds available today? 17 A. Yes, sir. 18 Q. Approximately how much? 19 A. For just the ECom and this work here, a half a 20 million, just in administrative expenses, 21 -MR. GAMBERG: Thank you. 22 THE COURT: One moment. 23 Mr. Richmond, I believe that I heard you to say 24 that it is your understanding that the debtor, that's 25 ECom ECom.com, Inc., has no tangible assets. 24 1 THE WITNESS: In my personal opinion there 2 is - I mean, itfs a small amount. They have some paint 3 ball - 4 THE COURT: Have some what? 5 THE WITNESS: Paint ball, like where these 6 paint balls, they shoot guns that they -- and it's very 7 limited sales that they have going on there, and I don't 8 know what that would be worth. 9 THE COURT: They have an inventory of paint 10 balls; is that what you're saying? 11 THE WITNESS: A small amount of inventory, 12 yeah, the paint ball gun equipment. 13 THE COURT: Where is that located? 14 THE WITNESS: In a warehouse that they have. 15 The Panaia family knows the exact location. I don't, 16 THE COURT: Is that in South Florida? 17 THE WITNESS: Yes, sir, in Palm Beach County 18 here, yes, sir, 19 THE COURT: What else does ECom eCom.com, Inc. 20 own besides a small inventory of paint ball gun 21 equipment, and that is tangible assets? 22 THE WITNESS: Just some computers I think, and 23 desks and miscellaneous. 24 THE COURT: Is that located in the same spot as 25 the paint ball gun equipment? 25 1 THE WITNESS; I think so, sir, I think so. 2 THE COURT: Have you seen any of these assets? 3 THE WITNESS: I haven1t seen, since they moved 4 from Riviera Beach where they were there, I haven't seen 5 the new location, no, sir, but I've seen it when it was 6 there. 7 THE COURT: So this company has a small 8 inventory of paint ball gun equipment, computers, desks, 9 and then I think you said miscellaneous? 10 THE WITNESS; Yes, sir. 11 THE COURT: Whatever that means. 12 THE WITNESS: I think some phones and maybe a 13 little office equipment. 14 THE COURT: Did ECom eCom.com, Inc. ever 15 operate? 16 THE WITNESS: Yes, sir. Years ago it operated 17 and did several - but it was a .com company and I think 18 it got caught in the same, as many, many others, and just 19 kind of started hemorrhaging and failed to get additional 20 financing and money to develop the business plan. That's 21 what it appears. I wasn't around then. 22 THE COURT: So then you stated at one time that 23 the equity value of the debtor was 250,000 million 24 dollars? 25 THE WITNESS: According to the charts and 26 1 trading back in '99 and 2000 that was going, yes, sir. 2 THE COURT: And that 250 million dollars, that 3 was cash or some form of - 4 THE WITNESS; That was market value of the 5 outstanding shares that were multiplied times the stock 6 prices that were traded. 7 THE COURT: That wasn't based upon any assets 8 that ECom eCom.com, Inc. owned? 9 THE WITNESS: Well, not to my knowledge. It 10 was based on -- well, I mean, the underlying financial 11 statements they had on file with the SEC and the market 12 value of their potential business model and 13 opportunities, so I don't know how the people come to 14 that value other than, you know, buying the shares based 15 on whatever their -- financial advice or whatever they 16 believe at that point in time. And the market cap today 17 is about 3 million with everything outstanding. And 18 there's really not any trading occurring too much today 19 because people realize that he passed away and that 20 there's really not anything going on 21 THE COURT: When you say market cap today is 22 only 30 million -- 23 THE WITNESS: 3. 24 THE COURT: 3 million? 25 THE WITNESS; Yes, sir. It's 7 cent times 27 1 about 40 million shares outstanding. It's the last that 2 I have looked at. 3 THE COURT: But that just represents 4 theoretically what someone is willing to pay for some 5 paper? 6 THE WITNESS: That's about what - you're 7 right, yes, sir, it is. Because you know, we're trying 8 to put fundamentals back in the business to put real 9 value underlying it. I mean, is the stock worth 7 cents 10 today? No. I won't buy it. People buy it maybe 11 averaging down at $2, but that's what a lot of that is. 12 THE COURT: So then how would you be able to 13 inject value in this company? 14 THE WITNESS: Well, to go get a shareholder 15 base of 6, 7,000 in shareholders, which that shareholder 16 base will qualify you for the New York Stock Exchange, it 17 takes 5,000 shareholders, and what you do is you've got 18 to find a company that it can acquire, set it up, get 19 financing behind it that can come out and that wants to 20 grow through the access to the public capital markets. 21 * THE COURT: So what you would really need to 22 find, it seems to me, is you need to find somebody who 23 can use a 6.5 million dollar tax loss carry forward -- 24 THE WITNESS: Yes, sir. 25 THE COURT: -- and is willing to invest a 28 1 substantial amount of money in a shell to use for their 2 own purposes? 3 THE WITNESS: Yes, sir, that's it pretty much. 4 And we have those people. We're willing to invest in, 5 you know, future securities, a substantial amount of 6 money in a plan that we can be involved in, and were not 7 say control, but we know the management and we know the 8 people in that. 9 In addition to that, the spun-off companies, 10 therefs a very good chance that we can recapture all the 11 shareholder value if we go to work on it and do it 12 prudently and do it right and do the things to keep in 13 compliance. American Capital has got, you know, between 14 equity and debt and the various people in there that 15 we've been asking, we've got, you know, 6, 700,000 in 16 this game now, and you know, we're willing to go more to 17 make a finish line to work through it. 18 Mr. Kaniuk, do you have any other questions? 19 MR. KANIUK: I have no other questions 20 THE COURT: Mr. Gamberg? 21 ' MR. GAMBERG: No, sir. 22 THE COURT: Thank you. You can remain right 23 there. Are there going to be any other witnesses? 24 MR. GAMBERG: No. 25 MR. KANIUK: No. 29 1 THE COURT: So then Mr. Kaniuk, what would you 2 propose that the Court do today? 3 MR, KANIUK: I would ask the Court to enter an 4 order for the bankruptcy and allow us to proceed. If the 5 Court wants me to get co-counsel, 1 could either ask Mr. 6 Gamberg to work with me, or I'll talk with the attorneys 7 with Kluger Peretz with whom my firm has a relationship. 8 But it would be our plan to, within the next 60 days, to 9 propose a plan of reorganization. 10 THE COURT: How could Mr. Gamberg work with you 11 if Mr. Gamberg represents American Capital Holdings? 12 MR. KANIUK: No. I represent American Capital 13 Holdings. 14 THE COURT: I beg your pardon. 15 MR. KANIUK: Mr, Gamberg represents other 16 shareholder investors in the company. 17 My goal would be to look to minimize costs, so 18 I was suggesting multiple alternatives to the Court. But 19 the real goal is to be able to preserve some value for 20 the shareholders who have traded these shares that have 21 no value, and we believe that we can do that in the 22 context of this Chapter 11, propose a plan, be able to 23 invest real money, make acquisitions and exit the Chapter 24 11 within 60 to 90 days. 25 THE COURT: And you, Mr. Kaniuk, say that you 30 1 are going to do all of this representing American Capital 2 Holdings, is that my understanding? Do you represent 3 American Capital Holdings? 4 MR. KANIUK: Yes. 5 THE COURT; I have that right. And you1re 6 going to orchestrate all of this representing American 7 Capital Holdings, that's your plan? 8 MR. Kaniuk; Because American Capital Holdings 9 would be the one that is willing to fund this plan. 10 THE COURT: Mr. Gamberg, do you care to say 11 anything? 12 MR. GAMBERG; Judge, I think we have a not good 13 situation here. The Court realizes that. I think that a 14 lot of -- 15 THE COURT: I think Mr. Kaniuk, in stating to 16 the Court that he's going to do all of this and 17 orchestrate all of this, has a skewered concept of what a 18 bankruptcy is, and I donft see how he can represent 19 American Capital Holdings, who is a creditor of ECom 20 eCom.com, Inc. and also in effect, represent the debtor. 21 _ MR. GAMBERG: They would have to be the plan 22 proponent, if that's the route that they want to take. 23 The debtor itself, Judge, since the death of its 24 principal, needs to have a little bit of internal 25 corporate reorganization and voting of officers and 31 1 directors, but therefs no reason why the creditor 2 couldnft be the proponent of a plan and have a plan 3 filed. They've done a lot of the work to try to get that 4 done. Absent that, this company, if the case were 5 dismissed or converted to a Chapter 7, there would be 6 nothing for anybody. 7 THE COURT.- But now there is something for 8 somebody? A company that owns paint ball guns. 9 MR. GAMBERG: No. I said there would be 10 nothing for anybody if the case were converted or 11 dismissed. That's clear. 12 What I further said is that if they can propose 13 this plan, which we discussed preliminarily this morning, 14 there is an ability to reorganize the company and see 15 some value both for the creditors and the shareholders. 16 THE COURT: And that would be by -- through the 17 efforts of American Capital Holdings? 18 MR. GAMBERG: Yes, sir. 19 THE COURT: Them raising funds. 20 MR. GAMBERG: Them raising funds, them filing a 21 plan with a disclosure statement, 22 THE COURT: And they would raise those funds by 23 selling stock? 24 MR. GAMBERG: No. I understood from the 25 testimony that we elicited earlier that those funds are 32 1 presently available in American Capital Holdings. 2 THE COURT: So then how do you propose, or how 3 do you suspect that those funds would make their way into 4 some bank account maintained by eCom eCora.com, Inc. 5 MR. GAMBERG; I don't know that they have to go 6 into that bank account, Judge. What they would need to 7 do is pay for the cost of administration to get the plan 8 done and filed, they would then have to perhaps put some 9 equity into the business to have the business be able to 10 operate, whether they would take additional stock for 11 that, I would assume that would be part of the game plan, 12 But the testimony was they have 5 to $700,000 available 13 to accomplish that, and absent that, I don't see any 14 value to anyone as it exists today in this company. 15 THE COURT; So you would have me continue this 16 matter? 17 MR, GAMBERG: No. Enter an order for relief, 18 require a plan to be filed in 45 to 60 days. In the 19 interim the debtor will have to file its schedules and 20 operating statements, and we111 either have a confirmed 21 plan in 90 days, or we111 have a Chapter 7 or a 22 dismissal. I guess, Judge, what Ifm saying is, there's 23 no harm in letting them try. 24 THE COURT: I could see substantial harm, Mr. 25 Gamberg. I could see representations being made as to 33 1 all the great things that ECom eCom.com, Inc. was going 2 to do, about the tremendous value that is there because 3 of all the stock that is being held by shareholders, and 4 that based on that I could see other people advancing 5 funds based on that. And as a result I could see a 6 further loss by other people. That's what I could see. 7 Tell me where I'm wrong. 8 MR. GAMBERG: Perhaps we could require no 9 further press releases during this interim period. 10 MR. KANIUK: Those press releases were 11 issued -- we wouldn't be issuing press releases or 12 soliciting money absent any court approval. We certainly 13 wouldn't -- my understanding, and as Mr. Gamberg pointed 14 out in testimony, was that American Capital Holdings had 15 that money presently available in its company to fund the 16 plan, not that it would be going out to solicit 17 additional funds based on representations of what might 18 happen. 19 THE COURT; One moment. I'll take the 20 following action. Mr. Kaniuk, since you represent 21 American Holdings, I'm going to require you to submit an 22 order. 23 MR. KANIUK: Okay. 24 THE COURT: I am going to adjudicate eCom 25 eCom.com, Inc. as a Chapter 11 debtor. That's number 34 1 one. 2 Number two, within 15 days I will require the 3 debtor to retain counsel, and in the event the debtor 4 fails to retain counsel within 15 days the case will be 5 dismissed sua sponte. 6 Third, I will set a status conference for June 7 6th, 2005 at 1:30 p.m., and at that status conference the 8 Court will consider dismissal of this case should the 9 debtor fail to comply with this order. I want that in 10 the order. Transmit a copy of that order to Mr. Gamberg 11 before you submit the order for consideration by the 12 Court. 13 MR. Kaniuk: Okay. 14 THE COURT: If something is going to happen 15 with ECom eCom.com, Inc., it better happen very fast. 16 Ifm not going to allow any further scam, if a scam has 17 already been perpetrated, I won't allow any further scam 18 to be perpetrated upon any other persons, 19 Any questions about what I've ruled? 20 MR. KANIUK: I fully understand. 21 ' THE COURT: Mr. Gamberg? 22 MR. GAMBERG: I understand, Your Honor. 23 THE COURT: Very well. Thank you, I'd like 24 that order submitted no later than Friday. 25 MR. KANIUK: That's fine. I'll prepare it 35 1 today, I'll get it to Mr. Gamberg, and we will get it to 2 the Court. 3 THE COURT: Fine. The exhibit will be retained 4 by my courtrooin deputy. Thank you very much. 5 (The proceedings were concluded.) 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 EX-2 5 tran0606.txt COMPOSITE EXH. 2 - ECOM COURT TRANSCRIPT DATED JUNE 6, 2005 1 2 CERTIFICATE 3 4 The State of Florida 5 County of Palm Beach 6 7 I, JACQUELYN ANN JONES, Court Reporter, certify 8 that I was authorized to and did stenographically report 9 the foregoing hearing; and that the transcript is a true 10 record of my stenographic notes. 11 I further certify that I am not a relative, 12 employee, attorney or counsel of any of the parties, nor 13 am I a relative or employee of any of the parties1 14 attorney or counsel connected with the action, nor am I 15 financially interested in the action. 16 17 In witness whereof I have hereunto set my hand 18 and seal this 4th day of July, 2005. 19 21 JACQUELYN ANN JONES 22 Commission No. CC 995956 Bonded Thru Notary Public Underwriters 23 Expires Feb 18, 2005 24 25 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF FLORIDA Judge Steven H. Friedman In Re : Case No. 04-35435-BKC-SHF eCom eCom.com, Inc., Debtor. STATUS CONFERENCE June 6, 2005 The above entitled cause came on for hearing before the HONORABLE STEVEN H. FRIEDMAN, one of the Judges in the UNITED STATES BANKRUPTCY COURT, in and for the SOUTHERN DISTRICT OF FLORIDA, at 701 Clematis Street, West Palm Beach, Palm Beach County, Florida, on June 6, 2005, commencing on or about 1:30 p.m., and the following proceedings were had: Reported by: Jacquelyn Ann Jones, Court Reporter OUELLETTE & MAULDIN COURT REPORTERS (305) 358-8875 1 APPEARANCES: 2 KLUGER, PERETZ, KAPLAN & BERLIN, P.A. 3 By: MICHAEL S. CEASE, ESQUIRE, and MARILEE MARK, ESQUIRE 4 On behalf of the Debtor 5 TAPLIN & ASSOCIATES 6 By: RONALD S. KANIUK, ESQUIRE On behalf of petitioning creditors 7 8 By: JAY GAMBERG, ESQUIRE On behalf of several shareholders 9 (Appearing by telephone) 10 UNITED STATES TRUSTEE'S OFFICE 11 By: DENYSE HEFFNER, ESQUIRE 1 THE COURT: This is the case of eCom eCona.com, 2 Inc., and I first will start by saying that I sincerely 3 apologize for the delay. Give me just a moment, please. 4 And also we have Mr. Gamberg appearing by phone. 5 (The Court contacted Mr. Gamberg by telephone.) 6 MR. GAMBERG: Jay Gamberg. 7 THE COURT: This is Judge Friedman, Mr. 8 Gamberg. 9 MR. GAMBERG: Thank you for taking my telephone 10 appearance. 11 THE COURT: I'm ready to proceed on the matter 12 of ECom eCom.com, Inc. Various matters are scheduled. 13 Let me first start with appearances of counsel. Mr. 14 Cease. 15 MR. CEASE: Yes, Your Honor. Michael Cease and 16 Marilee Mark from the law firm of Kluger, Peretz, Kaplan 17 and Berlin, here as proposed counsel for the debtor, eCom 18 eCom.com, Inc. With us in the courtroom is Mr. Barney 19 Richmond, who is the proposed CEO of the company and Mr. 20 Rick Turner, who is the CFO of eCom. 21 THE COURT: Rick Turner? 22 MR. CEASE: Yes, sir. Thank you, Your Honor. 23 THE COURT: And he is the proposed CFO? 24 MR. CEASE: He is the CFO. Mr. Richmond is the 25 proposed CEO. And also Mr. Kaniuk is here, who filed the 1 involuntary petition. 2 THE COURT: And Mr. Kaniuk, what is your -- 3 MR. KANIUK: Representing the petitioning 4 creditors. 5 THE COURT: Right. And Mr. Gamberg, who do you 6 represent? 7 MR. GAMBERG: I represent several of the 8 shareholders, Your Honor. 9 THE COURT: Very well. Thank you. 10 MS. HEFFNER: And Your Honor, Denyse Heffner 11 for the U.S. Trustee. 12 THE COURT: Thank you, Ms. Heffner. 13 This is an involuntary case initiated by the 14 filing of an involuntary petition on November 29th of 15 2004. This case has sort of been languishing for quite 16 awhile. 17 Let me first take up the debtor-in-possessionfs 18 application for employment of attorney. 19 MR. CEASE: Yes, Your Honor. Thank you. 20 Your Honor, you are correct, the involuntary 21 petition was filed on November 29th of 2004. For 22 whatever reason this case did languish for a few months. 23 There were stipulated extensions, which were agreed to by 24 the parties as far as filing a response to the 25 involuntary petition. 21 5 1 It is my understanding that on May 16th Your 2 Honor convened a status conference in this case, and as a 3 result of that proceeding an order for relief was, in 4 fact, entered pursuant to Chapter 11 of the Bankruptcy 5 Code, and you entered an order directing the 6 debtor-in-possession to file schedules and statements by 7 a certain date, to retain counsel, I think it was by the 8 4th, which would carry over through today. We are here, 9 we were contacted this past week by the debtor as far as 10 undertaking the representation. Kluger Peretz filed an 11 application. An affidavit of myself was included with 12 the application. 13 We also filed a disclosure of compensation. We 14 did not receive payment of any retainer or other fees 15 from the debtor prior to today. We have proposed a 16 $65,000 retainer, which will be funded from the 17 debtor-in-possession financing, which was filed on an 18 emergency basis Friday afternoon. I believe our firm 19 meets the requirements under Section 327 (a) as far as 20 disinterested. We do not hold a represented interest 21 adverse to the estate. 22 As far as any fees which may be incurred 23 pre-petition, obviously they were incurred in gearing up 24 for today's hearings. If Your Honor would like us to 25 waive those fees in order to maintain disinterestedness, 23 26 I think we are okay to do that on the conditions of being 27 retained. And our retention would obviously be 28 conditioned upon approval of the debtor in possession 29 financing, as we don't want to do this case for free, and 30 we're comfortable with the retainer sitting there, albeit 31 it will be held in trust and subject obviously, to award 32 by Your Honor. 8 With that having been said, Your Honor, Ifm 9 happy to get into -- I prepared a brief presentation for 10 Your Honor today to give you some background of the 11 company, give you an idea of what has happened in the 12 past and where we hope to go over the next 30 day period. 13 THE COURT: Well before you do that, Mr. Cease, 14 I think I need to resolve the issue of retention. 15 MR. CEASE: Yes, sir. 16 THE COURT: Ms. Heffner, do you have any 17 thoughts? 18 MS. HEFFNER: I have no objection to the 19 retention, Your Honor. I was a little concerned about 20 the source of the fees. We've talked about that. And 21 about the fees being held in the trust fund, and we've 22 talked about that. I don't, in fact, see any reason for 23 Kluger Peretz to waive their prepetition fees because, as 24 I understand it, it's all very, very current, and in 25 connection with the bankruptcy. So I have no objection 19 7 1 to their retention, Your Honor. 2 MR. CEASE: Your Honor, I have prepared an 3 order. The U.S. Trustee has not seen a copy. 4 THE COURT: Ifd like to get your input, Mr. 5 Kaniuk. 6 MR. KANIUK: I have no objection. In fact, it 7 was my suggestion that the debtor contact Kluger Peretz. 8 So we're happy with them being involved, and I think 9 theyTll help move the case along. 10 THE COURT: Ms. Heffner. 11 MS. HEFFNER: No objection. 12 MR. CEASE: May I approach, Your Honor. 13 THE COURT: Yes, you may approach. 14 MR. CEASE: Just old habit, Your Honor. 15 THE COURT: I understand. Just so I am clear 16 as to your interpretation of this order, Mr. Cease, or 17 perhaps I should say my interpretation, the order 18 provides that you were -- your firm is authorized to 19 receive payment in the amount of $65,000 as a retainer in 20 this case, against which KPKB is authorized to draw fees 21 and costs awarded by this Court. Is that to say that the 22 $65,000 then will be held in trust? 23 MR. CEASE: Absolutely, Your Honor. 24 THE COURT: And shall be disbursed only subject 25 upon court order. 1 MR. CEASE: Absolutely. That's my 2 representation to the Court. 3 THE COURT: Very well then. I've entered an 4 order approving employment of debtor in possession's 5 counsel. Mr. Cease, you'll see to the conforming and 6 distribution of copies. 7 MR. CEASE: I shall, Your Honor, thank you. 8 THE COURT: Thank you. 9 Next I would take up the motion for interim 10 final orders authorizing the debtor to obtain post 11 petition financing and scheduling a final hearing. 12 MR. CEASE: Yes, sir. Your Honor, if I may 13 proceed, just by way of background of the company. 14 THE COURT: You may. 15 MR. CEASE: The debtor was a holding company 16 that previously held interest in ten wholly owned 17 subsidiaries. In the first quarter of 2004, pursuant to 18 SEC staff bulletin 4, the subsidiaries were spun off into 19 separate entities, spun off as separate entities. 20 THE COURT: When was that? 21 MR. CEASE: This was in the first quarter of 22 2004. 23 Under the staff bulletin 4 shareholders of the 24 parent company received shares in the spun off -- were to 25 have received shares in the spun off entities on a 24 26 proportionate basis. By way of very simplified example, 27 if a shareholder held one share of stock in eCom, the 28 debtor, they would receive one share of stock in each of 29 the spun off entities. 5 Two of the ten subsidiaries had filings done, 6 had audit work completed, and the shares were actually 7 issued to the shareholders of the parent company. In 8 eight of the spun off entities for financial reasons SEC 9 filings were not completed, the audit work was not 10 completed, and the shares were not issued. 11 The funds were subsequently lent to the spun 12 off entities by an entity called American Capital 13 Holdings, which enabled the spun off entities to complete 14 the audit work, the SEC filings, and will enable the spun 15 off entities to distribute shares through the stock 16 transfer agent upon their form 10 being approved by the 17 Securities and Exchange Commission. 18 Between the time that the spin offs were 19 announced and the form 10 would be approved by the SEC, 20 there were reasons, as I've said, why compliance wasn't 21 done, and numerous shareholders had threatened 22 shareholder litigation arising from these events. There 23 are approximately 6,000 shareholders of what we're 24 talking about, and these were publicly traded companies. 25 American Capital Holdings is 30 percent owned 10 1 by Mr. Richmond, sitting in the courtroom today, and 2 American Capital Holdings holds 3.7 percent in the 3 debtor. Again, American Capital Holdings loaned money to 4 the spun off entities to accomplish the audits, SEC 5 filings, and also tax returns for filing with the 6 Internal Revenue Service. 7 The involuntary petition was filed against ECom 8 on November 29th, 2004. Several extensions were agreed 9 to, which culminated in the status conference convened by 10 Your Honor on May 16th. An order was entered by the 11 Court establishing various deadlines, including a 12 deadline to retain counsel. The board of directors of 13 ECom have since resolved to bring Mr. Richmond in as the 14 CEO to run the day-to-day affairs of the debtor -- 15 THE COURT: And what are those day-to-day 16 affairs? That is for a debtor, that, according to the 17 schedules, has no real property, lists on the first page 18 of the personal property schedules, lists $118.85 in a 19 bank account with Enterprise Bank checking, on the second 20 page of the statement of financial affairs -- or pardon 21 me, on the schedules, lists various accounts receivable, 22 and then on the third page lists office -- other 23 equipment under machinery, fixtures, equipment and 24 supplies for $494.20. Just based on my review of the 25 schedules, and I think Ifm echoing some thoughts that I 16 11 1 conveyed to Mr, Kaniuk at a previous hearing, I donft see 2 where this debtor has any assets. 3 MR. CEASE: Yes, sir. And when they first came 4 to our office I raised the same issues, and had to have 5 been brought up to speed as far as what a business plan 6 would look like and why this case should be in Chapter 7 11. And I am now convinced, and hopefully can persuade 8 Your Honor, why it should remain in Chapter 11 for a 9 brief period of time to let us accomplish. 10 The answer is twofold, Your Honor. First of 11 all, you're correct, on the schedules there are no assets 12 listed. There is some ? 13 THE COURT: Well, it would be amazing to me if 14 I wasn't correct about that. 15 MR. CEASE: There is some debate over whether 16 the spin offs were done effectively and in compliance 17 with the SEC regulations. If those entities were not 18 validly spun off in accordance with SEC regulations, then 19 the debtor would have assets which would consist of the 20 stock in the subsidiaries because the spin off would be 21 valid. 22 THE COURT: And what do those subsidiaries own? 23 MR. CEASE: There are two subsidiaries, or two 24 spun off entities that have been completed, one of which 25 is My Zip Soft.com, the other is USA Sports Net.com, 24 12 1 which subsequently changed its name to American Capital 2 Holdings. Those two entities are operating entities. 3 The other eight wholly owned subsidiaries that were 4 purportedly spun off are public shells and don't 5 currently, to my knowledge, have any real ongoing 6 operations. Small, Mr. Richmond is motioning over to me. 7 So what we want to accomplish in the bankruptcy 8 is to the extent that these spin offs were not done in 9 compliance with SEC regulations, one of my colleagues is 10 a securities lawyer, we are going to effectuate the spin 11 offs under a plan of reorganization which we plan on 12 filing in less than 30 days. 13 The other aspect to the plan of reorganization 14 is there is a,very large insurance company in South 15 Florida that is currently nonpublic that is going to 16 merge with ECom. There will be benefit in two regards. 17 Number one, the unsecured creditors of ECom will be paid 18 a hundred cents on the dollar. Number two, we will 1*9 effectuate any spin offs that weren't done in compliance 20 with the SEC regs, and as a result of the merger with 21 this insurance company that has approximately 150 million 22 dollars in annual revenues, there will be equity value 23 created for the shareholders of eCom. So it's a win/win 24 situation. 25 We believe that we can file a plan in under 30 13 1 days. And that, hopefully we will be in Chapter 11 for a 2 very brief period of time. And that, in essence, Your 3 Honor, is the business plan of ECom, and I believe that 4 we can accomplish this through a plan of reorganization, 5 we can avail ourselves of the exemptions under 1145, and 6 unsecureds will be paid a hundred cents on the dollar and 7 equity value will be created as a result of this. 8 THE COURT: And these two subsidiaries, Mr. 9 Cease, of the debtor, you stated, I believe that there 10 were ten subsidiaries -- 11 MR. CEASE: That's correct. 12 THE COURT: Two of them are operating entities. 13 MR. CEASE: Thatfs correct. 14 THE COURT: Mr. Richmond is the proposed CEO 15 and Mr. Turner would be the CFO. 16 MR. CEASE: Thatfs correct, Your Honor. 17 THE COURT: So then either Mr. Richmond or 18 Mr. Turner should be able to tell me exactly what it is, 19 or you can tell me, exactly what kind of business it is 20 that these two subsidiaries engage in. 21 MR. CEASE: Your Honor, I would defer to Mr. 22 Richmond. 23 MR. RICHMOND: Basically American Capital 24 Holdings has extensive insurance operations. We're 25 licensed in 49 states now. We have some patented 24 14 1 proprietary products. We own about in net audited assets 2 around 11 or 12 million dollars. The other company is -- 3 we basically put in a company called American 4 Environmental, that we have an acquisition that's 5 underway of another company, which has been in business 6 since 1958, over 46 years. Revenues in excess of that 7 company are 6, 7 million dollars right now. With other 8 various verticals that are coming off of that, those are 9 two of the spin off companies that are out there. 10 THE COURT: American Capital Holdings is a spin 11 off company? 12 MR. RICHMOND: Yes, it was. What we did, it 13 was named USA Sports Net, we merged -- we have a private 14 company called American Capital Holdings. 15 THE COURT: I know we covered this ground at 16 the prior hearing. 17 MR. RICHMOND: Yes. And what happened was that 18 we did an asset acquisition, American Capital Holdings 19 articles of amendment, name change, and USA Sports Net, 20 and renamed it American Capital Holdings, which houses 21 our insurance operations. We have bought Cosmopolitan 22 Life out in Little Rock, Arkansas, which closes the 27th 23 of this month. We've already paid for it and there's a 24 form A process with the State you have to go through that 25 we've done. And we have two other acquisitions on the 18 15 1 way within American Capital Holdings. And we pretty much 2 to date have advanced about, you know, in trying to 3 restore, you know, this lost shareholder value, in trying 4 to restore the building for the creditor, we put over 5 600,000 in the company on an audited basis right now to 6 make this work to date. And I think itTs a little over 7 600 . 8 MR. CEASE: Your Honor, while it's not a 9 traditional Chapter 11 in the garden variety sense, there 10 is a reorganization to do here availing ourselves of the 11 1145 exemptions. Unsecured creditors will not be paid 12 any other way, and the equity security holders of ECom 13 hopefully will have shareholder value created as a result 14 of this proposed merger with this insurance company that 15 currently operates out of Miami, Florida. 16 And on that basis we would request 17 authorization to go forward. Mr. Richmond has already 18 devised a business plan which we will receive in the next 19 couple of days, and we will start immediately drafting a 20 plan of reorganization and get this out to creditors and 21 equity shareholders. So that would be the business plan, 22 what would form the basis of the plan of reorganization. 23 The board has resolved to bring in Mr. Richmond 24 due to his familiarity with the company as a CEO. 25 Arguably that is an ordinary course transaction under 24 16 1 1107, 1108 and 363, but in an abundance of caution, in 2 light of his contacts with -- in holdings with American 3 Holdings, and so forth, and American Holdings interest in 4 ECom, we wanted to make full disclosure to Your Honor and 5 let you know exactly what's happening here. Mr. Richmond 6 will serve without compensation. He is willing to waive 7 his right to an administrative claim. And Mr. Richmond, 8 through -- excuse me, American Capital Holdings is the 9 proposed lender on an unsecured convertible basis for 10 $100,000 in DIP financing. It will be on an unsecured 11 basis at a rate of interest of 8 percent. It will mature 12 upon the earliest of a conversion, dismissal or 13 confirmation of a plan of reorganization. If the debtor 14 does not have the funds with which to satisfy in cash, 15 that obligation with interest, it will be convertible to 16 equity at the option of the holder based on the average 17 for share trading price over the preceding five days, 18 prior to the exercise of the option. So there really is 19 no detriment to unsecured creditors in American Capital1s 20 advancing this on an unsecured basis. 21 So basically we're before Your Honor asking for 22 a brief opportunity to get this plan on file and get it 23 out to creditors and equity security holders. Based on 24 what I've heard thus far, I think it can work. We have 25 one of my colleagues who is going to look at the SEC work 22 17 1 and make sure it was done properly. And we would 2 respectfully request an opportunity to go forward, Your 3 Honor. 4 THE COURT: So then American Capital Holdings, 5 according to Mr. Richmond, owns or operates an insurance 6 business ? 7 MR. RICHMOND: We have insurance operations and 8 some products that we developed that has insurance 9 components, yes. 10 THE COURT: It!s an insurance operation and you 11 have, what was the last -- 12 MR. RICHMOND: We've developed some proprietary 13 financial products called G packs that addresses the 14 unfunded pension liabilities and municipalities that we 15 have current patents on. And we also have Cosmopolitan 16 Life which writes health insurance out in Arkansas that 17 we're carrying into other states. We Ask Direct which 18 writes life health, and we're not writing annuities 19 through it, but this an agency in 49 states. 20 THE COURT: Mr. Kaniuk, do you have any 21 comment? 22 MR. KANIUK: Mr. Cease more eloquently 23 explained what I was trying to explain at our last 24 hearing, and I think that Kluger Peretz is experienced in 25 both securities and bankruptcy, will allow this plan to 23 18 1 go forward. 2 THE COURT: Ms, Heffner, any thoughts? 3 MS. HEFFNER: Your Honor, as I understand it, 4 the petitioning creditors are two subsidiaries that have 5 already been spun off, and Mr. Turner over here, who is 6 the CFO. American Capital Holdings, which was a 7 petitioning creditor now wants to come in and loan 8 $100,000, 65,000 of which goes immediately to Kluger 9 Peretz, and Mr. -- and hire Mr. Richmond, who is a 30 10 percent owner of American Capital Holdings. So that what 11 we're doing is really satisfying the petitioning 12 creditors the best we can. 13 I'm a little worried about the $35,000, or 14 whatever is left, which will presumably be spent still to 15 get this company up, for instance with accountants or 16 whatever, because I think if it converts I'd like to have 17 that $35,000 for the trustee, and it seems to me that 18 American Capital Holdings on an unsecured basis is going 19 to take it back. So Ifm worried about that. But the 20 rest of it, why not give them a chance 21 THE COURT: And 1 am concerned about this as 22 well, Ms. Heffner, but on the other hand, $100,000 in 23 debtor-in-possession financing is coming from American 24 Capital Holdings, and if I am to grasp all of this 25 situation, and accept what is said to me, then there 22 19 1 wouldn't be any other source of funds, other than from 2 American Capital Holdings. The interrelationships 3 between these different entities is unusual, very 4 unusual. But this case was commenced, as you know, as a 5 Chapter 7 -- well, excuse me, it was an involuntary 6 petition, and Mr. Kaniuk shepherded it into this court. 7 If his clients are comfortable with this situation, then 8 I suppose I won't stop it at this point. I voiced at a 9 previous hearing, I don't know whether you were here -- 10 MS. HEFFNER: No, Your Honor. 11 THE COURT: I don't think you were. I'm 12 concerned about an issue of securities fraud, because it 13 seems to me as though what we're doing is we're moving a 14 lot of paper around, and -- 15 MR. CEASE: Your Honor, if I may just briefly 16 respond. One of my colleagues, as I said, is highly 17 regarded in the securities area in the State of Florida, 18 and we have him, assuming that we're permitted to go 19 forward, we're going to have him examine these 20 transactions, and I can assure Your Honor that if we 21 uncover any type of securities fraud we will be back 22 before Your Honor because we would never, ever perpetrate 23 a fraud upon this court. It's our reputation. 24 THE COURT: You're right, it is your 25 reputation. 20 1 MR. CEASE: Yes, sir. Which I take dearly. 2 MR. KANIUK: And Your Honor, just so you know, 3 I noticed the SEC for today's hearing. 4 THE COURT: How is it that you noticed them? 5 MR. KANIUK: I sent it by mail to both 6 Washington and the Florida regional office. And I called 7 them and they said that that was the best way to send 8 them the papers. 9 MR. CEASE: Your Honor, as far as the debtor in 10 possession financing goes, we sent these motions out on 11 Friday, late in the day. We sent them by fax. We did 12 not serve them on the 6,000 shareholders just because it 13 was an impossibility, having just gotten involved in the 14 case. But as far as the debtor-in-possession financing 15 goes, obviously under Rule 4001 on an interim basis it 16 will be held in trust to pay any fees during that time, 17 subject to award by Your Honor, and we obviously will 18 have to have a final hearing within 15 days. 19 THE COURT: Well, I am no securities expert, 20 Mr. Cease -- 21 MR. CEASE: Nor am I, Your Honor. 22 THE COURT: But there are certain aspects of 23 this situation that donft feel right to me. 24 MR. CEASE: I understand. 25 THE COURT: So I will be watching this very 24 21 1 closely? 2 MR. CEASE: Thank you, Your Honor. 3 THE COURT: At an appropriate time I will, I!m 4 sure dissect this whole thing, this series of 5 transactions. 6 MR. CEASE: Yes, sir. 7 MS. HEFFNER: You know, Your Honor, you have 8 Mr. Gamberg who is representing the shareholders on the 9 phone. He might have something to say. 10 THE COURT: Mr. Gamberg, any input? 11 MR. GAMBERG: Well, Judge, I too am not a 12 securities expert, but I know through the process of plan 13 and disclosure statement we should be able to air all of 14 what has transpired and what needs to transpire and give 15 everybody an opportunity to review the situation before 16 we go forward and confirm a plan, if one is doable. 17 THE COURT: Very. well. Anything further then 18 that I need to consider? If not, I will approve the DIP 19 financing. Ifll also authorize Mr. Richmond to become 20 the debtor's chief executive officer. 21 MR. CEASE: Your Honor, I do not have a 22 proposed DIP order with me. I will have it to chambers 23 tomorrow. I do have an order approving Mr. Richmond as 24 CEO. Itfs a very generic order, once again, at the 25 discretion of the board of directors. If I may approach, 22 22 1 Your Honor. 2 THE COURT: Give me just a moment, please. 3 MR. CEASE: Yes, sir. 4 THE COURT: So then you will submit an order 5 authorizing the financing to the debtor-in-possession. 6 MR. CEASE: Yes, sir. 7 MS. HEFFNER: I would appreciate you running 8 that by me. 9 MR. CEASE: Absolutely. 10 THE COURT: I've entered an order granting 11 debtor in possession's motion for authorization to hire a 12 chief executive officer, authorizing the debtor to hire 13 Mr. Richmond as its chief executive officer. Ifll return 14 the original order to you, Mr. Cease. 15 MR. CEASE: Thank you, Your Honor. 16 Your Honor, as far as the proposed order that 17 we will submit tomorrow on the DIP financing, we'11 18 approve it on an interim basis and leave a blank to set a 19 final hearing? 20 THE COURT: Yes. That would be appropriate. 21 Now that this Chapter 11 debtor has an 22 attorney, or a new attorney, actually attorneys, excuse 23 me, because Mr. Kaniuk represents the petitioning 24 creditors, now that this debtor has an attorney, and now 25 that this debtor has DIP financing, and has paid its 22 23 1 attorney $65,000 as a retainer, which is certainly 2 understandable, what is the debtor-in-possession going to 3 do with the other $35,000 that it will have when those 4 funds are advanced, is it going to put it into an 5 operating account? 6 MR. CEASE: Your Honor, Mr. Richmond is in the 7 process of opening a debtor-in-possession account at 8 Wachovia Bank. 9 MR. RICHMOND: Correct. And we would like to 10 bring before the Court to -- we have an SEC qualifying 11 accountant that has already audited all these companies, 12 and we have been disclosing everything to the SEC on a 13 daily basis. Wefll be doing the AK on this tonight or 14 tomorrow. But I would like to address her concerns that 15 we're here to cover those costs and any reasonable costs, 16 as well as we would like to be able to make an 17 application to pay our SEC accountants because, the 18 company's SEC accountant, because if they're not paid 19 they're deemed not independent, so we would like to keep 20 them current if we could, you know, from our auditors. 21 MR. CEASE: To answer Your Honor's question, 22 the $35,000 will not go -- it will go into a 23 debtor-in-possession account, it will not go to cover any 24 operating expenses, as there are no operating expenses. 25 MR. RICHMOND: Well, there's a little, but 24 1 we'll take care of that, It's to basically see this 2 thing through to do what we -- 3 MR. CEASE: We will file an application to 4 retain the accountants -- 5 THE COURT: Let me see if I can be a little 6 more specific. Is the debtor going to lease warehouse 7 space where it can put raw materials so it can 8 manufacture? 9 MR. CEASE: No, sir. 10 THE COURT: Itfs not going to do that. Is the 11 debtor going to use the excess $35,000 to pay its 12 payroll? 13 MR. CEASE: No, sir. 14 THE COURT: Is the debtor going to use the 15 $35,000 to pay rental on its leased office space? 16 MR. RICHMOND: We'll assume that. Wefll cover 17 it, American Capital will cover that. What we're trying 18 to do is not bring any burden. There's some, to correct, 19 there is a little warehouse with some material and stuff 20 in there. We will take care of keeping that up, and 21 independently. The 35,000 was set up for contingent 22 expenses relating to professional, which we would like to 23 see, and only professional services necessary to 24 effectuate this plan. 25 MR. CEASE: Your Honor, candidly, when we 25 1 quoted $100,000 to Mr. Richmond, it was with the idea of 2 $65,000 for debtor's counsel and the idea of the 3 remaining 35 was for accountants who would have to do 4 work. So correct me if Ifm wrong, but we will 5 immediately file an application to retain the accountants 6 to work on behalf of the debtor-in-possession, and their 7 fees obviously, will be subject to award by Your Honor, 8 and my understanding of that 35,000 is it will be used to 9 cover professional fees, including the accountants, but 10 nothing else. 11 MR. RICHMOND: Nothing else. And we've already 12 paid all of -- to the transfer agent, the SEC transfer 13 agent, we've already paid those fees; right? We paid 14 those, we cleaned up a lot of stuff before we came. 15 THE COURT: So then this debtor, ECom eCom.com, 16 Inc. will now reorganize so that it can operate 17 subsidiaries -- 18 MR. CEASE: In the merger with the insurance 19 co mp any. 20 THE COURT: And then what? 21 MR. RICHMOND: It will be a publicly held 22 pretty substantial insurance company, and that work is in 23 the making and we can make it happen. That company just 24 did 135 million last year in Florida alone. It's got a 25 terrific growth pattern to it. 22 26 1 THE COURT: So then ECom eCom.com, Inc. will 2 then be in the insurance business? 3 MR. RICHMOND: Yes, sir. We're going to move 4 them where they're in a profitable business that we 5 understand. We're not software guys, I just have to say 6 we're just not, and this stuff gets obsolete. We think 7 their products are obsolete now. We're not qualified to 8 be in the software business. 9 THE COURT: Very well. Then I will look for 10 one order from you, Mr. Cease. 11 MR. CEASE: Yes, sir. 12 THE COURT: I've entered an order authorizing 13 the retention of Kluger, Peretz, Kaplan and Berlin, 14 authorized the employment of Mr. Richmond as the debtor's 15 chief executive officer. And I remain extremely 16 skeptical as to this entity. And I'm not from Missouri 17 but you're sure going to have to show me why I should 18 allow this debtor to go forward. 19 MR. CEASE: Yes, sir. 20 THE COURT: Mr. Gamberg, is there anything 21 further? 22 MR. GAMBERG: No thank you, Your Honor. 23 THE COURT: Very well. Thank you very much. 24 Have a good day. 25 Mr. Cease, this was submitted, an exhibit 27 1 register for today's hearing. Did you submit that? 2 MR. CEASE: No, sir. That must have been from 3 the last -- 4 MR. KANIUK: That's from the -- 5 THE COURT: Okay. Very well. Thank you. 6 (The proceedings were concluded.) 7 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 EX-2 6 tran0725.txt COMPOSITE EXH. 2 - ECOM COURT TRANSCRIPT DATED JULY 25, 2005 1 1 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF FLORIDA 2 3 Judge Steven H. Friedman 4 5 In Re: 6 Case No. 04-35435-BKC-SHF 7 8 eCom eCom.com, Inc., 9 Debtor. 10 ____________________________________ 11 12 VARIOUS MOTIONS 13 14 15 July 25, 2005 16 17 The above entitled cause came on for hearing before the 18 HONORABLE STEVEN H. FRIEDMAN, one of the Judges in the UNITED STATES BANKRUPTCY COURT, in and for the SOUTHERN 19 DISTRICT OF FLORIDA, at 1675 Palm Beach Lakes Boulevard, 8th Floor, West Palm Beach, Palm Beach County, Florida, 20 on July 25, 2005, commencing on or about 1:30 p.m., and the following proceedings were had: 21 22 23 Reported by: Jacquelyn Ann Jones, Court Reporter 24 OUELLETTE & MAULDIN COURT REPORTERS (305) 358-8875 25 2 1 APPEARANCES: 2 KLUGER PERETZ KAPLAN & BERLIN 3 By: MICHAEL D. SEESE, ESQUIRE, and MELISSA BERNHEIM, ESQUIRE 4 On behalf of the Debtor 5 Also Present: 6 Mr. Barney Richmond 7 Mr. Richard Turner 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 3 1 MR. SEESE: Your Honor, I apologize, I have 2 developed a case of laryngitis and if I lose my voice my 3 colleague, Ms. Bernheim is with me and will take over. 4 THE COURT: Very well. Ms. Bernheim, your 5 first name is? 6 MS. Bernheim: Melissa. 7 THE COURT: And let me ask -- 8 MR. TURNER: I'm Richard Turner with ECom, one 9 of the creditors. 10 THE COURT: The matters before the Court today 11 are, first of all, a final hearing on the debtor's motion 12 for authorization for use of cash collateral -- or pardon 13 me, to authorize the debtor to obtain post petition 14 financing, and today is the final hearing. 15 MR. SEESE: Yes, sir. Your Honor, if I may, 16 just by way of brief background, I want to just bring you 17 up to speed with where we are in the case before getting 18 to the matters, and I will be very brief. 19 First of all, we were here on June -- if Your 20 Honor will recall, this was an involuntary that was filed 21 back in November of 2004. An order for relief was 22 entered at the end of May. We were here before Your 23 Honor on June 6th. Since my firm's retention on June 24 6th, the debtor has filed schedules and statement of 25 financial affairs. We participated in the initial debtor 4 1 interview. We filed debtor-in-possession reports. We're 2 current through the end of June, and that's dating back 3 to the date of the involuntary. 4 We are -- the debtors have also prepared 40 5 10Q's for filing with the Securities and Exchange 6 Commission, 10 form 10SB's, 23 taxes returns, and they're 7 about to complete their year end audit for May 31, 2005. 8 We're in the process of finalizing an application to 9 retain auditors. We are also in the process of preparing 10 an application to retain special securities counsel, a 11 gentleman by the name of Steve Cunningham, who is out of 12 Atlanta, Georgia, and has done a tremendous amount of 13 securities work, he's out of Harvard Law School, very 14 fine credentials. In fact, we participated in a 15 conference call with him this morning. 16 There is one matter that I want to bring to 17 Your Honor's attention. In getting these SEC flings 18 completed there is a requirement under Sarbanes-Oxley 19 that the auditors have to be disinterested. What that 20 translates to is, they can't be owed any money. The 21 auditors were owed approximately $15,000 for work 22 performed between June of 2004 leading up to the end of 23 May of 2005. ECom issued them a check for a just a 24 little over $15,000. I told them when I found out about 25 it that the auditors have to be retained, and we are in 5 1 the process of filing the application seeking nunc pro 2 tunc approval, and Mr. Richmond's company, unbeknownst to 3 me until today, put the money back into the company, back 4 into eCom. I wanted to bring that to Your Honor's 5 attention because if the auditors are approved, which we 6 think they should be, then we may need to issue that 7 check back to American Capital Holdings just to clear the 8 books. But they have been paid and they are aware of the 9 need to file the application. They provided us with all 10 the necessary information, and they now understand the 11 need to be retained. The company was operating under the 12 belief that since this is ordinary course for the company 13 to be filing these things that they were in the ordinary 14 course professionals, but I've now since explained that 15 to them, but I wanted Your Honor to be aware of that. 16 As far as the final hearing on the motion for 17 DIP financing, proper service of the interim order did go 18 out, we have not received any objections, I don't believe 19 any filings have been filed, I've not received any phone 20 calls regarding the financing. We would then ask Your 21 Honor to approve under 364(b) the final 22 debtor-in-possession financing just so, Your Honor, by 23 way of background again, this money was advanced by 24 American Capital Holdings under 364(b). It's $100,000. 25 60 was on an unsecured basis at 8 percent per annum, it 6 1 has a convertible feature if the debtor is unable to pay 2 it, it will be converted to equity. The note will mature 3 upon the earlier of a dismissal, a conversion, or 4 confirmation of a plan of reorganization. 5 THE COURT: And that would be convertible to 6 equity in eCom eCom.com, Inc? 7 MR. SEESE: That's correct, Your Honor. 8 THE COURT: Which is a corporation that at this 9 point, has a negative net worth. 10 MR. SEESE: I think that's probably true. 11 MR. RICHMOND: We're trying to get it where 12 it's got -- 13 MR. SEESE: We have the basis of a plan of 14 reorganization right here which we're going to talk 15 about. 16 THE COURT: But at this point in time eCom 17 eCom.com, Inc., as has been the case since November 29th, 18 2004, when the involuntary petition initiated this case, 19 is in the hole. 20 MR. SEESE: Yes, sir, that's correct. Which 21 I think is a testament to American Capital Holdings for 22 putting $100,000 in on a convertible basis. I think 23 that's a demonstration that they believe in what they 24 want to do through this Chapter 11. 25 THE COURT: And what is that? What is it that 7 1 they want to do? 2 MR. SEESE: Well, first of all, let me again, 3 just by -- I was going to -- if Your Honor will recall, 4 there were ten wholly owned subsidiaries. Those were 5 spun off. Stock was issued. My firm, in connection with 6 Mr. Cunningham out of Atlanta, is in the process of 7 reviewing those spinoffs. 8 THE COURT: That's what you told me two months. 9 MR. SEESE: That was back in June. 10 THE COURT: Well, a month ago. 11 MR. SEESE: Understood. We're in the process 12 of reviewing that now. If there were problems with the 13 spinoffs we will essentially either do them correctly 14 under the plan of reorganization, or if there is a reason 15 why the spinoffs can't be done, we will undo them. 16 That's the first component. 17 The second component is this merger that we 18 mentioned the last time, which Mr. Richmond can tell you 19 more about. 20 MR. RICHMOND: Well, number one, there's ten 21 different legal opinions in that box, and you might want 22 to -- 23 MR. SEESE: Yes. There was -- 24 MR. RICHMOND: They were -- prior to this we 25 were given a legal opinion before we made any move of 8 1 anything, and you will see ten different audits, ten 2 different form 10 SB's, tax returns, 10Q's. There's 3 voluminous -- 4 MR. SEESE: Let me interject something. 5 They've received an opinion from outside counsel as to 6 the validity of these spinoffs in accordance with the SEC 7 bulletin telling them that what they were doing was 8 correct and proper. My firm is now telling Mr. Richmond 9 in consultation with Mr. Cunningham that may not be the 10 case. And on that basis there may or may not be a claim 11 against the firm that rendered this opinion to eCom. 12 But again, what we want to do via this 13 bankruptcy, and I don't think anybody here disagrees, and 14 Your Honor has correctly indicated that this company is 15 in the hole, there is a negative net worth. If this case 16 were to be converted or dismissed today there's nothing 17 for anybody. But the plan of reorganization that we hope 18 to go forward with in the near future will provide for 19 one hundred percent pay out to unsecureds and the 20 creation of shareholder value through these mergers that 21 Mr. Richmond will tell you about. Go ahead, 22 Mr. Richmond. 23 MR. RICHMOND: Okay. Well, again, we still 24 believe the legal opinion here is valid we got, and 25 Mr. Cunningham, and what we want to do is make double 9 1 sure that everything we have done has been in accordance 2 with everything, and we think -- we have, number one, the 3 issue, the CIK numbers, we made application, we filed 4 everything, we got our CUSIP numbers, did everything that 5 was promised. We inherited this last year. 6 Secondly, we brought to the table some very 7 significant companies, operating companies. At this 8 particular point we're probably in this a million two, 9 million three, whatever, I'm not sure, Rick got the 10 audits that reflect American Capitals things, or their 11 filings, and the first ones that we've done, American 12 Capital is validating just like these were. 13 What we're looking to do is to inject a large 14 infusion of capital and whatever is necessary to make 15 American Stock Exchange. We have -- because of the tax 16 loss carry forward with eCom eCom, a company called First 17 Commercial, which is in the transcripts here that I 18 described before, that is ready, willing and able to 19 acquire the majority interest in that company, 80 percent 20 interest to utilize the tax loss carry forward in 21 appropriate gap counting standards. First Commercial is 22 a, you know, a licensed insurance carrier in the State of 23 Florida. Last year's revenues were around 140, after tax 24 3 and a half. We have those relationships to do that. 25 The main thing is that at one time in life this 10 1 company had a market capitalization of over 250 million, 2 and now it went down because of lack of financing, 3 management. We inherited this. Actually, Your Honor, 4 you gave us an order on June 6th that we could become -- 5 that I could become the CEO to this company at no cost to 6 the estate to put together a plan, and we're ready, kind 7 of by Thursday we'll have the final audit on EC, there's 8 11 volumes of filing that's been done that we audit 9 everything there to try to recapture not only lost 10 shareholder value, but the creditors can receive a 11 hundred percent recovery out of this. This is a bizarre 12 deal but you know, we're in there, we're not as educated 13 as everybody else, but we're slugging it out to make it 14 right by everybody as much as we can. 15 If you'll show him, I'd appreciate it, Mike, 16 the legal opinions -- 17 MR. SEESE: Only if the Judge wants it. But I 18 just want to show you that for each of those entities 19 they have a plan and disclosure statement that they have 20 provided to me today so that we can put together, I just 21 wanted Your Honor to be aware of that. 22 THE COURT: That is that you have -- there is a 23 plan and disclosure statement prepared? 24 MR. SEESE: I have not had an opportunity to 25 look at it, but it's the makings of a plan and disclosure 11 1 statement. There are 11 binders, one for each of the 2 spunoff entities, as well as eCom, which we now take a 3 look at, we received these this afternoon, and take look 4 at, the opinion letters that they were referring to are 5 right here, which opines on each of the spinoffs. 6 And so we had a conference call earlier today 7 with Mr. Cunningham out of Atlanta, and two of my 8 transactional guys at Kluger Peretz, to look at this, 9 Judge. And quite frankly, Judge, I'm not a securities 10 lawyer, I'm not going to stand here and tell you that 11 what they did was right, I'm handing it over to the 12 people that can tell me whether it was done properly or 13 not. And what I've told these guys is, if it was done 14 properly, fine, let's go forward with the plan of 15 reorganization, with the merger, creating the value. If 16 it wasn't done properly, let's fix it via the plan, and 17 they can do the merger. 18 And quite frankly, if it wasn't done properly 19 we may not be able to do this, because what we will do is 20 bring those wholly owned subsidiaries back into this 21 company, and instead of doing a spinoff we will do the 22 merger and create the shareholder value that way. 23 Because the way these spinoffs work, you had the 24 shareholders held stock in eCom, and if these wholly 25 owned subsidiaries were spunoff they received a like kind 12 1 proportionate amount of shares in each of the spunoff 2 entities. So if the spinoffs weren't done properly, 3 we'll bring those sums back in, they will have their 4 shares in eCom -- 5 THE COURT: How many of those subsidiaries, 6 excuse me for interrupting, are operating right now? 7 MR. RICHMOND: Well, we've got three that can 8 operate really huge pretty quick. 9 MR. SEESE: Well, the question is, which ones 10 are. 11 MR. RICHMOND: Well, they're operating on a 12 very small basis. And I said up front in these 13 transcripts, you know, I agree, there's not -- there 14 wasn't a whole lot here in the beginning, and we're 15 trying to recapture that, but if you'll look in those 16 filings there's accepted session numbers from the SEC, 17 there's CIK numbers, there's every CUSIP numbers, there's 18 everything in the world. We're trying to -- you know, 19 we've had this thing less than 40 something days on a 20 factual basis. 21 Mr. Panaia died March 20th. 22 MR. SEESE: He was the former CEO. 23 MR. RICHMOND: The former CEO. We went in 24 there and we were the petitioning creditors. We're doing 25 all we can do to everything we know of today. ECom's 13 1 final audit we should have Thursday. Everything we know 2 of today, we've done right by the book. There's 3 independent SEC qualified audits which today, is possible 4 to get -- 5 MR. SEESE: The only thing that I wish to 6 stress again, and I can't speak to the veracity of the 7 SEC spinoffs, but it's with competent counsel right now 8 that are analyzing it, and we certainly will report back 9 to the Court, but one thing that I can speak to today is 10 that as Your Honor said, there are no assets here, 11 there's no operation. If this company converts, there's 12 nothing for anybody. But given the opportunity, I'm not 13 asking for a long period of time, keep it on a short 14 string, I think that benefits everybody sitting at this 15 table to have it on a short string, but if we're able to 16 do what Mr. Richmond has in mind, then we can have an 17 opportunity here to create real shareholder value and the 18 creditors can get paid in full. And that's all we're 19 asking for, Judge. 20 I'm not, again, I'm not saying what was done 21 was correct or not, I hope to find out in the near future 22 the answer to those questions. And again, it will be 23 filing application and to come in and work with Mr. 24 Cunningham to come in to work with my group, and you 25 know, that's what I'll say with respect to those items. 14 1 THE COURT: And it all is tied into taking 2 advantage of the tax write-offs which the various 3 entities which were spun off by ECom eCom.com, Inc. 4 supposedly have available to them; is that true? 5 MR. RICHMOND: A lot of it is that, Your Honor, 6 a lot of it is the shareholder base is kind of upside 7 down. 8 Last but not the least, the creditors, at this 9 particular point, you know, there are several millions of 10 dollars owed that we can recapture that. I think 11 everybody, if we just stay the course, do what we're 12 supposed to do is, I think that we will -- we absolutely 13 can do that. We're committed, and you let the record 14 reflect this, we're committed with different various 15 sources. I think I can provide 25 million in financing 16 of this in a pretty reasonable period of time. And you 17 know, and where we're going forward. Because we've got 18 real things. 19 Again, we inherited this. We're looking to, 20 not only for American Capital shareholders, which was 21 part of eCom shareholders, which is approved by the SEC, 22 to recapture everything that we can, and go do what we're 23 supposed to do. And if you have the opportunity to look 24 at these filings, they're in, they're done, they're 25 accepted number, there's audits, and we worked very hard, 15 1 we spent a lot of money at no cost to the estate, and 2 we're spending more every day to make this right by 3 everybody that's in the thing. We're a small guy in the 4 deal in a lot of ways. 5 MR. SEESE: To answer your question, Your 6 Honor, yes, there are some tax loss carry forwards that 7 are attractive, and that's one of the attractive features 8 of these mergers. 9 THE COURT: Yes, that's what I asked. 10 MR. SEESE: So yes, Your Honor, you're right on 11 the money there. I think that is what makes some of 12 these entities an attractive merger candidate because of 13 the tax loss carry forwards, and certainly, there's value 14 there, and that would, you know, that's part of the 15 attraction. 16 THE COURT: And as best as you know, Mr. Seese, 17 is there any intent by eCom eCom.com, Inc. at this point 18 in time to get any of these entities actually operating 19 and doing some form of business, that is, selling 20 something or servicing something? 21 MR. SEESE: I think the best way that I can 22 answer your question, Your Honor -- 23 MR. RICHMOND: Absolutely, Your Honor. 24 MR. SEESE: Hold on. -- is that not only is 25 eCom a merger candidate, but there are certain of the 16 1 spunoff entities that are merger candidates as well. 2 I think it's fair to say that not all of them may 3 ultimately end up being operating companies -- 4 MR. RICHMOND: It's too much at once. You 5 know, when you do mergers and acquisitions, that would be 6 too much at once. Right now we have four at the table 7 that, I think we can successfully, management in place, 8 integrate to what we need to do, and financing is pretty 9 well there, and we'll get it done. We've proven to a lot 10 of people, we got a lot done that wasn't done, and it was 11 an inheritance that we got. But yes, we can -- 12 MR. SEESE: Let's not be overly optimistic. 13 What I told Mr. Richmond this morning was, the game plan 14 is to first finish the analysis of these spinoffs. They 15 need to get this audit done as a condition to one of the 16 mergers. This is an insurance company that Mr. Richmond 17 has referred to. 18 I think the direct response to Your Honor's 19 question is, I don't think Mr. Richmond has any vision 20 right now of all these spunoff entities being operating 21 companies, but there will be three or four that will be 22 operating through mergers, and it is those transactions 23 that we hope to effectuate through the plan of 24 reorganization. 25 Mr. Richmond is telling me that in speaking 17 1 with the auditors the audit on 53105 is supposed to be 2 done Thursday, and that is a key piece to the one merger 3 with First Commercial. 4 MR. RICHMOND: First Commercial Insurance out 5 of Florida. He told me he would have it ready Thursday, 6 and then we'll go to work. That's the integral part of 7 that, the last part of this. 8 THE COURT: Now another issue, Mr. Seese, you 9 raised, or mentioned Sarbanes-Oxley, and you've stated 10 that the auditors were owed $15,000, but now they're 11 going to be paid. 12 MR. SEESE: They were paid. 13 THE COURT: They were paid, and they were paid 14 out of funds of ECom eCom.com? 15 MR. SEESE: Yes, sir. About $15,187. 16 THE COURT: So now those same auditors are 17 going to perform the audit? 18 MR. SEESE: No. That was the audit that they 19 were performing, and it is about done, and he told me 20 that they have about $1100. I have a letter here. 21 MR. RICHMOND: Can I help here one second? 22 THE COURT: Excuse me, sir. I'm sorry, Mr. 23 Richmond, I've got counsel here -- 24 MR. RICHMOND: I'm sorry. I'm sorry. 25 THE COURT: And when I'm addressing counsel, 18 1 with all due respect, I don't want any input from anybody 2 else. 3 MR. RICHMOND: Okay. I'm sorry. 4 MR. SEESE: Your Honor, it was -- this is a 5 letter dated July 22nd from Mr. Andrews from Weiss and 6 Andrews Company. This $15,186.26, and he said that they 7 will have approximately from June 2005, that has not been 8 billed $1,375. I assume, and we'll address this in the 9 draft of the application that I have in my briefcase that 10 we'll have filed in the next 24 to 48 hours, that that 11 amount, the 15,186, plus the 1375, is what is necessary 12 to complete the audit. The 15,186.26 was already paid, 13 and there were previous SEC filings made at the end of 14 May. So I think the 15,186.26 was to bring them current 15 through May so that they could file all of those. And 16 then it's this additional time for June that would have 17 to be paid for purposes of the audit. 18 THE COURT: And is it, if you know, if you, Mr. 19 Seese, know, is it the intention of eCom eCom.com, Inc., 20 as part of its reorganization, using that term very 21 loosely, to market securities of either itself or of its 22 subsidiaries, and to raise capital that way? 23 MR. SEESE: Sitting here today, Your Honor, I 24 don't know the answer to that question. I can tell you 25 that I know part of the mergers that are being discussed, 19 1 there will be some stock issued, I don't know if that's 2 the marketing securities, I won't be handling that 3 aspect, I will leave that to the large transaction folks. 4 I just don't want to misspeak. But obviously, whatever 5 we do would be part of the plan and would be subject to 6 Court approval. 7 THE COURT: I will be very sensitive to that 8 issue because shareholders have already obviously 9 invested large amounts of money in eCom eCom.com, Inc., 10 and as far as I can see right now, they have very little 11 to show for it, and if this is going to be used as a 12 method to obtain further funds from additional 13 prospective shareholders, to put into some entity that 14 has very little in the way of hard assets, you're going 15 to have to convince an Appellate Court that that's the 16 right thing to do. 17 MR. SEESE: I understand, Your Honor. That's a 18 fair point. What I know of the mergers, what has been 19 expressed to me so far, that First Commercial -- these 20 are viable, operating entities. I think First Commercial 21 has revenues of over a hundred million dollars a year. 22 These are viable entities. And honestly, I can't speak 23 for the shareholders, but I agree with you that there's 24 not much to show for the investment today, but I think 25 the hope is, and again, not to speak for them, but if 20 1 they could recoup something out of this, then perhaps 2 it's worth a shot, and obviously this would all be 3 subject to their approval as well. 4 THE COURT: Well then, for today's purposes, 5 first of all, you want me to enter a final order 6 authorizing the debtor to obtain post petition financing. 7 MR. SEESE: Yes, sir, that's correct. I 8 apologize, but I do not have orders today. I will have 9 them tomorrow. 10 THE COURT: That's not a concern. I'll grant 11 that motion. Mr. Seese, you'll submit an order. 12 MR. SEESE: Yes, sir, I shall. 13 THE COURT: You asked that -- I have on the 14 calendar that there's a motion to limit notice. 15 MR. SEESE: Yes, sir. Well, it was a motion -- 16 THE COURT: Isn't that something I already 17 disposed of? 18 MR. SEESE: Yes, sir. We filed a motion for 19 authorization to provide electronic service upon equity 20 security holders and to utilize Executive Mail Service 21 for purposes of coordinating and effectuating service on 22 equity security holders, and it's that motion with 23 respect to what the motion relates. 24 THE COURT: That's the motion. 25 MR. SEESE: Yes, sir. Your Honor, if I may 21 1 proceed. The motion to provide electronic service, we 2 have approximately 4600 shareholders. What we propose, 3 eCom eCom has a web site. What we would propose is to 4 post pleadings on the web site, which is commonly done in 5 cases with large shareholders. Those matters that 6 shareholders are required to get notice of, such as to 7 sell substantially all the assets, deadline to object to 8 disclosure, confirmation, motions to convert or dismiss, 9 we would physically serve by mail the notice of hearing. 10 A ballot with respect to confirmation and the order 11 setting the deadlines for disclosure and confirmation, 12 those will be served by US Mail on the shareholders. 13 Everything else in the case that we're not required to 14 serve them with, we would like to post on the web site. 15 The order that hopefully emanates from today's hearing, 16 we would serve on the shareholders and we would propose 17 to include a negative notice provision, which gives them 18 an opportunity to file an objection if any of them have 19 an objection to this process. 20 THE COURT: That would mean that any of the 21 shareholders who wanted to monitor what was going on 22 would have to take an affirmative step in accessing the 23 web site. 24 MR. SEESE: Yes. Everything has been posted. 25 Everything that's been entered by Your Honor to date and 22 1 has been filed, except for maybe this motion, has already 2 been posted on the web site. 3 THE COURT: And what is the web site? 4 MR. SEESE: I have it in the motion. It's 5 www.eComeCom.net. 6 THE COURT: www -- 7 MR. SEESE: .EComeCom.net. 8 THE COURT: eComeCom.net. 9 MR. SEESE: That's correct. And if you go on 10 there there's like a little slot that says on it, 11 bankruptcy pleadings, something to that effect, and when 12 you click on that it goes to a list of the various 13 pleadings that have been filed in the case to date. 14 Again, there are 4600 shareholders, and if you take even 15 a five page motion and multiply it times 15, or whatever 16 it is that's charged for copying in this case, I'm not 17 sure, 15 times 4600, times 4600, times 37 cents for 18 postage, it becomes cost prohibitive. 19 THE COURT: Let me be sure that I have that web 20 site correct. 21 MR. SEESE: Sure. 22 THE COURT: www.eComeCom.net. Because I will 23 be monitoring that web site. 24 MR. SEESE: Absolutely, Your Honor. Everything 25 must be on there, gentlemen. Any problem with that? 23 1 MR. RICHMOND: No. We've been putting 2 everything up there. 3 THE COURT: I'll grant the motion to provide 4 electronic service -- 5 MR. SEESE: Thank you, Your Honor. 6 THE COURT: -- as has been requested. 7 MR. SEESE: The second component of that 8 motion, Your Honor, was a motion to use Electronic Mail 9 Service. I have learned through this process, and it's 10 not an easy process to understand, but there are two 11 types of shareholders of a company. There are registered 12 shareholders and beneficial shareholders. 13 THE COURT: Registered shareholders and -- 14 MR. SEESE: And beneficial shareholders. And 15 beneficial shareholders are two subcategories. There are 16 objecting and nonobjecting. Registered shareholders are 17 those that their name and address is on file with the 18 corporation via the transfer agent. So that as of any 19 given record date if the corporation wanted to get in 20 touch with the shareholder or serve a notice, they can 21 get that list and serve them, get the contact information 22 from the transfer agent. 23 With respect to beneficial owners, those were 24 shareholders who buy shares of stock through banks or 25 brokerage firms. You don't necessarily have their 24 1 contact information at the transfer agent. Within that 2 category there are two subcategories. There are 3 objecting beneficial owners who object to their name and 4 address being disclosed, and it's just on file with the 5 bank or brokerage house, and there are nonobjecting who 6 don't object to their names and addresses, contact 7 information being published. 8 In the normal course of business when a public 9 company needs to get notice out to its shareholders it 10 typically uses, or very commonly uses, a company by the 11 name of Executive Mail Service. And what Executive Mail 12 Service does is it coordinates service. It will contact 13 the transfer agent as of a given record date, get the 14 name and address of shareholders. It will contact a list 15 of banks and brokers, the roster that they use, for their 16 list of beneficial owners. They will either get back a 17 nonobjecting list, or they'll get back information 18 relating to how many packets of information the bank or 19 brokerage house needs, who they will then mail it out to 20 the shareholders as a fiduciary, because they're the 21 beneficial owner. Executive Mail Service coordinates all 22 of this, and they put all the names and addresses 23 together, they get all the beneficial owners together, 24 they coordinate the copying and the mailing and all of 25 that type of stuff, and they actually effectuate service. 25 1 ECom has done this in its ordinary course of business. 2 We want to continue using that, the copy 3 services. Ms. Bernheim, I asked her in advance of the 4 hearing to communicate with Executive Mail Service to ask 5 them about the cost, and what we were told is there was a 6 recent mailing that eCom did that Executive Mail Service 7 billed $1991. And I can't read your writing, if you 8 could explain that to the Court, please. 9 MS. BERNHEIM: Your Honor, every time they go 10 to serve the beneficial owners they do what is called a 11 broker search. They go through and they have all the 12 brokerage houses and banks go through which of the stocks 13 are owned, do a search, and they report back telling how 14 many packets need to be mailed out to the shareholders. 15 Every time they do that search it's $500. Then they 16 coordinate the mailing, the correspondence to each broker 17 firm to see how many packets to serve. 18 For this past one that we just did, Executive 19 Mail Service, for cost efficiency reasons, billed us a 20 total of $1,000. That included the broker search fee, as 21 well as the mailing of all the packets that the brokerage 22 houses will go ahead and take care of mailing themselves. 23 We were informed that there would be a reimbursement fee 24 that would go back to the debtor for the mailing purposes 25 only, so whatever the mail cost was, that would be 26 1 required the debtors to pay. 2 In addition to that, with respect to the 3 registered shareholders to whom we have the mailing 4 address and information, exactly 5,000 copies were made, 5 5,000 corresponding envelopes were printed, for postage, 6 total fees, total of $991. 7 MR. SEESE: We will continue to use -- like to 8 use their services because we feel that what they're 9 charging for copying and postage is exactly what we would 10 charge, and she charges a $500 fee to do the search, and 11 I think our firm would probably incur more in fees trying 12 to track all this down. 13 THE COURT: When you say she -- 14 MR. SEESE: I'm sorry, Your Honor, the 15 president or CEO is Irene Scoley (phonetic) of Executive 16 Mail Service, and they're based out of somewhere in New 17 Jersey. 18 And we just filed a motion to request 19 authorization to continue to use them in an abundance of 20 caution. I think this is all ordinary course type stuff, 21 but in light of the posture of this case, and it's not 22 your atypical garden variety -- 23 THE COURT: No, it certainly isn't. 24 MR. SEESE: We just wanted to bring this to 25 Your Honor's attention in the interest of full 27 1 disclosure. 2 THE COURT: Very well. I'll grant that as 3 well. 4 MR. SEESE: Thank you, Your Honor. Your Honor, 5 I think that's all that is before Your Honor this 6 afternoon. 7 THE COURT: Very well. If there's nothing 8 further. I want to be absolutely sure that the United 9 States Trustee's Office is being included in service. 10 MR. SEESE: Yes. We faxed it too. 11 THE COURT: I'm a little surprised that Ms. 12 Heffner is not here on this today, but as long as they've 13 been noticed, that's fine. 14 MR. SEESE: We know the SEC is being served 15 because I received correspondence from them asking us to 16 use a different address, the SEC is being notified as 17 well. 18 THE COURT: Yes. That's the other entity that 19 I want to be sure is being notified. 20 Is there any particular individual at the 21 Securities and Exchange Commission? 22 MR. SEESE: The letter was from Gordon 23 Robinson. 24 THE COURT: Gordon Robinson? 25 MR. SEESE: Yes, sir. Senior trial counsel, 28 1 bankruptcy, and they were merely requesting that we 2 change the address to which service was going. 3 THE COURT: I'd like to get a copy of this 4 letter, please, if you can hand your copy to me, I'll 5 have a copy made as we conclude, and what I will probably 6 want to do is have a copy of this docketed in the court 7 file. 8 MR. SEESE: Yes, yes. 9 THE COURT: Very well. Is there anything 10 further? 11 MR. SEESE: That's all, Your Honor. Thank you 12 very much. 13 THE COURT: Mr. Richmond, don't take any of the 14 comments that I made as being criticism. Please don't. 15 MR. RICHMOND: I understand. I had eye contact 16 at him and it looked like I should answer, and maybe I 17 said something. I didn't mean to. I apologize. I'll 18 work better next time. I was looking and Michael is kind 19 of like talking to me, and maybe I knee jerk reacted or 20 whatever. I didn't mean to interrupt, but I was trying 21 to just let you know that that 15 grand we put back in 22 the bank at no cost to the debtor. We're here in good 23 faith. I didn't mean anything, and I apologize. 24 THE COURT: No apology necessary. As I said, I 25 didn't want you to think that by any comment I made I was 29 1 being critical of you. And I hope this works out well. 2 MR. RICHMOND: We're trying hard. 3 THE COURT: It's just a little out of the 4 ordinary, to say the least. 5 MR. SEESE: It certainly is. I've told them 6 that. 7 THE COURT: Very well. Have a good day. 8 MR. RICHMOND: Again, thank you for the 9 comment, I appreciate that. I didn't mean to do that. 10 THE COURT: Have a good day. Drive carefully. 11 (The proceedings were concluded.) 12 13 14 15 16 17 18 19 20 21 22 23 24 25 30 1 C E R T I F I C A T E 2 3 The State of Florida ) 4 County of Palm Beach ) 5 6 I, JACQUELYN ANN JONES, Court Reporter, certify 7 that I was authorized to and did stenographically report 8 the foregoing hearing; and that the transcript is a true 9 record of my stenographic notes. 10 I further certify that I am not a relative, 11 employee, attorney or counsel of any of the parties, nor 12 am I a relative or employee of any of the parties' 13 attorney or counsel connected with the action, nor am I 14 financially interested in the action. 15 16 In witness whereof I have hereunto set my hand 17 and seal this 30th day of July, 2005. 18 19 ___________________________ 20 JACQUELYN ANN JONES 21 Commission No. CC 995956 22 Expires Feb 18, 2005 23 24 25 EX-3 7 bio1.txt EXH. 3. BIOGRAPHIES OF AMERICAN CAPITAL HOLDINGS EXECUTIVES AND BOARD AMERICAN CAPITAL HOLDINGS, INC. BOARD MEMBERS & EXECUTIVE COMMITTEE TO IN RE: eCom eCom.com, Inc. CHAPTER 11 CASE NO. 04-35435-BKC-SHF UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF FLORIDA Barney A. Richmond has been President and a Director of the Company since its acquisition of certain assets from ACHI in January 2004, and was President and a Director of ACHI prior to that time. From 1985 to the present, Mr. Richmond has been an independent advisor and investor in assisting companies, as well as individuals, regarding public offerings, mergers, reverse mergers and a variety of corporate financing issues. Mr. Richmond has also been an investor in numerous reorganizations and business turnarounds, including many substantial bankruptcy reorganizations. Mr. Richmond has been a member of the Boards of Directors of The Richmond Company, Inc., Benny Richmond, Inc., 877 Management Corporation, King Technologies, Inc., King Radio Corporation, United States Financial Group, Inc., JSV Acquisition Corporation, Chase Capital, Inc, Berkshire International, Inc. and Dunhall Pharmaceuticals, Inc. Richard C. Turner has been Treasurer and Chief Financial Officer of the Company since June 2001, and became a Director of the Company in February 2004. From September 1990, until he joined the Company in June 2001, Mr. Turner was employed as an accountant by Glenn G. Schanel, CPA, where he was responsible for corporate and individual tax returns, business write-up services, and business consulting services, including computer and database management. Prior to 1990, Mr. Turner was Vice President of Finance at First American Bank, Lake Worth, Florida, where he was responsible for the bank's financial reporting, budgeting and cost accounting. Michael Camilleri has been a Director of the Company since November 2004, and holds a number of positions within the insurance industry. He is a principal of Preferred Insurance Capital Consultants, LLC. Preferred specializes in actuarial, litigation support and insurance management consulting services. Mr. Camilleri serves as a director and General Counsel of First Commercial Insurance Company, and as a director and officer of various insurance related affiliates of First Commercial. Mr. Camilleri is also President of Newport Star Reinsurance Company, Inc.; a director and Vice President of CEIB Marketing Group, LLC; President, Treasurer and Vice President of Spoleto Holdings, LLC; and Manager of Power One Real Estate Investments, LLC. Within the last five years, Mr. Camilleri has also served as Secretary of Accident Insurance Company, Inc., President and CEO of AmTrust Insurance Company, and Senior Vice President of Insurance Services Offices, Inc.. From 1996 to 1999, he was President of Insurance Data Resources, Inc. (IDR) and IDR Statistical Services, Inc. (IDRSS), national workers compensation rating organizations. Prior to joining IDR in 1996, Mr. Camilleri was a senior partner and head of the insurance regulatory and health practices for Adorno & Zeder, P.A. From 1978 to 1991 he was with the National Council on Compensation Insurance, Inc. (NCCI), where he served as Senior Vice President and General Counsel. At NCCI, Mr. Camilleri directed the Legal, National Affairs, Public Affairs and Residual Markets division. During his career with NCCI, he managed countrywide workers compensation assigned risk plans and reinsurance pools, established a prototype National Affairs Department, managed all internal and external affairs, provided oversight on multi state and federal issues including testimony before U.S. Congress, and served as Secretary to the Board of Directors. Mr. Camilleri is the author of texts and articles on workers compensation and health care and is a frequent speaker on workers compensation and health related issues at national conferences. Barry M. Goldwater, Jr., has been a Director of the Company since November 2004. Mr. Goldwater is President of B2 Solutions, which represents client companies before Congress and various branches of the United States Government, as well as the California and Arizona state legislatures . Prior to joining B2 Solutions, Mr. Goldwater served as a General Partner for 13 equipment leasing partnerships. Mr. Goldwater's background includes 14 years as a United States Congressman and 8 years as a Series 7 Registered Representative in the securities brokerage industry and a member of the New York Stock Exchange. While in Congress, Mr. Goldwater served on committees that had jurisdiction over Energy, Aviation, Space, Defense and Public Works. Mr. Goldwater served on the Joint Committee on Energy, which responded to the oil crisis on 1974. Matthew Salmon has been a Director of the Company since January 2004. Since November 2000, Mr. Salmon has been President of his own company, Upstream Consulting. As a Public Affairs Consultant and because of favorable contacts which he has kept current with local and state government officials, Members of Congress, and the White House Administration he is able to assist businesses and government agencies with their strategies and helps them solve problems and find favorable solutions for all involved. Mr. Salmon was elected to the U.S. House of Representatives in November 1994 to represent Arizona's First Congressional District. He served three terms, and chose not to seek re-election in the year 2000, fulfilling a campaign promise he made to Arizona's voters in 1994. Mr. Salmon served on the International Relations Committee, and its subcommittees on Asia and the Pacific, and International Operations and Human Rights. Salmon also served on the Helsinki Commission and was Chairman and a founding member of the House Renewable Energy Caucus. He also served on the Education and the Workforce Committee. Mr. Salmon maintained an active legislative agenda throughout his time in Congress, and played a prominent role on issues related to foreign affairs, crime, education, energy and taxes, among others. Douglas Sizemore has been a Director of the Company since November 2004. Mr. Sizemore has been President of Accident Insurance Company, Inc., since 2003, and has also been a self-employed insurance consultant since 2000. From 1995 to 2000, Mr. Sizemore was Commissioner of Insurance for the State of Tennessee. Prior to his position as Commissioner of Insurance, Mr. Sizemore was President of Johnston City Insurance Agency, Inc., dating back to 1959. Norman E. Taplin has been a Director of the Company since November 2004. Mr. Taplin is an attorney, concentrating his practice in the areas of regulatory insurance, administration law, corporate and commercial law representing companies, industries, business matters involving governmental regulation, the securing and maintaining of licenses, governmental approvals and other regulatory issues, real estate, estate planning and probate. He is also involved in matters regarding the establishment of new businesses, real estate developments, and other transactions which may or may not involve governmental regulation. Mr. Taplin has been active in insurance matters since 1975 and has represented a variety of insurance companies in the United States, District of Columbia and select foreign jurisdictions. He is also a member of NALC, and has been appointed to the Hurricane Advisory Board in Georgia. Steve Cunningham, age 52, is a securities attorney who practiced law in Atlanta, Georgia with major law firms for 22 years, from 1977 until 1999 years. During those years, he specialized in public offerings, mergers and acquisitions, international transactions and corporate finance. Steve was actively involved in more than 60 public offerings, more than 100 mergers and acquisitions, and in public and private debt and equity financings aggregating more than one billion dollars. Steve left the private practice of law in 1999 to become General Counsel and Senior Vice President in charge of Mergers and Acquisitions for a publicly traded mortgage and real estate development company based in Atlanta, Georgia, a position he held until 2001. For the past four years, he has served as a legal consultant and advisor for several publicly traded and privately held companies and as Interim CEO and Chairman of a small publicly traded financial services company based in Atlanta. He has served as a director and legal and business consultant for many public and private companies. Steve served for 8 years, by appointment of the United States Secretary of Commerce, as a member of the Atlanta District Export Council, comprised of international business leaders in the community to provide professional guidance for regional firms doing business outside the Untied States. He graduated cum laude from Harvard Law School in 1977 and summa cum laude from the University of Alabama in 1974. He is a member in good standing with the State Bar Associations of Georgia and Texas. -----END PRIVACY-ENHANCED MESSAGE-----