-----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, KVWNtmMPKX5/qRlc73ka5Qi4HwW76MA20RRwXnTuLWN0em776NZ0Qyfuw0oS+0hn pdwD2shLOnzPQWZgjMacVw== 0001321499-05-000008.txt : 20050815 0001321499-05-000008.hdr.sgml : 20050815 20050815142743 ACCESSION NUMBER: 0001321499-05-000008 CONFORMED SUBMISSION TYPE: RW PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 20050815 DATE AS OF CHANGE: 20050815 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CLASSIFIED AD, INC. CENTRAL INDEX KEY: 0001321499 STANDARD INDUSTRIAL CLASSIFICATION: [9995] IRS NUMBER: 201447963 STATE OF INCORPORATION: FL FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: RW SEC ACT: SEC FILE NUMBER: 000-51417 FILM NUMBER: 051025532 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 RW 1 acla10rw.txt WITHDRAWAL OF A CLASSIFIED AD, 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: A Classified Ad, Inc. Registration Statement on Form 10-SB12G File Number: 000-51417 Filed: July 7, 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 A Classified Ad, 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