November 9, 2006
Derek Swanson, Esq.
Securities and Exchange Commission
100 F Street, NE
Washington D.C. 20549
Re: BestNet Communications Corp.
Commission File No. 0-15482
Information Statement on Form 14C
Dear Mr. Swanson:
The purpose of this letter is to respond on behalf of BestNet
Communications Corp. (the "Company"), we respond to the questions that arose in
our telephone conversation on November 7, 2006. Our response follows the order
and form of the questions posed.
1. Plans for Private Placement. You have asked us to provide
additional information regarding the Company's proposed private placement, in
particular any conditions to the conversion of the promissory notes. While the
terms of the private placement have not yet been completely determined, it is
expected to be generally as described in the following additional language which
the Company now proposes to insert at the end of the second paragraph under the
heading, "Background for Amendment" of the Information Statement:
"The Company is in the process of effecting a private placement of securities.
As presently planned, the securities to be offered are two-year,
interest-bearing, convertible promissory notes. The conversion price is to be
$0.30 per share. The documentation for the transaction is to provide that the
right of conversion into common stock is subject to the availability of
sufficient authorized shares of common stock (to become available upon the
approval of the Amendment permitting the issuance of additional shares of common
stock) and the expiration of one year after the date the notes are issued. There
are to be no registration rights for the notes or the underlying common stock.
The proceeds from the private placement are to be used to fund operations of the
Company, including those of its newly acquired subsidiary, Oncologix
Corporation. The Amendment is necessary to fulfill the Company's obligation to
investors in that placement and to provide shares for issuance in possible
future transactions involving equity financing, acquisitions, employee
compensation, and the like."
2. Information as to Participating Shareholders. You have asked us to
provide additional information in the Information Statement containing the names
of the shareholders who consented to the amendment, the number of shares held by
each and the percentage of outstanding shares owned. Additionally, you asked us
to provide a clarification of the shares owned individually by Mr. Franco and
Dr. Kennedy. We propose to attach an Exhibit to the Information Statement
substantially similar to the Exhibit attached hereto.
The first four shareholders listed on the Exhibit acquired their
respective shares of the Company's common stock in the Company's merger with the
acquired company ("JDA"). The number of shares issued to each was determined on
a pro-rata basis according to their holdings in JDA. Dr. Kennedy and Mr. Franco
(together with a third person) were the founders of JDA. Dr. Kennedy and Mr.
Franco, as the primary shareholders of JDA and having equal ownership positions,
were each issued the same number of shares of common stock in the Company
pursuant to the merger terms and each has the right to vote all of shares owned
by him.
3. Compliance with Proxy Solicitation Rules. You have asked us to
provide an analysis of the proxy solicitation rules and/or exemptions as to the
additional shareholders who provided consents to the Company and who are not a
part of management, including Mr. Franco, and in particular those who are not
related to Mr. Silverman. Additionally you have asked us to provide supplemental
information as to the backgrounds of the shareholders and their ownership of the
Company and the information that was made available to such shareholders.
As noted above, Mr. Franco received his shares as a result of the
merger with JDA. He, together with Dr. Kennedy were active, as the founders and
officers of JDA, in negotiating the merger and its terms. While Mr. Franco was a
director and chief executive officer of JDA, he does not presently hold any
management position with the Company. He is, however, retained as a consultant
to the Company and has been in continuous contact with the Company's management
since the closing of the merger. It was always understood that when he became a
shareholder of the Company he, as well as Dr. Kennedy would, vote in favor of an
appropriate amendment.
Messrs. Green and Lowe are both executive officers of the Company's
subsidiary, Oncologix Corporation. As pre-merger management consultants to JDA,
they became familiar with the merger terms and with the necessity to increase
the authorized capital stock after the merger. They were also fully aware that
the future financing of the Company would require increased capital stock
authorization and indicated their desire and intention to vote in favor of any
necessary approval. As is evident to every Company shareholder, the future value
of their Company stock is dependent on such future financing.
We earlier indicated that, in addition to the "insiders," sixteen
shareholders executed consents. That statement should have more correctly
indicated sixteen "account" holders. The sixteen other consents included
multiple accounts owned by the same person, such as those held in trust, a
custodian account or a retirement account. Of these sixteen other "accounts", we
have previously noted the holdings of Mr. Burstein, a lawyer, accredited
investor, a long time friend of and co-participant in a number of investments
with Anthony Silverman. He is a long term investor in the Company who is in
frequent contact with Anthony Silverman and others in management and keeps
himself informed as to the Company's affairs.
In our last correspondence we provided information about the ownership
positions and familial relationship among Kay Silverman, the former spouse of
Anthony Silverman; Molly and Andrea Silverman, the daughters of Mr. Silverman;
and Jeffrey Silverman, the son of Mr. Silverman, who has the power to vote
shares held in trust and custodial accounts for his two minor children, as well
as the power to vote shares in a trust for his mother, Kay Silverman, and shares
held in trust for his sisters, Molly and Andrea Silverman. Jeffrey Silverman is
an experienced securities broker who has a close business relationship with
father, Anthony Silverman, and closely follows the affairs of the Company.
With respect to the last seven shareholders (eight "accounts") listed
on the Exhibit and who gave consents to the Company, not only do they have
access to the Company's 1934 Act Reports (which fully disclose the Company's
financial situation), but Mr. Silverman discusses business matters with them on
a continuing basis. Each of these is an accredited investor, knowledgeable and
experienced in investments in and the structure, financing and problems of small
public companies. Each has been an investor in the Company for at least one year
and closely follows its affairs. Each has a history of participation in
investments with Anthony Silverman and has been regarded as a potential investor
in future financings of the Company. It is further noted that Anne Nguyen, is
Mr. Silverman's fiancee and is associated with him in certain investments.
The Company's predicament with respect to authorized capital was noted
in various discussions with those shareholders. Each of them, because of his or
her overall knowledge of business affairs and investments fully understood the
nature of the problem and the obvious solution to it. Merely to state the
problem to persons having these characteristics is to elicit the obvious
response, some version of, "Give me something to sign".
As stated previously, we note that no "solicitation" was necessary
with respect to this last group of shareholders, those who are not insiders or
closely personally connected to Mr. Silverman. Under these circumstances, the
preparation of the consent amounted to no more than a ministerial act and a
reaction to the shareholders request to provide help. Again, it is the Company's
belief that the furnishing of the consents to these shareholders was done at the
unsolicited request of such shareholders and under section (i) of the definition
of "solicitation" in Rule 14a-1, not within the meaning of "solicit" or
"solicitation". There is nothing complicated in the subject matter of the
consents. No sophisticated analysis of fact or law is required to form the basis
of an intelligent decision beyond a simple statement of the fact of insufficient
authorized capital. The action to be taken is not akin to the information needed
to be provided to a shareholder in determining whether to approve, for example,
a merger of an issuer. The needed information was readily apparent from the
Company's 1934 Act Reports on file and widely disseminated though financial news
sources on the internet, and the subject of personal discussions as related
above.
Please do not hesitate to contact me or Stephen T. Meadow if you have
any further questions.
Very truly yours,
FIRETAG, STOSS & DOWDELL, P.C.
JOHN L. STOSS
PARTICIPATING SHAREHOLDERS
Number of Shares Percent of
Shareholder of Common Stock Class
- ----------- --------------- -----
Andrew S. Kennedy, MD 13,949,738 15.48%
Jeff Franco 13,949,738 15.48%
Andrew Green 3,761,790 4.18%
Adam Lowe 3,761,790 4.18%
Stanley L. Schloz 734,992 0.82%
Anthony Silverman(1) 4,916,400 5.46%
Kay Silverman(2) 579,998 0.64%
Molly Silverman(3) 125,900 0.14%
Andrea Silverman(4) 617,067 0.68%
Jeffrey Silverman (5) 373,460 0.41%
Fred Burstein 3,077,335 3.41%
Anne Nguyen 562,500 0.62%
Thomas and Virginia Miller 538,436 0.60%
Gary Boster(6) 605,000 0.67%
Donald Schreifels 352,000 0.39%
Ernesto Zaragosa 340,661 0.38%
Chris Walton 150,000 0.17%
Martin Frizond 102,500 0.11%
Each of the above-named shareholders has possesses the sole voting and
investment power with the respect to the shares listed unless otherwise noted
herein.
- ---------------------
(1) Includes 1,998,000 shares owned by Katsinam Limited Partnership, of which he
is the General Partner with sole power to vote the shares.
(2) Includes 484,998 shares held in a trust account of which she is the primary
beneficiary, which her son, Jeffrey Silverman has the power to vote.
(3) The shares are held in a trust account of which she is the primary
beneficiary, which her brother, Jeffrey Silverman has the power to vote.
(4) Includes 137,067 shares held in a trust account of which she is the primary
beneficiary, which her brother, Jeffrey Silverman has the power to vote.
(5) The shares are held in trust and custodian accounts for his two minor
daughters.
(6) Includes 120,000 shares held in an individual retirement account.
EXHIBIT B