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1 UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF FLORIDA
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3 Judge Steven H. Friedman
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5
In Re:
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Case No. 04-35435-BKC-SHF
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8 eCom eCom.com, Inc.,
9 Debtor.
10 ____________________________________
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12 VARIOUS MOTIONS
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14
15 July 25, 2005
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The above entitled cause came on for hearing before the
18 HONORABLE STEVEN H. FRIEDMAN, one of the Judges in the
UNITED STATES BANKRUPTCY COURT, in and for the SOUTHERN
19 DISTRICT OF FLORIDA, at 1675 Palm Beach Lakes Boulevard,
8th Floor, West Palm Beach, Palm Beach County, Florida,
20 on July 25, 2005, commencing on or about 1:30 p.m., and
the following proceedings were had:
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23 Reported by: Jacquelyn Ann Jones, Court Reporter
24 OUELLETTE & MAULDIN COURT REPORTERS
(305) 358-8875
25
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1 APPEARANCES:
2
KLUGER PERETZ KAPLAN & BERLIN
3 By: MICHAEL D. SEESE, ESQUIRE, and
MELISSA BERNHEIM, ESQUIRE
4 On behalf of the Debtor
5
Also Present:
6
Mr. Barney Richmond
7 Mr. Richard Turner
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1 MR. SEESE: Your Honor, I apologize, I have
2 developed a case of laryngitis and if I lose my voice my
3 colleague, Ms. Bernheim is with me and will take over.
4 THE COURT: Very well. Ms. Bernheim, your
5 first name is?
6 MS. Bernheim: Melissa.
7 THE COURT: And let me ask --
8 MR. TURNER: I'm Richard Turner with ECom, one
9 of the creditors.
10 THE COURT: The matters before the Court today
11 are, first of all, a final hearing on the debtor's motion
12 for authorization for use of cash collateral -- or pardon
13 me, to authorize the debtor to obtain post petition
14 financing, and today is the final hearing.
15 MR. SEESE: Yes, sir. Your Honor, if I may,
16 just by way of brief background, I want to just bring you
17 up to speed with where we are in the case before getting
18 to the matters, and I will be very brief.
19 First of all, we were here on June -- if Your
20 Honor will recall, this was an involuntary that was filed
21 back in November of 2004. An order for relief was
22 entered at the end of May. We were here before Your
23 Honor on June 6th. Since my firm's retention on June
24 6th, the debtor has filed schedules and statement of
25 financial affairs. We participated in the initial debtor
4
1 interview. We filed debtor-in-possession reports. We're
2 current through the end of June, and that's dating back
3 to the date of the involuntary.
4 We are -- the debtors have also prepared 40
5 10Q's for filing with the Securities and Exchange
6 Commission, 10 form 10SB's, 23 taxes returns, and they're
7 about to complete their year end audit for May 31, 2005.
8 We're in the process of finalizing an application to
9 retain auditors. We are also in the process of preparing
10 an application to retain special securities counsel, a
11 gentleman by the name of Steve Cunningham, who is out of
12 Atlanta, Georgia, and has done a tremendous amount of
13 securities work, he's out of Harvard Law School, very
14 fine credentials. In fact, we participated in a
15 conference call with him this morning.
16 There is one matter that I want to bring to
17 Your Honor's attention. In getting these SEC flings
18 completed there is a requirement under Sarbanes-Oxley
19 that the auditors have to be disinterested. What that
20 translates to is, they can't be owed any money. The
21 auditors were owed approximately $15,000 for work
22 performed between June of 2004 leading up to the end of
23 May of 2005. ECom issued them a check for a just a
24 little over $15,000. I told them when I found out about
25 it that the auditors have to be retained, and we are in
5
1 the process of filing the application seeking nunc pro
2 tunc approval, and Mr. Richmond's company, unbeknownst to
3 me until today, put the money back into the company, back
4 into eCom. I wanted to bring that to Your Honor's
5 attention because if the auditors are approved, which we
6 think they should be, then we may need to issue that
7 check back to American Capital Holdings just to clear the
8 books. But they have been paid and they are aware of the
9 need to file the application. They provided us with all
10 the necessary information, and they now understand the
11 need to be retained. The company was operating under the
12 belief that since this is ordinary course for the company
13 to be filing these things that they were in the ordinary
14 course professionals, but I've now since explained that
15 to them, but I wanted Your Honor to be aware of that.
16 As far as the final hearing on the motion for
17 DIP financing, proper service of the interim order did go
18 out, we have not received any objections, I don't believe
19 any filings have been filed, I've not received any phone
20 calls regarding the financing. We would then ask Your
21 Honor to approve under 364(b) the final
22 debtor-in-possession financing just so, Your Honor, by
23 way of background again, this money was advanced by
24 American Capital Holdings under 364(b). It's $100,000.
25 60 was on an unsecured basis at 8 percent per annum, it
6
1 has a convertible feature if the debtor is unable to pay
2 it, it will be converted to equity. The note will mature
3 upon the earlier of a dismissal, a conversion, or
4 confirmation of a plan of reorganization.
5 THE COURT: And that would be convertible to
6 equity in eCom eCom.com, Inc?
7 MR. SEESE: That's correct, Your Honor.
8 THE COURT: Which is a corporation that at this
9 point, has a negative net worth.
10 MR. SEESE: I think that's probably true.
11 MR. RICHMOND: We're trying to get it where
12 it's got --
13 MR. SEESE: We have the basis of a plan of
14 reorganization right here which we're going to talk
15 about.
16 THE COURT: But at this point in time eCom
17 eCom.com, Inc., as has been the case since November 29th,
18 2004, when the involuntary petition initiated this case,
19 is in the hole.
20 MR. SEESE: Yes, sir, that's correct. Which
21 I think is a testament to American Capital Holdings for
22 putting $100,000 in on a convertible basis. I think
23 that's a demonstration that they believe in what they
24 want to do through this Chapter 11.
25 THE COURT: And what is that? What is it that
7
1 they want to do?
2 MR. SEESE: Well, first of all, let me again,
3 just by -- I was going to -- if Your Honor will recall,
4 there were ten wholly owned subsidiaries. Those were
5 spun off. Stock was issued. My firm, in connection with
6 Mr. Cunningham out of Atlanta, is in the process of
7 reviewing those spinoffs.
8 THE COURT: That's what you told me two months.
9 MR. SEESE: That was back in June.
10 THE COURT: Well, a month ago.
11 MR. SEESE: Understood. We're in the process
12 of reviewing that now. If there were problems with the
13 spinoffs we will essentially either do them correctly
14 under the plan of reorganization, or if there is a reason
15 why the spinoffs can't be done, we will undo them.
16 That's the first component.
17 The second component is this merger that we
18 mentioned the last time, which Mr. Richmond can tell you
19 more about.
20 MR. RICHMOND: Well, number one, there's ten
21 different legal opinions in that box, and you might want
22 to --
23 MR. SEESE: Yes. There was --
24 MR. RICHMOND: They were -- prior to this we
25 were given a legal opinion before we made any move of
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1 anything, and you will see ten different audits, ten
2 different form 10 SB's, tax returns, 10Q's. There's
3 voluminous --
4 MR. SEESE: Let me interject something.
5 They've received an opinion from outside counsel as to
6 the validity of these spinoffs in accordance with the SEC
7 bulletin telling them that what they were doing was
8 correct and proper. My firm is now telling Mr. Richmond
9 in consultation with Mr. Cunningham that may not be the
10 case. And on that basis there may or may not be a claim
11 against the firm that rendered this opinion to eCom.
12 But again, what we want to do via this
13 bankruptcy, and I don't think anybody here disagrees, and
14 Your Honor has correctly indicated that this company is
15 in the hole, there is a negative net worth. If this case
16 were to be converted or dismissed today there's nothing
17 for anybody. But the plan of reorganization that we hope
18 to go forward with in the near future will provide for
19 one hundred percent pay out to unsecureds and the
20 creation of shareholder value through these mergers that
21 Mr. Richmond will tell you about. Go ahead,
22 Mr. Richmond.
23 MR. RICHMOND: Okay. Well, again, we still
24 believe the legal opinion here is valid we got, and
25 Mr. Cunningham, and what we want to do is make double
9
1 sure that everything we have done has been in accordance
2 with everything, and we think -- we have, number one, the
3 issue, the CIK numbers, we made application, we filed
4 everything, we got our CUSIP numbers, did everything that
5 was promised. We inherited this last year.
6 Secondly, we brought to the table some very
7 significant companies, operating companies. At this
8 particular point we're probably in this a million two,
9 million three, whatever, I'm not sure, Rick got the
10 audits that reflect American Capitals things, or their
11 filings, and the first ones that we've done, American
12 Capital is validating just like these were.
13 What we're looking to do is to inject a large
14 infusion of capital and whatever is necessary to make
15 American Stock Exchange. We have -- because of the tax
16 loss carry forward with eCom eCom, a company called First
17 Commercial, which is in the transcripts here that I
18 described before, that is ready, willing and able to
19 acquire the majority interest in that company, 80 percent
20 interest to utilize the tax loss carry forward in
21 appropriate gap counting standards. First Commercial is
22 a, you know, a licensed insurance carrier in the State of
23 Florida. Last year's revenues were around 140, after tax
24 3 and a half. We have those relationships to do that.
25 The main thing is that at one time in life this
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1 company had a market capitalization of over 250 million,
2 and now it went down because of lack of financing,
3 management. We inherited this. Actually, Your Honor,
4 you gave us an order on June 6th that we could become --
5 that I could become the CEO to this company at no cost to
6 the estate to put together a plan, and we're ready, kind
7 of by Thursday we'll have the final audit on EC, there's
8 11 volumes of filing that's been done that we audit
9 everything there to try to recapture not only lost
10 shareholder value, but the creditors can receive a
11 hundred percent recovery out of this. This is a bizarre
12 deal but you know, we're in there, we're not as educated
13 as everybody else, but we're slugging it out to make it
14 right by everybody as much as we can.
15 If you'll show him, I'd appreciate it, Mike,
16 the legal opinions --
17 MR. SEESE: Only if the Judge wants it. But I
18 just want to show you that for each of those entities
19 they have a plan and disclosure statement that they have
20 provided to me today so that we can put together, I just
21 wanted Your Honor to be aware of that.
22 THE COURT: That is that you have -- there is a
23 plan and disclosure statement prepared?
24 MR. SEESE: I have not had an opportunity to
25 look at it, but it's the makings of a plan and disclosure
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1 statement. There are 11 binders, one for each of the
2 spunoff entities, as well as eCom, which we now take a
3 look at, we received these this afternoon, and take look
4 at, the opinion letters that they were referring to are
5 right here, which opines on each of the spinoffs.
6 And so we had a conference call earlier today
7 with Mr. Cunningham out of Atlanta, and two of my
8 transactional guys at Kluger Peretz, to look at this,
9 Judge. And quite frankly, Judge, I'm not a securities
10 lawyer, I'm not going to stand here and tell you that
11 what they did was right, I'm handing it over to the
12 people that can tell me whether it was done properly or
13 not. And what I've told these guys is, if it was done
14 properly, fine, let's go forward with the plan of
15 reorganization, with the merger, creating the value. If
16 it wasn't done properly, let's fix it via the plan, and
17 they can do the merger.
18 And quite frankly, if it wasn't done properly
19 we may not be able to do this, because what we will do is
20 bring those wholly owned subsidiaries back into this
21 company, and instead of doing a spinoff we will do the
22 merger and create the shareholder value that way.
23 Because the way these spinoffs work, you had the
24 shareholders held stock in eCom, and if these wholly
25 owned subsidiaries were spunoff they received a like kind
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1 proportionate amount of shares in each of the spunoff
2 entities. So if the spinoffs weren't done properly,
3 we'll bring those sums back in, they will have their
4 shares in eCom --
5 THE COURT: How many of those subsidiaries,
6 excuse me for interrupting, are operating right now?
7 MR. RICHMOND: Well, we've got three that can
8 operate really huge pretty quick.
9 MR. SEESE: Well, the question is, which ones
10 are.
11 MR. RICHMOND: Well, they're operating on a
12 very small basis. And I said up front in these
13 transcripts, you know, I agree, there's not -- there
14 wasn't a whole lot here in the beginning, and we're
15 trying to recapture that, but if you'll look in those
16 filings there's accepted session numbers from the SEC,
17 there's CIK numbers, there's every CUSIP numbers, there's
18 everything in the world. We're trying to -- you know,
19 we've had this thing less than 40 something days on a
20 factual basis.
21 Mr. Panaia died March 20th.
22 MR. SEESE: He was the former CEO.
23 MR. RICHMOND: The former CEO. We went in
24 there and we were the petitioning creditors. We're doing
25 all we can do to everything we know of today. ECom's
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1 final audit we should have Thursday. Everything we know
2 of today, we've done right by the book. There's
3 independent SEC qualified audits which today, is possible
4 to get --
5 MR. SEESE: The only thing that I wish to
6 stress again, and I can't speak to the veracity of the
7 SEC spinoffs, but it's with competent counsel right now
8 that are analyzing it, and we certainly will report back
9 to the Court, but one thing that I can speak to today is
10 that as Your Honor said, there are no assets here,
11 there's no operation. If this company converts, there's
12 nothing for anybody. But given the opportunity, I'm not
13 asking for a long period of time, keep it on a short
14 string, I think that benefits everybody sitting at this
15 table to have it on a short string, but if we're able to
16 do what Mr. Richmond has in mind, then we can have an
17 opportunity here to create real shareholder value and the
18 creditors can get paid in full. And that's all we're
19 asking for, Judge.
20 I'm not, again, I'm not saying what was done
21 was correct or not, I hope to find out in the near future
22 the answer to those questions. And again, it will be
23 filing application and to come in and work with Mr.
24 Cunningham to come in to work with my group, and you
25 know, that's what I'll say with respect to those items.
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1 THE COURT: And it all is tied into taking
2 advantage of the tax write-offs which the various
3 entities which were spun off by ECom eCom.com, Inc.
4 supposedly have available to them; is that true?
5 MR. RICHMOND: A lot of it is that, Your Honor,
6 a lot of it is the shareholder base is kind of upside
7 down.
8 Last but not the least, the creditors, at this
9 particular point, you know, there are several millions of
10 dollars owed that we can recapture that. I think
11 everybody, if we just stay the course, do what we're
12 supposed to do is, I think that we will -- we absolutely
13 can do that. We're committed, and you let the record
14 reflect this, we're committed with different various
15 sources. I think I can provide 25 million in financing
16 of this in a pretty reasonable period of time. And you
17 know, and where we're going forward. Because we've got
18 real things.
19 Again, we inherited this. We're looking to,
20 not only for American Capital shareholders, which was
21 part of eCom shareholders, which is approved by the SEC,
22 to recapture everything that we can, and go do what we're
23 supposed to do. And if you have the opportunity to look
24 at these filings, they're in, they're done, they're
25 accepted number, there's audits, and we worked very hard,
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1 we spent a lot of money at no cost to the estate, and
2 we're spending more every day to make this right by
3 everybody that's in the thing. We're a small guy in the
4 deal in a lot of ways.
5 MR. SEESE: To answer your question, Your
6 Honor, yes, there are some tax loss carry forwards that
7 are attractive, and that's one of the attractive features
8 of these mergers.
9 THE COURT: Yes, that's what I asked.
10 MR. SEESE: So yes, Your Honor, you're right on
11 the money there. I think that is what makes some of
12 these entities an attractive merger candidate because of
13 the tax loss carry forwards, and certainly, there's value
14 there, and that would, you know, that's part of the
15 attraction.
16 THE COURT: And as best as you know, Mr. Seese,
17 is there any intent by eCom eCom.com, Inc. at this point
18 in time to get any of these entities actually operating
19 and doing some form of business, that is, selling
20 something or servicing something?
21 MR. SEESE: I think the best way that I can
22 answer your question, Your Honor --
23 MR. RICHMOND: Absolutely, Your Honor.
24 MR. SEESE: Hold on. -- is that not only is
25 eCom a merger candidate, but there are certain of the
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1 spunoff entities that are merger candidates as well.
2 I think it's fair to say that not all of them may
3 ultimately end up being operating companies --
4 MR. RICHMOND: It's too much at once. You
5 know, when you do mergers and acquisitions, that would be
6 too much at once. Right now we have four at the table
7 that, I think we can successfully, management in place,
8 integrate to what we need to do, and financing is pretty
9 well there, and we'll get it done. We've proven to a lot
10 of people, we got a lot done that wasn't done, and it was
11 an inheritance that we got. But yes, we can --
12 MR. SEESE: Let's not be overly optimistic.
13 What I told Mr. Richmond this morning was, the game plan
14 is to first finish the analysis of these spinoffs. They
15 need to get this audit done as a condition to one of the
16 mergers. This is an insurance company that Mr. Richmond
17 has referred to.
18 I think the direct response to Your Honor's
19 question is, I don't think Mr. Richmond has any vision
20 right now of all these spunoff entities being operating
21 companies, but there will be three or four that will be
22 operating through mergers, and it is those transactions
23 that we hope to effectuate through the plan of
24 reorganization.
25 Mr. Richmond is telling me that in speaking
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1 with the auditors the audit on 53105 is supposed to be
2 done Thursday, and that is a key piece to the one merger
3 with First Commercial.
4 MR. RICHMOND: First Commercial Insurance out
5 of Florida. He told me he would have it ready Thursday,
6 and then we'll go to work. That's the integral part of
7 that, the last part of this.
8 THE COURT: Now another issue, Mr. Seese, you
9 raised, or mentioned Sarbanes-Oxley, and you've stated
10 that the auditors were owed $15,000, but now they're
11 going to be paid.
12 MR. SEESE: They were paid.
13 THE COURT: They were paid, and they were paid
14 out of funds of ECom eCom.com?
15 MR. SEESE: Yes, sir. About $15,187.
16 THE COURT: So now those same auditors are
17 going to perform the audit?
18 MR. SEESE: No. That was the audit that they
19 were performing, and it is about done, and he told me
20 that they have about $1100. I have a letter here.
21 MR. RICHMOND: Can I help here one second?
22 THE COURT: Excuse me, sir. I'm sorry, Mr.
23 Richmond, I've got counsel here --
24 MR. RICHMOND: I'm sorry. I'm sorry.
25 THE COURT: And when I'm addressing counsel,
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1 with all due respect, I don't want any input from anybody
2 else.
3 MR. RICHMOND: Okay. I'm sorry.
4 MR. SEESE: Your Honor, it was -- this is a
5 letter dated July 22nd from Mr. Andrews from Weiss and
6 Andrews Company. This $15,186.26, and he said that they
7 will have approximately from June 2005, that has not been
8 billed $1,375. I assume, and we'll address this in the
9 draft of the application that I have in my briefcase that
10 we'll have filed in the next 24 to 48 hours, that that
11 amount, the 15,186, plus the 1375, is what is necessary
12 to complete the audit. The 15,186.26 was already paid,
13 and there were previous SEC filings made at the end of
14 May. So I think the 15,186.26 was to bring them current
15 through May so that they could file all of those. And
16 then it's this additional time for June that would have
17 to be paid for purposes of the audit.
18 THE COURT: And is it, if you know, if you, Mr.
19 Seese, know, is it the intention of eCom eCom.com, Inc.,
20 as part of its reorganization, using that term very
21 loosely, to market securities of either itself or of its
22 subsidiaries, and to raise capital that way?
23 MR. SEESE: Sitting here today, Your Honor, I
24 don't know the answer to that question. I can tell you
25 that I know part of the mergers that are being discussed,
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1 there will be some stock issued, I don't know if that's
2 the marketing securities, I won't be handling that
3 aspect, I will leave that to the large transaction folks.
4 I just don't want to misspeak. But obviously, whatever
5 we do would be part of the plan and would be subject to
6 Court approval.
7 THE COURT: I will be very sensitive to that
8 issue because shareholders have already obviously
9 invested large amounts of money in eCom eCom.com, Inc.,
10 and as far as I can see right now, they have very little
11 to show for it, and if this is going to be used as a
12 method to obtain further funds from additional
13 prospective shareholders, to put into some entity that
14 has very little in the way of hard assets, you're going
15 to have to convince an Appellate Court that that's the
16 right thing to do.
17 MR. SEESE: I understand, Your Honor. That's a
18 fair point. What I know of the mergers, what has been
19 expressed to me so far, that First Commercial -- these
20 are viable, operating entities. I think First Commercial
21 has revenues of over a hundred million dollars a year.
22 These are viable entities. And honestly, I can't speak
23 for the shareholders, but I agree with you that there's
24 not much to show for the investment today, but I think
25 the hope is, and again, not to speak for them, but if
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1 they could recoup something out of this, then perhaps
2 it's worth a shot, and obviously this would all be
3 subject to their approval as well.
4 THE COURT: Well then, for today's purposes,
5 first of all, you want me to enter a final order
6 authorizing the debtor to obtain post petition financing.
7 MR. SEESE: Yes, sir, that's correct. I
8 apologize, but I do not have orders today. I will have
9 them tomorrow.
10 THE COURT: That's not a concern. I'll grant
11 that motion. Mr. Seese, you'll submit an order.
12 MR. SEESE: Yes, sir, I shall.
13 THE COURT: You asked that -- I have on the
14 calendar that there's a motion to limit notice.
15 MR. SEESE: Yes, sir. Well, it was a motion --
16 THE COURT: Isn't that something I already
17 disposed of?
18 MR. SEESE: Yes, sir. We filed a motion for
19 authorization to provide electronic service upon equity
20 security holders and to utilize Executive Mail Service
21 for purposes of coordinating and effectuating service on
22 equity security holders, and it's that motion with
23 respect to what the motion relates.
24 THE COURT: That's the motion.
25 MR. SEESE: Yes, sir. Your Honor, if I may
21
1 proceed. The motion to provide electronic service, we
2 have approximately 4600 shareholders. What we propose,
3 eCom eCom has a web site. What we would propose is to
4 post pleadings on the web site, which is commonly done in
5 cases with large shareholders. Those matters that
6 shareholders are required to get notice of, such as to
7 sell substantially all the assets, deadline to object to
8 disclosure, confirmation, motions to convert or dismiss,
9 we would physically serve by mail the notice of hearing.
10 A ballot with respect to confirmation and the order
11 setting the deadlines for disclosure and confirmation,
12 those will be served by US Mail on the shareholders.
13 Everything else in the case that we're not required to
14 serve them with, we would like to post on the web site.
15 The order that hopefully emanates from today's hearing,
16 we would serve on the shareholders and we would propose
17 to include a negative notice provision, which gives them
18 an opportunity to file an objection if any of them have
19 an objection to this process.
20 THE COURT: That would mean that any of the
21 shareholders who wanted to monitor what was going on
22 would have to take an affirmative step in accessing the
23 web site.
24 MR. SEESE: Yes. Everything has been posted.
25 Everything that's been entered by Your Honor to date and
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1 has been filed, except for maybe this motion, has already
2 been posted on the web site.
3 THE COURT: And what is the web site?
4 MR. SEESE: I have it in the motion. It's
5 www.eComeCom.net.
6 THE COURT: www --
7 MR. SEESE: .EComeCom.net.
8 THE COURT: eComeCom.net.
9 MR. SEESE: That's correct. And if you go on
10 there there's like a little slot that says on it,
11 bankruptcy pleadings, something to that effect, and when
12 you click on that it goes to a list of the various
13 pleadings that have been filed in the case to date.
14 Again, there are 4600 shareholders, and if you take even
15 a five page motion and multiply it times 15, or whatever
16 it is that's charged for copying in this case, I'm not
17 sure, 15 times 4600, times 4600, times 37 cents for
18 postage, it becomes cost prohibitive.
19 THE COURT: Let me be sure that I have that web
20 site correct.
21 MR. SEESE: Sure.
22 THE COURT: www.eComeCom.net. Because I will
23 be monitoring that web site.
24 MR. SEESE: Absolutely, Your Honor. Everything
25 must be on there, gentlemen. Any problem with that?
23
1 MR. RICHMOND: No. We've been putting
2 everything up there.
3 THE COURT: I'll grant the motion to provide
4 electronic service --
5 MR. SEESE: Thank you, Your Honor.
6 THE COURT: -- as has been requested.
7 MR. SEESE: The second component of that
8 motion, Your Honor, was a motion to use Electronic Mail
9 Service. I have learned through this process, and it's
10 not an easy process to understand, but there are two
11 types of shareholders of a company. There are registered
12 shareholders and beneficial shareholders.
13 THE COURT: Registered shareholders and --
14 MR. SEESE: And beneficial shareholders. And
15 beneficial shareholders are two subcategories. There are
16 objecting and nonobjecting. Registered shareholders are
17 those that their name and address is on file with the
18 corporation via the transfer agent. So that as of any
19 given record date if the corporation wanted to get in
20 touch with the shareholder or serve a notice, they can
21 get that list and serve them, get the contact information
22 from the transfer agent.
23 With respect to beneficial owners, those were
24 shareholders who buy shares of stock through banks or
25 brokerage firms. You don't necessarily have their
24
1 contact information at the transfer agent. Within that
2 category there are two subcategories. There are
3 objecting beneficial owners who object to their name and
4 address being disclosed, and it's just on file with the
5 bank or brokerage house, and there are nonobjecting who
6 don't object to their names and addresses, contact
7 information being published.
8 In the normal course of business when a public
9 company needs to get notice out to its shareholders it
10 typically uses, or very commonly uses, a company by the
11 name of Executive Mail Service. And what Executive Mail
12 Service does is it coordinates service. It will contact
13 the transfer agent as of a given record date, get the
14 name and address of shareholders. It will contact a list
15 of banks and brokers, the roster that they use, for their
16 list of beneficial owners. They will either get back a
17 nonobjecting list, or they'll get back information
18 relating to how many packets of information the bank or
19 brokerage house needs, who they will then mail it out to
20 the shareholders as a fiduciary, because they're the
21 beneficial owner. Executive Mail Service coordinates all
22 of this, and they put all the names and addresses
23 together, they get all the beneficial owners together,
24 they coordinate the copying and the mailing and all of
25 that type of stuff, and they actually effectuate service.
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1 ECom has done this in its ordinary course of business.
2 We want to continue using that, the copy
3 services. Ms. Bernheim, I asked her in advance of the
4 hearing to communicate with Executive Mail Service to ask
5 them about the cost, and what we were told is there was a
6 recent mailing that eCom did that Executive Mail Service
7 billed $1991. And I can't read your writing, if you
8 could explain that to the Court, please.
9 MS. BERNHEIM: Your Honor, every time they go
10 to serve the beneficial owners they do what is called a
11 broker search. They go through and they have all the
12 brokerage houses and banks go through which of the stocks
13 are owned, do a search, and they report back telling how
14 many packets need to be mailed out to the shareholders.
15 Every time they do that search it's $500. Then they
16 coordinate the mailing, the correspondence to each broker
17 firm to see how many packets to serve.
18 For this past one that we just did, Executive
19 Mail Service, for cost efficiency reasons, billed us a
20 total of $1,000. That included the broker search fee, as
21 well as the mailing of all the packets that the brokerage
22 houses will go ahead and take care of mailing themselves.
23 We were informed that there would be a reimbursement fee
24 that would go back to the debtor for the mailing purposes
25 only, so whatever the mail cost was, that would be
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1 required the debtors to pay.
2 In addition to that, with respect to the
3 registered shareholders to whom we have the mailing
4 address and information, exactly 5,000 copies were made,
5 5,000 corresponding envelopes were printed, for postage,
6 total fees, total of $991.
7 MR. SEESE: We will continue to use -- like to
8 use their services because we feel that what they're
9 charging for copying and postage is exactly what we would
10 charge, and she charges a $500 fee to do the search, and
11 I think our firm would probably incur more in fees trying
12 to track all this down.
13 THE COURT: When you say she --
14 MR. SEESE: I'm sorry, Your Honor, the
15 president or CEO is Irene Scoley (phonetic) of Executive
16 Mail Service, and they're based out of somewhere in New
17 Jersey.
18 And we just filed a motion to request
19 authorization to continue to use them in an abundance of
20 caution. I think this is all ordinary course type stuff,
21 but in light of the posture of this case, and it's not
22 your atypical garden variety --
23 THE COURT: No, it certainly isn't.
24 MR. SEESE: We just wanted to bring this to
25 Your Honor's attention in the interest of full
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1 disclosure.
2 THE COURT: Very well. I'll grant that as
3 well.
4 MR. SEESE: Thank you, Your Honor. Your Honor,
5 I think that's all that is before Your Honor this
6 afternoon.
7 THE COURT: Very well. If there's nothing
8 further. I want to be absolutely sure that the United
9 States Trustee's Office is being included in service.
10 MR. SEESE: Yes. We faxed it too.
11 THE COURT: I'm a little surprised that Ms.
12 Heffner is not here on this today, but as long as they've
13 been noticed, that's fine.
14 MR. SEESE: We know the SEC is being served
15 because I received correspondence from them asking us to
16 use a different address, the SEC is being notified as
17 well.
18 THE COURT: Yes. That's the other entity that
19 I want to be sure is being notified.
20 Is there any particular individual at the
21 Securities and Exchange Commission?
22 MR. SEESE: The letter was from Gordon
23 Robinson.
24 THE COURT: Gordon Robinson?
25 MR. SEESE: Yes, sir. Senior trial counsel,
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1 bankruptcy, and they were merely requesting that we
2 change the address to which service was going.
3 THE COURT: I'd like to get a copy of this
4 letter, please, if you can hand your copy to me, I'll
5 have a copy made as we conclude, and what I will probably
6 want to do is have a copy of this docketed in the court
7 file.
8 MR. SEESE: Yes, yes.
9 THE COURT: Very well. Is there anything
10 further?
11 MR. SEESE: That's all, Your Honor. Thank you
12 very much.
13 THE COURT: Mr. Richmond, don't take any of the
14 comments that I made as being criticism. Please don't.
15 MR. RICHMOND: I understand. I had eye contact
16 at him and it looked like I should answer, and maybe I
17 said something. I didn't mean to. I apologize. I'll
18 work better next time. I was looking and Michael is kind
19 of like talking to me, and maybe I knee jerk reacted or
20 whatever. I didn't mean to interrupt, but I was trying
21 to just let you know that that 15 grand we put back in
22 the bank at no cost to the debtor. We're here in good
23 faith. I didn't mean anything, and I apologize.
24 THE COURT: No apology necessary. As I said, I
25 didn't want you to think that by any comment I made I was
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1 being critical of you. And I hope this works out well.
2 MR. RICHMOND: We're trying hard.
3 THE COURT: It's just a little out of the
4 ordinary, to say the least.
5 MR. SEESE: It certainly is. I've told them
6 that.
7 THE COURT: Very well. Have a good day.
8 MR. RICHMOND: Again, thank you for the
9 comment, I appreciate that. I didn't mean to do that.
10 THE COURT: Have a good day. Drive carefully.
11 (The proceedings were concluded.)
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1 C E R T I F I C A T E
2
3 The State of Florida )
4 County of Palm Beach )
5
6 I, JACQUELYN ANN JONES, Court Reporter, certify
7 that I was authorized to and did stenographically report
8 the foregoing hearing; and that the transcript is a true
9 record of my stenographic notes.
10 I further certify that I am not a relative,
11 employee, attorney or counsel of any of the parties, nor
12 am I a relative or employee of any of the parties'
13 attorney or counsel connected with the action, nor am I
14 financially interested in the action.
15
16 In witness whereof I have hereunto set my hand
17 and seal this 30th day of July, 2005.
18
19 ___________________________
20 JACQUELYN ANN JONES
21 Commission No. CC 995956
22 Expires Feb 18, 2005
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