1             UNITED STATES BANKRUPTCY COURT               SOUTHERN DISTRICT OF FLORIDA23                Judge Steven H. Friedman45   In Re:6                               Case No. 04-35435-BKC-SHF78   eCom eCom.com, Inc.,9       Debtor.10   -------------------------------11   EX PARTE MOTION TO RECONSIDERATION ORDER DISAPPROVING     EMPLOYMENT OF DEBTOR'S AUDITORS NUNC PRO TUNC TO11/29/0412   FILED BY ECOM ECOM.COM, INC. AND FOR ENTRY OF ORDER     APPROVING RETENTION OF AUDITORS.131415   March 20, 2006161718   The above entitled cause came on for hearing before the     HONORABLE STEVEN H. FRIEDMAN, one of the Judges in the19   UNITED STATES BANKRUPTCY COURT, in and for the SOUTHERN      DISTRICT OF FLORIDA, at 1675 Palm Beach LakesBoulevard,20   8th Floor, West Palm Beach, Palm Beach County, Florida,     on March 20, 2006, commencing on or about 2:00 p.m.,and21   the following proceedings were had:2223   Reported by: Jacquelyn Ann Jones, Court Reporter     OUELLETTE & MAULDIN COURT REPORTERS 24   (305) 358-887525                                                          21    APPEARANCES: 23   KLUGER PERETZ KAPLAN & BERLIN, PL     By: MICHAEL D. SEESE, ESQUIRE, and4   DALE D. BERGMAN, ESQUIRE     On behalf of the Debtor56   Also Present:7   Mr. Barney Richmond     Mr. Richard Turner8   Mr. Tom Andreas (phonetic)910 11 12 13 14 15 16 17 18 19 20 21 22232425                                                          31   THE COURT: ECom eCom.com. The matter that we2   have before the Court today is an ex parte motion for3   reconsideration of an order disapproving employment of4   debtor's auditors.5   Let me ask for appearances, please.6   MR. SEESE: Good afternoon, Your Honor.7   Michael Seese from Kluger Peretz Kaplan and Berlin. And8   with me in court today, I think I can introduce everyone9   since they're all on our side, is my partner, Dale10  Bergman, who does securities work in our firm, Mr. Barney11  Richmond, who is the company's acting chief executive12  officer, Mr. Richard Turner, who is the company's CFO,13  and Mr. Tom Andreas (phonetic) from the firm of Weisnik14  Andreas and Company, who are the proposed auditors in15  these proceedings.16  Your Honor, if I may proceed.17  THE COURT: Yes, please.18  MR. SEESE: And we're also here, Your Honor, on19  a scheduled status conference, so I will be brief, but20  I'd like to give you a background of the case just21  leading up to where we are today.22  THE COURT: That's fine.23  MR. SEESE: Thank you, Your Honor.24  Your Honor, if you will recall, this was25  commenced by the filing of an involuntary petition on                                                          41   November 29th, 2004. A few months after the involuntary2   was filed Mr. David Pania (phonetic), who was the3   company's chairman and chief executive officer passed4   away.5   There were extensions agreed to, there was some6   confusion as to counsel, and at a status conference7   convened by Your Honor on May 16th of '05 an order for8   relief was entered and you gave the debtor 15 days within9   which to retain counsel. We were before Your Honor at10  the beginning of June and my law firm was retained.11  Prior to the filing of the involuntary, Your12  Honor, the debtor attempted to spin off ten wholly owned13  subsidiaries pursuant to staff bulletin number 4. And in14  this regard the debtor filed form 10Q SBs with the15  Securities and Exchange Commission and the shares were16  thereafter issued to equity security holders in17  connection with the spinoffs.18  After my law firm became involved we19  immediately engaged in discussions with representives20  from the Securities Exchange Commission. I believe21  you're familiar with Mr. Gordon and Ms. Sherrill22  (phonetic) from the SEC, who I have been dealing with,23  and the conversations related primarily to the validity24  of the spinoffs that had been undertaken.25  As a result of those conversations, the debtors                                                          51   agreed to voluntarily withdraw the form 10 SBs that had2   been filed on behalf of the subsidiaries with the idea3   that we would undertake further due diligence and4   analysis on the spinoffs at issue.5   Fast forward to February 21, 2006. We filed an6   application to retain Mr. Andreas' firm with executed7   affidavit and submitted a proposed order. From what I8   can tell, and based on the February 23, '06 order9   disapproving, it looks like Your Honor was under the10  belief, or may not have been provided with a copy of the11  application and the affidavit, and entered that order.12  It was on that basis that we submitted the ex parte13  motion for reconsideration.14  There were essentially two bases for the order15  disapproving the application to retain the auditors.16  One, the affidavit in the application missing, two was17  the belief that the debtors had not filed the18  debtor-in-possession reports.19  The debtors did, in fact, file20  debtor-in-possess ion reports. They did not file them21  with the court but copies were provided to Ms. Heffner at22  the U.S. Trustee's Office.23  THE COURT: So the debtor did not file the DIP24  reports?25  MR. SEESE: They were served on the Office                                                          61   of the United States Trustee. On March 13th we went2   ahead and filed all the DIP reports that were being3   provided to the Office of the U.S. Trustee with the4   Bankruptcy Court, with my apologies, it was a mistake of5   my office that they were not filed with the court, they6   were merely hand delivered to the U.S. Trustee's Office.7   THE COURT: So are you suggesting the DIP8   reports aren't --9   MR. SEESE: They're all on file current through10  the end of February of '06.11  THE COURT: So you're not suggesting that they12  are not normally filed with the court?13  MR. SEESE: As a matter of practice we-- I14  believe the requirement under the U.S. Trustee operating15  guidelines is that they are served upon the U.S.16  Trustee's Office. As a matter of practice my firm, and I17  know other firms, we typically and routinely file them18  with the Bankruptcy Court so that they're accessible by19  creditors and the Court.20  THE COURT: Something I will certainly check21  on. Continue.22  MR. SEESE: Yes, sir.23  On March -- so the DIP reports have been filed24  through the period ending February 28th, 2006, and we did25  the notice of filing, just to clarify the record, on                                                          71   March 13th, 2006. And since that time, Your Honor, we2   have been engaged with ongoing discussions with3   representatives of the Securities and Exchange4   Commission, mainly Mr. Gordon.5   The issue in this case, Your Honor -- and6   although this is not your garden variety Chapter 11,7   there are some very, very complex issues involved in this8   case relating to securites issues, and why Mr. Bergman9   has been involved - if the spinoffs were invalid then10  there's an issue as to whether we can redo them in11  connection with the plan of reorganization. If they12  cannot be redone, and they were invalid at the time they13  were done, then we're probably going to have to file a14  motion to reopen the claims bar deadline because15  creditors, or equity security holders would not know that16  they would have a potential claim. So there's an issue17  as to knowledge.18  So I've been working with the SEC on this19  issue, they provided me with information with factually20  similar cases. In fact, Your Honor, I can show you right21  here, we have drafted a plan of reorganization and22  disclosure statement which we are prepared to send up to23  the SEC.24  THE COURT: But the catch, I believe, and Mr.25  Seese, and the reason that I entered the order I entered,                                                          81   is that I did not see where the motion to employ the2   auditors was filed.3   MR. SEESE: Yes, sir, and it was. I have file4   stamped copies here. It was filed - they're attached as5   exhibits to the motion for reconsideration as Exhibit A.6   Right there is the application file stamped February7   21st, and it also had the affidavit, which was also filed8   on February 21st, we did a notice of filing the9   affidavit. So those were, in fact, filed.10  We followed up with a separate notice of filing11  after we received the order just to make sure that12  everything was in the court docket. But everything was13  filed on February 21st. In fact, I reviewed the docket14  in preparation for today's hearing and it is disclosed as15  being filed on February 21. It's items 56, 57, and 58 of16  the docket.17  So if I may continue, Your Honor.18  THE COURT: Please.19  MR. SEESE: The plan provides for a 100 percent20  distribution to noninsider general unsecured creditors,21  it provides for a 100 percent cash distribution to22  priority claimants all at confirmation or when the plan23  goes effective. And then we do have a procedure in24  connection with the spinoffs.25  The SEC is not here today, they're not                                                          91   appearing by phone, but they've authorized me to2   represent to you that they are working with us on these3   issues and that they look forward to receiving the plan4   and disclosure statement which I will send to them as5   soon as I get the okay from Mr. Richmond. But we do6   believe that going forward with the and disclosure7   statement and the retention of Mr. Andreas' firm is8   absolutely in the best interest of creditors. There's no9   question that if this case is converted there's no10  distributions to unsecured creditors, no NOLs will be11  preserved, and equity will be wiped out.12  If the case is dismissed, there's no13  centralized form within which to deal with these claims14  and issues of equity and which to go forward with the15  plan of reorganization. So the way we look at it, and16  the way I would most respectfully submit to Your Honor is17  that there was absolutely no harm in going forward. The18  debtor is current with all its filings, U.S. Trustee's19  fees, we have a plan and disclosure statement that I20  personally drafted, we're about to present it to the SEC,21  and I think we need an opportunity to take this22  forward.23  THE COURT: And why should I approve their24  retention nunc pro tune to November 29th, 2004?25  MR. SEESE: Your Honor, they have been doing                                                          101   work post petition, Mr. Andreas. I was not involved, as2   Your Honor knows. There was confusion as to who was3   debtor's counsel. My firm didn't get involved until mid4   June or so. Mr. Gamberg, if you will recall, was here,5   and it turned out that he represented one of the6   shareholder groups, not the debtor. And so Mr. Andreas7   and his firm were doing work so that the company could8   proceed with their SEC filings and get up to date. And9   so on that basis we're seeking nunc pro tune retention of10  Mr. Andreas' firm.11  I have, Your Honor, if Your Honor is so12  inclined, I have an order, a simple order granting the13  motion for reconsideration and providing that the prior14  order that was submitted on the auditors would be entered15  by Your Honor.16  THE COURT; One moment. Mr. Seese, it is your17  representation as counsel for the debtor that this debtor18  only has approximately 20 creditors?19  MR. SEESE: Yes, sir.20  THE COURT: That's all?21  MR. SEESE: Yes, sir. Let me answer. I want22  to be very clear in what I communicate to the Judge, I23  don't want to be misleading in any way.24  There were 20 creditors that were scheduled as25  being listed as of the petition date, but this whole                                                          111   issue, remember the shareholders of eCom, when eCom spun2   off its subsidiaries eCom issued its shares in those subs3   to its shareholders. If it turns out now, which is why4   it's so critical with this plan while we have this5   mechanism built in that we're working with the SEC on, to6   the extent that these spinoffs were not valid if the7   shareholders believe that they have claims we would move8   to reopen the claims bar deadline there could, in fact,9   be additional claims, but those would not have come to be10  known to these people until in time to file a proof of11  claim.12  I would also point out that to the extent that13  there are claims in favor of equity security holders14  arising or in connection with these spinoffs, if it turns15  out that they were invalid and can't be done, the debtor,16  in doing those spinoffs, relied upon the opinion of an17  outside law firm, no law firm in this room, in doing18  those spinoffs, and there may be a potential cause of19  action damages measured by the claims that arise as a20  result.21  THE COURT: I just counted up the number of22  parties who were given notice of this hearing today, and23  it comes to 22 creditors.24  MR. SEESE: Your Honor, if you will recall,25  Your Honor entered an order early on in this case that                                                          121   was filed by my law firm for a motion for authorization2   to give electronic notice to shareholders. A copy3   of that order, the notice of commencement of case, and4   the claims bar deadline was served by U.S. Mail on all5   known shareholders. From and after that point everything6   has been posted on the company's website as referred to7   in the order that was served upon the equity security8   holders.9   THE COURT: And how much in the way of fees10  have accrued supposedly in favor of the auditors?11  MR. SEESE: How much would you say that you've12  incurred, Mr. An d r e a s ?13  THE COURT: Rough ball park.14  MR. ANDREAS: I believe it's around 30.15  THE COURT: $30,000?16  MR. ANDREAS: Yes.17  THE COURT: I'll grant the motion.18  MR. SEESE: Thank you, Your Honor. I have an19  order. May I present?20  THE COURT: I will review it. It appears to be21  in good form, and I'll see that it is entered.22  MR. SEESE: Yes, sir.23  THE COURT: Mr. Seese, I will repeat my24  continuing concern about the status of this case. 25  MR. SEESE: Yes, sir.                                                          131   THE COURT: And I have serious concerns about2   the securities regulation ramifications, and I honestly3   couldn't point to anything in particular, but as far as I4   can see, this is still a shell corporation, it has no5   operation. 6   MR. SEESE: Your Honor, that is why the plan7   and disclosure statement that we've drafted we have8   committed to Mr. Gordon -- or Mr. Robinson, I keep9   referring to him as Mr. Gordon, Gordon Robinson, Mr.10  Robinson at the SEC, that these are going to his office11  and that he is going to review everything and we're going12  to work with his office in making sure that everything13  was done properly or not, and if it wasn't, how we14  protect the interest of these stake holders. And that is15  our objective here, Your Honor.16  THE COURT: Very well. I will continue to17  watch with interest. I thank you all for your18  attendance, and we'll move forward.19  MR. SEESE: Your Honor, we certainly appreciate 20  the opportunity to go forward.21  THE COURT: And this order will be entered22  today.23  MR. SEESE: Thank you, Your Honor. 2425                                                          1412   CERTIFICATE34   The State of Florida )5   County of Palm Beach )67   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 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 29th day of March, 2006.19 20  /s/ Jacquelyn Jones    --------------------21  JACQUELYN ANN JONES22  Commission No. CC 995956 23  Expires: Feb 18, 2009 24     JACQUELYN JONES25  MY COMMISSION #DD 382130    EXPIRES: February 18, 2009    Bonded Thru Notary Public Underwriters