Industrial Enterprises of America (IEAM) First Amended Disclosure Statement

8/9/2019 Industrial Enterprises of America (IEAM) First Amended Disclosure Statement

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FIRST AMENDED DISCLOSURE STATEMENT

IN THE UNITED STATES BANKRUPTCY COURT

FOR THE DISTRICT OF DELAWARE

In re: ) CHAPTER 11)

PITT PENN HOLDING CO., INC., et al.1, ) Case No. 09-11475 (BLS)

) (Jointly Administered)Debtors. )

)

Important Dates

Date by which ballots must be received: _________________, 2010

Date by which objections to confirmation of theplan must be filed and served:

_________________, 2010

Hearing on confirmation of the Plan: _________________, 2010

DEBTORS FIRST AMENDED DISCLOSURE STATEMENT

DATED: May 26, 2010Christopher D. Loizides (No. 3968)LOIZIDES, P.A.1225 King Street, Suite 800Wilmington, DE 19801

Telephone: (302) 654-0248Facsimile: (302) 654-0728E-mail: [email protected]

- and -

Pace ReichBenjamin ReichPACE REICH, PC726 Meetinghouse RoadElkins Park, PA 19027

Telephone: (215) 790-0100Facsimile: (215) 790-7360Email: [email protected]

Counsel for Debtors

1The debtors are: Pitt Penn Holding Co. (Case No. 09-11475), Pitt Penn Oil Co. LLC (Case No. 09-11476), Industrial

Enterprises of America, Inc. (Case No. 09-11508), EMC Packaging, Inc. (Case No. 09-11524), Todays WayManufacturing LLC (Case No. 09-11586), and Unifide Industries LLC (Case No. 09-11587), all of which have been jointlyadministered.
mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]


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FIRST AMENDED DISCLOSURE STATEMENT i

TABLE OF CONTENTS

[TABLE OF CONTENTS HAS NOT BEEN CONFORMED TO REFLECT PROPOSED REVISIONS]

I. INTRODUCTION .............................................................................................................................................. 1II. PURPOSE OF THE DISCLOSURE STATEMENT AND PROVISIONS FOR VOTING AND

CONFIRMATION ...................................................................................................................... 1A. Purpose ................................................................................................................................................ 1

B. Voting Provisions .......... ........... .......... ........... .......... ........... .......... ........... .......... ........... .......... ........... .. 21. General ................................................................................................................................... 22. Claimants Not Entitled to Vote ......... ........... ........... .......... ........... .......... ........... .......... ........... 2

a. Administrative and Priority Tax Claims ......... ........... ........... .......... ........... .......... .... 2b. Unimpaired Claims .......... .......... ........... .......... ........... ........... .......... ........... .......... .... 3

3. Claimants Entitled to Vote; Impaired Claims .......... ........... .......... ........... .......... ........... ......... 34. Acceptance of the Plan .......... ........... .......... ........... .......... ........... .......... ........... .......... ........... .. 3

C. Confirmation ........................................................................................................................................ 41. Objections .......... .......... ........... .......... ........... ........... .......... ........... .......... ........... .......... ........... 42. Confirmation by Acceptance .......... .......... ........... .......... ........... ........... .......... ........... .......... .... 43. Confirmation Without Acceptance .......... .......... ........... .......... ........... .......... ........... .......... ...... 4

D. Representation Limited .......... .......... ........... .......... ........... ........... .......... ........... .......... ........... .......... .... 5III. INQUIRIES ...................................................................................................................................................... 5

IV. THE DEBTORS ............................................................................................................................................... 5A. Pre-Petition Background and History .......... .......... ........... .......... ........... ........... .......... ........... .......... .... 6B. Background Formation and Maintenance of Corporate Records .......... .......... ........... .......... ........... .. 6C. Acquisitions .......... ........... .......... ........... .......... ........... .......... ........... ........... .......... ........... .......... ........... 8D. Private Placements - July 2005 through March 2006 .......... ........... ........... .......... ........... .......... ........... 9E. John D. Mazzutos Personal Bankruptcy is Disclosed to the Board .......... .......... ........... .......... ......... 11F. Indecent Disclosure: The Use of Press Releases, Investor Meetings, and Promoters ......... ........... 12G. February 2008 - John D. Mazzuto Resigns and James W. Margulies Becomes CEO and CFO ....... 15H. April 2008 - Mr. Margulies Discusses the Companys Cash Requirements with a Number of

Significant Investors ................................................................................................... 15I. April 2009 - All Prior Financials, Stock Issuances, and Disclosures Are Under Review By

Current Management .................................................................................................. 161. The Chaotic State of the Corporate Records Has Created a Major Problem for

New Management ......................................................................................... 172. State of IEAM Accounting Books and Records ........... .......... ........... .......... ........... .......... .... 183. Class Action Lawsuit and SEC Inquiries Result in the Formation of a Governance

Committee - October 2008 ........................................................................... 214. Capital Structure .......... ........... .......... ........... .......... ........... ........... .......... ........... .......... ......... 225. Government Regulation .......... .......... ........... .......... ........... ........... .......... ........... .......... ......... 376. Employees ............................................................................................................................ 37

J. Events that Lead to the Bankruptcy Filing ........... .......... ........... .......... ........... ........... .......... ........... ..... 381. Litigation .......... ........... .......... ........... .......... ........... .......... ........... .......... ........... .......... ........... 41

a. Zyskind Action .......... .......... ........... .......... ........... ........... .......... ........... .......... ......... 41b. Goldknopf Action .......... ........... .......... ........... .......... ........... .......... ........... .......... .... 41c. Margulis Action .......... .......... ........... .......... ........... .......... ........... .......... ........... ....... 42

2. Contested Litigation ........... .......... ........... .......... ........... .......... ........... .......... ........... .......... .... 42a. Trinity Bui Action .......... ........... .......... ........... .......... ........... .......... ........... .......... .... 42b. Black Nickel Actions .......... ........... ........... .......... ........... .......... ........... .......... ......... 42c. EMC New Jersey Litigation ........... .......... ........... ........... .......... ........... .......... ......... 43d. Securities Class Action ........... .......... ........... .......... ........... ........... .......... ........... ..... 43e. Bankruptcy Litigation ......... ........... ........... .......... ........... .......... ........... .......... ......... 44

3. Cooperation with Regulatory Authority/Law Enforcement .......... ........... .......... ........... ....... 44K. Chapter 11 Cases ............................................................................................................................... 45

1. Initial Events in Bankruptcy............. .......... ........... .......... ........... .......... ........... .......... ........... 452. Events Occurring in the Bankruptcy Case DIP Financing, Avoiding

Conversion, Plan Filing .................................................................. 45a. Bankruptcy Litigation ......... ........... ........... .......... ........... .......... ........... .......... ......... 45

V. THE PLAN OF REORGANIZATION .......... ........... .......... ........... ........... .......... ........... .......... ........... .......... .. 47A. Plan Summary ................................................................................................................................... 47


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FIRST AMENDED DISCLOSURE STATEMENT ii

1. Class A Claims of Professionals .......... .......... ........... .......... ........... .......... ........... .......... .... 482. Other Administrative Claims ........... .......... ........... .......... ........... .......... ........... .......... ........... 483. Class B ................................................................................................................................. 484. Classes C, D, and E .......... .......... ........... .......... ........... ........... .......... ........... .......... ........... ..... 485. Class F .................................................................................................................................. 486. Class G the Debtor-in-Possession Loan by Omtammot LLC.............. ........... .......... ......... 497. Class H ................................................................................................................................. 498. Class I Shareholders Equity .......... .......... ........... .......... ........... .......... ........... .......... ........... 50

9. Class K Any Claim for Damages for the Purchase or Sale of Any of the Securitiesof Any of the Debtors ................................................................................... 50

B. General Provision Applicable to All Classes ......... ........... ........... .......... ........... .......... ........... .......... .. 50C. Treatment of Contested Claims Arising Under Section 502(c) ......... ........... ........... .......... ........... ..... 50

VI. PAYMENTS UNDER THE PLAN .......... .......... ........... .......... ........... ........... .......... ........... .......... ........... ..... 51A. Transfers of the Stock ......... ........... .......... ........... .......... ........... .......... ........... ........... .......... ........... ..... 52B. Ownership of Shares After Distribution Under the Plan .................... .......... ........... .......... ........... ..... 52

VII. REJECTION AND ASSUMPTION OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES .... 52VIII. ALLOWED AMOUNT OF CLAIMS .......................................................................................................... 52IX. VOIDABLE TRANSFERS .......................................................................................................................... 53X. TAX CONSEQUENCES .............................................................................................................................. 53XI. DISCHARGE OF DEBTOR ........................................................................................................................ 53XII. JURISDICTION OF BANKRUPTCY COURT AFTER CONFIRMATION .......... .......... ........... .......... .... 53

XIII. LIQUIDATION ANALYSIS AND DISCUSSION...................................................................................... 53A. Liquidation Analysis/Miscellaneous Bankruptcy Provisions ........... .......... ........... .......... ........... ....... 54

XIV. OPERATING PROJECTIONS .................................................................................................................... 56XV. CONCLUSION ............................................................................................................................................. 56


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FIRST AMENDED DISCLOSURE STATEMENT 1

Industrial Enterprises of America, Inc., (IEAM or the Company), Pitt Penn HoldingCo., Inc, (PPH),Pitt Penn Oil Co., LLC, (PPO), EMC Packaging, Inc., (EMC), TodaysWay Manufacturing LLC, (Todays Way), and Unifide Industries LLC, (Unifide)collectively the debtors in possession (the "Debtors"), submit this First Amended DisclosureStatement (the "Disclosure Statement") in connection with the Debtors First Amended

Consolidated Plan of Reorganization (the "Plan"), pursuant to Chapter 11 of Title 11 of theUnited States Code (the "Bankruptcy Code"). Capitalized terms used and not otherwise definedherein shall have the same meanings as are ascribed to them in the Plan.

I. INTRODUCTION.

On April 30, 2009 through May 6, 2009 (the "Petition Dates"), the Debtors filed with theUnited States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") VoluntaryPetitions (the "Petitions") under Chapter 11 of the Bankruptcy Code. Since the Petition Dates,the Debtors have continued in the management and limited operation of their property as debtorsin possession pursuant to sections 1107 and 1108 of the Bankruptcy Code.

II. PURPOSE OF THE DISCLOSURE STATEMENT AND PROVISIONS FOR

VOTING AND CONFIRMATION.

A. Purpose.

The Debtors provide this Disclosure Statement, pursuant to the requirements ofsection 1125 of the Bankruptcy Code, in order to provide to the holders of all Claims against andInterests in the Debtors adequate information about the Debtors and the Plan, so that they maymake an informed judgment with respect to the merits of the Plan for purposes of voting on thePlan. By Order dated ____________, 2010, the Disclosure Statement was approved by theBankruptcy Court as containing "adequate information", which is defined in section 1125(a)(1)of the Bankruptcy Code as "information of a kind, and in sufficient detail, as far as is reasonablypractical in light of the nature and history of the debtor and the condition of the debtors booksand records, including a discussion of the potential material Federal tax consequences of the planto the debtor, any successor to the debtor, and a hypothetical investor typical of the holders ofclaims or interests in the case, that would enable a hypothetical reasonable investor, typical ofholders of the relevant class to make an informed judgment about the Plan . . . ." This DisclosureStatement does not purport to be a complete description of the Plan, the financial status of theDebtors, the applicable provisions of the Bankruptcy Code, or other matters that may be deemedsignificant by certain creditors and parties-in-interest. This Disclosure Statement is an attempt toset forth, in reasonable detail, information that will enable a creditor to make an informed judgment with respect to the Plan for voting purposes. The Disclosure Statement necessarilyinvolves a series of compromises between "raw data", the legal language in documents orstatutes, and the considerations of readability and usefulness. For further information, youshould examine the Plan directly (a copy of which accompanies this Disclosure Statement),and/or consult with your legal and financial advisors. The description of the Plan herein isprovided only as a summary and it is recommended that all creditors and parties-in-interestreview the Plan, the balance of this Disclosure Statement, and the other documents and


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information referenced herein, in order to obtain more complete information. Approval by theBankruptcy Court of the Disclosure Statement does not constitute an approval of the Plan.

Other than as set forth in this Disclosure Statement, no representations concerning theDebtors, their assets, their financial condition, management or future operations are authorized

by the Debtors. Any representations or inducements made to secure acceptance of the Plan otherthan as contained in the Plan and described in this Disclosure Statement are not authorized by theDebtors and accordingly should not be relied upon by the holder of any Claim or Interest inreaching a decision whether or not to vote to accept or reject the Plan.

Enclosed with this Disclosure Statement are the following:

(1) a copy of the Plan;

(2) a ballot for accepting or rejecting the Plan (if applicable); and

(3) a copy of the Order of the Bankruptcy Court approving the DisclosureStatement setting forth: the time period and the manner by which to voteto accept or reject the Plan, the time period for objecting to Confirmationof the Plan, and fixing the time for the hearing on the Confirmation of thePlan.

B. Voting Provisions.

1. General.

Every holder of a Claim or Interest in an Impaired Class that is entitled to receive adistribution under the Plan is entitled to vote to accept or reject the Plan. As such, all holders ofClaims or Interests in Classes C, D, E and F may vote on the Plan by filling out the enclosedBallot and mailing it to counsel for the Debtors.

2. Classes of Claims and Interests Not Entitled to Vote.

a. DIP Claims

Pursuant to the compromise and settlement between and among theDebtors, OMTAMMOT, LLC and OMTAMMOT II, L.P., with respect to the DIP Loan Claims(the DIP Loan Settlement), OMTAMMOT, LLC and OMTAMMOT II, L.P. (together, theDIP Lenders) have agreed to accept the distributions set forth in Article 3.1 of the Plan in fullsatisfaction, settlement, release and discharge of, and in exchange for, their Allowed DIP LoanClaims, and to the extent that such distributions may be deemed inadequate to pay the AllowedDIP Loan Claims in full, the DIP Lenders have further agreed to waive any resulting deficiencyClaim in accordance with the DIP Loan Settlement.


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b. Administrative and Priority Tax Claims.

Claimants holding only Administrative Claims and/or Priority Tax Claimsare not entitled to vote on the Plan because Section 1123(a)(1) of the Bankruptcy Code does notrequire that such Claims be designated in a Class and because the Plan provides for the payment

of such Claimants under terms which not only satisfy, but are more favorable to such Claimantsthan the requirements set forth by Sections 1129(a)(9)(A) and (C) of the Bankruptcy Code.

c. Unimpaired Claims.

Claimants holding Claims in a Class which is not impaired (as discussedbelow) are not entitled to vote on the Plan because pursuant to Section 1126 of the BankruptcyCode, a Class, and each Claimant in such Class, that is not impaired under the Plan isconclusively presumed to have accepted the Plan. As a general matter, under Section 1124 of theBankruptcy Code, a class of claims is impaired unless the legal, equitable and contractual rightsof the claimants in such class are not altered by the Plan (with exception of certain rights of

claimants to receive accelerated payment of their claims and certain rights of a debtor to curedefaults) or unless the plan provides, that, on the effective date, each claimant in such class shallreceive, on account of its claim, cash equal to the allowed amount of such claim.

Claimants in Classes A and B (as described below) are Unimpaired and,therefore, are not entitled to vote on the Plan. Code.

d. Deemed Rejecting Class.

Holders of Impaired Non-IEAM Interests in Class G are deemed to rejectthe Plan because such holders will not receive a distribution under the Plan on account of theirInterests. Interest holders in Class G are accordingly not entitled to vote on the Plan.

3. Claimants Entitled to Vote; Impaired Claims.

Certain classes are Impaired under the Plan and Claimants in such Classes, therefore, areentitled to vote on the Plan. Claimants in Classes C, D, E and F are entitled to vote on the Plansince such classes are impaired.

4. Acceptance of the Plan.

Please note that the Plan is deemed accepted by a Class of Claims or Interests when it isapproved by holders of Claims and Interests who hold at least two-thirds of the dollar amount,and who comprise more than one-half in number of, the Allowed Claims or Interests of suchClass that actually vote. An abstention by a Claim or Interest holder will not count toward eitheracceptance or rejection of the Plan.

The Debtors recommend that each holder of a Claim or Interest that is entitled to vote tovote to ACCEPT the Plan. IN ORDER FOR YOUR VOTE TO COUNT, YOUR BALLOT


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MUST BE COMPLETED AND RECEIVED AT THE ADDRESS STATED ON THE BALLOT(WHICH IS ALSO SET FORTH BELOW) ON OR BEFORE , 2010:

Pace Reich, PC726 Meetinghouse Road

Elkins Park, PA 19027

Even though a Claim or Interest holder may choose not to vote or may vote against thePlan, such Claim or Interest holder will nevertheless be bound by the terms and treatment setforth in the Plan if the Plan is accepted by the requisite majorities in each Class entitled to voteand is confirmed by the Court. Allowance of a Claim or Interest for voting purposes does notnecessarily mean that the Claim or Interest will be Allowed for purposes of distribution under theterms of the Plan. Any Claim or Interest to which an objection has been or will be filed will beAllowed for purposes of distribution only after determination by the Court. Such determinationmay be made after the Plan is Confirmed.

C. Confirmation.

1. Objections.

Should you have an objection to Confirmation of the Plan, it must be filed, in writing,with the Bankruptcy Court and served on counsel for the Debtors, on or before , 2010.A hearing to consider confirmation of the Plan will be held on , 2010,beginning at ______ before the Honorable Brendan L. Shannon in the United States BankruptcyCourt for the District of Delaware, 824 Market Street, 6 th Floor, Courtroom 1, Wilmington,Delaware 19801.

2. Confirmation by Acceptance.

The Debtors are seeking Confirmation of the Plan under Section 1129(a) of theBankruptcy Code. Confirmation under Section 1129(a) is dependent upon a finding of theBankruptcy Court that a number of requirements have been met. One of these requirements isthat each Impaired Class of Claims and Interests entitled to vote on the Plan must accept thePlan. Accordingly, the Plan cannot be Confirmed under Section 1129(a) unless accepted by eachImpaired Class of Claims and Interests.

3. Confirmation Without Acceptance.

Under Section 1129(b)(1) of the Code, the Court may confirm the Plan even if it has notbeen accepted by one or more Impaired Classes of Claims and Interests, provided that the Plandoes not discriminate unfairly and it is fair and equitable with respect to each Impaired Class ofClaims or Interests that has not accepted the Plan.

In order for the Plan to be fair and equitable with respect to an Impaired Class of SecuredClaims, Section 1129(b)(2)(A) of the Code requires that the Plan provide for each Claimant insuch Class: (a) to receive payments over time which, in the aggregate, total at least the Allowed


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amount of such Claimant's Claim, and which have a present value, as of the Effective Date of thePlan, at least equal to the value of such Claimant's interest in the Debtor's property encumberedby such Claimant's lien(s); and (b) the Secured Claimant shall retain such lien(s) in order tosecure such payments.

In order for the Plan to be fair and equitable with respect to an Impaired Class ofUnsecured Claims, Section 1129(b)(2)(B) of the Code requires that the Plan provide either: (a)that each Claimant in such Class shall receive on account of its Claim property which has apresent value, as of the Effective Date of the Plan, equal to the Allowed amount of such Claim or(b) that no Claimant or holder of an Interest in the Debtor that is junior to the Claims of suchImpaired Class will receive or retain under the Plan any property on account of such juniorClaim or Interest.

In order for the Plan to be fair and equitable with respect to an Impaired Class ofInterests, Section 1129(b)(2)(C) of the Code requires that the Plan provide either: (a) that eachInterest holder in such Class shall receive on account of its Interest property which has a present

value, as of the Effective Date of the Plan, equal to the value of such Interest or the Allowedamount of any fixed liquidation preference or redemption price to which the holder of suchInterest is entitled or (b) that no holder of an Interest in the Debtor that is junior to the Interestsof such Impaired Class will receive or retain under the Plan any property on account of suchjunior Interest.

D. Representation Limited.

THE ACCURACY OF THE INFORMATION, PARTICULARLY FINANCIALINFORMATION, SUBMITTED WITH THIS DISCLOSURE STATEMENT IS DEPENDENTUPON AN ACCOUNTING PERFORMED BY THE DEBTORS. FURTHER, THEFINANCIAL INFORMATION SET FORTH HEREIN CONTAINS FINANCIALPROJECTIONS OF FUTURE PERFORMANCE THAT NECESSARILY RELY ON THEOUTCOME OF MANY VARIABLES OVER WHICH THE DEBTORS HAVE NOCONTROL, AND THUS THE ACCURACY OF SUCH PROJECTIONS CANNOT BEGUARANTEED.

THESE FINANCIAL PROJECTIONS PRESENT, TO THE BEST OF THE DEBTORSKNOWLEDGE AND BELIEF AS OF THE DATE OF THIS DISCLOSURE STATEMENT,GIVEN ONE OR MORE HYPOTHETICAL ASSUMPTIONS, EACH DEBTOR ENTITY'SEXPECTED FINANCIAL POSITION, RESULTS OF OPERATIONS, AND CHANGES INFINANCIAL POSITION OVER CERTAIN PROJECTED TIME PERIODS. A FINANCIALPROJECTION IS SOMETIMES PREPARED TO PRESENT FOR EVALUATION ONE ORMORE HYPOTHETICAL COURSES OF ACTION IN LIGHT OF DIFFERENT SETS OFVARIABLES. A FINANCIAL PROJECTION IS BASED ON THE RESPONSIBLE PARTY'SASSUMPTIONS REFLECTING RESULTS IT EXPECTS WOULD OCCUR, GIVEN ONE ORMORE HYPOTHETICAL CONDITIONS. A PROJECTION MAY CONTAIN A RANGE OFPOSSIBLE OUTCOMES THAT COULD OCCUR UNDER A SET OF GIVENASSUMPTIONS AND VARIABLES.


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WHILE EVERY EFFORT HAS BEEN MADE TO ENSURE THAT THEASSUMPTIONS ARE VALID AND THAT THE PROJECTIONS ARE AS ACCURATE ASCAN BE MADE UNDER THE CIRCUMSTANCES, THE DEBTORS CANNOTUNDERTAKE TO CERTIFY OR WARRANT THE ABSOLUTE ACCURACY OF THEFINANCIAL PROJECTIONS.

III. INQUIRIES.

Inquiries by holders of Claims or Interests or other parties in interest in these chapter 11cases may be directed to counsel for the Debtors, Pace Reich, Esquire, Pace Reich PC, 726Meetinghouse Road, Elkins Park, PA 19027, (215) 887-0130 (telephone) and (215) 887-5617(facsimile); or to Robert L. Renck, Jr., Industrial Enterprises of America, 116 West 23 rd Street,5

thFloor, New York, NY 10011, (212) 851-8434 (telephone) and [email protected] (e-mail).

TREATMENT AND ESTIMATED DISTRIBUTIONS UNDER THE PLAN

The chart below summarizes the treatment of each class of claims and of unclassifiedclaims under the Plan. Please note, however:

The chart is only a general summary and the actual treatment of each class and ofunclassified claims is governed by the terms and provisions of the Plan.

The estimated allowed amounts in each category and the estimated percentagerecoveries are merely estimates. The actual amounts may vary considerable fromthese estimates.

Debtors reserve the right, at any time provided for pursuant to bankruptcy law, toobject to any proof of claim which exceeds the amounts scheduled, in order to providea conservative picture, the Debtor has estimated the approximate amount of totalgeneral unsecured claims to equal proximately $11,219,388.

CLASS TREATMENT ESTIMATED

ALLOWED

AMOUNT

ESTIMATED

PERCENTAGE

RECOVERY

Unclassified DIPLoan Claims

(Non-Voting)

Pursuant to the DIP Loan Settlement, onor before the Effective Date, each holderof an Allowed DIP Loan Claim shall

receive in full satisfaction, settlement,release and discharge of, and in exchangefor, its Allowed DIP Loan Claim anamount of Preferred A Shares ofReorganized IEAM (the Preferred AShares) equal to one (1) Preferred AShare for each one dollar ($1.00) ofAllowed DIP Loan Claims. EachPreferred A Share shall accrue interest at

$1,800,000.00 100%


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a rate of seven percent (7%) per annumfrom the Effective Date until payment,and such interest shall accrue and shallonly be payable upon payment via theliquidation preference outlined in thesucceeding sentence. The Preferred A

Shares shall have a liquidation preferenceequal to one dollar ($1.00) for eachPreferred A Share plus all interest accruedthereon from the Effective Date throughthe date of payment. The Preferred AShares shall have a liquidation preferenceover the Preferred B Shares ofReorganized IEAM (the Preferred BShares), the Preferred C Shares ofReorganized IEAM (the Preferred CShares)and any newly issued CommonStock. The Preferred A Shares may be

convertible to additional shares of NewCommon B Stock of Reorganized IEAM(the New Common B Stock) (at aconversion rate equal to 30 million Sharesof New B Common Stock divided by theaggregate amount of issued Preferred AShares) at any time upon the solediscretion of the holder of the Series APreferred Stock.

UnclassifiedAdministrativeClaims

(Non-Voting)

Except to the extent that an AllowedAdministrative Claim has been paid priorto the Effective Date, each holder of an

Allowed Administrative Claim shallreceive payment of the amount of suchAllowed Administrative Claim in Cash onthe Effective Date, or as soon asreasonably practicable thereafter, orimmediately after entry of an orderapproving an application therefor if afterthe Effective Date, in full satisfaction,settlement, release and discharge of, andin exchange for, such AllowedAdministrative Claim.

$205,000.00 100%

Unclassified

Priority TaxClaims

(Non-Voting)

Except to the extent that an Allowed

Priority Tax Claim has been paid prior tothe Effective Date, each holder of anAllowed Priority Tax Claim shall receivein full satisfaction, settlement, release anddischarge of, and in exchange for, suchAllowed Priority Tax Claim, equalmonthly payments over a period of five(5) years from the Effective Date in anaggregate principal amount equal to the

$385,968.00 100%


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face amount of such Allowed Priority TaxClaim, with interest on the unpaid portionthereof at the rate of interest determinedunder applicable nonbankruptcy law as ofthe calendar month in which the Plan isconfirmed.

Class ANon-TaxPriority Claims

(Unimpaired,Non-Voting)

Except to the extent that an Allowed Non-Tax Priority Claim has been paid prior tothe Effective Date, each holder of anAllowed Non-Tax Priority Claim shallreceive in full satisfaction, settlement,release and discharge of, and in exchangefor, such Allowed Non-Tax PriorityClaim, payment of the amount of suchNon-Tax Priority Claim in Cash on theEffective Date or as soon as reasonablypracticable thereafter.

$102,864.00 100%

Class B

ConvenienceClaims

(Unimpaired,Non-Voting)

On the Effective Date, or as soon as

reasonably practicable thereafter, eachholder of an Allowed Convenience Claimshall receive in full satisfaction,settlement, release and discharge of, andin exchange for, such AllowedConvenience Claim, payment of theamount of such Allowed ConvenienceClaim in Cash.

$160,000.00 100%

Class CPrepetitionLender SecuredClaims

(Impaired,Voting)

Pursuant to the terms of the PrepetitionLoan Settlement, on the Effective Date, oras soon as reasonably practicablethereafter, the Prepetition Loan Collateral

shall be liquidated and all the proceedsthereof shall be remitted toOMTAMMOT, LLC in full satisfaction,settlement, release and discharge of, andin exchange for, the secured portion of theAllowed Prepetition Lender SecuredClaims. The Allowed deficiency Claimof OMTAMMOT, LLC shall be treated asa Class D Claim.

$2,200,000.00 47.8%

Class DGeneralUnsecured

Claims

(Impaired,Voting)

On the Effective Date, or as soon asreasonably practicable thereafter, eachholder of an Allowed General Unsecured

Claim shall receive in full satisfaction,settlement, release and discharge of, andin exchange for, such Allowed GeneralUnsecured Claim:

(i) Cash in an amount equal to thelesser of (A) two percent (2%) of theamount of such Allowed General

$11,219,388 100%


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Unsecured Claim or (B) $200,000.00 tobe distributed Pro Rata to the holders ofClass D Claims; plus

(ii) an amount of Preferred B Sharesto be issued on a Pro Rata basis equal to

the greater of (A) ninety-eight percent(98%) of the amount of such AllowedGeneral Unsecured Claim or (B) the totalamount of all Allowed General UnsecuredClaims in Class D less $200,000.00. One(1) Preferred B Share shall be issued onaccount of each one dollar ($1.00) ofAllowed General Unsecured Claims. ThePreferred B Shares shall not accrueinterest or otherwise be convertible. ThePreferred B Shares shall have aliquidation preference equal to one dollar

($1.00) for each Preferred B Share. ThePreferred B Shares shall have aliquidation preference over the PreferredC Shares and any newly issued CommonStock. When the net cash balances ofReorganized IEAM are equal to or greaterthan the preference amounts of PreferredA Shares and Preferred B Shares,Reorganized IEAM may in its solediscretion liquidate the Preferred BShares. In addition, the holders ofPreferred B Shares may require

Reorganized IEAM to liquidate thePreferred B Shares.

Class E ExistingIEAM Interests

(Impaired,Voting)

The Existing IEAM Interests shall bedeemed cancelled and extinguished as ofthe Effective Date. On, or as soon asreasonably practicable after the EffectiveDate, each holder of an Allowed ExistingIEAM Interest shall receive its Pro Ratashare of 30 million shares of NewCommon B Stock, to be issued byReorganized IEAM.

$0.00 100%

Class F

SubordinatedClaims

(Impaired,Voting)

To the extent that monetary damages are

assessed against any of the Debtorsarising from any claim for damages forthe purchase or sale of any securities ofany of the Debtors, and to the extent suchdamages are not paid by any insurance, inaccordance with the provisions of 510(b)of the Code, such monetary damages shalltreated by the issuance of Preferred CShares. One (1) Preferred C Share shall

$0.00 100%


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be issued on account of each one dollar($1.00) of Allowed Subordinated Claims.The Preferred C Shares will not accrueinterest or otherwise be convertible;however, the Preferred C Shares shallhave a liquidation preference over New

Common Shares of Reorganized IEAM.Class GNon-IEAMInterests

(Impaired)

All Non-IEAM Interests shall be deemedcancelled and extinguished as of theEffective Date, and the holders of allNon-IEAM Interests shall not receive orretain any property or interest in propertyunder the Plan on account of such Non-IEAM Interests.

n/a 0%

IV. THE DEBTORS.

The current management of IEAM first became affiliated with the companyssubsidiaries on September 12, 2008. Managements access to corporate records of the parent,IEAM, has been limited as a result of the refusal of certain members of prior management to turnover books and records. Management is relying on public filings previously made with theUnited States Securities and Exchange Commission and records that they have been given accessto or obtained by a document request through the use of the turnover motion in the BankruptcyCourt. As such, certain disclosures may be subject to revision and current management cannotbe certain if they have received all of IEAMs records.

A. Pre-Petition Background and History.

IEAMs organizational history was last described in a Form 10-KSB Amendment 1-FY2006, Filed December 28, 2007. That document disclosed the following:

IEAM originally operated as a holding company with four (4) wholly ownedsubsidiaries, Pitt Penn Holding Inc., a Delaware corporation ("PPH"), EMCPackaging, Inc., a Delaware corporation ("EMC"), Unifide Industries LimitedLiability Company, a New Jersey limited liability company ("Unifide"), andTodays Way Manufacturing, LLC, a New Jersey limited liability company("Todays Way").

PPH, through its wholly owned subsidiary Pitt Penn Oil Co., LLC, an Ohiolimited liability company (Pitt Penn), was a leading manufacturer, marketer andseller of automotive chemicals and additives.

EMCs original business consisted of converting hydrofluorocarbon gases(HFC) R134a and R152a into branded private label refrigerant and propellantproducts.


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Unifide was a leading marketer and seller of automotive chemicals and additives.

Todays Way manufactured and packaged the products which were sold byUnifide.

B. Background Formation and Maintenance of Corporate Records.

The Company was originally incorporated in the State of Florida on June 14, 1990 asMid-Way Medical Diagnostic Center, Inc. ("Mid-Way (Florida)"). Mid-Way (Florida) wasinitially engaged in the business of seeking to establish and operate medical and diagnosticcenters. During 1991, Mid-Way (Florida) abandoned its efforts to engage in such business.

In December 1997, Mid-Way (Florida) effected a reorganization by merging Mid-WayAcquisition Corp. (the Merger Sub), a wholly owned Nevada corporation created by Mid-Way(Florida) solely for the purpose of merging with Ciro Jewelry, Inc. ("Ciro Jewelry (Delaware)"),

a Delaware corporation. By virtue of the merger, all of the assets, liabilities, and business of CiroJewelry (Delaware) became the assets, liabilities, and business of the Merger Sub. As a result ofthe merger, the Merger Sub changed its name to Ciro Jewelry, Inc. ("Ciro Jewelry"); the then-current sole officer and director resigned as the sole officer and director of both the Companyand Ciro Jewelry and simultaneously appointed Murray Wilson as the sole director of eachentity.

In December 1997, Mid-Way (Florida) changed its name to Ciro International, Inc.("Ciro"); at the same time, Ciro merged with Mid-Way Medical and Diagnostic Center, Inc., aNevada corporation, which was established solely for the purpose of changing the domicile ofthe Company from the State of Florida to the State of Nevada.

On April 21, 2003, Ciro and Advanced Bio/Chem, Inc., a Texas corporation (ABCTexas) entered into an Agreement and Plan of Merger (the Merger Agreement) whereby awholly owned subsidiary of Ciro, Ciro Acquisition Corp., a Texas corporation (which wasinappropriately identified in the Merger Agreement as Advanced Bio/Chem Acquisition Corp.),merged with and into ABC Texas in a tax free exchange of shares at which time ABC Texasbecame a wholly owned subsidiary of Ciro (the "Merger").

Until June 2003, the Company existed primarily as a holding company, and accordingly,the operations were those of the former operating subsidiary, Ciro Jewelry. Until late 2002, themain source of income derived from the licensing of the Ciro name. Effective June 9, 2003,

the Company sold all of the issued and outstanding common stock of the wholly ownedsubsidiary, Ciro Jewelry, to Merchants T&F, Inc. (MT&F). Following December 2002, CiroJewelry became a shell corporation with no defined business purpose and began the process ofsearching for a new line of business or a merger candidate.

In May 2004, the Company entered into an Asset Purchase Agreement (the Power3Agreement) with Power3 Medical Products, Inc., a New York corporation ("Power3"), Steven


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B. Rash and Ira Goldknopf (collectively, the "Shareholders") (the "Power3 Sale"). According tothe Companys records, the sale to Power3 was approved by the shareholders voting by proxy.

The companys name was changed to IEAM.

The corporate records of IEAM, the parent, had allegedly been maintained in at least twolocations, its former New York headquarters at 711 Third Avenue, New York, NY and at the lawoffices of Margulies and Levinson LLP, 30100 Chagrin Blvd., Suite 250, Pepper Pike, OH44124. Upon the February 2008 resignation of John D. Mazzuto, president and chief financialofficer, the records held at the New York office were packed and sent to the attention of R.Daniel Redmond, President, PPO and Executive Vice President, IEAM.

With the departure of John D. Mazzuto in February 2008, IEAMs functional corporateheadquarters shifted to the offices of Margulies and Levinson, 30100 Chagrin Blvd., Suite 250,Pepper Pike OH 44124. At least two employees of IEAM and/or its subs have been domiciledat that location. They included James W. Margulies and Steven W. Berger.

Upon investigation and review it appears that the vast majority of the corporate recordsmay have been under the custody and control of James W. Margulies, Esquire, who has acted invarious capacities at IEAM. His role was multifaceted. At one time or another, he acted as anattorney for MC Industrial (FKA New Jersey Acquisition Corp.) a shell corporation which hadannounced that it had reached an agreement to acquire EMC packaging which was subsequentlyacquired by IEAM in October 2004. Mr. Margulies was engaged as outside counsel to IEAM,became its CFO before resigning from that position on December 4, 2006. During the periodDecember 2006 through July 2007, Mr. Margulies was named and received salary compensationfrom PPO in return for his services as head of IEAMs legal department. Mr. Margulies rejoinedIEAM as CEO and CFO and a director in February 2008 as noted in the Companys 8-K.

On March 6, 2009, the Company received a conditional resignation as its chief executiveofficer, James W. Margulies, to be effective March 9, 2009. On March 9, 2009, the CompanysBoard of Directors accepted the resignation of Mr. Margulies as a director, chief executiveofficer and chief financial officer. The resignation letter did not indicate any disagreement withthe companys operations, policies or practices. Mr. Margulies offered to continue to assist theCompany in the completion of the June 2007 filing on Form 10-K, if requested.

As a result of Mr. Marguliess various and ever-changing relationships with IEAM andits former management and Board he appears to have been the custodian of the vast majority ofthe parent companys official corporate records, minutes, correspondence with regulators,transfer agent, and D&O carrier, among others. He has also been the primary signatory on thelargest of the Companys checking accounts. In his various capacities, Mr. Margulies and Mr.Mazzuto were the two primary interfaces with IEAMs outside auditors and various sub-contractors of accounting services to the parent corporation.


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C. Acquisitions.

In October 2004, the Company purchased all of the issued and outstanding capital stockof EMC (the "EMC Shares") from the then holders of the EMC Shares. EMC became theCompanys wholly owned subsidiary on the effective date of that purchase.

Effective June 30, 2005, the Company acquired 100% ownership of Unifide, which was aleading marketer and seller of automotive chemicals and additives for an aggregate considerationof approximately $3.1 million in cash, notes and stock, and Todays Way, which manufacturedand packaged the products which were sold by Unifide, for an aggregate consideration ofapproximately $950,000 in cash, notes and stock. As a result of these acquisitions, Unifide andTodays Way became the Companys wholly owned subsidiaries as of July 17, 2005.

On January 31, 2006, pursuant to a Membership Interest Purchase Agreement datedJanuary 17, 2006 (the Pitt Penn Agreement), the Company purchased one hundred percent(100%) of the membership interests of the Pitt Penn Group (as hereinafter defined), a supplier of

automotive and chemical products based outside of Pittsburgh, Pennsylvania. Pursuant to thePitt Penn Agreement, the Company acquired the Pitt Penn Group through the purchase of all ofthe issued and outstanding membership interests of Spinwell. Spinwell, in turn, owned all of theissued and outstanding membership interests of (1) Pitt Penn, and (2) Pitt Penn Oil DISCCompany, a Delaware corporation, (together, the "Pitt Penn Group") for an aggregateconsideration of $4,000,000 subject to adjustment as provided in the Pitt Penn Agreement. As aresult of this acquisition, Spinwell became the Companys wholly owned subsidiary onJanuary 31, 2006.

On May 12, 2006, the Company sold Springdale Specialty Plastics, Inc., a subsidiary ofPitt Penn (" Springdale ") pursuant to an Asset Purchase Agreement with Fortco Pittsburgh, LLC("Fortco"). Pursuant to the Asset Purchase Agreement, the Company sold all right, title andinterest in and to the property and assets, real, personal or mixed, of every kind and description,which relate solely to the business of Springdale to Fortco for an aggregate amount of twomillion five hundred thousand dollars ($2,500,000.00), subject to adjustment as provided in theAsset Purchase Agreement. The terms of the Asset Purchase Agreement were determined byarms-length negotiations between the parties.

D. Private Placements- July 2005 through March 2006.

On December 28, 2007 the former management of IEAM filed Form 10-KSB,Amendment Number 1 for the fiscal year ending June 2006. In that document prior managementidentified three private placements. Unless otherwise noted, Debtors are relying on thatdocument for information disclosed with respect to private placements.

July 2005 Private Placement

IEAM reported that it entered into a subscription agreement as of July 19, 2005.Pursuant to that subscription agreement, certain investors purchased securities, in a privateplacement pursuant to Rule 506 of Regulation D under the Securities Act of 1933, as amended


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(the "Securities Act"). They included (1) notes convertible into shares of IEAMs commonstock, as well as (2) five-year warrants to purchase an aggregate of 1,270,833 (post-split) sharesof IEAMs common stock (excluding finders warrants described below), for an aggregatepurchase price of $2,500,000, with $1,500,000 of that purchase price paid on July 19, 2005, theinitial closing date, and the remaining $1,000,000 paid on November 2, 2005, the second closing

date. JG Capital, Inc. ("JG Capital") acted as the finder in connection with the July 2005 privateplacement

Pursuant to the subscription agreement, IEAM was required to file with the Securities andExchange Commission (the "SEC"), within 30 days of the closing of the July 2005 privateplacement, a registration statement which registers the resale of all shares of its common stockunderlying the convertible notes and the warrants issued or issuable by IEAM to the investors inthe July 2005 private placement. IEAM did not comply with those obligations.

The company paid an aggregate of $278,995.27 representing accrued interest andliquidated damages to the investors in the July 2005 private placement pursuant to a

modification, amendment and waiver agreement, dated as of March 8, 2006. The Companyconcluded with such investors as part of the March 2006 private placement as described belowunder March 2006 Private Placements Modification, Amendment and Waiver Agreement.Debtors continued to incur liquidated damages to these investors until they filed the resaleregistration statement on May 31, 2006.

January 2006 Private Placement

IEAM entered into a securities purchase agreement dated as of January 27, 2006 withJLF Asset Management, LLC and the three funds it manages, JLF Offshore Fund, Ltd., JLFPartners I, L.P., and JLF Partners II, L.P. (together, JLF or the JLF entities), pursuant towhich the three JLF entities purchased from IEAM, in a private placement pursuant to Rule 506of Regulation D under the Securities Act, (1) debentures convertible into shares of IEAMcommon stock, as well as (2) Class A warrants to purchase an aggregate of 1,064,166 (post split)shares of IEAM common stock, and (3) Class B warrants to purchase an aggregate of 1,713,611(post split) shares of IEAM common stock, for an aggregate purchase price of $5,000,000.

Pursuant to the January 2006 purchase agreement, IEAM agreed to file with theCommission, within 60 business days of the closing of that offering, a registration statementwhich registers the resale of all shares of IEAM common stock underlying the convertibledebentures and the warrants issued or issuable by IEAM to the JLF entities. IEAM did notcomply with those obligations. IEAM filed the registration statement on May 31, 2006.

March 2006 Private Placements

IEAM reported that it entered into a securities purchase agreement dated as of March 8,2006 with certain investors pursuant to which those investors purchased securities, in a privateplacement pursuant to Rule 506 of Regulation D under the Securities Act, (1) debenturesconvertible into shares of IEAM common stock, as well as (2) Class A warrants to purchase anaggregate of 402,778 (post split) shares of IEAM common stock, and (3) Class B warrants to


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purchase 402,778 (post split), shares of IEAM common stock, for an aggregate purchase price of$1,450,000.

In addition, also effective March 8, 2006, IEAM entered into a separate securitiespurchase agreement (together with the abovementioned securities purchase agreement, the

March 2006 purchase agreements) with Truk International Fund, LP and Truk OpportunityFund, LLC (together, Truk), pursuant to which these investors purchased from IEAM, in aseparate private placement pursuant to Rule 506 of Regulation D under the Securities Act,(1) debentures convertible into shares of IEAM common stock, as well as (2) Class A warrants topurchase an aggregate of 138,888 (post split) shares of IEAM common stock, and (3) Class Bwarrants to purchase an aggregate of 138,888 (post split) shares of IEAM common stock, for anaggregate purchase price of $500,000.

The Class A warrants IEAM issued in the March 2006 private placement had the exerciseprice of $3.40 per share, and the Class B warrants have the exercise price of $3.40 per share.Each of the Class A and Class B warrants will expire on the third anniversary of their issuance

date, and can be exercised at any time during such period. The warrants we issued to theinvestors in the March 2006 private placements are not subject to cashless exercise. Aspreviously noted, management is relying on information contained in a filing made by former management of IEAM in Form 10-KSB, Amendment Number 1 for the fiscal year ending June2006, filed on December 28, 2007. That document was silent with respect to the exercise of thewarrants. Current management is still reviewing these transactions. Any of such warrantswhich have not been exercised have expired.

Pursuant to the March 2006 purchase agreements, IEAM agreed to file with the SEC,within 60 business days of the closing dates of those offerings, a registration statement whichregisters the resale of all shares of our common stock underlying the convertible debentures andthe warrants issued or issuable by IEAM to the investors in the March 2006 private placements.IEAM did not comply with those obligations. IEAM filed the registration statement on May 31,2006.

E. John D. Mazzutos Personal Bankruptcy is Disclosed to the Board.

In March 2006, the members of the Board of Directors of IEAM, were sent certifiedletters by the former CEO of Advanced Biochem, Crawford Shaw. Among other things, thoseletters notified the company that John Mazzutos 2002 bankruptcy which was filed in the U.S.Bankruptcy Court Southern District of New York (SDNY), Case 02-15586-rdd, had not beendisclosed and needed to be disclosed in SEC filings.

Mr. Shaw used an action against IEAM in Texas as the vehicle by whichhe sued for payment under his employment contract.

In conjunction with this lawsuit, Mr. Mazzuto was deposed in DistrictCourt Harris County on July 12, 2006. His statements under oath are notreflected in SEC filings.


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Mr. Mazzutos prior business history including various failed businessventures, board seats and directorships and his ongoing personalbankruptcy were never disclosed

2.

On May 31, 2006 the Company filed a Form SB2 which is a securities registration for

small business. This registration statement is relevant. Despite the March 2006 written notice todirectors, IEAM continued to omit material facts. Specifically, this filing failed to disclose Mr.Mazzutos bankruptcy, and the bankruptcy of George Cannan, Sr. (Chapter 7 Southern Districtof Florida, Case 01-27073-BKC-RBR, Kenneth A Welt, US Bankruptcy Trustee).

According to U.S. Securities and Exchange Commission, Litigation Release No. 19732 /June 21, 2006, SEC v. Carl R. Rose, et al., Civil Action No. H-04-CV-2799, the SEC announcedthat on June 19, 2006, the United States District Court for the Southern District of Texas entereda Final Judgment against Defendant George J. Cannan, Sr., based on his consent.

Cannan, Sr., without admitting or denying the allegations of the complaint, consented to

an order of permanent injunction which permanently restrained and enjoined him from violating,directly or indirectly, the anti-fraud and reporting provisions of the Exchange Act as well asother provisions of the Securities laws, including, Exchange Act Sections 10(b) (and Rule 10b-5thereunder), 13(a), 13(d)(1) (and Rules 13d-1 and 13d-2 thereunder), 15(a)(1) and 16(a) (andRule 16a-3 thereunder) and Securities Act Sections 5 and 17(a) and Rule 101 of Regulation Munder the Exchange Act. The order also bars Cannan Sr. for five years from acting as an officeror director of any issuer that has a class of securities registered pursuant to Section 12 of theExchange Act or that is required to file reports pursuant to Section 15(d). Further, the orderrequires Cannan, Sr., to pay a civil penalty in the amount of $75,000.

George Cannan, Sr. acted as President and CEO of EMC from the time of its acquisition

on October 7, 2004 until his termination for cause on July 14, 2008. He was one of the fivehighest paid officers of IEAM and its subsidiaries subsequently reached an agreement with theSEC to refrain from acting as an officer or director of a public company.

Neither the SEC investigation nor the consent order was ever disclosed by IEAM in apublic filing. Further, despite a change in the corporate by-laws mandating the filing of a proxyand the holding of an annual meeting, IEAM under the Mazzuto and Margulies managementnever filed a proxy or held a shareholder meeting.

F. Indecent Disclosure: The Use of Press Releases, Investor Meetings, and

Promoters.

At the heart of the IEAM problems was Mazzutos and Marguliess attempt to portray theDebtors as a business success. As noted earlier, starting in late-2006, the Company hosted aseries of investor meetings designed to portray IEAM as a small but growing company in amundane business with professional management which was beginning to generate positive cash

2 Baker MacKenzie represented IEAM in this matter.


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flow through operating efficiencies and the integration of similar businesses (EMC, Unifide, andPPO).3

In early-December 2006, James Margulies resigned as CFO and moved to the legaldepartment. John Mazzuto assumed the role and announced the search for a permanent

replacement. In March 2007 the company announced that Dennis ONeill had accepted aposition as CFO. Under a potential adversary proceeding in the Bankruptcy Court, Mr. ONeillscounsel turned over certain documents including a March 8, 2007 initial agreement and a copy ofa May 11, 2007 resignation letter. The March 8, 2007 letter contradicts the Companys publicstatements. Points One and Two of that agreement are as follows:

1. All parties agree that the current operations of IEAM are in a troubled state.

2. The extent of this condition, if any, is not yet known to the parties.

With these three acquisitions under its belt, IEAM management was now in a position to

begin to tell a story which might attract investor interest. Company management made a seriesof presentations in various public forums outlining their strategy of integrating these threebusinesses on both an operational and financial basis.

4

The company with the assistance of David Zazoff of ZA-Consulting began a publicrelations campaign to tell the IEAM story. With JLF Asset Management, LLC, a well knownmoney management firm, as a core investor, the company began to craft a series of presentationshosted by brokerage firms. The apparent purpose of these presentations was to promote themerits of IEAM as being an attractive investment opportunity.

The company hosted major presentations as follows:

September 7, 2006 Roth Conference

November 8, 2006 Pacific Growth Conference

March 14, 2007 B. Riley Conference

Management also began hosting a series of plant tours. The October 25, 2006 investorpackage was representative of IEAMs standard presentation. In addition, beginning inDecember 2006 the company was distributing a 77-page package telling the IEAM story. Thefirst seven pages of that package made a number of material misstatements about both thecompany and Mr. Mazzuto. The last 70 pages consisted of public filings.

3 In retrospect, it appears that IEAM may have been insolvent in March 2007 or earlier. In response to a request from thebankruptcy court, Dennis ONeills attorney has turned over 2,000 pages of documents between August 25, 2009 andAugust 31, 2009. A review of Mr. ONeills correspondence in March 2007 suggests that was known to Mr. Mazzuto andothers at that time.

4 While IEAM took some steps to integrate operations, it continued to maintain three separate accounting systems. IEAM,the parent company, kept its books on a Quickbooks accounting system. Pitt Penn Oil used a vibrant, state-of-the artMicrosoft Great Plains accounting system. Unifide and Todays Way accounting were partially, but not completely,integrated into this system. EMC Packaging maintains its accounting on a legacy accounting system.


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IEAM has a June fiscal year. During the period December 4-6, 2006 the company filed a10-QSB and two amendments for the period ended September 30, 2006. All of those documentsindicated that were just over 9.9 million shares outstanding. James Margulies, who acting as thecompanys CFO, stepped down from that position as of December 6, 2006 and joined thecompanys legal department. He continued as a salaried employee in that position until

July 31, 2007. Despite the fact that the press release referenced IEAMs legal department, hissalary was paid by PPO without an offset to IEAM. During the period from August 1, 2007 untilFebruary 2008 he had an ambiguous role as outside counsel to the audit committee and theboard.

Between October 2006 and the Spring of 2007, IEAM had begun to attract the attentionof many sophisticated institutional investors as well as a diverse group of individual investors.The appeal of IEAM was based upon the proposition that a group of entrepreneurs had found apublicly traded shell corporation (IEAM-FKA Advanced Bio Chem) and with the assistance ofsome outside financing had assembled a portfolio of corporations producing products for theautomotive after markets.

In addition, in December 2006, the Company issued a press release which noted that ithad signed a joint venture with Sino Chem to import specialized gas into the United States.

5

Further, while dilution was expected from the exercise of warrants and the conversion of variousnotes, management suggested in various public forums that with all exercises fully diluted shareswould fall within a range of 13.0 14.0 million shares.

On February 16, 2007, the Company filed Form 10-QSB for the period endedDecember 31, 2006. That filing indicated that there were 12.9 million shares outstanding. OnApril 20, 2007 the company filed Form 8-A12B/A which is a NASDAQ listing application. Thatform indicated that there were 16.848 million shares outstanding as of April 18, 2007. Whenquestioned about this on a conference call, Mr. Mazzuto suggested that these shares did notreflect the retirement of certain shares due to stock purchase. On May 22, 2007 the companyfiled a 10-QSB for the period ending March 31, 2007. That filing indicated that there were13.297 million shares outstanding as of May 18, 2007.

An 8-K filing and a subsequent conference call shows that there was a $6.2 millioninvestment in a joint venture (which was identified as being with the Chinese partner). Thatfiling and conference call also indicated that there was a problem with revenue recognition. Thatissue has subsequently been identified as a bill and hold issue. The issues of revenuerecognition and bill and hold are the central elements in a current class action complaint.

5 While SEC regulations require the filing of a report on Form 8-K to disclose material events, this press release wasamong one of at least three press releases discussing a material event which were never filed with the SEC. As we havedetermined, the information contained in the press release was false. Independent investigation and a Spring 2008 e-mailfrom George Cannan to Dan Redmond confirm that there never was a joint venture.


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On July 12, 2007, the Company issued a press release. That release indicated withoutelaboration that there were 19.0 million shares outstanding. The press release also went on toindicate that the company had authorized a $25.0 million share repurchase.

6

On October 11, 2007, IEAM, along with all of its subsidiaries, entered into a $5.0 million

revolving credit line with Sovereign Bank. Margulies and Levinson provided an opinion letter toMartin Weisberg at Baker McKenzie. Weisberg provided an opinion letter with respect to IEAMto Sovereign Bank. In our subsequent review of the documents submitted to the bank it appearsthat (1) the backgrounds of the principals were misstated, (2) IEAM was clearly not current in itsfinancial filings with the SEC, (3) other documentation supplied by IEAM may have been false,and (4) IEAM was out of compliance with the terms of the loan when it was made.

On November 7, 2007 the Company issued two press releases. One related to thesuspension of Jorge Yepes, a CFO who had been appointed on September 4, 2007. The secondpress release made a number of material disclosures relating to (1) a variable interest entity(VIE) in Akron, OH; (2) an increase in a litigation reserve; (3) reversal of bill and hold activities

for the December 2006 and March 2007 quarters; (4) the settlement of certain litigation; (5) ashare count increased to 26.0 million shares; and (6) a continuation of a stock buyback program,among other items. These disclosures, all of which were material, were never filed with the SECon Form 8-K.

On January 31, 2008, the Company filed an 8-KA which indicated that on January 15,2008 Black Nickel had lent IEAM $750,000 at a double digit interest rate and received 75,000purchase warrants plus 2.0 million shares of IEAM stock increasing the shares outstanding to28.0 million.7

G. February 2008 - John D. Mazzuto Resigns and James W. Margulies BecomesCEO and CFO.

On February 5, 2008, James Margulies replaced John Mazzuto as both CEO and CFO.On February 19, 2008 the Company issued a four page press release entitled, IEAM Provides anAccounting and Operational Update. That press release discussed (1) the delayed filings, (2)the increase in share count announced in the July 12, 2007 press release, and (3) the companysfinancing needs.8

Of particular interest was the caption, The substantial increase in share countannounced in the July 12, 2007 Press Release was a surprise to investors and to the Board.

6 Our subsequent review of the record books shows that as of June 30, 2007 the companys transfer agent suggests that therewere approximately 22.9 million shares outstanding. In our limited access to board records, we have found no suchapproval. Further given the companys actual cash position at the time, no such program was feasible.7 The company failed to disclose that on January 15, 2008 it had issued some 500,000 shares of freely trading IEAM sharesto Black Nickel under its S-8 registration statement.

8 The February 19, 2008 press release was never filed as part of a Form 8-K.


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The notation went on to say, the vast majority of the increase in the number of shareswere properly and rightfully issued on the exercise of convertible debt and warrants thereto;however additional shares appear to have been issued by the former CEO based upon

authorization granted to him by the December 2004 Board of Directors. The Debtorssubsequent review suggested this was disingenuous at best and an outright fabrication at worst. 9

In February 2008, Jim Margulies committed to filing the company 10-K for the periodending June 2007 within several weeks of taking office as CEO and CFO. No such 10-K has yetbeen filed.

H. April 2008 - Mr. Margulies Discusses the Companys Cash Requirements

With a Number of Significant Investors.

Immediately prior to taking the position of CEO and CFO and, shortly thereafter, Mr.Margulies, the new CEO and CFO of IEAM, discussed the capital requirements of IEAM on agoing-forward basis. The problems facing IEAM were described as a simple liquidity issue.

Certain large investors who owned up to 60.0% of the outstanding shares of the Companyscommon stock indicated that upon the filing of the 10-K for FY 2007, they were willing toconsider a participation in a rights offering to provide $3.0-$5.0 million of common or preferredstock. The condition was that it be open and available to all current stockholders of theCompany.

Despite assurances to both the investment community and to the Companys securedlender that Mr. Margulies was merely reviewing a 10-K prepared by Mr. Mazzuto, no such 10-Kwas ever filed. As noted later, the failure to file the June 2007 10-K was a violation of theCompanys loan agreement with Sovereign Bank as well as a violation of the Black Nickelagreement. As a result of the failure to file the 10-K, Mr. Margulies caused IEAM to issue anadditional 1.5 million shares to Black Nickel. Further, the failure to file the 10-K was theproximate cause of Sovereign Banks decision to freeze the funds in the Companys bankaccounts in October 2008.

On April 7, 2008, Mr. Margulies, Mr. Redmond, Mr. Zazoff and Daniel Boucher metwith institutional investors and others who owned more than 45.0% of the companys sharesoutstanding. The purpose of the meeting was to discuss (1) certain financing alternatives, (2) thepotential sale of EMC to George Cannan, Sr. and (3) provide an update on the preparation of the10-K for FY 2007. During the course of that discussion, Mr. Margulies asserted that if IEAMdid not receive a cash injection of more than $9.0 million by Friday, April 11, 2008 he would beforced to file bankruptcy. He did not specify whether he was contemplating Chapter 11 orChapter 7 nor did he specify which of the corporate entities he was considering for a bankruptcyalternative.

9 Our review of the share issuance data, as discussed later in this report, shows that the transfer agent received instructionssigned by either Mr. Mazzuto or Mr. Margulies to issue shares pursuant to an S-8 filed in February 2005. The S-8 wasnever made effective. In addition, while the July 12th press release refers to 19.0 million shares outstanding as of the end ofJune 2007, there were actually 22.9 million shares outstanding.


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Subsequent to that meeting the present CEO was contacted by other large shareholdersand was asked to propose a solution for reorganization. On April 9, 2008 both Mr. Ward andMr. Renck agreed to begin reviewing reorganization alternatives. At that juncture Mr. Marguliesagreed to provide certain high level information with respect to the operating results of the twomajor subsidiaries, PPO and EMC. On or about June 30, 2008, the Company agreed to provide

more detailed information with respect to the subsidiaries.

On Saturday August 9, 2008, Mr. Margulies and the outside investors agreed on aconceptual approach towards resolving the financial and operational problems faced by IEAMand its subsidiaries. Other members of IEAMs operating management then became involved inthe due diligence process. A review of the subsidiary books and records revealed that PPO wasbeing burdened with excessive salaries including those at parent. The combined staff salariesthroughout the organization as of June 30, 2008 were just under $5.0 million. This did notinclude any stock based compensation or grants to various consultants or outside contractorsbeing paid by parent (IEAM). In addition, a review of the internal books and records of thesubsidiaries suggested that there was a significant disconnect between reported results and

reality.

Despite the problems at IEAM, numerous press releases and presentations suggested thatPPO (the major operating entity) was generating positive cash flow during all of 2007. As aresult of questions asked during an intensive due diligence review which began on or aboutJune 29, 2008, Mr. Redmond prepared a report which indicated that Pitt Penn Oil had nevergenerated positive cash flow.

I. April 2009 - All Prior Financials, Stock Issuances, and Disclosures Are

Under Review By Current Management.

In a Form 8-K filed with the SEC on May 29, 2009, the current management of IEAMmade the following disclosure:

Under new management, Debtors have been conducting an ongoing review of thefinancial records and the books and records of subsidiaries and parent. As part of this review, theCompany has been endeavoring to gather and analyze the books and records from varioussources.

To date, the Companys review has focused upon the intracompany transactions and theissuance of the Companys securities pursuant to certain agreements between the Company andthe subsidiaries and various consultants.

1. The Chaotic State of the Corporate Records Has Created a Major

Problem for New Management.

IEAM is a holding company incorporated in the State of Nevada, with four directsubsidiaries, EMC, Todays Way, Unifide, and PPH. IEAM is the sole owner of PPO as a resultof its 100% ownership of PPH. PPO, with annual revenues of approximately $25 Million at thetime of its acquisition in January 2006, became the main operating subsidiary of the IEAM


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Group. The operational activities of Todays Way and Unifide had been effectively absorbedinto PPO by December 2006. IEAM had indicated that they were consolidated.

By January 2007 Pitt Penn Oil was paying for the obligations of PPO, Todays Way andUnifide. In February and May 2007, IEAM acquired the assets of Fire 1st Defense LLC (FFD)

and High-Tach respectively. High-Tach was absorbed into PPO.

While relatively small in comparison, at $3 Million in average annual revenues, EMCremained the only subsidiary with its own payroll and operations. While both the FFD and Hi-Tach acquisitions were asset purchases, FFD was by all appearances managed from EMC. Theassets of FFD were owned by IEAM. They were physically transferred to EMC. GeorgeCannan, in his role as President of EMC Packaging, incorporated FFD as a C corporation inthe State of Delaware. A separate checking account was set up and certain revenues were runthrough that account. This entity was never recorded on the books of either IEAM or EMC.

By 2006, IEAM, as the parent company, had no employees. The burden of payroll

disbursements, as well as the obligations of Todays Way and Unifide previously mentioned,were pushed down to PPO.

Functionally, IEAM typically only appears to have had two or three officers at any giventime. From the period December 2006 through February 2008, John Mazzuto was the CEO/CFOat which time he resigned and was replaced on an interim basis by James Margulies. Mr.Margulies, over the period 2005 to July 2007, held various roles including CFO and Secretary.During that period he was paid as an employee of PPO. Robert Dan Redmond served asExecutive VP and President of IEAM during his tenure. Dennis F. ONeill served as CFO as didhis replacement Jorge Yepes. All of those individuals received their compensation from PPO.

Mr. Margulies continued to be actively engaged with the company on legal andaccounting matters until he assumed the CEO/CFO role in February 2008. In fact, theaccounting records indicate that even after he stepped down as CFO in December 2006 heappeared to be actively engaged along with Mr. Mazzuto, in the preparation of IEAMs internalfinancial records. The National City Bank checkbook was maintained in Cleveland Ohio at hisoffice during that time.

Rather than consolidate IEAM financial operations at PPO, where the bulk of the staffand the most robust accounting system resided, IEAM used paid professionals to fulfill otherroles, primarily accounting. Both Dennis ONeill and Jorge Yepes, CFOs of IEAM maintainedoffices at PPO. Debtors do not know what access, if any they had to IEAM parent records orcheckbooks.

The overall corporate organizational structure of IEAM and its subsidiaries isunremarkable. What is remarkable is the lack of organizational oversight previously provided byIEAM. Each direct subsidiary of IEAM was wholly owned. PPO, the sole exception, waseffectively structured in the same manner as it is the wholly owned subsidiary of PPH. Underthis structure, it is the holding companys responsibility to direct accounting policy andprocedures of the subsidiaries and to consolidate the entities for reporting purposes. Much of


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this is facilitated through the holding companys Board of Directors Audit Committee. TheAudit Committee engages an audit firm (external auditor) to perform an audit of the annualfinancial statements. It is through the audit that assurance is given to the Board of Directors,Investors, and management that reliance can be place upon the Companys financial statements.

Under the Sarbanes Oxley Act of 2002, the external auditor only provides assurance

relative to the financial statements filed with the SEC; management is not permitted to place anyreliance on their work. To the contrary, management must have a system of internal control thatis sufficient without auditor reliance.

2. State of IEAM Accounting Books and Records.

IEAMs accounting books and records have been maintained on QuickBooks by JohnMazzuto and James Margulies with the assistance of third party paid professionals. The recordsindicate they included David Selmon until March 2007; Tracie Matsuo, Selmons eventualreplacement, was initially engaged in late 2006 to assist with the completion of the 10Q for thequarter ending December 31, 2006 and again for March 31, 2007. Ms. Matsuo was then

employed under a consulting agreement by John Mazzuto. This relationship was maintained byJames Margulies, through March 2009. Prior to the arrangement with paid professionals, thecompany appears to have relied upon Ilene Engelberg. Ms. Engelberg was originally the CFO ofEMC Packaging, a subsidiary of IEAM through its acquisition in 2004. As disclosed in an 8K inDecember 2004, Ms. Engelberg was named Assistant Controller and Dennis ONeill Controller.

Ms. Matsuo did not provide monthly accounting services, instead would periodicallymake necessary accounting entries or adjustments, dependent upon documentation provided byIEAM. Until September 2008, Mr. Mazzuto, and subsequently Mr. Margulies were the solecontact points for Ms. Matsuo. Michael Dignazio joined Pitt Penn Oil Company as CorporateController on October 17, 2007 and had limited interface with Ms. Matsuo and the companys

auditor, DeJoya Griffith & Co., LLC. His interaction was limited to those matters that affectedthe subsidiaries.

August 2008: Outside Accountant Requests Clarification of Certain Transactions.

On August 25, 2008, Mr. Dignazio (at that time the corporate controller of PPO) receivedan email request from Tracie Matsuo regarding intercompany transactions on the parentcompany books that could not be reconciled (other than several brief phone calls, this was thefirst email Mr. Dignazio received since January 25, 2008). Mr. Dignazio prepared an analysis ofthe intercompany transactions, noting the schedule Ms. Matsuo provided reflected transactions,specifically cash transactions related to wire transfers that were not recorded on the books and

records of the subsidiaries. On August 28, 2008, Mr. Dignazio emailed Mr. Margulies in regardsto the intercompany accounts, identifying for him beginning balance differences between thebooks and records of IEAM and its subsidiaries. Mr. Dignazio stated in the email that entrieswill need to be made on both the parent and subsidiary accounting records to properly reflectpreviously unrecorded transactions that Mr. Dignazio identified. Mr. Dignazio noted that wewould need to document the reason for the transactions with supporting documentation.

September 2008 New Management Assumes Positions at Pitt Penn Holding, et al.


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Effective September 12, 2008, as disclosed in an 8K filed at the time, Robert Renck wasnamed President and CEO of PPH and John Ward was named Chairman of the Board ofDirectors, which was also newly installed at PPH. Michael Dignazio was promoted to VicePresident of Finance of PPH and made Corporate Secretary of IEAM.

September 2008: New Management Begins Review of All Accounting Systems.

Preliminary due diligence began April 8, 2008; an accelerated due diligence processbegan on June 30, 2008. In trying to determine a proforma set of financials for all subsidiaries, itwas determined that despite public statements to the contrary, EMC records were still beingmaintained on a legacy accounting system and their specific financial closing was onlyperformed quarterly. Further, new management also requested due diligence be performed onthe state of the companys IT systems.

EMC results were accounted for on a legacy Novell network based system. The

stability of this system has been greatly compromised since June 2008; accounting data has beenextracted through system reports and is in the process of being transferred into Great Plains.EMC production was similarly suspended in September 2008 with only limited production runsuntil December 2008. Beginning in September 2008, we began an implementation process tointegrate EMC into the Great Plains accounting system.

October 2008: Current Management Finally Sees National City Bank Statements for IEAM:

More Questions Than Answers.

In response to repeated requests, current management finally received bank statementinformation on October 22, 2008 that covered the period June 2006 through August 2008 fromSteve Berger10 in his capacity as corporate counsel reporting to James Margulies. The bankstatements were from National City Bank in Cleveland Ohio. Those statements providedadditional evidence that wire transfers occurred, however the statements did not provide anydetail and were not adequate support. At the time and since these transactions were identified,we have requested the wire documentation from Mr. Margulies and to date have not receivedthem.

March 2009: A Significant Account at Wachovia is Discovered.

Mr. Margulies informed us that the account with National City was the primary checkingaccount for IEAM. Mr. Margulies noted in a conversation that IEAM had a money marketaccount at Wachovia. It was stated that the account had limited activity and balance, and that it

10 Steve Berger had been an employee of Margulies Law, Mr. Berger participated in Sovereign Loan note. On or aboutNovember 2007, Mr. Berger became an employee of PPO and was nominally named General Counsel to IEAM. Mr.Berger worked out of the law offices of Margulies Law in Cleveland, Ohio. From September 12, 2008 until September 18,2008, Mr. Berger reported to Robert Renck. At this point, Mr. Margulies recommended that Mr. Berger work under hisdirection to gather documents for the preparation of the 10K for the year ending June 30, 2007. As of October 31, 2008,Mr. Berger was terminated from his employment. Because of the use of [email protected], it appears thatsome outsiders may have thought they were dealing with an outside general counsel for both IEAM and PPH.
mailto:[email protected]:[email protected]:[email protected]:[email protected]


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was primarily used by John Mazzuto as a source of cash for personal and travel expenses. In lateMarch 2009 Mr. Renck uncovered the existence of a second account with Wachovia.

April 2009: The Wachovia Statements are Reviewed and Analyzed.

It appears that during the period December 2006 through the balance of 2007, thataccount was a major recipient and dispenser of funds for IEAM. In one month alone, there were$5.0 million of transfers in and out of this account. Many of these transactions appeared to havehad questionable business purposes. This appeared to be a prima facie indication of possiblewire fraud.

IEAM QuickBooks Notations Not Readily Supported by Documentation.

Since December 2007, Mr. Dignazio made requests for documents to former companymanagement for the purposes of properly identifying and supporting material transactions on thebooks and records of IEAM and its subsidiaries. Those requests, beginning with a list provided

by the auditors to John Mazzuto in December 2007, went largely unfulfilled and left open thestatus of the audit for the fiscal year ending June 30, 2007. As of October 2008 those requestswere largely unfulfilled.

3. Class Action Lawsuit and SEC Inquiries Result in the Formation of a

Governance Committee October 2008.

On October 19, 2007, the Companys outside general counsel, Martin Weisberg, wasindicted on matters unrelated to IEAM or his then current employer. On November 7, 2007IEAM made two announcements. One related to its then current CEO, Jorge Yepes. A secondindicated that as of November 7, 2007 IEAM now had 26.0 million shares outstanding and wasinvestigating certain bill and hold activities.

Subsequent to the November 7, 2007 announcement a class action suit was filed againstthe company, its officers, directors, and certain individual defendants.11

Subsequent to IEAMs failure to answer the class action suit in New York State Court,the Companys D&O insurance carrier, ACE-INA, secured Alston & Byrd to defend thecompany in that action. In June 2008, Alston & Byrd resigned its representation purportedly dueto an irreconcilable conflict. As a result of that resignation, both James W. Margulies andDennis ONeill (a former CFO) were given independent representation paid for by the D&Ocarrier. ACE-INA chose Cozen OConnor to replace Alston & Byrd to as company counsel indefense of this action. At that juncture the Board of Directors consisted of Robert Casper(Chairman of the Board and Head of the Audit Committee), James W. Margulies (CEO andCFO) and Jerome Davis (an Independent director). Prior to November 2008, the onlycorrespondence between new counsel, Cozen OConnor, and the company was through StevenW. Berger, Esquire who reported directly to Mr. Margulies, and was domiciled at the offices ofMargulies and Levinson.

11 As disclosed in the Companys May 29, 2009 8-K filed with the SEC, the SEC began an informal investigation.


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As disclosed in a September 18, 2008 8-K filed with the SEC, John Ward and Robert L.Renck, Jr. became directors of PPH. Mr. Renck became President and CEO of PPH. Mr.Wards role was to assist in the negotiations with PPHs major lender, Sovereign Bank. Mr.Rencks role was to evaluate, restructure and streamline PPHs operations.

There were several pre-conditions to Mr. Ward and Mr. Renck joining the subsidiaryBoard:

Mr. Margulies had represented in public filings with the SEC agreements with thecompanys lender and to Mr. Ward and Mr. Renck that IEAMs 2007 10-K for theyear ended June 2007 would be filed on or before October 31, 2008.

Upon the filing of that 10-K, Mr. Ward and Mr. Renck agreed to considerbecoming members of parent Board and providing transition management as Mr.Margulies returned to the practice of law. It was left open whether Mr. Margulieswould continue and complete the delinquent filings for FY 2008 and the first two

quarters of FY 2009. The last due date for the December 2008 10-Q would beFebruary 15, 2009.

There were three additional pre-conditions to Mr. Ward and Mr. Rencksacceptance of positions. They include

Industrial Enterprises of America (IEAM) First Amended Disclosure Statement

Documents