The Pena Letter ~ By Request
This is the opinion letter that Bruce Klein relied upon and allowed him to dump TEXX shares. As an insider, he was required to file an S3 before selling any shares, which he never did.
It first went to ClearTrust, who would not accept it. Bruce/Craig then went to Olde Monmouth in New Jersey, where Bruce lives.
Please note: This letter also validates Alonzo's claim that TEMN is debt free. Ironic, huh?
Craig got really pissed when he found out Olde Monmouth sent this info to Alonzo, along with other documents that were key to figuring out what had occurred.
CIearTrust, LLC April 11, 2012
16540 Pointe Village Drive, Suite 201
Lutz, Florida 33558
Re: Legal Opinion Letter Regarding Issuance of Certificates Without Legend and Tacking of Migratory Debt with Surviving Entity Subsequent to Merger and Acquisition of Emperial Americas, Inc. with AAA Public Adjusting Group, Inc.
The undersigned has been retained by an interested party to opine on the validity of your issuing certain certificates of common stock of Emperial Americas, Inc., (hereinafter EAI) AAA Public Adjusting Group, Inc., (AAA) the surviving entity of the above-noted merger. The subject issuance arises from the conversion of aged debt held by a non-affiliate.
The original debt was incurred by Team Nation Holdings Corp (Team), and was exchanged with Victory Partners, LLC (hereafter referred to by name or as “VP”) in exchange for the controlling interest of Team, and eventually acquired by EA. This debt
was duly reported, subject to audited review and an indebtedness that was subject to being transferred as a liability. The holder desired to transfer and assign this debt to another holder, and to other obligors. Such debt was acquired through transactions
between the debt holders and subsequent transferees and enumerated in certain notes. The purchasers were four separate entities, the first three entities sold their share of the
debt to the fourth entity, specifically VP, noted above.
Therefore, for purposes of this discussion all debt was acquired by a third party through transactions that making them holders in due course.1 The purchase of such debt was perfected by Victory Partners upon the exchange of consideration with Emperial Americas under the September 2011 agreement. At that point VP delivered all rights to such securities as it had of Team Nation to EA. In exchange EA became.....
1 Such debt was encapsulated and captured by filings of Team Nation as reported in their 2011 10K on April 11, 2011, which related that such debt was due and owing to entities controlled by management as a recipient of payments due for management actions (See Section 11 Executive Compensation), and additionally directors fees and costs and expenses which was also reported as below:
On January 3, 2011, the Company entered into new management agreements with affiliates of all four of the Company's directors. Two of the individuals are the sole TEAM officers. For managing the Company's operations, human resources, accounting services, sales, and marketing efforts, each of the affiliates of the ofñcers are going to be compensated at a rate of $10,000 per month per agreement.
In addition to the monthly compensation to the four directors discussed above, in September 2010, the Board authorized a one-time director's fee to three of the company’s directors totaling $10,000 ($3,333 per director). Then in November 2010, the Board authorized a one-time $60,000 director's fee to each of the four Directors (total of $240,000).
....indebted to Victory Partners for the obligations on the notes that Victory had purchased from the Team Entities. This was a purchase of debt by Victory Partners, and therefore, is the only subject of this opinion; although the exchange between Victory and Emperial is relevant for purposes of consideration having been made and exchanged to some degree. Legally, EA assumed the debt obligation.
Having established that such debt was purchased through examination of the transaction with the four Team Entities, the next relevant matter is that the debt was acquired by EA when it was a private corporation. This transaction, between EA and VP
was executed on September 20, 2011. The consideration for this transaction included certain shares and interests received by Victory Partners, of Team Nation. Notably, Emperial Americas did not execute a merger with Team Nation the public company due
to matters that arose later during EA’s due diligence. However, the transaction involving the debt becoming an obligation of EA. Emperial Americas as the surviving entity recognized the debt in an amendment to its articles of incorporation whereby the debt of
Emperial Americas was recognized as a liability of the surviving entity, under the same terms and timing as the original debt was held and under the acquisition of debt by subsequent holders.
The issue as concerning the tacking period of such debt is one that can be framed as:
Whether the debt which was an obligation of Emperial Americas, the private company, survived with the original tacking period of being an obligation of Emperial Americas when it merged with and became a public entity through the acquisition and control of AAA Public Adjusting Group, Inc. through a State of Florida merger, and a subsequent corporate action by FINRA recognizing the
reorganization of the public company.
If so, then does the tacking period extend to the date of the original debt, or to the time of acquisition of such debt as a liability of EA?
l have reviewed the following documents in connection with this opinion letter:
Articles of Merger flled on with the State of Florida on March 13, 2012 by AAA and EA, Articles of Correction for EA, also dated March 13, 2012,
Articles of Amendment to Articles of Incorporation of EA dated March 13, 2012.
The issue of whether corporate debt of a public entity can be converted into shares of stock in certificate form, without a Rule 144 restricted legend requires examination of the following factors and requirements.
First, the debt must be reported on the internal books of the corporation.
Secondly, the debt must actually be aged (6 months for fully reporting companies, and one year for non-reporting companies.
Third, the converting entity cannot be a controlling entity, or person, or an affiliate as defined under the Rule and Securities Act.
The entity cannot be a “shell company” as defined ,and interpreted by the Act and Code of Federal Regulations (CFRS) and under Rule 144(i)(l)(i) and Footnote 172 of SEC Release number 33-8869.
Once all of these factors have been satisfied, you must look to see whether the tac back date has been properly applied. The date is normally the date of the transaction, as reported on the books of the corporation. However, any transaction involving an affiliate will require that, no matter how old the debt of the affiliate may be, the tac back date has to be the date of the acquisition by the transferee of the debt. For non-affiliate transferees, the date of the debt reverts to its age, or transfer by an affiliate.
In this case, the debt was reported on the books of the corporation and aged in excess of one year. The debt was held by a non-affiliate of EA, while it was a private corporation. That private corporation merged with a public corporation (now EAO
through a legal procedure of merger. The public entity survived the merger and the private corporation becomes legally dissolved. However, the dissolution, or death, of the non-survivor does NOT result in the termination or dissolution of its debts, assets or
liabilities. They are either transferred before or at the time of merger, or they are transferred to the surviving entity.
If the latter, under GAAP procedures, the debts maintain their age. They become debts of the surviving public entity and maintain their age, unless assigned to an affiliate. In this case, the debt was not transferred to an affiliate, and therefore became aged non-affiliate debt of the surviving entity (EA). As such, the debt can be converted by a subsequent holder in due course, maintain its age, and be converted into equity
without restrictive legend. Therefore, it is my opinion that the answer to the first question above is affirmative. It is also my conclusion as to the second issue, that the date of the original debt as it was originally incurred is the controlling date for tacking purposes, that such debt tacks back to at least the time of acquisition of the liability by Emperial Americas which was September 20, 2011 which survived the merger with
AAA.
We start with the conclusion of law that in my opinion, there is nothing in Rule 144 that prohibits conversion of debt from a private entity which survives a merger transaction to become a public entity. By that opinion, I am concluding that nothing in
the rule states on its clear face it cannot be done or is prohibited. That is evident from the wording of Rule 144 itself. Therefore we are left to other interpretations of the Act,
which are very relevant.
It also must be established and accepted that the actual notes which are enforceable against EA as debt obligations, can be treated as “debt securities" as defined under the Preliminary Note to Rule 144 under section a. 4 of the “definitions”
section which sets forth that debt securities are:
1. The term debt securities means:
i. Any security other than an equity security as defined in Rule
230.405; [it noted here that none of the definitions set forth under Rule 230.405 app/y to this debt security he/d by VP as defined therein]
As such, the indebtedness notes are a security interest enforceable against EA for purposes of the rule. The fact is that they had convertibility definitions in the EA-VP agreement of September 20, 2011. While not relevant to this interpretation, the fact that such had a convertibility ability into shares of EA at some future time becomes relevant for purposes of the application of the Rule and of course the calculation of conversion for purposes of share issuance.
The transaction between Emperial Americas and AAA Public Adjusting Group, is one that is defined under the purview and definition of Rule 145 (a). As such, the exemption of Rule 144, and in particular the holding period as set forth under Rule 144
(d) (3) (xiii) is applicable since this was a merger under Rule 145 (a) of that subsection.
Rule 145 a. describes such merger that occurred here below:
a. Transactions within the section. An offer, offer to sell, for sale or sale shall be deemed to be involved, within the meaning of Section 2(a)(3) of the Act, so far as the security holders of a corporation or other person are concerned where, pursuant to statutory provisions of the jurisdiction under which such
corporation or other person is organized, or pursuant to provisions contained in its certificate of incorporation or similar controlling instruments, or otherwise, there is submitted for the vote or consent of such security holders a plan or agreement for:
* *
2. Mergers of Consolidations. A statutory merger or consolidation, or similar plan or
acquisition in which securities of such corporation or other person held by such security holders will become or be exchanged for securities of any person, unless the sole purpose of the transaction is to change an issuer's domicile solely within
the United States; []
In this case, the securities of AAA were to become exchanged with the securities of EA under the operation of the merger as approved by the majority shareholders of both entities and as amended to the Company’s Articles of Incorporation. It was explicitly stated in the amendment to the Company’s Articles of Incorporation that such share exchange was envisioned, since there was no actual receipt of shares by the EA shareholders from the Team Nation Nevada transaction as originally planned. This was not a merger merely for reason of domestication either under the Rule’s last part of 2 above.
Importantly for purposes of my interpretation under Rule 144 (d)(3)(viii), the tacking period for the debt is under the words of the Rule to be:
Rule 145(a) transactions. The holding period for securities acquired in a transaction specified in Rule 230.145(a) shall be deemed to commence on the date the securities were acquired by the purchaser in such transaction, except as otherwise provided in paragraphs (d){3)(ii) and (ix) of this section.
That means we must go to paragraph (d) (3) (ii) of the Rule for the interpretation of the debt securities exchange which would occur here [note that subsection (ix) above does not apply]. That subsection states:
Conversions and exchanges. If the securities sold were acquired from the issuer solely in exchange for other securities of the same issuer, the newly acquired securities shall be deemed to have been acquired at the same time as the securities surrendered for conversion or exchange, even if the securities surrendered were not convertible or exchangeable by their terms.
Under Rule 144, EA as the merging entity carried the debt fonNard as an obligation and as the surviving entity is responsible for the debt on its books as a liability after the change in control and obligations of AAA occurred on March 14, 2011.
It should be noted that debt is obviously convertible under Rule 144. That is without question under existing law. Further, we know that particularly under Rule 144 (d) there are other numerous examples of when tacking periods are traced back to for
purposes of application of Rule 144 as an exemption from registration. There are in fact ten areas where the tacking period application is set forth under the rule including (d) (3)
(ii).
Under Rule 144 the next question is clarification of the holding period as defined in the rule for application of the necessary holding period which can be “tacked” for
purposes of interpreting the credit of time shall we say for the holding period. Rule 144 d. sets forth such holding periods as would be applicable here, since Emperial Americas is as was AAA Public Adjusting Group, a fully reporting Securities Act Company. Thus the holding period is six months as set forth below:
d. Holding Period for Restricted Securities. If the securities sold are restricted securities, the following provisions apply:
1. General Rule.
i. If the issuer of the securities is, and has been for a period of
at least 90 days immediately before the sale, subject to the
reporting requirements of section 13 or 15(d) of the
Exchange Act, a minimum of six months must elapse between the later of the date of the acquisition of the securities from the issuer, or from an affiliate of the issuer, and any resale of such securities in reliance on this section for the account of either the acquiror or any subsequent holder of those securities.
Under this holding period, VP and any subsequent debt security holder which received the rights the terms of the indebtedness would tack back to before six months, since that was the date of the acquisition of the liability by EA as the entity which came
out of the transaction with AAA.
Under Rule 144, the subject debt survived the merger of AAA Public Adjusting Group, Inc. with Emperial Americas, Inc., the surviving entity, and thus the debt is an obligation due from the surviving entity to holders. Further, pursuant to Rule 144 (a) (2) the debt is migratory with the surviving entity, which in this case is Emperial Americas, Inc. Thus, under such rule, the tacking period originally held and indebted by Emperial
Americas carries forth to the same entity. Because of the exception for migratory transactions in Rule 145(a)(2), the merger is not a sale within the meaning of the Securities Act. The holding period of the Florida predecessor (EA) is not disturbed by the succession.
The debt upon which the shares will be issued is due from the original “Emperial Americas, Inc”. As such, the debt’s age is to be calculated from the debt of its creation, specifically, September 20, 2011 (when Victory Partners purchased these rights to the debt via a note and cash. Therefore, the issuance which is the subject of this opinion, qualifies in all aspects under Rule 144 for an exemption from registration to be issued without restrictive legend. Such debt is aged over 6 months, and the shares will be validly issued without restrictive legend as debt conversions.
For instructional purposes, we can use the following example: A Nevada corporation that holds restricted securities of another issuer effects a merger to change its domicile to Delaware. The restricted securities become the property of the Delaware
successor as a result of the merger. Because of the exception for migratory transactions in Rule 145(a)(2), the merger is not a sale within the meaning of the Securities Act. The holding period of the Nevada predecessor for the restricted securities is not disturbed by the succession.
In this case, no change of domicile was done. What was done was the merger by EA with AAA and EA became the surviving entity in Florida. The reasoning behind the Rule 145(a)(2) opinion was that mere domicile change of the holder would not disturb the tacking period of securities. Here, the holder of the securities is in fact the holder of the debt securities which is VP (and any successive holder of said debt owed from EA).
The conversion time or period of VP as to holding period is not disturbed by the merger of EA with AAA, where EA is still the surviving entity by control and change of management and name as done with FINRA and the State of Florida.
Finally, we can also rely upon the telephonie interpretation number 50 from the SEC Manual of Publicly Available Telephone Interpretations, which relates the following:
Convertible notes with accrued but unpaid interest are exchanged for shares of the issuer. The holding period for the notes can be tacked to the holding period on the shares under Rule 144(d)(3)(ii) only if the exchange "consist[s] solely of other securities of the same issuer." Although the right to receive payment for the accrued interest could be construed as additional consideration that is inconsistent with Rule 144(d)(3)(ii), the Division staff's view is that the holding period for the convertible notes can be tacked to the holding period for all of the shares received in the exchange. This position is consistent with the Division staff's view of the same issue under Section 3(a)(9) of the Securities Act, which exempts certain exchanges where securities of the same issuer are the only consideration.
In this case applying the reasoning of number 50 above, the exchange of the debt security (i.e. the notes) are readily exchangeable for the shares of the issuer, which are the new shares. Thus, convertible notes are exchanged securities and
entitled to the tacking period as seen above utilizing (d) (3) (ii) as discussed infra. The debt was acquired by EA and survived the merger with AAA, and became an obligation of AAA. The terms of the note here control the date of the enforceability which became enforceable against EA and thus the combined entity of AAA and EA with tack back period to at least the date of the liability in September of 201 1.
I have been in the practice of law since 1994, which includes corporate and securities matters, including opinion letters, litigation, drafting and filings. l have served as a Director on both public and private corporations. l am admitted to practice
in the State of Florida and the Federal Middle District of Florida. l have never been prohibited from practicing before the Securities & Exchange Commission or any other
regulatory or administrative Court or agency. There are no current open investigative tiles on me with any federal or state securities regulatory agency or commission. This letter has been prepared and to be construed in accordance with the Report on
Standards for Florida Opinions dated April 8, 2001, as amended and supplemented, issued by the Business Law Section of the Florida Bar (the “Report”). The Report is incorporated by reference into this opinion letter.
You may rely on this letter for any inquiry as to whether this issuance was properly made without restrictive legend within the meaning of the Rule 144 (d) (3) (ii) and Rule 145, and may publish it accordingly. However, no other person, entity, agency or body may rely on any of the assertions or implications made herein, as defined in the Florida Standards for Opinions as revised. lf you have any further questions, feel free to contact me directly.
Sincerely,
Mark E. Pena
Attorney At Law
