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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 the _________________, 2010


plan must be filed and served:

Hearing on confirmation of the Plan: _________________, 2010

DEBTORS’ FIRST AMENDED DISCLOSURE STATEMENT

DATED: May 26, 2010


Christopher D. Loizides (No. 3968)
LOIZIDES, P.A.
1225 King Street, Suite 800
Wilmington, DE 19801
Telephone: (302) 654-0248
Facsimile: (302) 654-0728
E-mail: loizides@loizides.com

- and -

Pace Reich
Benjamin Reich
PACE REICH, PC
726 Meetinghouse Road
Elkins Park, PA 19027
Telephone: (215) 790-0100
Facsimile: (215) 790-7360
Email: pacereichpc@msn.com

Counsel for Debtors


1
The 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), Today’s Way
Manufacturing LLC (Case No. 09-11586), and Unifide Industries LLC (Case No. 09-11587), all of which have been jointly
administered.

FIRST AMENDED DISCLOSURE STATEMENT


TABLE OF CONTENTS

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

I. INTRODUCTION .............................................................................................................................................. 1
II. PURPOSE OF THE DISCLOSURE STATEMENT AND PROVISIONS FOR VOTING AND
CONFIRMATION ...................................................................................................................... 1
A. Purpose ................................................................................................................................................ 1
B. Voting Provisions ................................................................................................................................ 2
1. General ................................................................................................................................... 2
2. Claimants Not Entitled to Vote .............................................................................................. 2
a. Administrative and Priority Tax Claims .................................................................. 2
b. Unimpaired Claims .................................................................................................. 3
3. Claimants Entitled to Vote; Impaired Claims ........................................................................ 3
4. Acceptance of the Plan ........................................................................................................... 3
C. Confirmation ........................................................................................................................................ 4
1. Objections .............................................................................................................................. 4
2. Confirmation by Acceptance.................................................................................................. 4
3. Confirmation Without Acceptance......................................................................................... 4
D. Representation Limited ....................................................................................................................... 5
III. INQUIRIES ...................................................................................................................................................... 5
IV. THE DEBTORS ............................................................................................................................................... 5
A. Pre-Petition Background and History .................................................................................................. 6
B. Background – Formation and Maintenance of Corporate Records ...................................................... 6
C. Acquisitions ......................................................................................................................................... 8
D. Private Placements - July 2005 through March 2006 .......................................................................... 9
E. John D. Mazzuto’s Personal Bankruptcy is Disclosed to the Board .................................................. 11
F. Indecent Disclosure: The Use of Press Releases, Investor Meetings, and “Promoters” .................... 12
G. February 2008 - John D. Mazzuto Resigns and James W. Margulies Becomes CEO and CFO ....... 15
H. April 2008 - Mr. Margulies Discusses the Company’s Cash Requirements with a Number of
Significant Investors ................................................................................................... 15
I. April 2009 - All Prior Financials, Stock Issuances, and Disclosures Are Under Review By
Current Management .................................................................................................. 16
1. The Chaotic State of the Corporate Records Has Created a Major Problem for
New Management ......................................................................................... 17
2. State of IEAM Accounting Books and Records ................................................................... 18
3. Class Action Lawsuit and SEC Inquiries Result in the Formation of a Governance
Committee - October 2008 ........................................................................... 21
4. Capital Structure .................................................................................................................. 22
5. Government Regulation ....................................................................................................... 37
6. Employees ............................................................................................................................ 37
J. Events that Lead to the Bankruptcy Filing.......................................................................................... 38
1. Litigation .............................................................................................................................. 41
a. Zyskind Action....................................................................................................... 41
b. Goldknopf Action .................................................................................................. 41
c. Margulis Action ..................................................................................................... 42
2. Contested Litigation ............................................................................................................. 42
a. Trinity Bui Action .................................................................................................. 42
b. Black Nickel Actions ............................................................................................. 42
c. EMC New Jersey Litigation ................................................................................... 43
d. Securities Class Action .......................................................................................... 43
e. Bankruptcy Litigation ............................................................................................ 44
3. Cooperation with Regulatory Authority/Law Enforcement ................................................. 44
K. Chapter 11 Cases ............................................................................................................................... 45
1. Initial Events in Bankruptcy................................................................................................. 45
2. Events Occurring in the Bankruptcy Case – DIP Financing, Avoiding
Conversion, Plan Filing .................................................................. 45
a. Bankruptcy Litigation ............................................................................................ 45
V. THE PLAN OF REORGANIZATION ........................................................................................................... 47
A. Plan Summary ................................................................................................................................... 47

FIRST AMENDED DISCLOSURE STATEMENT i


1.
Class A – Claims of Professionals ....................................................................................... 48
2.
Other Administrative Claims ............................................................................................... 48
3.
Class B ................................................................................................................................. 48
4.
Classes C, D, and E .............................................................................................................. 48
5.
Class F .................................................................................................................................. 48
6.
Class G – the Debtor-in-Possession Loan by Omtammot LLC............................................ 49
7.
Class H ................................................................................................................................. 49
8.
Class I – Shareholders Equity .............................................................................................. 50
9.
Class K – Any Claim for Damages for the Purchase or Sale of Any of the Securities
of Any of the Debtors ................................................................................... 50
B. General Provision Applicable to All Classes ..................................................................................... 50
C. Treatment of Contested Claims Arising Under Section 502(c) ......................................................... 50
VI. PAYMENTS UNDER THE PLAN .............................................................................................................. 51
A. Transfers of the Stock ........................................................................................................................ 52
B. Ownership of Shares After Distribution Under the Plan ................................................................... 52
VII. REJECTION AND ASSUMPTION OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES .... 52
VIII. ALLOWED AMOUNT OF CLAIMS .......................................................................................................... 52
IX. VOIDABLE TRANSFERS .......................................................................................................................... 53
X. TAX CONSEQUENCES .............................................................................................................................. 53
XI. DISCHARGE OF DEBTOR ........................................................................................................................ 53
XII. JURISDICTION OF BANKRUPTCY COURT AFTER CONFIRMATION ............................................. 53
XIII. LIQUIDATION ANALYSIS AND DISCUSSION...................................................................................... 53
A. Liquidation Analysis/Miscellaneous Bankruptcy Provisions ............................................................ 54
XIV. OPERATING PROJECTIONS .................................................................................................................... 56
XV. CONCLUSION ............................................................................................................................................. 56

FIRST AMENDED DISCLOSURE STATEMENT ii


Industrial Enterprises of America, Inc., (“IEAM” or “the Company”), Pitt Penn Holding
Co., Inc, (“PPH”), Pitt Penn Oil Co., LLC, (“PPO”), EMC Packaging, Inc., (“EMC”), Today’s
Way Manufacturing LLC, (“Today’s Way”), and Unifide Industries LLC, (“Unifide”)
collectively the debtors in possession (the "Debtors"), submit this First Amended Disclosure
Statement (the "Disclosure Statement") in connection with the Debtors’ First Amended
Consolidated Plan of Reorganization (the "Plan"), pursuant to Chapter 11 of Title 11 of the
United States Code (the "Bankruptcy Code"). Capitalized terms used and not otherwise defined
herein 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 the
United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") Voluntary
Petitions (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 debtors
in 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 of


section 1125 of the Bankruptcy Code, in order to provide to the holders of all Claims against and
Interests in the Debtors adequate information about the Debtors and the Plan, so that they may
make an informed judgment with respect to the merits of the Plan for purposes of voting on the
Plan. By Order dated ____________, 2010, the Disclosure Statement was approved by the
Bankruptcy 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 reasonably
practical in light of the nature and history of the debtor and the condition of the debtor’s books
and records, including a discussion of the potential material Federal tax consequences of the plan
to the debtor, any successor to the debtor, and a hypothetical investor typical of the holders of
claims or interests in the case, that would enable a hypothetical reasonable investor, typical of
holders of the relevant class to make an informed judgment about the Plan . . . ." This Disclosure
Statement does not purport to be a complete description of the Plan, the financial status of the
Debtors, the applicable provisions of the Bankruptcy Code, or other matters that may be deemed
significant by certain creditors and parties-in-interest. This Disclosure Statement is an attempt to
set 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 necessarily
involves a series of compromises between "raw data", the legal language in documents or
statutes, and the considerations of readability and usefulness. For further information, you
should 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 is
provided only as a summary and it is recommended that all creditors and parties-in-interest
review the Plan, the balance of this Disclosure Statement, and the other documents and

FIRST AMENDED DISCLOSURE STATEMENT 1


information referenced herein, in order to obtain more complete information. Approval by the
Bankruptcy 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 the
Debtors, 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 other
than as contained in the Plan and described in this Disclosure Statement are not authorized by the
Debtors and accordingly should not be relied upon by the holder of any Claim or Interest in
reaching 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 Disclosure
Statement setting forth: the time period and the manner by which to vote
to accept or reject the Plan, the time period for objecting to Confirmation
of the Plan, and fixing the time for the hearing on the Confirmation of the
Plan.

B. Voting Provisions.

1. General.

Every holder of a Claim or Interest in an Impaired Class that is entitled to receive a


distribution under the Plan is entitled to vote to accept or reject the Plan. As such, all holders of
Claims or Interests in Classes C, D, E and F may vote on the Plan by filling out the enclosed
Ballot 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 the


Debtors, 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, the
“DIP Lenders”) have agreed to accept the distributions set forth in Article 3.1 of the Plan in full
satisfaction, settlement, release and discharge of, and in exchange for, their Allowed DIP Loan
Claims, and to the extent that such distributions may be deemed inadequate to pay the Allowed
DIP Loan Claims in full, the DIP Lenders have further agreed to waive any resulting deficiency
Claim in accordance with the DIP Loan Settlement.

FIRST AMENDED DISCLOSURE STATEMENT 2


b. Administrative and Priority Tax Claims.

Claimants holding only Administrative Claims and/or Priority Tax Claims


are not entitled to vote on the Plan because Section 1123(a)(1) of the Bankruptcy Code does not
require 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 Claimants
than 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 discussed


below) are not entitled to vote on the Plan because pursuant to Section 1126 of the Bankruptcy
Code, a Class, and each Claimant in such Class, that is not impaired under the Plan is
conclusively presumed to have accepted the Plan. As a general matter, under Section 1124 of the
Bankruptcy Code, a class of claims is impaired unless the legal, equitable and contractual rights
of 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 cure
defaults) or unless the plan provides, that, on the effective date, each claimant in such class shall
receive, 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 reject


the Plan because such holders will not receive a distribution under the Plan on account of their
Interests. 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, are
entitled to vote on the Plan. Claimants in Classes C, D, E and F are entitled to vote on the Plan
since 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 is
approved 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 such
Class that actually vote. An abstention by a Claim or Interest holder will not count toward either
acceptance or rejection of the Plan.

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

FIRST AMENDED DISCLOSURE STATEMENT 3


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

Pace Reich, PC
726 Meetinghouse Road
Elkins Park, PA 19027

Even though a Claim or Interest holder may choose not to vote or may vote against the
Plan, such Claim or Interest holder will nevertheless be bound by the terms and treatment set
forth in the Plan if the Plan is accepted by the requisite majorities in each Class entitled to vote
and is confirmed by the Court. Allowance of a Claim or Interest for voting purposes does not
necessarily mean that the Claim or Interest will be Allowed for purposes of distribution under the
terms of the Plan. Any Claim or Interest to which an objection has been or will be filed will be
Allowed for purposes of distribution only after determination by the Court. Such determination
may 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 Bankruptcy
Court for the District of Delaware, 824 Market Street, 6th Floor, Courtroom 1, Wilmington,
Delaware 19801.

2. Confirmation by Acceptance.

The Debtors are seeking Confirmation of the Plan under Section 1129(a) of the
Bankruptcy Code. Confirmation under Section 1129(a) is dependent upon a finding of the
Bankruptcy Court that a number of requirements have been met. One of these requirements is
that each Impaired Class of Claims and Interests entitled to vote on the Plan must accept the
Plan. Accordingly, the Plan cannot be Confirmed under Section 1129(a) unless accepted by each
Impaired 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 not
been accepted by one or more Impaired Classes of Claims and Interests, provided that the Plan
does not discriminate unfairly and it is fair and equitable with respect to each Impaired Class of
Claims 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 Secured
Claims, Section 1129(b)(2)(A) of the Code requires that the Plan provide for each Claimant in
such Class: (a) to receive payments over time which, in the aggregate, total at least the Allowed

FIRST AMENDED DISCLOSURE STATEMENT 4


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

In order for the Plan to be fair and equitable with respect to an Impaired Class of
Unsecured 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 a
present 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 such
Impaired Class will receive or retain under the Plan any property on account of such junior
Claim or Interest.

In order for the Plan to be fair and equitable with respect to an Impaired Class of
Interests, Section 1129(b)(2)(C) of the Code requires that the Plan provide either: (a) that each
Interest 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 Allowed
amount of any fixed liquidation preference or redemption price to which the holder of such
Interest is entitled or (b) that no holder of an Interest in the Debtor that is junior to the Interests
of such Impaired Class will receive or retain under the Plan any property on account of such
junior Interest.

D. Representation Limited.

THE ACCURACY OF THE INFORMATION, PARTICULARLY FINANCIAL


INFORMATION, SUBMITTED WITH THIS DISCLOSURE STATEMENT IS DEPENDENT
UPON AN ACCOUNTING PERFORMED BY THE DEBTORS. FURTHER, THE
FINANCIAL INFORMATION SET FORTH HEREIN CONTAINS FINANCIAL
PROJECTIONS OF FUTURE PERFORMANCE THAT NECESSARILY RELY ON THE
OUTCOME OF MANY VARIABLES OVER WHICH THE DEBTORS HAVE NO
CONTROL, AND THUS THE ACCURACY OF SUCH PROJECTIONS CANNOT BE
GUARANTEED.

THESE FINANCIAL PROJECTIONS PRESENT, TO THE BEST OF THE DEBTORS’


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

FIRST AMENDED DISCLOSURE STATEMENT 5


WHILE EVERY EFFORT HAS BEEN MADE TO ENSURE THAT THE
ASSUMPTIONS ARE VALID AND THAT THE PROJECTIONS ARE AS ACCURATE AS
CAN BE MADE UNDER THE CIRCUMSTANCES, THE DEBTORS CANNOT
UNDERTAKE TO CERTIFY OR WARRANT THE ABSOLUTE ACCURACY OF THE
FINANCIAL PROJECTIONS.

III. INQUIRIES.

Inquiries by holders of Claims or Interests or other parties in interest in these chapter 11


cases may be directed to counsel for the Debtors, Pace Reich, Esquire, Pace Reich PC, 726
Meetinghouse 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 23rd Street,
5th Floor, New York, NY 10011, (212) 851-8434 (telephone) and rlrenck@renck.com (e-mail).

TREATMENT AND ESTIMATED DISTRIBUTIONS UNDER THE PLAN

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

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

 The estimated allowed amounts in each category and the estimated percentage
recoveries are merely estimates. The actual amounts may vary considerable from
these estimates.

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

CLASS TREATMENT ESTIMATED ESTIMATED


ALLOWED PERCENTAGE
AMOUNT RECOVERY
Unclassified DIP Pursuant to the DIP Loan Settlement, on $1,800,000.00 100%
Loan Claims or before the Effective Date, each holder
of an Allowed DIP Loan Claim shall
(Non-Voting) receive in full satisfaction, settlement,
release and discharge of, and in exchange
for, its Allowed DIP Loan Claim an
amount of Preferred A Shares of
Reorganized IEAM (the “Preferred A
Shares”) equal to one (1) Preferred A
Share for each one dollar ($1.00) of
Allowed DIP Loan Claims. Each
Preferred A Share shall accrue interest at

FIRST AMENDED DISCLOSURE STATEMENT 6


a rate of seven percent (7%) per annum
from the Effective Date until payment,
and such interest shall accrue and shall
only be payable upon payment via the
liquidation preference outlined in the
succeeding sentence. The Preferred A
Shares shall have a liquidation preference
equal to one dollar ($1.00) for each
Preferred A Share plus all interest accrued
thereon from the Effective Date through
the date of payment. The Preferred A
Shares shall have a liquidation preference
over the Preferred B Shares of
Reorganized IEAM (the “Preferred B
Shares”), the Preferred C Shares of
Reorganized IEAM (the “Preferred C
Shares”) and any newly issued Common
Stock. The Preferred A Shares may be
convertible to additional shares of New
Common B Stock of Reorganized IEAM
(the “New Common B Stock”) (at a
conversion rate equal to 30 million Shares
of New B Common Stock divided by the
aggregate amount of issued Preferred A
Shares) at any time upon the sole
discretion of the holder of the Series A
Preferred Stock.
Unclassified Except to the extent that an Allowed $205,000.00 100%
Administrative Administrative Claim has been paid prior
Claims to the Effective Date, each holder of an
Allowed Administrative Claim shall
(Non-Voting) receive payment of the amount of such
Allowed Administrative Claim in Cash on
the Effective Date, or as soon as
reasonably practicable thereafter, or
immediately after entry of an order
approving an application therefor if after
the Effective Date, in full satisfaction,
settlement, release and discharge of, and
in exchange for, such Allowed
Administrative Claim.
Unclassified Except to the extent that an Allowed $385,968.00 100%
Priority Tax Priority Tax Claim has been paid prior to
Claims the Effective Date, each holder of an
Allowed Priority Tax Claim shall receive
(Non-Voting) in full satisfaction, settlement, release and
discharge of, and in exchange for, such
Allowed Priority Tax Claim, equal
monthly payments over a period of five
(5) years from the Effective Date in an
aggregate principal amount equal to the

FIRST AMENDED DISCLOSURE STATEMENT 7


face amount of such Allowed Priority Tax
Claim, with interest on the unpaid portion
thereof at the rate of interest determined
under applicable nonbankruptcy law as of
the calendar month in which the Plan is
confirmed.
Class A Except to the extent that an Allowed Non- $102,864.00 100%
Non-Tax Tax Priority Claim has been paid prior to
Priority Claims the Effective Date, each holder of an
Allowed Non-Tax Priority Claim shall
(Unimpaired, receive in full satisfaction, settlement,
Non-Voting) release and discharge of, and in exchange
for, such Allowed Non-Tax Priority
Claim, payment of the amount of such
Non-Tax Priority Claim in Cash on the
Effective Date or as soon as reasonably
practicable thereafter.
Class B On the Effective Date, or as soon as $160,000.00 100%
Convenience reasonably practicable thereafter, each
Claims holder of an Allowed Convenience Claim
shall receive in full satisfaction,
(Unimpaired, settlement, release and discharge of, and
Non-Voting) in exchange for, such Allowed
Convenience Claim, payment of the
amount of such Allowed Convenience
Claim in Cash.
Class C Pursuant to the terms of the Prepetition $2,200,000.00 47.8%
Prepetition Loan Settlement, on the Effective Date, or
Lender Secured as soon as reasonably practicable
Claims thereafter, the Prepetition Loan Collateral
shall be liquidated and all the proceeds
(Impaired, thereof shall be remitted to
Voting) OMTAMMOT, LLC in full satisfaction,
settlement, release and discharge of, and
in exchange for, the secured portion of the
Allowed Prepetition Lender Secured
Claims. The Allowed deficiency Claim
of OMTAMMOT, LLC shall be treated as
a Class D Claim.
Class D On the Effective Date, or as soon as $11,219,388 100%
General reasonably practicable thereafter, each
Unsecured holder of an Allowed General Unsecured
Claims Claim shall receive in full satisfaction,
settlement, release and discharge of, and
(Impaired, in exchange for, such Allowed General
Voting) Unsecured Claim:

(i) Cash in an amount equal to the


lesser of (A) two percent (2%) of the
amount of such Allowed General

FIRST AMENDED DISCLOSURE STATEMENT 8


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

(ii) an amount of Preferred B Shares


to be issued on a Pro Rata basis equal to
the greater of (A) ninety-eight percent
(98%) of the amount of such Allowed
General Unsecured Claim or (B) the total
amount of all Allowed General Unsecured
Claims in Class D less $200,000.00. One
(1) Preferred B Share shall be issued on
account of each one dollar ($1.00) of
Allowed General Unsecured Claims. The
Preferred B Shares shall not accrue
interest or otherwise be convertible. The
Preferred B Shares shall have a
liquidation preference equal to one dollar
($1.00) for each Preferred B Share. The
Preferred B Shares shall have a
liquidation preference over the Preferred
C Shares and any newly issued Common
Stock. When the net cash balances of
Reorganized IEAM are equal to or greater
than the preference amounts of Preferred
A Shares and Preferred B Shares,
Reorganized IEAM may in its sole
discretion liquidate the Preferred B
Shares. In addition, the holders of
Preferred B Shares may require
Reorganized IEAM to liquidate the
Preferred B Shares.
Class E Existing The Existing IEAM Interests shall be $0.00 100%
IEAM Interests deemed cancelled and extinguished as of
the Effective Date. On, or as soon as
(Impaired, reasonably practicable after the Effective
Voting) Date, each holder of an Allowed Existing
IEAM Interest shall receive its Pro Rata
share of 30 million shares of New
Common B Stock, to be issued by
Reorganized IEAM.
Class F To the extent that monetary damages are $0.00 100%
Subordinated assessed against any of the Debtors
Claims arising from any claim for damages for
the purchase or sale of any securities of
(Impaired, any of the Debtors, and to the extent such
Voting) damages are not paid by any insurance, in
accordance with the provisions of 510(b)
of the Code, such monetary damages shall
treated by the issuance of Preferred C
Shares. One (1) Preferred C Share shall

FIRST AMENDED DISCLOSURE STATEMENT 9


be issued on account of each one dollar
($1.00) of Allowed Subordinated Claims.
The Preferred C Shares will not accrue
interest or otherwise be convertible;
however, the Preferred C Shares shall
have a liquidation preference over New
Common Shares of Reorganized IEAM.
Class G All Non-IEAM Interests shall be deemed n/a 0%
Non-IEAM cancelled and extinguished as of the
Interests Effective Date, and the holders of all
Non-IEAM Interests shall not receive or
(Impaired) retain any property or interest in property
under the Plan on account of such Non-
IEAM Interests.

IV. THE DEBTORS.

The current management of IEAM first became affiliated with the company’s
subsidiaries on September 12, 2008. Management’s access to corporate records of the parent,
IEAM, has been limited as a result of the refusal of certain members of prior management to turn
over books and records. Management is relying on public filings previously made with the
United States Securities and Exchange Commission and records that they have been given access
to or obtained by a document request through the use of the turnover motion in the Bankruptcy
Court. As such, certain disclosures may be subject to revision and current management cannot
be certain if they have received all of IEAM’s records.

A. Pre-Petition Background and History.

IEAM’s organizational history was last described in a Form 10-KSB Amendment 1-FY
2006, Filed December 28, 2007. That document disclosed the following:

• IEAM originally operated as a holding company with four (4) wholly owned
subsidiaries, Pitt Penn Holding Inc., a Delaware corporation ("PPH"), EMC
Packaging, Inc., a Delaware corporation ("EMC"), Unifide Industries Limited
Liability Company, a New Jersey limited liability company ("Unifide"), and
Todays Way Manufacturing, LLC, a New Jersey limited liability company
("Todays Way").

• PPH, through its wholly owned subsidiary Pitt Penn Oil Co., LLC, an Ohio
limited liability company (“Pitt Penn”), was a leading manufacturer, marketer and
seller of automotive chemicals and additives.

• EMC’s original business consisted of converting hydrofluorocarbon gases


(“HFC”) R134a and R152a into branded private label refrigerant and propellant
products.

FIRST AMENDED DISCLOSURE STATEMENT 10


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

• Todays Way manufactured and packaged the products which were sold by
Unifide.

B. Background – Formation and Maintenance of Corporate Records.

The Company was originally incorporated in the State of Florida on June 14, 1990 as
Mid-Way Medical Diagnostic Center, Inc. ("Mid-Way (Florida)"). Mid-Way (Florida) was
initially engaged in the business of seeking to establish and operate medical and diagnostic
centers. 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-Way


Acquisition 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 Ciro
Jewelry (Delaware) became the assets, liabilities, and business of the Merger Sub. As a result of
the 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 Company
and Ciro Jewelry and simultaneously appointed Murray Wilson as the sole director of each
entity.

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., a
Nevada corporation, which was established solely for the purpose of changing the domicile of
the Company from the State of Florida to the State of Nevada.

On April 21, 2003, Ciro and Advanced Bio/Chem, Inc., a Texas corporation (“ABC
Texas”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) whereby a
wholly owned subsidiary of Ciro, Ciro Acquisition Corp., a Texas corporation (which was
inappropriately 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 Texas
became 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, the
main 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 owned
subsidiary, Ciro Jewelry, to Merchant’s T&F, Inc. (“MT&F”). Following December 2002, Ciro
Jewelry became a “shell” corporation with no defined business purpose and began the process of
searching for a new line of business or a merger candidate.

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

FIRST AMENDED DISCLOSURE STATEMENT 11


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

The company’s name was changed to IEAM.

The corporate records of IEAM, the parent, had allegedly been maintained in at least two
locations, its former New York headquarters at 711 Third Avenue, New York, NY and at the law
offices of Margulies and Levinson LLP, 30100 Chagrin Blvd., Suite 250, Pepper Pike, OH
44124. Upon the February 2008 resignation of John D. Mazzuto, president and chief financial
officer, 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, IEAM’s functional corporate
headquarters 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 domiciled
at that location. They included James W. Margulies and Steven W. Berger.

Upon investigation and review it appears that the vast majority of the corporate records
may have been under the custody and control of James W. Margulies, Esquire, who has acted in
various capacities at IEAM. His role was multifaceted. At one time or another, he acted as an
attorney for MC Industrial (FKA New Jersey Acquisition Corp.) a shell corporation which had
announced that it had reached an agreement to acquire EMC packaging which was subsequently
acquired 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 period
December 2006 through July 2007, Mr. Margulies was named and received salary compensation
from PPO in return for his services as head of IEAM’s legal department. Mr. Margulies rejoined
IEAM as CEO and CFO and a director in February 2008 as noted in the Company’s 8-K.

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

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

FIRST AMENDED DISCLOSURE STATEMENT 12


C. Acquisitions.

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

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

On January 31, 2006, pursuant to a Membership Interest Purchase Agreement dated


January 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 the
Pitt Penn Agreement, the Company acquired the Pitt Penn Group through the purchase of all of
the issued and outstanding membership interests of Spinwell. Spinwell, in turn, owned all of the
issued and outstanding membership interests of (1) Pitt Penn, and (2) Pitt Penn Oil DISC
Company, a Delaware corporation, (together, the "Pitt Penn Group") for an aggregate
consideration of $4,000,000 subject to adjustment as provided in the Pitt Penn Agreement. As a
result of this acquisition, Spinwell became the Company’s wholly owned subsidiary on
January 31, 2006.

On May 12, 2006, the Company sold Springdale Specialty Plastics, Inc., a subsidiary of
Pitt 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 and
interest 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 two
million five hundred thousand dollars ($2,500,000.00), subject to adjustment as provided in the
Asset Purchase Agreement. The terms of the Asset Purchase Agreement were determined by
arms-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 management
identified three private placements. Unless otherwise noted, Debtors are relying on that
document 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 private
placement pursuant to Rule 506 of Regulation D under the Securities Act of 1933, as amended

FIRST AMENDED DISCLOSURE STATEMENT 13


(the "Securities Act"). They included (1) notes convertible into shares of IEAM’s common
stock, as well as (2) five-year warrants to purchase an aggregate of 1,270,833 (post-split) shares
of IEAM’s common stock (excluding finder’s warrants described below), for an aggregate
purchase price of $2,500,000, with $1,500,000 of that purchase price paid on July 19, 2005, the
initial 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 private
placement

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

The company paid an aggregate of $278,995.27 representing accrued interest and


liquidated 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 Company
concluded with such investors as part of the March 2006 private placement as described below
under “—March 2006 Private Placements— Modification, Amendment and Waiver Agreement.”
Debtors continued to incur liquidated damages to these investors until they filed the resale
registration statement on May 31, 2006.

January 2006 Private Placement

IEAM entered into a securities purchase agreement dated as of January 27, 2006 with
JLF Asset Management, LLC and the three funds it manages, JLF Offshore Fund, Ltd., JLF
Partners I, L.P., and JLF Partners II, L.P. (together, “JLF” or the “JLF entities”), pursuant to
which the three JLF entities purchased from IEAM, in a 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 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 the
Commission, within 60 business days of the closing of that offering, a registration statement
which registers the resale of all shares of IEAM common stock underlying the convertible
debentures and the warrants issued or issuable by IEAM to the JLF entities. IEAM did not
comply 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 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 to purchase an
aggregate of 402,778 (post split) shares of IEAM common stock, and (3) Class B warrants to

FIRST AMENDED DISCLOSURE STATEMENT 14


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 securities
purchase agreement (together with the abovementioned securities purchase agreement, the
“March 2006 purchase agreements”) with Truk International Fund, LP and Truk Opportunity
Fund, LLC (together, “Truk”), pursuant to which these investors purchased from IEAM, in a
separate 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 to
purchase an aggregate of 138,888 (post split) shares of IEAM common stock, and (3) Class B
warrants to purchase an aggregate of 138,888 (post split) shares of IEAM common stock, for an
aggregate purchase price of $500,000.

The Class A warrants IEAM issued in the March 2006 private placement had the exercise
price 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 the
investors in the March 2006 private placements are not subject to cashless exercise. As
previously 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 June
2006, filed on December 28, 2007. That document was silent with respect to the exercise of the
warrants. Current management is still reviewing these transactions. Any of such warrants
which 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 which
registers the resale of all shares of our common stock underlying the convertible debentures and
the 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. Mazzuto’s Personal Bankruptcy is Disclosed to the Board.

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

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

• In conjunction with this lawsuit, Mr. Mazzuto was deposed in District


Court Harris County on July 12, 2006. His statements under oath are not
reflected in SEC filings.

FIRST AMENDED DISCLOSURE STATEMENT 15


• Mr. Mazzuto’s prior business history including various failed business
ventures, board seats and directorships and his ongoing personal
bankruptcy were never disclosed2.

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 to
directors, IEAM continued to omit material facts. Specifically, this filing failed to disclose Mr.
Mazzuto’s bankruptcy, and the bankruptcy of George Cannan, Sr. (Chapter 7 Southern District
of 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 announced
that on June 19, 2006, the United States District Court for the Southern District of Texas entered
a 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 as
other provisions of the Securities laws, including, Exchange Act Sections 10(b) (and Rule 10b-5
thereunder), 13(a), 13(d)(1) (and Rules 13d-1 and 13d-2 thereunder), 15(a)(1) and 16(a) (and
Rule 16a-3 thereunder) and Securities Act Sections 5 and 17(a) and Rule 101 of Regulation M
under the Exchange Act. The order also bars Cannan Sr. for five years from acting as an officer
or director of any issuer that has a class of securities registered pursuant to Section 12 of the
Exchange Act or that is required to file reports pursuant to Section 15(d). Further, the order
requires 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 five
highest paid officers of IEAM and its subsidiaries subsequently reached an agreement with the
SEC 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 a
public filing. Further, despite a change in the corporate by-laws mandating the filing of a proxy
and the holding of an annual meeting, IEAM under the Mazzuto and Margulies management
never 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 Mazzuto’s and Margulies’s attempt to portray the
Debtors as a business success. As noted earlier, starting in late-2006, the Company hosted a
series of investor meetings designed to portray IEAM as a small but growing company in a
mundane business with professional management which was beginning to generate positive cash

2
Baker MacKenzie represented IEAM in this matter.

FIRST AMENDED DISCLOSURE STATEMENT 16


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

In early-December 2006, James Margulies resigned as CFO and moved to the legal
department. John Mazzuto assumed the role and announced the search for a permanent
replacement. In March 2007 the company announced that Dennis O’Neill had accepted a
position as CFO. Under a potential adversary proceeding in the Bankruptcy Court, Mr. O’Neill’s
counsel turned over certain documents including a March 8, 2007 initial agreement and a copy of
a May 11, 2007 resignation letter. The March 8, 2007 letter contradicts the Company’s public
statements. 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 series
of presentations in various public forums outlining their strategy of integrating these three
businesses on both an operational and financial basis.4

The company with the assistance of David Zazoff of ZA-Consulting began a public
relations campaign to tell the IEAM story. With JLF Asset Management, LLC, a well known
money management firm, as a core investor, the company began to craft a series of presentations
hosted by brokerage firms. The apparent purpose of these presentations was to promote the
merits 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 investor
package was representative of IEAM’s standard presentation. In addition, beginning in
December 2006 the company was distributing a 77-page package telling the IEAM story. The
first seven pages of that package made a number of material misstatements about both the
company 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 the
bankruptcy court, Dennis O’Neill’s attorney has turned over 2,000 pages of documents between August 25, 2009 and
August 31, 2009. A review of Mr. O’Neill’s correspondence in March 2007 suggests that was known to Mr. Mazzuto and
others 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 art
Microsoft Great Plains accounting system. Unifide and Today’s Way accounting were partially, but not completely,
integrated into this system. EMC Packaging maintains its accounting on a legacy accounting system.

FIRST AMENDED DISCLOSURE STATEMENT 17


IEAM has a June fiscal year. During the period December 4-6, 2006 the company filed a
10-QSB and two amendments for the period ended September 30, 2006. All of those documents
indicated that were just over 9.9 million shares outstanding. James Margulies, who acting as the
company’s CFO, stepped down from that position as of December 6, 2006 and joined the
company’s “legal department.” He continued as a salaried employee in that position until
July 31, 2007. Despite the fact that the press release referenced IEAM’s legal department, his
salary was paid by PPO without an offset to IEAM. During the period from August 1, 2007 until
February 2008 he had an ambiguous role as outside counsel to the audit committee and the
board.

Between October 2006 and the Spring of 2007, IEAM had begun to attract the attention
of 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 a
publicly traded shell corporation (IEAM-FKA Advanced Bio Chem) and with the assistance of
some outside financing had assembled a portfolio of corporations producing products for the
automotive after markets.

In addition, in December 2006, the Company issued a press release which noted that it
had 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 various
notes, management suggested in various public forums that with all exercises fully diluted shares
would fall within a range of 13.0 – 14.0 million shares.

On February 16, 2007, the Company filed Form 10-QSB for the period ended
December 31, 2006. That filing indicated that there were 12.9 million shares outstanding. On
April 20, 2007 the company filed Form 8-A12B/A which is a NASDAQ listing application. That
form indicated that there were 16.848 million shares outstanding as of April 18, 2007. When
questioned about this on a conference call, Mr. Mazzuto suggested that these shares did not
reflect the “retirement” of certain shares due to stock purchase. On May 22, 2007 the company
filed a 10-QSB for the period ending March 31, 2007. That filing indicated that there were
13.297 million shares outstanding as of May 18, 2007.

An 8-K filing and a subsequent conference call shows that there was a $6.2 million
investment in a joint venture (which was identified as being with the Chinese partner). That
filing and conference call also indicated that there was a problem with revenue recognition. That
issue has subsequently been identified as a “bill and hold issue.” The issues of revenue
recognition 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 was
among one of at least three press releases discussing a material event which were never filed with the SEC. As we have
determined, the information contained in the press release was false. Independent investigation and a Spring 2008 e-mail
from George Cannan to Dan Redmond confirm that there never was a joint venture.

FIRST AMENDED DISCLOSURE STATEMENT 18


On July 12, 2007, the Company issued a press release. That release indicated without
elaboration that there were 19.0 million shares outstanding. The press release also went on to
indicate 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 to
Martin Weisberg at Baker McKenzie. Weisberg provided an opinion letter with respect to IEAM
to Sovereign Bank. In our subsequent review of the documents submitted to the bank it appears
that (1) the backgrounds of the principals were misstated, (2) IEAM was clearly not current in its
financial 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 the
suspension of Jorge Yepes, a CFO who had been appointed on September 4, 2007. The second
press 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) a
share 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 SEC
on 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 75,000
purchase warrants plus 2.0 million shares of IEAM stock increasing the shares outstanding to
28.0 million.7

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


CEO 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 an
Accounting 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 company’s
financing needs.8

Of particular interest was the caption, “The substantial increase in share count
announced 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 company’s transfer agent suggests that there
were approximately 22.9 million shares outstanding. In our limited access to board records, we have found no such
approval. Further given the company’s 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 shares
to 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.

FIRST AMENDED DISCLOSURE STATEMENT 19


The notation went on to say, “the vast majority of the increase in the number of shares
were 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 Debtors’
subsequent 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 period
ending June 2007 within several weeks of taking office as CEO and CFO. No such 10-K has yet
been filed.

H. April 2008 - Mr. Margulies Discusses the Company’s 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 a
going-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 Company’s
common stock indicated that upon the filing of the 10-K for FY 2007, they were willing to
consider a participation in a rights offering to provide $3.0-$5.0 million of common or preferred
stock. The condition was that it be open and available to all current stockholders of the
Company.

Despite assurances to both the investment community and to the Company’s secured
lender that Mr. Margulies was merely reviewing a 10-K prepared by Mr. Mazzuto, no such 10-K
was ever filed. As noted later, the failure to file the June 2007 10-K was a violation of the
Company’s loan agreement with Sovereign Bank as well as a violation of the Black Nickel
agreement. As a result of the failure to file the 10-K, Mr. Margulies caused IEAM to issue an
additional 1.5 million shares to Black Nickel. Further, the failure to file the 10-K was the
proximate cause of Sovereign Bank’s decision to freeze the funds in the Company’s bank
accounts in October 2008.

On April 7, 2008, Mr. Margulies, Mr. Redmond, Mr. Zazoff and Daniel Boucher met
with institutional investors and others who owned more than 45.0% of the company’s shares
outstanding. The purpose of the meeting was to discuss (1) certain financing alternatives, (2) the
potential sale of EMC to George Cannan, Sr. and (3) provide an update on the preparation of the
10-K for FY 2007. During the course of that discussion, Mr. Margulies asserted that if IEAM
did not receive a cash injection of more than $9.0 million by Friday, April 11, 2008 he would be
forced to file “bankruptcy.” He did not specify whether he was contemplating Chapter 11 or
Chapter 7 nor did he specify which of the corporate entities he was considering for a bankruptcy
alternative.

9
Our review of the share issuance data, as discussed later in this report, shows that the transfer agent received instructions
signed by either Mr. Mazzuto or Mr. Margulies to issue shares pursuant to an S-8 filed in February 2005. The S-8 was
never made effective. In addition, while the July 12th press release refers to 19.0 million shares outstanding as of the end of
June 2007, there were actually 22.9 million shares outstanding.

FIRST AMENDED DISCLOSURE STATEMENT 20


Subsequent to that meeting the present CEO was contacted by other large shareholders
and was asked to propose a solution for reorganization. On April 9, 2008 both Mr. Ward and
Mr. Renck agreed to begin reviewing reorganization alternatives. At that juncture Mr. Margulies
agreed to provide certain high level information with respect to the operating results of the two
major 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 a
conceptual approach towards resolving the financial and operational problems faced by IEAM
and its subsidiaries. Other members of IEAM’s operating management then became involved in
the due diligence process. A review of the subsidiary books and records revealed that PPO was
being burdened with excessive salaries including those at parent. The combined staff salaries
throughout the organization as of June 30, 2008 were just under $5.0 million. This did not
include any stock based compensation or grants to various “consultants” or outside contractors
being paid by parent (IEAM). In addition, a review of the internal books and records of the
subsidiaries suggested that there was a significant disconnect between reported results and
reality.

Despite the problems at IEAM, numerous press releases and presentations suggested that
PPO (the major operating entity) was generating positive cash flow during all of 2007. As a
result of questions asked during an intensive due diligence review which began on or about
June 29, 2008, Mr. Redmond prepared a report which indicated that Pitt Penn Oil had never
generated 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 IEAM
made the following disclosure:

Under new management, Debtors have been conducting an ongoing review of the
financial records and the books and records of subsidiaries and parent. As part of this review, the
Company has been endeavoring to gather and analyze the books and records from various
sources.
To date, the Company’s review has focused upon the intracompany transactions and the
issuance of the Company’s securities pursuant to certain agreements between the Company and
the 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 direct
subsidiaries, EMC, Today’s Way, Unifide, and PPH. IEAM is the sole owner of PPO as a result
of its 100% ownership of PPH. PPO, with annual revenues of approximately $25 Million at the
time of its acquisition in January 2006, became the main operating subsidiary of the IEAM

FIRST AMENDED DISCLOSURE STATEMENT 21


Group. The operational activities of Today’s Way and Unifide had been effectively absorbed
into PPO by December 2006. IEAM had indicated that they were “consolidated.”

By January 2007 Pitt Penn Oil was paying for the obligations of PPO, Today’s Way and
Unifide. 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, EMC


remained 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. The
assets of FFD were owned by IEAM. They were physically transferred to EMC. George
Cannan, in his role as President of EMC Packaging, incorporated FFD as a “C” corporation in
the State of Delaware. A separate checking account was set up and certain revenues were run
through 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 Today’s Way and Unifide previously mentioned,
were pushed down to PPO.

Functionally, IEAM typically only appears to have had two or three officers at any given
time. From the period December 2006 through February 2008, John Mazzuto was the CEO/CFO
at 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 as
Executive VP and President of IEAM during his tenure. Dennis F. O’Neill served as CFO as did
his replacement Jorge Yepes. All of those individuals received their compensation from PPO.

Mr. Margulies continued to be actively engaged with the company on legal and
accounting matters until he assumed the CEO/CFO role in February 2008. In fact, the
accounting records indicate that even after he stepped down as CFO in December 2006 he
appeared to be actively engaged along with Mr. Mazzuto, in the preparation of IEAM’s internal
financial records. The National City Bank checkbook was maintained in Cleveland Ohio at his
office during that time.

Rather than consolidate IEAM financial operations at PPO, where the bulk of the staff
and the most robust accounting system resided, IEAM used paid professionals to fulfill other
roles, primarily accounting. Both Dennis O’Neill and Jorge Yepes, CFOs of IEAM maintained
offices at PPO. Debtors do not know what access, if any they had to IEAM parent records or
checkbooks.

The overall corporate organizational structure of IEAM and its subsidiaries is


unremarkable. What is remarkable is the lack of organizational oversight previously provided by
IEAM. Each direct subsidiary of IEAM was wholly owned. PPO, the sole exception, was
effectively structured in the same manner as it is the wholly owned subsidiary of PPH. Under
this structure, it is the holding company’s responsibility to direct accounting policy and
procedures of the subsidiaries and to consolidate the entities for reporting purposes. Much of

FIRST AMENDED DISCLOSURE STATEMENT 22


this is facilitated through the holding company’s Board of Directors Audit Committee. The
Audit Committee engages an audit firm (external auditor) to perform an audit of the annual
financial 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 Company’s 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 any
reliance on their work. To the contrary, management must have a system of internal control that
is sufficient without auditor reliance.

2. State of IEAM Accounting Books and Records.

IEAM’s accounting books and records have been maintained on QuickBooks by John
Mazzuto and James Margulies with the assistance of third party paid professionals. The records
indicate they included David Selmon until March 2007; Tracie Matsuo, Selmon’s eventual
replacement, was initially engaged in late 2006 to assist with the completion of the 10Q for the
quarter 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 by
James Margulies, through March 2009. Prior to the arrangement with paid professionals, the
company appears to have relied upon Ilene Engelberg. Ms. Engelberg was originally the CFO of
EMC Packaging, a subsidiary of IEAM through its acquisition in 2004. As disclosed in an 8K in
December 2004, Ms. Engelberg was named Assistant Controller and Dennis O’Neill Controller.

Ms. Matsuo did not provide monthly accounting services, instead would periodically
make necessary accounting entries or adjustments, dependent upon documentation provided by
IEAM. Until September 2008, Mr. Mazzuto, and subsequently Mr. Margulies were the sole
contact points for Ms. Matsuo. Michael Dignazio joined Pitt Penn Oil Company as Corporate
Controller on October 17, 2007 and had limited interface with Ms. Matsuo and the company’s
auditor, DeJoya Griffith & Co., LLC. His interaction was limited to those matters that affected
the subsidiaries.

August 2008: Outside Accountant Requests Clarification of Certain Transactions.

On August 25, 2008, Mr. Dignazio (at that time the corporate controller of PPO) received
an email request from Tracie Matsuo regarding intercompany transactions on the parent
company books that could not be reconciled (other than several brief phone calls, this was the
first email Mr. Dignazio received since January 25, 2008). Mr. Dignazio prepared an analysis of
the 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 regards
to the intercompany accounts, identifying for him beginning balance differences between the
books and records of IEAM and its subsidiaries. Mr. Dignazio stated in the email that entries
will need to be made on both the parent and subsidiary accounting records to properly reflect
previously unrecorded transactions that Mr. Dignazio identified. Mr. Dignazio noted that we
would need to document the reason for the transactions with supporting documentation.

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

FIRST AMENDED DISCLOSURE STATEMENT 23


Effective September 12, 2008, as disclosed in an 8K filed at the time, Robert Renck was
named President and CEO of PPH and John Ward was named Chairman of the Board of
Directors, which was also newly installed at PPH. Michael Dignazio was promoted to Vice
President 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 process
began on June 30, 2008. In trying to determine a proforma set of financials for all subsidiaries, it
was determined that despite public statements to the contrary, EMC records were still being
maintained on a legacy accounting system and their specific financial closing was only
performed quarterly. Further, new management also requested due diligence be performed on
the state of the company’s 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 been
extracted 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 runs
until December 2008. Beginning in September 2008, we began an implementation process to
integrate 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 statement


information on October 22, 2008 that covered the period June 2006 through August 2008 from
Steve Berger10 in his capacity as corporate counsel reporting to James Margulies. The bank
statements were from National City Bank in Cleveland Ohio. Those statements provided
additional evidence that wire transfers occurred, however the statements did not provide any
detail 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 received
them.

March 2009: A Significant Account at Wachovia is Discovered.

Mr. Margulies informed us that the account with National City was the primary checking
account for IEAM. Mr. Margulies noted in a conversation that IEAM had a money market
account 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 about
November 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 his
direction 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 the berger@bergerlaw.com email, it appears that
some outsiders may have thought they were dealing with an outside general counsel for both IEAM and PPH.

FIRST AMENDED DISCLOSURE STATEMENT 24


was primarily used by John Mazzuto as a source of cash for personal and travel expenses. In late
March 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, that
account 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 have
had questionable business purposes. This appeared to be a prima facie indication of possible
wire fraud.

IEAM QuickBooks Notations Not Readily Supported by Documentation.

Since December 2007, Mr. Dignazio made requests for documents to former company
management for the purposes of properly identifying and supporting material transactions on the
books 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 the
status of the audit for the fiscal year ending June 30, 2007. As of October 2008 those requests
were largely unfulfilled.

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


Governance Committee – October 2008.

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

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

Subsequent to IEAM’s failure to answer the class action suit in New York State Court,
the Company’s D&O insurance carrier, ACE-INA, secured Alston & Byrd to defend the
company in that action. In June 2008, Alston & Byrd resigned its representation purportedly due
to an irreconcilable conflict. As a result of that resignation, both James W. Margulies and
Dennis O’Neill (a former CFO) were given independent representation paid for by the D&O
carrier. ACE-INA chose Cozen O’Connor to replace Alston & Byrd to as company counsel in
defense 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 and
CFO) and Jerome Davis (an Independent director). Prior to November 2008, the only
correspondence between new counsel, Cozen O’Connor, and the company was through Steven
W. Berger, Esquire who reported directly to Mr. Margulies, and was domiciled at the offices of
Margulies and Levinson.

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

FIRST AMENDED DISCLOSURE STATEMENT 25


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.
Ward’s role was to assist in the negotiations with PPH’s major lender, Sovereign Bank. Mr.
Renck’s role was to evaluate, restructure and streamline PPH’s operations.

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

• Mr. Margulies had represented in public filings with the SEC agreements with the
company’s lender and to Mr. Ward and Mr. Renck that IEAM’s 2007 10-K for the
year 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 consider
becoming members of parent Board and providing transition management as Mr.
Margulies returned to the practice of law. It was left open whether Mr. Margulies
would 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 be
February 15, 2009.

• There were three additional pre-conditions to Mr. Ward and Mr. Renck’s
acceptance of positions. They included:

(1) the termination for cause of R. Daniel Redmond as President of IEAM,

(2) the voluntary resignation of Robert W. Casper as a director, and

(3) the formation of an independent Corporate Governance Committee at


parent

The purpose of the Corporate Governance Committee was to provide a formal vehicle for
(1) Mr. Renck to review and examine parent company books and records, (2) review inter-
company transactions, (3) evaluate the company’s response to the class action and (4) to provide
a vehicle for Mr. Ward and Mr. Renck to have unfettered communication with the sole
independent director Jerome W. Davis.

Under the auspices of the Governance Committee, current management began reviewing
corporate records. As part of that process they made repeated requests to Mr. Margulies for
IEAM documents.

Mr. Margulies was extraordinarily selective in his response to the Governance Committee
for documents. Even after his resignation as a director, CEO and CFO of IEAM, was accepted
on March 23, 2009 by Jerome W. Davis, Mr. Margulies has delayed in returning the company’s
original records. Based upon a November 5, 2009 order of the Federal Bankruptcy Court, Mr.
Margulies did turn over some 160,000 Bates Stamped copies of certain records.

FIRST AMENDED DISCLOSURE STATEMENT 26


While the turn-over motion called for the return of the Company’s original books and
records, not copies. Mr. Margulies failed to return the Company’s original Quick Books files
and the supporting documentation which contained the financial reports of the parent company.
After filing a contempt motion, counsel for Mr. Margulies did provide copies of certain Quick
Books files. However, the files provided contained no entries after March 31, 2007. Tracie
Matsuo, of TKM Accounting, supplied Debtors with a copy of IEAM QuickBooks files covering
the period October 2004 through June 30, 2007. These files were a copy of files maintained by
James W. Margulies and had been provided to her for the purpose of producing a financial
statement for June 30, 2007 10-K.

4. Capital Structure.

The present members of PPH management first began to have limited access to the
underlying books and records of PPO beginning April 9, 2008. Extensive and exhaustive due
diligence began on June 27, 2008. By mid-July 2008 it was apparent that PPO was an
extraordinarily troubled company.

PPO, which had been purchased as of January 2006, had its operations merged with
Unifide and Today’s Way as of that date. Starting in or about January 2007, then current
management of PPO changed the underlying chart of accounts and the inventory cost
methodology making operational cost comparisons difficult at best.

Those fundamental changes have left a discontinuous accounting for operational data.
This has been compounded by a series of inter-company transactions with parent and a sister
company, EMC. Despite recommendations from a forensic accounting consulting group brought
in by the audit committee of the parent in or about September 2007, any and all
recommendations to consolidate all of the related accounting systems have been rejected or
ignored. The only recommendation that was accepted was the hiring of a new controller and
assistant controller in mid-October 2007.

Public filings, conference call transcripts and press releases suggested a relatively high
level of profitability at parent virtually all of which was publicly attributed to its major operating
asset PPO. Without going into detail it was suggested that adjusted EBITDA (ex-Capex) for
each of three quarters ended March 2007 was running around $4.0 million per quarter. It was
further suggested that the company had or would implement operating efficiencies that would
result in annual cost reductions of $4.5 million.

Debtors’ preliminary review which concluded prior to taking present positions on


September 12, 2008, suggested that neither the $4.0 million per quarter EBITDA nor the
$4.5 million operating cost reduction could be attributed to either parent or, more importantly,
PPO the major operating asset where they were alleged to have occurred.

IEAM last reported its capital structure as of March 31, 2007 on a consolidated basis on
a Form 10-Q filed May 22, 2007.

FIRST AMENDED DISCLOSURE STATEMENT 27


The aforementioned balance sheet was presented on a consolidated basis. Current
management of IEAM has requested, but not received, supporting documents which would allow
it to reconcile the inter-company financials. However, it does have IEAM QuickBooks files.
Those parent company financials for the same period are as follows:

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

FIRST AMENDED DISCLOSURE STATEMENT 28


Industrial Enterprises Of America, Inc
Balance Sheet
As of March 31, 2007

ASSETS
Current Assets
Total Checking/Savings 1,299,315.96

Other Current Assets


Restricted Cash 500,000.00
Total Accrued Interest Receivable 50,221.43

Due From (To)


Margulies & Levinson IOLTA Acct 258,166.28
Total Due From (To) 258,166.28

Notes Receivable
Packaged Air Products, Inc. 30,000.00
Brooke Capital LLC 250,000.00
Nick Torrens 250,000.00
Total Notes Receivable 530,000.00

Prepaid Expenses
Consultant Fees 4,359,161.70
Insurance 15,195.37
Total Prepaid Expenses 4,374,357.07

Total Other Current Assets 5,712,744.78

Total Current Assets 7,012,060.74

Fixed Assets
Total Furniture, Fixtures & Equipment 146,292.75

Total Fixed Assets 146,292.75

Other Assets
Goodwill 1,371,380.00
Debt Issuance Costs, unamort 155,504.34
Investments
China J.V. 6,262,156.50
Total Davison Warehouse 942,335.05

EMC Packaging 2,723,805.69


First Defense, Inc. 1,238,044.82
Total Power 3 Medical - Cost 1,080,426.00

Spinwell Holding Co., LLC 12,532,933.04


Today's Way 950,000.00
Unifide Industries, LLC 3,217,974.92
Total Investments 28,947,676.02

Total Other Assets 30,474,560.36

TOTAL ASSETS 37,632,913.85

FIRST AMENDED DISCLOSURE STATEMENT 29


LIABILITIES & EQUITY
Liabilities
Current Liabilities
Other Current Liabilities
Current Notes Payable
Total Related Parties 360,007.69

Total Current Notes Payable 360,007.69

Due To
Total Related Party 80,402.64

Total Due To 80,402.64

Total Other Current Liabilities 440,410.33

Total Current Liabilities 440,410.33

Long Term Liabilities


Registration Rights Penalty Pay 61,192.00

Total Accrued Interest 340,417.80

Notes Payable
Total Convertible 5,073,556.88

Discount on convertible debt 5,153,403.59


Total Related Parties 1,367,740.32

Total Notes Payable 11,594,700.79

Total Long Term Liabilities 11,996,310.59

Total Liabilities 12,436,720.92

Equity
Equity pre-Earnings
Total Contributed Capital 71,713,159.55

Treasury Stock (1,109,346.03)


Equity Dev Fees, unamortized
Donson Brooks, net (110,403.61)
James O'Callaghan (4,333.34)
LNG Consulting, net (274,111.52)
Total Equity Dev Fees, unamortized (388,848.47)

Shareholder Receivable (6,000.00)


Unrealized Security Gain(Loss) (1,646,760.83)
Total Equity pre-Earnings 68,562,204.22

Retained Earnings (10,647,729.52)


Net Income (32,718,281.77)
Total Equity 25,196,192.93

TOTAL LIABILITIES & EQUITY 37,632,913.85

FIRST AMENDED DISCLOSURE STATEMENT 30


The Debtors note that there are some self-evident differences between parent company
financials including (1) the magnitude of assets and liabilities, (2) additional paid in capital
versus “contributed” capital, and (3) total equity.

IEAM last reported its Income Statement for the nine months ended as of March 31, 2007
on a consolidated basis on a Form 10-Q filed May 22, 2007.

INDUSTRIAL ENTERPRISES OF AMERICA, INC.


Consolidated Statements of Operations
(Unaudited)

Nine Months Ended


Mar 31, 2006
3/31/2007 (restated)
Revenues $ 41,604,813 $ 19,567,081

Cost of Goods Sold 30,210,106 16,302,267

Writedown of Inventory 0 2,400,000

Gross Profit $ 11,394,707 $ 864,814

Expenses:
Selling, general &
administrative 4,400,328 2,403,874
Salaries and contract labor 0 1,422,995
Depreciation and amortization 1,621,236 370,839
Legal and professional fees 203,018 1,323,267
Operations and consolidation
expense 250,000
Total Expenses $ 6,224,582 $ 5,770,975

Income (loss) from operations 5,170,125 (4,906,161)

Other income (expense)


Interest income 52,404 0
Interest expense (14,284,064) (3,028,670)
Gain (loss) from sale of securities (36,313) 533,802
Litigation settlement revenues 1,045,739 0
Equipment and realty option revenues 375,000 0
Gain on disposition of plant and
facilities 1,042,026 0
Loan Fees (49,070) 0
Miscellaneous income (expense) (17,083) 8,627

Net income (loss) $ (6,701,236) $ (7,392,402)

Net income (loss) per share basic


and diluted $ (0.67) $ (1.61)

Weighted average number of common


shares outstanding 9,932,967 4,602,476

The aforementioned income statement was presented on a consolidated basis. Current


management of IEAM has requested, but not received, supporting documents which would allow

FIRST AMENDED DISCLOSURE STATEMENT 31


it to reconcile the inter-company financials. However, it does have IEAM QuickBooks files.
That parent company income statement for the same period was as follows:

Industrial Enterprises of America, Inc.


Profit & Loss
July 2006 through March 2007

Ordinary Income/Expense
Expense
Amortization Expense
Total Amortization Expense 826,330.82

Auto lease 11,976.88


Total Bank Service Charges 2,244.26

Consultants 17,089,260.55
Contributions/Donations 16,100.00
Depreciation Expense 2,589.49
Dues and Subscriptions 6,086.25
Total Insurance 29,494.61

Interest Expense
Total Interest Expense 13,612,363.43

Office Supplies 659.52


Total Payroll expense 2,866,762.99

Postage and Delivery 682.30


Professional Services
Total Legal Professional Fees 447,988.44

Total Professional Services 635,018.42

Rent 67,332.75
Repairs
Computer Repairs 60.32
Total Repairs 60.32

Stock Transfer Agent 6,946.97


Telephone & Communication 5,841.82
Total Travel 225,360.19

Total Expense 35,405,111.57

Net Ordinary Income (35,405,111.57)

Other Income/Expense
Total Other Income 2,436,829.80
Total Other Expense (250,000.00)

Net Other Income 2,686,829.80

Net Income (32,718,281.77)

The Debtors note that there are some self-evident differences between the IEAM
consolidated income statement and the parent company income statement:

FIRST AMENDED DISCLOSURE STATEMENT 32


• The consolidated statement shows revenues of $41.6 million while the parent
company statement shows no revenues.

• The consolidated statement shows total expenses of $6.224 million, not including
interest expense of $14.284 million. This would bring total expense (including
interest expense) to $20.508 million.

• The parent company only statement shows total expenses (including interest
expense of $13.612 million) of $35.405 million, which is $15.0 million greater
than reported on the consolidated financials. This raises questions that can only
be resolved by access to IEAM’s complete books and records.

• The consolidated statement shows net income from operations of $5.170 million
and total net loss of $6.701 million. The major difference between these two
numbers is accounted for by subtracting interest expense of $14.284 million.

• The parent company statement shows net loss of $35.405 million before an off-set
of other income of $2.68 million. Parent company financials show a net loss of
$32.718 million.

• The difference between the two different presentations of net income amounts to
just over $26.0 million.

• In order for IEAM to report a consolidated loss of only $6.7 million versus $32.7
million at the parent company level, the implication is that all of the subsidiaries
would need to have produced net income of $26.0 million.

The financial records of the Company’s operating subsidiaries do not support that
contention.

PPO Results - January 2006 to December 2006.

As noted previously, PPO absorbed the operations of Unifide and Today’s Way on an
operational basis as of January 2006. However, the accounting systems were not integrated until
January 2007. Consequently, the only numbers we have been able to review for PPO prior to
January 2007 are disaggregated into PPO and Unifide.

PPO’s summary income statement for calendar 2006 follows:

FIRST AMENDED DISCLOSURE STATEMENT 33


Table I – Historical Financials
Pitt Penn Oil Co., LLC
March June September December
For the quarter ending: 2006 2006 2006 2006

Sales 5,069,564 9,002,534 7,607,093 8,277,187

COGS 5,343,825 5,413,538 6,139,956 6,964,960

Gross Profit (274,261) 3,588,996 1,467,138 1,312,226


-5% 40% 19% 16%

Overhead 1,523,345 2,858,378 2,509,077 2,328,744


30% 32% 33% 28%

Pre-Tax Income (1,797,606) 730,618 (1,041,940) (1,016,518)


-35% 8% -14% -12%

As noted above, PPO’s Pre-Tax Income reflected a $1 million loss for the quarters ended
September 2006 and December 2006 respectively. Debtors cannot reconcile these pre-tax losses
when considered in conjunction with the Unifide financial statement presented below.

Unifide Results – January 2006 to December 2006.

Unifide’s summary income statement for calendar 2006 follows:


Table II – Historical Financials
Unifide Industries, LLC
March June September December
For the quarter ending: 2006 2006 2006 2006

Sales 3,050,910 3,165,485 3,123,910 6,028,424

COGS 2,201,418 2,797,321 1,484,903 4,262,415

Gross Profit 849,492 368,164 1,639,007 1,766,009


28% 12% 52% 29%

Overhead 949,041 1,024,493 899,986 753,546


31% 32% 29% 12%

Pre-Tax Income (99,549) (656,329) 739,021 1,012,463


-3% -21% 24% 17%

FIRST AMENDED DISCLOSURE STATEMENT 34


Prior to the consolidation, Unifide’s pre-tax income was $995,000. Debtors do not have
a basis to reflect a consolidated financial statement for any period prior to January 2007.
However, if the Debtors accepted these documents at face, and assumed no intercompany
transactions, the cumulative pre-tax results for these two entities would show a loss of
approximately $307,000 for the six months ended December 2006 versus the approximately
$8 million of EBITDA reflected for same period by the parent’s consolidated statements and
public pronouncements. Consequently, the gap would have had to been made up by pre-tax
profits from the Parent and/or EMC. The Debtors’ review of records suggests that such a profit
does not exist.

PPO/Unifide Consolidated Results – January 2007 to September 2008.

A new executive, R. Daniel Redmond, was hired in the spring 2007. He became both
Executive VP of parent and president and Chief Operating Officer (COO) of PPO. He was
subsequently named president and COO of IEAM as well. It appears that under his direction the
accounting for PPO and Unifide were finally consolidated for the period beginning January
2007. Despite the fact that parent and subs are on a June fiscal year, inexplicably the
consolidation was not done for the quarters beginning July 1, 2006 and October 1, 2006.

PPO/Unifide’s consolidated summary income statements for the periods January 2007 to
December 2007 and January 2008 to September 2008 follows:

Table IIIa – Historical Financials


Pitt Penn Oil Co., LLC
March June September December
For the quarter ending: 2007 2007 2007 2007

Sales 11,022,161 7,276,497 7,348,038 7,948,479

COGS 11,764,717 6,698,865 7,230,484 6,380,271

Gross Profit (742,557) 577,632 117,554 1,568,208


-7% 8% 2% 20%

Overhead 1,784,653 2,078,883 1,329,685 1,976,950


16% 29% 18% 25%

Pre-Tax Income (2,527,210) (1,501,252) (1,212,131) (408,742)


-23% -21% -16% -5%

The data presented above, removes the question of intercompany transactions for the
quarter ended March 2007 (the last financial period reported to the SEC). The major operating
entity of the Parent shows a pre-tax loss of $2.5 million suggesting that an additional
$5.5 million was earned between the operations of the parent and EMC. Again, the Debtors’
review of records suggests that such a profit does not exist.

FIRST AMENDED DISCLOSURE STATEMENT 35


Table IIIb – Historical Financials
Pitt Penn Oil Co., LLC
March June September
For the quarter ending: 2008 2008 2008

Sales 6,132,078 4,579,694 2,120,036

COGS 5,681,845 4,757,524 2,830,066

Gross Profit 450,233 (177,830) (710,030)


7% -4% -33%

Overhead 1,572,771 1,534,954 1,413,358


26% 34% 67%

Pre-Tax Income (1,122,538) (1,712,784) (2,123,388)


-18% -37% -100%

Further, parent pronouncements and comments by prior PPO management suggesting


that PPO was generating positive operating cash flow are not supported by actual results as
derived from the Great Plains accounting system.

• Estimated capital structure as per subsidiary records

Prior to taking control on September 12, 2008 current PPH management was of the
opinion that it would be possible to restore PPH to profitability through a combination of
(1) significant, sustained expense reduction; (2) the injection of temporary working capital
through a protected $3.0 million purchase money line and an early-2009 injection of up to
$4.0 million equity at either the parent or PPH level through a rights offering to current
shareholders backstopped with a standby commitment by one or more of six entities who
collectively had owned up to 60.0% of parent (whose market value had reached over
$100.0 million in late-2006, early-2007). In the Debtors’ view, this would have allowed for the
refinancing and expansion of the current credit line.

A combination of factors has made this impossible. The Lehman bankruptcy, which
occurred on September 14, 2008, has led to the freezing of the credit markets and other macro
events. As importantly, the Debtors’ review of internal documents, many of which were not
available during the due diligence process, have put a different color on the financial results of
both parent and PPO.

Based on this significant and serious disconnect between results attributed nominally to
parent and more substantially to PPO, PPH management’s assessment of PPO’s financial
condition combined with the lender’s actions, determined that the best course of action to protect
creditors and preserve collateral was to mothball the plant.

FIRST AMENDED DISCLOSURE STATEMENT 36


• Parent company only records as per September 2008 IEAM QuickBooks file

Although IEAM has presented its financial statements and filed its financial results with
the SEC, the internal records that have been turned over to the present management are
extraordinarily deficient. The former management, under the leadership of Messrs. John D.
Mazzuto and James W. Margulies, appear to have never filed a federal or state tax return for any
of the entities since they assumed management control on October 7, 2004. The books and
records of the major operating subsidiary, Pitt Penn Oil (100% owned by PPH), does not support
the public statements of prior management.

In reviewing the QuickBooks files for IEAM for the period October 2004 through
June 30, 2007, IEAM’s parent company books recorded the following:

• Revenues None
• Total Expenses $83,706,441.35
• Net Ordinary Loss $83,706,441.35
• Other Income $3,013,256.66
• Total Other Expense $10,561,729.27
• Net Other Loss $7,548,472.61
• Net Loss $91,254,913.96

Based on the same records, parent IEAM recorded the following net losses by fiscal year:

FY 2005 loss $14,960,408.92


FY 2006 loss $ 6,738,999.73
FY 2007 loss $69,609,851.20

Of the total $83.7 million of expenses, the major categories which were identified were as
follows:

• Acquisition Costs $6,262,156.50


• Amortization Expense $5,791,564.24 (of which $4.7 million was
attributed to consulting
contracts)
• Consultant Expense $29,929,755.84
• Total Interest Expense $24,314,927.19
• Officer Compensation $11,457,097.70
• Legal Fees $ 3,110,794.57

A further review of IEAM parent company only data illustrates that while the
QuickBooks records indicate total expenses of $83.7 million, payments to identified vendors
total only $41.0 million. Expenses attributed to the ten largest “vendors” in QuickBooks totaled
$36.4 million. Those “vendors” were as follows:

FIRST AMENDED DISCLOSURE STATEMENT 37


John Mazzuto 13,487,670.99
River Valley Asset Management LLC 7,820,426.00
Regal Partners, Inc. 4,379,993.73
Randall Rosenthal 3,324,670.00
Sapphire Associates LLC 1,787,958.33
James Margulies 1,424,611.40
Jeffrey M. Levinson 1,216,807.00
Mitch Seifert 1,181,708.00
Brian Corbman 1,167,867.96
LNG Consulting 660,184.09
Sub-Total - Top 10 36,451,897.50

Many of these expenses appear to have been attributed to “consulting” contracts or


“equity development fees” on the QuickBooks entries. The current management has not been
able to locate “consulting” contracts which would support these expenses. Some of these
expenses may be attributable to issuance of freely trading shares under an S-8 registration
statement as consulting fees. As previously disclosed, current management is questioning the
bona fides of $87.3 million of said issuances. All of those issuances, save one, appear to have
been done at the instruction of either John D. Mazzuto or James W. Margulies in various
capacities. The other issuance was done at the written instruction of Randall Rosenthal, who was
identified as a paralegal at the law firm of Margulies and Levinson.

The timing and the amounts of issuances, including the disputed S-8 issuances, are shown
in the table which follows:

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

FIRST AMENDED DISCLOSURE STATEMENT 38


The current management has identified all of the recipients of securities. The Debtors
have commenced five adversary proceedings in the Bankruptcy Court seeking the return of the
proceeds of sale of the improperly issued securities.

In addition, the Debtors have sought the return of over $1.7 million from the proceeds of
common stock issued to Yale University and $1.5 million issued to Tabor Academy at the
instruction of John D. Mazzuto. Mr. Mazzuto is a graduate of both Yale and Tabor.

Current management has also advised broker/dealers and clearing firms who received
these freely trading shares of these issuances. The Debtors are examining their potential liability
as being part of an improper distribution of securities under the federal securities laws.

FIRST AMENDED DISCLOSURE STATEMENT 39


5. Government Regulation.

With respect to government regulation, IEAM’s amended 10-K for the year-ended
June 30, 2006, which was filed on December 28, 2007, made the following assertion:

IEAM believes that it is currently in material compliance with all relevant


federal, state, and local environmental regulations, and does not expect to
incur any significant costs to maintain compliance with the regulations in
the foreseeable future. IEAM is subject to the rules and regulations of
United States Occupational Safety and Health Administration (OSHA),
and the United States Department of Transportation (DOT). Among other
things, these regulatory authorities impose requirements which regulate
the handling, packaging, labeling, transportation and disposal of hazardous
and non-hazardous materials and the health and safety of workers, and
require us, and, in certain instances our employees, to obtain and maintain
licenses in connection with our operations. IEAM is also subject to
regulations adopted by the United States Department of Transportation
which classify most refrigerants as hazardous materials or substances and
impose requirements for handling, packaging and transporting
refrigerants. In addition, the Environmental Protection Agency performs
regular, routine reviews of the business of each of our subsidiaries.

During the course of the Debtors’ review of operations at EMC prior to making a
decision to cease operations and vacate the facility, the Debtors noted there were some
unresolved issues at EMC prior to its acquisition by IEAM in October 2004.

6. Employees.

With respect to employees, IEAM’s amended 10-K for the year-ended June 30, 2006,
which was filed on December 28, 2007, made the following assertion:

IEAM currently employs approximately 90 full time people, including two


senior managers, consisting of approximately 15 employees at EMC,
approximately 65 at the Pitt Penn Group and approximately 10 employees
at Unifide and Todays Way. None of the employees of our company or
our subsidiaries are covered by a collective bargaining agreement, and we
believe our employee relations are good.

As of December 31, 2008 IEAM had placed its manufacturing operations on hiatus. The
Company and its subsidiaries maintained a skeleton staff of four employees until September 18,
2009. They also used the services of certain former employees on an as needed part time basis.
On September 18, 2009, Michael Dignazio (who was then VP Finance and Corporate Secretary
of each of the entities) announced his immediate resignation. He continued to assist in the
transition as a part time consultant until late-January 2010. The Company continued with one
full time employee, Robert L. Renck, Jr., its President and CEO. Mr. Renck has deferred his
contractual compensation through January 31, 2010. The Debtors are using the part time

FIRST AMENDED DISCLOSURE STATEMENT 40


services of two former employees to assist in the preparation of accounting reports, insurance
claims and recovery, and other administrative tasks since October 1, 2009.

The Debtors will evaluate their employment needs on an ongoing basis particularly after
they determine the extent of damages and insurance and other recovery at its Creighton PA
manufacturing facility. Management continues to have orders filled at its FFD subsidiary by
Spray Manufacturing. The Debtors are evaluating their capital needs and intend to raise
sufficient capital to finalize Underwriters Laboratory approval and expand marketing of the
product line.

J. Events that Led to the Bankruptcy Filing.

As noted above, prior to taking control on September 12, 2008 current PPH management
was of the opinion that it would be possible to restore PPH to profitability through a combination
of (1) significant, sustained expense reduction; (2) the injection of temporary working capital
through a protected $3.0 million purchase money line and an early-2009 injection of up to
$4.0 million equity at either the parent or PPH level through a rights offering to current
shareholders backstopped with a standby commitment by one or more of six entities who
collectively had owned up to 60.0% of parent (whose market value had reached over
$100.0 million in late-2006, early-2007). In the Debtors’ view, this would have allowed for the
refinancing and expansion of the current credit line.

Those plans were rendered moot when Sovereign Bank foreclosed on the note in late-
October 2008. The proximate cause was IEAM’s failure to file a Form 10-K for FY 2007. That
was a condition of both the original loan and the forbearance agreements signed during calendar
2008 by Mr. Margulies.

As a result of these actions, manufacturing at the Debtors’ facilities were put on hiatus
while management of PPH actively solicited prospective buyers or manufacturing partners. In its
discussions with potential operators, management determined that PPO’s facilities had certain
appeal.

November 2008 Creighton Facility Analysis

Despite the obvious gap between published reports and the underlying reality reflected in
the accounting records, the production capacity of the Creighton facility and its location has
continued to be the primary attraction to prospective buyers.

Based upon our examination of the underlying accounting records, customer and supplier
records, and preliminary conversations with various interested parties within and outside the
industry our preliminary conclusions are as follows:

• The operations of PPO have been burdened by excessive costs at parent and at the
operating level. Particularly in the areas of management and sales management.

FIRST AMENDED DISCLOSURE STATEMENT 41


• Exempt salaries represented an annualized burden of over $4.9 million at PPO
and EMC as of June 30, 2008.

• A good operator would be in a position to eliminate burdens attributable to parent.

• A good operator is capable of operating manufacturing and sales at far lower


levels of compensation.

• An operator with other facilities would achieve further synergies by reducing PPO
to a sole function as a manufacturing facility.

• Much of the value ascribed to PPO comes from the location of the facility and
most importantly the access to rail transportation and the ability to receive
shipments by barge.

• Location and access to water and rail lines also assists in the shipment process.

• The industry is local by nature; it is estimated that the maximum effective


shipping radius for traditional customers is within 250 miles.

• To industry participants, whose facilities are outside the natural shipping radius,
the maintenance of customer accounts may be an asset.

Expressions of Interest

In their capacity as representatives of the major shareholders of parent, and prior to


September 12, 2008, current executive management of PPH has received a wide range of
inquiries, discussions and comments. The interested parties have been (1) financial investors,
(2) private equity firms, (3) major public companies, (4) executives of public companies, (5)
private businesses, and (6) trade competitors among others. Their overall objectives were
focused on creating value at parent through PPO.

Since assuming their positions at PPH on September 12, 2008 the current management
has fielded new inquiries from various parties and made contact with every single caller who has
expressed an interest in PPO. Because of PPO’s status as the major asset of a public corporation
which is not current in its filings with the SEC, PPH management was not been in a position to
actively explore the level of interest by third parties with respect to the sale of the PPO asset.

During the period November 1, 2008 through March 2009 PPH management had
extensive conversations with more than ten qualified operators or buyers who had some degree
of interest in purchasing or operating the facility. Among the considerations was the facility’s
status, the grandfathering with respect to certain building regulations, the availability of its
manufacturing lines, and the best way to utilize the net operating loss carry forward available at
both parent and PPO.

FIRST AMENDED DISCLOSURE STATEMENT 42


As a result of the actions of its lender, Sovereign Bank, PPO had fallen behind on lease
payments to both Allstate and GSL. By late-March 2009, PPH was in advanced stages of
negotiations to have Spray Products, a privately owned aerosol producer, take over the
manufacturing of motor oils at its Creighton facilities. In addition, it would enter into filling
contracts for the company’s aerosol customers formerly serviced by either EMC or a third party
contractor, Koki Labs of Akron Ohio. Spray Products was also in a position to manufacture and
fulfill orders for its FFD subsidiary which is not in bankruptcy.

Prior management’s failure to maintain an adequate system of controls created a situation


whereby GSL was in a position to file a replevin action. GSL’s replevin action filed in
April 2009 allowed GSL to seize and take control of the Creighton facility and became the
proximate cause of the bankruptcy filing.

Despite IEAM’s public statements that it had consolidated and streamlined operations,
former executive management at IEAM failed to consolidate the company’s three separate
accounting systems. This failure and the continued refusal of James Margulies to turn over
corporate records to the Governance Committee, beginning in late-2008 and since he advised the
Board of his intent to resign on March 8, 2009 has damaged the corporation in many respects.

• There were no accounting entries on the books of Pitt Penn Oil which reflected a
loan from GSL. Despite the fact that its public statements and filings suggested
the company was (1) cash flow positive, (2) engaged in a stock repurchase
program, and (3) free of all long-term debt as of June 30, 2007; the management
of IEAM entered into a loan agreement with GSL wherein it pledged
approximately $1.1 million of production and office equipment as security for a
$760,000 loan bearing interest at 14.0%. GSL was also given an equity kicker to
make this loan. Senior management of IEAM had characterized this loan as a
lease on the books of Pitt Penn Oil.

• PPO did not possess a copy of the GSL loan document, which was dated as of
April 7, 2007. The loan document had been executed on or about October 2007
by James Margulies in his capacity as Corporate Secretary. Since Mr. Margulies
has not returned the company’s original financial and corporate records, current
management cannot determine if the loan was entered on the books of parent.
Further, it cannot verify from the financial information available to it whether or
not IEAM or PPO received the proceeds of the GSL loan. Neither Mr. Margulies
nor GSL has provided copies of the wire transfer.

• The fact that this was a loan, not a lease, gave GSL certain rights it would not
have had as a lease. In the event that a company chooses to file for protection
under chapter 11, it has the right to accept or reject leases. If it chooses to accept
a lease, it needs to bring the lease current and make all future payments. PPH
made a fully funded offer to cure the lease and late-April 2009. That offer was
rejected by GSL. Under the terms of its loan agreement, GSL had the right to sell
the collateral in a public auction to recover its secured position. GSL had taken
control of the company’s facilities on Friday April 3rd. PPH had received reports

FIRST AMENDED DISCLOSURE STATEMENT 43


equipment and other items had been removed from the facility between that date
and the filing of the bankruptcy. Even after the filing of the bankruptcy, GSL
continued to remove equipment and other items from the facility. As of this date,
GSL or its agents are in control of the facility.

In addition to the operational issues which are affecting PPH, PPO, and EMC, parent
company, IEAM, had been involved in significant litigation which had drained corporate
resources. The existence of that litigation and, in many cases, the failure of prior management to
provide case files was a primary factor in deciding to file a petition for bankruptcy for IEAM.
On May 29, 2009 Debtors filed a report with the SEC on Form 8-K in which it discussed the
status of that litigation.

1. Litigation.

The Company is managing various litigations involving the Company and its subsidiaries
in various courts throughout the country. These litigations fall into three basic categories:
abandoned by prior management, contested, and bankruptcy-related.

The defense of certain lawsuits was effectively abandoned by prior management after the
withdrawal of representation by a law firm as of December 14, 2007.

a. Zyskind Action.

In 2004, Beryl Zyskind (“Zyskind”) loaned the Company a total of $100,000.00. This
loan was memorialized in four notes. Each note was convertible into the Company’s common
stock. Zyskind alleges that the Company refused to comply with the terms of the notes, and
refused to convert them into the Company’s common stock. Zyskind therefore filed a lawsuit
captioned Zyskind v. Industrial Enterprises of America, Inc., New York County, NY Supreme
Court Index No. 602523/2006. On March 3, 2009, the Court entered an order (the “Zyskind
Judgment”) awarding Zyskind 121,500,280 shares of the Company’s common stock, along with
approximately $8.3 million in cash. The Company has sought reargument of the March 3, 2009
Order because, inter alia, the Company believes that Zyskind could not have recovered more
than $1,314,955.70 under the terms of the notes. The Company has also filed an appeal. Mr.
Zyskind filed a proof of claim against IEAM in the amount of $10,758,463.30. In addition he
filed a proof of claim for 120.5 million shares of IEAM common. IEAM disputes his claim.

The foregoing Claims and disputes have been resolved by letter agreement dated April 7,
2010 between and among the Debtors, the DIP Lenders and Zyskind (the “Zyskind Settlement”),
providing that, among other things, Zyskind be granted an Allowed General Unsecured Claim in
the amount of $5,500,000.00 (the “Allowed Zyskind Claim”) in full and final satisfaction of his
Claims against the Debtors, and in exchange for his return of all shares of stock in IEAM issued
to him pursuant to the Zyskind Judgment, less any shares sold prior to the date of execution of
the Zyskind Settlement. To the extent necessary, the Plan will constitute a motion for approval
of the Zyskind Settlement in accordance with the applicable provisions of the Bankruptcy Code.

FIRST AMENDED DISCLOSURE STATEMENT 44


b. Goldknopf Action.

IEAM was named as a defendant in an action brought in the 157th Judicial District Court
of Harris County, Texas, which trial occurred on April 7, 2009. The case is captioned Ira L.
Goldknopf v. Industrial Enterprises of America, Inc., John Mazzuto, Regal Partners, Inc. and
Crawford Shaw. Following the trial, the court award judgment for Goldknopf and against the
Company as follows: (i) Goldknopf was awarded $365,492.12 in past due principal and interest
on a note executed by the Company to Goldknopf; (ii) Goldknopf was awarded $113,427.91 on
credit card charges Goldknopf had paid or still owes that had not been reimbursed by the
Company; (iii) Goldknopf was awarded $6,000 for payments made on a loan owed by the
Company; (iv) the court found that Goldknopf was entitled to reimbursement for any amounts he
may pay in the future on the foregoing loan; and (v) Goldknopf was awarded attorney fees of
which $22,500 was awarded against the Company. Mr. Goldknopf has filed a proof of claim
against IEAM in the amount of $761,417.73. The present management has not had an
opportunity to review any of the underlying documents in this case. Upon the completion of its
review, IEAM will determine whether it will dispute his claim.

c. Margulis Action.

On February 27, 2008, Barry Margulis filed suit against the Company in the New York
Supreme Court, County of New York, seeking approximately $848,408 on a promissory note.
After settlement talks failed, the Company did not contest this suit. The court granted
Mr. Margulis a default judgment on June 4, 2008, in the amount of $853,834.76. Mr. Margulis
has filed a proof of claim against IEAM in the amount of $1,414,309.38. The present
management of IEAM is reviewing this claim. The promissory note stems from the purchase of
stock from Mr. Margulis under a ”buyback” program. The terms of the purchase included a
private sale at an approximate 20.0% premium to market, an apparent contradiction of SEC
regulations covering buybacks. IEAM disputes his claim.

2. Contested litigation.

a. Trinity Bui Action.

On January 23, 2008, Trinity Bui and her investment company filed suit in United States
District Court, Southern District of New York, against the Company, Beckstead and Watts, LLP,
John Mazzuto, James Margulies, Dennis O’Neill, and Jorge Yepes in connection with certain
securities of the Company issued to Trinity Bui’s investment company, seeking approximately
$2.5 million in damages. The Company, James Margulies, and Dennis O’Neill filed a motion to
dismiss on May 9, 2008, which was later joined by John Mazzuto. Trinity Bui filed an amended
complaint on or about October 31, 2008, to which the court applied the previously-filed motions
to dismiss. On January 15, 2009, the court granted the motion to dismiss the amended complaint
with prejudice as to the Company, James Margulies, Dennis O’Neill, and James Mazzuto,
dismissed the complaint without prejudice as to the other defendants, and directed the clerk of
the court to close the case.

FIRST AMENDED DISCLOSURE STATEMENT 45


b. Black Nickel Actions.

On April 30, 2008, Black Nickel Vision Fund, LLC (“Black Nickel”) filed suit against
the Company in the New York Supreme Court, Count of New York, for alleged breaches of a
Loan and Purchase Agreement, seeking the issuance of 1,500,000 shares of Company common
stock plus $750,000 plus interest. The Company subsequently issued 1,500,000 shares of
common stock to Black Nickel on or about May 12, 2008. Black Nickel then moved for
summary judgment on July 3, 2008. The Company opposed the motion for summary judgment.

On August 15, 2008, Black Nickel filed a second suit against the Company and
Sovereign Bank in the New York Supreme Court, Count of New York, for specific performance
of certain provisions of a note issued in connection with the Loan and Purchase Agreement.
Black Nickel subsequently brought a motion by order to show cause seeking a preliminary
injunction enjoining the Company from further encumbering the manufacturing facility in East
Deer Township, Pennsylvania. The Company and Sovereign Bank opposed the motion for a
preliminary injunction, and Sovereign Bank subsequently brought a motion to dismiss as to
Sovereign Bank.

On February 10, 2009, the court issued decisions in both Black Nickel lawsuits. As to
the first suit, the court denied Black Nickel’s motion for summary judgment. As to the second
suit, the court denied Black Nickel’s motion for a preliminary injunction, and granted Sovereign
Bank’s motion to dismiss. Black Nickel has filed a notice of appeal as to the court’s dismissal of
Sovereign Bank. On April 14, 2009, the court referred both Black Nickel suits to a mediator
assigned by the Alternative Dispute Resolution Program of the Commercial Division. The
Company believes that it has adequate defenses to both Black Nickel suits and is vigorously
defending these matters. This action is stayed as to IEAM pursuant to the Bankruptcy Code.
Black Nickel has not filed a proof of claim.

c. EMC New Jersey Litigation.

The Company, along with its subsidiary, EMC, is named as a defendant in an action for
breach of an employment agreement (against EMC only), replevin and conversion. The action
was filed and is currently pending in the Superior Court of the State of New Jersey, Ocean
County. EMC has filed counterclaims and third-party claims. The case is captioned Cannan,
et al. v. EMC Packaging Inc., et al., Docket No. OCN-L-3559-08. In their complaint, the
plaintiffs, George Cannan and EMC Aerosol LLC, seek possession of certain cylinders of
refrigerant gas which they claim to have purchased from EMC for a total purchase price of
$450,000, which was paid to the Company. Plaintiffs alternatively seek money damages against
EMC and the Company. EMC and the Company deny that the Plaintiffs are entitled to either
these cylinders or money damages. EMC is currently enjoined from transferring or removing
any of the remaining cylinders from their warehouse location, unless EMC deposits in escrow, a
specified sum per cylinder sought to be transferred or removed. Plaintiff George Cannan is a
former employee and officer of EMC and the complaint includes a wrongful termination claim
brought on his behalf against EMC. EMC denies all liability for that claim and maintains that
Mr. Cannan was an at-will employee who was nevertheless terminated for cause under his
written employment agreement. EMC has filed counterclaims against Plaintiffs and third-party

FIRST AMENDED DISCLOSURE STATEMENT 46


claims against another former employee and officer, Caroline Costante, as well as EMC’s former
landlord, JS Realty LLC (owned by Mr. Cannan and Ms. Costante) and Mr. Cannan’s two
children, George Cannan, Jr. and Stacy Cannan. Those claims include claims of fraud, breach of
fiduciary duty, conversion, breach of employment agreements and unjust enrichment. EMC is
vigorously defending the action in the Bankruptcy Court and pursuing EMC’s claims. The
action is still in the early stages of discovery.

d. Securities Class Action.

The Company was named as a defendant in a securities law class action brought in the
federal court for the Southern District of New York in November 2007. The case is captioned
Mallozzi v. Industrial Enterprises of America, Inc., et al., Case No.: 07- CV-10321. The case
was filed by a purported class of persons who purchased the Company’s common stock during
the period December 4, 2006 through November 7, 2007. Plaintiffs allege that the Company and
its co-defendants (several of the Company’s officers who are no longer with the Company) made
fraudulent misrepresentations and omissions about the Company’s financial condition that
caused the plaintiffs to purchase the Company’s stock and to suffer damages. The Company
filed a motion to dismiss those claims, and prior to a Court ruling on the motion to dismiss, the
parties agreed to settle the case for $3.8 million, with the proceeds of the settlement being paid to
plaintiffs by the Company’s insurer. On April 16, 2009, the Southern District of New York
preliminarily approved that settlement and directed that notice of the settlement be sent to class
members. A final hearing on the proposed settlement was scheduled for July 29, 2009. On
May 1, 2009, the Company filed for bankruptcy under Chapter 11 of the Federal Bankruptcy
Code.

The proposed settlement had an “opt-out clause.” Under the terms of that clause, if more
than 1.0 million share of the common opted out of the settlement (to preserve their right of
private action), any one of the defendants could terminate the settlement. Some 9.0 million
shares (out of an estimated 25.0 million eligible for settlement) elected to do so. Under the terms
of the settlement, settling shareholders would have received just over $0.10 per share and given
up their rights to recover against the individual defendants as well as related professionals.

Based upon the large number of opt-outs, counsel for Dennis O’Neill, a former CFO,
exercised his right to terminate the settlement. After that election the matter was referred to
magistrate’s court in the Southern District of New York to renew settlement discussions. Said
discussions terminated. The case has been re-filed on behalf of a truncated class.

This action is stayed as to IEAM pursuant to the Bankruptcy Code. A proof of claim in
the amount of $50,000,000 has been filed against IEAM. The Company disputes this claim.

3. Cooperation with Regulatory Authority/Law Enforcement.

In or around February 2008, the Company received a request to provide voluntary


information from the SEC. The SEC’s request related, in part, to certain “Bill and Hold”
transactions and the accounting treatment provided by prior management therefore (see prior
disclosures dated October 15, 2007 and November 7, 2007). The Company has been cooperating

FIRST AMENDED DISCLOSURE STATEMENT 47


fully and to the best of its ability with this request and voluntarily providing information. It is
the express policy of the Company to cooperate fully with any and all appropriate inquiries by
regulatory authorities.
On or about April 27, 2009, the Company received a Grand Jury subpoena from the New
York County (N.Y.) District Attorney’s Office (the “Manhattan DA”) seeking documents and
records relating to a broad range of the Company’s finances and issuances of securities. The
Company is endeavoring to comply with the subpoena and cooperate with the Manhattan DA
fully. It is the express policy of the Company to cooperate to the fullest extent appropriate with
law enforcement.

4. Indictments of former executive officers- John Mazzuto and James W.


Margulies.

On Tuesday May 25, 2010, Manhattan District Attorney Cyrus R. Vance, Jr., announced
the indictment against JOHN D. MAZZUTO, a corporate executive, and JAMES W.
MARGULIES, an attorney, for illegally issuing shares of stock to enrich themselves and others,
and for engaging in fraudulent activity to inflate the stock's value and deceive investors.12 The
defendants were charged with Grand Larceny, Scheme to Defraud, Conspiracy, Falsifying
Business Records, and violations of the Martin Act (New York State's securities fraud law). The
crimes charged in the indictment occurred between 2004 and 2008 and relate to Industrial
Enterprises of America, Inc. ("IEAM"), a public holding corporation located in Manhattan. The
defendants illegally issued millions of shares of stock in IEAM to family, friends, and close
associates, and engaged in myriad fraudulent activities in their scheme to steal more than $60
million. The defendants stole from the corporation and legitimate investors, and engaged in a
variety of fraudulent accounting and securities practices to disguise the theft and pump up the
value of the stock.

K. Chapter 11 Cases.

1. Initial Events in Bankruptcy.

On May 1, 2009, the Company filed a voluntary petition for relief under Chapter 11 of
the Bankruptcy Code in the Bankruptcy Court under Case No. 09-11508. On April 30, 2009,
PPH, a Delaware Corporation, and PPO, an Ohio limited liability company, each filed a
voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court
under Case Nos. 09-11475 and 09-11476, respectively. On May 4, 2009, EMC, a Delaware
corporation, filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the
Bankruptcy Court under Case No. 09-11524. On May 6, 2009, Unifide, a New Jersey limited
liability company, and Today’s Way, a New Jersey limited liability company, each filed a
voluntary petition for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court
under Case Nos. 09-11587 and 09-11586, respectively. PPH, PPO, EMC, Unified, and Today’s
Way are each subsidiaries (the “Subsidiaries”) of the Company.

12
The DA's Office press release is available here:
http://www.manhattanda.org/whatsnew/press/2010-05-25.shtml

FIRST AMENDED DISCLOSURE STATEMENT 48


The Company and its co-debtor Subsidiaries have sought the protection of the
Bankruptcy Code. The purpose of the chapter 11 filing is to reorganize the Debtors so that they
can operate profitably and resolve issues with their creditors. This endeavor includes, but is not
limited to, integrating corporate governance and accounting, gathering the books and records of
the Company and its Subsidiaries, arranging financing for operations going forward, and
assessing corporate assets and liabilities.
The Company and its Subsidiaries intend to continue to manage their properties and
operate their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy
Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the
Bankruptcy Court.

2. Events Occurring in the Bankruptcy Case – DIP Financing, Avoiding


Conversion, Plan Filing.

a. Joint Administration.
The Honorable Brendan L. Shannon is presiding over the Debtors’ bankruptcy cases.
The Bankruptcy Court entered an order of joint administration of the Debtors’ cases on May 11,
2009 (D.I. 21). Accordingly, these cases have been procedurally consolidated into the Pitt Penn
Holding Company, Inc. Bankruptcy Case No. 09-11475 (BLS).

b. Retention of Professionals.

The Court has approved the Debtors’ retention of the following professionals pursuant to
11 U.S.C. § 327:

1. Pace Reich, P.C., general bankruptcy counsel, Order


entered July 2, 2009 (D.I. 130);

2. Loizides, P.A., Delaware bankruptcy counsel, Order


entered July 2, 2009 (D.I. 129);

3. Cozen & O’Connor, special litigation counsel, Order


entered July 7, 2009 (D.I. 136);

4. Thompson, Alexander & Forrester, LLP, special securities


litigation counsel, Order entered February 16, 2010
(D.I. 349); and

5. Brian Weller, insurance adjuster, Order entered


February 16, 2010 (D.I. 346)
The Court has approved procedures for the approval of fee and expense requests of
professionals retained pursuant to 11 U.S.C. § 327. See Order entered July 7, 2009 (D.I. 138).

FIRST AMENDED DISCLOSURE STATEMENT 49


In addition, by Order entered July 17, 2009 (D.I. 143), the Bankruptcy Court approved
procedures for the employment and compensation of ordinary course professionals, subject to a
fee cap of no more than $15,000 per month. The following professionals have been retained
pursuant to such Order:

1. Mandelbaum Salsburg, New Jersey litigation counsel, as of


July 21, 2009;

2. Ganfer & Shore, general corporate counsel, as of July 31,


2009;

3. Cohen & Grigsby PC, Pennsylvania litigation counsel, as of


July 31, 2009; and

4. Peckar & Abramson PC, New York litigation counsel, as of


February 15, 2010

c. Debtor in Possession Financing and Use of Cash Collateral.

1. The First DIP Facility.


The Debtors sought to approve emergency debtor-in-possession financing by motion
dated May 28, 2009 and for use of cash collateral from Omtammot LLC (the “First DIP
Facility”) by motions dated May 28, 2009 (D.I. 56, 57). The Debtors sought to borrow up to
$300,000 under the First DIP Facility on a superpriority basis under 11 U.S.C. § 364(c)(1). The
Bankruptcy Court approved the use of interim financing under the First DIP Facility by order
dated June 4, 2009 (D.I. 76). By Order dated September 1, 2009 (D.I. 192), the Bankruptcy
Court approved the First DIP Facility on a permanent basis.

Debtors’ authority to borrow and to use cash collateral under the First DIP Facility
expired was originally scheduled to expire on August 31, 2009. By Order dated September 28,
2009 (D.I. 219), the Debtors’ authority to use cash collateral and to borrow under the First DIP
Facility was extended through December 31, 2009. In addition, by Order dated September 28,
2009, the Bankruptcy Court approved a carve-out of Omtammot LLC’s superpriority claim in
favor of professional fees. The Debtors have borrowed 100% of the availability under the First
DIP Facility, the proceeds of which were used to finance the administration of these bankruptcy
cases.

2. The Second DIP Facility.


By motion dated January 25, 2010 (D.I. 322), the Debtors sought Bankruptcy Court
approval on an interim and permanent basis of additional DIP Financing from Omtammot LLC
(the “Second DIP Facility”) on a superpriority basis with limited priming liens under 11 U.S.C.
§§ 364(c). The Second DIP Facility permitted Debtors to borrow up to $150,000 on an interim
basis and up to $500,000 on a final basis, with the understanding that the $500,000 cap could be
increased to $1,500,000. The Bankruptcy Court approved the Second DIP Facility on an interim

FIRST AMENDED DISCLOSURE STATEMENT 50


basis by Order dated January 28, 2010 (D.I. 329) and on a final basis by Order dated
February 16, 2010 (D.I. 347).

d. GSL and Atlas Stay Relief Motions.


GSL filed a motion for relief from the automatic stay (filed in in re Pitt Penn Oil
Company, LLC, Case No. 09-11476 (BLS) on May 8, 2009; D.I. 18) in order to take possession
and sell certain of its alleged collateral located at the Debtors’ facility in Creighton,
Pennsylvania. The GSL stay relief motion was granted by Memorandum Order dated May 26,
2009 (D.I. 54). It is the Debtors’ contention that GSL improperly took control and possession of
the Debtors’ Creighton facility and has commenced an adversary action against GSL for
damages and injunctive relief. GSL contests the Debtors’ position.

Atlas Waste Paper Corporation also requested relief from the automatic stay by motion
dated June 9, 2009 (D.I. 84) in order to recover certain equipment. The Debtors consented to the
relief requested as reflected in the consensual Order dated July 7, 2009 (D.I. 133).

e. Allstate Lease.
Debtor Pitt Penn Oil Company LLC (“PPO”) assumed a lease of a certain boiler with
Allstate Leasing, Inc. and Allstate Equipment Leasing (collectively, “Allstate”) by Order dated
September 1, 2009 (D.I. 193). The rental payments under the Allstate lease are $2,012.94 per
month. Allstate subsequently filed a motion to enforce its rights under the boiler lease and was
awarded damages. PPO is now current under the Allstate lease.

f. Schedules, SOFAs and MORs.


Following an extension of the deadline to file their schedules and statements of financial
affairs, the Debtors filed these documents on June 1, 2009. The Debtors have also continued to
file their monthly operating reports.

g. Bar Date and Claims Agent.


By Order dated July 7, 2009 (D.I. 134), the Bankruptcy Court established September 8,
2009 as the deadline to file proofs of claim, and November 2, 2009 as the deadline for
governmental units to file proofs of claim. By Order dated July 7, 2009 (D.I. 135), Pace Reich,
P.C. was appointed as the Debtors’ claims agent.

h. U.S. Trustee’s Motion to Convert.


On December 11, 2009, the Office of the United States Trustee filed its motion to convert
the Debtors’ cases to cases under Chapter 7 (D.I. 279). A hearing on the Motion to Convert was
held on January 13, 2010. The Bankruptcy Court denied the Motion to Convert. However, the
Bankruptcy Court required that the Debtors immediately pay all outstanding withholding taxes
and that the Debtors file a plan of reorganization by January 25, 2010. The Debtors filed their
original Plan on January 22, 2010 (D.I. 318). The accompanying disclosure statement was filed
on February 22, 2010 (D.I. 358). The Debtors then sought Bankruptcy Court approval of the
disclosure statement. Objections were received from Beryl Zyskind and the Office of the United

FIRST AMENDED DISCLOSURE STATEMENT 51


States Trustee. Subsequently, as discussed above, a resolution was reached with Mr. Zyskind,
the terms of which are incorporated into the Plan.

3. Bankruptcy Litigation.

The Debtors have filed a number of actions in the Bankruptcy Court. They include the
following:

• The Company is in active litigation against GSL of Ill., LLC (“GSL”), an entity
which purports to be a secured creditor of the Company and PPO. GSL
previously filed a replevin action in Pennsylvania state court. The relief obtained
by GSL in that Pennsylvania state court action, the manner in which GSL and
related parties have pursued such relief, and GSL’s conduct post-filing by the
Company are currently being litigated before the Bankruptcy Court. Debtor,
PPO, has filed a complaint against Norman Lynn, GSL of Illinois, BLN Capital,
and Washington International Insurance. This action alleges conversion of more
than $300,000 of debtor inventory and seeks the payment of normal and
customary rent of the plant of $1,000 per day during a portion of time that GSL
has occupied the plant. It also seeks an accounting for the sale of assets under the
company’s Replevin action. The initial complaint was amended to encompass
damages from a fire that occurred at the plant while it was under the custody and
control of GSL. The case is currently in discovery.

• Debtor, PPO, has filed a complaint against Koki Laboratories of Akron, OH and
its owner John Piscitelli. This action is seeking to recover $599,819.77 of
inventory held at Koki. Specifically, debtors allege that Koki and Piscitelli have
either improperly converted to their own use, sold, or improperly delivered to
third parties $502,093.52 of PPO’s inventory of raw materials and finished
products. Debtor also alleges negligence with respect to manufacturing of
product for a customer in Dubai and seeks $344,940.00 plus future profits due to
the loss of the Dubai customer. Debtor is also seeking $824,000.00 with respect
to a fraudulent transfer. The case is currently in discovery.

• Debtor, EMC, has filed a receivables claim against Precision Thermoplastics, Inc.
in the amount of $255,786.68 plus interest for payment of a receivable. A
Settlement has been reached and submitted to the Court for approval. It calls for
the payment of $100,000 to EMC.
• Debtor, PPO, has filed a receivable claim against Kupey Industries, San Juan, PR
in the amount of $239,614.59. Defendant has defaulted and debtor has been
granted a default judgment.

• Debtor, IEAM, has filed five adversary actions in the bankruptcy court. Those
actions have alleged that some 6.153,200 shares worth $31,535,425.50 were
issued directly from the company’s transfer agent, Computershare, to the
defendants at the direct instructions of either John D. Mazzuto or James W.
Margulies, Esq. without requisite approval under the terms of an S-8 registration

FIRST AMENDED DISCLOSURE STATEMENT 52


statement that was never effective. Each of the five defendants initially defaulted.
After communication from counsel to four defendants, debtor IEAM has agreed to
re-open the cases and is allowing defendants to answer. The status of those cases
are as follows:

1. LNG Consulting and Lloyd Dohner received 585,000 shares with a value
of over $2.6 million from FY 2005 through FY 2008. Neither defendant
responded and a default judgment has been entered.

2. Margulies Law received 3.428 million shares with a value of $17.97


million. Of that 2.6 million shares were issued in FY 2007 worth $14.0
million and 800,000 in FY 2008 worth $3.697 million. Margulies Law
has responded. Litigation continues.

3. Susan Margulies (wife of James Margulies) received 450,000 shares worth


$1,922,500. Of that 100,000 shares worth $610,000 were issued in FY
2007 and 350,000 worth $1.3 million in FY 2008. Susan Margulies has
responded. Litigation continues.

4. Brandywine received 1.2 million shares worth $6.6 million. Of that


800,000 shares worth $5.144 million were issued in FY 2007 and 400,000
shares worth $1.5 million in FY 2008. Litigation continues.

5. Randy Rosenthal (nominal owner of Brandywine and Margulies and


Levinson paralegal) received 490,050 shares worth $2.670 million. Of
that 160,000 shares worth $700,000 were issued in FY 2005 and FY 2006.
330,000 shares worth $1.97 million were issued in FY 2007. Litigation
continues.

• Since at least February 2008, counsel to debtors advised then current management
that they were under an affirmative obligation to preserve all company files,
including electronic correspondence. That request has not been followed in every
instance. No apparent action was taken to preserve various e-mail servers or
certain other records. Certain officers and consultants used e-mail accounts where
the internet service provider (ISP) was not under contract to one of the debtors. In
its effort to recover original documents and records from former officers,
employees, consultants, or others; debtors have generally made requests for the
voluntary turnover of files and records belonging to the debtors. In certain
instances the current management has been forced to file turnover motions under
Section 542 of the bankruptcy code. Prior to February 15, 2010, management has
made three such requests. They were to Mr. John D. Mazzuto, Dennis O’Neill,
and James W. Margulies, Esq. Documents have been received from all of those
respondents. Current management is continuing to review the document
production.

• After reviewing the production of documents from James Margulies, debtors filed
a contempt motion for Mr. Margulies failure to turn over original corporate

FIRST AMENDED DISCLOSURE STATEMENT 53


records as requested and directed. While the major focus of the motion was Mr.
Margulies’ failure to turn over QuickBooks records covering any period beyond
March 31, 2007, there are a number of other issues in dispute. In an affidavit
supplied to the court Mr. Margulies has contended he has no additional records.
Management disputes that affidavit.

• The hearing on the contempt motion was adjourned. In the interim, Debtor
deposed Mr. Margulies on April 20, 2010. During the course of that Deposition,
Mr. Margulies admitted that, despite an instruction to preserve documents. (1) all
of his outgoing emails had been deleted, (2) certain incoming emails had been
deleted, (3) original company paper files had not been turned over, (4) certain
original electronic files had been removed from his office computers , (5) certain
interactive electronic files, specifically Quick Books and excel spreadsheets had
not been turned over.

• In addition Mr. Margulies testified that IEAM had made use of a Margulies and
Levinson IOLTA account at a Cleveland bank and a Margulies Law Group
IOLTA account at a brokerage firm. The Debtors have demanded Mr. Margulies
turn over a complete accounting of both accounts, particularly with respect to the
distributions from those accounts. As of May 26, 2010 the Debtors are still
waiting for Mr. Margulies to comply.

• On February 16, 2010, management filed a turnover motion with respect to David
Zazoff and ZA Consulting. Management may file additional turnover motions.

V. THE PLAN OF REORGANIZATION.

A. Plan Summary Introduction.

1. Plan Settlements.

The Plan will implement the terms of (a) the Zyskind Settlement; (b) the DIP Loan
Settlement and (c) the compromise and settlement between the Debtors and OMTAMMOT, LLC
with respect to the Prepetition Lender Claims (the “Prepetition Loan Settlement”). To the extent
necessary, the Plan constitutes a motion for approval of the Zyskind Settlement, the DIP Loan
Settlement and the Prepetition Loan Settlement pursuant to Bankruptcy Rule 9019 and
Bankruptcy Code section 1123(b)(3)(A) and consistent with Bankruptcy Code section 1129. The
Confirmation Order will constitute an order of the Bankruptcy Court finding and determining
that the Zyskind Settlement, the DIP Loan Settlement and the Prepetition Loan Settlement are (i)
in the best interests of the Debtors and their estates, (ii) fair, equitable and reasonable, (iii) made
in good faith and (iv) approved by the Bankruptcy Court.

2. Limited Consolidation.

For the purposes of consummating the Plan, including for purposes of voting,
Confirmation and distributions to be made under the Plan, the Debtors will seek authority under

FIRST AMENDED DISCLOSURE STATEMENT 54


Bankruptcy Code section 105 consolidating the Debtors solely with respect to Claimants who
hold Class D General Unsecured Claims. The Plan will serve as a motion seeking entry of an
order consolidating the Debtors, solely with respect to Class D General Unsecured Claims for
such limited purposes.

B. Classification and Treatment of Claims and Interests.

In accordance with Bankruptcy Code section 1123(a)(1), the DIP Loan Claims,
Administrative Claims and Priority Tax Claims have not been classified, and the respective
treatment of such unclassified Claims is set forth in Article V.B.1 below. All Claims and
Interests other than the DIP Loan Claims, Administrative Claims, and Priority Tax Claims have
been placed in the Classes set forth in Article V.B.2 below.

GSL was a secured creditor, whose security was limited to the value of its equipment.
when PPH filed for protection under Chapter 11. GSL has not yet submitted a report of its
August 2009 auction and prior sales. It is impossible for IEAM to determine whether GSL’s
secured claims satisfied by the sale. To the extent that there excess proceeds, they would revert
to the Debtor. To the extent there was a deficiency, it is the Debtor’s position that the deficiency
would become an unsecured claim and be added to Class D Claims.

With the exception of Omtammot’s claims, the GSL claim is the only secured claim of
which Debtors are aware.

1. Treatment of Unclassified Claims Under the Plan.

a. DIP Loan Claims.

Pursuant to the DIP Loan Settlement, on or before the Effective Date, each holder of an
Allowed DIP Loan Claim shall receive in full satisfaction, settlement, release and discharge of,
and in exchange for, its Allowed DIP Loan Claim an amount of Preferred A Shares of
Reorganized IEAM (the “Preferred A Shares”) equal to one (1) Preferred A Share for each one
dollar ($1.00) of Allowed DIP Loan Claims. Each Preferred A Share shall accrue interest at a
rate of seven percent (7%) per annum from the Effective Date until payment, and such interest
shall accrue and shall only be payable upon payment via the liquidation preference outlined in
the succeeding sentence. The Preferred A Shares shall have a liquidation preference equal to one
dollar ($1.00) for each Preferred A Share plus all interest accrued thereon from the Effective
Date through the date of payment. The Preferred A Shares shall have a liquidation preference
over the Preferred B Shares of Reorganized IEAM (the “Preferred B Shares”)[, the Preferred C
Shares of Reorganized IEAM (the “Preferred C Shares”) and any newly issued Common Stock.
The Preferred A Shares may be convertible to additional shares of New Common B Stock of
Reorganized IEAM (the “New Common B Stock”) (at a conversion rate equal to 30 million
Shares of New B Common Stock divided by the aggregate amount of issued Preferred A Shares)
at any time upon the sole discretion of the holder of the Series A Preferred Stock. The Preferred
A shares will be voting shares.

FIRST AMENDED DISCLOSURE STATEMENT 55


b. Administrative Claims.

Except to the extent that an Allowed Administrative Claim has been paid prior to the
Effective Date, each holder of an Allowed Administrative Claim shall receive payment of the
amount of such Allowed Administrative Claim in Cash on the Effective Date, or as soon as
reasonably practicable thereafter, or immediately after entry of an order approving an application
therefor if after the Effective Date, in full satisfaction, settlement, release and discharge of, and
in exchange for, such Allowed Administrative Claim.

c. Priority Tax Claims.

Except to the extent that an Allowed Priority Tax Claim has been paid prior to the
Effective Date, each holder of an Allowed Priority Tax Claim shall receive in full satisfaction,
settlement, release and discharge of, and in exchange for, such Allowed Priority Tax Claim,
equal monthly payments over a period of five (5) years from the Effective Date in an aggregate
principal amount equal to the face amount of such Allowed Priority Tax Claim, with interest on
the unpaid portion thereof at the rate of interest determined under applicable nonbankruptcy law
as of the calendar month in which the Plan is confirmed.

2. Treatment of Classified Claims and Interests Under the Plan.

a. Class A. Non-Tax Priority Claims.

Except to the extent that an Allowed Non-Tax Priority Claim has been paid prior to the
Effective Date, each holder of an Allowed Non-Tax Priority Claim shall receive in full
satisfaction, settlement, release and discharge of, and in exchange for, such Allowed Non-Tax
Priority Claim, payment of the amount of such Non-Tax Priority Claim in Cash on the Effective
Date or as soon as reasonably practicable thereafter.

Non-Tax Priority Claims are Unimpaired under the Plan and are accordingly not entitled
to vote on the Plan. The Debtors estimate that Allowed Non-Tax Priority Claims will be in the
approximate aggregate amount of $102,864.00.

b. Class B. Convenience Claims.

On the Effective Date, or as soon as reasonably practicable thereafter, each holder of an


Allowed Convenience Claim shall receive in full satisfaction, settlement, release and discharge
of, and in exchange for, such Allowed Convenience Claim, payment of the amount of such
Allowed Convenience Claim in Cash.

Convenience Claims are Unimpaired under the Plan and are accordingly not entitled to
vote on the Plan. The Debtors estimate that Allowed Convenience Claims will be in the
approximate aggregate amount of $160,000.00.

FIRST AMENDED DISCLOSURE STATEMENT 56


c. Class C. Prepetition Lender Secured Claims.

The Allowed Prepetition Lender Secured Claims shall be bifurcated into a secured and
unsecured portion pursuant to Bankruptcy Code section 506. Pursuant to the Prepetition Loan
Settlement, OMTAMMOT, LLC and the Debtors have agreed that the value of the Debtors'
property subject to liens securing the Allowed Prepetition Lender Secured Claims is Two Million
Two Hundred Thousand Dollars ($2,200,000).

The Pitt Penn Oil facility, based on the last written appraisal done in June of 2006, was
appraised for $2,633,000. This appraisal was requested, by the lender, for the purpose of asset
valuation while securing credit lending. It would be reasonable to assume, since the property is
in the Northern Allegheny Development corridor that the property value has increased by an
average of eight percent per year up until last year. This would add 30 percent to the value
making the facility worth approximately $3,400,000. While GSL, a secured creditor, was in
possession of the facility a fire occurred on September 9th, 2009. These damages would reduce
the present value of the building. The structural damages may involve approximately 35 percent
of the building reducing the net present value to $2,200,000. There are some additional damages
but they are more cosmetic and should not affect the valuation as would the structural repairs that
are required. As the insurance company has not accepted coverage, nor tendered an offer, it is
impossible to determine the certainty and the amount of funding that is forthcoming. However,
once those funds are recovered and the repairs are completed, this facility should exceed the full
value of the appraised amount of $3,400,000 due to the newer construction and modernization.
In addition to the devaluation caused by the fire, the debtor (GSL) also removed piping, conduit
and catwalks that were not part of their collateral. This amount of stolen materials may exceed
$100,000. A suit has been filed to recover these damages but neither the exact sum of these
funds, nor the timing of their receipt, can accurately be included in the present valuation.

The inventory that was located, at the facility in Creighton, had an estimated value of
over $1,000,000 (book value). This valuation anticipated an active and ongoing marketplace for
the use of these products. However, since GSL took over the facility, there was a theft of
approximately $245,000 of raw product inventory ( as described by GSL) and, after we were
given access to assess our inventory, we found an additional amount of inventory missing. We
feel this amount is in excess of $400,000. We are unable to be specific on these amounts since
our original records were taken by GSL. The remaining inventory is either smoked damaged
from the fire or is of little value because it is raw materials for specific private labeled products
that we no longer contract for. The value of our inventory that was in the Koki plant, in Ohio that
was approximately $600,000 was found to be short by $503,000 when we inventoried those
items one year ago. We feel, after having agents sell whatever was salvageable, and evaluating
the balance of inventory in both plants that the present value of inventory that remains is less
than $100,000. The recovery of the stolen inventory, while uncertain, could be substantial.

On the Effective Date, or as soon as reasonably practicable thereafter, the Prepetition


Loan Collateral shall be liquidated and all the proceeds thereof shall be remitted to
OMTAMMOT, LLC in full satisfaction, settlement, release and discharge of, and in exchange

FIRST AMENDED DISCLOSURE STATEMENT 57


for, the secured portion of the Allowed Prepetition Lender Secured Claims. The Allowed
deficiency Claim of OMTAMMOT, LLC shall be treated as a Class D Claim.

Prepetition Lender Secured Claims are Impaired under the Plan and are accordingly
entitled to vote on the Plan. Pursuant to the terms of the Prepetition Loan Settlement, Prepetition
Lender Secured Claims will be Allowed in the aggregate amount of $4,800,000.00.

d. Class D. General Unsecured Claims.

On the Effective Date, or as soon as reasonably practicable thereafter, each holder of an


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

(i) Cash in an amount equal to the lesser of (A) two percent (2%) of the amount of
such Allowed General Unsecured Claim or (B) $200,000.00 to be distributed Pro Rata to the
holders of Class D Claims; plus an amount of Preferred B Shares to be issued on a Pro Rata basis
equal to the greater of (A) ninety-eight percent (98%) of the amount of such Allowed General
Unsecured Claim or (B) the total amount of all Allowed General Unsecured Claims in Class D
less $200,000.00. One (1) Preferred B Share shall be issued on account of each one dollar
($1.00) of Allowed General Unsecured Claims. The Preferred B Shares shall not accrue interest
or otherwise be convertible. The Preferred B Shares shall have a liquidation preference equal to
one dollar ($1.00) for each Preferred B Share. The Preferred B Shares shall have a liquidation
preference over the Preferred C Shares and any newly issued Common Stock. When the net cash
balances of Reorganized IEAM are equal to or greater than the preference amounts of Preferred
A Shares and Preferred B Shares, Reorganized IEAM may in its sole discretion liquidate the
Preferred B Shares. In addition, the holders of Preferred B Shares may require Reorganized
IEAM to liquidate the Preferred B Shares.

When the net cash balances of Reorganized IEAM are equal to or greater than the
preference amounts of Preferred A Shares and Preferred B Shares, Reorganized IEAM may in its
sole discretion liquidate the Preferred B Shares in whole or in part. In addition, the holders of
Preferred B Shares may require Reorganized IEAM to liquidate the Preferred B Shares. When
the cash and cash equivalents of litigation and asset recovery are in excess of 140% of the
combined book value of the DIP Loan, Series A, Series B and Series C preferred.

General Unsecured Claims are Impaired under the Plan and are accordingly entitled to
vote on the Plan. The Debtors estimate that Allowed General Unsecured Claims will be in the
approximate aggregate amount of $11,219,388.00.

e. Class E. Existing IEAM Interests.

The Existing IEAM Interests shall be deemed cancelled and extinguished as of the
Effective Date. On, or as soon as reasonably practicable after the Effective Date, each holder of
an Allowed Existing IEAM Interest shall receive its Pro Rata share of 30 million shares of New
Common B Stock, to be issued by Reorganized IEAM.

FIRST AMENDED DISCLOSURE STATEMENT 58


Existing IEAM Interests are Impaired under the Plan and are accordingly entitled to vote
on the Plan. The Debtors estimate that liquidation preference of Allowed Existing IEAM
Interests will be in the approximate aggregate amount of $0.00.

f. Class F. Subordinated Claims.

To the extent that monetary damages are assessed against any of the Debtors arising from
any claim for damages for the purchase or sale of any securities of any of the Debtors, and to the
extent such damages are not paid by any insurance, in accordance with the provisions of 510(b)
of the Code, such monetary damages shall treated by the issuance of Preferred C Shares. One (1)
Preferred C Share shall be issued on account of each one dollar ($1.00) of Allowed Subordinated
Claims. The Preferred C Shares will not accrue interest or otherwise be convertible; however,
the Preferred C Shares shall have a liquidation preference over New Common Shares of
Reorganized IEAM. Preferred C shares will be voting shares.

Subordinated Claims are Impaired under the Plan and are accordingly entitled to vote on
the Plan. The Debtors estimate that Allowed Subordinated Claims will be in the approximate
aggregate amount of $0.00.

g. Class G. Non-IEAM Interests.

All Non-IEAM Interests shall be deemed cancelled and extinguished as of the Effective
Date, and the holders of all Non-IEAM Interests shall not receive or retain any property or
interest in property under the Plan on account of such Non-IEAM Interests.

Non-IEAM Interests are Impaired under the Plan and are not entitled to vote on the Plan.

C. Limited Consolidation.

The Debtors believe that absent the compromises and settlements embodied in the
Prepetition Loan Settlement, the holders of General Unsecured Claims and Interests would not
be entitled to receive any distributions under the Plan due to the valuation of the Debtors’
prepetition secured debt. Therefore, for the purposes of consummating the Plan, including for
purposes of voting, Confirmation and distributions to be made under the Plan, the Debtors
respectfully request that the Court deem the Plan to serve as a motion under Bankruptcy Code
section 105 consolidating the Debtors solely with respect to Claimants who hold Class D General
Unsecured Claims and solely for the limited purposes described herein. In addition to the
compromises and settlements embodied in the Prepetition Loan Settlement, the Debtors believe
that the limited consolidation sought under the Plan is further warranted by the widespread
disregard of corporate formalities, fraudulent reporting and other extensive misconduct engaged
in by members of the Debtors’ former management as detailed in Article IV of this Disclosure
Statement.

The Debtors have been organized in a holding company structure. As noted in Section
IV of both the Debtors’ Initial Disclosure Statement and the Debtors’ First Amended Disclosure

FIRST AMENDED DISCLOSURE STATEMENT 59


Statement, IEAM’s organizational history was last described in a Form 10-KSB Amendment 1-
FY 2006, Filed December 28, 2007. That document disclosed the following:

• IEAM originally operated as a holding company with four (4) wholly owned
subsidiaries, Pitt Penn Holding Inc., a Delaware corporation ("PPH"), EMC
Packaging, Inc., a Delaware corporation ("EMC"), Unifide Industries Limited
Liability Company, a New Jersey limited liability company ("Unifide"), and
Todays Way Manufacturing, LLC, a New Jersey limited liability company
("Todays Way").

• PPH, through its wholly owned subsidiary Pitt Penn Oil Co., LLC, an Ohio
limited liability company (“Pitt Penn”), was a leading manufacturer, marketer and
seller of automotive chemicals and additives.

The commentary in both Disclosure Statements indicates that prior management’s


compliance with appropriate Corporate Governance procedures was virtually nonexistent.
Current management has been required to file turnover motions and a contempt motion to secure
basic corporate records including documents relating to a variety of inter-company loans and
obligations.
While the vast majority of the Debtors collective claims relate to transactions occurring at
the Corporate Parent, there are a vast number of unsecured claims payable to trade creditors at
the subsidiary level.

Current management believes that because of a secured borrowing of more than $4.6
million and the lack of collateral at the subsidiary level, unsecured creditors below the parent
level would have zero recovery in the absence of substantive consolidation.

Unless an objection to such limited consolidation is filed with the Court by any party in
interest and served on the Debtors and OMTAMMOT, LLC on or before five (5) days before the
voting deadline (or such other date as ordered by the Bankruptcy Court), an order authorizing
limited consolidation to the extent described herein may be entered by the Bankruptcy Court. If
any objections are timely filed, a hearing with respect to such objections shall be held at or prior
to the Confirmation Hearing at the direction of the Bankruptcy Court.

D. General Provision Applicable to All Classes.

Notwithstanding any other provision of the Plan specifying a date or time for the
distribution of any payment to any holder of a Claim or Interest, payments and distributions in
respect of any Claim or Interest which at such date or time is disputed, unliquidated or
contingent shall not be made until such Claim or Interest becomes an Allowed Claim or Allowed
Interest, whereupon such payments shall be made promptly in accordance with Article 3.12 of
the Plan. Except as otherwise explicitly provided in the Plan, nothing shall affect the Debtors’,
Reorganized IEAM’s or any party in interest’s rights or defenses, both legal and equitable, with
respect to any Claims, and the rights of such Persons to object to the allowance of any Claim is
expressly preserved in the Plan.

FIRST AMENDED DISCLOSURE STATEMENT 60


E. Treatment of Contested Claims and Claims Arising Under Section 502(c).

No payment will be made on the disputed portion of a claim until thirty (30) days after
the claim is allowed by non-appealable Order of the Bankruptcy Court. Any claims subject to
Section 502(c) of the Bankruptcy Code shall be estimated and allowed to the extent provided in
the Plan for claims in the same class. Claims arising under Section 502(c) include contingent or
unliquidated claims, which if not fixed or liquidated would unduly delay the administration of
this proceeding, and right to payment arising from a right to an equitable remedy for breach of
performance.

VI. PAYMENTS UNDER THE PLAN.

Because the Debtors’ assets after the Plan is consummated will likely exceed their
liabilities the shares of stock will have some value. However, the Debtors desire that if they are
successful in the future that their creditors will be able to benefit from that success.

A. Transfers of the Stock of Reorganized IEAM.

Section 1145 of the Bankruptcy Code provides an exemption from registration, pursuant
to the Securities Act of 1933, of the stock being issued pursuant to the Plan. Although the
Debtors believe that the holders of Claims and Interests who receive such stock as a distribution
pursuant to the Plan are entitled to transfer such stock to third parties without any additional
regulatory compliance, holders of Claims and Interests under the Plan should seek appropriate
legal advice in determining their stock transfer rights.

B. Ownership of Shares After Distribution Under the Plan.

If the Plan is confirmed, the corporate charter of IEAM will be amended to authorize the
necessary shares of Preferred and New Common Stock to comply with the terms of the Plan.

The Debtors estimate that Reorganized IEAM will issue approximately 30,000,000 shares
of the new common stock to current shareholders of the common stock of IEAM. It will also
issue approximately 2,000,000 shares Preferred A stock, 13,000,000 shares of Preferred B and an
unknown number of shares of Preferred C.

VII. MEANS FOR IMPLEMENTATION OF THE PLAN

A. Continued Corporate Existence and Reorganization of IEAM.

The Debtors shall continue to exist as the Reorganized Debtors after the Effective Date as
separate legal entities, in accordance with the applicable laws in the respective jurisdictions in
which they are incorporated or otherwise organized and pursuant to their respective corporate
governance documents. In addition, the corporate governance documents of each Reorganized

FIRST AMENDED DISCLOSURE STATEMENT 61


Debtor shall be amended to authorize and effect the issuance of the new stock or other respective
corporate interests necessary to maintain the corporate structure of the Reorganized Debtors. On
the Effective Date, all remaining assets of each Debtor shall be transferred and vest in each
respective Reorganized Debtor.

B. Disbursement.

All distributions under the Plan on account of Allowed Claims and/or Interests shall be
made by the Debtors or the Reorganized Debtors. The Debtors may, in their sole discretion,
make distributions to any Class of creditors or interest holders in advance of the time provided
for in the Plan.

C. Default.

No default by any Debtor under the Plan shall be deemed to have occurred until forty-
five (45) days after such Debtor receives written notice of its failure to make a payment required
under the Plan or if, prior to the expiration of such 45-day period, the Debtor makes such
payment. Except as noted above, no Claimant shall receive interest on account of such
Claimant’s Allowed Claims.

D. Cash Payments.

All Cash payments to be made on or after the Effective Date provided for in the Plan
shall be made from Cash in the Debtors’ bank or operating accounts on the Effective Date. All
other Cash payments shall be made from the operating proceeds of Reorganized IEAM.

E. Borrowing.

Reorganized IEAM may borrow such additional amounts under the 2010 Debtor In
Possession Loan or under such other facilities as agreed to by the proposed lender, Reorganized
IEAM, and the holders of the Preferred A Shares as deemed necessary to fund all payments due
on or after the Effective Date.

F. Preservation and Pursuit of Causes of Action, Including Avoidance Actions.

Except as otherwise provided in the Plan, the Confirmation Order, or in any contract,
agreement or other document entered into in connection with the Plan, in accordance with
Bankruptcy Code section 1123(b), on the Effective Date, each Debtor or Reorganized Debtor
shall retain all of the respective Causes of Action, including all Avoidance Actions, that such
Debtor or Reorganized Debtor may hold against any Person, including, but not limited to, those
Causes of Action set forth in Schedule A attached to the Plan. The Debtors or Reorganized
Debtors may enforce, sue on, settle, or compromise all such Causes of Action, or may decline to
do any of the foregoing with respect to any such Causes of Action. The failure of the Debtors to
specifically list any Causes of Action in the Plan or in Schedule A to the Plan does not, and will
not be deemed to, constitute a waiver or release by the Debtors of such Causes of Action, and the
Debtors and Reorganized Debtors shall retain the right to pursue additional Causes of Action.

FIRST AMENDED DISCLOSURE STATEMENT 62


The Debtors or Reorganized Debtors, or their respective successors, may pursue all such retained
Causes of Action as appropriate, in accordance with the best interests of the Reorganized
Debtors or their successors who retain such actions in accordance with applicable law and
consistent with the terms of the Plan.

VIII. REJECTION AND ASSUMPTION OF EXECUTORY CONTRACTS AND


UNEXPIRED LEASES.

The Plan provides that except as otherwise provided in the Plan, or in any contract,
agreement or other document entered into in connection with the Plan, as of the Confirmation
Date each of the Debtors shall be deemed to have rejected all executory contracts and unexpired
leases other than those specifically assumed on or before the Confirmation Date or that are
otherwise subject to a motion to assume that is pending on or before the Confirmation Date,
pursuant to Bankruptcy Code section 1123(b)(2).

If the rejection of an executory contract or unexpired lease gives rise to a Rejection


Damages Claim, such Rejection Damages Claim shall be forever barred and shall not be
enforceable against the applicable Debtor or its estate, or their respective successors or properties
unless a Proof of Claim shall be filed with the Clerk of the Court, within thirty (30) days after the
Claim is deemed rejected. If a Rejection Damages Claim becomes an Allowed Claim then it
shall be classified as a General Unsecured Claim pursuant to the Plan.

IX. ALLOWED AMOUNT OF CLAIMS AND INTERESTS.

A. Generally.

A Claim against or Interest in one or more of the Debtors may be recognized as follows:
(1) the listing of a Claim by a Debtor in its Schedules, where such scheduled Claim is not listed
as: (a) disputed, (b) contingent or (c) unliquidated; or (2) the filing of a Proof of Claim or Proof
of Interest by the holder of such Claim or Interest in the time, form and manner approved by the
Bankruptcy Court.

By order of the Bankruptcy Court, September 8, 2009 was fixed as the last day for the
filing of Proofs of Claim by non-governmental creditors against the Debtors. For governmental
creditors, the bar date was set as November 2, 2009. Due notice of this date was furnished to all
creditors, Interest holders and other parties in interest. If a Claimant whose Claim has been
scheduled by one of the Debtors timely files a Proof of Claim, the Proof of Claim supersedes the
Claim of the Claimant as scheduled by that Debtor, unless objected to by the Debtors.

Pursuant to Rule 3003(b)(1) of the Bankruptcy Rules, a Debtor's Schedule of Liabilities


constitutes prima facie evidence of the validity and amount of scheduled Claims. However, if
timely objected to, such Claims will be Disallowed or Allowed in amounts fixed by Order of the
Bankruptcy Court.

B. Administrative Claims.

FIRST AMENDED DISCLOSURE STATEMENT 63


All Administrative Claim requests, other than Professional fee claims, must be filed with
the Court and served on the Debtors or the Reorganized Debtors and their respective counsel, as
applicable, no later than forty-five (45) days after the Effective Date. In the event that the
Debtors or the Reorganized Debtors object to an Administrative Claim, the Court shall
determined the Allowed amount of such Administrative Claim.

C. Professional Fee Claims.

All final requests for compensation or reimbursement of fees and expenses pursuant to
Bankruptcy Code sections 327, 328, 330, 331, 503(b) or 1103 for services rendered to the
Debtors prior to the Effective Date must be filed with the Bankruptcy Court and served on the
Debtors or the Reorganized Debtors and their respective counsel, as applicable, no later than
forty-five (45) days after the Effective Date, unless otherwise ordered by the Bankruptcy Court.
Objects to applications of such Professionals or other entities for compensation or reimbursement
of fees and expenses must be filed and served on the Debtors or the Reorganized Debtors and
their respective counsel, as applicable, and the requesting Professional or other entity no later
than forty-five (45) days (or such longer period as may be allowed by order of the Bankruptcy
Court) after the date on which the applicable application for compensation or reimbursement was
served.

X. TAX CONSEQUENCES.

If the Debtors’ Plan is confirmed by the Bankruptcy Court, there may be tax
consequences which could affect individual holders of Claims or Interests. The tax
consequences of the treatment of several Classes of Claims and Interests under the Plan are
uncertain. Accordingly, holders of Claims and Interests are urged to consult with an independent
tax advisor regarding such implications and how they may affect such individual holders based
on their individual circumstances.

XI. DISCHARGE OF DEBTORS; INJUNCTION

A. Discharge Upon Confirmation.

Pursuant to Section 1141 of the Bankruptcy Code, upon Confirmation of the Plan and
vesting of all assets, except as otherwise expressly provided under the Plan, the Debtors will be
discharged of all claims and liabilities that arose prior to the Confirmation Date.

B. Discharge Injunction.

All entities which have held, hold, or may hold Claims against any of the Debtors, are
permanently enjoined, on and after the Effective Date, from (a) commencing or continuing in
any manner any action or other proceeding of any kind with respect to any such Claim, (b) the
enforcement, attachment, collection or recovery by any manner or means of any judgment,
award, decree or order against any of the Debtors on account of any such Claim, (c) creating,
perfecting or enforcing any encumbrance of any kind against any of the Debtors or against the
property or interest in property of any of the Debtors on account of any such Claim, (d) asserting

FIRST AMENDED DISCLOSURE STATEMENT 64


any right of setoff, subrogation or recoupment of any kind against any obligation to or from any
of the Debtors or against the property or interests in property of any of the Debtors and (e)
commencing or continuing in any manner any action or other proceeding of any kind with
respect to any Claim.

XII. JURISDICTION OF BANKRUPTCY COURT AFTER CONFIRMATION.

The Bankruptcy Court shall retain jurisdiction of the chapter 11 cases for the purposes of
Bankruptcy Code sections 105(a), 1127 and 1142(b) and for the following additional purposes:

(i) To hear and determine all Objections to the allowance or disallowance of any and
all Claims or Interests;

(ii) To hear and determine all motions to estimate Claims;

(iii) To hear and determine all motions to subordinate any and all Claims or Interests;

(iv) To hear and determine all matters relating to the assumption and rejection of any
executory contract or unexpired lease, including, but not limited to, any cure
payments or Claims for rejection damages arising therefrom;

(v) To determine applications for allowance of compensation and reimbursement of


expenses by Professionals;

(vi) To enforce and interpret the Plan, to resolve any disputes arising under or in
connection with the Plan, to effectuate payments under the Plan and/or to compel
performance of any Person in accordance with the provisions of the Plan.
(vii) To correct any defect, to cure any omission or to reconcile any inconsistency in
the Plan or in the Confirmation Order as may be necessary or advisable to carry
out the intents and/or purposes of the Plan;

(viii) To determine such other matters and for such other purposes as may be provided
in the Confirmation Order or otherwise deemed appropriate to accomplish its
intents and purposes;

(ix) To enforce all orders, judgments, injunctions, releases, exculpations,


indemnifications and rulings entered in connection with the Case and the Plan;
purposes;

(x) To recover all assets of the Debtors and property of the Debtors’ estates;

(xi) To adjudicate all Litigation Cases and Causes of Action brought in the
Bankruptcy Court either prior to or subsequent to the Effective Date; and

(xi) To enter a Final Order closing the chapter 11 cases.

FIRST AMENDED DISCLOSURE STATEMENT 65


XIII. LIQUIDATION ANALYSIS AND DISCUSSION.

The purpose of this section is to provide an analysis of a hypothetical liquidation of all of


the Debtors’ assets by a disinterested trustee in bankruptcy under the provisions of Chapter 7 of
the Bankruptcy Code. A Chapter 7 liquidation of the Debtors would provide that all of the
Debtors’ property would be sold for cash, and payments would be made to creditors in
accordance with the priorities set forth in section 507 of the Bankruptcy Code, and then to
general unsecured creditors and interest holders. A Chapter 7 liquidation would take more time
and in this case could take several years to complete all potential litigation. A disinterested
trustee would need time to learn about the assets and affairs of the Debtors before he/she could
make a distribution to creditors. There is no way to quantify the additional amount of time
before a distribution could be made. In addition, a Chapter 7 trustee may wish to conduct an
investigation into the Debtors’ affairs, and may retain attorneys and accountants to render
assistance in such investigation. The fees and disbursements of the Chapter 7 trustee and his or
her attorneys and accountants would be treated as administrative expenses of the Chapter 7 phase
of this case, which have a priority over all other administrative expenses and claims of creditors.
Thus, a Chapter 7 liquidation would almost certainly increase the costs of the bankruptcy,
although there is no way to quantify the extra costs. The trustee's investigation would likely
reveal the existence of potential lawsuits that could be commenced against certain creditors to
recover preferential payments made by the Debtors within the 90 days prior to the filing of the
Chapter 11 petitions. The trustee may also commence other lawsuits in an effort to increase the
amount of money available for distribution to creditors.

One of the Debtors’ most valuable assets is the net operating loss carry forward which the
Debtors estimate to be in excess of $100,000,000. Because a Chapter 7 liquidation does not
provide for debtor reorganization, this asset would be destroyed if the Chapter 11 cases were to
be converted to cases under Chapter 7. In addition, the Debtors currently intend to continue
litigation already commenced and to initiate substantial additional litigation. The Debtors
believe that they are in far better position to realize on such litigation than a Chapter 7 trustee.

The only hard assets available for liquidation in a Chapter 7 liquidation would be the
Debtors’ existing inventory, accounts receivable, and real estate. All of the proceeds of such
hard assets are subject to the liens of the secured creditor and therefore would not be available to
satisfy other Claims or Interests.

The proposed Plan currently provides that holders of General Unsecured Claims will
receive a distribution of the lesser of a 2% recovery in cash or pro rata share of $200,000.00 as
well as the issuance of Class B preferred stock. After evaluating the differences between the
Plan and a Chapter 7 liquidation, the Debtors believe that the Plan offers a more favorable
treatment to General Unsecured Creditors. Although in a Chapter 7 liquidation lawsuits brought
by a trustee may result in additional recoveries, a Chapter 7 liquidation of the Debtors would
surely involve a delay in any distribution to creditors and the incurrence of additional costs of
administering the bankruptcy.

It is most important to note that pursuant to the Prepetition Loan Settlement, the secured
creditor whose claim is in excess of $4,800,000.00 has agreed that it will receive only

FIRST AMENDED DISCLOSURE STATEMENT 66


$2,200,000.00 and will take only the same Preferred B shares as all other general unsecured
creditors for the balance of its Claim. In addition, pursuant to the DIP Loan Settlement, the
Debtor-in-Possession lenders who by the confirmation date will have loaned to the Debtors up to
$1,800,000.00 have agreed to take only Class A preferred shares and no cash whatsoever.

A. Liquidation Analysis/Miscellaneous Bankruptcy Provisions.

As previously noted, the Debtors are organized in a holding company structure. IEAM,
the parent, is the direct owner of four subsidiaries, PPH, EMC, Unifide and Today’s Way. Of
these four subsidiaries only EMC has had significant economic activity since January 2007. The
vast majority of economic activity occurred at PPO, which is a 100% owned subsidiary of PPH.

Each of the Debtors is jointly and severally liable for the payment of a secured loan of
approximately $4.9 million. At the subsidiary level, proofs of claim totaling about $3.2 million
have been filed on behalf of unsecured creditors.

At the parent level, a contingent claim of $50.0 million has been filed by Plaintiff
attorneys in the class action; in addition, unsecured creditors have filed proofs of claim of just
under $13.4 million.

Administrative Claims of approximately $370,000 have also been filed.

The breakdown is shown in the following table13:

13
This table includes claims filed through February 17, 2010, including at least 15 claims filed well beyond the bar date
which will be objected to.

FIRST AMENDED DISCLOSURE STATEMENT 67


Original Filings Proof of Claim

Total
Proofs of
Contingent Claims Filed

Schedule D Creditors Holding Secured Claims

IEAM - 4,806,239.68
Pitt Penn Holding - 4,806,239.68
Pitt Penn Oil - 5,003,287.15
EMC - 4,806,239.68
Unifide - 4,982,039.68
Todays Way - 4,806,239.68

Schedule E Creditors Holding Unsecured Priority Claims

IEAM - -
Pitt Penn Holding - 126,835.63
Pitt Penn Oil - 316,031.92
EMC - 3,630.19
Unifide - 441,256.30
Todays Way - 52,252.50

Schedule F Creditors Holding Unsecured Non-Priority Claims

IEAM 50,000,000.00 13,378,022.40


Pitt Penn Holding - 259,544.38
Pitt Penn Oil - 1,870,382.01
EMC - 236,969.02
Unifide - 855,342.34
Todays Way - 16,524.30

Total 50,000,000.00 16,616,784.45

Excluding the contingent claim, the total of unsecured Claims filed is just over
$16.6 million. In addition to those claims, the Debtors have incurred additional obligations post
filing, including DIP loans of $800,000, legal fees and deferred management compensation and
expenses.

At this time, current management’s best estimates are that the net realizable value of
collateral will be $2.2 million. The vast majority of any recovery would be dependent on the
success of complex litigation at the parent level involving the improper issuance of securities by
former management.

In Chapter 7 liquidation, management estimates that the unsecured creditors of all of the
subsidiaries will not receive any recovery, as they may have no entitlement to litigation claims at
the parent level. Further, as most of the Debtors’ creditors are trade creditors of PPO, if current
management is successful in pursuing fire and other claims and reopens the Creighton facility,
such trade creditors may benefit from future business.

FIRST AMENDED DISCLOSURE STATEMENT 68


While management is actively pursuing claims against the former EMC management, it
is unlikely that any manufacturing of aerosol would be restarted at EMC. Management would
utilize Spray Manufacturing to fulfill orders if, upon further review and analysis, management
makes the determination that it would make economic sense to serve the Debtors’ former aerosol
customers.

The ability of the holders of the remaining unsecured Claims at the parent level, which
total just under $13.4 million, to recover is dependent on recovery in the securities litigation.
Current management also disputes the vast majority of these claims.

XIV. OPERATING PROJECTIONS.

At this juncture, it is still too early for the Debtors to provide operating projections which
have any degree of certainty. The Debtors also believe that the probability of inaccuracy at this
time is not slight and therefore do not express any opinion as to a re-start date. Any re-start of
operations depends heavily on the assessment and recovery of damages from the fire that
occurred at the Creighton facility on September 3, 2009. The amount of damage and the
recovery of damages, either from the insurance company or from GSL, et al., are a critical
element of the Debtors’ ability to re-start operations at the Creighton facility. To a large extent,
the Debtors’ ability to fund operations and to pay Claims is also highly dependent on the success
of various adversary and other plenary actions.

The Debtors have filed a motion to retain the services of Thomas Alexander and
Forrester, LLP (“TAF”) to act as lead trial counsel in recovering claims. That retention
application was approved by the Bankruptcy Court on February 16, 2010. Although TAF has a
broad understanding of the Causes of Action against third parties, the Debtors are currently in the
process of determining the litigation and negotiating strategy with respect to the Causes of
Action. It has been, and continues to be, the intention of current management to advise potential
defendants of the underlying facts and request the return of the proceeds of any and all
improperly issued shares. One of the purposes in retaining TAF was to expedite this process and
enhance the prospect of recovery.

FIRST AMENDED DISCLOSURE STATEMENT 69


XV. CONCLUSION.

In sum, the Debtors believe that the Plan offers their creditors more money sooner, and
that the creditors should accordingly vote to accept the Plan.

DATED: May 26, 2010

Industrial Enterprises of America, Inc.


By: /s/Robert L. Renck, Jr.
Robert L. Renck, Jr.

FIRST AMENDED DISCLOSURE STATEMENT 70