Exhibit 99.1
MARTIN J. BRILL (State Bar No. 53220)
ROBYN B. SOKOL (State Bar No. 159506)
ROBINSON, DIAMANT & BRILL
A Professional Corporation
1888 Century Park East, Suite 1500
Los Angeles, California 90067
Telephone: (310) 277-7400
Telecopier: (310) 277-7584
Attorneys for DIGITAL TECHNOLOGIES MEDIA
GROUP, INC., DEBTOR AND DEBTOR-IN-POSSESSION
UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA
SAN FERNANDO VALLEY DIVISION
In re Bk. No. SV 99-10944-GM
DIGITAL TECHNOLOGIES MEDIA Chapter 11
GROUP, INC., a Delaware
corporation, NOTICE OF MOTION AND MOTION BY
Debtor and Debtor In DEBTOR FOR AN ORDER
Possession. AUTHORIZING: (1) OBTAINING OF
CREDIT PURSUANT TO BANKRUPTCY
CODE SECTIONS 364(B), (C) AND
(F) THROUGH THE ISSUANCE OF
DEBTOR'S NOTES; AND (2) THE
PURCHASE OF DATANET INFORMATION
SYSTEMS, INC.; MEMORANDUM OF
POINTS AND AUTHORITIES;
DECLARATION OF ELY MANDELL;
DECLARATION OF BERNIE BUDNEY
Date: January 12, 2000
Time: 10:00 a.m.
Place: Courtroom "303"
21041 Burbank Blvd.
Woodland Hills, CA
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TO THE HONORABLE GERALDINE MUND, UNITED STATES BANKRUPTCY JUDGE, THE UNITED
STATES TRUSTEE, THE TWENTY LARGEST UNSECURED CREDITORS, ALL SECURED CREDITORS,
AND OTHER PARTIES IN INTEREST:
NOTICE IS HEREBY GIVEN that on January 12, 2000, at 10:00 a.m., or as
soon thereafter as counsel may be heard in Courtroom "303" of the above-entitled
Court located at 21041 Burbank Boulevard, Woodland Hills, California, Digital
Technologies Media Group, Inc., the chapter 11 debtor and debtor in possession
in the above-captioned case ("Digital" or the "Debtor"), will move the Court for
an order pursuant to sections 364(b), (c) and (f) of the Bankruptcy Code and
Federal Rule of Bankruptcy Procedure 4001(c) for an order authorizing it to
obtain credit through the issuance of Debtor's Certificates of Indebtedness (the
"Debtor's Notes") and for an order authorizing the purchase of Data Net
Information Systems, Inc
The First Amended Plan of Reorganization (the "Plan") which has been
proposed by the Debtor provides that the Debtor will emerge from bankruptcy as a
business development corporation under the Investment Company Act of 1940, 15
U.S.C. 80a-1, et seq. ("Investment Company Act"), change its name to Central
Coast Capital Corporation and become a Nevada corporation operating and
conceived as a closed-end mutual fund specifically designed to engage in
investments of startup (venture capital) companies. DataNet Information
Systems, Inc. ("Data"), will be the Debtor's first investee company. Thus, the
proposed purchase of Data is critical to the Debtor's successful reorganization.
The Reorganized Debtor's common stock will be distributed to Debtor's
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creditors and interest holders in exchange for their respective claims and
interests.
To facilitate the proposed reorganization, the Debtor seeks Bankruptcy
Court authority to acquire 1,000,000 shares of Data common stock (representing
100% of Data's total stock outstanding), by issuing Data shareholders one share
of the Debtor's Class A Preferred Stock for every 10 shares of Data common stock
owned. The purchase of 100% of the Data common stock will result in Data's
shareholders holding 100,000 shares of Class A Preferred Stock of the Debtor.
The acquisition of Data also requires a $100,000 capital contribution from the
Debtor to Data for working capital. It is anticipated that the $100,000 capital
contribution will be funded from the Debtor's Notes described below. The Plan
proposes that after registration with the Securities and Exchange Commission
("SEC") of the Data securities, the Reorganized Debtor will distribute 30% of
the Data securities owned by it to shareholders who are to receive securities
under the Plan on a pro rata basis.
Through this motion, the Debtor also seeks to borrow up to $310,000 in
return for which the Debtor will issue Debtor's Notes. The Debtor's Notes shall
be one-year notes bearing interest at a rate of 10% per annum that may be
converted upon the election of the holder of such Debtor's Notes after the
Effective Date of the Plan to Units of the Reorganized Debtor as defined in the
Plan at a ratio of one Unit per dollar loaned. Such financing will provide
Digital with sufficient capital to purchase Data and fund its presently pending
plan, including but not limited to payment of: certain administrative claims
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that must be paid as of the Effective Date of the Plan and the printing and
mailing of Plan and disclosure statement materials to all creditors,
shareholders and interested parties of Digital. In addition, the proposed
financing will provide
working capital for the continued post-confirmation operation of the Reorganized
Debtor.
Digital has unsuccessfully canvassed the available credit markets in
search of post-petition financing on terms that are better than those offered
under the proposed Debtor's Notes. Financing through the issuance of the
Debtor's Notes is not only the best available financing alternative, it is the
only available alternative. Accordingly, because the terms of the Debtor's
Notes are fair, represent the best financing alternative available to Digital,
and do not adversely affect any existing lien of Digital's secured creditors,
the Court should authorize Digital to obtain credit through the issuance of the
Debtor's Notes.
Digital's Motion is based on this notice, the attached memorandum of
points and authorities, the attached declaration of Ely Mandell and Bernie
Budney, and such arguments and evidence as may be considered at the hearing on
said Motion.
PLEASE TAKE FURTHER NOTICE that Local Bankruptcy Rule 9013-1(1)(g)
provides that any opposition to this Motion must be in writing, accompanied by a
memorandum of points and authorities, and filed with the Court and served on
counsel for the Debtor and the Office of the United States Trustee no later than
fourteen (14) days prior to the hearing on the Motion. Pursuant to Local
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Bankruptcy Rule 9013-1(1), failure to file and serve a timely objection may be
deemed to constitute consent to the relief requested in the Motion.
DATED: June , 2000 ROBINSON, DIAMANT & BRILL
A Professional Corporation
By:
---------------------------------
MARTIN J. BRILL
Attorneys for Digital Technologies
Media Group, Inc.
Chapter 11 Debtor and Debtor in
Possession
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MEMORANDUM OF POINTS AND AUTHORITIES
------------------------------------
Digital hereby submits this memorandum of points and authorities in
support of its "Motion For An Order Authorizing: (1) Obtaining Of Credit
Pursuant To Bankruptcy Code Sections 364(b), (c) And (f) Through The Issuance Of
Debtor's Notes, And (2) Purchase Of DataNet Information Systems, Inc. (the
"Motion").
I.
STATEMENT OF FACTS
------------------
A. The Debtor's Proposed Plan.
-----------------------------
The Plan previously filed with the United States Bankruptcy Court
provides that the Debtor shall reorganize by satisfying its obligations to its
creditors and interest holders by issuing its publicly traded securities
pursuant to the terms of the Plan. The Reorganized Debtor will change its name
to Central Coast Capital Corporation and will become a Nevada corporation
operating and conceived as a close end mutual fund specifically designed to
engage in investment of startup companies. The Reorganized Debtor will be
engaged as a Business Development Corporation under the Investment Company Act.
The Reorganized Debtor's investment objective will be to invest in
assets and/or management services in companies with gross sales of less than
$500,000 per annum in selected situations (such as leverage buyouts and
establish business operations) that will benefit from long-term capital growth.
The Reorganized Debtor will derive its income through management consulting fees
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and profit from the selective sale of the companies contained in its investment
portfolio. The cornerstone of the Debtor's Plan is the acquisition of Data by
purchasing 100% of the outstanding Data stock by issuing the shareholders of
such stock one share of the Debtor's Class A Preferred Stock for every 10 shares
of Data common stock owned. To facilitate the Plan, the Debtor must also
acquire funding in an amount not to exceed $310,000. The Debtor has tried to
obtain such funding from a number of banks and investment bankers and venture
capital companies with little success. Thus, by this Motion and as provided for
in the Plan, the Debtor seeks Bankruptcy Court approval to borrow $310,000 from
several individuals and issue its Notes to evidence the indebtedness, the
Debtor's certificates of indebtedness or Debtor's Notes.
B. The Purchase Of Data.
-----------------------
In order to implement the reorganization, the Debtor contemplates
certain transactions whereby it will become the owner of Data through the
issuance of the Debtor's Preferred Series A Stock and an initial capital
contribution of $100,000.
Data is the proposed initial investee company of the Reorganized
Debtor. By this Motion, the Debtor seeks Court authority to acquire 1,000,000
shares of Data common stock (representing 100% of Data's total stock
outstanding) by issuing the shareholders of Data one share of the Debtor's Class
A Preferred Stock for every ten shares of Data common stock owned. The purchase
of 100% of the Data common stock will result in Data's shareholders holding
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100,000 shares of the Class A Preferred Stock of the Debtor. The acquisition of
Data also requires a $100,000 capital contribution from the Debtor to Data for
working capital. The purchase of the Data common stock by the Debtor will
result in Data's shareholders acquiring the following distribution of Class A
Preferred Stock:
<TABLE>
<CAPTION>
DATA OWNERSHIP # OF
-------------- ------------- ----
SHAREHOLDERS INTEREST # OF DATA SHARES PREFERRED
-------------- ------------- ---------------- ---------
STOCK SHARES
------------
<S> <C> <C> <C>
FIRST PORTLAND 25% 250,000 25,000
CORPORATION
BERNIE BUDNEY. 50% 500,000 50,000
DAVID NOLES. . 25% 250,000 25,000
</TABLE>
Additionally, the Debtor has agreed to provide Data $1,000,000 over a
two year period for operational purposes including marketing, sales and
development. Once Data has received the $1,000,000, the Reorganized Debtor will
register the Data stock owned by it with the SEC. The registration of Data
stock also will include the common stock resulting from the conversion of the
Class A Preferred Stock. The Class A Preferred Stock issued in exchange for
Data common stock will not be issued pursuant to Section 1145 of the Code. The
Reorganized Debtor intends to distribute thirty percent (30%) of the registered
Data securities owned by it to shareholders who are to receive securities under
the Plan on a Pro Rata basis.
C. History And Financial Condition Of Data.
--------------------------------------------
Data currently has the product and distribution rights to the Pocket
MLS. The Pocket MLS provides instant access to current, affordable and portable
multiple-listing real property information instantaneously whether the user is
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in the office, at home or on the road. The current product is a very basic
personal digital assistant (PDA) called a Reader that realtors can use to search
and view current MLS information. There are approximately 5,600 Readers, 1,600
of which are currently in the field. The Reader, along with the software,
replaces the traditional MLS printed catalogue and is updated on a daily basis.
Currently, Data has contracts with 34 of the approximate 1,700 real estate
boards nationwide to supply MLS information to their members by way of the
Pocket MLS. Through Data's proprietary software and compression technology, a
user of the Pocket MLS is able to dial into the Real Estate Board's computer
each night and download multiple listing information so that the Reader can be
updated with the most current information. Currently, the reader is supplied to
realtors at no charge, and an update fee of $30.00 per month is paid by users,
usually by credit card. There is no known direct competition for this product.
Data also is considering taking this product to other industries that
require accurate, affordable, current and portable information. At present,
Data is introducing its technology to the automotive industry with the support
of the National Auto Dealers Association for the purpose of creating an
electronic Book providing current vehicle pricing, updated in a similar fashion
as the MLS system discussed above.
Data's current tangible assets (excluding its technology and software)
are estimated to be valued at approximately $1.2 million. Attached hereto as
Exhibit "1" and incorporated herein by this reference is a summary of Data's
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current tangible assets. Data's products include the Reader and a PCMCIA card
burner and SCCI card which together make up the "loader." The loader is
attached to a personal computer which is updated daily through its modem by
Data's master computer. Data's management team consists of David Noles and
Bernie Budney whose resumes are attached hereto as Exhibit "2." Bernie Budney
is and shall serve as Data's Executive Vice President Operations and Marketing.
David Noles is and shall serve as Data's Vice President of Sales. Attached
hereto as Exhibit "3" and incorporated herein by this reference are the
three-year cash flow projections for Data assuming 25% target sales, 50% target
sales and 100% target sales.
D. The $310,000 Loan Transaction.
--------------------------------
To obtain sufficient capital to meet the requirements of section 1129
of the Bankruptcy Code, provide working capital for the Reorganized Debtor, and
fund the purchase of Data, the Debtor seeks authority to borrow up to $310,000
from several parties. To date, the Debtor has received commitments from the
following parties:
Lions Holding Company: $20,000.00
David Kekich: $ 1,000.00
Ely Mandell: $ 1,600.00
Brad Bortison: $17,000.00
Carl F. Steinfield &
Patricia W. Steinfield: $ 5,000.00
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In exchange for such funds, the Debtor seeks Court authority to issue
Debtor's Notes in an amount equal to the loan proceeds. The Debtor's Notes
shall be one year notes bearing an interest rate of 10% which may be converted
at the election of the holders to Units of the Reorganized Debtor as defined by
the Debtor's Proposed Plan.1foot1 Units of the Reorganized Debtor are
Securities of the Reorganized Debtor consisting of one (1) share of common stock
of the Reorganized Debtor and one (1) Class A warrant to purchase the
Reorganized Debtor's common stock. The Class A warrant shall allow the warrant
holder to purchase one (1) share of common stock of the Reorganized Debtor at a
price of $5.00 per share at any time within one (1) year from the Effective
Date. Upon the exercise of the Class A warrant, the warrant holder also shall
receive one (1) Class B warrant to purchase the Reorganized Debtor's common
stock. The terms of the Class B warrant shall be set by the board of directors
of the Reorganized Debtor subsequent to the Effective Date of the Plan.
On or after the Effective Date, holders of the Debtor's Notes may elect to
convert such Debtor's Notes to Units at a ratio of 1 Unit per dollar loaned.
The net proceeds of the loan shall be used to fund the cash payments
required under the Plan for Administrative Claims and the expenses associated
with printing and noticing the Plan and disclosure statement, fund the
purchase of Data and provide capital for post-confirmation operations.
The borrowings under the Debtor's Notes will constitute administrative
claims against the bankruptcy estate pursuant to section 364 of the Bankruptcy
Code, having priority over all other administrative claims of the kind specified
in Bankruptcy Code sections 503(b) and 507(b). Further, except as set forth
herein, under the terms of the borrowing, the Debtor agrees not to encumber any
property of the estate with liens or security interests not in existence as of
the date of this Motion and, not to incur any indebtedness equal to or senior in
priority to the indebtedness represented by the Debtor's Notes.
------------------------
1 Units of the Reorganized Debtor are Securities of the Reorganized
Debtor consisting of one (1) share of common stock of the Reorganized Debtor and
one (1) Class A warrant to purchase the Reorganized Debtor's common stock. The
Class A warrant shall allow the warrant holder to purchase one (1) share of
common stock of the Reorganized Debtor at a price of $5.00 per share at any time
within one (1) year from the Effective Date. Upon the exercise of the Class A
warrant, the warrant holder also shall receive one (1) Class B warrant to
purchase the Reorganized Debtor's common stock. The terms of the Class B
warrant shall be set by the board of directors of the Reorganized Debtor
subsequent to the Effective Date of the Plan.
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The Debtor has unsuccessfully canvassed the available credit markets
in search of post-petition financing on terms that are better than those offered
under the proposed Debtor's Notes. (See Declaration of Ely Mandell.) In sum,
---
financing through the issuance of the Debtor's Notes is not only the best
available financing alternative, it is the only available alternative.
Accordingly, because the terms of the Debtor's Notes are fair, represent the
best available financing alternative, and do not adversely affect the existing
liens of the Debtor's secured creditors, the Court is requested to enter its
order authorizing the Debtor to obtain credit through the issuance of such
Debtor's Notes on the terms and conditions herein stated. The terms of the
proposed Debtor's Notes are as set forth in the form Debtor's Note attached as
Exhibit "4" hereto. As more fully evidenced in the proposed form of the
Debtor's Note, such borrowings shall:
1. Carry an interest rate of 10% per annum;
2. The principal and interest accrued under the Note shall be due and
payable one year from issuance;
3. The Note shall inure to the benefit of and shall be binding on any
successors or assigns of the Debtor;
4. If this case is converted to Chapter 7, a chapter 11 trustee is
appointed or the Debtor's Plan is not confirmed the Note shall become
immediately due and payable;
5. The Note may not be transferred, absent registration under the
Securities Act of 1933 or absent an exception from such registration
requirements; and
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6. The obligations represented by the Debtor's Note shall constitute
a priority claim pursuant to sections 364(c)(1) of the Bankruptcy Code.
7. On or after the Effective Date, holders of the Debtor's Notes may
elect to convert such Debtor's Notes to Units at a ratio of 1 Unit per dollar
loaned.
II.
THE PROPOSED FINANCING SHOULD BE APPROVED
-----------------------------------------
The proposed borrowing for the issuance of the Debtor's Notes reflects
the exercise of the Debtor's prudent business judgment. The proposed borrowing
through the issuance of up to $310,000 in Debtor's Notes provides the Debtor
with the capital necessary to fund its presently pending plan of reorganization
and to facilitate the purchase of Data contemplated in the Plan and to fund the
printing and serving of the disclosure statement and Plan as well as provide
post-confirmation working capital for the Reorganized Debtor.
A. The Terms Of The Proposed Debtor Note Financing Are Fair And Adequate And
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Reflect The Exercise Of Digital's Sound Business Judgment.
----------------------------------------------------------------
Courts give broad deference to the business decisions of chapter 11
debtors. See, e.g., Richmond Leasing Co. v. Capital Bank, N.A., 762 F.2d 1303,
--- ---- ------------------------------------------
1311 (5th Cir. 1985). Moreover, a bankruptcy court generally will respect a
debtor in possession's business judgment regarding the need for and proposed use
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of funds. As the court noted in In re Ames Department Stores, Inc., 115 B.R.
----------------------------------
34, 38 (Bankr. S.D.N.Y. 1990), (a "court's decision under section 364 is to be
utilized on grounds that permit reasonable business judgment to be exercised so
long as the financing agreement does not contain terms that leverage the
bankruptcy process and powers or its purpose is not so much to benefit the
estate as it is to benefit a party-in-interest.") See In re Simasko Prod. Co.,
--- -----------------------
47 B.R. 444, 449 (Bankr. D. Colo. 1985) ("only in circumstances where there are
allegations of, and a real potential for, abuse by corporate insiders should the
court scrutinize the actions of the corporation.")
The proposed borrowings through the issuance of the Debtor's Notes
reflect the exercise of sound and prudent business judgment by the Debtor. The
terms of this proposed borrowing are more favorable than any other financing
alternative available to the Debtor. Further, such financing provides the
Debtor with sufficient capital to fund the cash requirements of its proposed
Plan.
B. Authorizing Debtor Certificate Financing Under Bankruptcy Code Sections
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364(c)(1) Is Justified Because Of The Tangible Benefits That Digital Will
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Reap From Such Financing.
--------------------------
Bankruptcy Code section 364(c) authorizes the obtaining of credit with
priority over any or all administrative expenses of the kind specified in
Bankruptcy Code sections 503(b) or 507(b). To obtain credit on this basis, such
credit must be unavailable on an unsecured basis under Bankruptcy Code section
503(b)(1).
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As noted herein, Debtor has canvassed the available credit markets in
search of post-petition financing and has been unsuccessful in procuring
financing commitments from banks or venture capital firms on terms as favorable
as those that can be obtained through the issuance of the Debtor's Notes on the
terms set forth above. Further, since Debtor's chapter 11 filing, Debtor has
generally been unable to obtain credit on any basis. In sum, financing through
the issuance of the Debtor's Notes is not only the best available financing
alternative, it is the only available alterative.
The Court should authorize the Debtor to obtain this form of credit
because of the tangible benefits that the estate will reap from having access to
such funds. The proposed financing will provide the Debtor with sufficient
capital to meet the requirements of section 1129 of the Bankruptcy Code and
confirm its Plan and purchase Data. The purchase of Data is a key element of
Debtor's Plan.
C. Because The Debtor's Notes Constitute Debt Securities They Should Be
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Exempted From Federal And State Securities Registration Under Bankruptcy
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Code Section 364(f).
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Bankruptcy Code section 364(f) provides that the issuance of
securities by the Debtor to obtain credit is exempt from the registration
requirements of federal and state securities laws. Without this exemption, the
Debtor would not be able to borrow money through the issuance of the Debtor's
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Notes absent registration of such securities with the appropriate federal and
state regulatory agencies because such certificates constitute debt securities
under federal and state securities laws. Such debt instruments clearly fall
within the ambit of Bankruptcy Code Section 364(f). Thus, the Court should
declare them exempt from Section 5 of the Securities Act of 1933, the Trust
Indenture Act of 1939, and any state or local law requiring registration of
securities. See In re Standard Oil and Exploration of Del., 136 B.R. 141, 151
--- -------------------------------------------
(Bankr. W.D. Mich. 1992) (if a debtor demonstrates that notes issued under
Bankruptcy Code section 364(f) are nonequity securities, they will be exempt
from registration under federal, state and local securities laws).
III.
THE PURCHASE OF DATA SHOULD BE APPROVED
---------------------------------------
The proposed purchase of Data in exchange for 100,000 shares of the
Debtor's Class A Preferred Stock and $100,000 is an integral component of the
Debtor's Plan. Data is the Debtor's proposed initial investee company. A
review of the cash flow projections for Data indicates that over the next few
years, Data will generate substantial cash even if Data only meets 25% of its
target. Additionally, Data's hard assets have a value of approximately $1.2
million. See Exhibits "1" and "3."
---
Courts are to give broad deference to the business decisions of a
chapter 11 debtor. Richard Leasing Co. V. Capital Bank, N.A., 762 F.2d 1303,
------------------------------------------
1311 (5th Cir. 1985). The Debtor believes that the purchase of Data will be in
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exchange for the Debtor's Class A Preferred Stock and $100,000 will benefit the
estate and is a wise business decision based on the assets of Data and Data's
anticipated business operations.
IV.
CONCLUSION
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The Court should authorize the Debtor to obtain credit through the
issuance of the Debtor's Notes. With such available credit, Digital will have
adequate capital to confirm a chapter 11 plan of reorganization and facilitate
the purchase of Data. The Debtor's Notes will also provide working capital for
the Reorganized Debtor. Further, the terms of the proposed borrowings are fair
and reasonable, represent the best available terms for the obtaining of such
credit, and reflect exercise of Digital's sound and prudent business judgment.
The Court, therefore, should authorize borrowings for the issuance of the
Debtor's Notes of up to $310,000. The Debtor also respectfully requests that
this Court authorize the purchase of Data pursuant to the terms set forth above.
DATED: June , 2000 ROBINSON, DIAMANT & BRILL
-- A Professional Corporation
By:
---------------------------------
MARTIN J. BRILL
Attorneys for Digital Technologies
Media Group, Inc.
Chapter 11 Debtor and Debtor in
Possession
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DECLARATION OF ELY MANDELL
--------------------------
I, Ely Mandell, declare as follows:
1. I am the acting president and secretary of Digital Technologies
Media Group, Inc., debtor and debtor-in-possession in the above-captioned
chapter 11 case ("Digital" or "Debtor"). I have personal knowledge of the facts
set forth herein, and if called as a witness, I could and would testify
competently thereto. I make this declaration in support of the attached Motion
by Debtor for an Order Authorizing: (1) Obtaining of Credit Pursuant to
Bankruptcy Code Sections 364(b), (c) and (f) Through the Issuance of Debtor's
Notes; and (2) Purchase of DataNet Information Systems, Inc.
2. In order to implement the Debtor's reorganization, on the
effective date of the Plan, the Debtor contemplates certain transactions whereby
it will become the owner of DataNet Information Systems, Inc. ("Data") and Data
will be the Reorganized Debtor's initial investee company.
3. To obtain sufficient capital to meet the requirements of section
1129 of the Bankruptcy Code, fund the purchase of Data and fund the printing and
noticing of the Plan various parties have agreed to lend the Debtor money in an
amount not to exceed $310,000. The loan will be evidenced by Debtor's Notes in
an amount equal to the loan proceeds. Upon confirmation and at the election of
each of the Debtor's Note holders, the Debtor's Notes may be converted to
securities of the Reorganized Debtor defined in the Debtor's Plan as Units.
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4. The net proceeds of the loan shall be used to fund the cash
payments required under the Plan for Administrative Claims, fund the purchase of
Data and provide capital for post-confirmation operations.
5. The borrowings under the Debtor's Notes will constitute
administrative claims against the bankruptcy estate pursuant to section 364 of
the Bankruptcy Code, having priority over all other administrative claims of the
kind specified in Bankruptcy Code sections 503(b) and 507(b). Further, except
as set forth herein, under the terms of the borrowing, the Debtor agrees not to
encumber any property of the estate with liens or security interests not in
existence as of the date of this Motion and, not to incur any indebtedness equal
to or senior in priority to the indebtedness represented by the Debtor's Notes.
6. The Debtor has unsuccessfully canvassed the available credit
markets in search of post-petition financing on terms that are better than those
offered under the proposed Debtor's Notes. Financing through the issuance of
the Debtor's Notes is not only the best available financing alternative, it is
the only available alternative. Because the terms of the Debtor's Notes are
fair, represent the best available financing alternative, and do not adversely
affect the existing liens of the Debtor's secured creditors, the Debtor requests
an order authorizing it to obtain credit through the issuance of such Debtor's
Notes on the terms and conditions herein stated. The terms of the proposed
Debtor's Notes are as set forth in the form Debtor's Note attached as Exhibit
"4" hereto.
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7. I was personally involved in the attempt to obtain alternative
post-petition financing for the Debtor. I contacted all available credit
institutions known to me without success.
8. I contacted Bank of America, Agora Hills Branch 0759, 5667 Kanan
Road, Agora Hills, California 91301 on or about October 1999. Bank of America
was not willing to discuss a loan to the Debtor and was not interested in
investing in the Debtor anyway.
9. I also contacted Steven Hicks, the Executive Vice President of
Southridge Capital Management LLC, an investment banking firm. While Mr. Hicks
indicated some interest, Southridge Capital Management LLC has not committed to
lending the Debtor money at this time.
10. I also contacted American Pacific Realty Corporation, which also
indicated that it was not interested in financing the Debtor. I also contacted
Sussex Investments, Inc., an investment house in Dallas, Texas, which also
indicated that it was not interested in financing the Debtor. I contacted MG
Securities as well and spoke to Michael Anderson, who indicated that MG
Securities was not interested in lending the Debtor any money.
11. As more fully evidenced in the proposed form of the Debtor's
Note, such borrowings shall:
a. Carry an interest rate of 10% per annum;
b. The principal and interest accrued under the Note shall be
due and payable one year from issuance;
c. The Note shall inure to the benefit of and shall be
binding on any successors or assigns of the Debtor;
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d. If this case is converted to Chapter 7, a chapter 11
trustee is appointed or the Debtor's Plan is not confirmed the Note shall become
immediately due and payable;
e. The Note may not be transferred, absent registration under
the Securities Act of 1933 or absent an exception from such registration
requirements; and
f. The obligations represented by the Debtor's Note shall
constitute a priority claim pursuant to sections 364(c)(1) of the Bankruptcy
Code.
12. The proposed borrowing and the issuance of the Debtor's Notes is,
in my business judgment, the best source of financing for the Debtor. The
proposed borrowing through the issuance of up to $310,000 in Debtor's Notes
provides the Debtor with the capital necessary to fund its presently pending
plan of reorganization and to consummate the purchase of Data which is
contemplated in the Plan.
13. As noted above, Debtor has canvassed the available credit markets
in search of post-petition financing and has been unsuccessful in procuring
financing commitments from banks or venture capital firms on terms as favorable
as those that can be obtained through the issuance of the Debtor's Notes on the
terms set forth above. Further, since Debtor's chapter 11 filing, Debtor has
generally been unable to obtain credit on any basis. In sum, financing through
the issuance of the Debtor's Notes is not only the best available financing
alternative, it is the only available alterative.
14. The Court should authorize the Debtor to obtain this form of
credit because of the tangible benefits that the estate will reap from having
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access to such funds. The proposed financing will provide the Debtor with
sufficient capital to meet the requirements of section 1129 of the Bankruptcy
Code and confirm its Plan.
15. Bankruptcy Code section 364(f) provides that the issuance of
securities by the Debtor in order to obtain credit is exempt from the
registration requirements of federal and state securities laws. Without this
exemption, the Debtor would not be able to borrow money through the issuance of
the Debtor's Notes absent registration of such securities with the appropriate
federal and state regulatory agencies because such certificates constitute debt
securities under federal and state securities laws. Such debt instruments
clearly fall within the ambit of Bankruptcy Code section 364(f). Thus the Court
should declare them exempt from Section 5 of the Securities Act of 1933, the
Trust Indenture Act of 1939, and any state or local law requiring registration
of securities.
16. The proposed financing as well as the proposed purchase of Data
are integral components of the Debtor's Plan. The Debtor believes that the
transactions will result in the highest and best possible return to unsecured
creditors of the bankruptcy estate and therefore should be approved. The
purchase of Data will provide the Debtor with valuable technology that
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<PAGE>
with further development and marketing will generate substantial income.
I declare under penalty of perjury under the laws of the United States
of America that the foregoing is true and correct.
Executed this __ day of December, 1999 at Los Angeles, California.
____________________________________
ELY MANDELL
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<PAGE>
DECLARATION OF BERNIE BUDNEY
----------------------------
I, Bernie Budney, declare as follows:
1. I am the Executive Vice President of Operations and Marketing for
DataNet Informations Systems, Inc. ("Data"). Attached hereto as Exhibit "2" and
incorporated herein by this reference is my resume setting forth my
experience and qualifications. I have personal knowledge of the facts set forth
herein, and if called as a witness, I could and would testify competently
thereto. I make this declaration in support of the attached Motion by Debtor
for an Order Authorizing: (1) Obtaining of Credit Pursuant to Bankruptcy Code
Sections 364(b), (c) and (f) through the Issuance of Debtor's Notes; and (2) the
Purchase of DataNet Information Systems, Inc.
2. In addition to being the Executive Vice President Operations and
Marketing of Data, I am also a 50% shareholder of Data.
3. I am informed and believe that Data is the proposed initial
investee company of the Reorganized Debtor.
4. Data currently has the product and distribution rights to the
Pocket MLS. The Pocket MLS provides instant access to current, affordable and
portable multiple-listing real property information instantaneously whether the
user is in the office, at home or on the road. The current product is a very
basic personal digital assistant (PDA) called a Reader that realtors can use to
search and view current MLS information. There are approximately 5,600 Readers,
1,600 of which are currently in the field. The Reader, along with the software,
replaces the traditional MLS printed catalogue and is updated on a daily basis.
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<PAGE>
Currently, Data has contracts with 34 of the approximate 1,700 real estate
boards nationwide to supply MLS information to their members by way of the
Pocket MLS. Through Data's proprietary software and compression technology, a
user of the Pocket MLS is able to dial into the Real Estate Board's computer
each night and download multiple listing information so that the Reader can be
updated with the most current information. Currently, the reader is supplied to
realtors at no charge, and an update fee of $30.00 per month is paid by users,
usually by credit card. There is no known direct competition for this product.
5. Data also is considering taking this product to other industries
that require accurate, affordable, current and portable information. At
present, Data is introducing its technology to the automotive industry with the
support of the National Auto Dealers Association for the purpose of creating an
electronic Book providing current vehicle pricing, updated in a similar fashion
as the MLS system discussed above.
6. Data's current tangible assets (excluding its technology and
software) are estimated to be valued at approximately $1.2 million. Attached
hereto as Exhibit "1" and incorporated herein by this reference is a summary of
Data's current tangible assets. Data's products include the Reader and a PCMCIA
card burner and SCCI card which together make up the "loader." The loader
is attached to a personal computer which is updated daily through its modem by
Data's master computer. Attached hereto as Exhibit "3" and incorporated herein
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<PAGE>
by this reference are the three-year cash flow projections which I have prepared
for Data assuming 25% target sales, 50% target sales and 100% target sales.
I declare under penalty of perjury under the laws of the United States
of America that the foregoing is true and correct.
Executed this __ day of December, 1999 at Los Angeles, California.
____________________________________
BERNIE BUDNEY
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