Document Page 1 of 18 UNITED STATES BANKRUPTCY COURT DISTRICT OF MINNESOTA In re: Digital Telecommunications, Inc., BKY. No. 10-36001 Chapter 7 Debtor. NOTICE OF MOTION AND MOTION FOR APPROVAL OF STIPULATION FOR RELIEF FROM AUTOMATIC STAY TO: The parties in interest as specified in Local Rule 9013-3. 1. Winona National Bank, N.A. ( WNB ), by its undersigned attorneys, moves the court for the relief requested below and gives notice of hearing. 2. The Court will hold a hearing on the motion for an order approving an agreement relating to relief from the automatic stay on May 4, 2011 at 1:30 pm in Courtroom 2B, 2nd floor, 316 North Robert Street, St. Paul, Minnesota. 3. Any response to the motion for a final order must be filed and served not later than April 29, 2011, which is five (5) days before the time set for the hearing (including Saturday, Sundays, and holidays). UNLESS A RESPONSE OPPOSING THE MOTION IS TIMELY FILED, THE COURT MAY GRANT THE MOTION WITHOUT A HEARING. 4. This court has jurisdiction over this motion pursuant to 28 U.S.C. 157 and 1334, Rule 5005 of the Federal Rules of Bankruptcy Procedure ( Bankruptcy Rules ), and Local Rules 1070-1 and 1073-1. This is a core proceeding. 5. The petition commencing this Chapter 11 case was filed on August 16, 2010 (the Petition Date ). On March 31, 2011, the case was converted to a Chapter 7 Case. The case is now pending in this court.
Document Page 2 of 18 6. This motion arises under 11 U.S.C. 362(d) and Bankruptcy Rule 4001(d). This motion is filed under Bankruptcy Rule 9014 and Local Rules 9013-1 to 9013-5. FACTUAL BACKGROUND 7. WNB requests an order approving the Stipulation for Relief from the Automatic Stay (the Stipulation ) attached to this Motion as Exhibit A authorizing WNB to collect, foreclose upon and otherwise enforce its rights and remedies against the Collateral, as defined below, and all proceeds thereof in any form, including but not limited to all funds now or hereafter on deposit in the Debtor s deposit account at WNB, in accordance with the terms and conditions of the Loan Documents and applicable law. 8. As of the Petition Date, the Debtor was indebted to WNB under the Loan Documents, as defined below, in the total principal amount of $1,464,975.27 in outstanding loans, plus up to $600,000.00 in principal amount for the Debtor s outstanding obligation to reimburse WNB in the event the letter of credit issued by WNB for the benefit of Qwest Corporation was drawn upon, plus total accrued and unpaid interest in the amount of $2,390.21, late charges and other charges (collectively, the Indebtedness ). The letter of credit was drawn upon and honored by WNB in the principal amount of $600,000.00 on September 13, 2010. 9. The Indebtedness is secured by a security interest in all accounts and other rights to payment, inventory, equipment, instruments and chattel paper, general intangibles, documents, farm products and supplies, government payments and program, investment property and deposit accounts whether owned or thereafter acquired as well as the products and proceeds thereof (the Pre-Petition Collateral ). 10. WNB has perfected its rights in the Pre-Petition Collateral by, among other things, filing with the Minnesota Secretary of State: (1) a UCC Financing Statement on July 6, 2
Document Page 3 of 18 1999, as document number 2144628; (b) a UCC Financing Continuation Statement on January 14 2004, as document number 20041018893; (c) a UCC Financing Statement Amendment on July 16, 2007, as document number 20071752566; and (d) a UCC Financing Continuation Statement on January 28, 2009, as document number 20091475578. 11. The Indebtedness, and the Pre-Petition Collateral security therefore, is evidenced by several loan documents by and between the Debtor and WNB, including but not limited to (collectively the Loan Documents ): (1) a Promissory Note (Loan Number 71168) by and between the Debtor and WNB dated July 3, 2009, in the original principal amount of $1,000,000.00; (2) a Promissory Note (Loan Number 71151) by and between the Debtor and WNB dated July 14, 2006, in the original principal amount of $756,243.33; (3) a Promissory Note (Loan Number 71393) by and between the Debtor and WNB dated September 5, 2007, in the original principal amount of $749,636.27; and (4) an Irrevocable Standby Letter of Credit (Number 71713) issued by WNB for the benefit of Qwest Corporation for the account of the Debtor dated September 15, 2009, in the original principal amount of $600,000.00, and that expired on September 15, 2010. 12. After the Petition Date, this Court approved the Interim, Final, First Amended, Second Amended, and Third Amended Stipulation for Use of Cash Collateral and Adequate Protection (the Cash Collateral Stipulations ), which provided adequate protection to WNB for the use of cash collateral, as defined in 363(a) of the Bankruptcy Code, during the Chapter 11 case, in the form of replacement liens on, and security interests in, the Debtor s post-petition assets of the same types as are subject to any pre-petition lien or security interest (including avoidance actions under 11 U.S.C. 549, but excluding avoidance actions under 11 U.S.C. 3
Document Page 4 of 18 544, 545, 547, 548 and 553(b)) (collectively with the Pre-Petition Collateral, the Collateral ) wherever located. 13. WNB seeks relief from the automatic stay as to the Debtor, the Debtor s estate, and all property of the Debtor s estate to the extent necessary for WNB to collect, foreclose upon and otherwise enforce its rights and remedies against the Collateral and all proceeds thereof in any form, including all funds now or hereafter on deposit in the Debtor s deposit account at WNB, in accordance with the terms and conditions of the Loan Documents and applicable law. 14. On April 19, 2011, John Hedback, in his sole capacity as Chapter 7 Trustee for the Debtor (the Trustee ) and WNB executed a Stipulation authorizing WNB to obtain such relief from the automatic stay. 15. As of the Conversion Date, the principal amount of at least $1,572,557.63 of outstanding principal was outstanding plus interest and fees to the extent allowable under the Bankruptcy Code remained outstanding on the Loan Documents (the Remaining Indebtedness ). 16. The Trustee and WNB believe that the value of the Collateral is exceeded by the amount of the Remaining Indebtedness. 17. Pursuant to Local Rule 9013-2(a), this motion is verified and is accompanied by a memorandum, proposed order, and proof of service. 18. Pursuant to Local Rule 9013-2(c), WNB gives notice that the Debtor may, if necessary, call David Vaselaar, Senior Vice President and Chief Credit Officer for WNB, whose address is 1491 West Broadway, Winona, MN 55987 to testify about the factual matters raised in this motion. Depending on objections raised (if any), WNB reserves the right to give notice of other potential witnesses. 4
Document Page 5 of 18 WHEREFORE, Winona National Bank, N.A. moves the court for an order approving the Stipulation for Relief from the Automatic Stay and for an order authorizing relief from the stay. Dated: April 19, 2011 GRAY, PLANT, MOOTY, MOOTY & BENNETT, P.A. /e/ Phillip Bohl Phillip W. Bohl (#139191) Jessica A. Mitchell (#0389738) 500 IDS Center 80 South Eighth Street Minneapolis, Minnesota 55402 Telephone: 612-632-3019 Facsimile: 612-632-4019 ATTORNEYS FOR WINONA NATIONAL BANK 5
Document Page 6 of 18 UNITED STATES BANKRUPTCY COURT DISTRICT OF MINNESOTA In re: Digital Telecommunications, Inc., BKY. No. 10-36001 Chapter 7 Debtor. MEMORANDUM OF FACTS AND LAW SUPPORT OF MOTION FOR ORDER APPROVING AGREEMENT RELATING RELIEF FROM THE AUTOMATIC STAY INTRODUCTION Winona National Bank, N.A. ( WNB ) seeks approval of an agreement related to relief from the automatic stay. WNB and the Chapter 7 Trustee have entered into an agreement related to the authorization of relief from the stay as to the Debtor, the Debtor s estate, and all property of the Debtor s estate to the extent necessary for WNB to collect, foreclose upon and otherwise enforce its rights and remedies against the Collateral and all proceeds thereof in any form, including all funds now or hereafter on deposit in the Debtor s deposit account at WNB, in accordance with the terms and conditions of the Loan Documents and applicable law. Based on this agreement, the Court should approve WNB s request. FACTS The facts in support of this memorandum of law are set forth in the verified Motion. All capitalized terms have the meaning ascribed to them in the Motion. ARGUMENT A party may move the court for approval of an agreement regarding relief from the automatic stay. Fed. R. Bank. P. 4001(d)(1)(A). If no objection is filed, the court may enter an order approving or disapproving the agreement without conducting a hearing. Fed. R. Bankr. P. 6
Document Page 7 of 18 4001(d)(3). WNB and the Trustee have entered into an agreement for relief from the automatic stay. The parties now seek court approval of the agreement. CONCLUSION WNB and the Trustee have entered into an agreement for relief from the automatic stay as to the Debtor, the Debtor s estate, and all property of the Debtor s estate to the extent necessary for WNB to collect, foreclose upon and otherwise enforce its rights and remedies against the Collateral and all proceeds thereof in any form, including all funds now or hereafter on deposit in the Debtor s deposit account at WNB, in accordance with the terms and conditions of the Loan Documents and applicable law. The Court, therefore, should grant WNB s motion for an order approving the agreement. Dated: April 19, 2011 GRAY, PLANT, MOOTY, MOOTY & BENNETT, P.A. /e/ Phillip Bohl Phillip W. Bohl (#139191) Jessica A. Mitchell (#0389738) 500 IDS Center 80 South Eighth Street Minneapolis, Minnesota 55402 Telephone: 612-632-3019 Facsimile: 612-632-4019 ATTORNEYS FOR WINONA NATIONAL BANK 7
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Document Page 9 of 18 UNITED STATES BANKRUPTCY COURT DISTRICT OF MINNESOTA In re: Digital Telecommunications, Inc., BKY. No. 10-36001 Chapter 7 Debtor. STIPULATION FOR RELIEF FROM AUTOMATIC STAY Winona National Bank, N.A. ( WNB ), by and through its attorneys, and John Hedback, solely in his capacity as Chapter 7 Trustee for Digital Telecommunications, Inc. (the Trustee ), jointly stipulate as follows: RECITALS A. On August 16, 2010, Digital Telecommunications, Inc. (the Debtor ) filed for voluntary relief (the Petition Date ) under a Chapter 11 of Title 11 of the United States Code, 11 U.S.C. 101, et seq. (the Bankruptcy Code ), with the United States Bankruptcy Court for the District of Minnesota (the Court ). B. On March 31, 2011, the above-mentioned case was converted to a Chapter 7 case under the Bankruptcy Code (the Conversion Date ). C. WNB alleges that: 1. As of the Petition Date, the Debtor was indebted to WNB under the Loan Documents, as defined below, in the total principal amount of $1,464,975.27 in outstanding loans, plus up to $600,000.00 in principal amount for the Debtor s outstanding obligation to reimburse WNB in the event the letter of credit issued by WNB for the benefit of Qwest Corporation was drawn upon, plus total accrued and unpaid
Document Page 10 of 18 interest in the amount of $2,390.21, late charges and other charges (collectively, the Indebtedness ). The letter of credit was drawn upon and honored by WNB in the principal amount of $600,000.00 on September 13, 2010. 2. The Indebtedness is secured by a security interest in all accounts and other rights to payment, inventory, equipment, instruments and chattel paper, general intangibles, documents, farm products and supplies, government payments and program, investment property and deposit accounts whether owned or thereafter acquired as well as the products and proceeds thereof (the Pre-Petition Collateral ). 3. WNB has perfected its rights in the Pre-Petition Collateral by, among other things, filing with the Minnesota Secretary of State: (1) a UCC Financing Statement on July 6, 1999, as document number 2144628; (b) a UCC Financing Continuation Statement on January 14 2004, as document number 20041018893; (c) a UCC Financing Statement Amendment on July 16, 2007, as document number 20071752566; and (d) a UCC Financing Continuation Statement on January 28, 2009, as document number 20091475578. 4. The Indebtedness, and the Pre-Petition Collateral security therefore, is evidenced by several loan documents by and between the Debtor and WNB, including but not limited to (collectively the Loan Documents ): (1) a Promissory Note (Loan Number 71168) by and between the Debtor and WNB dated July 3, 2009, in the original principal amount of $1,000,000.00; (2) a Promissory Note (Loan Number 71151) by and between the Debtor and WNB dated July 14, 2006, in the original principal amount of $756,243.33; (3) a Promissory Note (Loan Number 71393) by and between the Debtor and WNB dated September 5, 2007, in the original principal amount of $749,636.27; and 2
Document Page 11 of 18 (4) an Irrevocable Standby Letter of Credit (Number 71713) issued by WNB for the benefit of Qwest Corporation for the account of the Debtor dated September 15, 2009, in the original principal amount of $600,000.00, and that expires on September 15, 2010. 5. After the Petition Date, the court approved the Interim, Final, First Amended, Second Amended, and Third Amended Stipulation for Use of Cash Collateral and Adequate Protection (the Cash Collateral Stipulations ), which provided adequate protection to WNB for the use of cash collateral, as defined in 363(a) of the Bankruptcy Code, during the Chapter 11 case, in the form replacement liens on, and security interests in, the Debtor s post-petition assets of the same types as are subject to any prepetition lien or security interest (including avoidance actions under 11 U.S.C. 549, but excluding avoidance actions under 11 U.S.C. 544, 545, 547, 548 and 553(b)) (collectively with the Pre-Petition Collateral, the Collateral ) wherever located. 6. As of the Conversion Date, the principal amount of at least $1,572,557.63 was outstanding plus interest and fees to the extent allowable under the Bankruptcy Code remained outstanding on the Loan Documents (the Remaining Indebtedness ). D. The Trustee and WNB believe that the value of the Collateral is exceeded by the amount of the Remaining Indebtedness. E. Pursuant to the Agreement below, the Trustee does not object to WNB obtaining relief from the automatic stay. STIPULATION ACCORDINGLY, THE PARTIES, THROUGH THEIR RESPECTIVE COUNSEL, AND FOR GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND 3
Document Page 12 of 18 SUFFICIENCY OF WHICH IS HEREBY ACKNOWLEDGED AND ACCEPTED, AGREE AS FOLLOWS: 1. The parties agree to the Recitals above. 2. WNB shall be granted relief from the automatic stay, on and after the Effective Date of this Stipulation, as defined below, as to the Debtor, the Debtor s estate, and all property of the Debtor s estate to the extent necessary for WNB to collect, foreclose upon and otherwise enforce its rights and remedies against the Collateral and all proceeds thereof in any form, including all funds now or hereafter on deposit in the Debtor s deposit account at WNB, in accordance with the terms and conditions of the Loan Documents and applicable law. 3. The Collateral shall not include any non-inventory motor vehicles owned by the Debtor or the Debtor s estate. 4. Nothing in this Stipulation is or will be deemed to be a waiver, relinquishment, satisfaction, or discharge of any claim of WNB against the Debtor or the Debtor s estate. 5. To the extent provided in the Cash Collateral Stipulations, nothing in this Stipulation is or will be deemed to be a waiver of the Trustee s right to challenge the validity, priority or perfection of any lien or security interest in favor of WNB. 6. Upon execution of this Stipulation and until the Effective Date of this Stipulation, the Trustee shall hold any Collateral, including proceeds received from any outstanding accounts, and from and after the Effective Date deliver any such Collateral to WNB. 7. This Stipulation will become effective and binding upon the Trustee, the Debtor, the Debtor s estate, and WNB upon the entry of an Order in the form and substance substantially similar to the attached Exhibit A (the Effective Date ). 4
Document Page 13 of 18 8. The Trustee and WNB request that any Order approving this Stipulation not be stayed for ten (10) days after entry of the Order in accordance with Fed. R. Bankr. P. 4001(a)(3). 9. Pursuant to local rule 9011-4, this stipulation may be filed with the Bankruptcy Court with an electronic signature for (1) John Hedback, solely in his capacity as Chapter 7 Trustee for Digital Telecommunications, Inc. and (2) Gray, Plant, Mooty, Mooty & Bennett, P.A., Phillip W. Bohl, which is the law firm representing Winona National Bank, N.A. 5
Document Page 14 of 18 Dated: April 19, 2011 JOHN HEDBACK, SOLELY IN HIS CAPACITY AS CHAPTER 7 TRUSTEE FOR DIGITAL TELECOMMUNICATIONS, INC. By /e/ John A. Hedback Its Trustee Dated: April 19, 2011 GRAY, PLANT, MOOTY, MOOTY & BENNETT, P.A. By /e/ Phillip Bohl Phillip W. Bohl (#139191) Jessica A. Mitchell (#0389738) 500 IDS Center 80 South Eighth Street Minneapolis, MN 55402 Telephone: (612) 632-3000 Facsimile: (612) 632-4444 ATTORNEYS FOR WINONA NATIONAL BANK GP:2959486 v1 6
Document Page 15 of 18 UNITED STATES BANKRUPTCY COURT DISTRICT OF MINNESOTA In re: Digital Telecommunications, Inc., BKY. No. 10-36001 Chapter 11 Debtor. CERTIFICATE OF SERVICE I hereby certify that on April 19, 2011, I caused the following: Notice of Motion and Motion For Approval of Stipulation for Relief from Automatic Stay Memorandum of Facts and Law Support of Motion for Order Approving Agreement Relating Relief from the Automatic Stay Stipulation for Relief from Automatic Stay Order Approving Stipulation for Relief from Automatic Stay to be filed electronically with the Clerk of Court through ECF, and that ECF will send an e-notice of the electronic filing to the following: Clinton E. Cutler ccutler@fredlaw.com Douglas W. Kassebaum dkassebaum@fredlaw.com Sarah M. Gibbs sgibbs@fredlaw.com Sarah J. Wencil Sarah.J.Wencil@usdoj.gov U.S. Trustee Ustpregion12.mn.ecf@usdoj.gov T. Chris Stewart Tchris@AnaLawFirm.com Recovery Management Systems claims@recoverycorp.com I further certify that I caused a copy of the foregoing documents and the notice of electronic filing to be mailed by first class mail, postage paid, to the following non-ecf participants: Peter Shortridge Riverfront Partnership, LP 111 Riverfront Building Winona, MN 55987 G. Douglas Bauer InContact, Inc. 7730 Union park Ave., #500 Salt Lake City, UT 84047 Jerry Papenfuss KAGE Inc Winona Radio PO Box 767 Winona, MN 55987
Document Page 16 of 18 Dated: April 19, 2011 GRAY, PLANT, MOOTY MOOTY & BENNETT, P.A. /e/ Phillip Bohl Phillip Bohl (#139191) GP:2966852 v1 2
Document Page 17 of 18 UNITED STATES BANKRUPTCY COURT DISTRICT OF MINNESOTA In re: Digital Telecommunications, Inc., BKY. No. 10-36001 Chapter 7 Debtor. ORDER APPROVING STIPULATION FOR RELIEF FROM AUTOMATIC STAY This matter came before the Court in the above-entitled case for an order approving the Stipulation for Relief from the Automatic Stay between Winona National Bank, N.A and John Hedback, solely in his capacity as Chapter 7 trustee for Digital Telecommunication, Inc. Appearances, if any, were as noted on the record. Based on the verified Motion, all of the files and records in this case, it appearing that notice of the hearing on the Motion was adequate, and the Court being fully advised in the premises, IT IS ORDERED THAT: 1. The Stipulation for Relief from the Automatic Stay is approved and incorporated herein by reference. 2. Winona National Bank is granted relief from the automatic stay as to the Debtor, the Debtor s estate, and all property of the Debtor s estate to the extent necessary for WNB to collect, foreclose upon and otherwise enforce its rights and remedies against any of WNB s collateral and all proceeds thereof in any form, including all funds now or hereafter on deposit in Digital Telecommunications, Inc. s deposit account at Winona National Bank, in accordance with the terms and conditions of the loan documents and applicable law.
Document Page 18 of 18 3. Relief from the automatic stay shall not apply to any non-inventory motor vehicles owned by the Debtor or the Debtor s estate. 4. Winona National Bank is authorized to take all necessary steps to satisfy applicable state law and the terms and conditions of the loan documents in order to foreclose and collect upon its collateral; and 5. This Order shall take effect immediately and no stay of this Order shall arise under Federal Rule of Bankruptcy Procedure 4001(a)(3). Dated: April, 2011 Dennis D. O Brien United States Bankruptcy Judge GP:2961197 v1 2