Datatron Inc. Seeks Loan to Become Credit Card Firm

Datatron Inc., a bankrupt Tustin maker of computer equipment, is seeking court approval to borrow up to $3.5 million to finance its proposed reorganization as a credit card company.

In a document filed with the federal Bankruptcy Court in Santa Ana, Datatron said it intends to issue up to $3.5 million in debt certificates and to loan the proceeds to First Fidelity Financial Inc. of Seattle, which has signed an agreement to buy Datatron. The funds would be used to finance Datatron’s reorganization, the company said.

Datatron, which filed for protection from creditors in 1985 under Chapter 11 of the bankruptcy code, has asked the court to allow it to be acquired by First Fidelity, a private firm that specializes in marketing credit cards to members of such special-interest “affinity” groups as the Sierra Club.

The proposed reorganization provides for an expanded credit card company that would engage in financing as well as marketing of Visa and MasterCard accounts.

In the past, the credit card accounts generated by First Fidelity were financed by commercial banks, and the Seattle firm received a fee based on card usage.

Finance Expansion

First Fidelity President Michael O’Murphy said the reorganization would enable the new company to expand into credit card account financing, a source of additional revenue. The $3 million raised through the sale of debt certificates would allow the company to finance up to $30 million in accounts, he said.

Under the proposed reorganization, Datatron’s creditors would receive a combination of convertible preferred stock and warrants in the new company in lieu of cash repayment. Datatron owes its creditors $3.3 million.

Datatron’s shareholders would receive common stock and warrants in the new company.

In addition to the proposed $3.5-million loan, the reorganization would enable First Fidelity to use more than $6 million in accumulated Datatron tax losses and to raise $7 million more through the potential exercise of warrants by its shareholders.

Datatron President Dan Crooks said First Fidelity and Datatron are arranging the sale of the proposed debt certificates and negotiating more financing for the reorganization.

“First Fidelity’s operations provide a very attractive growth opportunity,” Crooks said. “Based on the contacts that we have had with shareholders and creditors, everyone seems to be very much in favor of the reorganization.”