The fallout from Digital Domain Media Group’s bankruptcy continues with investors in the troubled special effects and 3D conversion firm taking the former CEO, the company’s auditors and other executives to court for fraud. Having lost millions in the James Cameron-founded company just before it went under last September, Iroquois Master Fund and Kingsbrook Opportunities Master Fund late last week filed a six claim complaint (read it here) against John Textor, his wife Deborah, various DDMG directors and auditors SingerLewak LLP. The plaintiffs are seeking compensatory damages as well as interest, legal fees and “such other and further relief as the Court may deem just and proper.” The complaint in New York State Supreme Court alleges common law fraud, aiding and abetting fraud, negligent misrepresentations and omissions, negligence, breach of the implied covenant of good faith and fair dealing and civil conspiracy.
Disney has been temporarily granted a request to halt Digital Domain Media Group’s sale of 3D conversion patents. Disney has claimed that the proposed $5.4 million sale would infringe on its licensed ability to convert films from 2D to 3D and could make the company vulnerable to lawsuits. On Monday, Judge Brendon Shannon granted the media giant a 45-day stay of his order that had previously approved the sale; last week, Disney filed an appeal against the sale in federal court. Today’s order allows Disney’s federal appeal to go forward. It also allows the outcome of that appeal to not be rendered irrelevant if a sale occurred before the courts had reached a conclusion. In the interim, Disney will have to put up a $5.4 million bond to cover the projected patent sale fee.
Hollywood studios will not be pulling the plug on projects at the financially troubled special-effects company after Digital Domain got some breathing room yesterday in bankruptcy court. Judge Brenden Shannon approved a fast-tracked auction of Digital Domain Media Group for September 21 and a debtor-in-possession order (read it here) that gives the almost-broke company immediate access to almost $12 million. The new auction date comes after newly named DDMG chief Ed Ulbrich told the court that six Hollywood studios told him they would start pulling projects from the Oscar-winning company this week unless Digital Domain had a clear financial path forward. The loss of those effects projects would result in the removal of what is currently 80% of the company’s revenues. “We’ve been fighting diligently to fend off a run on the company, Ulbrich testified. DDGM’s lawyer Robert Feinstein put it even more bluntly: “The studios are freaking out,” the attorney told the judge. Some of the films that Digital Domain is currently working on include Lionsgate’s Ender’s Game (Digital Domain is a co-producer), New Line’s Jack The Giant Killer, and Paramount’s G.I. Joe: Retaliation.
Private investment firm Searchlight Capital Partners has agreed to pay $15M for Digital Domain Productions — the key operation at Digital Domain Media Group — although the special effects company will have to put itself up for auction following its Chapter 11 bankruptcy filing. Creditors threatened last month to foreclose; Digital Domain’s been losing cash which put it in default of its loan agreements. But Hudson Bay Master Fund and other senior note holders like the deal with Searchlight: They’re putting up as much as $20M in debtor-in-possession financing. Chief Restructuring Officer Michael Katzenstein says that Digital Domain is “grateful for the cooperative assistance of our lenders, our customers and employees as we work to seamlessly transition these important businesses and other assets to financially strong and committed buyers. Their ongoing support ensures the success of these matters.” CEO Ed Ulbrich adds that the company is “on track to deliver all of our clients’ productions on schedule, on budget and at the highest degree of quality that they expect from Digital Domain.” Films in its pipeline include Lionsgate’s Ender’s Game (Digital Domain is a co-producer), New Line’s Jack The Giant Killer, and Paramount’s G.I. Joe: Retaliation.
Weird things are happening at the James Cameron-founded company that’s responsible for special effects and 3D conversion on many Hollywood productions including Lionsgate’s Ender’s Game. Digital Domain‘s stock is down nearly 34% today to a piddling 65 cents a share and it announced in an SEC filing that CEO and chairman John Textor resigned “effective immediately” with no exit agreement or arrangement. Textor’s Wyndcrest Holdings led an investor group that bought Digital Domain in 2006. He told the board that he left because he’s “in profound disagreement” with the company’s decision to close its animation and visual effects studio in Port St. Lucie, Fla. “Our incredibly talented artists and filmmakers were building something truly special in Port St. Lucie, not just our favorite first film, The Legend Of Tembo, but also our first home, Tradition Studios.” By leaving he says he should have “greater flexibility to independently consider other strategic alternatives for the Company, the Port St. Lucie studio and the people affected.” Digital Domain says the cutbacks in Florida are part of “a strategic realignment that will enable it to focus its resources on its core business.” Studios in California and Vancouuver “intend to operate without interruption.” The board gave COO Ed Ulbrich the additional title of CEO of Digitial Domain Productions while Michael Katzenstein runs day-to-day operations. Katzenstein is is a senior managing director of FTI Consulting, and on August 29 was also named Digital Domain’s interim COO.