Crossgen: Chapter 11 Filed?

[Local Hero]

Posted 20/06/2004

THE PULSE has learned that CrossGeneration Comics filed for Chapter 11 and laid off the remaining creators on staff. Those on staff hadn't been paid for at least two months. Sources close to CrossGen have told us that CrossGen President and Publisher, Mark Alessi had turned down several opportunities to sell the company outright and instead hopes to keep it alive with a skeleton crew under bankruptcy protection. His hope is to find enough investors and working capital to relaunch the company. Sources close to the imprint estimate Alessi has spent close to 30 million dollars on CrossGen and all its related properties since the company's inception.

According to the U.S. Securities and Exchange Commission

A bankrupt company, the "debtor," might use Chapter 11 of the Bankruptcy Code to "reorganize" its business and try to become profitable again. Management continues to run the day-to-day business operations but all significant business decisions must be approved by a bankruptcy court.

Most publicly-held companies will file under Chapter 11 rather than Chapter 7 because they can still run their business and control the bankruptcy process. Chapter 11 provides a process for rehabilitating the company's faltering business. Sometimes the company successfully works out a plan to return to profitability; sometimes, in the end, it liquidates.

Former Crossgen VP of Special Projects Brandon Peterson made this comment. "I've remained quiet in the press about CrossGen for the most part, due to professional and personal courtesy, and I will continue to remain mostly silent. I will say that there I grew tremendously professionally and personally, and will continue to consider it among the most important times in my life. I wish everyone involved with these latest events the best of luck, and I hope they come out all right. They are among some of the nicest, most talented, and dedicated people I have ever worked with. Before making cruel and lame jokes of the situation, I would hope some people would realize those nice, talented people now have real hardship ahead supporting their families and loved ones in a ruthlessly crowded comics market. Comics may be a hobby to most reading this so they can be glib, but for those people I worked with it's how they put food in mouths and a roof over their heads. Anyway, best of luck all. I hope you land on your feet."

[Enchantress]

This really isn't all that surprising to me. If you've gone to Crossgen's website over the past months you'll see it hasn't been updated in a very long time.
Take your time and look through their boards and you'll see the myriad of people debating what exactly Chapter 11 means. Yes, Marvel filed Chapter 11...but the fact of the matter is...Marvel is a hell of a lot larger than CrossGen would have ever been. They've got more properties and more potential. Crossgen has shot themselves in the foot by canceling their flagship books without explaination to the fans at all and leaving them with lame and crappy "The End?" BS.
I worry for the future of Lady Death...which is the main reason I read any CG books... however.. they purchased the rights to LD after Chaos! filed Chapter 11 on Ebay.
Don't be surprised if you see comic books from CrossGen and Characters popping up on the auction block any time soon.

[Local Hero]

Posted 21/06/2004
Source Newsarama

According to numerous sources speaking to Newsarama, as of June 18th, CrossGen has laid off all but a skeleton staff of employees (including legal counsel), with company founder Mark Alessi reportedly telling the departing workers individually that he was going to file for Chapter 11 bankruptcy protection for the company. Chapter 11 protection allows for the business to continue operating while it reorganizes its financial picture, keeping the business alive, while paying off creditors over time. Sources reported to Newsarama that CrossGen founder Mark Alessi hopes to find investors to bring the company out of Chapter 11 and relaunch at a later date. Reportedly, many inside CrossGen advised Alessi to file Chapter 11 months ago. It's unclear though, how, with limited to no product coming out, and no investors on the horizon (with numerous deals reportedly having fallen through), the company would be able to raise capital under the protection of the Court. As of June 20th, no filing for CrossGen is listed in the U.S. Bankruptcy Court. The alleged filing was the latest upheaval for the company since the resignations of Bill Rosemann, Chris Oarr; and Mike Beattie in early April and the later cancellations of virtually all of its line. The most recent official comments on CrossGen’s prospects and future were made by Alessi himself on the CrossGen messageboards on May 3rd, when he wrote:

Yes, CrossGen is struggling through some difficult times. No, we’re not dead yet. Not even close. No, I can’t give you all the information you’d like to know at this time. Have we had to make the difficult decision to let some titles go? You bet. Have we enjoyed having to trim staff as a result? Not a bit. Do we like seeing loyal staffers become jobless? Of course not! Are we done for? Hell, no! Can we give you all the details of our upcoming transformation? Not without violating agreements we’ve made with other business entities. I want to thank you all for your support during this difficult transition, and I look forward to the day when we can make the announcements you have all been waiting for.

While Diamond’s Previews is yet to ship for June, listing the comics on sale in September, the text file of the catalog shows that the publisher is soliciting no books for the month. Additionally, CrossGen will not be an exhibitor at Comic Con International at San Diego in July. Since the time of the April resignations, Newsarama has learned that several former CrossGen staff members have had complaints filed against them, alleging embezzlement which reportedly comes from using CrossGen corporate credit cards for unapproved purchases. In regards to leaving dozens of freelance and staff unpaid during what was referred to as “restructuring” for a time, former CG’er Andy Smith filed a lawsuit against the publisher for monies owed, and won his case in early May. Newsarama has learned that several other creators who are still owed money by CrossGen have, or are in the process of bringing suit against the company for the owed wages, through Smith’s lawyer.

~~~~~~~~~~

Newsarama has acquired a copy of CrossGen’s Chapter 11 bankruptcy filing, which was filed Friday at the Tampa US Bankruptcy Court. The papers were filled out on June 18th, and do resolve that the company – CrossGen Entertainment, Inc. has filed for Chapter 11 bankruptcy protection from its creditors. The filing covers CrossGen Comics, Code 6 Comics, and CG Entertainment. The filing identifies the 20 largest unsecured creditors of CrossGen:

Quebecor World, Montreal (printer of CrossGen comics) - $1,478,893.85
Branded Entertainment, LLC (Hollywood agency developing CG properties for other media, home to Michael Uslan) - $437,868.12
American Express - $402,825.20
Foley & Lardner (law firm) - $262,382.34
Automatic Data Processing (payroll company) - $155,159.82
Fortus Software, LLC - $109,736.45
Newhouse Porter, LLC - $150,547.50
Hunton & Williams (law firm) - $102,985.25
Wizard Entertainment - $83,798.00
580 Industrial, Ltd. (lease agent for office space) - $83,009.65
CIT Technology Financial (lease agent for office technology) - $50,419.85
Citicorp Vendor Finance - $25,816.71
Reed Business Information (publisher of Publisher’s Weekly) - $22,248.21
Diamond Comic Distributors - $22,016.54
Absolute Exhibits (trade show exhibit designer/manufacturer) - $19,639.75
CGS Publishing Technologies - $17,224.54
Westin Horton Plaza (San Diego CCI hotel) - $16,632.00
Luke Ross (creator) - $16,500.00
Fabrizio Fiorentino (creator) - $16,450.00
Hyde Park Capital - $15,790.69

The total debt listed to the above creditors is stated to be $3,404,996.48, with over one million dollars owed to Quebecor. It is marked that the estimated number of creditors ranges between 200 and 999 (the category division), with $1 to $10 million estimated as assets, and $10 to $50 million estimated in debts (meaning that between $7 and $47 million is owed to secured creditors). The debtor (CrossGen) also estimates that funds will be available for distribution to unsecured creditors. The meeting of creditors will take place on July 14th at 3:30 pm. The deadline for creditors to file a proof of a claim against CrossGen will be announced at a later time.

CrossGen failed to file a summary of schedules and financial affiars with their Chapter 11 filing, and has 15 days from June 18th to file said documents. Under Chapter 11, the debtor must pay secured creditors of give up stated collateral, while unsecured creditors (those listed above) are paid according to a plan laid out by the debtor, which the unsecured creditors may accept or reject. As stated above, the meeting date for the creditors has been set, but CrossGen has yet to file a plan.

Update

To clarify the filing somewhat, “CrossGen Entertainment” has filed for Chapter 11. As reported by Newsarama last April, the larger company split itself into CrossGen Entertainment and subsidiary companies (LLCs). Rod Anderson, bankruptcy counsel for CrossGen said that, in this instance, only the parent company, “CrossGen Entertainment” has filed, but none of the subsidiaries have filed – although the original filing lists d/b/a (doing business as) CrossGen Comics and Code 6 Comics, so presumably, those two subsidiaries are included in the Chapter 11.

CrossGen Entertainment’s other subsidiaries are:

CrossGen Intellectual Property, LLC: CGIP holds all CGE content intellectual property (IP).

CrossGen Technologies, LLC: CGT holds all CGE technology IP and manages technology IP creation, development, production, and application.

CrossGen Publishing, LLC: CGPub publishes all print projects, including CGE Ancillary, Code 6, CrossGen Universe, and foreign publishing.

CrossGen Media, LLC: CGM is responsible for feature films, television programs, video games, websites, merchandise, and additional interactive products.

CrossGen Productions, LLC: A subsidiary of CGM, CGP produces feature films and television programs.

CrossGen Interactive, LLC: A subsidiary of CGM, CGI is responsible for interactive publishing, video games, and role-playing games.

CrossGen Education, LLC: CGEd publishes education materials.

Comics On The Web, LLC: COW is responsible for internet publishing, including Comics On The Web™.

CrossGen also spun of MegaCon into its own LLC, but that was sold to the show’s organizer, Beth Widera.

By keeping the subsidiaries out of bankruptcy, CrossGen’s intellectual property should remain out of the Chapter 11 proceedings as well. Looking at CrossGen Intellectual Property, LLC as an example, as reported previously, Blue Ridge Investors, Mark Alessi, Tom Alessi and Dee Gee Entertainment are that LLC’s secured creditors. In the case of CGIP, LLC, the collateral on both Alessis’ secured loans is the intellectual property itself, while other secured creditors’ loans lay claims against the assets of the debtor, excluding intellectual property, and Dee Gee claims a portion of Sojourn, Route 666, and Ruse, but not the IP outright.

The attached agreement (a full listing of the company’s intellectual property) with Mark Alessi’s filing includes two pending patents, one for a “Method of Displaying Comic Books and Similar Publications on a Computer” and the other for a “System for Publishing Content on a Portable Digital Storage Medium.” The remainder of the list includes the copyrights and trademarks for all of CrossGen’s properties from the well known to those concepts and properties which the company registered, but to date, has never exploited, such as Kid Sigil, BeeVee, Squit, and Taoshift.

Other properties listed in the Exhibit include all of CrossGen’s Code 6 properties (Demonwars, The Crossovers, and Lady Death) except the recently announced Abadazad. Also on the list is the rights CrossGen’s library (monthlies and trades), “Comics on the Web,” the term “MegaCon,” and the CrossGen sigil.

In the case of both secured parties (Blue Ridge and Alessi), if the debtor (CrossGen) defaults on the loans by missing scheduled payments, Alessi and Blue Ridge can claim the collateral as payment. Likewise, if the efforts to right the ship that is CrossGen are unsuccessful and the company is forced to declare bankruptcy, secured creditors (Blue Ridge and Alessi) have priority over unsecured creditors (employees, and others to whom the company owed money). In addition, lenders can often trade the collateral for the debt.

Comparatively, the major secured creditors of CGE, Inc. include: Blue Ridge Investors (collateral including the IP of CGE – although that was corrected by Blue Ridge with the statement that it had no security interest in the IP, and all assets excluding IP in a separate agreement); Dee Gee Entertainment (collateral including a security interest in the first $300,000 of proceeds from Ruse, Sojourn and Route 666, and an interest in the copyrights and trademarks); Tom Alessi (terminated with respect to security interests); Mark Alessi (terminated with respect to security interests).

Technically, as the company was restructured in early 2003, CGE should hold no intellectual property. In short, the Chapter 11 filing only affects CrossGen’s comics division, minus the IP. Through the remaining LLCs the CrossGen properties can continue to be licensed, used, and exploited in other media – or through other programs, such as a licensing of the Comics on the Web proprietary technology, or the educational program, Bridges (which is currently being “re-defined”).

What’s not clear at this point are specifically what CGE’s assets (stated on the filing to be between $1 and $10 million) are in relation to the subsidiaries. For instance, CGE’s ownership of a sub company could be considered an asset of the larger company, meaning that the subsidiaries could be sold as raise money for CGE to pay its debts.

Additionally, it’s also unclear what CrossGen will be listing as assets under Code 6. As per the agreement that prospective creators came in under, the author would retain 25% ownership of the property – while the remaining respective 75% of the Code 6 characters would be listed under CGEIP, LLC. As CrossGen’s Code 6 FAQ stated: “If you are the 25% owner, you gain the benefit of the revenue generated from your property in all areas including publishing, movies, video games, etc.”

Even if the creator is fired, the FAQ states: “You would always continue to be the 25% owner and continue to receive 25% of any profits from all revenue sources including comics publishing, movies, video games, etc. But you would no longer receive page rate compensation.

“There is no length of term in the Code 6 agreement. It is an agreement in perpetuity. Code 6 will continue to expend resources to create ancillary opportunities for your property forever. Because of that, Code 6 will continue to be the majority owner and you will continue to be the 25% owner as well sharing in all profits generated from all sources.

“The Code 6 agreement continues in perpetuity. Code 6 will continue to expend resources to create ancillary opportunities for your property forever. Because of that, Code 6 will continue to be the majority owner and you will continue to be the 25% owner as well sharing in all profits generated from all sources.”

Developing...

[Local Hero]

Posted 07/07/04
Source Newsarama

Continuing with its Chapter 11 proceedings, CrossGen has filed reams of paperwork with the bankruptcy court. First up is the statement of financial affairs, which must be compiled by every debtor. Newsarama has acquired a copy of the papers.

The statement reveals much about CrossGen’s inner working for the past few years, starting with income. The company saw income of $5,293,675.00 in 2002 (from sales and licensing); $5,453,221.00 in 2003 (from sales, licensing, and the sale of MegaCon); and $910,946.00 from the beginning of 2004 until the filing of Chapter 11.

The statement also lists amounts paid to creditors within 90 days immediately proceeding the commencement of the case. Of these creditors, 580 Industrial, the landlord of CrossGen’s space is still owed $130,00.00. Andy Smith, who sued for monies owed, was paid $1,960.00. Worldwide Express, CIT Group, and Zeno Office solutions are other creditors who were paid in the last 90 days, but to whom CrossGen still owes five figures or more.

In the listing of creditors (who qualified as insiders) who were paid in the year prior to filing, amounts still owed are listed as well. Among them:

Mark Alessi – still owed $5,382,665.00.
Jennifer Hernandez (VP, Director and General Counsel) – still owed $38,050.17.
Pam Davies (former VP of production) - still owed $8,207.05.
Chris Oarr (former VP of Sales) – still owed $557.80.
Beth Wider (former VP of Education) – still owed $7,288.47.
Barbara Kesel (former VP Creative Development) – still owed $6,992.41.
William Rosemann (former VP, Publishing) – still owed $930.46.

The filing also showed that CrossGen has had ten suits filed against it in the previous year. Parties suing CrossGen (all for contract dispute) include: ADP Small Business Services (payroll system), American Express Travel Related Services (in discovery process), Andrew Smith (unpaid freelancer), Choicepoint Services (landlord), Coca-Cola, GCO LLC, MV Creations, Oakwood DC, LLC, and Reed Business Information (complaint filed).

Under losses suffered by the company in the year immediately preceding the commencement of the case, four losses are listed:

Original artwork from Way of the Rat #1 (valued at $6,750), about which the filing states: “It is believed that a disgruntled former employee himself or with other now former employees removed the originals from the offices of the debtor.” The date of loss is listed as summer/fall of 2003.

The previously reported alleged misuse of company credit cards is listed as a loss as well, to the tune of $23,000, with the filing stating: “Several now former employees each and together conspired to use the company American Express card for personal charges.”

Petty cash and other financial benefit (at a value of $7,000) is also listed as a loss, with the filing: “It is believed that the former CFO of the company took cash and other benefit for his own personal use.”

Finally, the theft of a cel phone is listed as a loss, at a value of $1,878.51. The filing states: “A former employee took a company cell phone and made calls after he was laid off.”

Other points of interest:

MegaCon was sold to Beth Widera for $225,000.00.

Listed under property held for another person are the Code 6 properties with a breakdown:

JM DeMatteis owns a 25% interest in Abadazad, Mike Ploog owns a 10% interest in the same. Robert Rodi owns a 25% interest in The Crossovers, and Robert Salvatore owns a 49% interest in both Demon Wars and Demon Wars: Grave Mungo Story.

The last is particularly interesting, as both the Abadazad and Crossovers creators held (or split) 25% of the ownership of the property, as was explained in the Code 6 FAQ; although Salvatore held 49% of each of his.

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As the Code 6 FAQ stated under the question of the 75%-25% being negotiable: “No. All agreements for new Code 6 properties will be based on the same percentage split. Anyone submitting to Code 6 for publication will be expected to accept these terms.”

As part of the filing, CrossGen also listed all parties to whom a financial statement was issued within the last two years prior to filing. While the list is long, and mostly made up of venture capital groups and potential investors, there are some standouts including: DPS Film Roman, former Marvel President Eric Ellenbogen, composer Graeme Revelle, Marvel Enterprises, Spyglass Entertainment, Perot Systems, Sony Pictures, Warner and Brothers.

The stockholders in the company break down as: Alessi: 72.6%;Jennifer Hernandez: 5%; Nancy Newhouse Porter (entertainment attorney): 1%; Safe Harbor Managed Account 101A 19.4%; and Michael Uslan: 2%.

As of the filing, CrossGen has not taken a physical inventory of its products, stating that it relies on its printer and distributor to track and supply inventory reports. The latest inventory reports are attached, with Bull Dog holding nearly 700,000 CrossGen books; book distributor CDS holding in the neighborhood of 100,000 books, Quebecor holding 217,052 books and related printed products, and Diamond holding roughly 30,000 copies of more recent titles. In a glimpse of the cold hard reality of comic book publishing, Diamond’s inventory lists several of the CrossGen overstock titles, including more recent Brath and Lady Death as product to be destroyed.

In a separate filing of a motion for the court to approve the officer’s compensation, CrossGen requested that both Alessi and Hernandez retain their pre-filing monthly salaries (including benefits) of $10,000 and $5833.33 a month, respectively.

In another filing, CrossGen stated that it supplied approximately 285 comic book retailers with comic series, and is seeking a purchaser for its intellectual property. In the same filing, CrossGen also requested the court instruct local utilities to continue service to CrossGen’s offices.

CrossGen has also requested that the court approve of, in an expedited manner, a post-filing request for financing in order for it to meet its day to day expenses. If it does not receive the funding, CrossGen stated that it would not be able to carry on monthly operations or make lease payments on its facility. The Lender for the infusion of cash: Mark Alessi, who, upon the court’s approval, loan CrossGen up to $150,000 to continue operating. In loaning the amount to the company, Alessi seeks a lien upon CrossGen’s collateral that is not otherwise encumbered.

The company estimates that its monthly expenses for July will run roughly $91,700, while income during that same period will be $12,200.

[Enchantress]

Sad isn't it? The little company that thought they could play bigtime ball?

It just leaves me wondering what's going to happen to Lady D now?

[The Mighty Thor]

I think Crossgen's main problem was that they had big time ambitions, with small press ideas. Not that there was anything wrong with their books. In fact, quite the opposite. The books that Crossgen put out were incredible. But they didn't appeal to a wide enough audience to sustain what quickly grew to be very large company. If they had published the same stories, with a lower profile marketing strategy, they would have still reached their target audience, allowing themselves to grow at a more reasonable pace. Instead they came forth with both barrels blazing. It worked for a while. But in the end, I just don't think they had the readership to sustain what must have been a very expensive venture.

A good example of a publisher that took things one step at a time would be Wizard magazine. Today they are one of the most influential voices in the comic book world, with amazing production values and consitantly high profile content. But if you have been reading Wizard as long as I have you would know that their first issues were printed on very cheap paper and their distribution was much less than it is today. But the one thing that has remained constant since the beginning was their commitment to their ideas and consistant high quality content.

If Crossgen had bothered to crawl before they ran, they may not have stumbled and bloodied their lip.

[Local Hero]

Posted 13/04/2004
Source Newsarama

The most recent development in the CrossGen bankruptcy, the company’s landlord, 580 Industrial, Ltd, has petitioned the court for relief from the automatic stay placed on CG’s lease by the filing of Chapter 11, or, in the alternative, an order which would compel CrossGen to pay its post-petition lease obligations.

The filing is 580’s right, as a landlord, to seek relief from having a non-paying lessee which has filed Chapter 11, and is fairly common practice for a landlord with a lesee who has declared Chapter 11.

Under the law, CrossGen (the debtor in possession) has 60 days after filing (June 18th, 2004) to either assume the lease (pay what is owed, any damages incurred, as well as guarantee that further lease payments will be made in a timely fashion) or reject the lease (walk away from it and vacate the premises, allowing the leasing company to find new tenants). CrossGen can also ask the court for an extension on the decision.

After 60 days from the filing, the lease is assumed by the owner/leasing company to be rejected by the debtor in possession. That said, within the 60 day window, the debtor (CrossGen) is still obligated to perform its lease obligations, including paying rent. However, Chapter 11 has no remedy for a debtor who does not pay during that timeframe, forcing the landlord to appeal to the court for an order which will direct the debtor to pay what is owed, or vacate the premises.

According to the filing, CrossGen owes $5,653.41 for June (pro-rated from the date of filing), and $14,133.51 for July. 580 Industrial states that it wishes to relet the premises currently occupied by CrossGen, but cannot, as CrossGen is in possession of the building, and is currently within its 60 day window.

580 Industrial’s petition then, asks the judge to rule in its favor, granting one of three outcomes: 1) grant 580 relief from the stay and allow it to evict CrossGen and recover its property as is allowed under Florida state law (but currently barred due to the stay); 2) compel CrossGen to pay what it owes until it decides whether it will accept or reject the lease; or 3) if CrossGen is not able to pay what it owes, order the company to reject the lease immediately, and surrender possession of the leased properties.

[GlennWalker]

From The Pulse...

CrossGen Sets Reorganization Plan
Nearly $10 Million Under Water

April 12, 2005
CrossGen Entertainment's "plan of reorganization" (which despite its name is a plan for the liquidation of the company) is being put to a vote of its creditors.  The plan lists assets of $972,233 (the proceeds of the sale of the company's assets to Disney Publishing, see "Disney Publishing Acquires CrossGen Assets"), and liabilities of $10,798,888, a difference of $9,826,655.  But that's not the full measure of CrossGen's losses.  Founder Mark Alessi invested and loaned the company a total of $11,000,000, all of which is unpaid.  It appears that at least $8.5 million of that was in the form of equity; the remainder was in the form of loans.  Combining the equity Alessi lost with the negative net worth on the books now, the company lost somewhere north of $15 million since May of 1999. 

Other secured creditors include Blue Ridge Investors II, LP, which lent CrossGen $1,025,000 in January of 2003; and Dee Gee Entertainment, which lent the company $300,000 in January of 2004.  Tom Alessi (presumably a relative) is also listed as a secured creditor for $1,172,000, but the trustee is objecting to the secured status of the debt.  The trustee is also objecting to Blue Ridge's secured status.  A settlement with Dee Gee provides that half of that debt will be treated as unsecured. 

The narrative described the events leading up to CrossGen's bankruptcy filing.  According to the recounting, CrossGen had been insolvent (unable to pay its trade creditors when due) since the second quarter of 2003.  And Blue Ridge swept CrossGen's bank accounts, leading to returned checks and related problems.  The company's financial difficulties, in turn, made it difficult to obtain trade credit and to market the company's properties for other uses.  Efforts to obtain additional investors were unsuccessful. 

A confirmation hearing on the plan will be held on May 16th.