Cameron no longer has a stake in the company. Digital Domain employs people at its studios in Venice and Vancouver. The deal could help Digital Domain expand its business in China, where there is a strong demand for quality visual effects, said Ivy Zhong, vice chairman and managing director of Beijing Galloping Horse Film Co. ALSO: Elvis lives on, at least digitally. Digital Domain media group files for Chapter 11 bankruptcy protection.
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Fighting for a comeback, Golden Globes group hires a chief diversity officer. Company Town. The Golden Globes want to make a comeback this year. All Sections. About Us. What the board needed to do was buy back stock from people who were either unhappy or stagging and this would stablize the share price.
The company expected to re-issue more stock in , once the price was healthy. Buying back the stock should sure up the share price and then they could in a few months return to the market and either issue a stock option program or do a private placement. April Textor is interviewed by fxguide regarding the Florida Studio using student labor. What we did not know then and what no one in the press seemed to have understood is that in the middle of the global economic crisis the Lydian bank Lydian Trust Company in Florida would fail.
Today, 1st Virtual, Inc. We asked Textor about Lydian. He explained he had been involved when the community bank started but he had resigned from it years before its closure. But he did continue to use it professionally. Perhaps far greater than any earlier connect to the failed bank is that when the bank failed it owned some debt and share options from DDMG. It sold this debt. The new owners of the debt wanted the debt repaid immediately or they declared they would say DDMG was in default.
They sold their position to a group lead by Florida power and light, an investment fund, and a group called Comvest, opportunistic investors, they bought this as a discount, and not by our choice, our bank went bankrupt, they sold their position and now we have a hedge fund as a lender.
Such a messy dispute would look bad. DDMG had noises from various companies wanting to once again do business, especially as the stock price had recovered. On paper swapping one load of debt for another seemed reasonable to Textor. While they would increase their overall debt a little, in other words they would raise a bit more cash than they needed, this seemed to only be good and it would buy them even more time to get a favorable stock exchange share deal.
In hindsight, Textor feels this is the point the whole company is doomed. From May 15th onwards, not that they knew it then, the company was doomed. With hindsight, this was the greatest error Textor believes the management made. The company would be broke a little over 8 weeks after finally signing this deal, Game Over. According the the Florida Tech Journa l from around that time:. These transactions retired existing senior notes that would otherwise have been due in The new senior convertible notes will amortize monthly over their five-year term, with payments made in the form of common stock of the company.
A summary of the some of the material terms of the transaction documents can be found in the Current Report on Form 8-K filed by the company with the Securities and Exchange Commission. To understand why they even needed to — we must circle back on Part 1. As DDMG was the only part of the group generating actual free cash from grants from Florida and from investors , it needed to continue to do so. Florida was spending money quickly but it was spending money on things covered by grants and government incentives.
The only part of the company producing free cash in quantity was the company DDMG raising money. Of course this is unsustainable, no company can raise money forever. But according to Textor, it did not need to. It is true that they bought some other companies such as the stereo conversion group, but as seen above that had great gross margins on some films.
At this time Wells Fargo expressed an interest in taking more shares of providing that extra money according to Textor. Except that would never happen. The stock starts dropping very quickly. The Tenor Capital took just 8 weeks to go from good to bad, he explains. It is not illegal to lend money and require equity if the lender defaults.
There is nothing illegal with shorting a stock or deciding a company is worth more in pieces than as a whole. These are things that Wall Street Bankers and financiers do. One may or may not like them but they are known Wall Street business strategies. Anyone in finance should know this, it is widely known. DDMG filed for bankruptcy. It might be surprising to know that there was a lot of interest in helping Digital Domain at the end.
Options that Textor told fxguide he did not excise nor made a cent from. He was paid over a million in salary and bonuses in , but he was paid two years of bonuses in one year having deferred a bonus from an earlier year when cash was tight. But he pointed out that while working at DD he was not each year always the highest paid member of the team. If DDMG was at fault in this account of events, it is by screwing up the handling of the sold Lydian debt.
In this version of the events, the effects industry players led by people who were meant to be non-industry financial types got cleaned up, like a freshman arriving at the poker table and joining a friendly card game run by professionals who clean them out in one night.
Only in this version the one night was just 8 weeks. Sources we spoke to off the record suggested that surely, if the management team has a job at this level — it is to handle doing just these sorts of deals properly and with full due diligence.
He admits this openly. But more importantly at this multi-million dollar level, skills in other areas count for little. This is a kill or be killed world of investment bankers who it appears to Textor are far worse than the studios. The Hollywood studios are in business to make films after all. He sees this as one of his greatest problems in this whole financial side of what happened. Textor himself thinks the lesson from this whole DDMG situation is that the industry needs to have a more frank discussion with its clients and customers.
This is on the weekend of the 4th of August. The next day Textor did publicly commit the funds, but before even a press release could be issued, the deal seem to die and no funds were ever paid to the project by Digital Domain or DDMG. He thinks that leaders of our industry, say 5 VFX leaders of VFX studios should meet with 5 leading directors and 5 leading studio executives and these 15 people should sit down and openly discuss one question: is it of value to have a VFX industry in North America?
He feels these 15 people could then from bluntly talking through the issues reset the direction of the industry. He thinks they need to agree to more fairly pay VFX houses, and this, not an industry association or a union, is the only future for American VFX. The greatest tragedy is the hard working people who lost their jobs, followed by the normal investors, some of whom were also staff who invested their hard earned money in a company they believed in.
This story does not focus on their hardship, but their loss is the greatest fault of this whole long story. A man who had already been — some would say — unfairly stripped of his company. One would have to believe after the millions of dollars Jobs had put into Pixar he really had his guard up, and there is no doubting Jobs could go toe to toe with anyone including Wall Street.
Textor and his team spent months educating Wall Street types about our industry in the lead up to this horrendous final 10 months. If other VFX companies want to move to new business models and fund expansion on Wall Street, we may need to learn a lot more about them — than they about us.
Right now many companies are seeking this option. We have no reason to believe that they are not extremely well informed and well advised. DD California declined to be interviewed on the record for this story after some debate. We did not get comment from Tenor Capital, nor Comvest Capital. Since this was published we have had a lot of emails, from John Textor, and many others. This expression makes it too easy for the artist crowd to see everything about Wall Street as bad.
Fascinating coverage Mike! It is always easy to analyze in retrospect, but my general belief is that industries do not make companies fail. Managment decisions do that. Great article, however, relying on Textor to tell the story has created some interesting spins to the story.
This money was loaned to him by Palm Beach Capital. In itself this might not been a problem, but Textor and PBC neglected to disclose this fact until the company imploded. Also, Textor seems to be blaming Comvest for wanting to be taken out. Are you telling me that Textor is now claiming he was so naive that Tenor Capital pulled a fast one on him? Does he not know enough about his cash to ensure he has enough for the first reporting period?
The palm beach post www. Textor once said that while Scott Ross may know a great deal about the VFX industry, that he, John Textor, knew a great deal about high finance. Textors and upper managements considerable salaries and perks? Bay and Mr. Deal pricing is a bit of an art and the syndicate dept is key but no one is in the game to screw their investment clients, the firm or the company they expect to support in the aftermarket.
John is just telling stories here. Then he thinks after all those cockamamie deals that the SEC is going to clear the next filing? A death spiral what else can John make up at this point — I hope you and your readers do not believe this dribble — run it by some Goldman bankers and see what they think of this story for fun… and then you will get a better perspective of who may be to blame…. Anthony thanks for your post.
We welcome hearing from all sides. In answer to your question which may well have been rhetorical… , we interviewed John Textor directly.
We also did many other interviews — several of which could not be on the record, especially from the Banking finance side of this story due to law suits. Frankly, I welcome hearing from someone from the Banking side of the discussion. If you would like to discuss this area further I welcome an email.
Mike Seymour mikes at fxguide dotcom. Textor is a great story teller, and every now and again can back it up with facts. And in my opinion, in his interview with fxguide, he desperately tries to convince the interviewer and the readers that he had very little to do with the rape and pillage of the taxpayers of the State of FLA, the public investors, the private investors or the hundreds of digital artists whose lives were ravaged by his negligence and breach of fiduciary responsibilities.
Cox was actually entitled to all of the payout but shared it with the other involved parties. A few years before the sale to Wyndcrest, the DD Board wanted me to start investigating the possibility of a sale of DD to outside parties. While the Company was at times profitable, the management felt, and the board agreed to not pay any dividends and to pour any profit back into the Company. By or so, the board was interested in a sale of the Company to any party that would pay a price that would be valuable enough to its shareholders.
Unfortunately there was a slight problem. Given the animosity between the Company and Jim Cameron, the terrible relationship between Jim and myself and the close relationship between Jim and Stan, the Company could not be sold if Jim decided to block the sale. Each class of stock was slightly different than the other classes, especially as it related to a sale.
The amount that the sale needed to be to pay Cox in full was considerably more than what DD was worth at the time. So, after appeals from DD management, Cox decided to forego their sale preference, allow all shareholders to be para passu with Cox IF Jim and Stan would agree to waive their right to block a sale. Jim and Stan did. This was well before anyone ever heard of Wyndcrest. Additionally, in , Cameron and Winston were pressing DD hard to find a buyer.
Cameron and Winston had walked out of a board meeting back in , quitting as directors but continuing to hold on to their DD stock. Cameron and Winston had not had any involvement with DD from that day in , in fact Cameron and Winston had not had much involvement with DD at all, ever.
In , Cameron had threatened litigation, saying that I was the cause of the Company not being sold as I had a personal interest in not selling. He went so far as to ask his lawyer, Bert Fields, to send threatening letters to me and the board.
It was later that I found out why Stan was so desperate. It was only a short time later that he passed away. With all of that going on, DD had yet another group of execs sitting on its board. The Cox folks that made the DD deal ten years prior were no longer at Cox. Additionally, Cox had the right, after ten years of their investment to call their shares. That meant that they had the right to ask for their money back. But because we had negotiated a new dollar amount for their sale preference, it also reflected a new dollar amount for their call.
The new Cox board members were not aware of this ability to call their shares, but as approached, I knew full well, that I needed to make them aware of their rights. Once the new Cox Execs were made aware that they could call their shares and cash out, they approached DD management and asked if the Company had the where with all to pay them out.
I knew that a VFX facility needed cash reserves to weather the storm. I also felt at the time, that DD would be able to pay out Cox and remain in business.
I felt that we could carry on though it would put the Company in a more tenuous position if Cox was paid. IBM and Cox went at it. Armonk vs Atlanta. Cox wanted out and considering the voluntary haircut that they took, felt righteous about their call. It was then that we were approached by John Textor and his investment group Wyndcrest Holdings.
They had inquired through their lawyers, who happen to be friends with our general consul Molly Hansen, if we were interested in selling the Company. Were we interested? Considering the turmoil with all of my partners and board members, yes we were willing, in fact we were ecstatic. The question was: Was the buyer qualified and will the price be right?
The other suitors were neither qualified buyers nor were they willing to offer what we thought the Company was worth. We started to do some research on Textor. It turned out that the only delinquent receivable DD had ever had was from a John Textor! We did the work, and he never paid us. Textor came on like a well oiled sales man. He said all of the right things. Textor set up meetings at DD, interviewed all of the Execs, did his due diligence except that he never met with me. The deal that was supposed to happen quickly, lingered.
In fact, Textor and Wyndcrest turned to a private equity firm, Falcon, to come up with the necessary cash to make the deal happen. It also turned out that Textor was having side bar conversations with Cameron and Winston. Effectively that would give Textor the ability to restructure the Company, hire new management and make IBM and me minority shareholders.
Unfortunately for Textor he chose to make his side deal with the wrong partner. Cox would have no part in screwing their other partners.
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