News On The Future of Cross-Gen

From Newsarama-

While its assets were sold to a Disney subsidiary in October, CrossGen’s bankruptcy proceedings continue to lumber along, with the Tampa-based former comic publisher finally filling and seeking approval for its plan of reorganization. CrossGen filed the disclosure (the meat of the reorganization plan) on February 15th, supplemented it on April 1st, and saw it approved by the Florida Bankruptcy Court, Middle District, on April 4th.

Overall, the plan lists assets currently at $972,233, resulting fro the sale of its properties to Cal Publishing/Disney in October, and total liabilities of $10,798,888. As with other bankruptcies, there will not be enough capital to cover all claims, however, the plan filed, as stated by the debtors, allows for a greater recovery of claims than is likely to be achieved through other plans or liquidation – namely, Chapter 7.

The Joint Disclosure Statement, filed to give holders of claims adequate information to make an informed judgment about the plan, lays out a financial history of CrossGen in greater detail than has been seen to date.

Running through the history, then – CrossGen was formed in May of 1999, with an initial investment by Mark Alessi of $4,000,000. This start-up was supplemented in January of 2001 when Safe Harbor Managed Account 101A invested $4.5 million in exchange for 20% of CrossGen’s stock. Alessi continued to loan CrossGen money prior to the filing of bankruptcy in June of 2004, topping his investment off at $11 million, in total.

In January of 2003, Blue Ridge Investors II, LLP (CG’s primary pre-filing secured lender) loaned the company $1,025,000. While the loan was against collateral including accounts receiveable, inventory, and other assets of CrossGen, by the time the companyu filed for bankruptcy protection, it owed Blue Ridge $1,086,261. A portion of that has been paid off, and Blue Ridge is currently owed $700,000. CrossGen has since sued Blue Ridge, alleging that the investors “failed to perfect its security interest in CrossGen’s registered copyrights and any proceeds from the sale of CrossGen’s intellectual property and seeks to avoid Blue Ridge’s security interest accordingly.”

In January of 2004, Dee Gee Entertainment lent CrossGen $300,000 against collateral including the properties Ruse, Route 666, and Sojourn. When CrossGen filed in June of 2004, it owed Dee Gee $318,000. As with Blue Ridge, CrossGen has sued Dee Gee, alleging that the investors failed to perfect its security interest in CrossGen’s registered copyrights, and seeks to avoid Dee Gee’s security interest accordingly.

Blue Ridge and Dee Gee make up CrossGen’s largest secured creditors, while Alessi, trade creditors, American Express, ADP, and the IRS (for payroll taxes) make up the former publisher’s largest unsecured creditors. According to the disclosure, prior to filing in June of 2004, the total outstanding unsecured debt totaled $13,250,000.

The disclosure goes on to explain what happened, with the economy circa 2003 taking the brunt of the blame. The statement says that by the end of 2002, CrossGen held an approximate market share of 6%, and was the third largest publisher in the United States [the factual reality behind this statement appears, at the surface, suspect, as Diamond’s market share numbers for 2002 showed CrossGen to hold 3.21% share of the market in both dollars and units, and ranked at the 5th largest publisher, behind Marvel, DC, Image, and Dark Horse]. The disclosure also states that aggressive expansion by Marvel and DC exerted pressure on CrossGen and other smaller publishers, reducing their market shares. As CrossGen began to suffer (though cost-cutting moves were enacted), it found fewer and fewer larger entertainment companies wanted to partner with it.

The damage began to show, according to the disclosure, in the second quarter of 2003, when the company did not have adequate liquidity to pay trade vendors. At the same time, Blue Ridge, as a condition of its loan to the company, “swept” CrossGen’s bank accounts, resulting in returned checks, bank fees, and other financial problems. CrossGen’s weakening financial conditions resulted in vendors limiting the amount of credit extended, or time period for credit repayment, and to only continue business dealings with the Tampa company on a cash-only basis.

Through 2003, CrossGen sought investors, and, according to the disclosure, nearly had financing secured on several occasions, but in each instance, the deal fell through.

The financial history of the company ends with the sale of CrossGen’s assets to Cal Publishing (a Disney subsidiary) for $1,000,000. Blue Ridge and Dee Gee have agreed to have their calims attached to the proceeds of the sale.

In summary, CrossGen’s plan for payment of its creditors is the “pot” plan, that is, all monies from the sale of assets ($972,233 from Cal Publishing) and any other monies will be placed into a single account from which amounts owed to secured creditors and administrative expenses will be drawn first, and then unsecured creditors will be paid.

Holders of secured claims (totaling $1,492, 064.33) are:

Tom Alessi: $1,172,000
Oldsmar Self-Storage: $1,307
CitiCaptial Commercial Corporation: $17,981.44
Pinellas County Tax Collector: $775.89

The debtor will recommend that the Liquidating Trustee file objections to all of the claims, as, CrossGen contends, the claims have never been secure, or are no longer secure due to the surrender of collateral. In regards to the secured claim of Dee Gee, CrossGen and Dee Gee have agreed to divide the claim into a secured claim of $161,425.55 and an unsecured claim of the same amount. If CrossGen is successful in court against Blue Ridge, the investors’ claim will be reclassified as unsecured.

Currently, the Administrative Expense Claims stand at $263,000, and is expected to increase until the final payout date arrives.

The amount owed in Priority Claims stands at $641,378.96 – this is the amount owed to the IRS and former employees and consultants who filed as such. The disclosure states that CrossGen will object to claims which are not entitled to Priority status, including those filed by the IRS and Florida Department of Revenue.

After the above are paid, unsecured creditors (including the bulk of former employees) will be paid. CrossGen roughly estimates that over $9 million is owed in this category, and lays out the plan for repayment, though it is, generally speaking, just mechanics, as the total amount that will be actually paid out will more than likely be completely exhausted far before reaching the unsecured creditors category, as was seen in the Chaos! Comics bankruptcy.

Final proofs of claim by creditors must be filed by May 6th, 2005. By the same date, those who accept or object to the plan, as filed must notify the court. A hearing on the confirmation of the plan is scheduled for May 16th.