More news has been released about the slide of Stargate developer Cheyenne Mountain Entertainment into bankruptcy. In February 2010, Cheyenne entered Chapter 11 bankruptcy protection in rather abrupt circumstances (more background reading here).
Now, it emerges that a US court has appointed a receiver over Cheyenne, who has written a letter to Cheyenne shareholders that helpfully has been posted on the Cheyenne site. Here’s the interesting stuff:
Cheyenne is now under the control of the receiver (a receiver is a court-appointed officer who takes over direct management and control of a company which has entered bankruptcy proceedings. If the company cannot be rescued, then in the last resort the receiver is likely to responsible for the break-up of the company to pay off creditors).
There are rather mysterious allegations regarding Gary Whiting, former President/CEO of Cheyenne and the target of a substantial lawsuit by Cheyenne shareholders who accuse him of defrauding the company. Specifically, the letter suggests that Whiting has tried to appoint a new President/CEO, a Mr Dale Grabois, who apparently has sent emails to shareholders “claiming he was President/CEO and that he would conduct regular reporting to shareholders” – in other words, doing the receiver’s work for him. On what basis does Whiting have authority to do this? The receiver sidesteps that issue, saying “this is not an issue for the Receiver to decide and will be dealt with by the litigants in court“, while also making the point that his present authority over Cheyenne is derived from the court and that he has made this clear to Mr Grabois. I suspect from this that there is a legal battle going on as to who actually is in control of the Cheyenne group, but answers on a postcard as to what on earth all this really means, please.
In the meantime, the receiver says that Cheyenne has substantial financial liabilities, including lawsuits for an estimated $10m, unpaid wages of $1m and unpaid taxes of over $3m. The receiver also says Cheyenne has very few remaining assets, no employees and no continuing business, suggesting that unless its JV with Fresh Start (see below) is a success, or there is some other positive development, we could be looking at some unhappy creditors in the future.
As a result – and this is the interesting stuff – former members of Cheyenne have set up a new company, Fresh Start, which has entered into a joint venture agreement with Cheyenne under which it has acquired the IP and other assets of Cheyenne, including Stargate Resistance, in return for a fairly complicated finance arrangement (including Fresh Start paying MGM its Stargate royalty).
The receiver is quite candid in explaining that this JV is intended to keep Stargate Resistance going and is not an IP grab. He said: “[Fresh Start’] sole intent was to preserve the game and prevent it from going offline due to lack of funding, employees leaving because they had not been paid, etc“. He also responds to shareholder concerns “about the FSS transaction and the perception that corporate assets had or were in the process of being stolen as a result” by making it clear that Cheyenne has a right of repurchase the Stargate IP from FSS, essentially in return for repayment of the money that FSS has advanced by Cheyenne plus an uplift.
There is however no word at all about the forthcoming Stargate MMO that Cheyenne was working on. With Cheyenne is in receivership and Fresh Start only having control over Stargate Resistance, what’s happening with the MMO? My guess would be either that some unpublicised arrangement has been entered into, or Cheyenne’s Stargate MMO rights are an asset to be sold to satisfy creditors, or (possibly) Cheyenne has lost those rights following its entry into bankrupcy. No doubt the full picture will emerge in due course.
The receiver also discusses briefly other difficulties which Cheyenne is encountering, such as who signed one of its leases and in what company shareholders actually hold shares. In other words: as often happens, the stuff which was poorly organised and never got fixed when the company was trading, comes round to bite it in the ass when bankruptcy comes along.
Here’s hoping that Cheyenne is able to work through its difficulties and re-emerge as a going concern, with full control again over the Stargate games IP. Of course, at the moment it sounds like several issues are going to have to be resolved (and probably a significant amount of time will have to pass) before that can happen. Watch this space…