Perpetual Speculation: Warp Factor Four

Lots and lots of so called information and speculation swirling today about the fate of Perpetual Entertainment, developer of now defunct Gods and Heroes: Rome (not) Rising and Star Trek: Online.  Perpetual’s fat has been in the fire for some time since it announced abruptly in October that it was in effect cancelling G&H.

Suffice it to say that it doesn’t take an industry guru to figure out things must have been going poorly, calling into question what the fate of the STO franchise might be.  More often than not, this mean not enough time or money to bring the project to fruition.

I’ve read some amazingly stupifyingly stupid things today which I wont grace with a link, but in interest of collecting some of the actual facts together, here is what we definitively know. 

This whole latest blogosphere brouhaha seems to have been initiated by the filing of a Form 6-K report with the U.S. Securities and Exchange Commission by Gravity Co. LTD., the South Korean company which describes itself as the developer and publisher of Ragnarok Online.  Read the whole thing here, its short.  The report is dated and was filed November 21, 2007.  I guess no one noticed earlier because of all the tryptophan circulating last week.

A Form 6-K report is a “periodic” report (i.e., something other than a quarterly or annual report) filed by a non-U.S. company which was securities traded on a U.S. exchange.  Over simplifying, its typically used to disclose material information about a company between reporting periods.  Gravity’s American Depositary Shares or ADRs are listed on Nasdaq under the ticker symbol: GRVY (there’s another turkey and tryptophan joke there, but I’m leaving it alone).  For you U.S. securities law junkies out there, a Form 6-K is basically a Form 8-K equivalent for a non-U.S. company.

According to the report, Gravity received a notice from Perpetual Entertainment on November 1 (which was dated October 16) that on October 10 (the day after the G&H cancellation announcement), Perpetual Entertainment had

…made a General Assignment for the Benefit of Creditors (the “Assignment”) to Perpetual (assignment for the benefit of the creditors), LLC (“Assignee”), a California limited liability company, as assignee, pursuant to California Law.  Pursuant to the Assignment, Perpetual transferred ownership of all of its rights in tangible and intangible assets (collectively, the “Assets”) to Assignee for liquidation. Assignee shall liquidate the Assets, wind down Perpetual, and distribute the net liquidation proceeds to creditors of Perpetual.

Try to stay with me here.  According the the California Secretary of State’s website, Perpetual (assignment for the benefit of the creditors), LLC (yes, that’s its legal name),  was formed September 27, 2007 (note the filing date before G&H cancellation) and lists 10250 Constellation Blvd, Suite 1700, Los Angeles, CA as its address.  This happens to be the address of Levene, Neill, Bender Rankin and Brill, a law firm specializing in bankrupcty and insolvency work, and very likely the law firm of the assignee. 

Michael Maidy is listed as agent for service of process at 101 University Avenue, Suite 100, in Palo Alto, CA.  Michael Maidy is a founder of and this is the address of Sherwood Partners, a business consulting firm specializing in tech company, uh, how shall we say, undertaking.  He is partners with Martin Pichinson who is a bit of a famous figure in the dot com undertaking world.  Particularly, Sherwood specializes in assisting companies in a process known as “ABCs” or assignments for the benefit of creditors.  An ABC is a procedure under state law, in this case California, which is sometimes known as a “common law” bankruptcy.  There’s a fair summary of the process on Sherwood’s website here.  Its used by a lot of VC backed companies to avoid delay, extra cost and the notoriety associated with public bankruptcy proceeding, though since the bust, business has been declining.  The process would have been to engage Sherwood, have them set up the LLC to serve as assignee which would be run by Sherwood.

That’s pretty much the facts that I’ve been able to find on short notice.  Here’s what I think it all means.  Investors backing Perpetual likely saw the writing on the wall and decided it was time to fish or cut bait.  In this case it meant going the ABC route rather than bankruptcy for all the reasons noted above and in the links.  The ABC process is voluntary, so the board would have to approve the process and the agreement with the assignee. 

These things can happen quickly, but not likely over night.  Probably, Perpetual’s board met and decided to engage Marty Pichinson and Sherwood Partners to handle the ABC.  Sherwood put the assignment docs together which were probably already approved by Perpetual’s board and executed after the G&H cancellation.

Perpetual cancelled G&H, assigned all of its assets to the LLC and the LLC started administering the sale process.  Note this is a sale of assets.  The assignee acts much like a trustee in a bankruptcy liquidation proceeding– marshall assets, notice creditors, administer claims.  This is essentially a fire sale.  Part of the process is to notify potential creditors to submit claims so they can be paid a portion, if any, of whatever the assignee can get for the assets.  That’s the notice Gravity received.

So, if someone wants to go in a buy G&H or STO (if the license would allow), I’m sure they can call Marty and put in a bid.  That we’re all just really hearing about it now is exactly why VC investors in tech companies like the ABC process.  If it were not for the public filings of companies like Gravity (fairly atypical, in this case), the next thing we would have heard was probably when someone acquired G&H or STO or both from the assignee, and then it would have been all done.

So far, it hasn’t been announced whether anyone will pickup G&H or STO or the people who were working on it, though that’s likely.  When is anyone’s guess…

4 thoughts on “Perpetual Speculation: Warp Factor Four”

  1. And one thing I didn’t mention despite all the rumors of takeover, being sold, new management, etc. is that if Perpetual’s board were concerned whether the company could go the distance with these projects (i.e., would need substantial additional cash to bring it to fruition), they were probably shopping the company and its assets long before G&H got cancelled.

    My guess is that there were no buyers interested and the tank was running dry, so they went the ABC route. Suboptimal since a banker could have shopped the company or its assets were there willing buyers.

    Not too surprising no one wanted to step up for STO let alone G&H. If would be buyers get a whiff that the company is on the ropes, they may simply opt to see if they can get a bargain basement deal out of bankruptcy. Or it simply could be that a) transferring the STO license could be problematic, or b) Perpetual never really got enough done on STO to really be of value– at least more than the cost of going and negotiating with STO’s licensor directly.

    Still its hard to believe that if they were shopping the company that they wouldn’t at least get some low ball offer which the board ultimately would be hard pressed to pass up considering the alternative.

    It will be interesting when additional info comes to light.

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