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VM Labs To Seek Chapter 11 Protection

7 Dec, 2001 By: David Ward

After nearly a year on the financial brink as it scrambled to obtain additional capital, DVD chip company VM Labs is filing for Chapter 11 bankruptcy protection, company officials say. The executives indicated the move will give the company some breathing room as it formalizes a deal to transfer all the intellectual property surrounding the Nuon DVD technology to a new privately held company.

VM Labs founder and c.e.o. Richard Miller says, "VM Labs has been served with a petition for bankruptcy and we have hired counsel to file petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code. The filing will enable us to focus on operating our business and serving our customers while we finalize the sale of our intellectual property, trademarks, know-how and other resources required to support customers and grow the business. During the Chapter 11 process, we will continue business as usual, including fully supporting our customers and developing our next generation of breakthrough products."

Sources say a private consortium led by Alex Lushtak, chairman of the board at Genesis Microchip, reached a deal last week to provide VM Labs with the funds to continue operations for the next few months. The group also purchased promissory notes from VM Labs' secured creditors, Motorola and VentureTech, positioning it to take control of the company's key intellectual property and other assets during bankruptcy court proceedings.

While all the details on VM Labs' assets and liabilities won't be known until the bankruptcy documents are actually filed—sources say that will happen in a matter of weeks—there's little doubt the company has been under a severe cash crunch that crippled its ability to effectively market the Nuon-enhanced DVD platform.

Prior to its financial troubles, VM Labs' Nuon technology attracted interest from DVD hardware makers, major Hollywood studios as well as game developers who viewed the platform as way to offer consumers more than standard movie playback. In addition to offering high-end features such as zoom and smooth scanning, Nuon-enhanced DVD players could play games and other interactive entertainment.

While Samsung and Toshiba launched Nuon DVD players last year, most studios and game publishers opted to wait until the installed base grew. The library of Nuon-enhanced discs is not large but does include a handful of games as well as the movies Bedazzled, Dr. Dolittle 2 and Planet of the Apes from 20th Century Fox Home Entertainment and MGM Home Entertainment's planned special edition re-release of the cult classic The Adventures of Buckaroo Bonzai Across the Eighth Dimension.

Sources indicate that if the private group were able to purchase the technology out of bankruptcy, they would continue the Nuon brand. But the real question going forward is whether Hollywood will continue to be interested in adding content to DVD discs that can only be accessed by small fraction of DVD player owners. Fox, which thus far has been the prime supporters of Nuon, had no comment on the impending filing.

It is also not known whether former Columbia TriStar Home Video executive Paul Culberg, who spearheaded much of the progress VM Labs made with the studios, will continue on in any capacity with the new venture.

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