Digital Domain Media Group, Inc. announced that as part of its previously announced strategic realignment, and to ensure the long-term future of its core business and facilitate a sale of assets, it has filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware in Wilmington and is also seeking ancillary relief in Canada, pursuant to the Companies’ Creditors Arrangement Act (CCAA) in the Supreme Court of British Columbia, Vancouver Registry.

DDMG also announced that it has entered into a purchase agreement with Searchlight Capital Partners to acquire Digital Domain Productions and its operating subsidiaries in the United States and Canada (DDPI), including Mothership Media, subject to the receipt of higher and better offers and court approval.

DDPI and Mothership, with studios in California and Vancouver, are focused on creating digital visual effects, CG animation and digital production for the entertainment and advertising industries and are led by recently promoted CEO Ed Ulbrich. During this process, DDPI and Mothership intend to continue to operate without interruption in the ordinary course of business including adhering to and seeing through client contracts.

Under the terms of the purchase agreement, Searchlight will acquire the assets of DDPI free and clear of all claims and encumbrances pursuant to section 363 of the U.S. Bankruptcy Code for the purchase price of $15 million. The sale will be the subject of a public auction, and DDMG is required to engage in a process of seeking the highest and best bid for these assets in accordance with the proposed bid procedures as filed with the court.

The senior noteholders, led by Hudson Bay Master Fund Ltd., have agreed to provide DDMG with up to $20 million in debtor-in-possession financing. If approved by the court, DDMG, DDPI and Mothership will have access to the funds to pay normal operating expenses, such as employee wages and benefits, payments to vendors and suppliers, and other obligations.

On August 10, 2012, DDMG retained Michael Katzenstein, a senior managing director with FTI Consulting, who now serves as chief restructuring officer of DDMG and its operating subsidiaries. Katzenstein’s overall responsibilities include managing the day-to-day operations of DDMG, guiding and overseeing these reorganization proceedings and ensuring that the value of the estate is maximized for creditors.

“DDMG has been working diligently to reduce costs for the benefit of stakeholders and has already implemented various strategic realignment initiatives that we believe will have a positive impact on the robust and flourishing going concerns. In tandem with senior noteholders and other parties, it was determined that the use of these proceedings provides the most viable opportunity for creditor recovery while also ensuring identification of buyers who recognize the true value of these assets,” said Katzenstein. “Importantly, we are grateful for the cooperative assistance of our lenders, our customers and employees as we work to seamlessly transition these important businesses and other assets to financially strong and committed buyers. Their ongoing support ensures the success of these matters.”

As of June 30, 2012, the company had total balance sheet assets of approximately $205 million and total balance sheet liabilities in the approximate amount of $214 million.

Searchlight Capital Partners is a private investment firm founded in 2010 by senior partners formerly with industry leading investment management firms.