Less than a year after going public, the digital production company founded by director James Cameron has filed for Chapter 11 bankruptcy protection and agreed to sell the core of its business to a private investment firm for $15 million.
Digital Domain Media Group Inc., best known for its work on Cameron's "Titanic," has produced visual effects for more than 90 movies, including "Pirates of the Caribbean: At World's End" and the "Transformers" series. And in April, its Tupac Shakur hologram made a splash when it took the stage at the Coachella Valley Music and Arts Festival and appeared to perform alongside Snoop Dogg.
But the company was "running out of cash," Chief Restructuring Officer Michael Katzenstein said in court filings, and had violated cash and debt requirements set forth by its lenders. It tried to find additional outside sources of capital, but wasn't able get enough to restructure its debt and pay its operating expenses, he said.
The downward spiral was swift. The company went public just 10 months ago, selling nearly 5 million shares at $8.50 each, below the expected $10 to $12 range. Drifting to the $5 range by spring, the stock then spiked as high as $9.20 following huge reaction to the Shakur hologram, with the performance garnering 15 million YouTube hits within 48 hours and winning a top award at the creative marketing gathering Cannes Lions.
Building on the buzz, Digital Domain got the green light to create an Elvis Presley hologram for shows, film, TV and other projects worldwide, including appearances.
But by August the struggling company said it would review its options, suggesting a possible sale. Shares have fallen as low as 44 cents in recent days.
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Digital Domain, based in Port St. Lucie, Fla., has studios in California and Canada that create digital visual effects, animation and digital production for the entertainment and advertising industries. The company had spent the past few years building a new animation studio in Port St. Lucie, using millions in incentives from the city and the state.
But it defaulted on a series of loans and just days ago said it would lay off about 280 workers and close its Florida facility. CEO John Textor, also the company's second-largest shareholder, resigned, protesting the decision.
The downfall was so quick the company was still hiring up until last week, said Jack Raisner, a lawyer with New York-based Outten & Golden who is suing the company on behalf of employees, saying they weren't given 60 days' notice of the mass layoff as required by federal law.
"It was inducing people to come from California to the company in the last few weeks," Raisner said. "They were told things to make them believe the company was healthy financially."
Florida Gov. Rick Scott has ordered his inspector general to investigate the process used to award millions in state incentives that were used to lure Digital Domain to the state.
The company said last month in its quarterly earnings report that it had already received about $50 million of $80 million in grants it was awarded by the state of Florida, and that it had spent the money on workers' pay and to cover expansion costs.
Digital Domain filed in the U.S. Bankruptcy Court for the District of Delaware, along with a Canadian court. Day-to-day operations of Digital Domain's remaining business won't be affected by the Chapter 11 filing, the company said. Debt holders have agreed to provide up to $20 million in financing that will fund its activities while it restructures.
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