To say things have not been going well lately for Internet video firm Pixelon.com would be, by nearly all counts, a huge understatement. The 2-year-old firm -- famous for throwing the most extravagant launch party in the short but decadent history of dot-com startups -- has faced a double whammy of woe and misfortune in recent months.
In April, Pixelon employees and investors were surprised to learn that the real name of Michael Fenne, the company's founder and former chairman, was Paul Stanley. And they were more shocked to find out that Paul Stanley had been on Virginia's most-wanted list for several years, after skipping bail following a stock-swindling conviction.
Fenne/Stanley surrendered in mid-April, leaving Pixelon's remaining executives and employees with the job of resurrecting the company's image in the wake of a debilitating blow to its reputation. Pixelon's board had removed Fenne as chairman several months before he turned himself over to Virginia authorities.
Things got worse two weeks after Stanley's departure, when Pixelon was served with a lawsuit from four creditors claiming the company never paid them more than half a million dollars worth of cash and stock for services and products. The creditors are seeking to push the company into bankruptcy in hopes of recouping cash through the sale of Pixelon's assets.
Pixelon's attorney -- who has another week to file a formal response to the charges -- says company execs have not yet decided what course of action they'll take.
"I think we're considering all the options, including going into a voluntary reorganization," said Marc Winthrop, an attorney with the firm Winthrop Couchot, which is representing Pixelon in the dispute. Pixelon executives could not be reached for comment.
According to plaintiff's lawyer, Michael Kinney, Pixelon's troubles with creditors pre-dated the much-publicized exodus of its founder. Kinney said creditors were complaining about payment troubles since January, according to his records.
"The response to the creditors who were asking for payment was all negative. It just seemed there was no interest in getting them paid," Kinney said.
The intent of the bankruptcy suit was to make sure Pixelon's assets found their way to creditors, he said.
What those assets consist of is somewhat unclear.
The San Juan Capistrano, California company bills itself as a provider of technology for delivering high-quality, full-screen video on computer monitors. To that end, it has signed partnerships with several Internet and entertainment firms to encode, store, and deliver video feeds.
As early as December 1998, the company was putting out press releases announcing that Paramount Pictures picked its technology to use in the online promotion of its latest Star Trek film.
As a startup, Pixelon attracted plenty of attention from venture capitalists. The company's technology struck a chord with early-stage investors, who saw much market potential for applications that deliver clearer, faster video feeds over high-speed Internet connections. Pixelon rounded up about $35 million in venture financing.
What the company has to show for that sizable investment is difficult to determine. Pixelon is a private company and not required to disclose its financial records.
Certainly, however, a good chunk of the money went to the company's iBash, the infamous October shindig in which the company rented out the MGM Grand in Las Vegas and showcased a star-studded night of entertainment featuring Kiss, The Dixie Chicks, Sugar Ray, and Brian Setzer, all capped by a reunion performance by The Who.
The gala affair cost the company millions.
Around the same time, contractors at Snowden Electric, a Buena Park, California company, had just wrapped several months of work on the electrical wiring system at Pixelon's office. Snowed billed the company $22,521, but said it has yet to see the cash.
Snowden is one of the four creditors pursuing the bankruptcy proceeding against Pixelon. Other plaintiffs include an office products supplier seeking to recoup $4,500, a former employee, and a consulting firm involved in arranging the iBash.
But two of those plaintiffs weren't supposed to get paid in cash. Both former employee Simone Sheffield and consulting firm Clear, Alexander & Associates planned to get paid in Pixelon stock in exchange for their services. Kinney claims those shares -- once estimated to be worth about $1.75 each -- were never delivered.
It's unusual for stock claims to factor into bankruptcy suits, said Michael St. James, a San Francisco bankruptcy lawyer. Under bankruptcy law, creditors seeking cash payments get priority over shareholders.
Typically, people who take stock instead of cash for services see it as a sort of lottery, St. James said. Lots of once-promising startups fold, and it's unusual for stock in an upstart Internet company to turn out to be worthless.
Still, even if Pixelon manages to get the stock claims dropped, Kinney says he has a number of other options.
"I have been contacted by numerous other creditors who have been waiting to join in," he said.
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