On June 27, New York independent film staple The Shooting Gallery unceremoniously closed its doors and told its employees to go home. A month later, Itemus, the Canadian Internet company that had purchased the ailing film company earlier in the year, announced its own bankruptcy. In a fiery letter posted on the Itemus web site, just below a banner that read, eerily, “Welcome To Your Future,” company president Jim Tobin noted that Itemus’ demise would be blamed on its rapid growth, the poor market, and bad tactical decisions, but that in his view, “Itemus would have withstood all those challenges if we hadn’t encountered so many ‘bottomless’ problems related to our Shooting Gallery acquisition. I will advocate that Itemus’ [bankruptcy] trustee pursue legal actions to seek recourse against appropriate persons in the Shooting Gallery context.”
At press time, Itemus had not sought legal action, but Mr. Tobin’s posting reflected widespread concerns about how a company with Shooting Gallery’s success and survival instincts had gotten to the point where it had to sell and, ultimately, fold, an improbable victim of the dot-com bust.
The Shooting Gallery didn’t just go out of business. It exploded, taking with it–if Mr. Tobin’s letter is to be believed–a whole other company, and leaving in its wake a batch of angry creditors, defaulted loans, litigious investors and extremely disgruntled employees, some of whom are talking about the money juggling–bounced checks and late 401K payments–they say marked Shooting Gallery’s last year.
Most sources interviewed by The Observer agreed that the serious downfall of the company began with The Shooting Gallery’s change of focus, from film to internet, at the end of 1999. “Despite all our hard work to create the Shooting Gallery Film Series, I never really felt that the company was interested in film,” said Ryan Werner, former vice president of acquisitions and distribution.
“They were trying to chase those [Internet] dollars,” explained Eammon Bowles, a former Miramax exec who joined The Shooting Gallery as president in 1999 and ran its successful Shooting Gallery Film Series. “[They were] hoping that investors would give them half a million dollars, which was the scenario a couple of years ago.”
Noting that new internet hires at the company were getting huge salaries, Mr. Bowles said: “The frustrating thing was that the film stuff was really starting to come on . . . but I didn’t have any money.” The Shooting Gallery Film Series released small films in limited venues for two weeks at a time. Ideally, the company would put money behind those that had the most successful short runs, and get them released more widely. This was the scenario that led to the series’ biggest success, Mike Hodges’ Croupier .
“But midway through our second series, the dollars for chasing our successes weren’t there,” Mr. Bowles said.
“I’m disappointed that a company like The Shooting Gallery, with so many great innovative ideas, and so many accomplishments, was brought to such a quick and bitter end,” said Tim Clawson, former president of Shooting Gallery Productions, the division of the company that made music videos and commercials, like the Bud Light ad that this year was voted the Super Bowl’s most popular spot.
“We were pretty much left by the side of the road,” said Mr. Clawson, who is now President of Lot 47 Productions, a new division of the indy house Lot 47. “The company was literally abandoned.”
And, for some, Jim Tobin’s Web posting added insult to injury : “That [Tobin letter] is the most pathetic thing I’ve ever seen,” said Ilario Pantano, a co-vice president of Shooting Gallery’s internet division. “How about taking responsibility for your own vessel? The captain of a ship doesn’t blame the iceberg, the captain takes responsibility.”
The Shooting Gallery was founded in 1991 by Horace Mann buddies Larry Meistrich and Steve Carlis. The young, privately held company was notoriously skint, maintaining street cred by throwing beer bashes to pay the office electricity bills. In 1992 they released Laws of Gravity, a Mean Streets -wanna-be that was shot in 12 days for $40,000. They broke records by selling Billy Bob Thornton’s 1996 film Sling Blade to Miramax for $10 million. Sling Blade won an Oscar and became a benchmark for the windfall potential of the indy market. By 1998, the cocky company was announcing plans to build studios in Harrison, N.J.
The following year, the Shooting Gallery was in production on You Can Count on Me, which became the sleeper hit of the 2001 Oscar season. Buoyed by private investments from Wall Streeters, the once scrappy company acquired a bit of monied sheen. Robbie Kravis, son of businessman Henry Kravis, was on staff. Organized as a conglomerate with many subdivisions, the company’s most profitable arm was Gun For Hire, which provided production services and equipment for other production companies.
It was then that Mr. Meistrich and Mr. Carlis decided to launch Shooting Gallery Interactive, which had a vague mission to bring film to the Web. Late to the game, Mssrs. Carlis and Meistrich jumped in enthusiastically. According to former employees, they increased staff from 100 employees to around 250. They redid the office floors.
The money began to evaporate. According to public documents filed by Itemus, TSG’s “General and Administrative Costs” jumped from $5.2 million in 1999 to $21 million in 2000. “Salaries and Benefits” swelled from $2.4 million to $11.9 million, and the “Net Loss” ballooned from $23.5 million to $41.9 million.
In October 2000, it was announced that Itemus, a public mining company-turned Canadian Internet darling, would purchase 80 percent of the company for $56 million. Itemus began to pour money, $14.9 million all told, into the company, but according to Shooting Gallery sources, did not start due diligence until December, at which point The Shooting Gallery underwent a wave of lay-offs.
Among the ousted was Mr. Carlis. “As soon as due diligence commenced, Carlis was gone,” Mr. Bowles said. “Draw your own conclusions.”
In a telephone interview with the Observer , Mr. Carlis had little to say about the timing and reasons for his decampment. “It was just time to leave,” he said.
Mr. Carlis’ departure from the company sparked much speculation about how he had left. Word circulated that he had been escorted from the building and that he had been banned from talking to employees. “That’s completely ridiculous,” Mr. Carlis said. “I had an exit agreement signed by the board of directors and I left . . . that was my last day. That was it.”
By May 1, 2001, the day that Itemus’ acquisition of The Shooting Gallery closed, the terms of the deal had changed. The Canadians were paying $21 million in stock and debentures for 100 percent of The Shooting Gallery. On June 19, Itemus announced that “the financial situation at the Shooting Gallery has deteriorated substantially.” Eight days later, The Shooting Gallery closed its doors. On July 4, Itemus published a prospectus which warned investors that it did “not believe that Shooting Gallery has sufficient assets to satisfy its existing indebtedness,” and that Itemus’ “capital resources have been severely strained by the cost of funding the operations of Shooting Gallery.”
On Aug. 1, Itemus announced its bankruptcy under Canada’s Bankruptcy and Insolvency Act.
Shooting Gallery employees who were on board when the company closed down said they were not given severance of any kind, and some grumbled that it was par for the course.
Several former staffers said they were paid unconventionally by the Shooting Gallery–without taxes taken out or benefits, for full-time work–or knew employees who were paid that way. “There was the constant promise that just around the corner it would be made legitimate,” one former assistant said,.
A source close to Mr. Carlis categorically denied that any employees were ever paid “off-the-books.”
Pay stubs obtained by The Observer show that one full-time assistant was paid for several months without having taxes or benefits deducted from checks by both the Production Portal and Gun For Hire.com, though the assistant said she never worked for either of those Shooting Gallery divisions.
“Switching companies around–yeah, that was part and parcel of the way the whole thing worked,” Mr. Bowles said. As for claims that checks–from any of The Shooting Gallery’s divisions–were known to bounce, Mr. Bowles said that it had never happened to him but, “Were there paychecks that bounced? Absolutely. I guarantee that that’s true. But were they made up in good time? Yes.”
Sources claimed that another mathematical mix-up led to a series of problems with the company’s 401K plan.
“Money was coming out of our pay-checks that was ear-marked for 401K plans,” one former Shooting Gallery creative executive said. “It said it on the pay-stubs. But when you called Merrill Lynch to find out how your 401K was doing, you discovered that the money was not put in the account.”
According to federal law, employers have as much as six weeks from the time they deduct 401K money from an employee’s check to deposit those funds into the company’s 401K account.
“In late December or early January there was a company meeting, and Larry Meistrich said ‘We’re aware of [the 401K problem] and it’s being fixed as of today.’
“They acted like it was an error on the part of [payroll service] ADP or on the part of Merrill Lynch,” the former employee said. “The money was eventually put in.”
“I know that there were some issues that surrounded the 401K’s toward the end of the year,” said Mr. Clawson, the head of Shooting Gallery Productions. “But those were rectified.”
Mr. Bowles also remembered that the problem had to do with lateness. “They were behind, I know, on payment.. . ” he trailed off. “To be honest, I should check my own 401K.”
A spokesman for Merrill Lynch would only acknowledge that the firm did handle The Shooting Gallery’s investment assets, but that a Pennsylvania company called Bysis had “ultimate fiduciary responsibility.” Bysis directed all inquiries back to Merrill Lynch, which stopped returning phone calls.
All the grumblings about the financial dealings of The Shooting Gallery have led some employees to question the men in charge.
Mr. Carlis was the money-keeper, and many sources described him as the more reserved partner. But his December exit from the company led many to suspect that he was responsible for the apparent financial mis-steps of the company. Few would voice their suspicions on the record.
Many of their criticisms, however, jibe with Itemus’ Jim Tobin’s vague rant and his threat of legal action against a company that he had agreed to buy. Itemus, however, is a public company, and any mistakes that led to its downfall must be explained to a Board of Directors–as well as to stockholders, stuck with the results.
Mr. Carlis told The Observer that he didn’t know anything about Mr. Tobin’s Web posting, and that as far as he knew, Itemus, like The Shooting Gallery, fell victim to a difficult market.
“I think it was a tough economy,” he said. “The film business is tough and the internet bottomed out.”
“This is an adult game,” Mr. Pantano said. “The Internet and the independent film business are the two most speculative businesses there are, and they have the potential to be very lucrative, but also very risky.”
Mr. Carlis had been made “the scapegoat,” Mr. Pantano said.. “Management met regularly. It was open and collaborative. The idea that he was running some faction, that he was able to mislead people who were seasoned professional investors from a variety of disciplines, I have a hard time swallowing.”
Mr. Pantano added: “Steve was a genius.”
Mr. Bowles agreed. “Steve was really whip smart. He came up with so many different scenarios to keep things floating and keep things going. He kept everything in his head at all times.”
Asked whether he felt like a scapegoat, Mr. Carlis replied: “When a company goes down, it’s unfortunate that people point fingers all over the place. That’s unfortunately what happens.”
But after Mr. Carlis was gone, The Shooting Gallery’s problems didn’t go away.
“His departure left a number of senior managers, none of whom were willing to stand up and take the blame for decisions that had been made,” Mr. Pantano said. “They were able to stand around and point their fingers, exculpating themselves,” and Mr. Carlis was not around to defend himself. “These people were Steve’s friends. They had been to his house, drunk his wine, ate his food, and then they turned on him. They all turned on him.”
Mr. Carlis, who has resurfaced as the chief operating officer of digital media company BNN-TV, maintained that he is not angry about his curtailed relationship with the company, just “saddened” by its demise. “I’m focused on the new company I’m with,” he said, although he added: “I regret not having that family anymore.”
The source close to the situation echoed the sentiments of many of the other former employees, who all wondered about Larry Meistrich’s role. “It’s amazing to me that there could be a partnership that lasted as long as it did, [with] various members of [Mr. Meistrich’s] family working for the company and [as] investors, and yet he didn’t know what was going on with the company,” Mr. Pantano said.
The drama and suspicion surrounding the death of The Shooting Gallery is not likely to go away anytime soon. There are currently 13 pending lawsuits against the film company, most of them standard get-in-line attempts to recoup losses in bankruptcy proceedings. But they also include a lawsuit filed by investor Maria Follini, mother of TSG executive C.J. Follini (who was awarded $360,000); one by Postworks Inc., involving leased Avid editing machines and, peripherally, The New York Times Company; and one for Alive Entertainment/Kintop Pictures over foreign film distribution and a defaulted settlement agreement.
“What made it unusual in my 15 years of litigation practice is that the breach happened so quickly after the settlement agreement,” said David Berg, lawyer for Alive Entertainment/Kintop Pictures. “It’s unusual for a company to enter into a settlement agreement, make one payment and then default.”
Mr. Tobin could not be reached for comment, and other members of the Itemus board, reached at home, did not return calls or declined to comment.
Mr. Meistrich, whom many sources said they hadn’t heard from since The Shooting Gallery closed its doors, could not be located for comment. Asked whether or not he’d spoken to Mr. Meistrich since his departure from the company, Mr. Carlis said, “I really don’t want to get into that.”
Mr. Carlis also said he was calm about the prospect of impending litigation. “I think whatever comes out legally, no matter who it affects, it’ll come out the way it should.”
Mr. Clawson said that letting The Shooting Gallery’s last troubled years of existence speak for its history or the quality of its product is a mistake. “A company is more than its financial dealings or some deals that may have gone wrong or some bad decisions.”
Mr. Carlis agreed. “People really enjoyed growing up at the Shooting Gallery. Many people who grew up there will have very influential positions in the media industry and I think that we should be proud of that.”