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Digital Domain scrambles in reorg to avoid bankruptcy

CEO John Textor resigns, 'heartbroken' at closure of Fla. facility

Digital Domain’s founder and former CEO Scott Ross, who sold the company in 2006, said he’d join other investors in a bid for the financially strapped company and take the top job if a turnaround seemed possible.

“If the parameters were right,” he said. “I have a very close emotional tie to this company and its employees,” Ross told Variety. “If there was a path for the possibility of success, I would absolutely consider it.”

He said he’s talked to “financial types, legal types and operational types” about the possibility. He’s had no conversations with Palm Beach Capital, Digital Domain’s largest shareholder, or Tenor Capital, its biggest lender. Execs at those firms weren’t immediately available to comment and it’s not clear what direction the company’s heading in as its restructures and tries to skirt Chapter 11.

Digital Domain’s latest CEO John Textor stepped down Friday amidst a flurry of SEC filings and press releases announcing a restructuring that includes closing the company’s Port St. Lucie, Fla. facility and firing most of the 200-plus staffers there.

One entire filing chastised Textor for downplaying the company’s dire financial situation in an interview with a local Florida TV station earlier this week. The filing asserted that Textor’s “personal interpretation and characterization of the company’s obligations under its agreements with the holders of its senior secured convertible notes and his view on the materiality of any amounts that may be due to such holders…do not reflect the views of the company.”

Textor has been a controversial figure in the vfx industry. The former investment banker came to Digital Domain after holding a number executive positions outside showbiz, including CEO of BabyUniverse, which filed for bankruptcy in 2008, and chairman of Sims Snowboards. He also founded investment firm Wyndcrest Holdings. He led Digital Domain in new directions like military simulation and surgical simulation to boost profits outside its core visual effects, a biz with notoriously skimpy margins. Digital Domain has rarely been profitable since it went public in 2008.

“The business has always been tough. The visual effects industry is in turmoil. They create the value, they get the butts in the seats, but the studios have ground these guys to a pulp,” said Ross, a former general manager for George Lucas’ Industrial Light and Magic, who founded Digital Domain in 1993 with James Cameron and Stan Winston.

Textor also drew fire in the vfx community for an unusual partnership with Florida State U. where students worked without pay in exchange for college credits at the Digital Domain studio in West Palm Beach.

Textor “brought back a whole lot of new ideas and maybe some of them would have worked out. It just caught up with him,” Ross said.

Digital Domain defaulted in late August on $35 million worth of loans and back interest. It reached a temporary truce with lenders led by Tenor to avoid immediate repayment and put in place a special committee to examine its options. The company said solutions could include a debt refinancing with help from an unspecified institutional investor, or selling a substantial equity stake to a unnamed business partner.

In his resignation letter the board, Textor wrote that he was “deeply saddened and heartbroken” by the decision to close Port St. Lucie. “The people of Florida welcomed us with open arms and we certainly owed them greater consideration. We were able to hire and train local residents and have them mentored by the very best of our industry. Our incredibly talented artists and filmmakers were building something truly special.”

About 20 employees there will remain in Port St. Lucie for the wind-down, the company said. The studios in California and Vancouver will continue to operate without interruption, as will the Digital Domain Institute in West Palm Beach.

Michael Katzenstein, currently interim chief operating officer, along with the special committee, will assume day-to-day operating responsibility as the company searches for a new CEO.

Meanwhile, Digital Domain’s longtime company exec and chief creative officer Ed Ulbrich was promoted to the additional role of CEO of subsidiary of key subsidiary Digital Domain Productions.

The company said the St. Lucie closing will help focus resources on its core business of digital visual effects, CG animation and digital production for entertainment and advertising, mostly based in its studios in the Venice area of Los Angeles. Digital Domain has won a handful of Academy Awards and worked effects for dozen of pics including “Titanic,” “The Curious Case of Benjamin Button” and the “Transformers” movies. It was the company behind the buzzed-about Tupac Shakur hologram at the Coachella Music Festival in April.

As it explores ways to restructure its debt and slash overhead, the company said it’s “working closely with its clients, vendors and other critical constituencies throughout this process.”

But Digital Domain’s future is very much in flux. Lenders need to give the company at least 48 hours notice if they change their minds and want their money back in full after all.

The stock has plunged in recent days as investors fled. On Thursday, execs canceled a scheduled presentation at the 2012 Gateway investor conference in San Francisco. Shares closed Friday at a meager 60 cents versus a 52-week high of over $9. They’ve plunged about 30% on average every day this week as the crisis came to a head.

A flash of good news: A rep for Legend3D said Friday the film company is beefing up, expects to hire more than 150 staffers in San Diego over the next three months and “would be happy to consider any of the former DD artists.”

Digital Domain still holds a extensive portfolio of valuable patents for 3D conversion stemming from its acquisition of In-Three.

And for better or worse Textor may be saying goodbye but not farewell. “I intend to stay actively involved as a shareholder of the company, and a believer in Florida. This decision will hopefully give me greater flexibility to independently consider other strategic alternatives for the company, the Port St. Lucie studio and the people affected,” he said.

David S. Cohen contributed to this report.