RELATED PARTY TRANSACTIONS

12 Months Ended

Dec. 31, 2011

RELATED PARTY TRANSACTIONS

RELATED PARTY TRANSACTIONS

22. RELATED PARTY TRANSACTIONS

        Acquisition of Digital Domain and Purchase of Royalty Rights—In October 2009, the Company acquired an effective controlling interest in Digital Domain. See Note 2 for additional information regarding the acquisition. Concurrent with the acquisition of Digital Domain, the Company acquired Digital Domain's ongoing rights to participations in profits of the movie Titanic for $1.0 million.

        Board Member, Chairman and Chief Executive Officer of the Company and of Digital Domain —Prior to the acquisition by the Company of Digital Domain, the Chairman and Chief Executive Officer of the Company transferred to the Company 1,691,667 shares of the Common Stock of Digital Domain, as more fully described in Note 2, and an existing $8.0 million note (the "Existing Note"). The Company assumed the Existing Note, acquired 1,691,667 shares and paid $0.5 million in cash. This transaction was consummated through the issuance of a new note from a commercial lender to the Company (the "New Note") and the simultaneous cancelation of the Existing Note. The Company used cash reserves to fund the cash portion of the purchase. The Chairman and Chief Executive Officer of the Company guaranteed the Company's repayment obligations under the New Note, as more fully described in Note 16. In connection with capital raising services provided in 2009, Digital Domain paid an affiliated company of this individual transaction fees amounting to $0.5 million.

        On March 31, 2010, this individual personally guaranteed payment of the incremental principal amount of $2.0 million under the Replacement Note and was compensated $0.1 million, as more fully described in Note 16.

        On May 27, 2010, this individual personally guaranteed payment by the Company to the Former Co-Chairman of Digital Domain of $3.0 million in the event of a default on such payment, as more fully described below and in Note 16.

        On September 30, 2010, this individual personally guaranteed repayment of a loan to the Company and received warrants for Common Stock equivalents totaling 839,105 shares, as more fully described in Notes 16, 17 and 19.

        The Company paid this individual, consulting fees of $0.1 million for services rendered during the year ended December 31, 2010. Digital Domain paid this individual consulting fees of $0.1 million for services rendered during each of the years ended December 31, 2009, the 2009 Predecessor Period, and the year ended December 31, 2008, respectively.

        In August 2010, this individual was listed as a Director of an Electioneering Communications Organization. The Company made three cash payments totaling $0.1 million to the organization between August 2010 and October 2010.

        In 2011, the Company's Chairman and Chief Executive Officer exercised 839,105 warrants and received shares of the Company's Common Stock, as more fully described in Notes 18 and 19.

        In 2011, a former employee and family member of these individual received options to purchase 20,000 shares of the Company's Common Stock as part of a separation agreement.

        On June 3, 2011, Digital Domain granted the option to purchase 1,500,000 shares of Digital Domain's Common Stock to this individual. These options have an exercise price of $.001 per share and were immediately vested. The grant was immediately exercised, and in July 2011 this individual exchanged the Digital Domain Common Stock for 934,580 shares of the Company's Common Stock. As this option, exercise and exchange were contemplated prior to June 30, 2011, the Company recorded an additional $6.5 million of stock option compensation expense related to the exchange of the shares of Digital Domain Common Stock for the Company's Common Stock as of June 30, 2011. However, the Company did not record the exchange for purposes of determining outstanding common stock until July 2011. See Notes 2, 4, 18, 19 and 24 for additional disclosures.

        On July 13, 2011, we entered into an amendment to the employment agreement with this individual, which extends the term of his original agreement until March 8, 2014, subject to certain termination rights, with an automatic one-year extension thereafter, unless either party notifies the other in writing of its desire not to extend. Pursuant to the amendment, this individual's annual base salary was raised to $750,000 effective as of the date of the amendment and he shall be eligible to receive up to 100% of such base salary in discretionary bonus based on our evaluation of certain performance-based criteria. Under the terms of the amendment, if we terminate employment other than for "cause" (as such is defined in the employment agreement), we are obligated to pay his accrued compensation through the date on which his employment is terminated and to continue to pay this individual his base salary for a period equal to 36 months following the termination of employment or such lesser period as is coextensive with the remainder of the term of the amended employment agreement, as extended, with such lesser period not to be fewer than 12 months. In addition, this individual was granted stock options to purchase 1,080,000 shares of our Common Stock at an exercise price of $9.63 per share, which options vest over three years in equal quarterly installments commencing on the date of the amendment. Pursuant to the amendment, this individual will receive producer credits on all films produced by us.

        As part of the IPO, on November 18, 2011, this individual purchased 1,176,471 shares of the Company's common stock at $8.50 per share for a total investment of $10.0 million.

        Board Member, Chief Executive Officer of Digital Domain Institute and Former Chief Financial Officer and President of the Company and Former Secretary and Vice President and Current Board Member of Digital Domain—Prior to the Company's acquisition of Digital Domain, this individual sold 50,000 shares of Digital Domain Common Stock to the Company for $0.2 million, as more fully described in Note 2. The amount paid by the Company in excess of the individual's original basis in these shares was recorded as a distribution to stockholder. This individual became a Board Member of Digital Domain during the year ended December 31, 2010.

        Digital Domain paid a salary to this individual amounting to $0.1 million for the 2009 Predecessor Period.

        On July 1, 2011, this individual exchanged 650,000 shares of Digital Domain Common Stock for 404,984 shares of the Company's Common Stock.

        On July 13, 2011, we entered into an amendment to the employment agreement with this individual, pursuant to which his annual base salary was raised to $380,000 upon completion of the IPO, which occurred November 18, 2011. In addition, on July 13, 2011, this individual was granted stock options to purchase 300,000 shares of our Common Stock in the Company at an exercise price of $9.63 per share, which options vest over three years in equal quarterly installments commencing on the date of the amendment.

        As part of the IPO, on November 18, 2011, this individual purchased 58,825 shares of the Company's common stock for $8.50 per share for a total investment of $0.5 million.

        Wyndcrest DD Investment Holdings, LLC—On July 1, 2011, Wyndcrest DD Investment Holdings, LLC exchanged 600,000 shares of Digital Domain Common Stock for 373,832 shares of the Company's Common Stock. See Notes 2, 4, 18, 19 and 24 for additional disclosures.

        5% Shareholder—On July 1, 2011, an owner of more than 5% of the outstanding shares of the Company's Common Stock exchanged 350,000 shares of Digital Domain Common Stock for 218,069 shares of the Company's Common Stock. See Notes 2, 4, 18, 19 and 24 for additional disclosures.

        Former Co-Chairman of Digital Domain—Digital Domain periodically creates digital imagery for feature films and commercials for which this individual is the director, or his production company is the producer. This individual was once a significant stockholder of Digital Domain. Revenues to Digital Domain from one feature film and two commercials associated with this individual or his production company amounted to $7.8 million during the 2009 Predecessor Period. Revenues to Digital Domain from one feature film associated with this individual or his production company amounted to $22.7 million and $4.0 million for the year ended December 31, 2011 and 2010, respectively.

        In addition, in May 2010 the Company purchased this individual's entire outstanding holdings of Digital Domain Common Stock, and Digital Domain issued to this individual warrants to purchase additional shares of Digital Domain's Common Stock. The consideration paid by the Company for the shares purchased was an aggregate of $3.0 million in the form of cash and a short-term note agreement. The note agreement is personally guaranteed by the Company's Chairman and Chief Executive Officer. This outstanding balance under the note agreement was $0.5 million as of December 31, 2010. The note agreement was paid in full in January 2011. See Note 17 for further discussion of the terms underlying the warrants.

        Former Chief Executive Officer of Digital Domain—In January 2011, the Company granted the option to purchase 817,000 shares of the Company's Common Stock to this individual, as more fully described in Note 19.

        On October 3, 2011, this individual transitioned from Chief Executive Officer of Digital Domain to a new role as an advisor and independent producer through November 2013. Under terms of the Agreement, this individual was allowed to retain his options for both the Company and DD under their current terms.

        On February 17, 2012, the Company terminated this individual's October 2011 independent producer and consulting agreement.

        Digital Domain Youth Outreach Foundation, Inc.—On July 20, 2011, Digital Domain Youth Outreach Foundation, Inc. ("DDYOF") was incorporated in Florida as a non-profit organization supporting local community youth soccer programs. In 2011, the Company contributed $0.1 million to DDYOF and two of our Officers, our Chairman and Chief Executive Officer and our Senior Vice President and General Counsel, were named as Officers/Directors of DDYOF.

        Investment in DDI and Share Exchange with the Company—In July/August, 2011, DDI sold 3,250,000 shares of common stock in a private placement for aggregate net proceeds of $23.3 million in cash, net of $2.7 million of costs and fees. The purchase agreements for these transactions include provisions for the exchange of such shares into shares of our Common Stock; thus, this transaction is reflected on an as-exchanged basis. Shares of DDI may be converted into shares of the Company at an exchange rate of .8307 upon the earlier of 120 days after the effective date or upon the successful completion of an IPO by the Company.

        Sale of The Foundry—In June 2009, Digital Domain sold The Foundry, its UK software subsidiary, to certain of the subsidiary's management. The transaction was financed by a third-party private equity firm and by an affiliate of Falcon, Digital Domain's holder of Senior Secured Notes and warrants to acquire its Series B Preferred Stock. The transaction was required under terms of the renegotiated debt agreements between Digital Domain and Falcon entered into in January 2009, as more fully described in Note 16. Falcon retired a portion of its Senior Secured Notes in Digital Domain in connection with this transaction. The cash proceeds of the transaction were primarily used to pay down principal on notes payable and for redemption of Series A Preferred Stock issued to the Falcon affiliate. For additional information relating to the sale of The Foundry, refer to Note 23.

        Resignation from the Board of Directors of Digital Domain by Falcon Investments—In May 2010, the designee of Falcon Investments, the holder of Digital Domain's Senior Secured Debt, resigned from the Board of Directors of Digital Domain.

        Issuance of Company Common Stock in Exchange for Digital Domain Common Stock with Advisory Board Member and former Digital Domain director—On December 1, 2010, the Company issued 100,000 shares of the Company's Common Stock to an Advisory Board Member and former director of Digital Domain in exchange for 83,333 shares of Digital Domain Common Stock held by this individual.

        Litigation and purchase of Digital Domain Common Stock involving the Former Chief Executive Officer and Board Member of Digital Domain—See disclosure at Note 15.

        Litigation involving the Principal of a Digital Domain Stockholder—See disclosure at Note 15.

        Litigation—4580 Thousand Oaks Boulevard Corporation v. In Three, Inc., et al. —See disclosure at Note 15.