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The following is an excerpt from a S-1/A SEC Filing, filed by DIGITAL DOMAIN on 3/18/2008.
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DIGITAL DOMAIN - S-1/A - 20080318 - EXECUTIVE_COMPENSATION

Elements of Executive Compensation

Overview

Our executive compensation program consists of a base salary and equity participation in our company, either in the form of options to purchase shares of our common stock, or restricted shares of our common stock, which, in each case, vest over a two to four year period. In addition, we may pay discretionary bonuses based on the Compensation Committee’s assessment of the executive officer’s specific contribution to our company, and certain of our executive officers are guaranteed, under the terms of their employment agreements, minimum annual bonuses based on a percentage of their base compensation. We believe these arrangements are reasonable and competitive compared to other companies we compete with for the attraction and retention of talent.

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Base Salary

We attempt to set base salaries that are competitive with organizations that operate in our industry and that are comparable in size. Base salaries are intended to be commensurate with each executive’s organizational responsibilities and his or her level of professional development, taking into account the expected role the executive is likely to play in helping us achieve our goals and objectives.

Annual Bonuses

Annual bonuses are intended to compensate executive officers for their role in the achievement of our strategic goals. For fiscal year 2007, the annual bonuses for our executive officers were determined in accordance with the terms of their respective employment agreements, except that in the case of Ms. Macaluso, her bonus was determined at the discretion of our board of directors upon its review of a recommendation presented by John C. Textor, Co-Chairman of our board of directors. For fiscal year 2007, each of Messrs. Miller and Plumer received a non-discretionary minimum annual bonus equal to 10% of his respective annual base salary as set forth in his employment agreement; Mr. Ulbrich received a non-discretionary bonus of $75,000 and an additional bonus of $75,000, which was contingent upon our commercials division generating a minimum net revenue, calculated as the revenue attributable to our commercials division less the direct cost of commercials revenue and direct commercials overhead associated therewith, of $6,898,000 during 2006, which target was achieved; and Ms. Macaluso received a discretionary bonus of $100,000 awarded in recognition of her contributions to our company. The fiscal year 2007 bonus amounts paid to our Named Executive Officers are also set forth below under “Compensation of Executive Officers — Summary Compensation Table”.

Equity Compensation

Equity-based compensation paid to our executive officers is designed to provide long-term incentives for the alignment of our goals and objectives with the executive’s performance and to reward performance that is accretive to stockholder value. We believe these arrangements are reasonable and competitive compared to other companies we compete with for the attraction and retention of talent.

Severance Benefits

Our executive officers are also entitled to receive severance benefits upon certain qualifying terminations of employment, pursuant to provisions in each such executive officer’s employment agreement. These severance arrangements are primarily intended to motivate the executive officers to remain in our employ, as the executive officers will forego the right to receive a significant payment if they voluntarily terminate their employment without good reason. For more information, see “Compensation of Executive Officers — Potential Payments Upon Termination or Change in Control”.

Perquisites

From time to time, our Compensation Committee or board of directors may determine it to be in the best interests of the company to provide certain of our executive officers perquisites commensurate with their position in the company, including reasonable housing or travel allowances.

Additional Compensation

Except for standard benefits available to all employees, consisting of the opportunity to participate in our medical, health, disability, retirement, welfare, pension, profit-sharing and insurance plans then in effect and generally made available from time to time to our management employees, our executive officers do not receive any other compensation or benefits except as described above.

Agreements with Named Executive Officers

Each of the Named Executive Officers currently employed by us has entered into a written employment agreement, which establishes such executive officer’s base salary and, in some cases, annual bonus. Among other things, the employment agreements generally provide for severance payments upon termination by us other than for cause, designate a period of employment, allow the termination of the agreement by either party with notice and allow for participation in our bonus program. See “Compensation of Executive Officers — Employment Agreements”.

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Review of All Components of Executive Compensation

Upon the consummation of this offering, the Compensation Committee will be responsible for reviewing all components of our executive officers’ compensation, including base salary, bonus, equity compensation, and accumulated realized and unrealized stock option gains.

Base Salaries of Executive Officers

Executive officers’ salaries are set out in their respective employment agreements. In cases where base salary increases are at our discretion pursuant to the terms of an executive officer’s employment agreement, we annually review base salaries and any increases are based on our overall performance and the executive’s individual performance during the preceding year.

Equity Compensation Grants

Upon the consummation of this offering, the Compensation Committee will be responsible for establishing and administering our equity compensation programs and for awarding equity compensation to the executive officers under our 2006 General Common Stock Equity Plan. To date, the sole forms of equity compensation awarded to officers and employees thereunder have been stock options. In the future, the Compensation Committee may include grants of restricted stock in the executive equity compensation program. We believe that restricted stock and stock options are an important part of overall compensation because they align the interests of our executive officers and other employees with those of our stockholders and create long-term incentives to maximize stockholder value.

Allocation Between Forms of Compensation

In setting compensation for our Named Executive Officers, we do not have a formal policy for allocating a certain percentage of compensation between long-term and currently paid-out compensation. By making awards of stock options a significant portion of executive compensation, however, we have emphasized long-term equity incentives for our key employees. These incentives represent a large portion of the compensation package provided to our Named Executive Officers. We expect that our Compensation Committee will place a similar emphasis on long-term equity incentives after the consummation of this offering.

Tax Treatment

Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to public corporations for compensation greater than $1 million paid for any fiscal year to the corporation’s chief executive officer and four other most highly compensated executive officers as of the end of any fiscal year. However, performance-based compensation is not subject to the $1 million deduction limit if certain requirements are met. Our Compensation Committee may consider the impact of Section 162(m) when designing our cash and equity bonus programs, but may elect to provide compensation that is not fully deductible as a result of Section 162(m) if it determines this is in our best interests.

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Compensation of Executive Officers

Summary Compensation Table

The following table presents certain summary information for the fiscal year ended December 31, 2007 concerning compensation earned for services rendered in all capacities to us and our subsidiaries by the Named Executive Officers during such period.

Summary Compensation Table for the Fiscal Year Ended December 31, 2007

             
Name and Principal Position   Year   Salary
($) (1)
  Bonus
($) (2)
  Stock Awards
($)
  Option Awards
($) (3)
  All Other
Compensation
($)
  Total
($)
Mark Miller (4)
President and Chief Executive Officer
    2007     $ 548,097     $ 51,600           $ 149,553           $ 749,250  
Cliff Plumer
Chief Technology Officer
    2007       524,336       51,600             149,553             725,489  
Ed Ulbrich
Executive Vice President
    2007       447,116       150,000             49,698             646,814  
Yvette Macaluso (5)
Vice President, Finance and Chief Financial Officer
    2007       261,231       100,000             86,284             447,515  
Joseph Gabriel
Vice President, Business Affairs and General Counsel
    2007       282,693                   33,753             316,446  
Carl Stork (6)
Vice Chairman and Former Chief Executive Officer
    2007       300,000                               300,000  

(1) For each of Messrs. Miller, Plumer and Ulbrich, under the terms of his respective employment agreement, he is entitled to receive minimum annual increases to his annual base salary of 7%. See “ — Employment Agreements” below for more information.
(2) For each of Messrs. Miller and Plumer, the bonus amount shown represents a non-discretionary minimum annual bonus equal to 10% of his respective annual base salary as set forth in his employment agreement. For Mr. Ulbrich, the bonus amount shown represents a non-discretionary bonus of $75,000 and an additional bonus of $75,000, which was contingent upon our commercials division generating a minimum net revenue, calculated as the revenue attributable to our commercials division less the direct cost of commercials revenue and direct commercials overhead associated therewith, of $6,898,000 during 2006, which target was achieved. For Ms. Macaluso, the bonus amount shown represents a discretionary bonus of $100,000 awarded in recognition of her contributions to our company. See “ — Employment Agreements” below for more information.
(3) The options were valued using the Black-Scholes option pricing model and are being recognized as compensation expense in accordance with SFAS No. 123R. See Note 11 of our Notes to Consolidated Financial Statements included elsewhere in this prospectus. Amounts shown in this column do not reflect compensation actually received by the Named Executive Officers.
(4) Mr. Miller became our Chief Executive Officer in September 2007; in connection therewith, his annual base salary was increased from $516,000 to $616,000.
(5) Ms. Macaluso became our Chief Financial Officer in June 2007; in connection therewith, her annual base salary was increased from $220,000 to $300,000.
(6) Mr. Stork was our Chief Executive Officer until September 2007; since his resignation from such position, he has continued to serve us as a Special Advisor. See “ — Employment Agreements” below for more information.

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Grants of Plan-Based Awards

The following table sets forth certain information concerning grants of plan-based awards under our 2006 General Common Stock Equity Plan made during the year ended December 31, 2007 to the Named Executive Officers:

Grants of Plan-Based Awards During the Year Ended December 31, 2007

                     
                     
    Estimated Future Payouts Under Non-Equity Incentive Plan Awards   Estimated Future Payouts Under Equity Incentive Plan Awards   All Other Stock Awards: Number of Shares of Stock or Units (#)   All Other Option Awards: Number of Securities Underlying Options (#)   Exercise or Base Price of Option Awards ($/sh)   Grant Date Fair Value of Stock and Option Awards
Name   Grant Date   Threshold ($)   Target
($)
  Maximum ($)   Threshold (#)   Target
(#)
  Maximum (#)
Mark Miller     9/18/2007                                                 800,000 (1)     $ 1.40     $ 665,920  
Cliff Plumer     9/18/2007                                                 800,000 (2)     $ 1.40     $ 665,920  
Ed Ulbrich     9/18/2007                                                 300,000 (3)     $ 1.40     $ 249,720  
Yvette Macaluso     2/15/2007                                                 300,000 (4)     $ 1.00     $ 175,808  
       9/18/2007                                                 300,000 (4)     $ 1.40     $ 249,720  
Joseph Gabriel     2/15/2007                                                 200,000 (5)     $ 1.00     $ 122,020  
       9/18/2007                                                 120,000 (6)     $ 1.40     $ 99,888  

(1) Mr. Miller was granted options to purchase an aggregate of 800,000 shares of our common stock. One eighth of these stock options will vest every six months that he continues to be employed by the company.
(2) Mr. Plumer was granted options to purchase an aggregate of 800,000 shares of our common stock. One eighth of these stock options will vest every six months that he continues to be employed by the company.
(3) Mr. Ulbrich was granted options to purchase an aggregate of 300,000 shares of our common stock. One eighth of these stock options will vest every six months that he continues to be employed by the company.
(4) Ms. Macaluso was granted options to purchase an aggregate of 300,000 shares of our common stock on each of February 15, 2007 and September 18, 2007. 75,000 of these stock options vested on February 15, 2007 and the remaining will vest in equal one-eighth portions every six months that she continues to be employed by the company.
(5) Mr. Gabriel was granted options to purchase an aggregate of 200,000 shares of our common stock. One eighth of these stock options will vest every six months that he continues to be employed by the company.
(6) Mr. Gabriel was granted options to purchase an aggregate of 120,000 shares of our common stock. One eighth of these stock options will vest every six months that he continues to be employed by the company.

The aggregate salary and bonus that each Named Executive Officer received for the year ended December 31, 2007 in proportion to the total compensation received by such Named Executive Officer for such year is set forth below.

 
Name   Proportion of Salary and Bonus Versus
Total Compensation for the Year Ended
December 31, 2007
Mark Miller     80 %  
Cliff Plumer     79 %  
Ed Ulbrich     92 %  
Yvette Macaluso     81 %  
Joseph Gabriel     89 %  
Carl Stork     100 %  

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Outstanding Equity Awards at Fiscal Year End

The following table provides certain information concerning unexercised options, stock that has not vested, and equity incentive plan awards for each Named Executive Officer outstanding as of the end of the year ended December 31, 2007:

Outstanding Equity Awards at December 31, 2007

                 
                 
  Option Awards   Stock Awards
Name   Number of Securities Underlying Unexercised Options (#) Exercisable   Number of Securities Underlying Unexercised Options (#) Unexercisable   Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)   Option Exercise Price ($)   Option Expiration Date (1)   Number of Shares or Units of Stock That Have Not Vested   Market Value of Shares or Units of Stock That Have Not Vested   Equity Incentive Plan Awards: Number of Unearned Shares That Have Not Vested   Equity Incentive Plan Awards: Market Value of Unearned Shares That Have Not Vested
Mark Miller (2)     200,000       600,000           $ 1.00       9/28/2016                          

          800,000             1.40       9/17/2017                          
Cliff Plumer (3)     200,000       600,000             1.00       9/28/2016                          

          800,000             1.40       9/17/2017                          
Ed Ulbrich     312,500 (4)       187,500 (4)             1.00       10/30/2016                          
             300,000             1.40       9/17/2017                          
Yvette Macaluso     103,125       196,875             1.00       2/14/2017                          
             300,000             1.40       9/17/2017                          
Joseph Gabriel     25,000       175,000             1.00       2/14/2017                          
             120,000             1.40       9/17/2017                          

(1) The grant date of each stock option is ten years prior to its expiration date.
(2) Mr. Miller was granted options to purchase an aggregate of 800,000 shares of our common stock on September 29, 2006 and options to purchase an additional aggregate of 800,000 shares of our common stock on September 18, 2007. One-eighth of these stock options vest every six months that he continues to be employed by the company, commencing on the applicable grant date. In the event that Mr. Miller’s employment agreement is extended to September 29, 2009, then that portion of the stock options granted to Mr. Miller on September 29, 2006 which has not vested as of September 28, 2008 will immediately vest on the date that is two years after such grant date.
(3) Mr. Plumer was granted options to purchase an aggregate of 800,000 shares of our common stock on September 29, 2006 and options to purchase an additional aggregate of 800,000 shares of our common stock on September 18, 2007. One-eighth of these stock options vest every six months that he continues to be employed by the company, commencing on the applicable grant date. In the event that Mr. Plumer’s employment agreement is extended to September 29, 2009, then that portion of the stock options granted to Mr. Plumer on September 29, 2006 which has not vested as of September 28, 2008 will immediately vest on the date that is two years after such grant date.
(4) Mr. Ulbrich was granted options to purchase an aggregate of 500,000 shares of our common stock. One-half of these stock options vested on the grant date and the remaining will vest in equal 1/8 portions every six months thereafter that he continues to be employed by the company.

Options Exercised and Stock Vested During the Fiscal Year

None of the stock options held by our Named Executive Officers were exercised during the year ended December 31, 2007. Our Named Executive Officers were not provided any other stock awards during the year ended December 31, 2007.

Pension Benefits and Nonqualified Deferred Compensation

We have not provided, and do not currently provide, any form of post-retirement benefits to our employees or any of the Named Executive Officers. In addition, we have never had, and currently do not have, any nonqualified deferred compensation plans in place.

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Employment Agreements

We are currently a party to written employment agreements with all of our Named Executive Officers. Pursuant to these employment agreements, each of Messrs. Miller, Plumer, Ulbrich and Gabriel and Ms. Macaluso serves as an executive officer of the company, and Mr. Stork previously served as our Chief Executive Officer and currently serves as our Vice Chairman. The material terms of each Named Executive Officer’s employment agreement is set forth below:

Carl Stork.   While Mr. Stork was our Chief Executive Officer, his compensation was set forth in an employment agreement that expired on September 30, 2007. On November 1, 2007, we entered into a new employment agreement with Mr. Stork, which expires on June 28, 2008. Under the terms of Mr. Stork’s current employment agreement, under which he serves as our Special Advisor, he is entitled to continue to receive an annual base salary of $300,000, the same annual base salary that he received when he was our Chief Executive Officer, and reimbursement of certain travel expenses. Mr. Stork’s employment agreement does not provide for the payment of any bonuses.

Mark Miller.   Mr. Miller’s employment agreement commenced on September 29, 2006 and expires on September 28, 2008, subject to an automatic one-year extension, unless either party notifies the other in advance of an intention not to extend. Under the terms of Mr. Miller’s employment agreement, as amended, he is entitled to an initial annual base salary of $616,000 (raised from $516,000 by amendment in connection with Mr. Miller becoming our Chief Executive Officer in September 2007), subject to minimum annual increases of 7%, a non-discretionary minimum annual bonus equal to 10% of his annual base salary, with any bonus amount to be paid in addition thereto to be within the sole and absolute discretion of our Board of Directors, or the Compensation Committee thereof, reimbursement of certain travel expenses, and a reasonable housing allowance in an amount between $4,000 to $5,000 per month. Although Mr. Miller is entitled to receive the aforementioned housing allowance, to date, he has not been paid any such allowance. Under the terms of the agreement, he was also granted an option to purchase 800,000 shares of our common stock, at a price of $1.00 per share, vesting in equal 1/8 portions every six months that he continues to be employed by the company. In the event that Mr. Miller’s employment agreement is extended to September 29, 2009, then that portion of such option which has not vested as of September 28, 2008 will immediately vest on the date that is two years after the grant date for such option.

Cliff Plumer.   Mr. Plumer’s employment agreement commenced on September 29, 2006 and expires on September 28, 2008, subject to an automatic one-year extension, unless either party notifies the other in advance of an intention not to extend. Under the terms of Mr. Plumer’s employment agreement, as amended, he is entitled to an initial annual base salary of $516,000, subject to minimum annual increases of 7%, a non-discretionary minimum annual bonus equal to 10% of his annual base salary, with any bonus amount to be paid in addition thereto to be within the sole and absolute discretion of our Board of Directors, or the Compensation Committee thereof, and reimbursement of certain travel expenses. Under the terms of the agreement, he was also granted an option to purchase 800,000 shares of our common stock, at a price of $1.00 per share, vesting in equal 1/8 portions every six months that he continues to be employed by the company. In the event that Mr. Plumer’s employment agreement is extended to September 29, 2009, then that portion of such option which has not vested as of September 28, 2008 will immediately vest on the date that is two years after the grant date for such option.

Ed Ulbrich.   Mr. Ulbrich’s employment agreement commenced on October 31, 2006 and expires on December 31, 2009. Under the terms of Mr. Ulbrich’s employment agreement, he is entitled to an initial annual base salary of $300,000, which increased to $450,000 on January 1, 2007, subject to minimum annual increases of 7%, and, after the 2006 fiscal year, a non-discretionary minimum annual bonus equal to 10% of his annual base salary, with any bonus amount to be paid in addition thereto to be within the sole and absolute discretion of our Board of Directors, or the Compensation Committee thereof. For the 2006 fiscal year, Mr. Ulbrich received a bonus of $150,000, $75,000 of which was contingent upon our commercials division generating a minimum net revenue, calculated as the revenue attributable to our commercials division less the direct costs and allocable overhead associated therewith, of $6,898,000 during such fiscal year, which target was achieved. Under the terms of the agreement, he was also granted an option to purchase 500,000 shares of our common stock, at a price of $1.00 per share, one-half of which vested on the commencement date of the agreement and the remainder vesting in equal 1/8 portions every six months thereafter that he continues to be employed by the company.

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Yvette Macaluso.   Ms. Macaluso’s employment agreement commenced on June 25, 2007 and expires on June 25, 2008, subject to an automatic one-year extension, unless either party notifies the other in advance of an intention not to extend. Under the terms of Ms. Macaluso’s employment agreement, she is entitled to an initial annual base salary of $300,000 and a non-discretionary minimum annual bonus equal to 10% of her annual base salary, with any bonus amount to be paid in addition thereto to be within the sole and absolute discretion of our Board of Directors, or the Compensation Committee thereof. Prior to entering into her employment agreement, Ms. Macaluso was granted an option to purchase 300,000 shares of our common stock, at a price of $1.00 per share, vesting as to 75,000 shares on February 15, 2007 and as to the remaining shares in equal 1/8 portions every six months that she continues to be employed by the company from that date.

Joseph Gabriel.   Mr. Gabriel’s employment agreement commenced on January 16, 2007 and expires on January 15, 2009, subject to an automatic one-year extension, unless either party notifies the other in advance of an intention not to extend. Under the terms of Mr. Gabriel’s employment agreement, he is entitled to an initial annual base salary of $300,000 and is eligible to receive bonuses in such amounts, if any, as are determined by our Board of Directors, or the Compensation Committee thereof, in its sole and absolute discretion from time to time. Under the terms of the agreement, Mr. Gabriel was also granted an option to purchase 200,000 shares of our common stock, at a price of $1.00 per share, vesting in equal 1/8 portions every six months that he continues to be employed by the company.

Other than with respect to Mr. Stork, upon a termination by us of any such Named Executive Officers’ employment without cause (as it is defined in his or her employment agreement), or upon the voluntary resignation of the executive officer for good cause (as it is defined in his or her employment agreement), each such executive officer will be entitled to continue to receive his or her base salary for a specified period of time: six months (or such lesser period as is coextensive with the remainder of the term of the applicable employment agreement) in the case of Mr. Ulbrich and Ms. Macaluso, 12 months (or such lesser period as is coextensive with the remainder of the term of the applicable employment agreement) in the case of Messrs. Miller and Plumer, and the remainder of the term of his employment agreement in the case of Mr. Gabriel.

Under each Named Executive Officer’s employment agreement, such executive officer is subject to nonsolicitation covenants which prohibit such executive officer from soliciting, among others, our employees and contractors during the term of his or her employment and, subject to certain limited exceptions, for 12 months following termination of employment for any reason. Each such employment agreement also contains customary confidentiality provisions.

Potential Payments upon Termination or Change in Control

Employees, including the Named Executive Officers currently employed by us, are entitled to receive earned and unpaid compensation upon any termination of employment. Accordingly, subject to the exceptions noted below, upon any termination of their employment by us, the Named Executive Officers currently employed by us will only receive earned and unpaid salary and bonus and accrued but unused vacation pay. In addition, except as noted below, all unvested stock and option awards will terminate upon any termination of employment.

Pursuant to the employment agreements with the Named Executive Officers currently employed by us, other than Carl Stork, the material terms of which have been summarized above in “ — Employment Agreements”, upon the termination of their employment under certain circumstances, such Named Executive Officers are entitled to payments of compensation with respect thereto. The table below reflects the amount of compensation payable to each Named Executive Officer entitled to receive such compensation in the event of (i) termination by us for cause or by the executive officer without good reason, or Voluntary Termination, (ii) termination by us without cause, or Without Cause Termination, (iii) resignation by the executive officer with good reason, or Good Reason Termination, and (iv) termination by reason of an executive officer’s death or disability. The amounts shown assume that the applicable triggering event occurred on December 31, 2007, and therefore are estimates of the actual amounts that would be paid to the Named Executive Officers upon the occurrence of such triggering event. Our Named Executive Officers are not entitled to any payments upon a change in control of our company, provided that the vesting of the stock options granted to Messrs. Miller and Plumer under their respective employment agreements automatically accelerates upon certain changes in control of our company.

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Name   Benefit   Voluntary Termination   Without Cause Termination   Good Reason Termination   Death or
Disability
Mark Miller   $ 616,000       No       Yes       Yes       No  
Ed Ulbrich   $ 225,000       No       Yes       Yes       No  
Cliff Plumer   $ 516,000       No       Yes       Yes       No  
Yvette Macaluso   $ 150,000       No       Yes       Yes       No  
Joseph Gabriel   $ 312,500       No       Yes       Yes       No  

In addition to the compensation set forth above, if either of Mr. Miller’s or Mr. Plumer’s employment is terminated by us prior to the second anniversary of the commencement date of his employment agreement other than for cause, the stock options granted to him pursuant thereto shall be deemed vested as of the second anniversary of such commencement date as to an aggregate of 400,000 shares of common stock.

Compensation of Directors

Set forth below is the compensation paid to the members of our board of directors who were not Named Executive Officers during the year ended December 31, 2007. Members of our board of directors who were also our employees did not receive any compensation for their services as directors during the year ended December 31, 2007.

             
Name   Fees Earned or Paid in Cash
($)
  Stock Awards
($)
  Option Awards
($) (1)
  Non-Equity Incentive Plan
Compensation
($)
  Change in Pension Value and
Nonqualified Deferred Compensation
Earnings
($)
  All
Other
Compensation
  Total
($)
John C. Textor                             —-     $ 250,000 (2)     $ 250,000 (2)  
Kim Libreri (3)               $ 149,553 (3)                   575,936       725,489  
Rafael Fogel                                          
Ian Bryce                 14,685 (4)                         14,685  
John Sculley                 14,685 (4)                         14,685  
Michael Marchetti                 9,857 (5)                         9,857  
Jeffrey Lunsford                 9,857 (5)                         9,857  

(1) The options were valued using the Black-Scholes option pricing model and are being recognized as compensation expense in accordance with SFAS No. 123R. The amounts shown do not reflect compensation actually received by the directors.
(2) Represents an aggregate of $250,000 that Mr. Textor received for consulting services provided to us on an on-going basis until October 31, 2007 and as salary thereafter. For more information, see “Certain Relationships and Related Transactions — Employment Agreements.”
(3) In connection with his employment by us, and not as compensation for his services as a member of our board of directors, Mr. Libreri received an annual base salary of $524,336 and a bonus of $51,600 during the year ended December 31, 2007. In addition, Mr. Libreri was granted options to purchase an aggregate of 800,000 shares of our common stock, at an exercise price of $1.00 per share, on September 29, 2006 and options to purchase an additional aggregate of 800,000 shares of our common stock, at an exercise price of $1.40 per share, on September 18, 2007. One-eighth of these stock options vest every six months that he continues to be employed by the company, commencing on the grant date.
(4) In connection with his appointment to our board of directors, each of Mr. Bryce and Mr. Sculley was granted options to purchase an aggregate of 400,000 shares of our common stock, at an exercise price of $1.40 per share, on October 19, 2007. One-eighth of these stock options will vest every six months that he continues to serve as a member of our board of directors, commencing on the grant date.
(5) In connection with his appointment to our board of directors, each of Mr. Marchetti and Mr. Lunsford was granted options to purchase an aggregate of 400,000 shares of our common stock, at an exercise price of $1.40 per share, on November 12, 2007. One-eighth of these stock options will vest every six months that he continues to serve as a member of our board of directors, commencing on the grant date.

Indemnification Agreements and Director and Officer Insurance

Prior to the consummation of the offering, we will enter into written agreements to indemnify our directors and executive officers. We believe that these agreements are necessary to attract and retain qualified persons as directors and executive officers. Our directors and officers are also insured against certain losses from potential third-party claims for which we are legally or financially unable to indemnify them. We self-insure with respect to potential third-party claims that create a direct liability to such third party or an indemnification duty on our part. Our

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amended and restated certificate of incorporation and our amended and restated bylaws will contain provisions that limit the liability of our directors and officers. A description of these provisions is contained under the heading “Description of Capital Stock — Limitation of Liability and Indemnification Matters”.

2006 General Common Stock Equity Plan

We adopted our 2006 General Common Stock Equity Plan in 2006. The 2006 General Common Stock Equity Plan provides for the grant of incentive stock options, non-qualified stock options, and restricted stock awards, which may be granted to current, prospective and former employees, officers, employee and non-employee directors, and consultants (except that incentive stock options may be granted only to employees).

Share Reserve

As of December 31, 2007, an aggregate of 14,297,170 shares of our common stock are reserved for issuance under our 2006 General Common Stock Equity Plan. As of December 31, 2007, there were no shares of unvested restricted stock outstanding under our 2006 General Common Stock Equity Plan, and there were outstanding options to purchase a total of 11,252,550 shares of our common stock held by participants under our 2006 General Common Stock Equity Plan. As of December 31, 2007, 3,044,620 shares of our common stock remained available for issuance in connection with potential future grants of options and restricted stock under our 2006 General Common Stock Equity Plan. Shares issued under our 2006 General Common Stock Equity Plan will be from our authorized and unissued shares of common stock or treasury shares.

Administration

Upon the consummation of this offering, our 2006 General Common Stock Equity Plan will be administered by the Compensation Committee of our board of directors. The Compensation Committee will have the full power and authority to take all actions and make all determinations not inconsistent with the specific terms and conditions of the plan deemed by the committee to be necessary and appropriate to the administration of the plan. The Compensation Committee may correct any defect or supply any omission or reconcile any inconsistency in the plan or any award agreement. The Compensation Committee’s decisions will be final, conclusive and binding with respect to the interpretation and administration of our 2006 General Common Stock Equity Plan, and each award and award agreement under our 2006 General Common Stock Equity Plan.

Term

The 2006 General Common Stock Equity Plan will terminate in 2016 unless it is terminated earlier in accordance with its terms.

Awards

Stock Options.   Our 2006 General Common Stock Equity Plan authorizes its administrator to grant stock options to purchase shares of our common stock. Option grants may be in the form of incentive stock options (ISOs) or non-qualified stock options, provided that options granted to non-employee directors and officers and employees of any of our subsidiaries that does not qualify as a “subsidiary corporation” (within the meaning of Section 424 of the Internal Revenue Code) may only be non-qualified stock options. The Compensation Committee will determine the expiration date (not later than 10 years from grant date, or five years in the case of an option granted to a person that, as of the relevant grant date, owns more than 10% of our or any of our corporate affiliates’ voting power, or a 10% Stockholder), the exercise price, any vesting schedule, and the other material terms of each option granted. No ISO may have an exercise price per share less than the fair market value per share of our common stock at the time of grant (or, in the case of an ISO granted to a 10% Stockholder, 110% of such fair market value).

Restricted Stock.   Our 2006 General Common Stock Equity Plan authorizes its administrator to award shares of restricted stock. Recipients of restricted stock enter into an agreement with us subjecting the shares to restrictions and providing the criteria with respect to, or the dates on, which such restrictions lapse. No restricted stock award can have a purchase price per share less than 85% of the fair market value per share of our common stock at the time of the grant (or, in the case of a restricted stock award granted to a 10% Stockholder, 100% of such fair market value). Restrictions may include time-based vesting restrictions, performance criteria or other factors (including, without limitation, performance goals that are intended to comply with the performance-based compensation exception under

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Section 162(m) of the Internal Revenue Code), as determined by the Compensation Committee at grant. Holders of restricted stock may exercise full voting rights with respect to the restricted stock and will be entitled to all dividends and distributions paid on the restricted stock when restricted.

Transferability of Awards .  Our 2006 General Common Stock Equity Plan generally does not allow for the transfer of awards granted under the plan, and only the grantee may exercise his or her award during his or her lifetime. The Compensation Committee, in its sole discretion, may permit the transfer of awards granted under the plan to a grantee’s family member on terms and conditions specified by the Compensation Committee.

Amendment and Termination

Our board of directors may at any time amend, suspend or terminate our 2006 General Common Stock Equity Plan as to any shares of our common stock as to which awards have not been granted. Our board of directors, however, may not impair the rights of a participant with respect to awards granted prior to such amendment, suspension or termination, without the consent of such participant or 50% of the affected participants (unless required by law). In addition, stockholder approval is required for any amendment to our 2006 General Common Stock Equity Plan that is necessary or desirable to comply with any applicable law or stock exchange rule or with the requirements applicable to ISOs.

Adjustments upon a Change in Control

In general, in the event of a merger, consolidation, sale of all or substantially all of our assets or similar change of control transaction to which we are a party and in which the beneficial owners of our securities, immediately before the transaction, as a result thereof beneficially own securities representing less than a majority of the total combined voting power or value of the surviving corporation immediately after the transaction, any and all outstanding awards under our 2006 General Common Stock Equity Plan shall be assumed, converted or replaced by the successor corporation (if any) or a parent or subsidiary of such successor corporation, or the Successor Corporation, or an equivalent award shall be substituted by the Successor Corporation. In the event the Successor Corporation (if any) refuses to assume, convert, replace or substitute awards, as provided above, in connection with such a change-in-control transaction, such awards will expire upon the consummation of such transaction.

Digital Domain Productions 1995 Stock Option Plan

Digital Domain Productions’ 1995 Stock Option Plan, or the Subsidiary Plan, authorized the grant of options to employees, directors, consultants and advisors of Digital Domain Productions with respect to the purchase of a maximum aggregate of 14,143,921 shares of Digital Domain Production’s common stock. The options were issued at exercise prices per share greater than or equal to the estimated fair value per share of the Digital Domain Productions common stock as of the grant date, vest over a four-year period and expire ten years from the date of grant or at such earlier date as the board of directors may otherwise specifically determine in granting such option. There were no options granted under the Subsidiary Plan during the year ended December 31, 2006. As of December 31, 2006, the Subsidiary Plan had expired and, therefore, there will be no further grants under this plan. Options covering an aggregate of 735,250 shares of Digital Domain Productions common stock, representing less than 1% of the outstanding shares of Digital Domain Productions common stock on a fully-diluted basis, were outstanding as of December 31, 2007.

We are currently evaluating whether to initiate an option exchange program whereby we would offer the holders of outstanding options under the Subsidiary Plan the right to exchange all such options (vested and unvested) held by them for options to purchase Digital Domain common stock under our 2006 General Common Stock Equity Plan. Participation in the option exchange program, if instituted, would be voluntary. For more information on the Subsidiary Plan, see Note 11 of our Notes to Consolidated Financial Statements included elsewhere in this prospectus.

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