Agreements to Repay and Refinance Senior Secured Note and Refinance Subordinated Note

On May 6, 2012, Digital Domain Media Group, Inc. (the "Company") entered into certain agreements with a group of institutional investors to enable the Company to retire and refinance its existing $27.4 million senior secured debt obligation owing to Comvest Capital II, L.P. ("Comvest"), which was otherwise due and payable by September 30, 2012. The Company also entered into a new agreement with Comvest, which includes a new subordinated convertible note replacing Comvest's existing subordinated convertible note, effectively reducing a $16 million fixed repayment obligation that had been due under the original note as early as June 30, 2012 to an $8 million repayment obligation maturing in 2016. The foregoing transactions are described in more detail below.

Sale and Issuance of Convertible Notes and Warrants

On May 6, 2012, the Company entered into a securities purchase agreement (the "Purchase Agreement") with a group of institutional investors (the "Purchasers") pursuant to which the Company issued and sold to the Purchasers senior secured convertible notes in the aggregate original principal amount of $35.0 million (the "Senior Notes") and warrants (the "Warrants") to purchase up to 1,260,288 shares of the Company's common stock for an aggregate purchase price of $35.0 million (the "Offering"). The initial conversion price of the Senior Notes is $9.72 per share, subject to adjustment as provided in the Senior Notes. The initial exercise price of the Warrants is $9.72 per share, subject to adjustment as provided in the Warrants. Such issuance and sale were consummated on May 7, 2012.

The indebtedness evidenced by the Senior Notes bears interest at 9.0% per annum, compounded quarterly, payable quarterly in arrears, and matures on the fifth anniversary of the issuance date. Upon the occurrence of an Event of Default (as such term is defined in the Senior Notes), the interest rate shall be adjusted to a rate of 15.0% per annum. The Purchasers may require the Company to redeem all or any portion of the Senior Notes upon the occurrence of an Event of Default (as such term is defined in the Senior Notes) or a Change of Control (as such term is defined in the Senior Notes). The Senior Notes also contain, among other things, certain affirmative and negative covenants, including, without limitation, limitations on indebtedness, liens and restricted payments and certain financial covenants.

The Senior Notes will amortize in equal monthly installments commencing on the earlier of (i) the effective date of the initial registration statement filed in accordance with the terms of the Registration Rights Agreement (as defined below) or (ii) the six-month anniversary of the closing date. The Senior Notes may be converted into shares of the Company's common stock, at the option of the holders thereof, at any time following issuance of the Senior Notes. The Senior Notes are redeemable at the option of the Company if the Company's common stock trades at a level equal to 175% of the initial conversion price for any 30 consecutive trading days commencing on the date of issuance of the Senior Notes.

On certain Adjustment Dates (as such term is defined in the Senior Notes), the conversion price applicable to the Senior Notes will be adjusted to the lesser of (a) the then-current conversion price and (b) the market price of the Company's common stock on such date. The Senior Notes have anti-dilution protection in the event that the Company issues securities at an equivalent value less than the conversion price, and the conversion price is also subject to adjustment for stock splits, stock dividends, recapitalizations, and similar transactions. The Company has agreed to pay each amortization payment in shares of the Company's common stock, provided that certain conditions are met. The conversion rate applicable to any amortization payment in shares of the Company's common stock will be the lower of (a) the conversion price then in effect and (b) a price equal to 85.0% of (i) the aggregate of the volume-weighted average prices of the Company's shares of common stock for each of the ten lowest trading days during the 20 consecutive trading day period ending on the applicable amortization payment date, divided by (ii) 10. The Company is generally prohibited from issuing

shares of common stock upon conversion of the Senior Notes if such conversion would cause the Company to breach its obligations under the rules or regulations of the New York Stock Exchange, or such other stock market on which the Company's common stock is then traded.

The obligations of the Company under the Senior Notes are secured pursuant to the terms of a security and pledge agreement (the "Security Agreement") and a Canadian security and pledge agreement (the "Canadian Security Agreement") covering all of the assets of the Company and its subsidiaries (other than inactive subsidiaries) (the "Collateral") and conferring on the Purchasers, subject to Permitted Liens (as such term is defined in the Purchase Agreement), a first-priority security interest in the Collateral. The Security Agreement also contains customary representations, warranties and covenants. In addition, all of the obligations of the Company under the Senior Notes are guaranteed by certain of the Company's subsidiaries pursuant to the terms of a guaranty (the "Guaranty").

Under the terms of the Warrants, the holders thereof are entitled to exercise the Warrants to purchase up to an aggregate of 1,260,288 shares of the Company's common stock at an initial exercise price of $9.72 per share, during the five-year period beginning on the closing date. On certain Adjustment Dates (as defined in the Warrants), the exercise price applicable to the Warrants will be adjusted to the lesser of (a) the then-current exercise price and (b) the market price of the Company's common stock on such date. The exercise price of the Warrants is also subject to adjustment for stock splits, stock dividends, recapitalizations, and similar transactions. The Company is generally prohibited from issuing shares of common stock upon exercise of the Warrants if such exercise would cause the Company to breach its obligations under the rules or regulations of the New York Stock Exchange, or such other stock market on which the Company's common stock is then traded.

In connection with the financing transaction described above, the Company entered into a registration rights agreement (the "Registration Rights Agreement") pursuant to which it agreed to file a registration statement with the Securities and Exchange Commission (the "Commission") relating to the offer and sale by the Purchasers of the shares of the Company's common stock issuable upon the conversion of the Senior Notes and the exercise of the Warrants. . . .

The disclosure set forth above under Item 1.01 (Entry into a Material Definitive Agreement) is hereby incorporated by reference into this Item 2.03.

The disclosure set forth above under Item 1.01 (Entry into a Material Definitive Agreement) is hereby incorporated by reference into this Item 3.02.

Exercise of Exchange Right

Effective May 7, 2012, the Company issued to a shareholder of Digital Domain Institute, Inc., a Florida corporation ("DDI"), which is a subsidiary of the Company, an aggregate of 623,025 shares of the Company's common stock in exchange for an aggregate of 750,000 shares of common stock of DDI, pursuant to exchange rights previously granted to such shareholder under a share exchange option agreement entered into among DDI, the Company and such shareholder. All of such shares of the Company's common stock are included in the 2,699,776 shares of the Registrant's common stock potentially issuable to shareholders of DDI party to share exchange option agreements with DDI and the Registrant, as described in the Registrant's Rule 424(b)(4) prospectus, filed with the Securities and Exchange Commission on November 21, 2011, including under the caption "Prospectus Summary - The Offering".

Such issuance of shares of the Company's common stock was effected in reliance upon an exemption from registration under Section 4(2) of the Securities Act of 1933, as amended, as a transaction not involving a public offering.

(d) Exhibits

The following Exhibits are furnished as a part of this Current Report on Form 8-K:

Exhibit No.                                 Description

10.1           Securities Purchase Agreement, dated May 6, 2012, among the Company
               and the purchasers identified therein

10.2        Form of Senior Secured Convertible Note

10.3        Form of Warrant to Purchase Common Stock

10.4        Security and Pledge Agreement, dated May 7, 2012, among the Company,
            certain subsidiaries of the Company, and Hudson Bay Master Fund Ltd.,
            as collateral agent

10.5        Canadian Security and Pledge Agreement, dated May 7, 2012, among the
            Company, Digital Domain Productions (Vancouver) Ltd., and Hudson Bay
            Master Fund Ltd., as collateral agent

10.6        Guaranty, dated May 7, 2012, among the Company, certain subsidiaries
            of the Company, and Hudson Bay Master Fund Ltd., as collateral agent

10.7        Registration Rights Agreement, dated May 7, 2012, among the Company
            and the purchasers identified therein

10.8        Form of Voting Agreement

10.9        Omnibus Consent and Agreement re Restructuring, dated May 6, 2012,
            between the Company and Comvest Capital II, L.P.

10.10       Debt Exchange Agreement, dated May 6, 2012, between the Company and
            Comvest Capital II, L.P.

10.11       Form of Subordinated Note

10.12       Security and Pledge Agreement, dated May 7, 2012, among the Company,
            certain subsidiaries of the Company, and Comvest Capital II, L.P.

10.13       Canadian Security and Pledge Agreement, dated May 7, 2012, among the
            Company, Digital Domain Productions (Vancouver) Ltd., and Comvest
            Capital II, L.P.

10.14       Guaranty, dated May 7, 2012, among the Company, certain subsidiaries
            of the Company, and Comvest Capital II, L.P.

10.15       Subordination and Intercreditor Agreement, dated May 7, 2012, among
            the Company, Comvest Capital II, L.P., and Hudson Bay Master Fund
            Ltd.

10.16       Registration Rights Agreement, dated May 7, 2012, between the Company
            and Comvest Capital II, L.P.

99.1        Press Release, dated May 7, 2012, issued by the Company