Item
1.01 Entry into a Material Definitive Agreement.
On
August 5, 2019, Digital Ally, Inc., a Nevada corporation (the “Company”), entered into a securities purchase
agreement (the “Purchase Agreement”) with several accredited investors (the “Investors”) providing for
the issuance of (i) the Company’s 8% Senior Secured Convertible Promissory Notes due August 4, 2020 (the “Notes”)
with a principal face amount of $2,777,777.78, which Notes are, subject to certain conditions, convertible into 1,984,126
shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), at a price per share
of $1.40 (the “Conversion Shares”); (ii) five-year warrants to purchase an aggregate of 571,428 shares of Common Stock
(the “Warrant Shares”) at an exercise price of $1.8125, subject to customary adjustments thereunder (the “Warrants”),
which Warrants are immediately exercisable upon issuance and on a cashless basis if the Warrants have not been registered 180
days after the date of issuance; and (iii) shares of Common Stock equal to 5% of the aggregate purchase price of the Notes (the
“Commitment Shares”), with an aggregate value of $125,000 (the “Commitment Shares”, and collectively with
the Notes, the Conversion Shares, the Warrants and the Warrant Shares, the “Securities”). Pursuant to the Purchase
Agreement, the Investors are purchasing the Securities for an aggregate purchase price of $2,500,000.
Pursuant
to the Purchase Agreement, an aggregate of $1,153,320 in principal amount of Notes (the “Registered Notes”), the Conversion
Shares underlying the Registered Notes and all of the Commitment Shares will be issued to the Investors in a registered direct
offering (the “Registered Offering”) and registered under the Securities Act of 1933, as amended (the “Securities
Act”), pursuant to a prospectus supplement to the Company’s currently effective registration statement on Form S-3
(File No. 333-225227), which was initially filed with the U.S. Securities and Exchange Commission (the “SEC”) on May
25, 2018, and was declared effective on June 6, 2018 (the “Shelf Registration Statement”). The Company expects to
file the prospectus supplement for the Registered Offering on or about August 5, 2019. Approximately $1,153,320 in original
principal amount of our Notes will be issued pursuant to the Shelf Registration Statement.
Pursuant
to the Purchase Agreement, the Company will issue to the Investors in a concurrent private placement pursuant to an exemption
from the registration requirements of the Securities Act provided in Section 4(a)(2) of the Securities Act and/or Regulation D
promulgated thereunder (the “Private Placement”, and together with the Registered Offering, the “Offering”),
the remaining aggregate of $1,624,457.78 in principal amount of other Notes, the shares of Common Stock issuable from time to
time upon conversion of such other Notes, the Warrants and the Warrant Shares.
The
Company expects the Offering to close on or about August 5, 2019, subject to the satisfaction of customary closing conditions
in the Purchase Agreement. The Purchase Agreement contains customary representations, warranties and agreements of the Company
and the Investors and customary indemnification rights and obligations of the parties thereto.
The Investors have previously
invested in securities of the Company; the Company did not engage in general solicitation or advertising with regard to the issuance
and sale of the securities. The Investors represented that they are accredited investors and purchased the securities for investment
and not with a view to distribution.
In connection with the Purchase Agreement,
the Company and certain of its subsidiaries entered into a security agreement, dated as of August 5, 2019, with
the Investors (the “Security Agreement”), pursuant to which the Company and its subsidiaries granted to the Investors
a security interest in, among other items, the Company and its subsidiaries’ accounts, chattel paper, documents, equipment,
general intangibles, instruments and inventory, and all proceeds, as set forth in the Security Agreement. In addition, pursuant
to an intellectual property security agreement, dated as of August 5, 2019 (the “IP Security Agreement”),
the Company granted to the Investors a continuing security interest in all of the Company’s right, title and interest in,
to and under certain of the Company’s trademarks, copyrights and patents. In addition, certain of the Company’s subsidiaries
jointly and severally agreed to guarantee and act as surety for the Company’s obligation to repay the Notes pursuant to
a subsidiary guarantee (the “Subsidiary Guarantee”).
The
foregoing description of the Purchase Agreement, the Security Agreement, the IP Security Agreement, the Subsidiary Guarantee,
the Notes (including the Registered Notes), and the Warrants are qualified in their entirety by reference to the full text
of such Purchase Agreement, Security Agreement, IP Security Agreement, Subsidiary Guarantee, Notes and Warrants, the forms
of which are attached as Exhibits 10.1, 10.2, 10.3, 10.4, 4.1 and 4.2, respectively, to this Current Report on Form 8-K
(this “Form 8-K”), and which are incorporated herein in their entirety by reference. The Company is filing the opinion
of its counsel, Sullivan & Worcester LLP, relating to the legality of the issuance and sale of the Registered Notes,
the Conversion Shares underlying the Registered Notes and the Commitment Shares as Exhibit 5.1 hereto. Exhibit 5.1 is
incorporated herein by reference and into the Shelf Registration Statement.
This
Form 8-K contains forward-looking statements. Forward-looking statements include, but are not limited to, statements that express
the Company’s intentions, beliefs, expectations, strategies, predictions or any other statements related to the Company’s
future activities, or future events or conditions. These statements are based on current expectations, estimates and projections
about the Company’s business based, in part, on assumptions made by its management. These statements are not guarantees
of future performances and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes
and results may differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors,
including those risks discussed in the Company’s Annual Report on Form 10-K, and in other documents that the Company files
from time to time with the SEC. Any forward-looking statements speak only as of the date on which they are made, and the Company
undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date of this Form
8-K, except as required by law.
The
prospectus supplement relating to the Registered Offering will be available on the SEC’s web site at
http://www.sec.gov
.