Item
1.01.
|
Entry
into a Material Definitive Agreement.
|
On
January 11, 2021, Digital Ally, Inc. (the “Company”) entered into a securities purchase agreement (the “Purchase
Agreement”) with two investors (the “Investors”), for the offering (the “Offering”) of (i) 2,800,000
shares of common stock (“Shares”), par value $0.001 per share of the Company (“Common Stock”); (ii)
pre-funded warrants to purchase up to 7,200,000 shares of Common Stock, issuable to Investors whose purchase of shares
of Common Stock would otherwise result in such Investor, together with its affiliates and certain related parties, beneficially
owning more than 4.99% (or, at the election of the holder, 9.99%) of the Company’s outstanding Common Stock immediately
following the consummation of the Offering (the “Pre-Funded Warrants”); and (iii) common stock purchase warrants (“Warrants”)
to purchase up to an aggregate of 10,000,000 shares of Common Stock, which are exercisable for a period of five years after issuance
at an initial exercise price $3.25 per share, subject to certain adjustments, as provided in the Warrants. The Shares or Pre-Funded
Warrants, and the accompanying Warrants, can only be purchased together, but will be issued separately and will be immediately
separable upon issuance. Each Share and accompanying Warrant will be offered at a combined offering price of $3.095. Each Pre-Funded
Warrant and accompanying Warrant will be offered at a combined offering price of $3.085. Pursuant to the Purchase Agreement, the
Investors are purchasing the Shares, the Pre-Funded Warrants and accompanying Warrants for an aggregate purchase price of approximately
$30,950,000.
The
Offering is being conducted pursuant to placement agency agreement, dated January 11, 2021 (the “Placement Agency Agreement”),
between the Company and Kingswood Capital Markets, division of Benchmark Investments, Inc. (the “Placement Agent”).
The Company has agreed to pay the Placement Agent a fee equal to 6% of the aggregate purchase price paid by Investors placed by
the Placement Agent and certain expenses.
The
Shares, the Pre-Funded Warrants and the accompanying Warrants will be issued to the Investors in a registered direct offering
(the “Registered Offering”), pursuant to which the Shares, the Pre-Funded Warrants, the shares of Common Stock issuable
upon exercise of the Pre-Funded Warrants, the Warrants and the shares of Common Stock issuable upon exercise of the Warrants,
will all be 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. 333-239419), which was initially
filed with the U.S. Securities and Exchange Commission (the “SEC”) on June 25, 2020, and was declared effective on
July 2, 2020 (the “Shelf Registration Statement”). The Company expects to file the prospectus supplement for
the Offering on or about January 13, 2021. The prospectus supplement relating to the Offering will be available on the SEC’s
web site at http://www.sec.gov.
Each
of the Purchase Agreement and the Placement Agency Agreement contains customary representations, warranties and agreements by
the Company and the other parties thereto, customary conditions to closing, indemnification obligations of the parties, including
for liabilities under the Securities Act, other obligations of the parties and termination provisions.
In addition, pursuant to
the terms of the Placement Agency Agreement, among other agreements, the Company has agreed not to, for a period of 90
days after the date of the Placement Agency Agreement (i.e. April 11, 2021), with certain exceptions, unless it has obtained
the prior written consent of the Placement Agent, (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose
of, directly or indirectly, any shares of capital stock of the Company or any securities convertible into or exercisable or exchangeable
for shares of capital stock of the Company; (ii) file or cause to be filed any registration statement with the SEC relating to
the offering of any shares of capital stock of the Company or any securities convertible into or exercisable or exchangeable for
shares of capital stock of the Company; (iii) complete any offering of debt securities of the Company, or (iv) enter into any
swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of capital
stock of the Company.
Also, pursuant to the terms of the
Purchase Agreement and Lock-Up Agreements signed by the Company’s officers and directors, the officers and directors
have agreed, for a period of 90 days after the date of the Purchase Agreement (i.e. April 11, 2021), not to transfer their
shares of common stock or Common Stock equivalents of the Company.
Further, pursuant to the terms of the
Purchase Agreement the Company has granted to the Investors, for a period of 12 months after the closing of the Offering, the
right to participate in subsequent offerings by the Company of Common Stock and Common Stock equivalents in an amount up to 50%
of the amount of each such subsequent offering, on the same terms, conditions and price provided for in such subsequent offering.
The
Offering is expected to close on or about January 14, 2021, subject to the satisfaction of customary closing conditions.
The
Company expects to receive approximately $29,013,000 in net proceeds from the Offering after deducting the discounts, commissions
and other estimated offering expenses payable by the Company. The Company expects to use the net proceeds from the Offering for
working capital, product development, order fulfillment and for general corporate purposes.
The
foregoing description of the Placement Agency Agreement, the Purchase Agreement, the Pre-Funded Warrants and the Warrants are
qualified in their entirety by reference to the full text of such Placement Agency Agreement, Purchase Agreement, Pre-Funded Warrants
and Warrants, the forms of which are attached as Exhibits 10.1, 10.2, 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 Shares, the
Pre-Funded Warrants and the Warrants 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 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.