SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 2, 2018 (July 31, 2018)
DIGITAL ALLY, INC.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction
9705 Loiret Blvd. , Lenexa, KS 66219
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (913) 814-7774
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
|[ ]||Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)|
|[ ]||Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)|
|[ ]||Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)|
|[ ]||Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)|
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
|Item 1.01.||Entry into a Material Definitive Agreement.|
On July 31, 2018, Digital Ally, Inc. (the “Company”) entered into a Proceeds Investment Agreement (the “Agreement”) with Brickell Key Investments LP (“BKI”), pursuant to which BKI invested an aggregate of $500,000 (the “First Tranche”) in the Company to be used (i) to fund the Company’s litigation proceedings relating to the infringement of certain patent assets listed in the Agreement (the “Patent Assets”) and (ii) to repay the Company’s existing debt obligations and for certain working capital purposes set forth in the Agreement. Pursuant to the Agreement, BKI was granted an option to provide the Company with an additional $9.5 million, at BKI’s sole discretion (the “Second Tranche”, and collectively with the First Tranche, the “Financing Amount”).
Pursuant to the Agreement and in consideration for the Financing Amount, the Company agreed to assign to BKI (i) 100% of all gross, pre-tax monetary recoveries paid by any defendant(s) to the Company or its affiliates agreed to in a settlement or awarded in judgment in connection with the Patent Assets, plus any interest paid in connection therewith by such defendant(s) (the “Patent Assets Proceeds”), up to the Minimum Return (as defined in the Agreement) and (ii) if BKI has not received its Minimum Return by the earlier of (x) a Liquidity Event (as defined in the Agreement) and (y) July 31, 2020, then the Company agreed to assign to BKI 100% of all the Patent Asset Proceeds until BKI has received an amount equal to the Minimum Return on $4 million.
Pursuant to the Agreement, the Company granted BKI (i) a senior security interest in the Patent Assets, the Claims (as defined in the Agreement) and the Patent Assets Proceeds until such time as the Minimum Return is paid, in which case, the security interest on the Patent Assets, the Claims and the Patent Assets Proceeds will be released, and (ii) a senior security interest in all other assets of the Company until such time as the Minimum Return is paid on $4 million, in which case, the security interest on such other assets will be released.
The security interest is enforceable by BKI in the event that Company is in default under the Agreement which would occur if (i) the Company fails, after five (5) days’ written notice, to pay any due amount payable to BKI under the Agreement, (ii) the Company fails to comply with any provision of the Agreement, the Warrant or any other agreement or document contemplated under the Agreement, (iii) the Company becomes insolvent or insolvency proceedings are commenced (and not subsequently discharged) with respect to the Company, (iv) the Company’s creditors commence actions against the Company (which are not subsequently discharged) that affect material assets of the Company, (v) the Company, without BKI’s consent, incurs indebtedness other than immaterial ordinary course indebtedness up to $500,000, (vi) the Company fails, within five (5) business days following the closing of the Second Tranche, to fully satisfy its obligations to certain holders of the Company’s senior secured convertible promissory notes listed in the Agreement and fails to obtain unconditional releases from such holders as to the Company’s obligations to such holders and the security interests in the Company held by such holders or (vii) there is an uncured non-compliance of the Company’s obligations or misrepresentations by the Company under the Agreement.
The Agreement contains customary representations, warranties and covenants of the Company and BKI for an investment of this type.
As provided for in the Agreement, the Company issued BKI a warrant to purchase up to 465,712 shares of the Company’s common stock, par value $0.001 per share (the “Warrant”), at an exercise price equal to the higher of (i) $2.60 per share or (ii) the closing market price as quoted on the Trading Market (as defined in the Warrant) on the day prior to the issuance date of the Warrant, provided that the holder of the Warrant will be prohibited from exercising the Warrant if, as a result of such exercise, such holder, together with its affiliates, would own more than 4.99% of the total number of shares of the Company’s common stock outstanding immediately after giving effect to such exercise. However, such holder may increase or decrease such percentage to any other percentage not in excess of 9.99%, provided that any increase in such percentage shall not be effective until 61 days after such notice to the Company. The Warrant is exercisable for five years from the date of issuance and is exercisable on a cashless exercise basis if there is no effective registration statement. No contractual registration rights were given. In connection with the issuance of the Warrant, the Company and BKI entered into a letter agreement providing that if the Second Tranche is not funded, then BKI would be entitled to a pro-rata percentage ($500,000 divided by $10,000,000) of the Warrant. The Company has agreed to promptly issue a new Warrant reflecting this adjustment.
The foregoing description is a summary only, does not purport to set forth the complete terms of the Agreement or the Warrant, and is qualified in its entirety by reference to the full text of each of the Agreement, the Warrant, and letter agreement, which are attached hereto as Exhibits 4.1, 10.1, and 10.2, respectively, to this Form 8-K and are incorporated by reference herein.
|Item 3.02.||Unregistered Sales of Equity Securities.|
The information included in Item 1.01 of this Form 8-K is hereby incorporated by reference into this Item 3.02. The issuance of the Warrant was made pursuant to an exemption from registration under Section 4(a)(2) of the Act.
|Item 9.01||Financial Statements and Exhibits.|
|Exhibit 4.1||Common Stock Purchase Warrant of Digital Ally, Inc.|
|Exhibit 10.1||Proceeds Investment Agreement, dated as July 31, 2018, by and between Digital Ally, Inc. and Brickell Key Investments LP|
|Exhibit 10.2||Letter Agreement , dated as July 31, 2018, by and between Digital Ally, Inc. and Brickell Key Investments LP|
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: August 2, 2018
|Digital Ally, Inc.|
|By:||/s/ Stanton E. Ross|
|Name:||Stanton E. Ross|
|Title:||Chairman, President and Chief Executive Officer|
THIS WARRANT HAS BEEN ACQUIRED FOR INVESTMENT. NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.
COMMON STOCK PURCHASE WARRANT
DIGITAL ALLY, INC.
|Warrant No.:||Issue Date: July 31, 2018|
Warrant Shares: 465,712
This COMMON STOCK PURCHASE WARRANT (this “ Warrant ”) certifies that, for good and valuable consideration, the receipt of which is hereby acknowledged, Brickell Key Investments LP, a Delaware limited partnership (the “ Holder ”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time or times on or prior to the close of business on the five (5) year anniversary of the Issue Date (the “ Termination Date ”) but not thereafter, to subscribe for and purchase from Digital Ally, Inc., a Nevada corporation (the “ Company ”), up to 465,712 shares of Common Stock (the “Warrant Shares”).
1. Definitions . In addition to the terms defined elsewhere in this Agreement, the following terms shall have the meanings set forth in this Section 1.
(a) “ Affiliate ” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person as such terms are used in and construed under Rule 405 under the Securities Act.
(b) “ Business Day ” means any day that the Federal Reserve Bank of New York is open for business.
(c) “ Commission ” means the United States Securities and Exchange Commission.
(d) “ Common Stock ” means the common stock of the Company, par value $0.001 per share, and any other class of securities into which such securities may hereafter be reclassified or changed.
(e) “ Common Stock Equivalents ” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.
(f) “ Exchange Act ” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
(g) “ Person ” means an individual, corporation, limited liability company, partnership, association, joint venture, trust, unincorporated organization, other entity or group (as defined in the Exchange Act).
(h) “ Rule 144 ” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect as such Rule.
(i) “ Securities Act ” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
(j) “ Trading Day ” means a day on which the Trading Market is open for trading.
(k) “ Trading Market ” means the principal market or exchange on which the Common Stock is listed or quoted for trading on the date in question.
(l) “ Transfer Agent ” means Action Stock Transfer, the current transfer agent of the Company and any successor transfer agent of the Company.
2. Exercise .
(a) General . Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or before the Termination Date by delivery to the Company (or such other office or agency of the Company as it may designate by notice in writing to the Holder at the address of the Holder appearing on the books of the Company) of a duly executed facsimile copy of the Notice of Exercise Form annexed hereto (“ Notice of Exercise ”). Within three (3) Trading Days following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price (defined below) for the shares specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank. Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise within one (1) Business Day of receipt of such notice. The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof. Under no circumstances will the Company be required to net cash settle this Warrant upon its exercise.
(b) Optional Cashless Exercise . Notwithstanding anything contained herein to the contrary, if a registration statement covering the Warrant Shares that are the subject of the Notice of Exercise (the “ Unavailable Warrant Shares ”) is not available for the resale of such Unavailable Warrant Shares to the public, the registered holder may, in its sole discretion, in lieu of making the cash payment otherwise contemplated to be made to the Company upon such exercise in payment of the aggregate Exercise Price, elect instead to receive upon such exercise the “ Net Number ” of shares of Common Stock determined according to the following formula:
Net Number = [(A x B) - (A x C)] / B
For purposes of the foregoing formula:
A= the total number of shares with respect to which the Warrant is then being exercised.
B= the arithmetic average of the Closing Sale Prices of the shares of Common Stock for the five (5) consecutive Trading Days ending on the date immediately preceding the date of the Notice of Exercise.
C= the Exercise Price then in effect for the applicable Warrant Shares at the time of such exercise.
(c) Exercise Price . The exercise price per share of the Warrant Shares shall be (i) $2.60 or (ii) the closing market price as quoted on the Trading Market on the day prior to the issuance date of this Common Stock Purchase Warrant noted above, whichever is higher, subject to adjustment hereunder (the “ Exercise Price ”).
(d) Mechanics of Exercise .
(i) Delivery of Certificates Upon Exercise . Shares of Common Stock purchased hereunder shall be transmitted by the Transfer Agent to the Holder by crediting the account of the Holder’s prime broker with the Depository Trust Company (“ DTC ”) through its Deposit Withdrawal Agent Commission (“ DWAC ”) system if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the resale of the Warrant Shares by the Holder or (B) the Warrant Shares are eligible for resale without volume or manner of sale limitations pursuant to Rule 144, and otherwise by physical delivery of a certificate to the address specified by the Holder in the Notice of Exercise by the date that is three (3) Trading Days after the latest of (x) the delivery to the Company of the Notice of Exercise Form, (y) surrender of this Warrant (if required) and (z) payment of (A) if this Warrant is exercised on a cash basis, the aggregate Exercise Price as set forth above and (B) all taxes required to be paid by the Holder, if any, pursuant to Section 2(d)(vi) prior to the issuance of such shares (such date, the “ Warrant Share Delivery Date ”). This Warrant shall be deemed to have been exercised on the first date on which all of the foregoing have been delivered to the Company. The Warrant Shares shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised, with payment to the Company of the Exercise Price and all taxes required to be paid by the Holder, if any, pursuant to Section 2(d)(vi) prior to the issuance of such shares, having been paid.
(ii) Delivery of New Warrants Upon Exercise . If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of the certificate for this Warrant, at the time of delivery of the certificate or certificates representing Warrant Shares, deliver to Holder a new Warrant evidencing the rights of Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical with this Warrant.
(iii) Rescission Rights . If the Company fails to cause the Transfer Agent to transmit to the Holder a certificate or the certificates representing the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then, the Holder will have the right to rescind such exercise.
(iv) Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Exercise . If (1) the Company fails to transmit to the Holder (directly or through the Transfer Agent) a certificate or the certificates representing the Warrant Shares pursuant to an exercise (or to credit the account of the Holder’s prime broker at DTC through a DWAC system transaction) on or before the Warrant Share Delivery Date and (2) prior to the time such certificate is received by the registered holder (or such account is credited through a DWAC system transaction), the registered holder, or any third party on behalf of the registered holder or for the registered holder’s account, purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the registered holder of shares represented by such certificate (or such DWAC system transaction) (a “ Buy-In ”), then the Company shall pay in cash to the registered holder (for costs incurred either directly by such registered holder or on behalf of a third party) the amount by which the total purchase price paid for Common Stock as a result of the Buy-In (including brokerage commissions, if any) exceeds the proceeds received by such registered holder as a result of the sale to which such Buy-In relates. The registered holder shall provide the Company written notice indicating the amounts payable to the registered holder in respect of the Buy-In.
(v) No Fractional Shares or Scrip . No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.
(vi) Charges, Taxes and Expenses . Issuance of certificates for Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided , however , that in the event certificates for Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto.
(vii) Closing of Books . The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.
(e) Holder’s Exercise Limitations . The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates. Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(e), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “ Beneficial Ownership Limitation ” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The Holder, upon not less than 61 days’ prior notice to the Company, may increase or decrease the Beneficial Ownership Limitation of this Section 2(e) or may waive the application of this Section 2(e). Any such increase or decrease or waiver will not be effective until the 61 st day after such notice is delivered to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.
3. Certain Adjustments .
(a) Stock Dividends and Splits . If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.
(b) Fundamental Transactions . If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “ Fundamental Transaction ”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 2(e) on the exercise of this Warrant), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “ Alternate Consideration ”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2(e) on the exercise of this Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “ Successor Entity ”) to assume in writing all of the obligations of the Company under this Warrant in accordance with the provisions of this Section 3(b) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the holder of this Warrant, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant with the same effect as if such Successor Entity had been named as the Company herein.
(c) Calculations . All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.
(d) Notice to Holder .
(i) Adjustment to Exercise Price . Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly mail to the Holder a notice setting forth the Exercise Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.
(ii) Notice to Allow Exercise by Holder . If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be mailed to the Holder at its last address as it shall appear upon the Warrant Register (defined below) of the Company, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.
4. Limitation on Sales of Warrant Shares . The Holder acknowledges that the Warrant Shares have not been registered under the Securities Act, and agrees that it shall not sell, pledge, distribute, offer for sale, transfer or otherwise dispose of any Warrant Shares, in the absence of (i) an effective registration statement under the Securities Act as to such Warrant Shares and registration or qualification of such Warrant Shares under any applicable “blue sky” or state securities law then in effect or (ii) an opinion of counsel, satisfactory to the Company, that such registration and qualification are not required. Without limiting the generality of the foregoing, unless the resale of the Warrant Shares shall have been effectively registered under the Securities Act, the Warrant Shares issued upon exercise of this Warrant shall be imprinted with a legend in substantially the following form:
This security has been acquired for investment and has not been registered under the Securities Act of 1933, as amended (the “Securities Act”), or applicable state securities laws. This security may not be sold, pledged or otherwise transferred in the absence of such registration or pursuant to an exemption therefrom under the Securities Act and such laws, supported by an opinion of counsel, reasonably satisfactory to the Company and its counsel, that such registration is not required.
5. Transfer of Warrant .
(a) Transfer . Subject to compliance with any applicable state and federal securities laws and the provisions of this Warrant, this Warrant and all rights hereunder may be transferred, in whole or in part, by surrendering this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.
(b) New Warrants . This Warrant may be divided upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 5(a), as to any transfer which may be involved in such division, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the initial issuance date set forth on the first page of this Warrant and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.
(c) Warrant Register . The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “ Warrant Register ”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.
7. Miscellaneous .
(a) No Rights as Stockholder Until Exercise . This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof as set forth in Section 2(d)(i).
(b) Loss, Theft, Destruction or Mutilation of Warrant . The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which, in the case of the Warrant, shall not include the posting of any bond), and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.
(c) Saturdays, Sundays, Holidays, etc . If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Business Day, then, such action may be taken or such right may be exercised on the next succeeding Business Day.
(d) Authorized Shares . The Company covenants that, during the period the Warrant is outstanding, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for the issuance of the Warrant Shares upon the exercise of any purchase rights under this Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for the Warrant Shares upon the exercise of the purchase rights under this Warrant. The Company will take all such reasonable action as may be necessary to assure that such Warrant Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the Trading Market upon which the Common Stock may be listed. The Company covenants that all Warrant Shares which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant and payment for such Warrant Shares in accordance herewith, be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).
Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.
Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.
(e) Governing Law . All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Warrant shall be commenced exclusively in the state and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or is an inconvenient venue for such proceeding.
(f) Nonwaiver and Expenses . No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice Holder’s rights, powers or remedies.
(g) Notices . Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of: (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto at or prior to 5:30 p.m. (New York City time) on a Trading Day, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (d) upon actual receipt by the party to whom such notice is required to be given. Except as otherwise provided of in this Warrant, the address for such notices and communications shall be as follows: if to (A) the Company, 9705 Loiret Boulevard, Lenexa, Kansas. 66219, Attention: Chief Financial Officer, and (B) the Holder, Brickell Key Investments LP, 11 New Street, St. Peter Port, Guernsey GY1 2PF, Attention: Corporate Secretary, with copies to Brickell Key Asset Management Limited, 11 New Street, St. Peter Port, Guernsey GY1 2PF, Attention: Corporate Secretary and Brickell Key Asset Management, LLC, 18 Broad Street, Suite 201D, Charleston, SC 29401, Attention: William Yuen.
(h) Limitation of Liability . No provision hereof, in the absence of any affirmative action by Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of Holder, shall give rise to any liability of Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.
(i) Remedies . The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.
(j) Successors and Assigns . Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder.
(k) Amendment . This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.
(l) Severability . Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.
(m) Headings . The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.
|DIGITAL ALLY, INC.|
|By:||/s/ Stanton E. Ross|
|Name:||Stanton E. Ross|
|Title:||Chief Executive Officer|
NOTICE OF EXERCISE
To: Digital Ally, Inc.
(1) The undersigned hereby elects to exercise Warrant No. (the “ Warrant ”) with respect to ____________ shares of common stock of the Company (the “ Warrant Shares ”), pursuant to the terms of the Warrant, and tenders herewith or will tender within the time period specified in the Warrant payment of the exercise price in full (or has elected below to exercise the Warrant on a cashless basis), together with all applicable transfer taxes, if any. If the Warrant is being exercised in full, the Warrant is attached hereto or will be delivered within the time period specified in the Warrant.
(2) Payment of Exercise Price:
|[ ]||Payment shall take the form of lawful money of the United States in accordance with the terms of the Warrant.|
|[ ]||Payment shall take the form of a cashless exercise in accordance with the terms of the Warrant.|
(3) Please issue a certificate or certificates representing said Warrant Shares in the name of the undersigned or in such other name as is specified below:
The Warrant Shares shall be delivered to the following DWAC Account Number or by physical delivery of a certificate to:
[SIGNATURE OF HOLDER]
Name of Holder: ___________________________________________________________________________________
Name of Signatory (if entity): _________________________________________________________________________
Title of Signatory (if entity): __________________________________________________________________________
(To assign the foregoing warrant, execute this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, [____] all of or [_______] shares of the foregoing Warrant and all rights evidenced thereby are hereby assigned to:
whose address is:
|Dated: ______________, _______|
|Name of Holder|
|Name of Signatory (if entity)|
|Title of Signatory (if entity)|
|Address of Holder:|
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.
PROCEEDS INVESTMENT AGREEMENT
Dated as of July 31, 2018
by and between
DIGITAL ALLY, INC.
BRICKELL KEY INVESTMENTS LP
This PROCEEDS INVESTMENT AGREEMENT, dated as of July 31, 2018 (this “ Agreement ”), between:
|●||Digital Ally, Inc. , a Nevada corporation with its principal place of business at 9705 Loiret Blvd., Lenexa, Kansas. 66219 (“ DAI ”); and|
|●||Brickell key investments lp , a Delaware limited partnership, with its principal place of business at 11 New Street, St. Peter Port, Guernsey GY1 2PF (“ INVESTOR ”)|
|(each of DAI and INVESTOR is referred to herein individually, as a “ Party ” and, collectively, as the “ Parties ”).|
A. DAI is seeking up to $10,000,000 (the “ Commitment ”) to fund litigations relating to the infringement of the Patent Assets enumerated in Annex A and to repay existing debt obligations and for working capital purposes as set forth in Annex B;
B. INVESTOR invests directly and indirectly in claims, disputes, and litigation and arbitration claims;
C. INVESTOR is prepared to make the Investment (as hereinafter defined) and, in consideration therefor, DAI is prepared to (i) assign to INVESTOR (A) 100% of the Patent Assets Proceeds until INVESTOR has received its Minimum Return and (B) if INVESTOR has not received its Minimum Return by the earlier of (x) a Liquidity Event and (y) July 31, 2020, then 100% of Proceeds until Investor has received an amount equal to the Minimum Return on $4 million, (ii) grant INVESTOR (A) a senior security interest in the Patent Assets, the Claims and the Patent Asset Proceeds until INVESTOR has received it Minimum Return and (B) a senior security interest in all other assets of DAI until INVESTOR has received the Minimum Return on $4 million and (iii) grant INVESTOR the Warrants, in each case as defined herein and subject to the terms and conditions set forth herein.
D. T he Parties do not intend to waive any attorney-client privilege or any immunities from discoverability of attorney work product or other privileged materials or communications. T he Parties believe they have common interests in the pursuit of the Claims.
NOW THEREFORE, for good and valuable consideration, it is agreed as follows:
1. DEFINITIONS AND INTERPRETATION
1.1 Definitions . In this Agreement, the following terms shall have the meanings given below:
“ Affiliate ” means, as to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person.
“ Assigned Rights ” has the meaning set forth in Section 3.1.
“ Attorney Engagement Agreement ” means the Engagement Agreement between an Attorney and DAI related to the Claims.
“ Attorneys ” means Erise IP, P.A.
“ Authorization ” means an authorization, consent, approval, resolution, license, exemption, filing, notarization or registration.
“ Authorized ” means authorized by any and all action or Authorization required to make the action contemplated thereby legally binding on a Party.
“ Business Day ” means any day that the Federal Reserve Bank of New York is open for business.
“ Claims ” means the cases and claims arising from or relating to any, some or all of the Patent Assets asserted or to be asserted by DAI, or any of its affiliates or by special purpose vehicle(s) against alleged infringers including, but not limited to, any and all related, remanded, appellate or future claims, cases, arbitrations or proceedings arising from or seeking similar recoveries or remedies. For clarity, nothing herein restricts the Claims or Patent Asset Proceeds to a particular Defendant or Defendants.
“ Claims Costs and Expenses ” as used in this Agreement means costs, expenses and disbursements directly related to the Claims, including (without limitation) costs or expenses incurred in the negotiation and drafting of this Agreement, that are (i) validly incurred by DAI or paid or due and payable to third parties including Attorneys; (ii) documented by receipts and invoices paid by DAI or submitted to DAI in connection with the Claims; or (iii) incurred by an Attorney on behalf of DAI pursuant to an Attorney Engagement Agreement. Claims Costs and Expenses shall not include any internal costs or expenses of DAI or its members, including but not limited to overhead or operating costs or expenses of it or its employees, but shall include only costs and expenses incurred by DAI and/or third parties (including travel and lodging expenses of DAI managers) in connection with prosecuting, enforcing or defending the Claims, such as (A) the fees and expenses of consultants, damages experts, other experts or technical advisors, and fact witnesses, or such fees and expenses paid directly by DAI, (B) travel and lodging expenses of third parties involved in the Claims, such as witnesses and experts, for purposes of holding Claims meetings, the preparation of witness statements and expert reports, attending legal proceedings relating to the Claims, and the like, and (C) duplicating, secretarial, stenographer, courier, translation, outsourced legal research, and similar services provided by Persons other than DAI.
“ Claims Proceeds Account ” means the client trust account in the name of DAI under the control of an Attorney designated for the purposes of receiving and holding the Patent Asset Proceeds pursuant to Section 3.2 and to be operated in accordance with such section.
“ Closing ” means the closing of the transactions contemplated hereby pursuant to Sections 5.1, 5.2 and 5.3.
“ Commitment ” has the meaning set forth in Preamble A.
“ Costs ” has the meaning set forth in Section 10.7.
“ Default ” means any event or circumstance specified in Section 8 (Events of Default) that would (with the expiration of a grace period or the giving of notice) become an Event of Default. A Default is “continuing” if it has not been remedied or waived.
“ Defendant ” means any of the defendants that is the subject of the Claims.
“ Disputes ” has the meaning set forth in Section 9.3.
“ Dollar ” or “ $ ” means United States Dollars.
“ First Closing Date ” means the date on which each of the conditions set forth in Sections 5.1 and 5.3 of this Agreement is satisfied or waived by the applicable Party.
“ First Tranche ” has the meaning set forth in Section 2.1.
“ Funding Documents ” means, collectively, this Agreement, the Escrow Agreement(s) between the Attorneys, DAI and BKI, the Perfection Documents, and any other document contemplated by this Agreement.
“ INVESTOR ” mean Brickell Key Investments LP, as set forth in the Preamble.
“ INVESTOR’s Return ” has the meaning set forth in Section 3.3.
“ Investment ” has the meaning set forth in Section 2.1.
“ IRR Return ” means an amount that provides INVESTOR with a twenty percent (20%) internal rate of return on the First Tranche from the First Closing Date and, if applicable, the Second Tranche from the Second Closing Date.
“Liquidity Event” means either or both of the following: (a) (i) resolution by litigation or settlement of all available Claims asserted or to be asserted by DAI arising from or relating to the Patent Assets and (ii) receipt of all Patent Assets Proceeds arising from or relating to such Claims and / or Patent Assets and (b) the sale, transfer or assignment of (i) the majority of DAI’s common stock or (ii) all of DAI’s assets.
“ Material Adverse Effect ” means (a) a material adverse change in, or a material adverse effect upon, the financial condition, operations, assets, business or properties of the Party in question and its Subsidiaries, taken as a whole, (b) a material impairment of the ability of the Party in question to perform any of its obligations under any material provision of any Funding Document, or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against the Party in question of any material provision of any Funding Document.
“ Minimum Return ” has the meaning set forth in Section 3.3(a)(i).
“ Multiple ” means for payments received after the First Closing Date, (a) two and twenty-five hundredths (2.25x) times the Investment if a Liquidity Event occurs within twenty-four (24) months after the First Closing Date and (b) three (3.00x) times the Investment if a Liquidity Event occurs later than twenty-four (24) months after the First Closing Date.
“ Party ” and “ Parties ” have the respective meanings set forth in the caption of this Agreement.
“ Patent Assets ” means those patents and Pending Patent Applications set forth in Annex A.
“Patent Assets Proceeds” means any and all gross, pre-tax monetary recoveries (whether through damages, recoveries, royalties, monies, lump-sum payments, upfront payments, settlement amounts, distribution of property, cash value of equities, license fees or other revenues or other assets or amounts) paid by a defendant or defendants or an Affiliate of any of the foregoing to DAI or any of its Affiliates, or to an Attorney on behalf of DAI, or recovered, received or receivable by DAI or any of its Affiliates, or to an Attorney on behalf of DAI, as a result of or in connection with the Patent Assets, plus any interest in connection therewith agreed to in a settlement or awarded in a judgment. For clarity, Patent Assets Proceeds shall not include licensing fees where the Claims or Patent Assets are not the cause of such licensing fees.
“ Pending Patent Applications ” means any patent application, U.S. or foreign, that has been filed but not yet issued as a patent, including but not limited to, any provisional or nonprovisional (utility) application, including any continuations, continuations-in-part, divisionals, reissues, refilings, PCTs, or equivalent applications.
“ Perfection Documents ” means those documents required to perfect the security interests provided for in Section 4 of this Agreement under the laws of Nevada and all other jurisdictions in which DAI has property or assets including, but not limited, those Perfection Documents listed in Annex D.
“ Person ” means any individual, firm, company, corporation, partnership, limited liability company, government, state or agency of a state or any association, trust, joint venture or consortium (whether or not having separate legal personality).
“Proceeds” has the meaning assigned such term in the Uniform Commercial Code.
“ Rights ” means, with respect to any Person, such Person’s rights, titles, claims, options, powers, privileges and interests.
“ Security ” means a mortgage, charge, pledge, lien or other security interest securing any obligation of any Person or any other agreement or arrangement having a similar effect.
“ Second Closing Date ” means a date to be determined by INVESTOR following INVESTOR’s satisfaction, in its sole and absolute discretion, with the conditions set forth in Section 5.2 and 5.3.
“ Second Tranche ” has the meaning set forth in Section 2.1.
“Security Interest” has the meaning set forth in Section 4.1.
“Senior Secured Convertible Promissory Notes” means those notes issued by DAI and held by the holders listed in Annex H, which shall be paid in full from the Second Tranche, if any, within five (5) Business Days of the Second Closing Date.
“ Taxes ” means any foreign, federal, state, local, municipal or other governmental taxes, duties, levies, fees, excises or tariffs, arising as a result of or in connection with any amounts or property received or paid under this Agreement, including, without limitation: (i) any state or local sales or use taxes; (ii) any import, value-added or consumption tax; (iii) any business transfer tax; (iv) any taxes imposed or based on or with respect to or measured by any net or gross income or receipts of any of the Parties; (v) any withholding or franchise taxes, taxes on doing business, gross receipts taxes or capital stock or property taxes; or (vi) any other tax now or hereafter imposed by any governmental or taxing authority on any aspect of this Agreement, the Patent Assets Proceeds, the Investment or the Assigned Rights, and “pre-Tax” shall mean before the deduction of any of the foregoing. Taxes shall also include any interest or penalties imposed on or with respect to the foregoing.
“Warrants” means those certain Warrants granted by DAI to INVESTOR as set forth in the Common Stock Purchase Warrant, the form of which is attached hereto as Annex F.
1.2 Construction . Unless a contrary indication appears, the following shall apply in this Agreement:
(a) A reference to this “Agreement” or to any other agreement or document refers to this Agreement or such other agreement or document, together with all annexes, exhibits and schedules hereto or thereto and all documents expressly incorporated herein or therein by reference, and such shall be a reference to this Agreement or such other agreement or document as amended, extended, modified, novated, restated or supplemented from time to time.
(b) A term used in any other agreement or document referred to herein or in any notice given under or in connection with this Agreement or any other agreement or document has the same meaning in such other agreement, document or notice as defined in this Agreement.
(c) Article, Section and Exhibit headings are for ease of reference only.
(d) A provision of law is a reference to that provision as amended or re-enacted;
(e) A “regulation” includes any regulation, rule, official directive, request or guideline (whether or not having the force of law) of any governmental, intergovernmental or supranational body, agency, department or regulatory, self-regulatory or other authority or organization;
(f) A document expressed to be “on the approved terms” means a document, the terms, conditions and form of which have been agreed by the Parties and a copy of which has been identified as such and initialled by or on behalf of each of the Parties; and
(g) A reference to Patent Assets Proceeds being “received” by DAI or any of its Affiliates or special purpose vehicles or the “receipt” by DAI or any of its Affiliates or special purpose vehicles of Patent Asset Proceeds, includes in each case the relevant amount being paid to or to the order of DAI or any of its Affiliates or special purpose vehicles, or being set off against or otherwise reducing any obligation of DAI or any of its Affiliates or special purpose vehicles.
2. THE INVESTMENT
2.1 Investment . INVESTOR agrees, subject to the terms and conditions of this Agreement, to provide the Commitment amount to DAI, in two tranches: (a) a first tranche in the amount of $500,000 on the First Closing Date (the “ First Tranche ”) and (b) a second tranche of up to $9,500,000, in INVESTOR’s sole and absolute discretion, on the Second Closing Date (the “ Second Tranche ”). All First Tranche and, if applicable, Second Tranche amounts shall be considered an investment in the Patent Assets, the Claims and the Patent Assets Proceeds of the Claims (the “ Investment ”), in its funding percentage set forth in Annex C. Any or all of the Investment shall be used solely for the uses set forth in Annex B.
2.2 Acknowledgements Regarding the Scope and Nature of the Investment . Subject to the terms of this Agreement, the Parties recognize and acknowledge that (i) INVESTOR will, through the Investment, purchase the Assigned Rights from DAI and an ownership interest in the Patent Assets Proceeds will be sold, transferred and assigned by DAI to INVESTOR and (ii) the Assigned Rights assigned to INVESTOR hereunder will be transferred to INVESTOR in consideration for the Investment. Nothing in this Agreement or in the course or manner of dealings between the Parties shall be construed to cause any of them to be considered to be a partnership, have formed a partnership, or be partners, members, agents or co-venturers of any kind pursuant to any applicable tax or non-tax laws or doctrines. In the event that any provision in this Agreement is held unenforceable under applicable commercial law, the Investment shall be deemed to be a debt obligation of DAI under Article 9 of the Uniform Commercial Code and for such commercial law purposes and shall accrue interest at a twenty percent (20%) interest rate (or the maximum rate permitted by applicable law, if lower) compounded annually until paid in full.
2.3 Matter Monitoring . DAI agrees to provide to INVESTOR, and DAI agrees to direct Attorneys to provide to INVESTOR, information and documentation sufficient to monitor developments in the Claims, including without limitation, regular quarterly updates and information about material matters in the Claims, as outlined in Annex E attached hereto. INVESTOR may, but is not bound to, monitor or verify the application of any amount disbursed by or on behalf of DAI in respect of Claims Costs and Expenses pursuant to this Agreement, and any such monitoring shall at all times be in INVESTOR’s discretion. In connection with such monitoring, DAI understands that INVESTOR may wish to review certain non-privileged information in connection with the Claims, and DAI consents to the providing of such information by the Attorneys; provided , however , that notwithstanding anything to the contrary contained herein, or in any other related agreement or document, in no event shall DAI be obligated to disclose any privileged information or information subject to a judicially determined protective order at any time or for any purpose.
2.4 Future Needs . DAI shall not seek alternative or additional funding for the Claims until the entire amount of the Investment has been used. DAI agrees that INVESTOR shall have the first option, but no obligation, to provide further funding for the Claims on terms substantially similar to those set forth herein. If INVESTOR is not prepared to make a further investment in the Claims, then DAI may seek additional funding from other third parties, provided, however, that any third party providing funding to DAI or any of its Affiliates and Subsidiaries shall not have any payment priority, interest or security interest in or lien on the Patent Assets, the Claims or the Patent Assets Proceeds that is prior in rights to those of INVESTOR hereunder. For clarity, the foregoing provision does not apply in the event DAI seeks financing for working capital not related directly to the prosecution of the Claims or the Patent Assets.
3.1 Assignment of an Interest in the Patent Assets Proceeds and Proceeds . In consideration for the Investment and subject to the terms of this Agreement, DAI irrevocably assigns to INVESTOR (a) 100% of the Patent Assets Proceeds until INVESTOR has received its Minimum Return and (b) if INVESTER has not received its Minimum Return by the earlier of (x) a Liquidity Event and (y) July 31, 2020, then 100% of Proceeds until Investor has received an amount equal to the Minimum Return on $4 million (the “ Assigned Rights ”).
3.2 Proceeds Payments to Claims Proceeds Accounts .
(a) Each of DAI, its Affiliates, special purpose vehicles, Attorneys and agents shall deposit directly into a Claims Proceeds Account all Patent Assets Proceeds until INVESTOR has received its Minimum Return.
(b) DAI, for itself and on behalf of Attorneys, shall promptly notify INVESTOR of the receipt of all Patent Assets Proceeds and shall pay or ensure prompt payment, which in any case shall be within five (5) Business Days of receipt of such Patent Assets Proceeds, of all amounts payable to INVESTOR pursuant to the terms of this Agreement. The Parties hereto and their respective assignees and successors in interest agree that no distribution of such Patent Assets Proceeds may be made except in conformance with this Agreement. DAI hereby (i) irrevocably instructs and will instruct Attorneys to distribute Patent Assets Proceeds in accordance with the terms of this Agreement and (ii) covenants that it will not direct Attorneys to take any action which conflicts with such irrevocable instructions.
3.3 INVESTOR’S Return . Subject to Section 3.4 below, DAI shall pay INVESTOR a return (the “ INVESTOR’s Return ”) equal to sum of
a. (i) the Multiple or (ii) the IRR Return, whichever is greater (the “ Minimum Return ”); and
b. the Warrants.
To the extent that, upon resolution by litigation or settlement of all available Claims asserted or to be asserted by DAI arising from or relating to the Patent Assets, INVESTOR receives from Patent Assets Proceeds amounts that are less than the Minimum Return, INVESTOR will be entitled to recover the difference between the amounts it has received from Patent Assets Proceeds and the Minimum Return from any and all assets for which any part or all of the Investment was used and from all proceeds resulting from legal actions arising from or relating to those assets. In addition, in the event INVESTOR does not receive by the earlier of (x) a Liquidity Event and (y) July 31, 2020 from Patent Assets Proceeds amounts at least equal to the Minimum Return, INVESTOR will be entitled to recover the difference between the amounts it has received from Patent Assets Proceeds and the amount of its Minimum Return on $4 million from the Proceeds of any and all assets of DAI.
3.4 Payment Priority of Patent Assets Proceeds and Proceeds . INVESTOR shall have priority of payment regarding Patent Assets Proceeds and Proceeds as follows:
|From Patent Assets Proceeds||
From All Assets of DAI
in the Event of
Insufficient Patent Asset Proceeds by earlier of (x) Liquidity Event and (y)
July 31, 2020
|Until INVESTOR has received the return of its Investment||100||%|
|Then, until INVESTOR has received its Minimum Return on the Investment||100||%|
|Until INVESTOR has received $4 million||100||%|
|Then, until INVESTOR has received its Minimum Return on $4 million.||100||%|
4. SECURITY INTEREST
4.1 Security Interest . DAI grants and assigns to INVESTOR (a) a senior security interest in the Patent Assets, the Claims and the Patent Asset Proceeds until INVESTOR has received it Minimum Return and (b) a senior security interest in all other assets of DAI (the “ Other Assets”) until INVESTOR has received the Minimum Return on $4 million, and DAI shall execute and deliver to INVESTOR on the First Closing Date, and INVESTOR may file with the necessary filing offices, the Perfection Documents for the purpose of perfecting INVESTOR’s Rights in and to the Patent Assets, the Claims, the Patent Assets Proceeds and the Other Assets as set forth above, and as notice to third parties that DAI has conveyed any interest it may have in or to such Patent Assets, Claims, the Patent Assets Proceeds and the Other Assets (collectively, the “Security Interest” ). Upon receipt of (x) its Minimum Return on $4 million, INVESTOR shall release its Security Interest over the Other Assets and (y) its Minimum Return, INVESTOR shall release its Security Interest over the Patent Assets, Claims and the Patent Assets Proceeds, in each case by filing the customary termination and lien release statements with the applicable governmental authorities in the requisite jurisdictions.
5.1 Conditions Precedent to the First Tranche Investment . INVESTOR shall only be obligated to make the First Tranche Investment if on the First Closing Date:
(a) The representations and warranties of DAI contained in Section 6.1 of this Agreement shall be true and accurate in all material respects;
(b) INVESTOR shall have received sufficient information, in form and substance reasonably acceptable to INVESTOR, regarding the engagement agreement(s) between DAI and Attorneys including, but not limited to, that such Attorneys (i) shall be subject at all times to an Attorneys’ fee cap not to exceed $1,200,000 (inclusive of existing payables) (the “ Cap ”) with appropriate contingency fee arrangements in place in the event Attorneys’ fees exceed the Cap, (ii) shall have financial controls in place to monitor the deployment of Attorneys’ fees and Claims Costs and Expenses and (iii) shall have the ability to effectively prosecute the Claims; and
(c) No Default shall have occurred and be continuing or would result from the transactions to be consummated at such time.
5.2 Conditions Precedent to the Second Tranche Investment . INVESTOR shall only be obligated to make the Second Tranche Investment after INVESTOR is satisfied, in its sole and absolute discretion, with the following:
(a) The representations and warranties of DAI contained in Section 6.1 of this Agreement shall have remained true and accurate in all material respects;
(b) The covenants of DAI contained in Section 7.1 of this Agreement shall have been performed in all material respects;
(c) The Attorney Engagement Agreement(s) shall remain in full and force and effect, unmodified, and shall not have been reputed or challenged by any party thereto;
(d) DAI shall have fully deployed the First Tranche to pay the first amortization payment of principal and interest on the obligations to the Senior Convertible Debt Holders;
(e) DAI and the Attorneys shall have received in escrow from each Senior Convertible Debt Holder (i) an acknowledgement that, upon payment of amounts to them from the Second Tranche, all obligations, financial or otherwise, owed to them by DAI shall be satisfied and paid in full and (ii) an unconditional release of DAI and any and all security interests held over the assets and shares of DAI;
(f) No Default shall have occurred or, with the passage of time, be likely to occur; and
(g) INVESTOR is satisfied, in its sole and absolute discretion, with the results of additional due diligence on the Patents Assets, the Claims and the financial condition of DAI.
5.3 Closing . The obligations of the Parties hereunder shall become effective when and only when each of the following conditions is satisfied (or waived in writing by the appropriate Party):
(a) DAI shall have authorized in writing the contents and filing of the Perfection Documents; and
(b) DAI shall have demonstrated to INVESTOR that it has contingent arrangements in place, acceptable to INVESTOR, to assure that any and all necessary fees, costs, and expenses for prosecuting the Claims can be met by DAI either through the Investment, arrangements with Attorneys or otherwise.
(c) DAI shall have delivered the executed Warrant.
5.4 Delivery of Investment . Subject to the satisfaction of the conditions to Closing set forth in Sections 5.1, 5.2 and 5.3, INVESTOR shall deliver the Investment to DAI as set forth in Annex B via wire transfer to the bank accounts set forth in Annex G.
6. REPRESENTATIONS, WARRANTIES AND INVESTMENT-RELATED DISCLOSURES
6.1 DAI’s Representations, Warranties and Investment-Related Disclosures . DAI makes the representations and warranties set out in this Section 6.1 to INVESTOR as of (i) the date of this Agreement and (ii) and each on the First Closing Date and Second Closing Date:
(a) Organization and Good Standing . DAI is a corporation organized, validly existing and in good standing under the laws of Nevada, and is Authorized to conduct business in Rhode Island, Nevada and all other jurisdictions in which it conducts business or operations.
(b) Authorization and Enforceability . DAI has the requisite power and authority to execute and deliver this Agreement and the other Funding Documents, to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance by DAI of this Agreement and the other Funding Documents and the consummation of the transactions contemplated hereby and thereby have been duly Authorized by all required action on the part of DAI.
(c) Due Execution . This Agreement and the other Funding Documents have been duly executed and delivered by DAI, and, assuming the due authorization, execution and delivery hereof and thereof by INVESTOR, they constitute the valid and legally binding obligations of DAI enforceable in accordance with their terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to creditors’ rights generally and by general principles of equity.
(d) Litigation. Except as disclosed in writing to INVESTOR prior to the First Closing Date and the Second Closing Date, there is no claim, action, suit, proceeding, arbitration, investigation or inquiry pending before any governmental entity, or to the knowledge of DAI, threatened against DAI or any of its assets. There is not in existence at present and, except in connection with the Claims, DAI is not aware of the potential for any order, judgment or decree of any court or other tribunal or any agency enjoining or requiring DAI to take any action of any kind or to which DAI or its assets are subject or bound.
(e) Title to Property; Absence of Liens and Encumbrances. Upon payment in full of the Senior Convertible Debt Holders, DAI is solvent, and owns and has good and marketable title to the Patent Assets Proceeds, Claims, and Patent Assets free and clear of all liens and encumbrances or Security in favor of any Person other than INVESTOR or Attorneys pursuant to Attorney Engagement Agreements that are in form and substance reasonably acceptable to INVESTOR. Upon payment in full of the Senior Convertible Debt Holders, DAI owns and has good and marketable title to its other assets, free and clear of all liens and encumbrances or Security in favor of any Person other than INVESTOR.
(f) No Conflicts . Assuming the payoff of the Senior Convertible Debt Holders and the release and/or termination of such Senior Convertible Debt Holders’ security interests and liens, the execution, delivery and performance by DAI of this Agreement and the other Funding Documents in accordance with their respective terms do not and will not, after the giving of notice, or the lapse of time or both, or otherwise (i) conflict with, result in a breach of, or constitute a default under the charter or corporate documents of DAI or any law, statute, ordinance, rule or regulation, or any court or administrative order or process or any contract, agreement, arrangement, commitment or plan to which DAI is a party or by which DAI or its assets are bound, (ii) require the consent, waiver, approval, permit, license, clearance or authorization of, or any declaration or filing with, any court or public agency or other public authority, or (iii) require the consent of any Person under any material agreement, arrangement, or commitment of any nature.
(g) Investment-related disclosures . DAI acknowledges that it has superior knowledge regarding the Patent Assets and Claims, due at least in part to its involvement and familiarity with the facts underlying the Patent Assets and the progress of the Claims to date. Moreover, DAI acknowledges that it has access to information regarding the Patent Assets and Claims that is not available to INVESTOR. In connection with entering into this Agreement, DAI has provided (or has caused its Attorneys to provide) certain information to INVESTOR, including information pertaining to the claims and defenses in the Claims and material factual information underlying those claims and defenses; provided, however , that DAI declares that DAI could not and has not provided any disclosure of information or documents protected by the attorney-client or work product privileges, and that the materials and disclosures that have been provided in the course of INVESTOR’s due diligence was bound by and in compliance with any applicable protective and confidentiality orders in the Claims. All such information has been provided by DAI in consultation with its Attorneys and other counsel, and DAI hereby warrants that all such information was/is true, complete and accurate in all material respects as of the date it was provided and as of the First Closing Date and Second Closing Date. DAI acknowledges that INVESTOR has relied on the accuracy and completeness of this information in agreeing to make the Investment. DAI confirms that it has disclosed all facts in its own possession that DAI reasonably believes could affect INVESTOR’s decision to make the Investment. If DAI is or becomes aware of information that it reasonably believes could affect INVESTOR’s decision to make the Investment and DAI is prohibited from disclosing such information because it is privileged or subject to a judicially determined protective order, then DAI shall disclose to INVESTOR the fact that such information exists along with DAI’s assessment (after consultation with counsel) of such information and its effect, if any, on the claims and defenses, even if it cannot disclose the exact substance of that information.
(h) Attorney Engagement Agreements . As of the date of this Agreement and the Closing Date, each Attorney Engagement Agreement to which DAI is a party (a) is enforceable against the parties thereto in accordance with its terms, (b) has not been challenged, repudiated, terminated, cancelled or annulled by a person or party thereto and (c) as to INVESTOR, does not prohibit, inhibit or give a priority in payment of Patent Assets Proceeds to any person.
(i) Sufficiency of Financial Resources . DAI shall maintain adequate financial resources to ensure that any and all necessary fees, costs, and expenses for prosecuting the Claims (and any related appeals) can be met by DAI either through the Investment, arrangements with Attorneys or otherwise. INVESTOR has been informed that DAI’s annual report for the fiscal year ending December 31, 2017 on Form 10-K contains a going concern qualification from its public accountants.
6.2 INVESTOR’s Representations and Warranties . INVESTOR makes the representations and warranties set out in this Section 6.2 to DAI as of the date of this Agreement and the Closing Date:
(a) Organization and Good Standing . INVESTOR is duly organized in its jurisdiction as set forth in the Preamble.
(b) Authorization and Enforceability . INVESTOR has the requisite power and authority to execute and deliver this Agreement and the other Funding Documents, to perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance by INVESTOR of this Agreement and the other Funding Documents and the consummation of the transactions contemplated hereby and thereby have been duly Authorized by all required action on the part of INVESTOR.
(c) Due Execution . This Agreement and the other Funding Documents have been duly executed and delivered by INVESTOR, as appropriate, and, assuming the due authorization, execution and delivery hereof and thereof by DAI or any other third party thereto, they constitute the valid and legally binding obligations of INVESTOR enforceable in accordance with their respective terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to creditors’ rights generally and by general principles of equity.
(d) No Conflicts . The execution, delivery and performance by INVESTOR of this Agreement and the other Funding Documents in accordance with their respective terms do not and will not, after the giving of notice, or the lapse of time or both, or otherwise (i) conflict with, result in a breach of, or constitute a default under INVESTOR’s constitutive documents or any law, statute, ordinance, rule or regulation, or any court or administrative order or process or, any contract, agreement, arrangement, commitment or plan to which INVESTOR is a party or by which INVESTOR or its assets is bound, (ii) require the consent, waiver, approval, permit, license, clearance or authorization of, or any declaration or filing with, any court or public agency or other public authority, or (iii) require the consent of any Person under any material agreement, arrangement, or commitment of any nature.
(e) Litigation . There is no claim, action, suit, proceeding, arbitration, investigation or inquiry pending before any governmental entity, or to the knowledge of INVESTOR, threatened against INVESTOR, or one of its related entities, that would impact or restrict INVESTOR’s ability to comply with the terms of this Agreement. INVESTOR is not aware of the potential for an order, judgment or decree of any court or other tribunal or any agency enjoining or requiring INVESTOR to take any action of any kind or to which INVESTOR or its assets are subject or bound.
7. COVENANTS AND TAXES
7.1 Covenants . For so long as any amount is outstanding or obligation of DAI is remaining under this Agreement or the other Funding Documents, DAI shall (unless it has obtained prior written consent from INVESTOR to the contrary), at its sole cost and expense:
(a) obtain, comply with and use commercially reasonable efforts to do all that is necessary to remain solvent and to maintain DAI as a legal entity with all requisite Authorizations under all applicable law or jurisdictions to carry on its respective businesses in connection with the Patent Assets, Claims and Patent Assets Proceeds;
(b) prosecute, and take all necessary actions to ensure that it prosecutes (and where reasonable settlement offers are received, settles), the Patent Assets and Claims with all due skill and care including, without limitation, maintaining the appointment of appropriate Attorneys to act on the behalf of DAI with respect to the Claims; in this regard, each of DAI and the INVESTOR acknowledges and agrees that INVESTOR will not (i) direct the activities of any Attorneys or the Claims, (ii) provide any legal professional services to DAI, (iii) appear on pleadings or participate in decisions or settlement negotiations for the Claims, (iv) have an attorney-client relationship with DAI or (v) charge for any consultancy services either during the course of prosecution of the Claims or upon settlement or other Claims resolution;
(c) without the prior written consent of INVESTOR, except as set forth in Sections 2.4, not accept or agree to deploy the capital of any third-party lender or capital source in connection with the Claims. For clarity, DAI may obtain financing from third parties other than INVESTOR for general working capital purposes; provided that such capital is not directly used to in connection with the Patent Assets and / or Claims and, further provided that such financing shall at all times be subordinate in payment priority to the Minimum Return and to the Security and the rights of INVESTOR hereunder;
(d) not allow any other Person to hold any Security or payment priority over the Claims, Patent Assets Proceeds and Patent Assets or any rights thereto, without the prior written consent of INVESTOR, which consent may be withheld in the sole and absolute discretion of INVESTOR;
(e) not transfer, sell, assign or otherwise dispose of any of its Rights in or under the Claims, Patent Assets, or the Patent Assets Proceeds or agreements relating thereto; and
(f) directly or through Attorneys, keep INVESTOR timely informed of material developments in the Patent Assets and Claims and all facts and circumstances that may affect the value of the Claims, the Patent Assets and / or Patent Assets Proceeds in accordance with Annex E.
7.2 Tax Certification and Withholding . All Taxes shall be the financial responsibility of the Party obligated to pay such Taxes as determined by the applicable law, and no Party is or shall be liable at any time for any of another Party’s Taxes incurred in connection with or related to amounts paid under this Agreement. DAI shall make each and all payments hereunder to INVESTOR without any deduction or withholding on account of any Taxes, provided that INVESTOR shall furnish to DAI a completed and properly executed U.S. Internal Revenue Service Form W-9. Each Party shall indemnify, defend and hold the other Parties harmless from and against any Taxes owed by or assessed against the other Party that are the obligation of such Party and from any Purchased Assets, causes of action, costs, expenses, reasonable attorneys’ fees, penalties, assessments and any other liabilities of any nature whatsoever related to such Taxes.
7.3 Successor or Replacement Attorneys . In the event that an Attorney withdraws from prosecuting the Claims or otherwise ceases to act as an Attorney, then DAI shall appoint successor Attorneys to act as its counsel for the Claims, provided, however, that DAI shall give INVESTOR ten (10) Business Days’ prior written notice of the Attorneys it proposes to appoint as successors. DAI shall retain exclusive control to select counsel and to direct the activities of counsel. Should such successor or replacement Attorneys be so appointed, all references to the original Attorney(s) for the Claim(s) shall, where appropriate and effective as of the date of their appointment, be deemed to be a reference to such successor or replacement Attorneys.
8. EVENTS OF DEFAULT
8.1 Events of Default . Each of the events or circumstances set out below is an Event of Default:
(a) Non-payment . DAI fails to pay or distribute when due any amount payable or distributable pursuant to this Agreement at the place and in the currency in which it is expressed to be payable, and such failure to pay or distribute is not remedied within five (5) days of INVESTOR giving written notice to DAI.
(b) Other Obligations . DAI fails to comply with any provision of the Funding Documents (other than those referred to in subsection (a) above), and such failure to comply is not remedied within ten (10) Business Days of INVESTOR giving written notice to DAI.
(c) Misrepresentation . Any representation, warranty or statement made by DAI in this Agreement, in the other Funding Documents or any other document delivered by or on behalf of DAI under or in connection herewith or therewith is or proves to have been incorrect, incomplete or misleading in any material respect, and such representation, warranty or statement is not remedied, if capable of being remedied, by DAI within ten (10) Business Days of DAI becoming aware that it is incorrect, incomplete or misleading.
(d) Insolvency .
(i) DAI is unable or admits inability to pay its debts as they fall due, suspends making payments on any of its material financial obligations or, by reason of actual or anticipated financial difficulties, commences negotiations with one or more of its creditors with a view to rescheduling any of its indebtedness;
(ii) The value of the assets of DAI (after taking into account the Investment) is less than its liabilities (after taking into account contingent and prospective liabilities); and
(iii) A moratorium is declared in respect of any indebtedness of DAI. If a moratorium occurs, the ending of the moratorium will not remedy any Event of Default caused by that moratorium.
(e) Insolvency Proceedings . Any legal proceedings are taken in relation to:
(i) the suspension of payments, a moratorium of any indebtedness, winding-up, dissolution, liquidation, administration or reorganization (by way of voluntary arrangement, scheme of arrangement, or otherwise) of DAI;
(ii) the filing of a voluntary petition for relief under the bankruptcy provisions of any jurisdiction by DAI or the filing of an involuntary petition for relief against DAI which is not dismissed within forty-five (45) days of such filing;
(iii) a composition, compromise, assignment or arrangement with any creditor of DAI, other than in the ordinary course of business;
(iv) the appointment of a liquidator, receiver, administrative receiver, administrator, compulsory manager or other similar officer in respect of DAI or substantially all of the assets of DAI; or
(v) enforcement of any Security having a value of at least $50,000 over any assets of DAI,
or any analogous procedure or step is taken in any jurisdiction.
(f) Creditors process. Any expropriation, attachment, sequestration, distress or execution or any analogous process with respect to DAI in any jurisdiction affects any material asset of DAI and is not discharged within five (5) Business Days;
(g) Incurrence of Indebtedness . Except as otherwise provided herein, DAI shall not, directly or indirectly, incur or guarantee any indebtedness, other than ordinary course indebtedness up to $500,000, except as may be consented to in writing by INVESTOR, such consent not to be unreasonably withheld; and
(h) Failure to Pay Senior Convertible Debt Holders and Obtain Releases . DAI shall have failed to fully satisfy all obligations to the Senior Convertible Debt Holders and to obtain unconditional releases from the Senior Convertible Debt Holders as to DAI’s financial obligations to and the security interests in DAI held by such Senior Convertible Debt Holders within five (5) Business Days following the Second Closing Date.
8.2 Rights and Remedies . During the continuance of an Event of Default, INVESTOR may, in its sole and absolute discretion, upon at least fifteen (15) Business Days’ written notice to DAI, elect to do any one or more of the following:
(a) require DAI to remit to INVESTOR any balance of the Investment remaining, whether held in DAI bank accounts or in an attorney-client escrow account.
(b) except as otherwise provided herein, without notice to or demand upon DAI, make such payments and do such acts, on behalf of DAI, as INVESTOR reasonably considers necessary or reasonable to protect its rights under this Agreement in accordance with applicable law;
(c) except as otherwise provided herein, in addition to the foregoing, INVESTOR shall have all rights and remedies provided by law and any rights and remedies contained in any Funding Document (including without limitation enforcing its security interest in the Patent Assets Proceeds, the Claims, and Patent Assets); and / or
(d) suspend all rights of DAI to share in Patent Assets Proceeds pursuant to Section 3.4 until INVESTOR has received its Minimum Return.
8.3 Special Power of Attorney . DAI hereby appoints INVESTOR (or its respective representatives), effective upon the occurrence and during the continuance of any Event of Default referred to in Section 8.1(d) or 8.1(e), as its attorney-in-fact, with full power of substitution, to do all things and take all actions, in its own name and as attorney-in-fact for DAI, to pursue any of DAI’s Rights with respect to and/or in the Claims and to engage such legal counsel for the account of DAI, but at the cost of INVESTOR that INVESTOR shall, in its good faith judgment, deem to be in the best interests of INVESTOR and DAI. This Special Power of Attorney shall at all times be coupled with an interest and shall survive the dissolution, insolvency or bankruptcy (as the Claims may be under the laws of any jurisdiction) of DAI. Notwithstanding any provision in this Agreement or the other Funding Documents to the contrary, any and all Patent Assets Proceeds received by or on behalf of DAI on or after INVESTOR’s exercise of its rights in accordance with this Section 8.3 shall be distributed to INVESTOR up to the amount of the INVESTOR’s Return. Any costs incurred by INVESTOR pursuant to the exercise of its rights under this Section 8.3 shall be treated as part of the Investment and subject to recovery as part of the INVESTOR’s Return. INVESTOR shall have the right to delegate the powers provided for in this Section 8.3 to a third party.
9. GOVERNING LAW; WAIVER OF SPECIFIC DEFENSES; DISPUTES
9.1 GOVERNING LAW . THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH ENGLISH LAW, WITHOUT REGARD TO ITS CONFLICT OF LAWS RULES.
9.2 Specific Waivers . DAI irrevocably waives and forever and unconditionally releases, discharges and quitclaims, any claims, counterclaims, defenses, causes of action, remedies and/or rights it or its successors in interest has or may in the future have arising from any doctrine, rule or principle of law or equity that this Agreement, or the relationships or transactions contemplated by this Agreement, (i) are against the public policy of any jurisdiction with which DAI has a connection, or (ii) are unconscionable, or (iii) constitute champerty, maintenance or any impermissible transfers or assignments of property, fees or choses in action, or (iv) violate the rules of professional ethics applicable to DAI, INVESTOR or any of their lawyers or professional advisers.
9.3 Arbitrable Claims. All actions, disputes, claims and controversies under common law, statutory law, rules of professional ethics, or in equity of any type or nature whatsoever, whether arising before or after the date of this Agreement, and directly relating to: (a) this Agreement and/or any amendments and addenda hereto, or the breach, invalidity or termination hereof; (b) any previous or subsequent agreement between INVESTOR and DAI related to the subject matter hereof; (c) any act or omission committed by INVESTOR or by any Person affiliated with INVESTOR, or by any member, employee, agent, or lawyer of INVESTOR, whether or not arising within the scope and course of employment or other contractual representation of INVESTOR (provided that such act arises under a relationship, transaction or dealing between INVESTOR and DAI); and/or (d) any act or omission committed by DAI, or by any employee, agent, partner or lawyer of DAI whether or not arising within the scope and course of employment or other contractual representation of DAI (provided that such act arises under a relationship, transaction or dealing between INVESTOR and DAI) (collectively, the “ Disputes ”), will be subject to and resolved by binding arbitration under these Sections 9.3 – 9.8. The Parties agree that the arbitrators have exclusive jurisdiction, to the exclusion of any court (except as specifically provided with regard to prejudgment, provisional, or enforcement proceedings in Section 9.5), to decide all Disputes.
9.4 Administrative Body . Any dispute arising out of or in connection with this Agreement, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration under the Arbitration Rules of The London Court of International Arbitration (LCIA) (www.lcia-arbitration.com) which rules are deemed to be incorporated herein by reference. All arbitrator(s) selected will be lawyers with at least ten (10) years’ experience and be licensed to practice law in England. A panel of three arbitrators shall hear all claims exceeding One Million Dollars ($1,000,000), exclusive of interest, costs and lawyers’ fees. The arbitrator(s) will decide if any inconsistency exists between the rules of the applicable arbitral forum and the arbitration provisions contained herein. If such inconsistency exists, the arbitration provisions contained herein will control and supersede such rules. The arbitrator shall follow the terms of this Agreement and the applicable law, including without limitation, the attorney-client privilege and the attorney work-product doctrine. The seat, or legal place, of arbitration shall be London, England, and hearings before the arbitral tribunal shall be held in London, England unless the Parties agree to a different arbitral seat and/or locale. The language to be used in the arbitral proceedings shall be English.
9.5 Prejudgment and Provisional Remedies . Prior to appointment of the arbitrator, either Party may commence judicial proceedings only for the purpose(s) of: (i) enforcement of the arbitration provisions; (ii) obtaining appointment of arbitrator(s); (iii) preserving the status quo of the Parties pending arbitration as contemplated herein; (iv) preventing the disbursement by any Person of disputed funds; and/or (v) preserving and protecting the rights of either Party pending the outcome of the arbitration. Any such action or remedy will not waive a Party’s right to compel arbitration of any Dispute, and any Party may also file court proceedings to have judgment entered on the arbitration award. In any action for prejudgment or provisional relief, any court in which such relief is sought shall determine the availability of such relief without regard to any defenses that may be asserted by the other Party, and any such defenses shall be referred to the exclusive jurisdiction of the arbitrators under Section 9.3. The Parties further agree that a court shall not defer or delay granting prejudgment or provisional relief while any such arbitration takes place.
9.6 Attorneys’ Fees . If either DAI or INVESTOR brings any other action for judicial relief with respect to any Dispute (other than those precisely described in Section 9.5), the Party bringing such action will be liable for and immediately pay all of the other Party’s costs and expenses (including attorneys’ fees) incurred to stay or dismiss such action and remove or refer such Dispute to arbitration. If either DAI or INVESTOR brings or appeals an action to vacate or modify an arbitration award, order or judgment and such Party does not prevail, such Party will pay all costs and expenses, including attorneys’ fees, incurred by the other Party in defending such action.
9.7 Enforcement . Any award rendered under this Section shall not be subject to appeal and may be enforced under any and all applicable treaties and internal laws of the jurisdiction where the award-debtor is located, including without limitation under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention).
9.8 Confidentiality of Awards . All arbitration proceedings, including testimony or evidence at hearings, will be kept confidential, although any award or order rendered by the arbitrator(s) pursuant to the terms of this Agreement may be confirmed as a judgment or order in any state or federal or other national court of competent jurisdiction where proceedings are necessary or appropriate to enforce any award or order. This Agreement concerns transactions involving commerce among the several states and foreign countries.
9.9 Survival After Termination . The provisions of this Section 9 will survive the termination of this Agreement.
10.1 Entire Agreement and Amendments . This Agreement and the other Funding Documents constitute the entire agreement between the Parties with respect to the matters covered herein and supersede all prior agreements, promises, representations, warranties, statements, and understandings with respect to the subject matter hereof as between DAI and INVESTOR. Each of this Agreement and the Funding Documents are fully enforceable in accordance with their terms. This Agreement may not be amended, altered, or modified except by an amendment or supplement to this Agreement executed by all Parties hereto.
10.2 Partial Invalidity; Severability . If, at any time, any provision of this Agreement or of the other Funding Documents is or becomes illegal, invalid or unenforceable in any respect under any law of any jurisdiction, neither the legality, validity or enforceability of the remaining provisions nor the legality, validity or enforceability of such provisions under the law of any other jurisdiction will in any way be affected or impaired.
10.3 Remedies and Waivers . No failure to exercise, nor any delay in exercising, on the part of INVESTOR or DAI, of any right or remedy under this Agreement or the other Funding Documents shall operate as a waiver, nor shall any single or partial exercise of any right or remedy prevent any further or other exercise or the exercise of any other right or remedy. The rights and remedies provided in this Agreement are cumulative and not exclusive of any rights or remedies provided by law. No provision of this Agreement may be waived except in a writing signed by the party granting such waiver.
10.4 Assignment . This Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the Parties. Neither DAI nor INVESTOR shall assign or delegate its rights or obligations under this Agreement or the other Funding Documents without the prior written consent of the other Party; provided , however, that, in connection with an eventual syndication by INVESTOR of its rights to potential proceeds from its portfolio of claims, including the Patent Assets Proceeds hereunder, INVESTOR may assign or transfer to a third party all or part of its interest in (i) the Patent Assets Proceeds under this Agreement, (ii) its share of any and all recoveries associated with the Patent Assets and / or Claims and / or Patent Assets Proceeds and / or Other Assets and (iii) any other rights, licenses or obligations hereunder; provided, further however , that the third party assignee or transferee shall not be deemed a client of the Attorneys, shall not have any control over the Claims, shall not become a party to the Claims and shall not have any access to information in respect of the Claims that is privileged or otherwise judicially protected. Notwithstanding the above, INVESTOR may assign, in whole or in part and without the consent of DAI or any other Person, the rights, benefits and obligations of this Agreement to another pooled investment vehicle managed by Brickell Key Asset Management Limited, a Guernsey limited company, or its Affiliates or their respective successors and assigns.
10.5 Confidentiality .
(a) INVESTOR hereby agrees that, without the prior written consent of DAI, INVESTOR will not disclose, and will direct INVESTOR’s representatives (including, without limitation, INVESTOR’s outside counsel) not to disclose, to any person either the fact that this Agreement has been made, or any of the parties, terms, conditions or other facts with respect to this Agreement, or any of the information provided by DAI or any Attorney to INVESTOR pursuant to this Agreement (collectively, the “Confidential Information”).
(b) INVESTOR further agrees that none of the Confidential Information shall be disclosed to any person or entity; provided, however, that any of such information may be disclosed by INVESTOR and / or DAI (A) to INVESTOR’s representatives so long as such representatives are informed of the nature of this Agreement and agree to abide by the terms of the same to DAI; (B) to the extent INVESTOR and / or DAI is legally required to do so, to government agencies, regulatory bodies or representatives thereof, courts, arbitral tribunals or pursuant to legal process, provided that (I) the non-disclosing Party is provided prior notice as soon as reasonably practical upon disclosing Party’s learning of any request and opportunity to contest such request, (II) DAI or INVESTOR, as the case may be, is provided an opportunity to seek a protective order or other remedy with respect to the disclosure, including without limitation, to ensure that such Confidential Information as is required to be disclosed is afforded confidential treatment, (III) the disclosing Party shall use commercially reasonable efforts to cooperate with the non-disclosing Party in obtaining a protective order or other remedy with respect to such disclosure, and (IV) in the event a protective order or other remedy is not obtained, INVESTOR or DAI, as the case may be, shall use commercially reasonably efforts to assure the non-disclosing Party that the disclosing Party or its representatives will only furnish that portion of the Confidential Information that is legally required to be disclosed, or (C) if the non-disclosing Party consents in writing to such disclosure before any such disclosure has taken place.
(c) Notwithstanding anything in this Agreement to the contrary, including the provisions of Sections 10.5(a) and 10.5(b), the Parties agree that DAI may make such filings and disclosures of Confidential Information as it determines, upon advice of counsel, are required by federal and state securities laws and stock exchange rules applicable to DAI, including without limitation, the United States Securities Exchange Act of 1934, as amended (collectively, “Securities Laws”), provided that DAI will use reasonable efforts to seek confidential treatment for Confidential Information that DAI determines, upon advice of counsel, is permitted to be obtained under the Securities Laws.
10.6 Notices .
(a) All notices, reports and other communications required or permitted under this Agreement shall be in writing. They shall be delivered by hand or sent by regular mail, courier, fax, email or other reliable means of electronic communication to the Parties at their addresses indicated below or at such other address as may be specified hereafter in writing by any of the Parties to the other Party in accordance with this Section 10.6.
|If to DAI:||Digital Ally, Inc.|
|9705 Loiret Boulevard|
|Lenexa, Kansas. 66219|
|If to BKI:||Brickell Key Investments LP|
|11 New Street|
|St. Peter Port|
|Guernsey GY1 2PF|
|Attention: Corporate Secretary|
|Fax: +44 (0)1481 712167|
|With a copy to:|
|Brickell Key Asset Management Limited|
|11 New Street|
|St. Peter Port|
|Guernsey GY1 2PF|
|Attention: Corporate Secretary|
|Fax: +44 (0)1481 712167|
|Brickell Key Asset Management, LLC|
|18 Broad Street|
|Charleston, SC 29401|
|Attention: William Yuen|
(b) Any notice, report or other communication hereunder shall be deemed to have been delivered and received (i) on the date delivered, if delivered personally by hand or sent by courier, (ii) on the date sent, if sent by fax, email or other form of electronic communication, and (iii) five (5) Business Days after mailing, if placed in the US mail or Guernsey mail, as the Claims may be, by registered or certified mail, first class postage prepaid, with a request for a confirmation of delivery.
(c) Any notice, report or other communication sent under Sections 8 or 9 that is sent by fax, email or other electronic communication must be confirmed by sending a hard paper copy thereof to the recipient in accordance with subsection (a) above, provided, the effective date of such notice, report or other communication shall be as specified in subsection (b) above. If the recipient actually received the fax, email or other electronic form of a notice, report or other communication, then the notice, report or other communication shall be deemed to have been given and delivered even if sender fails to send a hard copy as called for in this subsection.
10.7 Indemnification .
(a) DAI shall indemnify and hold harmless INVESTOR and its partners, shareholders, officers, directors, employees, representatives, managers, advisers and each of their respective Affiliates (collectively, “ Indemnitees ”) from and against any and all actions, losses, costs, charges, damages, claims, sanctions, penalties, expenses and reasonable defense costs (collectively, “ Costs ”) arising from (i) any breach of this Agreement by DAI, (ii) from DAI’s fraud, willful misconduct, bad faith or gross negligence in connection with performing its obligations under this Agreement and (iii) from any Costs arising from or relating to any third party discovery proceedings in connection with the Claims, the Patent Assets, the Patent Assets Proceeds, the Security Interest and / or this Agreement. DAI shall not be required to indemnify any Indemnitee for Costs associated with such Indemnitee’s fraud, gross negligence, bad faith or willful misconduct. DAI’s obligations to provide indemnification under this clause shall be full-recourse obligations with respect to DAI, and is not limited to the value of the Proceeds.
(b) Any Indemnitee who receives notice of a claim for which it will seek indemnification hereunder shall promptly notify DAI of such claim in writing. DAI shall have the right to assume the defense of such action at its own cost and expense with counsel reasonably satisfactory to the Indemnitee, but shall not have the right to settle or compromise any claim or action without the consent of Indemnitee, which shall not be unreasonably conditioned, withheld or delayed, and shall not be required if such settlement contains a release of INVESTOR and no admission of liability. If DAI assumes the defense of such action, Indemnitee shall have the right to participate in such defense with its own counsel at its own cost and expense.
10.8 Counterparts . This Agreement may be executed in counterparts which, when read together, shall constitute a single instrument, and this has the same effect as if the signatures on the counterparts were on a single copy hereof. A composite copy of this Agreement may be compiled comprising a single copy of the text of this Agreement and one or more copies of the signature pages containing collectively the signatures of all Parties.
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IN WITNESS WHEREOF, the Parties have caused their duly Authorized representatives to execute this Agreement effective as of the date first set forth above.
|DIGITAL ALLY, INC.|
|By:||/s/ Stanton E. Ross|
|Name:||Stanton E. Ross|
|Title:||Chief Executive Officer|
|BRICKELL KEY INVESTMENTS LP|
|/s/ Julian R. Carey|
|Title:||Director for and on behalf of Brickell Key Partners GP Limited, as General Partner of Brickell Key Investments LP|