|
Item
3.02
|
Unregistered
Sales of Equity Securities
|
On
February 14, 2020 (the “Closing Date”), Ipsidy Inc. (the “Company”), entered into Securities Purchase
Agreements with several accredited investors (the “2020 Note Investors”) providing for the sale by the Company to
the 2020 Note Investors of 15% Senior Secured Convertible Notes in the aggregate amount of $1,510,000 (the “2020 Notes”).
Philip D. Beck, Chief Executive Officer and Chairman of the Board, invested $50,000 in consideration of a 2020 Note in the principal
amount of $50,000 payable by a deduction from his salary. Theodore Stern, a director of the Company, invested $50,000 in consideration
of a 2020 Note in the principal amount of $50,000. Herbert Selzer invested $100,000 in consideration of a 2020 Note in the principal
amount of $100,000. Mr. Selzer provided $50,000 on the closing date and has agreed to provide the balance of the funding on or
prior to April 30, 2020.
The
2020 Notes mature February 28, 2022 and are a secured obligation of the Company. The Company can prepay all or a portion of the
2020 Notes at any time provided that such amount prepaid shall be equal to 150% of the principal due. The Company shall pay interest
on the 2020 Notes at the rate of 15% per annum payable at the earlier of the maturity date or conversion date, in cash or, at
the investor’s option, shares of common stock of the Company. If the Company prepays all or a portion of the 2020 Note prior
to the one-year anniversary of the 2020 Note issuance date (the (“2020 Note Anniversary”), then the Company will be
required to pay interest on the principal prepaid through the 2020 Note Anniversary. Further, upon maturity or in the event of
default and/or bankruptcy of the 2020 Notes, the Company will be required to pay 150% of the principal due under the 2020 Notes.
At
the option of the investors, the investor may at any time convert the 2020 Notes. The amount of shares delivered shall be equal
to 150% of the amount of the principal converted divided by the conversion price of $0.20 per share. Following the 2020 Note Anniversary,
the Company may require that the 2020 Note Investors convert all or a portion of the 2020 Notes, if the Company’s volume
weighted average price for any preceding 20-day period is equal to or greater than $0.30.
Subject
to the aggregate principal amount of all the 2020 Notes being not less than $1,500,000, the 2020 Note Investors are entitled to
nominate and the Company will not unreasonably reject the appointment of a new member to the Company’s Board of Directors.
The
Company and FIN Holdings, Inc. and ID Solutions,
Inc., two of the Company’s subsidiaries, entered into a Security Agreement with the 2020 Note Investors, the
holders of the 8% Convertible Notes in the principal amount of $428,000 issued December 2019 (the “8% Notes”) and
the Theodore Stern Revocable Trust (the “Stern Trust”), which is the holder of the Promissory
Note in the principal amount of $2,000,000 (the “Stern Note”). The Security Agreement provides that until the
principal and accrued but unpaid interest under the 2020 Notes, 8% Notes and Stern Note is paid in full or converted pursuant
to their terms, the Company’s obligations under the 2020 Notes, 8% Notes and Stern Note will be secured by a lien on all
assets of the Company. The security interest granted to the holders of the 2020 Notes, 8% Notes and Stern Note ranks pari
passu. The Security Agreement permits sales of assets up to a value of $1,000,000 which proceeds may be used for working
capital purposes and the secured parties will take such steps as may be reasonably necessary to release its security interest
and enable such sales in such circumstances. Each of the secured parties appointed Mr. Stern and a third-party investor as joint
collateral agents. Mr. Stern, a director of the Company, is the trustee of the Stern Trust. Further, the Company and the Stern
Trust entered an Amended and Restated Promissory Note (the “Restated Stern Note”) providing that the $2,000,000 principal
of the Stern Note will be due and payable on the same terms as the maturity date of the 2020 Notes and that the interest due under
the Stern Note as of January 31, 2020 in the amount of $662,000 will remain due and payable on the same terms as exist in the
Stern Note prior to modification provided that the maturity of such interest shall be extended to the same maturity date as the
2020 Notes. The Company and the holders of the 8% Notes entered into an amendment agreement pursuant to which that the principal
and interest due under the 8% Notes will remain due and payable on the same terms as exist in the 8% Notes prior to modification,
save that the maturity shall be extended to the same maturity date as the 2020 Notes. A
securities purchase agreement for $50,000 in 8% Notes was cancelled by mutual consent reducing the principal amount of the 8%
Notes from $478,000 to $428,000.
In
connection with this private offering, the Company paid Network 1 Financial Securities, Inc., a registered broker-dealer, a cash
fee of approximately $104,800.
The
Company offered all warrant holders holding warrants to purchase shares of Company common stock issued in July 2015 (“Warrants”)
the right to extend the term of such Warrants for a period of two years, subject to an increase in the Exercise Price (as defined
therein) to $0.06 per share, providing that such warrant holders invested a minimum $100,000 in the 2020 Note private offering.
As a result, a portion of the Warrant holders participated in 2020 Note offering and the Company extended the exercise period
until February 2022 of Warrants representing the right to acquire 6,385,000 shares of common stock. Mr. Selzer holds 880,000 such
Warrants, which were also extended as a result of his investment.
The
Company claims an exemption from the registration requirements of the Securities Act of 1933 (the “Securities Act”)
for the private placement of these securities pursuant to Section 4(a)(2) of the Securities Act and/or Rule 506 of Regulation
D promulgated under the Securities Act. The investors are accredited investors as defined in Rule 501 of Regulation D promulgated
under the Securities Act. As of the date hereof, the Company is obligated on $1,500,000 in face amount of 2020 Notes issued to
the investors. The 2020 Notes are a debt obligation arising other than in the ordinary course of business which constitute a direct
financial obligation of the Company.
The
foregoing information is a summary of each of the agreements involved in the transactions described above, is not complete, and
is qualified in its entirety by reference to the full text of those agreements, each of which is attached an exhibit to this Current
Report on Form 8-K. Readers should review those agreements for a complete understanding of the terms and conditions
associated with this transaction.