EXHIBIT 10.25

 
This Note has not been registered under the Securities Act of 1933, as amended
(the "Act"), or any applicable state securities laws.  the Note may not be
offered for sale, sold, transferred, pledged or hypothecated without an
effective registration statement under the Act and under any applicable state
securities laws, or an opinion of counsel, satisfactory to the Company, that an
exemption from such registration is available.
 
Digital Ally, Inc.
 
8% Subordinated Note
 
 

 
 Issue Date: May 31, 2011
     $1,500,000 Due Date: May 30, 2012

 
For value received, Digital Ally, Inc., a Nevada corporation (the "Company")
promises to pay to ______________ or registered assigns (the "Holder"), the sum
of One Million Five Hundred Thousand Dollars ($1,500,000) in lawful money of the
United States of America on or before the Maturity Date with all Interest
thereon, as defined and specified in this Note.  The Company will issue to
Holder a warrant (the "Warrant") exercisable to purchase three hundred thousand
(300,000) shares of common stock ("Common Stock") of the Company in connection
with the issuance of this Note.
 
1.  Interest and Fees.  This Note shall bear interest ("Interest") equal to
eight percent (8%) per annum.  Interest will be calculated on a three hundred
sixty-five (365) day year.  The Company shall pay the Interest on July 1, 2011
and on the first Business Day, as defined below, of each month thereafter during
the term of this Note.  In no event shall the rate of Interest payable on this
Note exceed the maximum rate of interest permitted to be charged under
applicable law.
 
2.  Payments.  All payments under this Note shall first be credited against
costs and expenses provided for in this Note, second to the payment of any
penalties, third to the payment of accrued and unpaid Interest, if any, and the
remainder shall be credited against principal.  All payments due hereunder shall
be payable by checks mailed to the mailing address set below, or at such other
place as Holder shall designate in writing for such purpose from time to
time.  If a payment under this Note otherwise would become due and payable on a
Saturday, Sunday or legal holiday (any other day being a "Business Day"), the
due date of the payment shall be extended to the next succeeding Business Day,
and Interest, if any, shall be payable thereon during such extension.
 
3.  Maturity Date and Pre-Payments.  This Note shall be due and payable in full,
including all accrued Interest thereon, on May 30, 2012 (the "Maturity
Date").  At any time prior to the Maturity Date, the Company shall have the
right to prepay this Note, in whole or in part, without penalty.  The Company
will give to Holder ten (10) days' written notice of its intent to prepay this
Note.  On such prepayment date, the Company will pay in respect of this Note in
cash the principal amount being prepaid plus accrued Interest.
 
4.  Covenants of the Company.  The Company will use the proceeds it receives
from this Note to (i) pay its existing Indebtedness to Enterprise Bank; (ii) pay
the fees and expenses incurred in connection with this Note; and (iii) increase
its working capital to the extent of any remaining balance.
 
 
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5.  Unsecured and Subordinated Indebtedness.  This Note is unsecured and
constitutes Subordinated Indebtedness of the Company.  The Indebtedness
evidenced by this Note will be subordinated to the prior payment when due of the
principal of, and premium, if any, and accrued and unpaid interest on, all
existing and future Senior Indebtedness.  Upon any distribution of assets of the
Company in any dissolution, winding up, liquidation or reorganization of the
Company, all holders of Senior Indebtedness of the Company must be paid in full
before any payment or distribution is made with respect to this Note.
 
6.  Accredited Investor.  Holder represents and warrants that he is an
“accredited investor,” as that term is defined in Regulation D under the
Securities Act of 1933, as amended (the "Act").  Holder has conducted his own
due diligence regarding this investment and the Company.  Holder has read and
understands the Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission ("SEC") and its report for the quarter ended March 31,
2011 on Form 10-Q filed with the SEC.  Holder understands and can bear the risks
associated with this investment, including the loss of its entire investment in
the Note and the underlying Common Stock.
 
7.  Transfer Restrictions; Exemption from Registration.
 
7.1 The Company has not registered this Note under the Act or the applicable
securities laws of any state in reliance on exemptions from registration.  Such
exemptions depend upon the investment intent of Holder at the time he or she
acquires this Note.  Holder agrees that (i) this Note has not been registered
under the Act and may not be sold or transferred without registration under the
Act or unless an exemption from such registration is available; and (ii)  Holder
has acquired this Note for his own account for investment purposes only and not
with a view toward resale or distribution.
 
7.2 The Company shall be under no duty to register the Note or to comply with an
exemption in connection with the sale, transfer or other disposition under the
applicable laws and regulations of the Act or the applicable securities laws of
any state.  The Company may require Holder to provide, at his or her expense, an
opinion of counsel satisfactory to the Company to the effect that any proposed
transfer or other assignment of the Note will not result in a violation of the
applicable federal or state securities laws or any other applicable federal or
state laws or regulations.
 
7.3 If an opinion of counsel of Holder provides that registration is not
required for the proposed transfer of this Note and that the proposed transfer
in the absence of registration would require the Company to take any action
including executing and filing forms or other documents with the SEC or any
state securities agency, or delivering to Holder any form or document in order
to establish the right of Holder to effectuate the proposed transfer, the
Company agrees promptly, at its expense, to take any such action.
 
 
 
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8.  Default.  The Company shall perform its obligations and covenants under this
Note and in each and every other agreement between the Company and Holder
pertaining to the Indebtedness evidenced by this Note.  The following provisions
shall apply upon failure of the Company so to perform and any of the following
events shall constitute an "Event of Default" under this Note:
8.1 Failure by the Company to pay principal of the Note on the Maturity Date;
 
8.2 Failure of the Company to pay Interest when due under this Note, which
failure continues for a period of five (5) days after the due date of the amount
involved; or
 
8.3 Except for Events of Default set forth in Paragraphs 8.1 and 8.2, failure of
the Company to perform any of the other covenants, conditions, provisions or
agreements contained in this Note, which failure continues for a period of
twenty (20) days after notice of default has been given to the Company by
Holder; provided, however, that if the nature of the Company's obligation is
such that more than twenty (20) days are required for performance, then an Event
of Default shall not occur if the Company commences performance within such
twenty (20) day period and thereafter diligently prosecutes the same to
completion; or
 
8.4 The entry of an order for relief under Federal Bankruptcy Code as to the
Company or entry of any order appointing a receiver or trustee for the Company
or approving a petition in reorganization or other similar relief under
bankruptcy or similar laws in the United States of America or any other
competent jurisdiction, and if such order, if involuntary, is not satisfied or
withdrawn within sixty (60) days after entry thereof; or the filing of a
petition by the Company seeking any of the foregoing, or consenting thereto; or
the filing of a petition to take advantage of any debtor's act; or making a
general assignment for the benefit of creditors; or admitting in writing
inability to pay debts as they mature.
 
8.5 Acceleration.  Upon any Event of Default (in addition to any other rights or
remedies provided for under this Note), at the option of Holder, all sums
evidenced hereby, including all principal, Interest, fees and all other amounts
due hereunder, shall become immediately due and payable.  If an Event of Default
in the payment of principal or Interest should occur and be continuing with
respect to the Note, Holder may declare the principal, Interest, fees and all
other amounts due hereunder to be immediately due and payable.
 
8.6 Notice by Company.  Upon the happening of any Event of Default specified in
this paragraph that is not cured within the respective periods prescribed above,
the Company will give prompt written notice thereof to Holder of this Note.
 
8.7 No Waiver.  Failure of Holder to exercise any option hereunder shall not
constitute a waiver of the right to exercise the same in the event of any
subsequent Event of Default, or in the event of continuance of any existing
Event of Default after demand or performance thereof.
 
8.8 Default Interest.  Default Interest will accrue on the unpaid principal or
Interest due under this Note at the rate of sixteen percent (16%) per annum upon
the occurrence of any Event of Default until the Event of Default is
cured.  Default Interest shall be due and payable commencing thirty (30) days
after the Default Interest has begun accruing. Default Interest will be computed
on a three hundred sixty-five (365) day year.
 
 
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9.  Assignment, Transfer or Loss of the Note.
 
9.1 No Holder of this Note may assign, transfer, hypothecate or sell all or any
part of this Note or in any way alienate or encumber the Note without the
express written consent of the Company, the granting or denial of which shall be
within the absolute discretion of the Company.  Any attempt to effect such
transfer without the consent of the Company shall be null and void.  Holder is
acquiring this Note for his own account for investment purposes only and not
with a view toward distribution or resale of such Note within the meaning of the
Act and the applicable securities laws of any state.
 
9.2 All expenses, including reasonable legal fees incurred by the Company in
connection with any permitted transfer, assignment or pledge of this Note will
be paid by Holder requesting such transfer, assignment or pledge.
 
9.3 Upon receipt of evidence reasonably satisfactory to the Company of the loss,
theft, destruction or mutilation of any Note and, in the case of any such loss,
theft or destruction of any Note, upon delivery of an indemnity bond in such
reasonable amount as the Company may determine (or, in the case of any Note held
by the original Noteholder, of an indemnity agreement reasonably satisfactory to
the Company), or, in the case of any such mutilation, upon the surrender of such
Note to the Company at is principal office for cancellation, the Company at its
expense will execute and deliver, in lieu thereof, a new Note of like tenor,
dated the date to which interest hereunder shall have been paid on such lost,
stolen, destroyed or mutilated Note.
 
9.4 The Company may treat the person in whose name this Note is registered as
the owner and Holder of this Note for the purpose of receiving payment of all
principal of and all Interest on this Note, and for all other purposes
whatsoever, whether or not such Note shall be overdue and, except for transfers
effected in accordance with this subparagraph, the Company shall not be affected
by notice to the contrary.
 
10.    Notices.  All notices provided for in this Note shall be validly given if
in writing and delivered personally, sent by certified mail, postage prepaid, or
sent via an express delivery service, such as Federal Express or United Parcel
Service, to one party by the other party to the address set forth in this Note
or to such other address as each party may from time to time designate in
writing.
 
11.   Usury.  Notwithstanding any provision of this Note to the contrary, the
total liability for payments in the nature of Interest under this Note shall not
exceed the limits imposed by applicable law.  The Company shall not assert a
claim, and shall actively resist any attempts to compel it to assert a claim,
respecting a benefit under any present or future usury laws against Holder of
this Note.
 
12.   Binding Effect.  This Note shall be binding upon the parties hereto and
their respective heirs, executors, administrators, representatives, successors
and permitted assigns.
 
13.   Collection Fees.  Except as otherwise provided in this Note, the Company
shall pay all costs of collection, including reasonable attorneys' fees and all
costs of suit and preparation for such suit (and whether at trial or appellate
level), in the event the unpaid principal amount of this Note, or any payment of
Interest is not paid when due, or in the event Holder is made party to any
litigation because of the existence of the Indebtedness evidenced by this Note,
or if at any time Holder should incur any attorneys' fees in any proceeding
under the Federal Bankruptcy Code (or other similar laws for the protection of
debtors generally) in order to collect any Indebtedness hereunder or to
preserve, protect or realize upon any security for, or guarantee or surety of,
such Indebtedness whether suit be brought or not, and whether through courts of
original jurisdiction, as well as in courts of appellate jurisdiction, or
through a bankruptcy court or other legal proceedings.
 
 
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14.   Construction.  This Note shall be governed as to its validity,
interpretation, construction, effect and in all other respects by and in
accordance with the laws and interpretations thereof of the State of
Nevada.  Unless the context otherwise requires, the use of terms in singular and
masculine form shall include in all instances singular and plural number and
masculine, feminine and neuter gender.
 
15.   Severability.  In the event any one or more of the provisions contained in
this Note or any future amendment hereto shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Note or such other
agreement, and in lieu of each such invalid, illegal or unenforceable provision
there shall be added automatically as a part of this Note a provision as similar
in terms to such invalid, illegal or unenforceable provision as may be possible
and be valid, legal and enforceable.
 
16.   Entire Agreement.  This Note represents the entire agreement and
understanding between the parties concerning the subject matter hereof and
supersede all prior and contemporaneous agreements, understandings,
representations and warranties with respect thereto.
 
17.   Governing Law; Jurisdiction; Jury Trial.  All questions concerning the
construction, validity, enforcement and interpretation of this Note shall be
governed by the internal laws of the State of Arizona, without giving effect to
any choice of law or conflict of law provision or rule (whether of the State of
Arizona or any other jurisdictions) that would cause the application of the laws
of any jurisdictions other than the State of Arizona.  Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in the City of Phoenix, Arizona for the adjudication of any
dispute hereunder or in connection herewith or therewith, or with any
transaction contemplated hereby or discussed in this Note, or in any manner
arising in connection with or related to the transactions contemplated hereby or
involving the parties hereto whether at law or equity and under any contract,
tort or any other claim whatsoever 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 brought in an inconvenient forum or that the venue of such suit,
action or proceeding is improper.  Each party hereby irrevocably waives personal
service of process and consents to process being served in any such suit, action
or proceeding by mailing or faxing a copy thereof to such party at the address
for such notices as listed in this Note and agrees that such service shall
constitute good and sufficient service of process and notice thereof.  Nothing
contained in this Note shall be deemed to limit in any way any right to serve
process in any manner permitted by law.  Each party hereby irrevocably waives
any right it may have, and agrees not to request, a jury trial for the
adjudication of any dispute hereunder or in connection herewith or arising out
of this Note or any transaction contemplated hereby.
 
18.   Representations and Warranties to Survive Closing.  All representations,
warranties and covenants contained in this Note shall survive the execution and
delivery of this Note.
 
19.   Headings.  The headings used in this Note are used for convenience only
and are not to be considered in construing or interpreting this Note.
 
 
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20.   Definitions.
 
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person.  For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person directly or indirectly,
whether through the ownership of Voting Stock, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative to the foregoing.
 
"Board of Directors" means, with respect to any Person, the Board of Directors
of such Person or any committee of the Board of Directors of such Person duly
authorized to act on behalf of the Board of Directors of such Person.
 
"Capital Stock" means, with respect to any Person, any and all shares,
interests, equity participations or other equivalents (however designated) of
corporate stock or partnership interests and any and all warrants, options and
rights with respect thereto (whether or not currently exercisable), including
each class of common stock and preferred stock of such Person.
 
"GAAP" means generally accepted accounting principles as in effect in the United
States of America as of the Issue Date.
 
"Holder" means a Person in whose name a Note is registered on the Company's
books.
 
"Indebtedness" means, without duplication, with respect to any Person, (a) all
obligations of such Person (i) in respect of borrowed money (whether or not the
recourse of the lender is to the whole of the assets of such person or only to a
portion thereof); (ii) evidenced by bonds, notes, debentures or similar
instruments; (iii) representing the balance deferred and unpaid of the purchase
price of any property or services (other than accounts payable or other
obligations arising in the ordinary course of business); (iv) evidenced by
bankers' acceptances or similar instruments issued or accepted by banks, (v) for
the payment of money relating to a capitalized lease obligation under GAAP; or
(vi) evidenced by a letter of credit or a reimbursement obligation of such
Person with respect to any letter of credit; (b) all net obligations of such
Person under interest rate swap obligations and foreign currency hedges; (c) all
liabilities of others of the kind described in the preceding clauses (a) or (b)
that such Person has guaranteed or that are otherwise its legal liability; (d)
Indebtedness (as otherwise defined in this definition) of another Person secured
by lien on any asset of such Person, whether or not such Indebtedness is assumed
by such Person, the amount of such obligations being deemed to be the lesser of
(1) the full amount of such obligations so secured, and (2) the fair market
value of such asset, as determined in good faith by the Board of Directors of
such Person, which determination shall be evidenced by a board resolution; and
(e) any and all deferrals, renewals, extensions, refinancings and refundings
(whether direct or indirect) of, or amendments, modifications or supplements to,
any liability of the kind described in any of the preceding clauses (a), (b),
(c), (d) or this clause (e), whether or not between or among the same parties.
 
 
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"Issue Date" means May 31, 2011, the date on which the Note is originally
issued.
 
"Maturity Date" means May 30, 2012.
 
"Person" means any individual, corporation, partnership, joint venture, trust,
estate, unincorporated organization or government or any agency or political
subdivision thereof.
 
"Senior Indebtedness" means any Indebtedness of the Company, unless such
Indebtedness is pari passu with or contractually subordinate or junior in right
to payment of this Note, except Indebtedness to any Affiliate of the Company,
which shall be junior and subordinate to this Note.
 
A "subsidiary" of any Person means (i) a corporation a majority of whose Voting
Stock is at the time, directly or indirectly, owned by such Person, by one or
more subsidiaries of such Person or by such Person and one or more subsidiaries
of such Person, (ii) a partnership in which such Person or a subsidiary of such
Person is, at the date of determination, a general or limited partner of such
partnership, but only if such Person or its subsidiary is entitled to receive
more than fifty percent (50%) of the assets of such partnership upon its
dissolution, or (iii) any other Person (other than a corporation or partnership)
in which such Person, directly or indirectly, at the date of determination
thereof, has (x) at least a majority ownership interest or (y) the power to
elect or direct the election of a majority of directors or other governing body
of such Person.
 
"Subsidiary" means any subsidiary of the Company.
 
"Subordinated Indebtedness” means any Indebtedness of the Company that is
contractually subordinate or junior in right to payment of this Note, except any
Indebtedness to any Affiliate of the Company, which shall be junior and
subordinate to this Note.
 
"Voting Stock" means, with respect to any Person, securities of any class or
classes of Capital Stock in such Person entitling the holders thereof, whether
at all times or only so long as no senior class of stock has voting power by
reason of any contingency, to vote in the election of members of the Board of
Directors or other governing body of such Person.
 
21.   Miscellaneous.  Except as otherwise provided in this Note, the Company
waives demand, diligence, presentment for payment and protest, notice of
extension, dishonor, maturity and protest.  Time is of the essence with respect
to the performance of each and every covenant, condition, term and provision
hereof.  This Note may be executed by facsimile signature, which signature shall
be deemed to be binding upon the Company.
 
 
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In witness whereof, the Company has issued this Note on May 31, 2011.
 

 
Digital Ally, Inc. 
a Nevada corporation
         
 
          Stanton E. Ross       Its: President and CEO          

 

Mailing Address of Holder:
_________________________________
 
_________________________________
 
_________________________________
 
Mailing Address of Company:

Digital Ally, Inc.
8000 110th Street, Suite 200
Overland Park, KS  66210
Attn:  President
 
 
 
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