UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of
the
Securities Exchange Act of 1934
Date
of Report (Date of earliest event reported): February 13, 2016
DOCUMENT
SECURITY SYSTEMS, INC.
(Exact
name of registrant as specified in its charter)
New
York |
|
001-32146
|
|
16-1229730 |
(State
or other jurisdiction
of incorporation) |
|
(Commission
File Number) |
|
(IRS
Employer
ID Number) |
200
Canal View Boulevard, Suite 300
Rochester,
New York |
|
14623 |
(Address
of principal executive offices) |
|
(Zip
Code) |
Registrant’s
telephone number, including area code (585) 325-3610
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:
[ ] 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))
Item
2.04 Triggering Events That Accelerate or Increase a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement.
Document
Security Systems, Inc. (“DSS”) and its wholly owned subsidiary, DSS Technology Management, Inc. (the “Company”),
are parties to an Investment Agreement (the “Agreement”) dated February 13, 2014 (the “Effective Date”)
with Fortress Credit Co LLC, as collateral agent (the “Collateral Agent”), and certain investors (the “Investors”),
pursuant to which the Company contracted to receive a series of advances up to $4,500,000 (collectively, the “Advances”).
Under the terms of the Agreement, on the Effective Date, the Company issued and sold a promissory note in the amount of $1,791,000,
fixed return equity interests in the amount of $199,000, and contingent equity interests in the amount of $10,000, to each of
the Investors, and in return received $2,000,000 in proceeds. To secure the Advances, the Company placed a lien in favor of the
Investors on ten semi-conductor patents (the “Patents”) and assigned to the Investors certain funds recoverable from
successful patent litigation involving these Patents, including settlement payments, license fees and royalties on the Patents.
The Company is a plaintiff in various ongoing patent infringement lawsuits involving certain of the Patents.
On
March 27, 2014, the Company received an additional $1,000,000 under the Agreement, and on September 5, 2014, the Company received
the remaining $1,500,000 under the Agreement. In September 2015, the Company made a payment of $150,000 on the note. As of September
30, 2015, total Advances equaled $4,350,000, which consisted of $3,891,000 under the Agreement and an aggregate of $459,000 under
the fixed return equity interest and contingent equity interests. Aggregate accrued interest totaled $116,000 on that date.
The
Agreement defines certain Events of Default, one of which is the failure by the Company, on or before the second anniversary of
the Effective Date, to make payments to the Investors equal to the outstanding Advances. On February 13, 2016, the Company had
failed to make these payments.
Under
the Agreement, upon an Event of Default, the Collateral Agent and the Investors have a number of remedies, including rights related
to foreclosure or direct monetization of the Patents. As a result of the Event of Default discussed above, the sole and exclusive
recourse of the Investors and the Collateral Agent is to form a special purpose entity to take possession of the Patents, subject
to a perpetual, non-transferable, non-exclusive worldwide royalty-free license back to the Company. The Agreement further provides
that, in the case of this default, the Collateral Agent and Investors will not, individually or collectively, seek to enforce
any monetary judgment with respect to or against any assets of the Company other than the Patents and any payments received in
respect of the Patents, including settlement payments, license fees and royalties on the Patents. In the event that the Collateral
Agent or Investors foreclose on, and take possession of the Patents, the Company will still be entitled to receive any payments
received in respect of the Patents in the event of a recovery by any substituted plaintiff in any related litigation proceedings,
subject to payment of amounts owed under the Agreement to the Investors and the Collateral Agent. In addition, as a result of
the default, the interest rate on the unpaid amounts due increased to 2% per year effective February 13, 2016.
The
Company has been in discussions with the Investors to amend the Agreement or otherwise to remedy the Event of Default; however,
there can be no assurance as to the ultimate success of these discussions.
The
entry into the Agreement was reported in a Current Report on Form 8-K that was filed on February 18, 2014, to which a copy of
the Agreement was attached as an exhibit.
SIGNATURES
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.
|
DOCUMENT
SECURITY SYSTEMS, INC. |
|
|
|
Date:
February 16, 2016 |
By: |
/s/
Philip Jones |
|
Name: |
Philip
Jones |
|
Title:
|
Chief
Financial Officer |
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