Item
1.01 Entry into a Material Definitive Agreement.
Document
Security Systems, Inc. (“DSS”) and its wholly-owned subsidiary, DSS Technology Management, Inc. (“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 totaling $4,500,000 (the “Advances”). 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. Undefined capitalized terms contained in this report shall have the meanings assigned
to them in the Agreement, or in the Amendment described below.
The
Agreement defines certain events of 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, being the second
anniversary date of the Effective Date, the Company had failed to make these payments and was therefore in default of the Agreement,
all as reported in a Current Report on Form 8-K filed on February 16, 2016.
On
December 2, 2016 (the “Amendment Effective Date”), DSS, the Company, the Collateral Agent and the Investors entered
into a First Amendment to Investment Agreement And Certain Other Documents (the “Amendment”). The purposes of the
Amendment are to vacate the Company’s ongoing non-payment default under the Agreement, and to amend certain provisions of
the Agreement, as follows.
Section
4.1.3(i) of the Agreement was amended to add Capitalized Expenses in the amount of $150,000 to the Company’s payment obligation,
payable on the Maturity Date. The Maturity Date is defined in the Agreement as February 13, 2018.
A
new Section 4.3 was added to the Agreement, whereby the Company agrees to pay to the Investors an amount equal to 25% of any amounts
received by the Company for any and all types of monetization activities related to certain of its patents covering systems and
methods of using low power wireless peripheral devices (collectively, the Company’s “BlueTooth Patents”), but
only until the Investors have received payments under the Agreement totaling the sum of (i) the Capitalized Expenses plus (ii)
payments of principal and interest on the Notes totaling the sum of (x) $4,500,000 (consisting of the previously made Advances)
plus (y) additional amounts, if any, advanced by the Investors pursuant to the Agreement. In addition to the monetization interest
granted the Investors in the BlueTooth Patents, the Company also granted the Collateral Agent and the Investors a security interest
in certain of the Company’s unencumbered semiconductor patents to further collateralize the amounts owed under the Agreement.
Section
7.8.2 of the Agreement was amended to provide that the Company shall not make any Disposition of the Dongbu Patents without the
prior written consent of the Majority Investors. In addition, Section 7.8.3 was amended to provide that notwithstanding the terms
of Section 7.8.2, from and after December 2, 2016, the Company shall have no obligation to make further payments with respect
to the maintenance of the Dongbu Patents (as defined in the Amendment) other than to make payments with respect to the patents
that remain active as of December 2, 2016, and those solely from the Deposit and solely to the extent that such amounts constitute
“Qualified Expenses”;
provided
, that the Company shall be required to provide the Investors with periodic updates
on, and requests for approval of, any such maintenance fees associated with the Dongbu Patents a reasonable period prior to the
due date for payment, and if and only if the Majority Investors approve the payment of such maintenance fees, they shall constitute
“
Approved Dongbu Maintenance Fees
.”
The
Amendment also added a new Section 7.12 to the Agreement, whereby the Company and DSS shall cause to be deposited into an account
(the “Cash Collateral Account”) (i) on or before March 2, 2017, the sum of $300,000 and (ii) on or before March 2,
2018, a further sum of $300,000 (collectively, the “Deposit”). The Deposit may not be made with funds to which the
Investors are otherwise entitled. The Company shall utilize the Deposit funds to pay certain expenses, consisting of out-of-pocket
expenses incurred in connection with certain existing patent litigation matters and other patent litigation matters which may
occur after the Amendment Effective Date (the “Qualified Expenses”). Qualified Expenses will not include (i) expenses
relating to general corporate purposes or overhead of Company or DSS, (ii) payment of any other amount that is not directly related
to the pursuit of Monetization Activities related to the Patents, or (iii) expenses of pursuing Monetization Activities related
to the BlueTooth Patents; provided however that up to $6,250 per month of the Deposit may be used over the next two years to pay
employee salaries, rent and overhead costs associated with DSS’s Texas office, subject to certain limitations, for a total
of not more than $150,000, but only for so long as such patent litigation matters are continuing, provided that the Investors
have confirmed that they continue to believe that the pursuit of such litigation matters are likely to increase the return to
the Investors from the Patents.
Section
8.1.2 of the Agreement was amended and restated in its entirety to provide that on or before the Maturity Date of February 13,
2018, the Investors shall be entitled to receive payments from the Company in an amount equal to (x) two times the aggregate amount
of all Advances made by the Investors as of such date plus (y) the Capitalized Expenses.