Item 1.01
Entry into Material Definitive Agreements
On August 3, 2017, Marathon Patent Group, Inc. (the Parent) and certain of our operating subsidiaries (such subsidiaries, together with any future guarantor subsidiaries, and the Parent, the Company) entered into a First Amendment to Amended and Restated Revenue Sharing and Securities Purchase Agreement and Restructuring Agreement (the First Amendment and Restructuring Agreement) with DBD Credit Funding LLC (referred to as DBD) to restructure and replace the obligations of the Company under that certain Amended and Restated Revenue Sharing and Securities Purchase Agreement (as it may be amended, restated, supplemented or otherwise modified from time to time, the Amended and Restated Agreement), dated January 10, 2017, which was originally entered into by the Company and DBD on January 29, 2015. Capitalized terms used in this Item 1.01, and not otherwise defined, shall have the meanings provided in the First Amendment and Restructuring Agreement and the Amended and Restated Agreement.
Pursuant to the First Amendment and Restructuring Agreement, certain intellectual property owned by the Company (the Designated IP) is to be assigned to one or more newly created special purpose entities (the SPE) as elected by DBD, which to be formed SPE shall be under the management and control of an affiliate of DBD (the IP Monetization Manager). All intellectual property owned by the Company that will not be assigned to one or more newly created special purpose entities shall be referred to as Non-Designated IP. The patents that are part of the Designated IP are referred to as the Designated Patents. All Monetization Revenues arising from the Designated IP and Non-Designated IP shall be paid to an account that is under the sole and exclusive control of the Collateral Agent as the IP Monetization Manager. In addition, until the Restructuring, the Company shall be responsible for the expenses associated with the maintenance, prosecution and enforcement of all of the Companys intellectual property including the Designated IP and the other IP owned by the Company which is not to be transferred to the SPE, and for any expenses associated with the pursuit of monetization activities relating to both the Designated IP and the Non-Designated IP. From and after the Restructuring Effective Date, the SPE shall have sole responsibility for the expenses associated with the Designated IP and the Company shall have sole responsibility for the expenses associated with the Non-Designated IP.
The First Amendment and Restructuring Agreement grants DBD, as the IP Monetization Manager, the sole discretion to, either directly or by direction to the Company, make any and all decisions relating to the Designated IP and patent monetization activities thereof, including the right to license, sell or sue unauthorized users of the Designated IP (the Monetization Activities).
In addition, the First Amendment and Restructuring Agreement modifies the revenue share provided for in the Amended and Restated Agreement such that, from August 3, 2017 until the Restructuring Effective Date, all proceeds from the Monetization Activities will be applied as follows: (i) first, to the payment of any Third Party Payment due in connection with the Monetization Activities, (ii) second, to DBD, as the Purchaser, to pay the Note Obligations in full, (iii) third, to DBD to be applied to the Revenue Stream until the Revenue Stream Amount (other than the DBD Residual ) is paid in full, and (iv) fourth, pro rata to DBD to pay the DBD Residual and to the Company to pay the Marathon Residual. Until the completion of the structure of the SPE, as described below, the Company will continue to be fully responsible for all expenses related to the maintenance, prosecution and enforcement of all patents in the Designated and Non-Designated IP. Following the Restructuring Effective Date, the Company will not be required to make any payments to DBD with respect to revenues generated from the Non-Designated IP.
In connection with the First Amendment and Restructuring Agreement, the Company and its subsidiaries also entered into the First Amendment to Security Agreement with DBD amending the Security Agreement entered into on January 10, 2017 to secure the prompt and complete payment or performance in full when due of all obligations, including
without limitation, obligations with respect to the payment of the Revenue Stream and the Notes (the Secured Obligations).
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Once the Companys shareholders have approved the proposed Restructuring set forth under the First Amendment and Restructuring Agreement and obtained the necessary third party consents, the First Amendment and Restructuring Agreement requires the Company to contribute and assign the Designated IP to the SPE. At such time, DBD shall have the sole and absolute discretion to make any and all decisions with respect to the Designated IP including by way of example and not limitation (x) the initiation, direction, termination, conclusion or negotiation of any assignment, sale or license (whether directly or through multiple tiers or sub-licensees) of any Patent or any other type of a Monetization Activity of any nature or description; (y) the maintenance or abandonment, in whole or in part, of any one or more of the Designated Patents; or (z) the discretion to make or to decline to make Cash Advances.
The First Amendment and Restructuring Agreement (a) defers interest payments on the notes held by DBD from May 1, 2017 until the earlier to occur of (i) November 1, 2017 and (ii) the Restructuring Effective Date, and any accrued and unpaid interest as of the end of such deferral period shall be deemed a Cash Advance, and (b) lowers the Companys minimum liquidity covenant, in each case to permit time for the Company to effect the Restructuring described above. Upon the Restructuring Effective Date, the Companys note obligations to DBD will be extinguished and the Company will be relieved of any scheduled amortization (instead, payments to DBD will only be required out of Monetization Revenues).
The First Amendment and Restructuring Agreement is subject to certain events of default, including, among other things, liquidation or dissolution, change of control, bankruptcy, the Companys failure to make payments pursuant to the terms of the First Amendment and Restructuring Agreement, the Companys failure to secure necessary consents to permit completion of the structure of the SPE or the Companys failure to perform or observe certain covenants. Upon the occurrence of an event of default, DBD may proceed to protect and enforce its rights through seeking the Companys specific performance of any covenant or condition, as set forth in the First Amendment and Restructuring Agreement, or may declare the remaining unpaid balance owed under the Amended and Restated Agreement, as amended, and any other amounts owed pursuant to the First Amendment and Restructuring Agreement to be immediately due and payable.
Following several recent developments as described in the Companys SEC filings and reports, the Company may seek to evaluate various strategic alternatives, including new business initiatives unrelated to IP licensing and commercialization.
The forgoing descriptions of the terms of the First Amendment and Restructuring Agreement and the First Amendment to Security Agreement are not complete and are qualified in their entirety by the full text of the First Amendment and Restructuring Agreement and the First Amendment to Security Agreement which are filed as Exhibits 10.1 and 10.2, respectively on this Current Report on Form 8-K and are incorporated by reference herein.
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