DSS DSS Inc

Item 2.04 Triggering Events That Accelerate or Increase a Direct Financial 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”) along 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”). Entry into this Agreement was reported in a Current Report on Form 8-K 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 Default. As previously reported in a Current Report on Form 8-K filed on February 16, 2016, the Company had previously defaulted under the Agreement by failing to make payments to the Investors in an amount equal to the outstanding Advances, on or before the second anniversary date of the Effective Date of the Agreement, which was February 13, 2016.

On December 2, 2016, the Company, DSS, the Collateral Agent and the Investors entered into a First Amendment to Investment Agreement And Certain Other Documents (the “Amendment”). as reported in a Current Report on Form 8-K filed on December 8, 2016. The purposes of the Amendment were to vacate the Company’s February 13, 2016 non-payment default under the Agreement, to extend the Maturity Date of all obligations under the Agreement to February 13, 2018, and to amend certain other provisions of the Agreement, as more particularly described in the aforementioned Form 8-K filed on December 8, 2016.

On February 13, 2018, the Maturity Date of the Agreement, the Company failed to pay the Investors 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, which was an Event of Default under the Agreement. The sole recourse available to the Investors under the Agreement for a non-payment default is the establishment of a special purpose entity controlled by the Investors which would take ownership of the Collateral securing the Company’s obligations under the Agreement which consists of the Patents covered under the Agreement. Each of the Investors and the Collateral Agent have contractually agreed that they will not, individually or collectively, seek to enforce any monetary judgement with respect to or against any assets of the Company other than the Patents, the Monetization Payments, and any remaining Deposit amount (which net accrued Deposit balance, pursuant to the terms of the Amendment, is approximately $410,000). In keeping with the above-described limited contractual remedy for this non-payment default, the Company expects to record a net gain on extinguishment of liabilities of approximately $3.2 million sometime during 2018, in connection with this transaction.