Item
1.01 Entry into a Material Definitive Agreement.
On
March 3, 2020, Document Security Systems, Inc. (the “Company”) entered into a binding term sheet (the “Term
Sheet”) with LiquidValue Asset Management Pte Ltd (“LVAM”), AMRE Asset Management Inc. (“AAMI”)
and American Medical REIT Inc. (“AMRE”), regarding a share subscription and loan arrangement. The Term Sheet sets
out the terms of a proposed joint venture to establish a medical real estate investment trust in the United States. Pursuant to
the Term Sheet, the Company will subscribe for 5,250 ordinary shares of AAMI at a purchase price of $0.01 per share for total
consideration of $52.50. Concurrently, AAMI will issue 2,500 shares to LVAM, and 1,250 shares to AMRE Tennessee, LLC, AMRE’s
executive management’s holding company (collectively, the “Subscription Shares”). As a result, the Company will
hold 52.5% of the outstanding shares of AAMI, with LVAM and AMRE Tennessee, LLC, holding 35% and 12.5% of the remaining outstanding
shares of AAMI, respectively.
AAMI
is a real estate investment trust (“REIT”) management company that sets the strategic vision and formulate investment
strategy for AMRE. It manages the REIT’s assets and liabilities and provides recommendations to AMRE on acquisition and
divestments in accordance with the investment strategies.
AMRE
was formed to originate, acquire, and lease a credit-centric portfolio of licensed medical real estate. AMRE provides investors
the opportunity for direct ownership of Class A licensed medical real estate. AMRE intends to acquire purpose-built healthcare
facilities and lease them to leading clinical operators with strong market share under secure triple net leases. AMRE targets
hospitals (both Critical Access and Specialty Surgical), Physician Group Practices, Ambulatory Surgical Centers, and other licensed
medical treatment facilities.
The
Term Sheet provides a right of first refusal regarding the Subscription Shares and requires that if any AAMI shares are sold to
a third party, such third party must agree to become a party to the Term Sheet. The Term Sheet also provides tag along rights
among the parties. The Term Sheet is legally binding and enforceable in accordance with its terms against all parties and if the
parties agree not to enter into any formal definitive agreements regarding the transactions contemplated by the Term Sheet, the
Term Sheet shall have the full effect as if a definitive agreement had been entered into regarding same.
Further,
pursuant to and in connection with the Term Sheet, on March 3, 2020, the Company entered into a Promissory Note with AMRE, pursuant
to which AMRE will issue the Company a promissory note for the principal amount of $800,000.00 (the “Note”).
The Note matures on March 3, 2022 and accrues interest at the rate of 8.0% per annum, and shall be payable in accordance with
the terms set forth in the Note. Under the Note, AMRE may prepay or repay all or any portion of the Note at any time, without
a premium or penalty. If not sooner prepaid, the entire unpaid principal balance of the Note including accrued interest will be
due and payable in full on March 3, 2022. AMRE’s failure to pay any amount due on the Note within five days of when payment
is due constitutes an event of default under the Note, pursuant to which the Company can declare the Note due and payable. The
Note also provides the Company an option to provide AMRE an additional $800,000 on the same terms and conditions as the Note,
including the issuance of warrants as described below.
As
further incentive to enter into the Note, AMRE issued the Company warrants to purchase 160,000 shares of AMRE common stock (the
“Warrants”). The Warrants have an exercise price of $5.00 per share, subject to adjustment as set forth in the Warrant,
and expire on March 3, 2024. Pursuant to the Warrants, if AMRE files a registration statement with the Securities and Exchange
Commission for an initial public offering (“IPO”) of AMRE’s common stock and the IPO price per share offered
to the public is less than $10.00 per share, the exercise price of the Warrant shall be adjusted downward to 50% of the IPO price.
The Warrant also grants piggyback registration rights to the Company as set forth in the Warrant.
The
parties to the Term Sheet, including AMRE Tennessee, LLC, also entered into a stockholders’ agreement dated as of March
3, 2020 (the “Stockholders’ Agreement”), regarding their ownership of AAMI’s common stock to regulate
certain aspects of the relationship between the stockholders and provide for certain rights and obligations with respect to such
ownership, as set forth in the Stockholders’ Agreement. Pursuant to the Stockholders’ Agreement, the portion of the
Subscription Shares issued to AMRE Tennessee, LLC (the “Tennessee Shares”) are subject to forfeit, such that if a
specified employee of AMRE is separated from employment with AMRE within three years of the date of the Stockholders’ Agreement,
the Tennessee Shares shall be returned to AAMI’s treasury; if such employee remains employed with AMRE at such anniversary,
the Tennessee Shares shall no longer be subject to forfeit. The Stockholders’ Agreement also provides for certain distributions
to the parties as set forth in the Stockholders’ Agreement. The Stockholders’ Agreement will terminate upon the dissolution
and winding up of AAMI or the date on which the parties agree to terminate the Stockholders’ Agreement by unanimous written
consent.
LVAM
is an 82% owned subsidiary of Singapore eDevelopment Limited whose Chief Executive Office and largest shareholder is Heng Fai
Ambrose Chan, the Chairman of the Board and largest shareholder of the Company. In addition, As such, the above transactions constitute
related party transactions which have been duly approved by the Company’s Board of Directors and Audit Committee. Furthermore,
following the consummation of the transactions contemplated by the Term Sheet, Mr. Chan and Frank D. Heuszel, the Chief Executive
Officer of the Company, will be appointed to the board of directors of AAMI.
The
foregoing summary of the Term Sheet, Promissory Note, Warrants and Stockholder Agreement is subject to, and qualified in its entirety
by, the terms of the Term Sheet, the Promissory Note, the Form of Warrant and the Stockholder Agreement, a copy of each of which
is attached hereto as Exhibit 10.1, Exhibit 10.2, Exhibit 10.3 and Exhibit 10.4, respectively.