Item
1.01 Entry into a Material Definitive Agreement
On
December 1, 2017, Plastic Printing Professionals, Inc. (“P3”), a wholly-owned subsidiary of Document Security Systems,
Inc. (“DSS”), entered into a Loan Agreement and accompanying Term Note Non-Revolving Line of Credit Agreement (collectively,
the “Equipment Acquisition Line of Credit Transaction Documents”) with Citizens Bank, N.A., a national banking association
(“Citizens”), pursuant to which Citizens agrees to lend up to $800,000 for the purpose of enabling P3 to purchase
equipment from time to time that it may need for use in its business (the “Equipment Acquisition Line of Credit”).
Each advance under the Equipment Acquisition Line of Credit shall be limited to a maximum of 100% of the Hard Costs (as hereinafter
defined) of the applicable item of purchased equipment. “Hard Costs” shall mean the invoice price of such equipment
less delivery and installation costs and taxes. Advances may be made under this Equipment Acquisition Line of Credit, from time
to time, from December 1, 2017 until December 1, 2018. The aggregate principal balance outstanding under the Equipment Acquisition
Line of Credit shall bear interest thereon at a per annum rate of 2% above the LIBOR Advantage Rate (as defined in the attached
Term Note Non-Revolving Line of Credit) until the Conversion Date (as defined in the attached Term Note Non-Revolving Line of
Credit). Effective on the Conversion Date, the interest rate payable on the aggregate principal balance outstanding shall be adjusted
to a fixed rate equal to 2% above Citizens’ cost of funds on the Conversion Date as determined by Citizens. Prior to the
Conversion Date, interest on the outstanding principal balance shall be due and payable in arrears monthly commencing the month
following the date of the first advance. After the Conversion Date, the aggregate principal balance may be repaid in (i) up to
84 installments comprised of principal and interest for new equipment or (ii) up to 60 installments comprised of principal and
interest for used equipment. An initial advance was made under the Equipment Acquisition Line of Credit on December 1, 2017, in
the amount of $522,000, to fund the purchase of a used 6-color commercial press.
The
Equipment Access Line of Credit is subject to certain financial covenants set forth in the Equipment Acquisition Line of Credit
Transaction Documents, which include but are not limited to the requirements (i) that P3 maintain at all times a maximum total
liabilities to total net worth ratio of 3.0 to 1.0, reported annually, according to GAAP, (ii) that P3 not permit the ratio of
its EBITDA (as defined in the Loan Agreement) to Interest Expense plus CMLTD (as defined in the Loan Agreement) to be less than
1.15 to 1.0 for any fiscal year, and (iii) that P3 maintain at all times a current ratio of 1.25 to 1.0, reported annually, according
to GAAP.
Under
the Equipment Acquisition Line of Credit Transaction Documents, P3 is subject to standard events of default which include, but
are not limited to, default for non-payment, false or misleading representations and warranties, unsatisfied third-party judgements
or liens that negatively affect the Collateral, insolvency or bankruptcy, which may lead to acceleration of the obligations due
and payable under the Equipment Acquisition Line of Credit.
In
conjunction with the Equipment Acquisition Line of Credit Transaction Documents, P3 and Citizens also entered into a Security
Agreement dated December 1, 2017 (the “Security Agreement”), pursuant to which P3 granted a security interest in the
Collateral, defined as P3’s present and future right, title and interest in and to any and all personal property whether
now existing or hereafter created, acquired or arising and wherever located from time to time, including, without limitation:
accounts, chattel paper, goods, inventory, equipment, fixtures, farm products, instruments, investment property, documents, commercial
tort claims, deposit accounts, letter-of-credit rights, general intangibles, supporting obligations, and records of, accession
to and proceeds and products of the foregoing. The Security Agreement restates the same events of default as set forth in the
Equipment Acquisition Line of Credit Transaction Documents.
The
foregoing descriptions are summaries only, and do not purport to set forth the complete terms of the Equipment Acquisition Line
of Credit Transaction Documents or the Security Agreement, and such descriptions are qualified in their entirety by reference
to each of the Loan Agreement, the Term Note Non-Revolving Line of Credit Agreement, and the Security Agreement filed as Exhibits
10.1, 10.2 and 10.3 respectively, to this Current Report on Form 8-K.