Item
2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant
On
June 27, 2019, Premier Packaging Corporation. (“Premier”), a wholly-owned subsidiary of Document Security Systems,
Inc. (the “Company”), entered into an Amended and Restated Loan and Security Agreement (the “Agreement”)
with Citizens Bank N.A. (“Citizens”), pursuant to which Citizens provided Premier with a loan in the
principal amount of $1,156,741.69 (the “Loan”) as evidenced by a consolidated term note (the “Note”) in
the principal amount of $1,156,741.69 with a maturity date of June 27, 2029. Premier shall pay to Citizens consecutive
monthly installments of principal and interest in the amount of $7,180.61 against the Note based on a twenty (20) year amortization.
The aggregate principal balance outstanding under the Note bears interest at a per annum rate equal to 4.22%. Premier has the
option to prepay all or any part of the principal balance of the Note at a premium rate. In connection with the Loan, Premier
granted Citizens a security interest in all of its assets including the property located at 6 Framark Drive, Victor, New
York 14564 (the “Property”) . Under the terms of the Agreement, Premier is subject to certain financial negative covenants,
including:
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Current
Ratio - Premier shall not permit its Current Assets (as defined in the Agreement) to Current Liabilities (as defined in the
Agreement) to be less than 1.25 to 1.0, at any time, reported on a rolling four quarter basis;
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Debt
to Tangible Net Worth Ratio – Premier shall not permit the ratio of its Indebtedness (as defined in the Agreement) to
Tangible Net Worth (as defined in the Agreement) to be greater than 3.0 to 1.0 at any time; and
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EBITDA
– Premier shall not permit the ratio of its EBITDA, minus taxes paid in cash, Distributions and Unfinanced CAPEX, to
Interest Expense plus CMLTD (as all of such terms are defined in the Agreement), to be less than 1.15 to 1.0
for any fiscal year for the four (4) consecutive fiscal quarters ending at the end of each fiscal
quarter.
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The
Agreement includes customary representations, warranties and covenants (affirmative and negative), including, but not limited
to, restrictive covenants that, among other things, limit Premier’s ability to: dispose of all or any part of
its business or property; merge or consolidate with or into any other business organization; incur additional indebtedness; declare
or pay any dividend or make a distribution on any class of Premier’s capital stock; in each case subject to certain
specified exceptions set forth in the Agreement.
The
Agreement also includes standard events of default, including, but not limited to, payment defaults; breaches of covenants following
any applicable cure period; default or breach of any liability, obligation, covenant or undertaking to Citizens; failure
to maintain the Collateral (as defined in the Agreement); default or breach of any material liability, obligation or undertaking
of Premier or any Guarantor of the Obligations (as defined in the Agreement) to any person other than Citizens or its affiliates;
the liquidation, termination or dissolution of Premier or any Guarantor, or the merger or consolidation of Premier or any Guarantor
with or into another entity, or Premier’s or any Guarantor’s ceasing to carry on actively its present business or
the appointment of a receiver for its property, or, without the prior written consent of Citizens, the sale or transfer
of ownership of any interest in Premier; or the institution by or against Premier or any Guarantor of any proceedings under the
Bankruptcy Code 11 USC §101 et seq. or any other insolvency, debtor relief or debt adjustment law or any other law in which
Premier or any Guarantor is alleged to be insolvent or unable to pay its debts as they mature. Upon the occurrence of an event
of default, Citizens may declare all outstanding obligations immediately due and payable without notice or demand, take
such actions as it considers necessary or reasonable to protect its security interest in the Collateral and take such other actions
as are set forth in the Agreement.
The
Company and its subsidiaries, Secuprint, Inc. and Plastic Printing Professionals, Inc., each acted as individual
guarantors (individually a “Guarantor” and collectively the “Guarantors”) of Premier’s payment of
the Loan to Citizens pursuant to the terms of a Guaranty (the “Guaranty”).
In
connection with the Loan, Premier and Citizens entered into a Commercial Mortgage, Security Agreement and Assignment of
Leases and Rents With Consolidation, Modification and Extension Agreement (the “CEMA”), pursuant to which Premier
and Citizens consolidated prior mortgages granted by Premier to Citizens with the mortgage granted by Premier to
Citizens in connection with the Loan to form a single first mortgage lien on the Property. Pursuant to the CEMA, Premier
also assigned to Citizens its rights under any and all leases, rents and other amounts owed to Premier with respect to
the lease, use or occupancy of the Property.
The
form of Agreement, Note, CEMA and Guaranty are filed as Exhibits 10.1, 10.2, 10.3 and 10.4, respectively,
to this Current Report on Form 8-K. The foregoing summary description of the terms of the Agreement, Note, CEMA and Guaranty are
qualified in their entirety by reference to the full text of each exhibit.