Document Security Systems Defaults On Fortress Credit Agreement

According to an SEC filing, Document Security Systems, Inc. (“DSS”) failed to pay “certain investors” amounts owed under an investment agreement. On June 26, 2018, DSS, the investors, and Fortress Credit (as the collateral agent) agreed to discharge over $3.7 M worth of unpaid promissory notes without assigning ownership of the underlying patents to the investors. The filing states, “in the event there are any future recoveries … with respect to monetization activities relating to the collateralized patents …, the contractual payment provisions of the Agreement will apply and the Investors will be entitled to receive payment of such proceeds.” For those in need of a refresher, the “contractual payment provisions” include the following:

4.1.          Payment Waterfall. The Company shall apply the Monetization Payments to the payment of the Notes, the Fixed Return Interest, and the Contingent Interest in the following order:

4.1.1.          100% of the first $5,000,000 in Gross Receipts shall be paid (i) to the Note Purchasers until they have received payment in full of the Notes (including accrued interest and any Make Whole Amount), then (ii) to the Fixed Return Interest Purchasers until they have received the Fixed Return, and then (iii) to the Contingent Interest Purchasers until they have received the 2(x) Return.

4.1.2.          100% of the next $3,300,000 in Gross Receipts may be retained by the Company or paid to counsel approved by the Majority Investors.

4.1.3.          The Applicable Percentage of any Gross Receipts following the application of the first $8,300,000 as provided in Sections 4.1.1 and 4.1.2 shall be paid (i) to the Notes Purchasers until they have received payment in full of the Notes (including accrued interest and any Make Whole Amount), then (ii) to the Fixed Return Interest Purchasers until they have received the Fixed Return, and then (iii) to the Contingent Interest Purchasers until they have received the 2(x) Return.

DSS says it “expects to record a net gain on extinguishment of liabilities of approximately $3.5 million in the second quarter of 2018” as a result of the discharge.

Subscribe to get the latest news