Document Security Systems, Inc. (NYSE MKT: DSS) registered common shares and a new class of preferred stock on November 23 in connection with a proposed merger with Lexington Technology Group, Inc., a private intellectual property monetization company (Form S-4, SEC File No. 333-185134). Lexington stockholders will hold the largest percentage of the voting shares on a fully dilutive basis after the merger at 56% of the combined entity. Because DSS will be issuing equity interests in order to acquire Lexington that results in a change of control in the combined entity, the transaction will be accounted for as a reverse acquisition.
In addition to approval of the agreement and plan of merger at the special meeting of shareholders, DSS seeks to amend its certificate of incorporation to authorize a class of preferred stock that would be issued to holders of Lexington preferred shares who would, after giving effect to the merger and receipt of the merger consideration, beneficially own more than 9.99% of DSS common stock. Holders of Lexington preferred stock who do not exceed the Beneficial Ownership Condition and accordingly will not receive DSS preferred stock (or warrants if the proposal to create the new class of preferred is not approved) will receive DSS common shares and the other types of merger consideration in exchange for their Lexington preferred stock based on the Common Stock Exchange Ratio as defined in the merger agreement.
Lexington was formed in May 2012 to maximize the economic benefits of intellectual property assets through acquiring or internally developing patents or other intellectual property assets and then monetize such assets. Through its wholly-owned subsidiary Bascom Research, Lexington currently develops software applications based on the Bascom Portfolio that are focused on applying computational and data structures to complex data sets in the medical field. On October 3, Bascom initiated patent infringement lawsuits in the United States District Court for the Eastern District of Virginia against five companies, including Facebook, Inc. and LinkedIn Corporation, for unlawfully using systems that incorporate features claimed in patents owned by Bascom. The patents-in-suit relate to the data structure used by social and business networking web sites and Web 2.0 corporate intranets.
