Direct Digital Holdings, Inc.DRCT
Direct Digital Holdings, Inc. Commitments Disclosure
Note 9 — Commitments and Contingencies
Litigation
We may from time to time be subject to various legal or administrative claims and proceedings arising in the ordinary course of business. As of the date hereof, except as set forth below, we are not a party to any material legal or administrative proceedings nor are there any proceedings in which any of our directors, executive officers or affiliates, or any registered or beneficial stockholder, is an adverse party or has a material interest adverse to our interest. Litigation or
any other legal or administrative proceeding, regardless of the outcome, is likely to result in substantial cost and diversion of our resources, including our management’s time and attention.
On May 10, 2024, the Company was the subject of a defamatory article / blog post. In connection with this post, one of the Company’s sell-side customers paused its connection to the Company while the allegations were investigated. This customer reconnected the Company on May 22, 2024 and sell-side volumes have resumed but not yet at the levels experienced prior to the pause in May 2024 which has created a significant disruption in the Company's sell-side business. During 2025, the Company worked with its partners to achieve prior sell-side volume levels but was unable to achieve historical volumes for the year. In May 2024, the Company, as plaintiff, filed a lawsuit against the author of the defamatory article. On March 5, 2025, the United States District Court for the District of Maryland denied the defendant’s motion to dismiss in its entirety. On March 9, 2026, the Court granted the Company's motion to dismiss counterclaims but granted the defendant 21 days to amend their counterclaim. The Company will continue to vigorously pursue its claims and rights and any defenses against counterclaims. The Company cannot make any predictions about the final outcome of this litigation matter or the timing thereof.
On May 23, 2024, an alleged stockholder, purportedly on behalf of the persons or entities who purchased or acquired publicly traded securities of the Company between April 2023 and March 2024, filed a putative class action against the Company, certain of our officers and directors, and other defendants in the U.S. District Court for the Southern District of Texas, alleging violations of federal securities laws related to alleged false or misleading disclosures made by the Company in its public filings. On July 9, 2024, another alleged stockholder filed a similar securities class action against the Company, certain of our officers and directors, also in the Southern District of Texas. The two actions have been consolidated. Each of these complaints seeks unspecified damages, plus costs, fees, and attorneys’ fees. On August 7, 2025, the district court granted the Company's motion to dismiss in full and with prejudice. The lead plaintiff has since appealed that dismissal and has filed an opening brief which was due to the court on November 3, 2025. The Company filed a response brief on January 2, 2026. The lead plaintiff filed a reply brief on February 6, 2026. The Company now awaits the Court's decision about whether to set the case for oral argument. The Company cannot make any predictions about the final outcome of this matter or the timing thereof but believes that plaintiffs’ claims lack merit and intends to vigorously defend these lawsuits.
Contingent Liability for Exit Fee
As further described in Note 3 — Long-Term Debt, the Seventh Amendment, Ninth Amendment and Tenth Amendment established an Exit Fee of up to $35.0 million due to Lafayette Square upon the redemption in full of the Series A Convertible Preferred Stock with reductions in the amount of the Exit Fee outstanding for any amounts of the Series A Convertible Preferred Stock redeemed, converted or exchanged. Since it was established, the Exit Fee has been reduced by (1) $4.3 million for proceeds received by Lafayette upon exchanges pursuant to the Tenth Amendment during the quarter ended December 31, 2025 and (2) $3.6 million for the loss on Exit Fee recognized during the quarter ended December 31, 2025 for the difference between the face value of the Series A Convertible Preferred Stock exchanged and the proceeds received by Lafayette upon the exchange. As of December 31, 2025, the maximum potential amount of the Exit Fee that could be payable is $27.1 million.
The timing and occurrence of a full redemption are uncertain and may be indefinite. Accordingly, management has concluded that payment of the maximum potential amount of the Exit Fee as of December 31, 2025 is not probable as of the reporting date and that the ultimate amount of any such payment cannot be reasonably estimated. As a result, no additional liability has been recorded in the accompanying consolidated financial statements. The Company will reassess the likelihood and amount of any Exit Fee obligation in future periods as facts and circumstances change.
Continuation Capital Settlement Agreement
As described in Note 4 — Stockholders’ Deficit and Stock-Based Compensation, on November 20, 2025, the Company entered into the Settlement Agreement with Continuation Capital, pursuant to which we agreed to issue the Exchange Shares in exchange for the release of certain claims held by Continuation Capital related to third party vendor payables separately assigned by the Company to Continuation Capital in the amount of $3 million. From the date the Settlement Agreement was executed through December 31, 2025, $0.7 million has been paid to third party vendors and 209,162 shares have been issued pursuant to the Settlement Agreement. Subsequent to December 31, 2025 through the date
of this report, $0.9 million has been paid to third party vendors and 608,164 shares have been issued pursuant to the Settlement Agreement.
Operating Leases
During the years ended December 31, 2025 and 2024, the Company incurred fixed rent expense associated with operating leases for real estate of $0.3 million and $0.3 million, respectively. The Company did not have any finance leases, short-term leases nor variable leases over this time period. During the years ended December 31, 2025 and 2024, the Company had the following cash and non-cash activities associated with leases (in thousands):
| Year Ended December 31, | |||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | 2025 | 2024 | |||||||||
| Operating cash outflow for operating leases | $ | 268 | $ | 206 | |||||||
| Non-cash changes to the operating lease ROU assets and operating lease liabilities: | |||||||||||
| Additions and modifications to ROU asset obtained from new operating liabilities | $ | 52 | $ | 200 | |||||||
The weighted-average remaining lease term and discount rate for the Company’s operating leases is 3.66 years and 8.3%, respectively, as of December 31, 2025. The weighted-average remaining lease term and discount rate for the Company’s operating leases is 4.6 years and 8.3%, respectively, as of December 31, 2024.
The future payments due under operating leases as of December 31, 2025 is as follows (in thousands):
| 2026 | $ | 278 | |||
| 2027 | 282 | ||||
| 2028 | 180 | ||||
| 2029 | 184 | ||||
| 2030 | 31 | ||||
| Thereafter | — | ||||
| Total undiscounted lease payments | 955 | ||||
| Less effects of discounting | (126) | ||||
| Less current lease liability | (221) | ||||
| Total operating lease liability, net of current portion | $ | 608 | |||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 31, 2026 | Showing above |
| 2024 | Mar 28, 2025 | |
| 2023 | Oct 15, 2024 | |
| 2022 | Apr 17, 2023 | |
About Commitments Disclosures
Commitments and contingencies disclosures catalog a company's off-balance-sheet obligations and legal exposures — purchase commitments, guarantee arrangements, pending litigation, and regulatory proceedings. These items represent potential future cash outflows that may not appear as liabilities on the balance sheet until they become probable and estimable.
Key signals: litigation reserves and disclosed loss ranges quantify management's estimate of legal exposure, but unquantified "reasonably possible" losses often represent the larger risk. Watch for changes in language around pending cases — shifts from "remote" to "reasonably possible" or increases in estimated loss ranges signal deteriorating outcomes. Unconditional purchase obligations and take-or-pay contracts create fixed cost structures that reduce operational flexibility. Guarantee arrangements for subsidiaries or joint ventures can create cascading obligations. Compare the total commitment schedule against projected free cash flow to assess whether the company can meet its obligations without additional financing.