Item
5.02 Departure of Directors and Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements
of Certain Officers.
On
December 30, 2016, Jeffrey Ronaldi (“Ronaldi”) and Document Security Systems, Inc. (the “Company”) entered
into an Employment Agreement (the “Agreement”) for the purpose of continuing Mr. Ronaldi’s employment as Chief
Executive Officer of the Company under revised terms. Mr. Ronaldi’s previous employment agreement, entered into on November
9, 2015 and extended through December 31, 2016, terminated effective on December 31, 2016.
The
new Agreement provides for a one-year employment term, commencing on January 1, 2017 and ending on December 31, 2017, at an annual
base salary of $200,000.In addition to the base salary, the Agreement also contains bonus provisions. The cash performance bonus
provision allows for Mr. Ronaldi to receive up to 50% of his base salary (the “Cash Bonus”) if the Company achieves
certain established EBITDA targets in 2017. The full bonus of $100,000 will be payable to Mr. Ronaldi if the Company achieves
adjusted EBITDA of $1,000,000 or greater during 2017. Such Cash Bonus will be proportional for EBITDA amounts that fall below
$1,000,000. As and for an example, if adjusted EBITDA for 2017 is $500,000, then Ronaldi’s Cash Bonus would be a
prorated $50,000. Any earned Cash Bonus will be calculated and payable once audited financial results are available for 2017.
Mr. Ronaldi may also be eligible for an intellectual property performance bonus (the “IP Performance Bonus”) which
consists of a percentage of either the Net Litigation Proceeds (as defined in the Agreement), the Net Licensing Proceeds (as defined
in the Agreement), or a percentage of Net Sales Proceeds (as defined in the Agreement) received by the Company during the term
of the Agreement. Under the IP Performance Bonus clause of the Agreement, Mr. Ronaldi would receive 15% of the Net Litigation
Proceeds, Net Licensing Proceeds or Net Sales Proceeds received by the Company.
Pursuant
to the Agreement, Mr. Ronaldi will also receive an initial common stock grant within thirty (30) days of the Effective Date of
the Agreement, in the amount of 25,000 shares of the Company’s common stock, from the Company’s existing Employee,
Director and Consultants Equity Incentive Plan (the “Plan”), which shall vest on the grant date. If the Company achieves
adjusted EBITDA of $500,000 and a stock trading price of at least $1.00 per share by the close of the fourth quarter of 2017,
then the Company will make a second grant of common stock to Mr. Ronaldi in the amount of 50,000 shares, from the Plan, to vest
once the Company’s audited financial results for 2017 become available. Mr. Ronaldi would not be entitled to any remaining
unvested shares in the event he voluntarily leaves his employment with the Company prior to end of the Agreement term. If the
Company terminates Mr. Ronaldi’s employment without cause prior to expiration of the term of the Agreement, then he will
be entitled to the earned unvested portion of his common stock grant, and to any remaining compensation he would have been entitled
to receive had he remained until expiration of the term of the Agreement.
The
Agreement also contains standard twelve-month non-competition and non-solicitation restrictions in favor of the Company.
The
forgoing descriptions of the terms of the Agreement are summaries only, and do not purport to set forth the complete terms thereof,
and are qualified in their entirety by reference to Exhibit 10.1 to this Report.