Item
1.01 Entry into a Material Definitive Agreement.
On
April 27, 2020, the Board of Directors of Document Security Systems, Inc. (“DSS” or the “Company”) approved
and the Company entered into a share exchange agreement (the “Share Exchange Agreement”) with DSS BioHealth Security,
Inc., a Delaware corporation and wholly owned subsidiary of the Company (“DBHS”), Singapore eDevelopment Limited,
a Singapore corporation (“SeD”) that is listed on the Singapore Exchange, and Global BioMedical Pte Ltd, a Singapore
corporation and wholly owned subsidiary of SeD (“GBM”), pursuant to which, among other things and subject to the terms
and conditions contained therein, the DBHS will acquire of all of the outstanding capital stock (the “Impact Shares”)
of Impact BioMedical Inc., a Nevada corporation and wholly owned subsidiary of GBM (“Impact BioMedical”) through a
share exchange, with Impact BioMedical becoming a direct wholly owned subsidiary of the DBHS.
The
aggregate consideration for the Impact Shares will be the following to be issued to GBM by DSS: (i) 14,500,000 newly issued shares
of common stock of DSS, nominally valued at $3,132,000, or $0.216 per share; and (ii) 46,868 newly issued shares of a new series
of perpetual convertible preferred stock of DSS (“Convertible Preferred Stock”) with a stated value of $46,868,000,
or $1,000 per share, for a total consideration valued at $50 million. The Convertible Preferred Stock will be convertible into
shares of common stock of DSS, subject to a 19.9% beneficial ownership conversion limitation (“blocker”) based on
the total issued outstanding shares of common stock of DSS beneficially owned by GBM. Holders of the Convertible Preferred Stock
will have no voting rights, except as required by applicable law or regulation, and no dividends will accrue or be payable on
the Convertible Preferred Stock. The Holders of Convertible Preferred Stock will be entitled to a liquidation preference at a
liquidation value of $1,000 per share, and the Company will have the right to redeem all or any portion of the then outstanding
shares of Convertible Preferred Stock, pro rata among all holders, at a redemption price per share equal to such liquidation value
per share.
The
closing of the purchase and sale of the Impact Shares contemplated under the Share Exchange Agreement is subject to a number of
customary and other conditions, including both the Company and SeD having obtained approvals from their respective shareholders,
SeD having obtained requisite approval from the Singapore Exchange, and receipt by DSS of audited financial statements of Impact
BioMedical, which will be included in DSS’s proxy statement soliciting the vote of its shareholders.
The
Share Exchange Agreement contains customary representations, warranties and covenants of the parties as well as certain indemnification
provisions.
The
Share Exchange Agreement may be terminated prior to the closing on certain conditions, including by mutual written consent of
the parties; by one party in the event of breach, inaccuracy in or failure to perform any representation, warranty, covenant or
agreement made by the counterparties that would give rise to the failure of the conditions precedent to closing that has not been
cured after written notice to the counterparties; or if certain other conditions as set forth in the Share Exchange Agreement
shall not have been, or it becomes apparent that any of such conditions will not be, fulfilled by the date that is 180 days after
the date of the Share Exchange Agreement; or in the event that (i) any law that makes consummation of the transactions contemplated
by Share Exchange Agreement illegal or otherwise prohibited or (ii) a government authority issues an order restraining or enjoining
the transactions contemplated by the Share Exchange Agreement, and such order becomes final and non-appealable.
The
Chief Executive Officer and largest shareholder of SeD is Chan Heng Fai Ambrose, the Chairman of the Board and largest shareholder
of the Company. As such, the above transactions constitute related party transactions which have been duly approved by the Company’s
Board of Directors and Audit Committee.
The foregoing summary of the Share Exchange
Agreement and the Certificate of Designation is subject to, and qualified in its entirety by, the terms of the Share Exchange
Agreement and Certificate of Designation, a copy of each of which is attached hereto as Exhibit 10.1 and Exhibit 3.1,
respectively.
Prior
to the execution of the Share Exchange Agreement, Impact BioMedical’s ownership of a suite of antiviral and medical technologies
was valued at $382 million through a required independent valuation that was completed by Destum Partners. Because the valuation
was higher than the previously agreed value, the Purchase Price was capped at a value of $50 million as previously disclosed by
the Company. On April 27, 2020, the Company issued a press release announcing the completion of the required independent valuation,
allowing the Company to proceed with the Share Exchange Agreement.