UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
SCHEDULE
14A INFORMATION
Proxy
Statement Pursuant to Section 14(a) of the Securities
Exchange
Act of 1934
Filed
by the Registrant [X]
Filed
by a Party other than the Registrant [ ]
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the appropriate box:
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[X]
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Preliminary
Proxy Statement
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Confidential,
for the use of the Commission only (as permitted by Rule 14a-6(e)(2))
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Definitive
Proxy Statement
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Definitive
Additional Materials
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Soliciting
Material Pursuant to §240.14a-12
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DOCUMENT
SECURITY SYSTEMS, INC.
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(Name
of Registrant as Specified In Its Charter)
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(Name
of Person(s) Filing Proxy Statement, if other than the Registrant)
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Payment
of Filing Fee (Check the appropriate box):
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[X]
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No
fee required.
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Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
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Title
of each class of securities to which transaction applies:
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Aggregate
number of securities to which transaction applies:
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Per
unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4)
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Proposed
maximum aggregate value of transaction:
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(5)
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Total
fee paid:
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Fee
paid previously with preliminary materials.
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Check
box if any part of the fee is offset as provided by Exchange Act Rule 0-1l (a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date
of its filing.
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Amount
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Form,
Schedule or Registration Statement No.:
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PRELIMINARY
PROXY MATERIALS – SUBJECT TO COMPLETION
DOCUMENT
SECURITY SYSTEMS, INC.
200
CANAL VIEW BOULEVARD, SUITE 104
ROCHESTER,
NEW YORK 14623
NOTICE
OF 2020 ANNUAL MEETING OF STOCKHOLDERS
To
our Stockholders:
The
2020 Annual Meeting of Stockholders of Document Security Systems, Inc. (the “Company”, “we”, “us”
or “our”) will be held at 32731 Egypt Lane, Suite 602, Magnolia, Texas 77354 on December [_], 2020, at [10:00 a.m.]
local time, for the purposes of:
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1.
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To
elect eight director nominees to the Company’s Board of Directors to hold office until the next Annual Meeting of Stockholders;
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2.
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To
ratify Freed Maxick CPAs, P.C. as the Company’s independent registered public accounting firm for the fiscal year ending
December 31, 2020;
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3.
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To
provide an advisory vote on executive compensation;
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4.
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To
approve, pursuant to Rule 713 of the NYSE American, the potential issuance of shares of the Corporation’s common stock,
par value $0.02 per share. representing equal to or greater than 20% or more of presently outstanding stock, issuable upon
conversion of our Series A Convertible Preferred Stock, issued by the Company to Global BioMedical Pte. Ltd on August 21,
2020 in accordance with the Share Exchange Agreement dated April 27, 2020, by increasing the beneficial ownership limitation
of the Series A Convertible Preferred Stock; and
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5.
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To
approve the reincorporation of the Company from New York to Texas, pursuant to a merger of the Company with and into a newly-formed
Texas corporation that will initially be a wholly-owned subsidiary of the Company, resulting in a change in name of the Company
from “Document Security Systems, Inc.” to “Alset, Inc.”
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We
also will transact such other business as may properly come before the meeting and any adjournments or postponements of the meeting.
The foregoing items of business are more fully described in the Proxy Statement accompanying this notice.
The
Board of Directors has fixed the close of business on October [29], 2020 as the record date for the determination of stockholders
entitled to notice of, and to vote at, the Annual Meeting and at any adjournment or postponement thereof. These proxy materials
will be mailed on or about [__], 2020 to the stockholders of record on the Record Date
The
Board of Directors recommends that you vote “FOR” the proposals set forth in this Notice of Annual Meeting of Stockholders
and the Proxy Statement.
IMPORTANT
NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING: The Company’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2019, and the Company’s Proxy Statement for the 2020 Annual Meeting of Stockholders,
along with any amendments to the foregoing materials that are required to be furnished to stockholders, will be available at www.proxyvote.com.
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By
order of the Board of Directors
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Heng
Fai Ambrose Chan
Chairman
of the Board
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WHETHER
OR NOT YOU PLAN ON ATTENDING THE ANNUAL MEETING IN PERSON, PLEASE VOTE AS PROMPTLY AS POSSIBLE TO ENSURE THAT YOUR VOTE IS COUNTED.
Table
of Contents
DOCUMENT
SECURITY SYSTEMS, INC.
200
CANAL VIEW BOULEVARD, SUITE 104
ROCHESTER,
NEW YORK 14623
PROXY
STATEMENT FOR THE COMPANY’S
ANNUAL
MEETING OF STOCKHOLDERS
TO
BE HELD ON DECEMBER [_], 2020
THE
MEETING
Date,
Time and Place
We
are furnishing this proxy statement (the “Proxy Statement”) to the holders of our common stock, par value $0.02 per
share (the “Common Stock”), in connection with the solicitation of proxies on behalf of the Board of Directors (the
“Board”) of Document Security Systems, Inc. (together with its consolidated subsidiaries (unless the context otherwise
requires), referred to herein as “Document Security Systems,” “DSS,” “we,” “us,”
“our” or the “Company”) for use at the 2020 Annual Meeting of Stockholders (the “Annual Meeting”)
to be held at 32731 Egypt Lane, Suite 602, Magnolia, Texas 77354, on Monday, December __, [10:00 a.m.]local time, and any adjournment
thereof.
Matters
to be Considered
The
Annual Meeting will be held for the following purposes:
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1.
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To
elect eight director nominees to serve until the next annual meeting of stockholders
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2.
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To
ratify the appointment of Freed Maxick CPAs, P.C. as the Company’s independent registered public accounting firm for
the year ending December 31, 2020;
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3.
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To
provide an advisory vote to approve executive compensation;
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4.
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To
approve, pursuant to Rule 713 of the NYSE American, the potential issuance of shares of the Corporation’s Common Stock
representing equal to or greater than 20% or more of presently outstanding stock, issuable upon conversion of our Series A
Convertible Preferred Stock, issued by the Company to Global BioMedical Pte. Ltd on August 21, 2020 in accordance with the
Share Exchange Agreement dated April 27, 2020, by increasing the beneficial ownership limitation of the Series A Convertible
Preferred Stock from 19.99% to 50.99%; and
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5.
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To
approve the reincorporation of the Company from New York to Texas, pursuant to a merger of the Company with and into a newly-formed
Texas corporation that will initially be a wholly-owned subsidiary of the Company, resulting in a change in name of the Company
from “Document Security Systems, Inc.” to “Alset, Inc.”
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As
of the date of this proxy statement, the Board is not aware of any other matters that will come before the Annual Meeting. However,
if any other matters properly come before the Annual Meeting, the persons named as proxies will vote on them in accordance with
their best judgment.
Important
Notice Regarding the Availability of this Proxy Statement
We
have opted to provide our materials pursuant to the full set delivery option in connection with the Annual Meeting. Under the
full set delivery option, a Company delivers all proxy materials to its stockholders. The approximate date on which this Proxy
Statement and form of proxy are first being provided to stockholders, or being made available through the Internet for those stockholders
receiving their proxy materials electronically, is [*], 2020. This delivery can be by mail or, if a stockholder has previously
agreed, by e-mail. In addition to delivering proxy materials to stockholders, the Company must also post all proxy materials on
a publicly accessible website and provide information to stockholders about how to access that website. Accordingly, you should
have received our proxy materials by mail or, if you previously agreed, by e-mail. These proxy materials include the Notice of
Annual Meeting of Stockholders, proxy statement, and proxy card. These materials are available free of charge at www.proxyvote.com
REVOCABILITY
OF PROXY
Any
stockholder executing a proxy that is solicited has the power to revoke it prior to the voting of the proxy. Revocation may be
made by i) attending the Annual Meeting and voting the shares of stock in person, ii) delivering to the Secretary of the Company
at the principal office of the Company prior to the Annual Meeting a written notice of revocation or a later-dated, properly executed
proxy, iii) signing another proxy card with a later date and returning it before the polls close at the Annual Meeting, or iv)
voting again via the internet or by toll free telephone by following the instructions on the proxy card.
GENERAL
INFORMATION ABOUT VOTING
Record
Date
Only
the holders of record of our Common Stock at the close of business on the record date, October [29], 2020 (the “Record Date”),
are entitled to notice of and to vote at the meeting. On the Record Date, there were [*] shares of our Common Stock outstanding.
Stockholders are entitled to one vote for each share of Common Stock held on the Record Date.
Voting
When
a proxy is properly executed and returned (and not subsequently properly revoked), the shares it represents will be voted in accordance
with the directions indicated thereon, or, if no direction is indicated thereon, it will be voted:
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(1)
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FOR
the election of each nominee as director;
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(2)
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FOR
the ratification of the appointment of Freed Maxick CPAs, P.C. as the Company’s independent registered public accounting
firm;
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(3)
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FOR
the advisory resolution to approve executive compensation.
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(4)
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FOR,
pursuant to Rule 713 of the NYSE American, the potential issuance of shares of the Corporation’s Common Stock representing
equal to or greater than 20% or more of presently outstanding stock, issuable upon conversion of our Series A Convertible
Preferred Stock, issued by the Company to Global BioMedical Pte. Ltd on August 21, 2020 in accordance with the Share Exchange
Agreement dated April 27, 2020, by increasing the beneficial ownership limitation of the Series A Convertible Preferred Stock
from 19.99% to 50.99
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(5)
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FOR
the reincorporation of the Company from New York to Texas, pursuant to a merger of the Company with and into a newly-formed
Texas corporation that will initially be a wholly-owned subsidiary of the Company, resulting in a change in name of the Company
from “Document Security Systems, Inc.” to “Alset, Inc.”
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Votes
Required for Approval
Director
nominees must receive a majority of the votes cast on such director’s election, which means that the nominee must receive
more “FOR” votes than “WITHHOLD” votes.
The
ratification of the appointment of our independent registered public accounting firm requires the affirmative vote of a majority
of the votes cast at the meeting for this proposal. Abstentions and broker non-votes, if any, are not treated as votes cast, and
therefore will have no effect on this proposal. A broker may vote on the ratification of the independent registered public accounting
firm if a beneficial owner does not provide instructions; therefore, no broker non-votes are expected to exist in connection with
this proposal.
The
advisory vote on executive compensation will be decided by the affirmative vote of a majority of the votes cast on this proposal
at the meeting. However, the stockholder vote on this matter will not be binding on our Company or the Board of Directors, and
will not be construed as overruling or determining any decision by the Board on executive compensation.
The
vote to approve the Proposal 4 and to approve the Proposal 5 each requires the affirmative vote of a majority of the votes cast
on the proposal at the meeting. For these items, an abstention has the practical effect of a vote against a proposal. For all
other matters, abstentions do not count as votes cast, and therefore do not affect the vote outcome
Abstentions
and Broker Non-Votes
Broker
Non-Votes: If you hold your shares through a bank, broker or other nominee and do not provide voting instructions to that
entity, it may vote your shares only on “routine” matters. For “non-routine” matters, the beneficial owner
of such shares is required to provide instructions to the bank, broker or other nominee in order for them to be entitled to vote
the shares held for the beneficial owner. The proposed ratification of the appointment of Freed Maxick CPA, P.C. as the Company’s
independent registered public accounting firm for the fiscal year ending December 31, 2020 is considered a “routine”
matter. Accordingly, brokers are entitled to vote uninstructed shares only with respect to the ratification of the appointment
of Freed Maxick CPA, P.C as our independent registered public accounting firm.
If
you hold your shares in street name, it is critical that you cast your vote if you want it to count on all matters to be decided
at the Annual Meeting.
Abstentions:
Abstentions will be counted for purposes of determining whether a quorum is present for the Annual Meeting and will count
as votes cast only in Proposal 4 (Ownership Limitation Increase) and Proposal 5 (Reincorporation); for these items, an abstention
has the practical effect of a vote against a proposal. For all other matters, abstentions do not count as votes cast, and therefore
do not affect the vote outcome.
***
You
can contact our corporate headquarters, at (585) 325-3610, or send a letter to: Investor Relations, Document Security Systems,
Inc., 200 Canal View Boulevard, Suite 104, Rochester, New York 14623, with any questions about proposals described in this Proxy
Statement or how to execute your vote.
Mr.
Frank D. Heuszel, the Company’s principal accountant for the current year and the fiscal year ended December 31, 2019, and
his representative plan to participate the Annual Meeting either in person or virtually via a video conference application. At
the Annual Meeting, Mr. Frank D. Heuszel plans to make a brief statement and will make himself available to respond to appropriate
questions about all of the proposals provided in this Proxy Statement.
PROPOSAL
NO. 1 — ELECTION OF DIRECTORS
Proposal
Eight
directors are to be elected at the Annual Meeting to serve until the next annual meeting of the Company’s stockholders.
Unless otherwise instructed, the persons named in the accompanying proxy intend to vote the shares represented by the proxy for
the election of the nominees listed below. Although it is not contemplated that any nominee will decline or be unable to serve
as a director, in such event, proxies will be voted by the proxy holder for such other persons as may be designated by the Board
of Directors, unless the Board of Directors reduces the number of directors to be elected.
The
following table sets forth the nominees for directors on the Board of Directors. Certain biographical information about the nominees
as of the Record Date can be found above in the section titled “Directors, Executive Officers and Corporate Governance.”
Nominees for Directors
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Name
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Age
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Position(s) with the Company
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Date First Elected or Appointed
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Frank D. Heuszel
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64
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Chief Executive Officer, Interim Chief Financial Officer and Director
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July 2018
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Heng Fai Ambrose Chan
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75
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Director, Chairman
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February 2017
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John Thatch
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58
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Lead Independent Director
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May 2019
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Jose Escudero
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45
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Director
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August 2019
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Sassuan Lee
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50
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Director
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August 2019
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William Wu
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54
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Director
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October 2019
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Lo Wah Wai
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57
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Director
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April 2019
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Mr. Chan Tung Moe
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42
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Director
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September 2020
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Required Stockholder Vote and Recommendation of Our Board of
Directors
Director
nominees must receive a majority of the votes cast on such director’s election, which means that the nominee must receive
more “FOR” votes than “WITHHOLD” votes.
OUR
BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE ELECTION OF ALL THE NOMINEES NAMED ABOVE.
PROPOSAL
NO. 2 — RATIFICATION OF THE APPOINTMENT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
Proposal
The
Company’s stockholders are being asked to ratify the Board of Directors’ appointment of Freed Maxick CPAs, P.C. as
the Company’s independent registered public accounting firm for fiscal 2020.
In
the event that the ratification of this selection is not approved by an affirmative majority of the votes cast on the proposal
at the Annual Meeting, the Board of Directors will review its future selection of the Company’s independent registered public
accounting firm.
Representatives
of Freed Maxick CPAs, P.C. are not expected to attend the Annual Meeting.
Audit
Fees
Audit
fees consist of fees for professional services rendered for the audit of the Company’s consolidated financial statements
included in the Company’s Annual Report on Form 10-K, the review of financial statements included in the Company’s
Quarterly Reports on Form 10-Q, and for services that are normally provided by the auditor in connection with statutory and regulatory
filings or engagements. The aggregate fees billed for professional services rendered by our principal accountant, Freed Maxick
CPAs, P.C., for audit and review services for the fiscal years ended December 31, 2019 and 2018 were approximately $154,600 and
$125,117, respectively.
Audit
Related Fees
The
aggregate fees billed for audit related services by our principal accountant, Freed Maxick CPAs, P.C., pertaining to comfort letter
related to our registered offering during the years, consents for related registration statements and the audit of the Company’s
employee benefit plan and review of the stand-alone financial statements for one of the Company’s subsidiaries, for the
years ended December 31, 2019 and 2018 were approximately $51,450 and $26,800, respectively.
Tax
Fees
The
aggregate fees billed for professional services rendered by our principal accountant, Freed Maxick CPAs, P.C., for tax compliance,
tax advice and tax planning during the years ended December 31, 2019 and 2018 were approximately $29,500 and $33,305, respectively.
All
Other Fees
There
were no fees billed for professional services rendered by our principal accountant, Freed Maxick CPAs, P.C., for other related
services during the years ended December 31, 2019 and 2018.
Administration
of the Engagement; Pre-Approval of Audit and Permissible Non-Audit Services
The
Company’s Audit Committee Charter requires that the Audit Committee establish policies and procedures for pre-approval of
all audit or permissible non-audit services provided by the Company’s independent auditors. Our Audit Committee, approved,
in advance, all work performed by our principal accountant, Freed Maxick CPAs, P.C. These services may include audit services,
audit-related services, tax services and other services. The Audit Committee may establish, either on an ongoing or case-by-case
basis, pre-approval policies and procedures providing for delegated authority to approve the engagement of the independent registered
public accounting firm, provided that the policies and procedures are detailed as to the particular services to be provided, the
Audit Committee is informed about each service, and the policies and procedures do not result in the delegation of the Audit Committee’s
authority to management. In accordance with these procedures, the Audit Committee pre-approved all services performed by Freed
Maxick CPAs, P.C.
Required
Stockholder Vote and Recommendation of Our Board of Directors
Approval
of our independent registered public accounting firm requires the affirmative vote of a majority of the votes cast at the Annual
Meeting, whether in person or by proxy, provided that a quorum is present. An abstention will not be counted for or against the
proposal, and therefore will not affect the vote outcome.
OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU
VOTE
“FOR” THE RATIFICATION OF THE APPOINTMENT OF FREED MAXICK CPAs, P.C. AS THE COMPANY’S INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2020.
PROPOSAL NO. 3 - ADVISORY VOTE ON EXECUTIVE
COMPENSATION
The
Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) requires the Company’s stockholders
to have the opportunity to cast a non-binding advisory vote regarding the approval of the compensation disclosed in this Proxy
Statement of the Company’s Named Executive Officers included in the summary compensation table and related disclosures.
As discussed in the “Executive Compensation” section below, the Company has disclosed the compensation of the Named
Executive Officers pursuant to rules adopted by the SEC.
We
believe that our compensation policies for the Named Executive Officers are designed to attract, motivate and retain talented
executive officers and are aligned with the long-term interests of the Company’s stockholders. This advisory stockholder
vote, commonly referred to as a “say-on-pay vote,” gives you as a stockholder the opportunity to approve or not approve
the compensation of the Named Executive Officers that is disclosed in this Proxy Statement by voting for or against the following
resolution (or by abstaining with respect to the resolution):
RESOLVED,
that the stockholders of Document Security Systems, Inc. approve all of the compensation of the Company’s executive officers
who are named in the Summary Compensation Table of the Company’s 2020 Proxy Statement, as such compensation is disclosed
in the Company’s 2020 Proxy Statement pursuant to Item 402 of Regulation S-K, which disclosure includes the Proxy Statement’s
Summary Compensation Table and other executive compensation tables and related narrative disclosures.
Because
your vote is advisory, it will not be binding on either the Board of Directors or the Company. However, the Company’s Compensation
and Management Resources Committee will take into account the outcome of the stockholder vote on this proposal at the Annual Meeting
when considering future executive compensation arrangements. In addition, your non-binding advisory votes described in this Proposal
3 will not be construed: (1) as overruling any decision by the Board of Directors, any Board committee or the Company relating
to the compensation of the Named Executive Officers, or (2) as creating or changing any fiduciary duties or other duties on the
part of the Board of Directors, any Board committee or the Company.
OUR
BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE “FOR” APPROVAL OF THE COMPENSATION OF THE COMPANY’S EXECUTIVE
OFFICERS DISCLOSED IN THE SUMMARY COMPENSATION TABLE OF THIS PROXY STATEMENT.
PROPOSAL
NO. 4 — TO APPROVE, PURSUANT TO RULE 713 OF THE NYSE AMERICAN, THE POTENTIAL ISSUANCE OF COMMON STOCK UPON CONVERSION
OF SERIES A CONVERTIBLE PREFERRED BY INCREASING THE BENEFICIAL OWNERSHIP LIMITATION
Background
We
are asking our stockholders to approve, pursuant to Rule 713 of the NYSE American, the potential issuance of shares of the Corporation’s
common stock, par value $0.02 per share (“Common Stock”), representing equal to or greater than 20% or more of presently
outstanding stock, issuable upon conversion of our Series A Convertible Preferred Stock (“Series A Preferred Stock”)
issued by the Company to Global BioMedical (a defined below) on August 21, 2020 in accordance with the Share Exchange Agreement
dated April 27, 2020 (the “Share Exchange Agreement”), by increasing the 19.9% beneficial ownership conversion limitation
(the “Ownership Limitation”) to 50.99% (the “Ownership Limitation Increase”). In particular, we are asking
our stockholders to approve an amendment to our certificate of incorporation to effect the Ownership Limitation Increase.
The
Ownership Limitation currently prohibits Global BioMedical from converting all or any portion of any share of Series A Preferred
Stock to the extent that after giving effect to such issuance, Global BioMedical would beneficially own in excess of 19.99% of
the Common Stock of the number of shares of the Common Stock outstanding immediately after giving effect to such issuance. Following
the approval of the stockholders of the Company of the Ownership Limitation Increase, which approval is being sought pursuant
to this Proposal 4, Global BioMedical will not be able to convert all or any portion of any share of Series A Preferred Stock
to the extent any such conversion would cause Global BioMedical to beneficially own more than 50.99% of the outstanding Common
Stock. Key terms of the Share Exchange Agreement and the Certificate of Amendment to the Certificate
of Incorporation filed by the Company on August 18, 2020 with the Secretary of State of New York to establish the Series A Preferred
Stock (the “Series A COD”) are summarized below. A copy of the Share Exchange Agreement and the Series A COD has been
filed as Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on May 1, 2020 and as Exhibit 3.1 to our Current Report
on Form 8-K filed with the SEC on August 27, 2020, respectively, and you are encouraged to review the full text of such Current
Report, including the exhibits. The below summary of the Share Exchange Agreement and the transaction contemplated thereby do
not purport to be complete and is subject to, and is qualified in its entirety by, the full text of such agreement.
Share
Exchange Agreement
On
April 27, 2020, the Company, DSS BioHealth Security, Inc., a Nevada corporation and wholly owned subsidiary of the Company (“DBHS”),
Singapore eDevelopment Limited, a Singapore corporation (“Singapore eDevelopment”) that is listed on the Singapore
Exchange, and Global BioMedical Pte Ltd, a Singapore corporation and wholly owned subsidiary of Singapore eDevelopment (“Global
BioMedical”), entered into the Share Exchange Agreement, pursuant to which DBHS was to acquire of all of the outstanding
capital stock (the “Impact Shares”) of Impact BioMedical Inc., a Nevada corporation and wholly owned subsidiary of
Global BioMedical (“Impact BioMedical”).
On
August 21, 2020, the Company completed its acquisition of Impact BioMedical, pursuant to the Share Exchange Agreement, which was
approved by the Company’s stockholders on August 10, 2020 at a special meeting of stockholders (the “Share Exchange”).
Under the terms of the Share Exchange, the Company issued 483,334 shares of Common Stock, nominally valued at $6.48 per share,
and 46,868 shares of Series A Preferred Stock, with a stated value of $46,868,000, or $1,000 per share, for a total consideration
valued at $50 million. As a result of the Share Exchange, Impact BioMedical is now a wholly-owned subsidiary of DSS BioHealth,
the Company’s wholly-owned subsidiary.
As
previously disclosed, Heng Fai Ambrose Chan is the Chief Executive Officer and largest stockholder of Singapore eDevelopment,
as well as the Chairman of the Board and largest stockholder of the Company.
Series
A Convertible Preferred Stock Certificate of Designation
As
described above, in accordance with the terms of the Share Exchange Agreement, the Company issued 46,868 shares of Series A Preferred
Stock, with a stated value of $46,868,000, or $1,000 per share, to Global BioMedical as partial consideration in exchange for
the Impact Shares.
The
rights and preferences of the Series A Preferred Stock were designated by the Company’s Board in the Series A COD, pursuant
to which the Company authorized 46,868 shares of Series A Preferred Stock. Holders of the Series A Preferred Stock have no voting
rights, except as required by applicable law or regulation, and no dividends accrue or are payable on the Series A Preferred Stock.
The holders of Series A Preferred Stock are entitled to a liquidation preference at a liquidation value of $1,000 per share, and
the Company has the right to redeem all or any portion of the then outstanding shares of Series A Preferred Stock, pro rata among
all holders, at a redemption price per share equal to such liquidation value per share.
The
Series A Preferred Stock ranks senior to Common Stock and any other class of securities that is specifically designated as junior
to the Series A Preferred Stock with respect to rights on the distribution of assets on any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Company, in respect of a liquidation preference equal to its par value of $1,000.
In addition, under the Series A COD, the Company has the right to convert all or any portion of the then outstanding shares of
Series A Preferred Stock, pro rata among all holders, into an aggregate number of shares of Common Stock as is determined by (i)
multiplying the number of shares to be converted by the liquidation value per share, and then (ii) dividing the result by the
applicable conversion price then in effect.
As
a holder of Series A Preferred Stock, Global BioMedical has no right to convert all or any portion of any share of Series A Preferred
Stock as and to the extent giving effect to such issuance after conversion that Global BioMedical would beneficially own in excess
of the Ownership Limitation. Following the approval of the stockholders of the Company of the Ownership Limitation Increase, which
approval is being sought pursuant to this Proposal 4, Global BioMedical will not be able to convert all or any portion of any
share of Series A Preferred Stock to the extent any such conversion would cause Global BioMedical to beneficially own more than
50.99% of the outstanding Common Stock.
Stockholder
Approval Requirement
As
noted above, the Share Exchange Agreement contemplates that the number of shares to be issued to Global BioMedical is limited
to the 19.99% Ownership Limitation.
Rule
713 of the NYSE American requires stockholder approval of a transaction, other than a public offering, involving the sale, issuance
or potential issuance by an issuer of Common Stock (or securities convertible into or exercisable for Common Stock) at a price
less than the greater of book or market value which together with sales by officers, directors or principal stockholders of the
issuer equals 20% or more of presently outstanding Common Stock, or equal to 20% or more of presently outstanding stock for less
than the greater of book or market value of the stock, or when the issuance or potential issuance of additional shares will result
in a change of control of the issuer. Stockholder approval of this Proposal 1 will constitute stockholder approval for purposes
of Rule 713 of the NYSE American.
We
are seeking stockholder approval of the Ownership Limitation Increase, which will permit the issuance to Global BioMedical upon
conversion of the Series A Preferred Stock of up to 50.99% of our outstanding Common Stock.
If
our stockholders do not approve this Proposal, the Ownership Limitation will remain at 19.99%.
Reasons
for Transaction
The
Board believes that the Ownership Limitation Increase is in the best interests of the Company and its stockholders to help simplify
the Company’s balance sheet in order to help investors and others better understand, compare and analyze our operating performance
from period to period.
Effect
on Current Stockholders; Dilution
If
Proposal 4 is approved, our existing stockholders will suffer additional dilution in voting rights upon the issuance of Common
Stock upon conversion of shares of Series A Preferred Stock above the Ownership Limitation. As described above, if Proposal 4
is approved, Global BioMedical will not be able to convert all or any portion of any share of Series A Preferred Stock to the
extent any such conversion would cause Global BioMedical to beneficially own more than 50.99% of the outstanding Common Stock.
Specifically,
if Proposal 4 is approved, based on the conversion of all Series A Preferred Stock held by Global BioMedical, , subject to the
Ownership Limitation Increase, up to ________ shares of the Common Stock would be issuable. Based on the number of shares of Common
Stock outstanding as of the Record Date, such shares would represent ___% of our total outstanding shares (giving effect to such
issuance). The sale into the public market of these newly-issued shares of Common Stock could adversely affect the market price
of our Common Stock. The issuance of such shares may result in significant dilution to our stockholders and afford them a smaller
percentage interest in the voting power, liquidation value and aggregate book value of the Company. This means that our current
stockholders will own a smaller interest in our Company and will have less ability to influence significant corporate decisions
requiring stockholder approval.
As
noted above, the Share Exchange Agreement contemplates that the Company shall not issue, and Global BioMedical shall not acquire,
any shares of our Common Stock upon conversion of Series A Preferred Stock if such shares proposed to be issued and sold, when
aggregated with all other shares of our Common Stock then owned beneficially by Global BioMedical and its affiliates, would result
in the beneficial ownership by Global BioMedical and its affiliates in excess of the Ownership Limitation. If approved, the Ownership
Limitation Increase would limit the number of shares Global BioMedical may beneficially own at any one time to 50.99% of our outstanding
Common Stock. Consequently, the number of shares Global BioMedical may beneficially own in compliance with the Ownership Limitation
Increase may increase over time as the number of outstanding shares of our Common Stock increases over time. Global BioMedical
may be in a position to exert influence over the Company and there is no guarantee that the interests of Global BioMedical will
align with the interests of other stockholders.
The
rights and privileges associated with all shares of Common Stock issuable upon conversion of Series A Preferred Stock, however,
are identical to the rights and privileges associated with the Common Stock held by our existing stockholders, and will not include
preemptive, conversion or other rights to subscribe for additional shares of Common Stock.
Votes
Required for Approval
The
approval of the amendment to our certificate of incorporation to effect the Ownership Limitation Increase requires the affirmative
vote of a majority of the shares of the Company’s Common Stock present in person or by proxy and voting at the Annual Meeting.
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” PROPOSAL 4.
PROPOSAL
5 - REINCORPORATION OF THE COMPANY FROM NEW YORK TO TEXAS
Background
Our
Board has unanimously approved and recommends to our stockholders this proposal to change the Company’s state of incorporation
from New York to Texas (the “Reincorporation”), subject to stockholder approval. The Reincorporation would be effected
pursuant to a merger (the “Merge” with Alset, Inc., a wholly-owned subsidiary of the Company incorporated in Texas
(“Alset”). The Company will enter into an Agreement and Plan of Merger (the “Merger Agreement”)in the
form attached to this proxy statement under Exhibit [_], whereby the Company will merge with and into Alset.. In addition, following
the Reincorporation, the Company will no longer be a New York corporation governed by the Company’s current Certificate
of Incorporation (the “New York Charter”) and its current By-laws (the “New York By-laws” and, together
with the New York Charter, the “New York Governing Documents”) and will instead` be a Texas corporation governed by
the proposed Texas Certificate of Formation (the “Texas Charter”) and the proposed Texas By-laws (the “Texas
By-laws” and, together with the Texas Charter, the “Texas Governing Documents”), each in the form attached to
this proxy statement under Exhibits [] and [], respectively. Our Board has determined that the terms of the Merger Agreement,
the Merger, the Texas Charter and the Texas By-laws are fair to, and in the best interests of, the Company and our stockholders.
For
the reasons discussed below, the Board recommends that the stockholders vote “FOR” the Reincorporation Proposal. Approval
of the Reincorporation Proposal will constitute adoption of the Merger Agreement and approval of the Texas Charter and Texas By-laws.
All descriptions of the Texas Governing Documents are qualified by and subject to the more complete information set forth in those
documents.
Upon
the Effective Time of the Merger:
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(1)
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The
Company will merge with and into Alset, with Alset being the surviving corporation and we will cease to exist as a New York
corporation. Because Alset will be the surviving corporation, the Merger will result in a name change.
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(2)
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The
affairs of the Company will cease to be governed by New York Business Corporation Laws (“NYBCL”) and will become
subject to the Texas Business Organizations Code, as amended (“TBOC”),. See “Comparison of Stockholder Rights
Before and After the Reincorporation” below.
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(3)
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The
legal existence of the Company as a separate New York corporation will cease and Alset will continue with all of the rights,
titles and interests of the Company, will continue with the same officers and directors of the Company, the rights of creditors
of the Company will continue to exist as creditors of Alset, and the ownership interest of the stockholders of the Company
will be converted to an identical interest in Alset.
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(4)
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All
of the Company’s employee benefit and incentive plans and arrangements will be assumed by Alset upon the same terms
and subject to the same conditions set forth in such plans and arrangements as before the Reincorporation.
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(5)
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Each
outstanding share of our Common Stock will automatically be converted into one share of common stock, par value $0.02 per
share, of Alset (“Alset Common Stock”).
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(6)
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Each
outstanding option to purchase our Common Stock will automatically be converted into an option to purchase an identical number
of shares of Alset Common Stock at the same option price per share and upon the same terms and subject to the same conditions
set forth in the applicable plans and related award agreements.
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(7)
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Alset
Common Stock will become issuable upon the vesting of the Company’s existing restricted shares and awards of restricted
stock units upon the same terms and subject to the same conditions set forth in the applicable plans and related award agreements.
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(8)
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The
Company will be renamed “Alset, Inc” and expects to trade under the symbol “___” On NYSE American.
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The
Reincorporation will become effective upon filing of certificates of merger with the Secretary of State of each of New York and
Texas, which filings are expected to be made as soon as practicable after stockholder adoption of the Merger Agreement. Pursuant
to the terms of the Merger Agreement, the Reincorporation may be abandoned by the Board at any time before the Effective Time
(whether before or after approval by the Company’s stockholders). In addition, the Company and Alset may amend the Merger
Agreement at any time before the Effective Time (whether before or after approval by the Company’s stockholders), provided
that after approval by the Company’s stockholders, no amendment may be made that by law requires further approval by the
Company’s stockholders without obtaining such further approval.
No
regulatory approval (other than various filings with Secretary of State of Texas and Texas discussed above) is required to effect
the Reincorporation. The terms of the Reincorporation and Merger are described in more detail in the Merger Agreement and all
descriptions of the Reincorporation are qualified by and subject to the more complete information therein.
Reasons
for the Reincorporation
In
connection with the Reincorporation, our Board has determined that it is advisable and in the Company’s best interest to
change the Company’s name from “Document Security Systems, Inc.” to “Alset, Inc.” to better align
it with the Company’s principal business operations (the “Name Change”). The Board believes the proposed new
name recognizes the expanded scope of our business and operation, however, the name of “Alset” is currently not available
in the State of New York. The management of the Company discovered that the intended new name is available in the State of Texas
and therefore suggested to the Board to re-incorporate in the Company in the State of Texas to be able to use the name of “Alset.”
The
Company believes that the Texas legislature has demonstrated a willingness to maintain modern and effective corporation laws to
meet changing business needs. While some regard NYBCL as an extensive and well-defined body of corporate law in the United States,
the Company does not believe there is a significant risk to the Company or its stockholders if the Company is governed under TBOC
rather than NYBCL. While there are some advantages under NYBCL to being a New York corporation, there are also advantages under
TBOC law to being a Texas corporation.
The
Company believes that, on balance, the impact on the Company of implementing the Reincorporation Proposal from a corporate law
perspective will be positive to the Company and its stockholders. We have provided a discussion of differences between the NYBCL
and TBOC below under the heading “Comparison of Stockholder Rights Before and After the Reincorporation.”
Name
Change
The
Board believes that the Name Change is in the best interest of the Company to create a name which is not related to the former
business attempt, in which the Company may never again engage. The Board also believes that the Name Change will better reflects
the nature of our anticipated operations. The Name Change is contingent and conditioned on stockholder approval of this Proposal,
and, if the stockholders approve this Proposal 5, the Name Change will be effected through the filing of the Texas Charter.
Regulatory
Approvals and Third-Party Consents
Other
than receipt of stockholder approval and the filing of a Texas Merger Certificate with the Texas Secretary of State and a New
York Merger Certificate with the New York Secretary of State, to our knowledge, there are no federal or state regulatory requirements
or approvals that must be obtained in order for us to consummate the Reincorporation. Although the Reincorporation will require
a technical relisting of our Common Stock on the NYSE American following the Reincorporation, our Common Stock will continue to
be traded on the NYSE American symbol and is expected to trade under the symbol “___” subject to approval by the Financial
Industry Regulatory Authority (FINRA). To the extent the Reincorporation will require the consent or waiver of a third party (for
example, the consent of the Company’s primary lender), the Company will use commercially reasonable efforts to obtain such
consent or waiver before completing the Reincorporation. If a material consent cannot be obtained, the Company may determine not
to proceed with the Reincorporation.
Employee
and Director Benefit Matters
All
employee benefit plans of the Company will be continued by the Alset. The Company’s other employee benefit arrangements
will also be continued by Alset upon the terms and subject to the conditions in effect prior to the Reincorporation. The Reincorporation
will not accelerate the time of payment or vesting, or increase the amount of compensation or benefits under, any of the Company’s
agreements with its directors and employees or any of its compensation and benefit programs.
Effect
of the Reincorporation on Stock Certificates
If
this Reincorporation Proposal is approved, and the Company proceeds with the Reincorporation, it will not be necessary for stockholders
to exchange their existing stock certificates for Alset stock certificates. However, as a result of the Reincorporation and Name
Change, our Common Stock will receive a new CUSIP number, which and the number used to identify the Company’s equity securities.
If at any time on or after the Effective Time a stockholder wishes to acquire a stock certificate with the new CUSIP number, the
stockholder may do so by surrendering its, his or her certificate with the old CUSIP number to the transfer agent for Alset with
a request for a replacement certificate. Following the Reincorporation, the transfer agent for Alset will continue to be American
Stock Transfer and Trust Company
The
Reincorporation will have no effect on the transferability of outstanding stock certificates representing the Company’s
Common Stock.
Dissenters’
Rights of Appraisal
Pursuant
to New York law, if the Reincorporation is approved by the Company’s stockholders, stockholders who dissent from the Reincorporation
will not be entitled to appraisal rights.
Certain
U.S. Federal Income Tax Consequences of the Reincorporation
The
following is a brief summary of certain U.S. federal income tax consequences to holders of the Company’s Common Stock who
receive Alset Common Stock as a result of the Reincorporation. The summary sets forth such consequences to the Company’s
stockholders who hold their shares as a capital asset (generally, an asset held for investment).
This
summary is for general information only and does not purport to be a complete discussion or analysis of all potential tax consequences
that may apply to a stockholder. Stockholders are urged to consult their tax advisors to determine the particular tax consequences
of the Reincorporation, including the applicability and effect of federal, state, local or foreign tax laws. This summary is based
on the Internal Revenue Code of 1986, as amended (the “Code”), the Treasury Regulations promulgated thereunder, and
rulings and decisions in effect as of the date of this proxy statement, all of which are subject to change, possibly with retroactive
effect, and to differing interpretations.
The
Company has neither requested nor received a tax opinion from legal counsel with respect to the U.S. federal income tax consequences
of the Reincorporation. No rulings have been or will be requested from the Internal Revenue Service as to the federal income tax
consequences of the Reincorporation.
The
Reincorporation provided for in the Merger Agreement is intended to be treated as a “tax-free” reorganization as described
in Section 368(a)(1)(F) of the Code. Assuming that the Reincorporation qualifies as a “tax-free” reorganization, no
gain or loss will be recognized to the holders of the Company’s Common Stock as a result of the consummation of the Reincorporation,
and no gain or loss will be recognized by the Company or Alset. The basis of the acquired assets in the hands of Alset will be
the same as the Company’s basis in such assets. Each former holder of the Company’s Common Stock will have the same
basis in Alset Common Stock received by that holder pursuant to the Reincorporation as was the basis in the Company Common Stock
held at the time the reincorporation was consummated. Each stockholder’s holding period with respect to the Alset Common
Stock will include the period during which that stockholder held the corresponding the Company’s Common Stock, provided
the latter was held by such holder as a capital asset at the time the Reincorporation was consummated.
Comparison
of Stockholder Rights Before and After the Reincorporation
Subject
to stockholder approval prior to the Effective Time, the Company will change its state of incorporation to Texas and will thereafter
be governed by TBOC, the Texas Charter and the Texas By-laws. There are certain differences between the rights of our stockholders
under:
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●
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the
TBOC, the proposed Texas Charter and the proposed Texas By-laws (collectively, such rights, the “Texas Rights”);
and
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the
NYBCL, the New York Charter and the New York By-laws (collectively, such rights, the “New York Rights”), copies
of which have been filed with the Securities and Exchange Commission.
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Set
forth below is a table that summarizes some of the significant differences in the Texas Rights and the New York Rights. Unless
otherwise specified in the table, the New York Governing Documents do not differ from the default provisions of the NYBCL and
the Texas Governing Documents do not differ from the default provisions of the TBOC. The following summary does not purport to
be a complete statement of the Texas Rights and the New York Rights, and is qualified in its entirety by reference to the full
text of the New York Governing Documents, the Texas Governing Documents, the NYBCL and the TBOC.
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Provision
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New
York
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Texas
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Removal
of Directors
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Under
the NYBCL, stockholders can remove directors for cause and, if provided in the certificate of incorporation or by-laws,
without cause. The board can remove directors with or without cause if provided in the charter or a bylaw adopted by stockholders.
Under
the New York Charter, directors may be removed by the affirmative vote of the majority of the Board or affirmative vote
of the stockholders entitled to vote with the majority of the outstanding voting power, in each case only for cause.
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Under
Texas law, subject to the exceptions discussed below or as otherwise provided by the certificate of formation or bylaws
of a corporation, the stockholders may remove a director, with or without cause, by a vote of the holders of a majority
of the shares entitled to vote at an election of the directors.
If
the corporation’s directors serve staggered terms, a director may not be removed except for cause unless the certificate
of formation provides otherwise.
If
the certificate of formation permits cumulative voting and less than the entire board is to be removed, a director may
not be removed if the votes cast against the removal would be sufficient to elect him or her if cumulatively voted at
an election of the entire board of directors. Where a corporation’s certificate of formation provides that separate
classes or series of stockholders are entitled, as such a class or series, to elect separate directors, in calculating
the sufficiency of votes for removal of such a director, only the votes of the holders of such a class or series are considered.
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Filling
Board Vacancies and Newly Created Vacancies
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Under
the New York By-laws, newly created directorships resulting from an increase in the number of directors and any vacancies
on the Board resulting from death, resignation, retirement, disqualification, removal or other reason may be filled solely
by a majority vote of the remaining directors then in office, even if less than a quorum, or by a sole remaining director.
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Under
Texas law, any vacancy occurring in the board of directors may, unless otherwise authorized by a corporation’s certificate
of formation, fill a vacancy or a newly created vacancy in a director position only: (i) by the affirmative vote of the
majority of the directors then in office, even if less than a quorum, (ii) by the sole remaining director, or (iii) by
the affirmative vote of the stockholders.
A
directorship to be filled because of an increase in the number of directors may be filled by the stockholders or by the
board of directors for a term of office continuing only until the next election of one or more directors by the stockholders.
The board of directors may not fill more than two such directorships during the period between any two successive annual
meetings of stockholders.
The
proposed Texas Bylaws require the affirmative vote of the majority of directors then in office, even if less than a quorum,
to fill any vacancy in the board of directors.
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Stockholder
Right to Call Special Meetings
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Under
the New York By-laws, special meetings of stockholders may only be called by any two or more directors, the Chairman or
Chief Executive Officer, or the holders of no less than 10% of all the outstanding shares of the Company’s capital
stock entitled to vote at the meeting.
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Unlike
in New York, under Texas law, stockholders are guaranteed the right to call special meetings. Unless otherwise specified
in the corporation’s certificate of formation, holders of not less than 10% of all of the shares entitled to vote
at the proposed meeting have the right to call a special stockholders’ meeting. The certificate of formation may
allow for special meetings to be called by a number of shares greater than or less than 10%, but it may not set the required
number of shares above 50%. The president, board of directors, or any other person authorized to call special meetings
by the certificate of formation or bylaws of the corporation may also call special stockholders’ meetings.
The
proposed Texas Charter does not provide for a lower than 10% ownership threshold for stockholders of the Company to call
a special stockholders’ meeting.
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Stockholder
Action by Written Consent
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Under
the NYBCL, unless otherwise specified in the certificate of incorporation, stockholder action in lieu of a meeting is
permitted to be taken by unanimous written consent of those stockholders who would have been entitled to vote on a given
action at a meeting.
The
New York By-Laws requires unanimous written consent in order for stockholders to take action without a meeting.
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Under
Texas law, any action that may be taken at a meeting of the stockholders may be taken without a meeting if written consent
thereto is signed by all the holders of shares entitled to vote on that action. The certificate of formation of a Texas
corporation may provide that action by written consent in lieu of a meeting may be taken by the holders of that number
of votes which would be required to take the action which is the subject of the consent at a meeting at which each of
the shares entitled to vote thereon were present and voted.
The
proposed Texas By-laws allow action by one or more written consents if such consent or consents are signed by the holder
or holders having not less than the minimum number of votes that would be necessary to take such action at a meeting at
which the holders of all shares entitled to vote on the action were present and voted.
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Notice
of Stockholder Meetings
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Under
the New York By-laws, notice of stockholder meetings must be given in writing to each stockholder entitled to vote at the
meeting not less than 10 nor more than 60 days before the meeting, except where the matter to be acted on is a merger or consolidation
of the Company or a sale, lease or exchange of all or substantially all of its assets, that such notice shall be given not
less than 20 days nor more than 60 days prior to such meeting.
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Under
the TBOC and the Texas By-laws, notice of stockholder meetings may be given by mail, courier service, email (unless the stockholder
has notified the Company of an objection to receiving notice by email) or another form of electronic transmission consented
to by the stockholder. Notice to each stockholder, regardless of method of delivery, will be delivered not less than 10 nor
more than 60 days before the meeting.
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Stockholder
Vote Required for Certain Transactions
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Under
the NYBCL, a publicly traded New York corporation is prohibited from engaging in any
“business combination” with an “interested stockholder” for a
period of five years following the date the stockholder became an interested stockholder,
unless:
(a)
the board of directors approves either the business combination or the acquisition of stock by the interested stockholder
before the interested stockholder acquires his or her shares;
(b)
five years after such interested stockholder acquires his or her shares, the holders of a majority of the outstanding
voting stock not beneficially owned by such interested stockholder approves the business combination; or
(c)
the business combination meets certain fair price procedural requirements.
An
“interested stockholder” under the NYBCL is generally a beneficial owner of at least 20% of the corporation’s
outstanding voting stock.
“Business
combinations” under the NYBCL include mergers and consolidations between corporations or with an interested stockholder;
sales, leases, mortgages or other dispositions to an interested stockholder of assets with an aggregate market value which either
equals 10% or more of the corporation’s consolidated assets or outstanding stock, or represents 10% or more of the consolidated
earning power or net income of the corporation; issuances and transfers to an interested stockholder of stock with an aggregate
market value of at least 5% of the aggregate market value of the outstanding stock of the corporation; liquidation or dissolution
of the corporation proposed by or in connection with an interested stockholder; reclassification or recapitalization of stock
that would increase the proportionate stock ownership of an interested stockholder; and the receipt by an interested stockholder
of any benefit from loans, guarantees, pledges or other financial assistance or tax benefits provided by the corporation.
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Unless
its certificate of formation provides otherwise, the TBOC prohibits Texas public corporations
from entering into specific (i) mergers, share exchanges and conversions, (ii) sales
of assets, reclassifications and other transactions sales or other dispositions of assets
having an aggregate market value of 10% or more of (a) the aggregate market value of
the consolidated assets of a company, (b) the aggregate market value of the outstanding
stock of a company or (c) the earning power or net income of a company on a consolidated
basis, (iii) certain transactions that would result in the issuance or transfer of shares
of a company to an affiliated stockholder, increase the affiliated stockholder’s
proportionate share of ownership in a company or grant the affiliated stockholder disproportionate
financial benefits, and (iv) liquidation proposals with an “affiliated stockholder”
for a period of three years after the date the stockholder obtained “affiliated
stockholder” status.
“Affiliated
stockholder” is defined as a person who beneficially owns (or has owned within the preceding three-year period)
20% or more of the outstanding voting stock of a Texas public corporation.
The
TBOC provides an exception to this prohibition if: (i) the board of directors of the corporation approves the transaction
or the acquisition of shares by the affiliated stockholder prior to the affiliated stockholder becoming an affiliated
stockholder, or (ii) the board of directors and two-thirds (or higher if specified in the certificate of formation) of
the unaffiliated stockholders approve the transaction at a meeting held no earlier than six months after the stockholder
acquires such ownership.
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A
New York corporation may elect to waive the above restrictions in its original certificate
of incorporation or in a by-law, which is approved by the affirmative vote of a majority
of the outstanding voting stock of the corporation, excluding the stock owned by the
interested stockholders and its affiliates and associates.
Neither
the New York Charter nor the New York By-laws have waived these restrictions.
Pursuant
to the terms of the Merger Agreement, the Merger may be abandoned by the Board at any time prior to the Effective Date.
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Limitations
on Director Liability
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Under
the NYBCL, if a corporation’s certificate of incorporation so provides, the personal
liability of a director for breach of fiduciary duty as a director may be eliminated
or limited. A corporation’s certificate of incorporation, however, may not limit
or eliminate a director’s personal liability (a) if a judgment or other final adjudication
adverse to the director establishes that the director acted in bad faith or engaged in
intentional misconduct or a knowing violation of law, personally gained a financial profit
to which the director was not legally entitled, or violated certain provisions of the
NYBCL, or (b) for any act or omission prior to the adoption of such provision in the
certificate of incorporation.
The
New York Charter does not currently contain a provision limiting the personal liability of directors.
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Texas
law permits a corporation to eliminate in its certificate of formation all monetary liability
of a director to the corporation or its stockholders for conduct in the performance of
such director’s duties.
Texas
law does not, however, permit any limitation of the liability of a director for: (i) a breach of the duty of loyalty to
the corporation or its stockholders, (ii) an act or omission not in good faith that constitutes a breach of duty of the
person to the corporation or involves intentional misconduct or a knowing violation of law, (iii) a transaction from which
the director obtains an improper benefit, or (iv) a violation of applicable statutes which expressly provide for the liability
of a director.
The
proposed Texas certificate of formation does not eliminate the monetary liability of a director of the Alset.
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Indemnification
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Under
the NYBCL, a corporation may indemnify any person made, or threatened to be made, a party to an action or proceeding (other
than one by or in the right of the corporation to procure a judgment in its favor), whether civil or criminal, including an
action by or in the right of any other corporation of any type or kind, by reason of the fact that he was a director or officer
of the corporation, or served such other corporation in any capacity, against judgments, fines, amounts paid in settlement
and reasonable expenses, including attorneys’ fees actually and necessarily incurred as a result of such action or proceeding,
or any appeal therein, if such director or officer acted, in good faith, for a purpose which he reasonably believed to be
in, or, in the case of service for any other corporation or any partnership, joint venture, trust, employee benefit plan or
other enterprise, not opposed to, the best interests of the corporation and, in criminal actions or proceedings, in addition,
had no reasonable cause to believe that his conduct was unlawful. Unless judicially authorized, corporations may not indemnify
a person in connection with a proceeding by or in the right of the corporation in which the person was adjudged liable to
the corporation. However, no indemnification may be made to or on behalf of any director or officer if a judgment or other
final adjudication adverse to the director or officer establishes that his acts were committed in bad faith or were the result
of active and deliberate dishonesty and were material to the cause of action so adjudicated, or that he personally gained
in fact a financial profit or other advantage to which he was not legally entitled.
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Texas
law permits a corporation to indemnify a director or former director, against judgments
and expenses reasonably and actually incurred by the person in connection with a proceeding
if the person: (i) acted in good faith, (ii) reasonably believed, in the case of conduct
in the person’s official capacity, that the person’s conduct was in the corporation’s
best interests, and otherwise, that the person’s conduct was not opposed to the
corporation’s best interests, and (iii) in the case of a criminal proceeding, did
not have a reasonable cause to believe the person’s conduct was unlawful.
If,
however, the person is found liable to the corporation, or is found liable on the basis he received an improper personal
benefit, then indemnification under Texas law is limited to the reimbursement of reasonable expenses actually incurred
and no indemnification will be available if the person is found liable for: (i) willful or intentional misconduct in the
performance of the person’s duty to the corporation, (ii) breach of the person’s duty of loyalty owed to the
enterprise, or (iii) an act or omission not committed in good faith that constitutes a breach of a duty owed by the person
to the corporation.
The
proposed Texas By-laws provide for indemnification of directors and officers (including advancement of expenses) to the
fullest extent permitted by applicable law.
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The
New York By-laws require the Company to indemnify directors and officers to the fullest extent of the law, but provides that
no indemnification is required with respect to any settlement or disposition of a proceeding unless the Company has given
its prior consent to such settlement/disposition. The New York By-laws also permit the Company to indemnify employees and
to advance expenses to any person entitled to indemnification upon request.
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Appraisal
Rights
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Under
the NYBCL, stockholders who follow certain procedures are entitled to exercise appraisal
rights in the event of certain mergers or consolidations, share exchanges, sales, leases,
exchanges or other dispositions of all or substantially all of the property of the Company.
However,
in the case of a merger or consolidation appraisal rights are not available:
(a)
to a stockholder of the parent corporation in a merger between a parent and a subsidiary corporation;
(b)
to a stockholder of the surviving corporation in a merger authorized under the NYBCL, other than a merger specified above,
unless such merger effects one or more of certain specified changes in the rights of the shares held by such stockholder;
or
(c)
in addition, in the case of a merger, consolidation or share exchange, appraisal rights are not available to a stockholder
for the shares of any class or series of stock, which shares or depository receipts, at the record date fixed to determine
the stockholders entitled to receive notice of the meeting of stockholders to vote upon the plan of merger or consolidation,
were listed on a national securities exchange or designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc.
Because
the Company is listed on the New York Stock Exchange American, no appraisal rights are available to the Company’s
stockholders under New York law in the event of a merger, consolidation or share exchange.
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Except
for the limited classes of mergers, consolidations, sales and asset dispositions for
which no stockholder approval is required under Texas law, stockholders of Texas corporations
with voting rights have dissenters’ rights in the event of a merger, consolidation,
conversion, sale, lease, exchange or other disposition of all, or substantially all,
the property and assets of the corporation. However, a stockholder of a Texas corporation
has no dissenters’ rights with respect to any plan or merger or conversion in which
there is a single surviving or new domestic or foreign corporation, or with respect to
any plan of exchange if:
(1)
the ownership interest, or a depository receipt in respect of the ownership interest, held by the owner is part of a class
or series of ownership interests, or depository receipts in respect of ownership interests, that are, on the record date
set for purposes of determining which owners are entitled to vote on the plan of merger, conversion, or exchange, as appropriate:
(A) listed
on a national securities exchange (the Company currently meets this condition by virtue of its listing on the NASDAQ market);
or
(B) held
of record by at least 2,000 owners;
(2)
the owner is not required by the terms of the plan of merger, conversion, or exchange, as appropriate, to accept for the
owner’s ownership interest any consideration that is different from the consideration to be provided to any other
holder of an ownership interest of the same class or series as the ownership interest held by the owner, other than cash
instead of fractional shares or interests the owner would otherwise be entitled to receive; and
(3)
the owner is not required by the terms of the plan of merger, conversion, or exchange, as appropriate, to accept for the
owner’s ownership interest any consideration other than:
(A) ownership
interests, or depository receipts in respect of ownership interests, of a another entity of the same general organizational
type that, immediately after the effective date of the merger, conversion, or exchange, as appropriate, will be part of
a class or series of ownership interests, or depository receipts in respect of ownership interests, that are:
(i)
listed on a national securities exchange or authorized for listing on the exchange on official notice of issuance;
(ii)
held of record by at least 2,000 owners;
(B) cash
instead of fractional ownership interests the owner would otherwise be entitled to receive; or
(C) any
combination of the ownership interests and cash above.
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Stockholder
Right to Inspect Stockholder List
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Under
the NYBCL, a stockholder of record may inspect the list of record stockholders upon giving at least five days’ written
demand to do so. The inspection may be denied if the stockholder refuses to give an affidavit that such inspection is not
desired for a purpose which is in the interest of a business other than the business of the corporation and that the stockholder
has not been involved in selling or offering to sell any list of stockholders of any corporation within the preceding five
years.
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Under
Texas law, a stockholder may, upon written demand stating a proper purpose, inspect the books and records of a corporation
if such stockholder holds at least 5% of the outstanding shares of stock of the corporation or has been a holder of shares
for at least six months prior to such demand.
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Anti-Greenmail
Provision
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Under
the NYBCL, the Company is prohibited from purchasing or agreeing to purchase more than 10% of its stock from a stockholder
at a price greater than the market value of the stock unless the purchase is approved by the Board and a majority of stockholders
entitled to vote. However, this restriction does not apply when the Company offers to purchase shares from all of its stockholders
or with respect to stock that a stockholder has owned beneficially for more than two years.
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The
TBOC does not contain a similar restriction on the Company’s ability to purchase its own stock.
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Considerations
of Directors
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Under
the NYBCL when making corporate decisions, directors are entitled to consider the long-term and/or short-term effects of any
action on stockholders, employees, customers, creditors and the communities in which the corporation does business.
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Texas
corporate law includes statutory approval of directors considering both the long-term and short-term interests of the corporation
and the stockholders.
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Exclusive
Forum
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There
is no statutory provision in the NYBCL explicitly authorizing a company to designate an exclusive forum for certain types
of litigation. The New York Charter and By-laws do not specify an exclusive forum.
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Texas
law does not have an authorizing statutory provision regarding the forum selection for a particular type of litigation.
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Amendments
to Charter
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Under
the NYBCL, except for certain ministerial changes, and except as otherwise required under
a certificate of incorporation, a corporation’s certificate of incorporation may
be amended only if authorized by the board of directors and approved by the holders of
a majority of the outstanding stock entitled to vote on such amendment.
However,
wherever the certification of incorporation requires action by the board or the holders of securities having voting power
greater than is required by law, then such provision may not be altered, amended or repealed except by such greater vote.
Additionally,
wherever the NYBCL requires a vote greater than a majority of the outstanding stock, then any amendment to the certificate
of incorporation for the purpose of reducing this voting threshold may not be adopted except by the vote of stockholders
having voting power that is at least equal to that which would be required to take the action.
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Under
Texas law, an amendment to the certificate of formation requires the approval of the holders of at least two-thirds of the
outstanding shares of the corporation, unless a different threshold, not less than a majority, is specified in the certificate
of formation.
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Amendments
of By-laws
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Under
the NYBCL, a corporation’s by-laws may be amended by the vote of the holders of
a majority of the votes cast with respect to such amendment (rather than a majority of
the shares outstanding) or, if permitted under the corporation’s certificate of
incorporation or a bylaw adopted by the stockholders, by the board of directors.
The
New York By-laws provide that the Board may amend the New York By-laws without stockholder approval, but any bylaw adopted
by the Board may be amended or repealed by the stockholders.
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Generally,
under Texas law, the board of directors may amend, repeal or adopt a corporation’s
bylaws. However, a corporation’s certificate of formation may reserve this power
exclusively to a majority of the stockholders. Similarly, the stockholders, in amending,
repealing or adopting a particular bylaw, may expressly provide that the board of directors
may not amend, readopt or repeal that bylaw. Texas case law permits the corporation to
increase the required threshold of stockholders necessary to amend the bylaws.
The
proposed Texas Charter does not restrict the Board of Directors’ power to adopt, change or repeal any provisions
of the Texas By-laws, subject to the stockholders’ right to change the bylaws.
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Expiration
of Proxies
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Under
the NYBCL, a proxy executed by a stockholder will remain valid for eleven months unless the proxy provides for a longer period.
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Under
Texas law, a stockholder may authorize another person or persons to act for such stockholder by proxy. A proxy is only valid
for eleven months from its date unless otherwise provided in the proxy.
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Votes
Required for Approval
The
approval of the reincorporation of the Company from New York to Texas requires the affirmative vote of a majority of the shares
of the Company’s Common Stock present in person or by proxy and voting at the Annual Meeting.
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” PROPOSAL 5.
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors
and Executive Officers
The
Company’s Board of Directors currently consists of eight directors; the Board size was increased from seven to eight persons
on September 22, 2020, upon recommendation and approval by the Nominating and Corporate Governance Committee to do so.
Our
executive officers and directors as of the date of this report are as follows:
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NAME
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POSITION
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Frank D. Heuszel
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Chief Executive Officer, Interim Chief Financial
Officer and Director
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Jason Grady
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Chief Operating Officer
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Heng Fai Ambrose Chan
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Director, Chairman
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John Thatch
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Director
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Jose Escudero
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Director
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Sassuan Lee
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Director
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Lowell Wai Wah
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Director
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William Wu
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Director
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Mr. Chan Tung Moe
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Director
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Biographical
and certain other information concerning the Company’s officers and directors is set forth below. Except for M Heng Fai
Ambrose Chan and his son Mr. Chan Tung Moe, there are no familial relationships among any of our directors. Except as indicated
below, none of our directors is a director in any other reporting companies. None of our directors has been affiliated with any
company that has filed for bankruptcy within the last ten years. We are not aware of any proceedings to which any of our directors,
or any associate of any such director is a party adverse to us or any of our subsidiaries or has a material interest adverse to
us or any of our subsidiaries. Each executive officer serves at the pleasure of the Board of Directors.
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Name
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Age
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Director/Officer
Since
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Principal
Occupation or
Occupations and Directorships
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Frank D. Heuszel
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64
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2018
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Frank D. Heuszel
has served as a director of the Company since July 30, 2018, and from July 2018 to April 2019, he served as chairman of the
Company’s Audit Committee. He has served as the Company’s Chief Executive Officer and Interim Chief
Financial Officer since April 17, 2019. Mr. Heuszel has extensive expertise in a wide array of strategic, business,
turnaround, and regulatory matters across several industries as a result of his executive management, educational, and operational
experience. Prior to joining DSS, Mr. Heuszel had a very successful career in commercial banking. For over 35 years,
Heuszel served in many senior executive roles with major US and international banking organizations. As a
banker Mr. Heuszel has served as General Counsel, Director of Special Assets, Credit Officer, Chief Financial Officer and
Auditor. Mr. Heuszel also operated a successful law practice focused on the litigation, corporate restructures,
and merger and acquisitions, and collections. In addition to being an attorney and executive manager, Mr. Heuszel
is also a Certified Public Accountant (retired), and a Certified Internal Auditor.
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Jason Grady
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45
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2018
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Since
July 2018, Mr. Grady has been President of Premier Packaging Corporation (“PPC”), a multi-division folding
carton and security packaging company and wholly-owned subsidiary of the Company. From April 2010 through July 2018, Mr.
Grady served as the Company’s Vice President of Sales. Mr. Grady’s role included strategic leadership and
driving key initiatives that include re-engineering sales organizations, new business development, international sales,
sales management and corporate marketing. He was responsible for the overall management of multi-divisional sales including
anti-counterfeit & authentication solutions, enterprise security software technologies, and document security printing.
Prior to joining the Company, Mr. Grady served as Sales Director for the Paul T. Freund Corporation, a custom-ridged set
up box manufacturer, from May 2009 to August 2010. Mr. Grady also served as Vice President of Marketing for Parlec, Inc.,
a multi-market machine tool manufacturer, from October 2004 to May 2009. Mr. Grady held the position of Marketing Manager
for Fonte Health Care Solutions from December 2002 to October 2004 and previously served as Sales and Marketing Executive
for OutStart, an enterprise e-learning software company. Mr. Grady obtained an undergraduate degree in marketing and design
and a Masters Degree in Business Administration from the Rochester Institute of Technology.
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Heng Fai Ambrose
Chan
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75
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2017
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Heng Fai Ambrose
Chan has served as a director of the Company since February 12, 2017 and became Chairman of the Board of Directors on March
27, 2019. He has also served as an officer of the Company’s wholly-owned subsidiary, DSS International Inc., since July
of 2017. Mr. Chan is an expert in banking and finance, with years of experience in the industry. Mr. Chan has restructured
35 companies in various industries and countries in the past 40 years. Mr. Chan currently serves as the Chief Executive Officer
of Singapore eDevelopment Limited (SED), a publicly traded company on the Singapore Stock Exchange. He also serves as a director
of BMI Capital Partners International Ltd., a wholly-owned subsidiary of SED. Mr. Chan also serves on the board of Holista
CollTech Limited, a publicly traded company listed on the Australian Securities Exchange. Mr. Chan formerly served as (i)
Managing Chairman of Heng Fai Enterprises Limited (now known as ZH International Holdings Limited) which trades on the Hong
Kong Stock Exchange; (ii) the Managing Director of SGX Catalist-listed SingHaiyi Group Ltd., which under his leadership, transformed
from a failing store-fixed business provider with net asset value of less than $10 million into a property trading and investment
company and finally to a property development company with net asset value over $150 million before Mr. Chan ceded controlling
interest in late 2012; (iii) the Executive Chairman of China Gas Holdings Limited, a formerly failing fashion retail company
listed on the Hong Kong Stock Exchange, which under his direction, was restructured to become one of the few large participants
in the investment in and operation of city gas pipeline infrastructure in China; (iv) a director of Global Med Technologies,
Inc., a medical company listed on NASDAQ engaged in the design, development, marketing and support information for management
software products for healthcare-related facilities; (v) a director of Skywest Limited, an ASX-listed airline company; and
(vi) the Chairman and Director of American Pacific Bank. In 1987, Mr. Chan acquired American Pacific Bank, a full-service
U.S. commercial bank, and brought it out of bankruptcy. He recapitalized, refocused and grew the bank’s operations.
Under his guidance it became a NASDAQ-listed high asset quality bank with zero loan losses for over five consecutive years
before it was ultimately bought and merged into Riverview Bancorp Inc. Mr. Chan’s international business contacts and
experience qualifies him to serve on our Board of Directors.
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John Thatch
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58
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2019
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John Thatch has
served as a director of the Company since May 9, 2019 and as Lead Independent Director since December 9, 2019. Mr. Thatch
is an accomplished professional and entrepreneur who has started, owned and operated several businesses in various industries
and in both the public and private arena. The industries in which his companies have operated include the service, retail,
wholesale, education, finance, real estate management and technology industries. Since March 2018, Mr. Thatch has served as
the Chief Executive Officer and a director of Sharing Services Global Corporation, a publicly traded holding company focused
in the direct selling and marketing industry. He is also a principal owner of Superior Wine & Spirits, a Florida-based
company that imports, wholesales and distributes wine and liquor throughout the State of Florida. He has been involved in
this business venture since February of 2016. Mr. Thatch served as Chief Executive Officer of Universal Education Strategies,
Inc. from January 2009 - January 2016, an organization consisting of six companies that specialized in the development and
sales of educational products and services. From 2000 - 2005, he was the Chief Executive Officer of Onscreen Technologies,
Inc., currently listed on NASDAQ as CUI Global, Inc., a global leader in the development of cutting-edge thermal management
technologies for integrated LED technologies, circuits and superconductors. Mr. Thatch was responsible for all aspects of
the company including board and stockholder communications, public reporting and compliance with Sarbanes-Oxley, structuring
and managing the firm’s financial operations, and expansion initiatives for all corporate products and services. Mr.
Thatch’s public company financial and management experience in the strategic growth and development of various companies
qualify him to Board serve on the Company’s Board of Directors and a member of the DSS Audit Committee.
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Jose
Escudero
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44
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2019
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Jose
Escudero has served as a director of the Company since August 5, 2019. He has served as the Managing Partner at BMI Capital
Spain, a private investment bank, since September 2013. Previously, Mr. Escudero served as Principal at Hallman & Burke,
an international consulting firm, from July 2009 through September 2013. Mr. Escudero has a B.Sc. in Economics from the Francisco
de Vitoria University and a Master’s degree in Corporate Finance and Investment Banking from the Options & Futures
Institute. Mr. Escudero’s experience in merger and acquisitions, corporate finance, and international trade along with
his education in economics and finance and investment banking qualifies him to serve on the Company’s Board of Directors
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Sassuan Lee
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49
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2019
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Sassuan Lee (also
known as Samson Lee) has served as a director of the Company since August 5, 2019. He co-founded STO Global X, a technology
and service provider for security token exchange solutions, in December 2017. He has also served as the Chief Crypto-Economic
Advisor for Gibraltar Stock Exchange and Gibraltar Blockchain Exchange since September 2017. In November 2016, Mr. Lee founded
Coinstreet Partners, a consultancy firm focused on blockchain, fintech, cryptocurrency and digital assets, and has served
as its Chief Executive Officer since inception. Mr. Lee previously served as Managing Director at uCast Global Asia from December
2015 through November 2016. Mr. Lee also served as the Executive Vice President of the Greater China region at Movideo from
June 2015 through December 2015 and as Vice President and General Manager of the Greater China and South Asia Pacific regions
at NeuLion Inc. from July 2008 through June 2015. Mr. Lee received his Bachelor of Commerce degree from the University of
Toronto and his MBA and MS degrees from the Hong Kong University of Science and Technology. Mr. Lee’s extensive experience
and recognized expert in the fields of technology, blockchain, cryptocurrency and fintech, combined with his experience as
Chief Executive Officer and Managing Director of successful international businesses qualifies him to serve on the Company’s
Board of Directors and a member of the DSS Audit Committee
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William Wu
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53
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|
2019
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William
Wu has served as a director of the Company since October 20, 2019. He served as the managing director of Investment Banking
at Glory Sun Securities Limited since January 2019. Mr. Wu previously served as the executive director and chief executive
officer of Power Financial Group Limited from November 2017 to January 2019. Mr. Wu has served as a director of Asia Allied
Infrastructure Holdings Limited since February 2015. Mr. Wu previously served as a director and chief executive officer
of RHB Hong Kong Limited from April 2011 to October 2017. Mr. Wu served as the chief executive officer of SW Kingsway
Capital Holdings Limited (now known as Sunwah Kingsway Capital Holdings Limited) from April 2006 to September 2010. Mr.
Wu holds a Bachelor of Business Administration degree and a Master of Business Administration degree of Simon Fraser University
in Canada. He was qualified as a chartered financial analyst of The Institute of Chartered Financial Analysts in 1996.
Mr.
Wu previously worked for a number of international investment banks and possesses over 26 years of experience in the investment
banking, capital markets, institutional broking and direct investment businesses. He is a registered license holder to
carry out Type 6 (advising on corporate finance) and Type 9 (asset management) regulated activities under the Securities
and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). Mr. Wu has served as a member of the Guangxi Zhuang Autonomous
Region Committee of the Chinese People’s Political Consultative Conference in January 2013. Mr. Wu’s experience
in banking, capital markets, investment banking, Asian economic and banking dynamics, and education in corporate finance
and asset management qualifies him to serve on the Company’s Board of Directors and a member of the DSS Audit Committee.
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Lo Wah
Wai
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56
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2019
|
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Mr.
Lo Wah Wai (also known as Lowell Lo) has served as a director of the Company since April 12, 2019. Mr. Lo is currently Chairman
and Managing Director of the BMI Intelligence Group Limited, a leading corporate consulting and financial services firm in
the Asia Pacific Region he founded in 1995, and is responsible for the overall management, strategic planning and development
of the firm. Prior to establishing BMI Intelligence Group Limited, Mr. Lo was the Audit Manager of Deloitte Touche Tohmatsu
for nine years, including two years of service in Deloitte’s U.S. headquarters. Mr. Lo has extensive experience with
initial public offerings and has participated in the listings of several companies including Ajisen Remen, 361 Degrees Group,
Lilanz Group and IGG. Mr. Lo’s professional qualifications include Hong Kong Certified Public Accountants (CPA), American
Institute of Certified Public Accountants (AICPA), Information Systems Auditor and Control Association (ISACA) and Senior
International Finance Manager (SIFM). Mr. Lo is also currently and independent, non-executive board member of Chongqing Machinery
& Electric Co., Ltd. And Tenfu (Cayman) Holdings Company Limited, both Hong Kong Exchange-listed companies. Mr. Lo received
his bachelor’s degree in Business Administration from the Chinese University of Hong Kong and a master’s degree
from the New Jersey Institute of Technology. Mr. Lo’s financial expertise and experience in the management and strategic
development of various companies qualifies him to serve on the Company’s board of directors.
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Mr. Chan Tung Moe
|
|
42
|
|
2020
|
|
Mr.
Chan Tung Moe has served as a director of the Company since September 2020. He currently serves as Group Chief Development
Officer of Singapore Exchange-listed Alset International Limited, overseeing the company’s global property business,
and as Vice President and Director of Corporate Development of American Medical REIT Inc., positions he has held since
August 2020. Mr. Chan Tung Moe also serves as Co-Chief Executive Officer and Director of LiquidValue Development Inc.
(f.k.a SeD Intellgient Home Inc.)(USA), a company he joined in 2017, and as Director and Chief Executive Officer (International)
of Alset IHome Inc. (f.k.a. SeD Home & REITs Inc.)(USA) a company he joined in 2015. Mr. Chan Tung Moe previously
served as Chief Executive Officer of Pop Motion Consulting Pte Ltd. (Singapore) from 2018 to 2020. Prior to that, in 2015
he was Group Chief Operating Officer of Hong Kong Stock Exchange listed Zensun International Limited where he was responsible
for the company’s global business operations consisting of REIT ownership and management, property development,
hotels and hospitality, as well as property and securities investment and trading. Within the past five years, Mr. Chan
Tung Moe has served as a director of MasterCard issuer Xpress Finance Limited as well as RSI International Systems Inc.,
which was a hotel software company listed on the Toronto Stock Exchange.
He
holds a Master’s Degree in Business Administration with honors from the University of Western Ontario, a Master’s
Degree in Electro-Mechanical Engineering with honors and a Bachelor’s Degree in Applied Science with honors from
the University of British Columbia.
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Board
of Directors and Committees
The
Company has determined that each of Mr. John Thatch, Mr. William Wu, Mr. Sassuan Lee and Mr. Jose Escudero qualify as independent
directors (as defined under Section 803 of the NYSE American LLC Company Guide).
In
fiscal 2019, each of the Company’s independent directors attended or participated in 62% or more of the aggregate of (i)
the total number of meetings of the Board of Directors held during the period in which each such director served as a director
and (ii) the total number of meetings held by all committees of the Board of Directors during the period in which each such director
served on such committee. During the fiscal year ended December 31, 2019, the Board held 13 meetings and acted by written consent
on one occasion.
On
December 9, 2019, the Board appointed Mr. Thatch as the Lead Independent Director, effective immediately. Mr. Thatch will serve
as the Lead Independent Director until his successor is duly appointed and qualified, or until his earlier removal or resignation
or such time as he is no longer considered an independent director under the New York Stock Exchange listing standards. Mr. Thatch’s
authority, responsibilities, and duties as the Lead Independent Director include the following: (i) preside at all meetings of
the Board at which the Chairman of the Board is not present, at all meetings of the independent directors and at all executive
sessions of the independent directors, (ii) have a reasonable opportunity to review and comment on Board meeting agendas, (iii)
serve as a liaison between the Chairman of the Board and the other members of the Board, (iv) have the authority to call special
meetings of the Board and of the independent directors, and (v) perform such other duties as the Board may from time to time delegate.
Audit
Committee
The
Company has separately designated an Audit Committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”). The Audit Committee held 7 meetings in 2019, and acted by written consent
on 0 occasions. The Audit Committee is responsible for, among other things, the appointment, compensation, removal and oversight
of the work of the Company’s independent registered public accounting firm, overseeing the accounting and financial reporting
process of the Company, and reviewing related person transactions. As of December 1, 2019, the Audit Committee is comprised of
Mr. John Thatch, Mr. Wu and Mr. Sassuan Lee. Each of Mr. Wu, Mr. Thatch and Mr. Lee is qualified as a “financial expert”
as defined in Item 407 under Regulation S-K of the Securities Act of 1933, as amended. Each of the members of the Audit Committee
is an independent director (as defined under Section 803 of the NYSE American LLC Company Guide). Mr. Thatch serves as Chairman
of the Audit Committee. The Audit Committee operates under a written charter adopted by the Board of Directors, which can be found
in the Investors/Corporate Governance section of our web site, www.dsssecure.com.
Compensation
and Management Resources Committee
The
purpose of the Compensation and Management Resources Committee is to assist the Board in discharging its responsibilities relating
to executive compensation, succession planning for the Company’s executive team, and to review and make recommendations
to the Board regarding employee benefit policies and programs, incentive compensation plans and equity-based plans. The Compensation
and Management Resources Committee held two meetings in 2019.
The
Compensation and Management Resources Committee is responsible for, among other things, (a) reviewing all compensation arrangements
for the executive officers of the Company and (b) administering the Company’s stock option plans. The Compensation and Management
Resources Committee consists of Mr. Jose Escudero, Mr. William Wu and Mr. Sassuan Lee, with Mr. Lee as the Chairman. Each of the
members of the Compensation and Management Resources Committee is an independent director (as defined under Section 803 of the
NYSE American Company Guide). The Compensation and Management Resource Committee operates under a written charter adopted by the
Board of Directors, which can be found in the Investors/Corporate Governance section of our web site, www.dsssecure.com.
The
duties and responsibilities of the Compensation and Management Resources Committee in accordance with its charter are to review
and discuss with management and the Board the objectives, philosophy, structure, cost and administration of the Company’s
executive compensation and employee benefit policies and programs; no less than annually, review and approve, with respect to
the Chief Executive Officer and the other executive officers (a) all elements of compensation, (b) incentive targets, (c) any
employment agreements, severance agreements and change in control agreements or provisions, in each case as, when and if appropriate,
and (d) any special or supplemental benefits; make recommendations to the Board with respect to the Company’s major long-term
incentive plans applicable to directors, executives and/or non-executive employees of the Company and approve (a) individual annual
or periodic equity-based awards for the Chief Executive Officer and other executive officers and (b) an annual pool of awards
for other employees with guidelines for the administration and allocation of such awards; recommend to the Board for its approval
a succession plan for the Chief Executive Officer, addressing the policies and principles for selecting a successor to the Chief
Executive Officer, both in an emergency situation and in the ordinary course of business; review programs created and maintained
by management for the development and succession of other executive officers and any other individuals identified by management
or the Compensation and Management Resources Committee; review the establishment, amendment and termination of employee benefits
plans, review employee benefit plan operations and administration; and any other duties or responsibilities expressly delegated
to the Compensation and Management Resources Committee by the Board from time to time relating to the Committee’s purpose.
The
Compensation and Management Resources Committee may request any officer or employee of the Company or the Company’s outside
counsel to attend a meeting of the Compensation and Management Resources Committee or to meet with any members of, or consultants
to, the Compensation and Management Resources Committee. The Company’s Chief Executive Officer does not attend any portion
of a meeting where the Chief Executive Officer’s performance or compensation is discussed, unless specifically invited by
the Compensation and Management Resources Committee.
The
Compensation and Management Resources Committee has the sole authority to retain and terminate any compensation consultant to
be used to assist in the evaluation of director, Chief Executive Officer or other executive officer compensation or employee benefit
plans, and has sole authority to approve the consultant’s fees and other retention terms. The Compensation and Management
Resources Committee also has the authority to obtain advice and assistance from internal or external legal, accounting or other
experts, advisors and consultants to assist in carrying out its duties and responsibilities, and has the authority to retain and
approve the fees and other retention terms for any external experts, advisors or consultants.
Nominating
and Corporate Governance Committee
The
Nominating and Corporate Governance Committee is responsible for overseeing the appropriate and effective governance of the Company,
including, among other things, (a) nominations to the Board of Directors and making recommendations regarding the size and composition
of the Board of Directors and (b) the development and recommendation of appropriate corporate governance principles. The Nominating
and Corporate Governance Committee consists of Mr. John Thatch, the Chairman of the committee, Mr. Sassuan Lee and Mr. Jose Escudero,
each of whom is an independent director (as defined under Section 803 of the NYSE American LLC Company Guide). The Nominating
and Corporate Governance Committee held 5 meetings in 2019, and did not act by written consent. The Nominating and Corporate Governance
Committee operates under a written charter adopted by the Board of Directors, which can be found in the Investors/Corporate Governance
section of our web site, www.dsssecure.com. The Nominating and Corporate Governance Committee adheres to the Company’s By-Laws
provisions and Securities and Exchange Commission rules relating to proposals by stockholders when considering director candidates
that might be recommended by stockholders, along with the requirements set forth in the committee’s Policy with Regard to
Consideration of Candidates Recommended for Election to the Board of Directors, also available on our website. The Nominating
and Corporate Governance Committee of the Board of Directors is responsible for identifying and selecting qualified candidates
for election to the Board of Directors prior to each annual meeting of the Company’s stockholders. In identifying and evaluating
nominees for director, the Committee considers each candidate’s qualities, experience, background and skills, as well as
other factors, such as the individual’s ethics, integrity and values which the candidate may bring to the Board of Directors.
Code
of Ethics
The
Company has adopted a Code of Ethics that establishes the standards of ethical conduct applicable to all directors, officers and
employees of the Company. A copy of the Code of Ethics covering all of our employees, directors and officers, is available on
the Corporate Governance section of our web site at www.dsssecure.com.
Information
about our Executive Officers
Since
April 17, 2019, Frank D. Heuszel has been serving as the Chief Executive Officer and interim Chief Financial Officer of the Company.
The biography for Mr. Heuszel is contained herein in the information disclosures relating to the Company’s directors above.
On
July 11, 2019, the Board appointed Mr. Jason Grady as the Company’s Chief Operating Officer, effective July 15, 2019.
At
the close of 2018, the Company’s Named Executive Officers were Jeffrey Ronaldi, who served as the Company’s Chief
Executive Officer, and Philip Jones, who served as the Company’s Chief Financial Officer. On March 27, 2019, in anticipation
of the departure of Jeffrey Ronaldi from his position as the Company’s Chief Executive Officer, the Board of Directors of
the Company determined to reassign Mr. Ronaldi’s responsibilities to Philip Jones, who was then serving as the Company’s
Chief Financial Officer. Mr. Ronaldi’s employment as Chief Executive Officer ended on April 10, 2019. On March 27, 2019,
Philip Jones assumed the role of interim Principal Executive Officer in addition to his duties as Chief Financial Officer of the
Company. On April 9, 2019, Mr. Jones tendered his resignation as Chief Financial Officer and interim Principal Executive Officer
of the Company, with his departure from the Company effective April 17, 2019.
Involvement
in Certain Legal Proceedings
None
of our directors or executive officers has been involved in any legal proceedings in the past 10 years that would require disclosure
under Item 401(f) of Regulation S-K.
Director
Compensation
The
following table sets forth cash compensation and the value of stock options awards granted to the Company’s non-employee
independent directors, who were not also named executive officers, for their service in fiscal 2019:
|
Name
|
|
Fees
Earned
or Paid in Cash
|
|
|
Stock
Awards (1)
|
|
|
All Other Compensation
|
|
|
Total
|
|
|
Current Directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Heng Fai Ambrose Chan
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
31,403
|
(4)
|
|
$
|
31,403
|
|
|
John Thatch
|
|
$
|
19,500
|
|
|
$
|
12,842
|
|
|
$
|
-
|
|
|
$
|
32,342
|
|
|
Lowell Wai Wah
|
|
$
|
-
|
|
|
$
|
17,122
|
|
|
$
|
-
|
|
|
$
|
17,122
|
|
|
Sassuan Lee
|
|
$
|
11,500
|
|
|
$
|
12,842
|
|
|
$
|
-
|
|
|
$
|
24,342
|
|
|
Jose Escudero
|
|
$
|
10,000
|
|
|
$
|
12,842
|
|
|
$
|
-
|
|
|
$
|
22,842
|
|
|
William Wu
|
|
$
|
2,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
2,000
|
|
|
Prior Directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pamella Avallone (3)
|
|
$
|
21,500
|
|
|
$
|
12,842
|
|
|
$
|
-
|
|
|
$
|
34,342
|
|
|
Joseph Sanders (2)
|
|
$
|
28,000
|
|
|
$
|
12,842
|
|
|
$
|
-
|
|
|
$
|
40,842
|
|
|
Clark Marcus (3)
|
|
$
|
13,500
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
13,500
|
|
|
Daniel DelGiorno (3)
|
|
$
|
-
|
|
|
$
|
17,122
|
|
|
$
|
-
|
|
|
$
|
17,122
|
|
|
Stanly Grisham (3)
|
|
$
|
14,000
|
|
|
$
|
12,842
|
|
|
$
|
-
|
|
|
$
|
26,842
|
|
|
Brett Scott (3)
|
|
$
|
10,500
|
|
|
$
|
12,842
|
|
|
$
|
-
|
|
|
$
|
23,342
|
|
|
|
(1)
|
Represents the total
grant date fair value of stock awards computed in accordance with FASB ASC 718. Our policy and assumptions made in the valuation
of share-based payments are contained in Note 10 to our consolidated financial statements for the year ended December 31,
2019.
|
|
|
|
|
|
|
(2)
|
Such person did
not stand for re-election at the 2019 Annual Stockholder meeting.
|
|
|
|
|
|
|
(3)
|
Resigned as director
of the Company during 2019.
|
|
|
|
|
|
|
(4)
|
In connection with
his employment contract as an officer of the Company’s subsidiary, Mr. Chan received $31,403 in fully vested restricted
stock with a two-year lock-up period.
|
Each
independent director (as defined under Section 803 of the NYSE MKT LLC Company Guide) is entitled to receive base cash compensation
of $12,000 annually, provided such director attends at least 75% of all Board of Director meetings, and all scheduled committee
meetings. Each independent director is entitled to receive an additional $1,000 for each Board of Director meeting he attends,
and an additional $500 for each committee meeting he attends, provided such committee meeting falls on a date other than the date
of a full Board of Directors meeting. Each of the independent directors is also eligible to receive discretionary grants of options
or restricted stock under the Company’s 2020 Equity Incentive Plan. Non-independent members of the Board of Directors do
not receive compensation in their capacity as directors, except for reimbursement of travel expenses.
On
September 23, 2019, the Company entered in an executive employment agreement with Mr. Heng Fai Ambrose Chan, a director of the
Company, Chief Executive Officer of the Company’s wholly-owned subsidiary DSS International Inc. and Chief Executive Officer
of DSS Asia, a wholly-owned subsidiary of DSS International Inc. Pursuant to the agreement, Mr. Chan shall receive an annual base
salary of $250,000, payable quarterly in either cash or common stock, subject to availability of shares under a stockholder-approved
stock plan. The calculation of each quarterly payment of common stock shall be the Company’s average trading price for the
last ten trading days of that quarter. Mr. Chan is also eligible to receive an annual performance bonus, in an amount up to 100%
of his base salary, upon the Company’s achievement of certain net income and gross revenue milestones. Mr. Chan has the
option to have the bonus paid in Company common stock. In the event of a change in control of the Company or the termination of
Mr. Chan’s employment without cause, Mr. Chan shall receive four-months’ salary, payable monthly. In connection with
this agreement, Mr. Chan was awarded 74,770 shares of fully vested restricted stock with a two-year lock-up period and had an
aggregated grant date fair value of approximately $31,000.
Leadership
Structure and Risk Oversight
Currently,
the positions of Chief Executive Officer and Chairman of the Board are held by two different individuals. Heng Fai Ambrose Chan
currently serves as Chairman of the Board and Frank D. Hueszel currently serves as Chief Executive Officer and Interim Chief Financial
Officer of the Company and as a member of the Board. Although no formal policy currently exists, the Board determined that the
separation of these positions would allow our Chief Executive Officer to devote his time to the daily execution of the Company’s
business strategies and the Board Chairman to devote his time to the long-term strategic direction of the Company. Our senior
management manages the risks facing the Company under the oversight and supervision of the Board. While the full Board is ultimately
responsible for risk oversight at our Company, two of our Board committees assist the Board in fulfilling its oversight function
in certain areas of risk. The Audit Committee assists the Board in fulfilling its oversight responsibilities with respect to risk
in the areas of financial reporting and internal controls. The Nominating and Corporate Governance Committee assists the Board
in fulfilling its oversight responsibilities with respect to risk in the area of corporate governance. Other general business
risks such as economic and regulatory risks are monitored by the full Board. While the Board oversees the Company’s risk
management, management is responsible for day-to-day oversight of risk management processes.
Compensation
Risk Assessment
Our
Board considered whether our compensation program encouraged excessive risk taking by employees at the expense of long-term Company
value. Based upon its assessment, the Board does not believe that our compensation program encourages excessive or inappropriate
risk-taking. The Board believes that the design of our compensation program does not motivate imprudent risk-taking.
Director
Nominations
The
Nominating and Corporate Governance Committee of the Board of Directors is responsible for identifying and selecting qualified
candidates for election to the Board of Directors prior to each annual meeting of the Company’s stockholders. A copy of
the Nominating and Corporate Governance Committee Charter is available on the Investors/Corporate Governance/Charters section
of our web site, www.dsssecure.com. In addition, stockholders who wish to recommend a candidate for election to the Board of Directors
must submit a written notice of such recommendation to the Company and strictly comply with all the requirements set forth in
the Nominating and Corporate Governance Committee Policy With Regard to Consideration of Candidates Recommended for Election to
the Board of Directors, a copy of which is also available on the Investors/Charters section of our web site. The standards for
considering nominees to the Board are included in the Corporate Governance Committee Charter. In identifying and evaluating nominees
for director, the Committee considers each candidate’s qualities, experience, background and skills, as well as other factors,
such as the individual’s ethics, integrity and values which the candidate may bring to the Board of Directors. Any stockholder
who desires the Committee to consider one or more candidates for nomination as a director should either by personal delivery or
by United States mail, postage prepaid, deliver a written notice of recommendation addressed to: Document Security Systems, Inc.,
Nominating and Corporate Governance Committee, 200 Canal View Boulevard, Suite 300, Rochester, New York 14623. Each written notice
must set forth: (a) the name and address of the stockholder making the recommendation and of the person or persons recommended,
(b) a representation that the stockholder is a holder of record of the stock of the Company entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice, (c) a description
of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made by the stockholder, (d) such other information regarding
each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy
rules of the SEC, (e) the consent of such person(s) to serve as a director(s) of the Company if nominated and elected, and (f)
a description of how the person(s) satisfy the criteria for consideration as a candidate referred to above.
Communication
with Directors
The
Company has established procedures for stockholders or other interested parties to communicate directly with the Board of Directors.
Such parties can contact the Board of Directors by mail at: Document Security Systems, Inc., Board of Directors, Attention: Heng
Fai Ambrose Chan, Chairman of the Board, 200 Canal View Boulevard, Suite 104, Rochester, New York 14623. All communications made
by this means will be received by the Chairman of the Board.
EXECUTIVE
COMPENSATION
Summary
Compensation Table
The
following table sets forth the compensation earned by each of the persons serving as the Company’s Chief Executive Officer,
Chief Financial Officer and President, referred to herein collectively as the “Named Executive Officers”, or NEOs,
for services rendered to us for the years ended December 31, 2019 and 2018:
|
Name and
principal position
|
|
Year
|
|
|
Salary
|
|
|
Bonus
|
|
|
Stock
Awards (1)
|
|
|
Option
Awards
|
|
|
Non-Equity
Incentive Plan
Compensation
|
|
|
Nonqualified
Deferred
Compensation
Earnings
|
|
|
All Other
Compensation
(2)
|
|
|
Total
|
|
|
Frank D. Heuszel, Chief Executive Officer
|
|
|
2019
|
|
|
$
|
91,615
|
|
|
|
61,103
|
|
|
|
31,403
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,843
|
(3)
|
|
$
|
199,964
|
|
|
|
|
|
2018
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,500
|
(4)
|
|
$
|
9,500
|
|
|
Jason Grady, Chief Operating Officer
|
|
|
2019
|
|
|
$
|
84,615
|
|
|
|
61,103
|
|
|
|
31,403
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,170
|
|
|
$
|
184,291
|
|
|
|
|
|
2018
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
Philip Jones, Chief Financial Officer
|
|
|
2019
|
|
|
$
|
59,231
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,073
|
|
|
$
|
61,304
|
|
|
|
|
|
2018
|
|
|
$
|
199,038
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,000
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
224,038
|
|
|
Jeffrey Ronaldi, Chief Financial Officer
|
|
|
2019
|
|
|
$
|
61,297
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
61,297
|
|
|
|
|
|
2018
|
|
|
$
|
200,000
|
|
|
|
-
|
|
|
|
67,263
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,086
|
|
|
$
|
272,349
|
|
|
Robert B. Bzdick, President (5)
|
|
|
2019
|
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
212,124
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
212,124
|
|
|
|
|
|
2018
|
|
|
$
|
116,667
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
216,927
|
|
|
|
-
|
|
|
|
18,580
|
|
|
$
|
352,174
|
|
|
|
(1)
|
Represents the total
grant date fair value of restricted stock awards computed in accordance with FASB ASC 718. Our policy and assumptions made
in the valuation of share-based payments are contained in Note 10 to our financial statements for the year ended December
31, 2019.
|
|
|
|
|
|
|
(2)
|
Includes health
insurance premiums, retirement matching funds and automobile expenses paid by the Company.
|
|
|
|
|
|
|
(3)
|
Includes $8,000
Mr. Heuszel received for his service as an independent director from January 1, 2019 through April 18, 2019, after which he
no longer served as an independent director as he became the Company’s Executive Officer and interim Chief Financial
Officer.
|
|
|
|
|
|
|
(4)
|
Includes $9,500
Mr. Heuszel received for his service as an independent director.
|
|
|
|
|
|
|
(5)
|
Mr. Bzdick served
as President of the Company and Chief Executive Officer of Premier Packaging Corporation, a wholly-owned subsidiary of the
Company, until August 1, 2018.
|
Employment
and Severance Agreements
Frank
D. Heuszel has served as the Company’s Chief Executive Officer since April 11, 2019, and also as the Company’s interim
Chief Financial Officer since April 17, 2019. Upon his appointment, the Company agreed to pay Mr. Heuszel cash compensation in
the amount of $7,500 per month for his combined services as interim Chief Executive Officer and Chief Financial Officer. On August
27, 2019, the Company entered into an executive employment agreement with Mr. Heuszel. Pursuant to the agreement, Mr. Heuszel
shall receive an annual base salary of $165,000, payable bi-weekly, and shall be eligible to an annual performance bonus in an
amount up to 100% of his base salary, upon the Company’s achievement of certain net income and gross revenue milestones.
In the event of a change in control of the Company or the termination of Mr. Heuszel’s employment without cause, Mr. Heuszel
shall receive four-months’ salary, payable monthly.
On
September 5, 2019, the Company entered in an executive employment agreement with Mr. Jason Grady, the Company’s Chief Operating
Officer. Pursuant to the agreement, Mr. Grady shall receive an annual base salary of $200,000 and shall be eligible to receive
an annual performance bonus, in an amount up to 100% of his base salary, upon the Company’s achievement of certain net income
and gross revenue milestones. In the event of a change in control of the Company or the termination of Mr. Grady’s employment
without cause, he shall be entitled to receive four-month’s base salary.
The
Company’s previous Named Executive Officers, Robert Bzdick, Jeffrey Ronaldi and Philip Jones are no longer employed by the
Company as of August 1, 2018, April 10, 2019, and April 17, 2019, respectively.
Mr.
Jones was an at-will employee. If Mr. Jones’ employment had been involuntarily terminated by the Company, he would have
been entitled to receive severance payments in the amount of four months current base-salary.
On
July 31, 2018, the Company and Robert Bzdick entered into a Non-Compete Letter Agreement (the “Agreement”) whereby
the parties mutually agreed that Mr. Bzdick’s employment as President of the Company and Chief Executive Officer of Premier
Packaging Corporation, a wholly-owned subsidiary of the Company, would terminate effective on August 1, 2018. The Agreement voided
and replaced Mr. Bzdick’s previous employment agreement with the Company, originally dated February 12, 2010, and amended
on October 1, 2012, except for the non-competition and non-solicitation covenants contained therein, which were carried forward
in their entirety to the new Agreement.
Pursuant
to the terms of the Agreement, Mr. Bzdick received his regular wages and contractual bonus sum accrued through the separation
date, and also receives the sum of $16,000 per month, for a period of 19 months, as consideration for the two-year non-competition
and non-solicitation restrictive covenants contained in the Agreement, which are identical to the restrictive covenants contained
in Mr. Bzdick’s previous employment agreement, which are now incorporated by reference into the Agreement. In addition,
the Company agreed to continue to pay the cost of Mr. Bzdick’s health, dental and vision insurance coverage for a period
of 19 months or until he is eligible for such benefits from another employer, whichever is shorter. In the Agreement, Mr. Bzdick
specifically acknowledges that, among other remedies, the Company is entitled to cease all payments under the Agreement and recoup
all payments previously made in the event Mr. Bzdick revokes, violates or breaches the Agreement, or discontinues any promised
act under the Agreement. Moreover, the Agreement further provides that in the event Mr. Bzdick breaches the Agreement by bringing
suit or filing a claim with an administrative agency, then he must, as a condition precedent, repay to the Company in cash all
consideration received pursuant to the Agreement. The Agreement also contains standard mutual release and damages clauses, and
a clause that provides that in any action for breach of the Agreement, the prevailing party shall be entitled to recover attorneys’
fees from the opposing party.
Outstanding
Equity Awards at Fiscal Year-End
As
of December 31, 2019, there were no outstanding equity awards to our Named Executive Officers.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth beneficial ownership of Common Stock as of October __, 2020 by each person known by the Company to
beneficially own more than 5% of the Common Stock, each director and each of the executive officers named in the Summary Compensation
Table (see “Executive Compensation” above), and by all of the Company’s directors and executive officers as
a group. Each person has sole voting and dispositive power over the shares listed opposite his name except as indicated in the
footnotes to the table and each person’s address is c/o Document Security Systems, Inc., 200 Canal View Boulevard, Suite
104, Rochester, New York 14623.
For
purposes of this table, beneficial ownership is determined in accordance with the Securities and Exchange Commission rules, and
includes investment power with respect to shares owned and shares issuable pursuant to warrants or options exercisable within
60 days of October __, 2020.
The
percentages of shares beneficially owned are based on [*] shares of our Common Stock issued and outstanding as of October __,
2020, and is calculated by dividing the number of shares that person beneficially owns by the sum of (a) the total number of shares
outstanding on October __, 2020, plus (b) the number of shares such person has the right to acquire within 60 days of October
__, 2020.
|
Name
|
|
Number of
Shares
Beneficially
Owned
|
Percentage of
Outstanding
Share
Beneficially
Owned
|
|
|
Heng Fai Ambrose Chan (1)
|
|
|
|
%
|
|
John Thatch
|
|
|
|
|
|
Lowell Wai Wah
|
|
|
|
|
|
Sassuan Lee
|
|
|
|
|
|
Jose Escudero
|
|
|
|
|
|
Frank Heuszel
|
|
|
|
|
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William Wu
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Jason Grady
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All officers and directors as a group (8 persons)
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%
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5% Stockholders
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Heng Fai Ambrose Chan (1)
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See Above
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See Above
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*
Less than1%.
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(1)
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Include
[___] individually owned shares of the Company’s Common Stock, [__] shares of the Company’s Common Stock owned
by BMI Capital Partners International Limited, [___] shares of the Company’s Common Stock owned by Heng Fai Holdings
Limited, [___] shares of the Company’s Common Stock owned by LiquidValue Development Pte Ltd, and [___] shares of the
Company’s Common Stock owned by Hengfai Business Development Pte. Ltd. Mr. Chan has dispositive power over all of these
shares.
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SECTION
16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
AND
RELATED PERSON TRANSACTIONS
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Exchange Act requires our executive officers and directors, and persons who beneficially own more than 10% of our
equity securities (“Reporting Persons”) to file reports of ownership and changes in ownership with the Securities
and Exchange Commission. Based solely on our review of copies of such reports and representations from the Reporting Persons,
we believe that during the fiscal year ended December 31, 2019, all Reporting Persons were in compliance with the applicable requirements
of Section 16(a) of the Exchange Act.
Transactions
with Related Persons
Except
as disclosed herein, no director, executive officer, stockholder holding at least 5% of shares of our common stock, or any family
member thereof, had any material interest, direct or indirect, in any transaction, or proposed transaction since January 1, 2019,
in which the amount involved in the transaction exceeds the lesser of $120,000 or one percent of the average of our total assets
at the year-end for the last two completed fiscal years.
Effective
on February 18, 2019, the Company entered into a Convertible Promissory Note (the “Note”) with LiquidValue Development
Pte Ltd (the “Holder”) in the principal sum of $500,000 (the “Principal Amount”), of which up to $500,000
of the Principal Amount can be paid by the conversion of such amount into the Company’s common stock up to a maximum of
446,428 shares of Common Stock, at a conversion price of $1.12 per share. The Note carried a fixed interest rate of 8% per annum
and had a term of 12-months. Accrued interest was payable in cash in arrears on the last day of each calendar quarter, with the
first interest payment due on June 30, 2019, and remained payable until the Principal Amount is paid in full. The Holder is a
related party, owned by one of the Company’s directors. Effective on March 25, 2019, the Holder exercised its conversion
option to convert the Maximum Conversion Amount under the Note and thereby received 446,428 shares of Common Stock. As a result
of Holder’s election to exercise its full conversion rights under the Note, the Note was cancelled effective on March 25,
2019.
On
February 22, 2019, one of the Company’s foreign subsidiaries, DSS Cyber Security Pte Ltd. entered into a licensing and distribution
agreement with Advanced Cyber Security Corp. (“ACS”). As consideration for the licensing and distribution agreement,
the Company paid ACS $350,000 cash and on March 5, 2019, issued ACS 130,435 shares of the Company’s common stock at $1.15
per share as additional consideration for the agreement. Daniel DelGiorno is the Chief Executive Officer and owner of ACS. Mr.
DelGiorno is a former director of the Company and a related party.
On
May 31, 2019, the Company issued and sold an unsecured promissory note to LiquidValue Development Pte Ltd, an entity owned by
Mr. Chan, in the principal amount of $650,000. Proceeds from the note were used for general corporate purposes. This Note was
paid in full on June 12, 2019.
On
June 5, 2019 the Company completed an underwritten public offering (the “Offering”) with gross proceeds of $5.6 million
before deducting underwriting discounts and commissions and other estimated offering expenses. The Offering included 11,200,000
shares of the Company’s common stock and 1,680,000 additional shares from the exercise of the underwriter’s purchase
option to cover over-allotments, at the public offering price of $0.50 per share. Mr. Chan purchased 2,000,000 shares of Common
Stock in the Offering, for an aggregate purchase price of $1,000,000.
On
October 29, 2019 and subsequently October 30, 2019, the Audit Committee and the Board of Directors of the Company approved the
issuance of common stock, not to exceed 6,000,000 shares, via private placement with a related party. Pursuant to a Subscription
Agreement, LiquidValue Development Pte LTD, a company owned and controlled by Mr. Heng Fai Ambrose Chan, DSS’s Chairman,
purchased from the Company, in a private placement, and aggregate of 6,000,000 shares of common stock, for an above market purchase
price equal to $0.30 per share for gross proceeds to the Company of $1,822,200 (before deductions for placement agent fees and
other expenses). This transaction was executed on November 1, 2019.
Subsequent
to December 31, 2019 the Company has invested approximately $[____]for less than [__]% ownership of an entity over which one of
the Company’s directors serves as CEO.
As
of December 31, 2018, the Company owned 21,196,552 ordinary shares and an existing three-year warrant to purchase up to 105,982,759
ordinary shares at an exercise price of SGD$0.040 (US$0.0298) per share of Singapore eDevelopment Limited (“SED”),
a company incorporated in Singapore and publicly listed on the Singapore Exchange Limited. The restriction on the sale of shares,
and execution of the warrants expired on September 17, 2019. The carrying value of the initial 21,196,552 ordinary shares investment
as of December 31, 2019 was $324,930. On December 19, 2019, the Company exercised the warrant, in part, pursuant to which the
Company acquired 61,977,577 ordinary shares of SED. The total consideration paid by the Company for these ordinary shares was
SGD$2,479,103.08, or approximately $1,833,000 USD, the investment value at December 31, 2019. After giving effect to the warrant
exercise, the Company now owns 83,174,129 ordinary shares of SED, representing approximately 7.1% of the outstanding shares of
SED, and the remaining warrant to purchase 44,005,182 ordinary shares of SED. Mr. Chan is the Executive Director and Chief Executive
Officer of SED.
On
February 25, 2020, the Company completed an underwritten public offering (the “Offering”) with gross proceeds of $4.6
million before deducting underwriting discounts and commissions and other estimated offering expenses. The Offering included 22,222,223
shares of the Company’s common stock and 3,333,333 additional shares from the exercise of the underwriter’s purchase
option to cover over-allotments, at the public offering price of $0.18 per share. Mr. Chan purchased 11,111,112 shares of Common
Stock in the Offering, for an aggregate purchase price of $2,000,000.
On
March 3, 2020, the Company entered into a binding term sheet (the “Term Sheet”) with LiquidValue Asset Management
Pte Ltd (“LVAM”), AMRE Asset Management Inc. (“AAMI”) and American Medical REIT Inc. (“AMRE”),
regarding a share subscription and loan arrangement. The Term Sheet sets out the terms of a proposed joint venture to establish
a medical real estate investment trust in the United States. Pursuant to the Term Sheet, the Company will subscribe for 5,250
ordinary shares of AAMI at a purchase price of $0.01 per share for total consideration of $52.50. Concurrently, AAMI will issue
2,500 shares to LVAM, and 1,250 shares to AMRE Tennessee, LLC, AMRE’s executive management’s holding company (collectively,
the “Subscription Shares”). As a result, the Company will hold 52.5% of the outstanding shares of AAMI, with LVAM
and AMRE Tennessee, LLC, holding 35% and 12.5% of the remaining outstanding shares of AAMI, respectively. Further, pursuant to
and in connection with the Term Sheet, on March 3, 2020, the Company entered into a Promissory Note with AMRE, pursuant to which
AMRE will issue the Company a promissory note for the principal amount of $800,000.00 (the “Note”). The Note matures
on March 3, 2022 and accrues interest at the rate of 8.0% per annum, and shall be payable in accordance with the terms set forth
in the Note. The Note also provides the Company an option to provide AMRE an additional $800,000 on the same terms and conditions
as the Note, including the issuance of warrants as hereinafter described. As further incentive to enter into the Note, AMRE issued
the Company warrants to purchase 160,000 shares of AMRE common stock (the “Warrants”). The Warrants have an exercise
price of $5.00 per share, subject to adjustment as set forth in the Warrant, and expire on March 3, 2024. Pursuant to the Warrants,
if AMRE files a registration statement with the Securities and Exchange Commission for an initial public offering (“IPO”)
of AMRE’s common stock and the IPO price per share offered to the public is less than $10.00 per share, the exercise price
of the Warrant shall be adjusted downward to 50% of the IPO price. The Warrant also grants piggyback registration rights to the
Company as set forth in the Warrant. The parties to the Term Sheet, including AMRE Tennessee, LLC, also entered into a stockholders’
agreement dated as of March 3, 2020 (the “Stockholders’ Agreement”), regarding their ownership of AAMI’s
common stock to regulate certain aspects of the relationship between the stockholders and provide for certain rights and obligations
with respect to such ownership, as set forth in the Stockholders’ Agreement. LVAM is an 82% owned subsidiary of Singapore
eDevelopment Limited whose Chief Executive Office and largest stockholder is Mr. Chan. Following the consummation of the transactions
contemplated by the Term Sheet, Mr. Chan and Mr. Heuszel will be appointed to the board of directors of AAMI.
On
August 21, 2020, the Company completed its acquisition of Impact BioMedical, pursuant to the Share Exchange Agreement, which was
approved by the Company’s stockholders on August 10, 2020 at a special meeting of stockholders (the “Share Exchange”).
Under the terms of the Share Exchange, the Company issued 483,334 shares of Common Stock, nominally valued at $6.48 per share,
and 46,868 shares of Series A Preferred Stock, with a stated value of $46,868,000, or $1,000 per share, for a total consideration
valued at $50 million. As a result of the Share Exchange, Impact BioMedical is now a wholly-owned subsidiary of DSS BioHealth,
the Company’s wholly-owned subsidiary.As previously disclosed, Heng Fai Ambrose Chan is the Chief Executive Officer and
largest stockholder of Singapore eDevelopment, as well as the Chairman of the Board and largest stockholder of the Company.
Review,
Approval or Ratification of Transactions with Related Persons
The
Board conducts an appropriate review of and oversees all related party transactions on a continuing basis and reviews potential
conflict of interest situations where appropriate. The Board has adopted formal standards to apply when it reviews, approves or
ratifies any related party transaction. In addition, the Board applies the following standards to such reviews: (i) all related
party transactions must be fair and reasonable and on terms comparable to those reasonably expected to be agreed to with independent
third parties for the same goods and/or services at the time they are authorized by the Board and (ii) all related party transactions
should be authorized, approved or ratified by the affirmative vote of a majority of the directors who have no interest, either
directly or indirectly, in any such related party transaction.
AUDIT
COMMITTEE REPORT
The
following Audit Committee Report shall not be deemed to be “soliciting material,” “filed” with the SEC,
or subject to the liabilities of Section 18 of the Exchange Act. Notwithstanding anything to the contrary set forth in any of
the Company’s previous filings under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange
Act, that might incorporate by reference future filings, including this Proxy Statement, in whole or in part, the following Audit
Committee Report shall not be incorporated by reference into any such filings.
The
Audit Committee is currently comprised of three independent directors (as defined under Section 803 of the NYSE AMERICAN LLC Company
Guide). The Audit Committee operates under a written charter adopted by the Board of Directors, which can be found in the Investors/Corporate
Governance section of our web site, www.dsssecure.com.
The
Audit Committee has reviewed and discussed with management the Company’s audited consolidated financial statements as of
and for the fiscal year ended December 31, 2019.
The
Audit Committee has reviewed and discussed with management and the independent registered public accounting firm the quality and
the acceptability of the Company’s financial reporting and internal controls.
The
Audit Committee has discussed with the independent registered public accounting firm the overall scope and plans for their audit
as well as the results of their examinations, their evaluations of the Company’s internal controls, and the overall quality
of the Company’s financial reporting.
The
Audit Committee has discussed with management and the independent registered public accounting firm such other matters as required
to be discussed with the Audit Committee under Professional Standards, the corporate governance standards of the NYSE AMERICAN
LLC Exchange and the Audit Committee’s Charter.
The
Audit Committee has received and reviewed the written disclosures and the letter from the independent registered public accounting
firm required by the Statement on Auditing Standards as adopted by the Public Company Accounting Oversight Board, and has discussed
with the independent registered public accounting firm their independence from management and the Company, including the impact
of permitted non-audit related services approved by the Audit Committee to be performed by the independent registered public accounting
firm.
Based
on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors that the financial
statements referred to above be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December
31, 2019, filed with the SEC on March 31, 2020.
[__],
Audit Committee Member
[__],
Audit Committee Member
[__]
Audit Committee Member
ANNUAL
REPORT
For
stockholders receiving the Notice, this Proxy Statement, our Annual Report as amended, any amendments to the foregoing materials
that are required to be furnished to stockholders, the proxy card and voting instruction form will be available on-line at www.proxyvote.com
on or about [*] 2020. The Notice contains instructions on how to access the proxy materials over the Internet. These materials
contain detailed information about the Annual Meeting, the proposals to be considered, our Board’s nominees for directors
and other information concerning the Company.
STOCKHOLDER
PROPOSALS
Stockholders
may present proposals for action at meetings of stockholders only if they comply with the proxy rules established by the SEC,
applicable New York law and our Bylaws. No stockholder proposals were received for consideration at our 2020 Annual Meeting of
Stockholders.
Under
SEC Rule 14a-8, in order for a stockholder proposal to be included in our proxy solicitation materials for our 2020 Annual Meeting
of Stockholders, it must be delivered to our Corporate Secretary at our principal executive offices by [*]; provided, however,
that if the date of the 2020 Annual Meeting of Stockholders is more than 30 days before or after June 1, 2020, notice by the stockholder
must be delivered not later than the close of business on the later of (1) the 90th day prior to the 2020 Annual Meeting,
or (2) the 10th day following the first public announcement of the date of the 2020 Annual Meeting.
Management’s
proxy holders for the next annual meeting of stockholders will have discretion to vote proxies given to them on any stockholder
proposal of which we do not have notice prior to [*].
Under
our Bylaws, to be properly brought before the meeting, business must be either (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting
by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a stockholder. In addition
to any other applicable requirements, for business to be properly brought before an annual meeting by a stockholder, the stockholder
must have given timely notice thereof in writing, either by personal delivery or by United States mail, postage prepaid, to the
Secretary of the Company not later than 90 days prior to the meeting anniversary date of the immediately preceding annual meeting
or if no annual meeting was held for any reason in the preceding year, 90 days prior to the first Wednesday in December. A stockholder’s
notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the meeting (1) a brief description
of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting,
(2) the name and record address of the stockholder proposing such business, (3) the class and number of shares of capital stock
of the Company which are beneficially owned by the stockholder, and (4) any material interest of the stockholder in such business.
SOLICITATION
OF PROXIES
The
Company will pay the cost of soliciting proxies for the Annual Meeting. In addition to solicitation by mail, directors, officers
and regular employees of the Company and other authorized persons may solicit the return of proxies by telephone, telegram or
personal interview. The Company will request brokerage houses, custodians, nominees and fiduciaries to forward soliciting material
to their principals and will agree to reimburse them for their reasonable out-of-pocket expenses.
The
Company has engaged The Proxy Advisory Group, LLC to assist in the solicitation of proxies and provide related advice and informational
support, for a services fee and the reimbursement of customary disbursements, which are not expected to exceed $_____ in total.
OTHER
BUSINESS
The
Board of Directors currently knows of no business to be brought before the Annual Meeting other than as set forth above. If other
matters properly come before the Company at the Annual Meeting, it is the intention of the persons named in the solicited proxy
to vote the proxy on such matters in accordance with their best judgment.
Stockholders
are urged to vote according to the instructions provided without delay.
AVAILABLE
INFORMATION
We
are currently subject to the information requirements of the Securities Exchange Act of 1934, as amended, and in accordance therewith
file periodic reports, Proxy Statements and other information with the SEC relating to our business, financial statements and
other matters. Copies of such reports, Proxy Statements and other information may be copied (at prescribed rates) at the public
reference room maintained by the SEC at 100 F Street NE, Washington DC 20549. For further information concerning the SEC’s
public reference room, you may call the SEC at 1-800-SEC-0330. Some of this information may also be accessed on the World Wide
Web through the SEC’s Internet address at http://www.sec.gov.
Requests
for documents relating to the Company should be directed to:
DOCUMENT
SECURITY SYSTEMS, INC.
200
Canal View Boulevard, Suite 104
Rochester,
New York 14623
Attention:
Frank D. Heuszel
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By order of the Board of
Directors
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Heng
Fai Ambrose Chan
Chairman
of the Board
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Rochester, New York
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[*]
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