Item
1.01 Entry into a Material Definitive Agreement
On
October 24, 2018, Document Security Systems, Inc. (the “Company”), Global eMacMall Limited, a privately-owned company
incorporated in Hong Kong (“GEMM”), and Li Kin Pong, the sole-stockholder and owner of GEMM and a resident of Hong
Kong, entered into a Sale and Purchase Agreement (the “Agreement”) whereby the Company will acquire 51% of the outstanding
common shares of GEMM (the “GEMM Acquisition”). GEMM is a holding company which serves as a platform for
the provision of construction equipment and special purpose vehicles through sales and leasing arrangements, primarily in Asia.
Pursuant
to the Agreement, the Company will purchase 5,100 common shares of GEMM (the “GEMM Shares”), which is equivalent to
51% of the total outstanding shares of GEMM, for an aggregate purchase price of US$4,461,000 (the “Purchase Price”).
As consideration for the GEMM Shares, the Company will issue 3,200,000 shares of its common stock at a negotiated price of US$1.10
per share (the “DSS Shares”), equaling US$3,520,000, subject to NYSE American LLC exchange additional listing approval
of the DSS Shares prior to closing of the GEMM Acquisition. The remaining balance of the Purchase Price, being US$1,121,000, will
be payable by Company by way of cash or in promissory notes, as determined by Company in its sole discretion. If the net earnings
of GEMM in calendar year 2018 is less than US$1,300,000, then the Purchase Price will be reduced by the amount of the short-fall
of the net earnings for calendar year 2018 multiplied by a price to earnings ratio of 7, and a corresponding adjustment will be
made to the remaining balance owed in cash or under any existing promissory note.
Closing
of the GEMM Acquisition is anticipated to occur within 60 days following the date of the Agreement, subject to customary closing
conditions, as well as (i) the completion to the satisfaction of Company of a due diligence review of GEMM, including the completion
of a report by BDO Hong Kong on GEMM’s financial condition and operations, and (ii) additional listing approval by the NYSE
American LLC exchange of the DSS Shares to be issued as partial consideration for the purchase of the GEMM Shares.
Pursuant
to the Agreement, DSS will have the right to appoint two directors [of the three directors] to the board of directors of GEMM
and Mr. Pong will have the right to appoint one director.
The
Agreement contains a lock-up provision which precludes Mr. Pong from selling the DSS Shares that he will acquire for a
period of one year. The Agreement also contains customary mutual representations and warranties and indemnification clauses.
The
DSS Shares to be issued in connection with the Agreement will not be registered under the Securities Act of 1933, as amended (the
“Securities Act”), and will be issued and sold in reliance upon the exemption from registration contained in Section
4(2) of the Securities Act.
The
Agreement is filed as Exhibit 10.1 to this report. The foregoing summary description of the terms of the Agreement is qualified
in its entirety by reference to the full text of such exhibit.