REGISTRATION RIGHTS AGREEMENT

REGISTRATION RIGHTS AGREEMENT (the “Agreement”), dated as of the 29 day of May,
2009, executed and delivered by DOCUMENT SECURITY SYSTEMS, INC., a New York
corporation (the “Company”), and Holders (as defined below).

RECITALS

WHEREAS, the Company, pursuant to terms and conditions set forth in Confidential
Private Offering Memorandum Supplement No. 1 of the Company, dated April 29,
2009, including the exhibits thereto and any and all supplements thereof and
amendments thereto, and all documents incorporated by reference therein
(collectively, the (“Memorandum”) is offering for sale (the “Offering”) up to
140 units (the “Units”), each Unit consisting of (i) 7,142 shares (“Shares”) of
its Common Stock, par value $.02 per share (“Common Stock”) and (ii) Series C
Common Stock Warrants (the “Warrants”) to purchase up to an aggregate of 1,427
shares (the “Warrant Shares”) of Common Stock;

WHEREAS, the names of the investors in the Offering appear on the signature
pages hereof or in joinder agreements attached hereto, in the form of Exhibit A
annexed hereto, each as listed on Exhibit B annexed hereto as may be amended
during the Offering (“Holders”); and

WHEREAS, the terms and conditions of the Offering provide for the execution and
delivery of this Agreement.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged by the Company and the Holders, the Company and
the Holders hereby agree as follows:

1.           Automatic Registration.  The Company shall use its best efforts to
file a registration statement (“Registration Statement”) with the Securities and
Exchange Commission under the Securities Act of 1933 (the “Act”), on appropriate
form, and such other documents, including a prospectus, as may be necessary (in
the opinion of counsel for the Company), in order to comply with the provisions
of the Act, within 90 business days after the final closing of the Offering, so
as to allow for the resale under the Act by any Holder or combination of Holders
of all Registerable Shares (as defined in Section 2) held by all of the Holders,
at the sole expense of the Company, so as to permit the public resale by the
Holder of the Registerable Shares pursuant thereto.

2.           Registerable Shares. For purposes of this Agreement, the term
“Registerable Shares” shall include: (a) the Shares purchased as a component of
the Units in the Offering; (b) any securities issued or issuable with respect to
the Warrants; or (c) Warrant Shares; or (d) any other shares of Common Stock
issued to the Holders by way of stock dividend or stock split or in connection
with a combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise. Anything herein contained to the contrary
notwithstanding, the provisions of this Agreement shall not apply to, and the
term “Registerable Shares” as used in this Agreement shall not include, Shares
of Common Stock or Warrant Shares after they have been sold by a Holder pursuant
to an effective Registration Statement under the Act or sold pursuant to Rule
144.
 

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3.           Additional Covenants of the Company With Respect to Registration.

The Company covenants and agrees as follows:

(a)           In connection with any registration under Section 1 above, the
Company shall file the Registration Statement in no event later than 90 business
days following the final closing of the Offering, and use reasonable efforts to
have such Registration Statement declared effective at the earliest possible
time.

(b)           In connection with any registration of Registerable Shares
pursuant to Section 1 above, the Company shall furnish each Holder of
Registerable Shares included in a Registration Statement with such reasonable
number of copies of such Registration Statement, related preliminary prospectus
and prospectus meeting the requirements of the Act, and other documents
necessary or incidental to the registration and public offering of such
Registerable Shares, as shall be reasonably requested by the Holder to permit
the Holder to make a public distribution of such Registerable Shares.

(c)           Once effective, the Company covenants and agrees to use its best
efforts to maintain the effectiveness of any Registration Statement until the
earlier of (i) a date which is one year from the final closing date of the
Offering, or (ii) the date that the Holders of the Registerable Shares receive
an opinion of counsel to the Company that all of the Registerable Shares may be
freely traded (without limitation or restriction as to quantity or timing and
without registration under the Act) pursuant to Rule 144 or otherwise; provided,
however, the Company may suspend the use of any Registration Statement for a
period not to exceed 45 days in any 12-month period for valid business reasons
(not including avoidance of the Company’s obligations hereunder), including the
acquisition or divestiture of assets, public filings with the SEC, pending
corporate developments and similar events.

(d)           If any stop order shall be issued by the SEC in connection with
any Registration Statement filed pursuant to Section 1 above, the Company will
use its best efforts to obtain the removal of such order.

(e)           The Company shall pay all costs, fees, and expenses in connection
with all Registration Statements filed pursuant to Section 1 above, including,
without limitation, the Company’s legal and accounting fees, printing expenses,
and blue sky fees and expenses; provided, however, that the Holders shall be
solely responsible for the fees of any counsel retained by the Holders in
connection with such registration and any transfer taxes or underwriting
discounts, commissions or fees applicable to the Registerable Shares sold by the
Holders pursuant thereto.

4.           Indemnification.

(a)           In the event of any registration of any the Registerable Shares
under the Act, the Company shall indemnify and hold harmless each Holder, the
affiliates of each such Holder, the directors, partners, officers, employees and
agents of each such Holder and any person who controls any such Holder within
the meaning of the Act or the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), against any and all losses, claims, damages or liabilities,
joint or several, to which they or any of them may become subject under the Act,
the Exchange Act or other Federal or State statutory law or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) are caused by, arising out of or based on any
untrue statement or alleged untrue statement of a material fact contained in any
registration statement under which such securities were registered under the
Act, any preliminary prospectus, final prospectus or summary prospectus
contained therein, or any amendment or supplement thereto, or arise out of or
are based upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and agrees to reimburse each such indemnified party, as incurred,
for any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that (i) the Company will not be liable in any case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon any such untrue statement or alleged untrue statement or omission or
alleged omission made therein in reliance upon and in conformity with written
information furnished to the Company by or on behalf of any such Holder
specifically for inclusion therein, (ii) the Company will not be liable to any
indemnified party under this indemnity agreement with respect to any
Registration Statement or Prospectus to the extent that any such loss, claim,
damage or liability of such indemnified party results from the use of the
Prospectus during a period when the use of the Prospectus has been suspended in
accordance with Section 3(c) hereof, provided that the Holders received prior
notice of such suspension; and (iii) the Company shall not be liable to any
indemnified party with respect to any preliminary Prospectus to the extent that
any such loss, claim, damage or liability of such indemnified party results from
the fact that such indemnified party sold Registerable Securities to a person as
to whom there was not sent or given, at or prior to the written confirmation of
such sale, a copy of the Prospectus or of the Prospectus as then amended or
supplemented in any case where such delivery is required by the Act, if the
loss, claim, damage or liability of such indemnified party results from an
untrue statement or omission of a material fact contained in the preliminary
Prospectus which was corrected in the Prospectus or in the Prospectus as then
amended or supplemented.
 
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(b)           Promptly after receipt by an indemnified party of notice of the
commencement of any action or proceeding involving a claim referred to in the
preceding subdivisions of this Section 4, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party, give
written notice to the latter of the commencement of such action, provided that
the failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of its obligations under the preceding
subdivisions of this Section 4, except to the extent that the indemnifying party
is materially prejudiced by such failure to give notice. In case any such action
is brought against an indemnified party, unless in such indemnified party’s
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim, the indemnifying party
shall be entitled to participate in and to assume the defense thereof, jointly
with any other indemnifying party similarly notified, to the extent that the
indemnifying party may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation. Notwithstanding
the indemnifying party’s election to appoint counsel to represent the
indemnified party in an action, the indemnified party shall have the right to
employ separate counsel (including local counsel), and the indemnifying party
shall bear the reasonable fees, costs and expenses of such separate counsel (and
local counsel) if (i) the use of counsel chosen by the indemnifying party to
represent the indemnified party would present such counsel with a conflict of
interest, (ii) the actual or potential defendants in, or targets of, any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, (iii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of the institution of such action or (iv) the indemnifying party
shall authorize the indemnified party to employ separate counsel at the expense
of the indemnifying party. An indemnified party shall not settle or compromise
any action for which it seeks indemnification or contribution hereunder without
the prior written consent of the indemnifying party, which consent shall not be
unreasonably withheld. An indemnifying party will not, without the prior written
consent of the indemnified parties, settle or compromise or consent to the entry
of any judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding.

(c)           The provisions of this Section 4 shall remain in full force and
effect regardless of any investigation made by or on behalf of any Holder or the
Company or any other persons who are entitled to indemnification pursuant to the
provisions of this Section 4, and shall survive the sale by a Holder of
Registerable Shares pursuant to the Registration Statement.
 
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5.           Amendments. This Agreement may not be amended, modified or
supplemented, except to add Holders who acquire Registerable Securities in the
Offering, and who sign a joinder agreement, and waivers of or consents to
departures from the provisions of this Agreement may not be given, unless it
would not have an adverse effect upon the rights of any of the Holders and the
Company has obtained the written consent of Holders then holding a majority of
the Registerable Shares.

6.           Notices. Except as otherwise provided in this Agreement, all
notices, requests and other communications (which shall include publication) to
any person provided for hereunder shall be in writing and shall be given by hand
delivery, registered or certified mail or by any courier providing overnight
delivery (i) if to the Company, or the initial Holder, at the address set forth
in the Subscription Agreement and (ii) if to a subsequent Holder, to the address
set forth on the books and records of the Company. All such notices, requests or
communications shall not be effective until received.

7.           Assignment. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto. In addition, the provisions
of this Agreement which are for the benefit of Holder shall also be for the
benefit of and enforceable by any subsequent holder of the Registerable Shares
provided that advance written notice is given to the Company of such assignment.
Holder agrees, by accepting any portion of the Registerable Shares after the
date hereof, to the provisions of this Agreement.

8.           Governing Law.

(a)           THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAWS OF THE STATE OF NEW
YORK WITHOUT REFERENCE TO THE PRINCIPLES OF CONFLICTS OF LAWS.

(b)           Each of the Company and Holder hereby irrevocably and
unconditionally consents to submit to the exclusive jurisdiction of any State
Court in Monroe County, New York and the United States District Court for the
Western District of New York (the “NY Courts”) for any litigation arising out of
or relating to this Agreement and the transactions contemplated hereby (and
agrees not to commence any litigation relating thereto except in such courts),
waives any objection to the laying of venue of any such litigation in the NY
Courts and agrees not to plead or claim that such litigation brought in any NY
Courts has been brought in an inconvenient forum.

9.           Counterparts. This Agreement may be executed by facsimile and may
be signed simultaneously in any number of counterparts, each of which shall be
deemed an original, but all such counterparts shall together constitute one and
the same instrument.

10.           Entire Agreement. This Agreement, and any signed joinder
agreements attached hereto, embodies the entire agreement between the Company
and the Holders relating to the subject matter hereof and supersedes all prior
agreements and understandings relating to such subject matter.

11.           Severability. If any provision of this Agreement, or the
application of such provisions to any person or circumstance, shall be held
invalid, the remainder of this Agreement, or the application of such provision
to persons or circumstances other than those to which it is held invalid, shall
not be affected thereby.
 
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12.           Headings. The headings which are contained in this Agreement are
for the sole purpose of convenience of reference, and shall not limit or
otherwise affect the interpretation of any of the provisions hereof.

13.           Further Assurances. The Company will from time to time after the
date hereof take any and all actions, and execute, acknowledge and deliver any
and all documents and instruments, at its cost and expense, as any Holder may
from time to time reasonably request in order to more fully perfect or protect
the rights intended to be granted to it hereunder.

14.           Interpretation. As used in this Agreement, unless the context
otherwise requires: words describing the singular number shall include the
plural and vice versa; words denoting any gender shall include all genders;
words denoting natural persons shall include corporations, partnerships and
other entities, and vice versa; and the words “hereof,” “herein” and
“hereunder,” and words of similar import, shall refer to this Agreement as a
whole, and not to any particular provision of this Agreement.

15.           Waiver. The failure of the Company or any Holder to at any time
enforce any of the provisions of this Agreement shall not be deemed or construed
to be a waiver of any such provision, nor to in any way affect the validity of
this Agreement or any provision hereof or the right of the Company or any Holder
to thereafter enforce each and every provision of this Agreement.

[signature page appears next]
 
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IN WITNESS WHEREOF, the undersigned has duly executed and delivered this
Agreement as of the date first above written.
 
 

  DOCUMENT SECURITY SYSTEMS, INC.          
 
By:
/s/ Patrick White       Name: Patrick White       Title: Chief Executive Officer
         

 

Accepted and Agreed by the
Holders:
 

By: /s/ John Stark                  
       Name: John Stark
 
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IN WITNESS WHEREOF, the undersigned has duly executed and delivered this
Agreement as of the date first above written.
 
 

  DOCUMENT SECURITY SYSTEMS, INC.          
 
By:
/s/ Patrick White       Name: Patrick White       Title: Chief Executive Officer
         

 

Accepted and Agreed by the
Holders:
 

By: /s/ Richard Kandel             
       Name: Richard Kandel
 
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IN WITNESS WHEREOF, the undersigned has duly executed and delivered this
Agreement as of the date first above written.
 
 

  DOCUMENT SECURITY SYSTEMS, INC.          
 
By:
/s/ Patrick White       Name: Patrick White       Title: Chief Executive Officer
         

 

Accepted and Agreed by the
Holders:
 

By: /s/ Barbara Slifka                  
       Name: Barbara Slifka
 
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IN WITNESS WHEREOF, the undersigned has duly executed and delivered this
Agreement as of the date first above written.
 
 

  DOCUMENT SECURITY SYSTEMS, INC.          
 
By:
/s/ Patrick White       Name: Patrick White       Title: Chief Executive Officer
         

 

Accepted and Agreed by the
Holders:
 

By: /s/ David Slifka                  
       Name: David Slifka
 
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IN WITNESS WHEREOF, the undersigned has duly executed and delivered this
Agreement as of the date first above written.
 
 

  DOCUMENT SECURITY SYSTEMS, INC.          
 
By:
/s/ Patrick White       Name: Patrick White       Title: Chief Executive Officer
         

 

Accepted and Agreed by the
Holders:
 

By: /s/ Peter Berley                  
       Name: Peter Berley

 
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EXHIBIT A

FORM OF JOINDER AGREEMENT TO
REGISTRATION RIGHTS AGREEMENT

The undersigned hereby agrees, effective as of __________ __, 2009, to become a
party to that certain Registration Rights Agreement (the “Agreement”) dated as
of May 29, 2009, and as may be amended from time to time by and among Document
Securities Systems, Inc., a New York corporation (the “Company”) and the Holders
named therein and, for all purposes of the Agreement, the undersigned shall be
included within the term “Holders” (as defined in the Agreement).  The address
and facsimile number to which notices may be sent to the undersigned is as
follows:

 
Name:
     
Address:
                             
Phone No.:
     
Facsimile No.:
   

 

             
Signature:
 

 
 
 
 
 
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EXHIBIT B

LIST OF HOLDERS
 
 
John Stark
Peter Berley
Richard Kandel
Barbara Slifka
David Slifka
 

 
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