Exhibit
10.1


 


SECURITIES
PURCHASE AGREEMENT


 


This Securities Purchase Agreement (this
“Agreement”) is dated as of June 12, 2014, between Document Security Systems, Inc., a New York corporation (the
“Company”), and the purchaser identified on the signature page hereto (including its successors and assigns,
the “Purchaser”).


 


WHEREAS, subject to the terms and conditions
set forth in this Agreement and pursuant to an effective registration statement under the Securities Act of 1933, as amended (the
“Securities Act”), the Company desires to issue and sell to the Purchaser, and the Purchaser desires to purchase
from the Company, securities of the Company as more fully described in this Agreement.


 


NOW, THEREFORE, IN CONSIDERATION of the
mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are
hereby acknowledged, the Company and the Purchaser agree as follows:


 


ARTICLE
I.

DEFINITIONS


 


1.1 Definitions. In addition
to the terms defined elsewhere in this Agreement, for all purposes of this Agreement, the following terms have the meanings set
forth in this Section 1.1:


 


“Acquiring Person” shall
have the meaning ascribed to such term in Section 4.5.


 


“Action” shall
have the meaning ascribed to such term in Section 3.1(k).


 


“Affiliate”
means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common
control with a Person as such terms are used in and construed under Rule 405 under the Securities Act.


 


“Board of Directors”
means the board of directors of the Company.


 


“Business Day”
means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which
banking institutions in the State of New York are authorized or required by law or other governmental action to close.


 


“Closing” means,
collectively, the Initial Closing and each Overallotment Closing.


 


“Closing Date”
means collectively, the Initial Closing Date and each Overallotment Closing Date.


 


“Closing Statement”
means the Closing Statement in the form on Annex A attached hereto.


 


“Commission”
means the United States Securities and Exchange Commission.


 






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“Common Stock”
means the common stock of the Company, par value $0.02 per share, and any other class of securities into which such securities
may hereafter be reclassified or changed.


 


“Common Stock Equivalents”
means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock,
including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible
into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.


 


“Evaluation Date”
shall have the meaning ascribed to such term in Section 3.1(s).


 


“Exchange Act”
means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.


 


“FCPA” means
the Foreign Corrupt Practices Act of 1977, as amended.


 


“GAAP” shall
have the meaning ascribed to such term in Section 3.1(h).


 


“Indebtedness”
shall have the meaning ascribed to such term in Section 3.1(z).


 


“Initial Closing”
means the closing of the purchase and sale of the Shares pursuant to Section 2.1(a).


 


“Initial Closing Date”
means the Trading Day on which all of the Transaction Documents have been executed and delivered by the applicable parties thereto,
and all conditions precedent to (i) the Purchaser’s obligations to pay the Subscription Amount and (ii) the Company’s
obligations to deliver the Shares, in each case, have been satisfied or waived, but in no event later than the third Trading Day
following the date hereof.


 


“Intellectual Property”
shall have the meaning ascribed to such term in Section 3.1(p).


 


“Liens” means
a lien, charge, pledge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.


 


“Material Adverse Effect”
shall have the meaning assigned to such term in Section 3.1(b).


 


“Material Permits”
shall have the meaning ascribed to such term in Section 3.1(n).


 


“Overallotment Amount”
means the aggregate amount to be paid for Overallotment Shares purchased hereunder as specified below the Purchaser’s name
on the signature page of its Overallotment Notice and next to the heading “Subscription Amount,” in United States dollars
and in immediately available funds.


 


“Overallotment Closing”
means the closing of the purchase and sale of the Securities pursuant to Section 2.2(a).


 






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“Per Share Purchase Price”
equals $1.44, subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other
similar transactions of the Common Stock that occur after the date of this Agreement.


 


“Person” means
an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.


 


“Proceeding”
means an action, claim, suit, investigation or proceeding (including, without limitation, an informal investigation or partial
proceeding, such as a deposition), whether commenced or threatened.


 


“Prospectus”
means the final prospectus filed for the Registration Statement.


 


“Prospectus Supplement”
means the supplement to the Prospectus complying with Rule 424(b) of the Securities Act that is filed with the Commission and delivered
by the Company to the Purchaser at the Initial Closing for the issuance of the Shares and the Overallotment Shares.


 


“Purchaser Party”
shall have the meaning ascribed to such term in Section 4.8.


 


“Registration Statement”
means the effective registration statement with Commission file No. 333-191704 which registers the sale of the Shares to the Purchaser.


 


“Required Approvals”
shall have the meaning ascribed to such term in Section 3.1(e).


 


“Rule 144”
means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time
to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect
as such Rule.


 


“Rule 424”
means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended or interpreted from time
to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same purpose and effect
as such Rule.


 


“SEC Reports”
shall have the meaning ascribed to such term in Section 3.1(h).


 


“Securities Act”
means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.


 


“Shares” means
the shares of Common Stock issued or issuable to the Purchaser pursuant to this Agreement.


 


“Short Sales”
means all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange Act (but shall not be deemed to
include the location and/or reservation of borrowable shares of Common Stock).


 






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“Subscription Amount”
means the aggregate amount to be paid for Shares purchased hereunder as specified below the Purchaser’s name on the signature
page of this Agreement and next to the heading “Subscription Amount,” in United States dollars and in immediately available
funds.


 


“Subsidiary”
means any subsidiary of the Company and shall, where applicable, also include any direct or indirect subsidiary of the Company
formed or acquired after the date hereof.


 


“Trading Day”
means a day on which the principal Trading Market is open for trading.


 


“Trading Market”
means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question:
the NYSE MKT, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange
or the OTC Bulletin Board (or any successors to any of the foregoing).


 


“Transaction Documents”
means this Agreement and any other documents or agreements executed in connection with the transactions contemplated hereunder.


 


“Transfer Agent”
means American Stock Transfer and Trust Company, LLC, the current transfer agent of the Company, and any successor transfer agent
of the Company.


 


ARTICLE
II.

PURCHASE AND SALE


 


2.1Initial Closing. On the Initial
Closing Date, upon the terms and subject to the conditions set forth herein, substantially concurrent with the execution and delivery
of this Agreement by the parties hereto, the Company agrees to sell, and the Purchaser agrees to purchase, an aggregate of 209,700
Shares. The Purchaser shall deliver to the Company, via wire transfer or a certified check, immediately available funds equal to
the Purchaser’s Subscription Amount as set forth on the signature page hereto executed by the Purchaser and the Company shall
deliver to the Purchaser its Shares, and the Company and the Purchaser shall deliver the other items set forth in Section 2.3 deliverable
at the Initial Closing. Upon satisfaction of the covenants and conditions set forth in Sections 2.3 and 2.4, the Initial Closing
shall occur at such location as the parties shall mutually agree, including the delivery to the Company of immediately available
funds comprising the full Subscription Amounts.


 






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2.2Overallotment Right.


 


(a)From the date of the Initial
Closing until ninety (90) days after the Initial Closing Date, the Purchaser may, in its sole determination, elect to purchase,
in whole or in part, through one or more purchases up to 209,700 additional Shares in the aggregate (the “Overallotment
Shares” and such right to receive the Overallotment Shares pursuant to this Section 2.2, the “Overallotment
Right”). Notwithstanding anything herein to the contrary, to the extent that the Registration Statement (or another registration
statement registering the Overallotment Shares) is suspended or unavailable for the issuance of the Overallotment Shares during
the term of the Overallotment Right, the term of the Overallotment Right shall be extended by an equivalent number of days and
in no event shall the Overallotment Right terminate on a Trading Day during the term of the Overallotment Right on which the Registration
Statement is suspended or unavailable. The Overallotment Shares shall be on the same terms and conditions as the sale of the Shares
at the Initial Closing except that the price per Overallotment Share shall be $1.60 (subject to adjustment for reverse and
forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the
date of this Agreement). Subject to the terms of this Agreement, each Overallotment Closing shall occur within 3 Trading Days of
a duly delivered exercise notice by the exercising party (each such notice, an “Overallotment Notice” and each
such Overallotment Closing following delivery of an Overallotment Notice, an “Overallotment Closing Date”).
Upon the issuance and sale of the Overallotment Shares, the Overallotment Shares shall be deemed Shares for the purposes of this
Agreement.


 


(b)If on or after the fifth
Trading Day following delivery of an Overallotment Notice, provided that the Purchaser shall have paid the purchase price of the
Overallotment Shares, the Company has failed to deliver the Overallotment Shares and the Purchaser purchases (in an open market
transaction or otherwise) Common Stock to deliver in satisfaction of a sale by the Purchaser of all or any portion of the number
of Common Stock, or a sale of a number of Common Stock equal to all or any portion of the number of Overallotment Shares that the
Purchaser anticipated receiving from the Company in connection with any such Overallotment Right, then, in addition to all other
remedies available to the Purchaser, the Company shall, within three (3) Trading Days after the Purchaser’s request and in
the Purchaser’s sole discretion, either (i) pay cash to the Purchaser in an amount equal to the Purchaser’s total purchase
price (including brokerage commissions and other out-of-pocket expenses, if any) for the Common Stock so purchased (including brokerage
commissions and other out-of-pocket expenses, if any) (the “Buy-In Price”), at which point the Company’s
obligation to so deliver such certificate or credit the Purchaser’s balance account shall terminate and such shares shall
be cancelled, or (ii) promptly honor its obligation to so deliver to the Purchaser a certificate or certificates or credit the
Purchaser’s DTC account representing such number of Overallotment Shares that would have been so delivered if the Company
timely complied with its obligations hereunder and pay cash to the Purchaser in an amount equal to the excess (if any) of the Buy-In
Price over the product of (A) such number of Overallotment Shares (as the case may be) that the Company was required to deliver
to the Purchaser by such Overallotment Closing Date multiplied by (B) the lowest volume-weighted average price on any Trading Day
during the period commencing on the fifth Trading Day following delivery of such Overallotment Notice and ending on the date of
such delivery and payment under this clause (ii).


 


2.3Deliveries.


 


(a)On or prior to each Closing
Date (except as noted), the Company shall deliver or cause to be delivered to the Purchaser the following:


 






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(i)As to the Initial Closing,
this Agreement duly executed by the Company;


 


(ii)As to the Initial Closing,
a copy of the instructions to the Transfer Agent instructing the Transfer Agent to deliver the Shares on an expedited basis via
The Depository Trust Company Deposit or Withdrawal at Custodian system (“DWAC”), registered in the name of the
Purchaser;


 


(iii)as to each Overallotment
Closing, a copy of the instructions to the Transfer Agent instructing the Transfer Agent to deliver on an expedited basis via DWAC
Overallotment Shares as set forth on the Purchaser’s Overallotment Notice;


 


(iv)as to each Overallotment
Closing, an officer’s certificate setting forth the Company’s compliance with its Representations and Warranties; and


 


(v)the Prospectus and Prospectus
Supplement (which may be delivered in accordance with Rule 172 under the Securities Act).


 


(b)On or prior to the applicable
Closing Date, the Purchaser shall deliver or cause to be delivered to the Company, the following:


 


(i)as to the Initial Closing,
this Agreement duly executed by the Purchaser; and


 


(ii)the Purchaser’s Subscription
Amount, as to the Initial Closing, or the Purchaser’s Overallotment Amount set forth on an Overallotment Notice, as to any
Overallotment Closing, by wire transfer to the account specified in writing by the Company.


 


2.4Closing Conditions. 


 


(a)The obligations of the
Company hereunder in connection with each Closing are subject to the following conditions being met:


 


(i)the accuracy in all material
respects on the applicable Closing Date of the representations and warranties of the Purchaser contained herein (unless as of a
specific date therein in which case they shall be accurate as of such date);


 


(ii)all obligations, covenants
and agreements of the Purchaser required to be performed at or prior to the applicable Closing Date shall have been performed;
and


 


(iii)the delivery by the Purchaser
of the items set forth in Section 2.3(b) of this Agreement.


 


(b)The obligations of the
Purchaser hereunder in connection with each Closing are subject to the following conditions being met:


 






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(i)the accuracy in all material
respects when made and on the applicable Closing Date of the representations and warranties of the Company contained herein (unless
as of a specific date therein);


 


(ii)all obligations, covenants
and agreements of the Company required to be performed at or prior to such Closing Date shall have been performed;


 


(iii)the Shares shall have been
approved for listing on the Trading Market.


 


(iv)the delivery by the Company
of the items set forth in Section 2.3(a) of this Agreement;


 


(v)there shall have been no
Material Adverse Effect with respect to the Company since the date hereof; and


 


(vi)from the date hereof to
the applicable Closing Date, trading in the Common Stock shall not have been suspended by the Commission or the Company’s
principal Trading Market, and, at any time prior to the applicable Closing Date, trading in securities generally as reported by
Bloomberg L.P. shall not have been suspended or limited, or minimum prices shall not have been established on securities whose
trades are reported by such service, or on any Trading Market, nor shall a banking moratorium have been declared either by the
United States or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or
other national or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market
which, in each case, in the reasonable judgment of the Purchaser, makes it impracticable or inadvisable to purchase the Shares
at the applicable Closing.


 


ARTICLE
III.

REPRESENTATIONS AND WARRANTIES


 


3.1Representations and Warranties
of the Company. Except as set forth in the last Annual Report on Form 10-K and the last Quarterly Report on Form 10-Q, as supplemented
by the Prospectus Supplement, or in a disclosure schedule delivered by the Company to the Purchaser prior to the execution of this
Agreement, which reports and disclosure schedule shall be deemed a part hereof and shall qualify any representation or otherwise
made herein to the extent of the disclosure contained therein, the Company hereby makes the following representations and warranties
to the Purchaser:


 


(a)Subsidiaries. The
Company owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiary free and clear of any
Liens, and all of the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid,
non-assessable and free of preemptive and similar rights to subscribe for or purchase securities. If the Company has no subsidiaries,
all other references to the Subsidiaries or any of them in the Transaction Documents shall be disregarded.


 






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(b)Organization and Qualification.
The Company and each of the Subsidiaries is an entity duly incorporated or otherwise organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or organization, with the requisite power and authority to own and use
its properties and assets and to carry on its business as currently conducted. Neither the Company nor any Subsidiary is in violation
nor default of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational
or charter documents. Each of the Company and the Subsidiaries is duly qualified to conduct business and is in good standing as
a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it
makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, could
not have or reasonably be expected to result in: (i) a material adverse effect on the legality, validity or enforceability of any
Transaction Document, (ii) a material adverse effect on the results of operations, assets, business, prospects or condition (financial
or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on the Company’s
ability to perform in any material respect on a timely basis its obligations under any Transaction Document (any of (i), (ii) or
(iii), a “Material Adverse Effect”) and no Proceeding has been instituted in any such jurisdiction revoking,
limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.


 


(c)Authorization; Enforcement.
The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this
Agreement and each of the other Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The
execution and delivery of this Agreement and each of the other Transaction Documents by the Company and the consummation by it
of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company
and no further action is required by the Company, the Board of Directors or the Company’s stockholders in connection herewith
or therewith other than in connection with the Required Approvals. This Agreement and each other Transaction Document to which
it is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the
terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance
with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating
to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification
and contribution provisions may be limited by applicable law.


 






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(d)No Conflicts. The
execution, delivery and performance by the Company of this Agreement and the other Transaction Documents to which it is a party,
the issuance and sale of the Shares and the consummation by it of the transactions contemplated hereby and thereby do not and will
not (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate or articles of incorporation,
bylaws or other organizational or charter documents, or (ii) conflict with, or constitute a default (or an event that with notice
or lapse of time or both would become a default) under, result in the creation of any Lien upon any of the properties or assets
of the Company or any Subsidiary, or give to others any rights of termination, amendment, acceleration or cancellation (with or
without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary
debt or otherwise) or other understanding to which the Company or any Subsidiary is a party or by which any property or asset of
the Company or any Subsidiary is bound or affected, or (iii) subject to the Required Approvals, conflict with or result in a violation
of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to
which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property
or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could
not have or reasonably be expected to result in a Material Adverse Effect.


 


(e)Filings, Consents and
Approvals. The Company is not required to obtain any consent, waiver, authorization or order of, give any notice to, or make
any filing or registration with, any court or other federal, state, local or other governmental authority or other Person in connection
with the execution, delivery and performance by the Company of the Transaction Documents, other than: (i) the filings required
pursuant to Section 4.4 of this Agreement, (ii) the filing with the Commission of the Prospectus Supplement, (iii) application(s)
to each applicable Trading Market for the listing of the Shares for trading thereon in the time and manner required thereby and
(iv) such filings as are required to be made under applicable state securities laws (collectively, the “Required Approvals”).


 


(f)Issuance of the Shares;
Registration. The Shares are duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents,
will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company. The Company
has reserved from its duly authorized capital stock the maximum number of shares of Common Stock issuable pursuant to this Agreement.
The Company has prepared and filed the Registration Statement in conformity with the requirements of the Securities Act, which
became effective on November 1, 2013 (the “Effective Date”), including the Prospectus, and such amendments
and supplements thereto as may have been required to the date of this Agreement. The Registration Statement is effective under
the Securities Act, including, without limitation, with respect to the issuance or resale of the Overallotment Shares pursuant
to the Overallotment Right, and no stop order preventing or suspending the effectiveness of the Registration Statement or suspending
or preventing the use of the Prospectus has been issued by the Commission and no proceedings for that purpose have been instituted
or, to the knowledge of the Company, are threatened by the Commission. The Company, if required by the rules and regulations of
the Commission, shall file the Prospectus with the Commission pursuant to Rule 424(b). At the time the Registration Statement and
any amendments thereto became effective, at the date of this Agreement and at each Closing Date, the Registration Statement and
any amendments thereto conformed and will conform in all material respects to the requirements of the Securities Act and did not
and will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading; and the Prospectus and any amendments or supplements thereto, at time
the Prospectus or any amendment or supplement thereto was issued and at each Closing Date, conformed and will conform in all material
respects to the requirements of the Securities Act and did not and will not contain an untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were
made, not misleading.


 






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(g)Capitalization.
The Company has not issued any capital stock since its most recently filed periodic report under the Exchange Act, other than pursuant
to the exercise of employee stock options under the Company’s stock option plans, the issuance of shares of Common Stock
to employees pursuant to the Company’s employee stock purchase plans and pursuant to the conversion and/or exercise of Common
Stock Equivalents outstanding as of the date of the most recently filed periodic report under the Exchange Act, except as disclosed
in the most recently filed periodic report under the Exchange Act. No Person has any right of first refusal, preemptive right,
right of participation, or any similar right to participate in the transactions contemplated by the Transaction Documents except
for any such rights that have been waived. Except as a result of the purchase and sale of the Shares or payment of the contractor
invoices in whole or in part in Shares in the ordinary course of business, there are no outstanding options, warrants, scrip rights
to subscribe to, calls or commitments of any character whatsoever relating to, or securities, rights or obligations convertible
into or exercisable or exchangeable for, or giving any Person any right to subscribe for or acquire, any shares of Common Stock,
or contracts, commitments, understandings or arrangements by which the Company or any Subsidiary is or may become bound to issue
additional shares of Common Stock or Common Stock Equivalents. The issuance and sale of the Shares will not obligate the Company
to issue shares of Common Stock or other securities to any Person (other than the Purchaser) and will not result in a right of
any holder of Company securities to adjust the exercise, conversion, exchange or reset price under any of such securities. All
of the outstanding shares of capital stock of the Company are duly authorized, validly issued, fully paid and nonassessable, have
been issued in compliance with all federal and state securities laws, and none of such outstanding shares was issued in violation
of any preemptive rights or similar rights to subscribe for or purchase securities. No further approval or authorization of any
stockholder, the Board of Directors or others is required for the issuance and sale of the Shares. There are no stockholders agreements,
voting agreements or other similar agreements with respect to the Company’s capital stock to which the Company is a party
or, to the knowledge of the Company, between or among any of the Company’s stockholders.


 






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(h)SEC Reports; Financial
Statements. The Company has filed all reports, schedules, forms, statements and other documents required to be filed by the
Company under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years
preceding the date hereof (or such shorter period as the Company was required by law or regulation to file such material) (the
foregoing materials, including the exhibits thereto and documents incorporated by reference therein, together with the Prospectus
and the Prospectus Supplement, being collectively referred to herein as the “SEC Reports”) on a timely basis
or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such
extension. As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities
Act and the Exchange Act, as applicable, and none of the SEC Reports, when filed, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading. The Company has never been an issuer subject to Rule
144(i) under the Securities Act. The financial statements of the Company included in the SEC Reports comply in all material respects
with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the
time of filing. Such financial statements have been prepared in accordance with United States generally accepted accounting principles
applied on a consistent basis during the periods involved (“GAAP”), except as may be otherwise specified in
such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required
by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated Subsidiaries as
of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited
statements, to normal, immaterial, year-end audit adjustments.


 


(i)S-3 Eligibility.
The Company meets the requirements for use of Form S-3 under the Securities Act under the transaction requirements set forth in
General Instruction 1.B.6 of such form.


 


(j)Material Changes; Undisclosed
Events, Liabilities or Developments. Since the date of the latest audited financial statements included within the SEC Reports,
except as specifically disclosed in a subsequent SEC Report filed prior to the date hereof, (i) there has been no event, occurrence
or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not
incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary
course of business consistent with past practice (B) liabilities not required to be reflected in the Company’s financial
statements pursuant to GAAP or disclosed in filings made with the Commission and (C) non-cash accounting measures that have effect
of reducing shareholder equity, (iii) the Company has not altered its method of accounting, (iv) the Company has not declared or
made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to
purchase or redeem any shares of its capital stock and (v) the Company has not issued any equity securities to any officer, director
or Affiliate, except pursuant to existing Company stock option plans. The Company does not have pending before the Commission any
request for confidential treatment of information. No event, liability, fact, circumstance, occurrence or development has occurred
or exists or is reasonably expected to occur or exist with respect to the Company or its Subsidiaries or their respective businesses,
prospects, properties, operations, assets or financial condition that would be required to be disclosed by the Company under applicable
securities laws at the time this representation is made or deemed made that has not been publicly disclosed at least one Trading
Day prior to the date that this representation is made.


 






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(k)Litigation. There
is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened
against or affecting the Company, any Subsidiary or any of their respective properties before or by any court, arbitrator, governmental
or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”)
which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the Shares
or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect. Neither
the Company nor any Subsidiary, nor any director or officer thereof, is or has been the subject of any Action involving a claim
of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty. There has not been,
and to the knowledge of the Company, there is not pending or contemplated, any investigation by the Commission involving the Company
or any current or former director or officer of the Company. The Commission has not issued any stop order or other order suspending
the effectiveness of any registration statement filed by the Company or any Subsidiary under the Exchange Act or the Securities
Act.


 


(l)Labor Relations.
No labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company, which
could reasonably be expected to result in a Material Adverse Effect. None of the Company’s or its Subsidiaries’ employees
is a member of a union that relates to such employee’s relationship with the Company or such Subsidiary, and neither the
Company nor any of its Subsidiaries is a party to a collective bargaining agreement, and the Company and its Subsidiaries believe
that their relationships with their employees are good. To the knowledge of the Company, no executive officer of the Company or
any Subsidiary, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure
or proprietary information agreement or non-competition agreement, or any other contract or agreement or any restrictive covenant
in favor of any third party, and the continued employment of each such executive officer does not subject the Company or any of
its Subsidiaries to any liability with respect to any of the foregoing matters. The Company and its Subsidiaries are in compliance
with all U.S. federal, state, local and foreign laws and regulations relating to employment and employment practices, terms and
conditions of employment and wages and hours, except where the failure to be in compliance could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.


 


(m)Compliance. Neither
the Company nor any Subsidiary: (i) is in default under or in violation of (and no event has occurred that has not been waived
that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under), nor has the Company
or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or
credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether
or not such default or violation has been waived), (ii) is in violation of any judgment, decree or order of any court, arbitrator
or other governmental authority or (iii) is or has been in violation of any statute, rule, ordinance or regulation of any governmental
authority, including without limitation all foreign, federal, state and local laws relating to taxes, environmental protection,
occupational health and safety, product quality and safety and employment and labor matters, except in each case as could not have
or reasonably be expected to result in a Material Adverse Effect.


 






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(n)Regulatory Permits.
The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state,
local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Reports, except
where the failure to possess such permits could not reasonably be expected to result in a Material Adverse Effect (“Material
Permits”), and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation
or modification of any Material Permit.


 


(o)Title to Assets.
The Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by them and good and marketable
title in all personal property owned by them that is material to the business of the Company and the Subsidiaries, in each case
free and clear of all Liens, except for (i) Liens as do not materially affect the value of such property and do not materially
interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries and (ii) Liens for the
payment of federal, state or other taxes, for which appropriate reserves have been made in accordance with GAAP and, the payment
of which is neither delinquent nor subject to penalties. Any real property and facilities held under lease by the Company and the
Subsidiaries are held by them under valid, subsisting and enforceable leases with which the Company and the Subsidiaries are in
compliance.


 


(p)Intellectual Property.
The Company and its Subsidiaries own or possess adequate rights to use all patents, patent applications, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), trademarks, trademark registrations, service marks, service mark registrations, trade names,
mask work rights and other intellectual property necessary to carry on the business now operated by it or proposed to be operated
by it as described in the SEC Reports (collectively, “Intellectual Property”), except where the lack of such
ownership or rights to use would not have a Material Adverse Effect. There is no litigation or other proceeding pending or, to
the Company’s knowledge, threatened and no claims are presently being asserted by any third party challenging or questioning
the ownership, validity, or enforceability of the Company's right to use or own any Intellectual Property or asserting that the
use of the Company’s Intellectual Property by the Company or the operation of the Company’s business infringes upon
or misappropriates the Intellectual Property of any third party, and the Company is unaware of any facts which would form a reasonable
basis for any such claim. None of, and neither the Company nor any Subsidiary has received a notice (written or otherwise) that
any of, the Intellectual Property has expired, terminated or been abandoned, or is essential for the Company’s business and
is expected to expire or terminate or be abandoned within two (2) years from the date of this Agreement. The Company is not otherwise
aware of any infringement of or conflict with asserted rights of others with respect to any of the Company's Intellectual Property
or the operation of the Company’s business. The Company is not otherwise aware of any facts or circumstances which would
render any of the Company's Intellectual Property invalid or inadequate to protect the interests of the Company therein, or with
respect to the patent applications contained in the Intellectual Property, unpatentable. Except as would not, individually or in
the aggregate have a Material Adverse Effect, to the best of the Company’s knowledge, (i) there is no infringement by third
parties engaged in commercial activity of any Intellectual Property of the Company relating to the Company’s business and
(ii) there are no non-commercial activities being performed by any third parties which, upon commercialization thereof, could reasonably
be expected to infringe on the Intellectual Property of the Company. The Company and its subsidiaries have taken all steps necessary
to perfect its ownership of and interest in the Intellectual Property.


 






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(q)Insurance. The Company
and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts
as are prudent and customary in the businesses in which the Company and the Subsidiaries are engaged, including, but not limited
to, directors and officers insurance coverage at least equal to $5,000,000. Neither the Company nor any Subsidiary has any reason
to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its business without a significant increase in cost.


 


(r)Transactions With Affiliates
and Employees. None of the officers or directors of the Company or any Subsidiary and, to the knowledge of the Company, none
of the employees of the Company or any Subsidiary is presently a party to any transaction with the Company or any Subsidiary (other
than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal property to or from, providing for the borrowing of money
from or lending of money to or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge
of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director,
trustee, stockholder, member or partner, in each case in excess of $120,000 other than for (i) payment of salary or consulting
fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and (iii) other employee benefits,
including stock option or incentive agreements under any stock option or incentive plan of the Company.


 


(s)Sarbanes-Oxley; Internal
Accounting Controls. The Company and the Subsidiaries are in compliance with any and all applicable requirements of the Sarbanes-Oxley
Act of 2002 that are effective as of the date hereof, and any and all applicable rules and regulations promulgated by the Commission
thereunder that are effective as of the date hereof and as of each Closing Date. The Company and the Subsidiaries maintain a system
of internal accounting controls sufficient to provide reasonable assurance that: (i) transactions are executed in accordance with
management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance
with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company and the Subsidiaries
have established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company
and the Subsidiaries and designed such disclosure controls and procedures to ensure that information required to be disclosed by
the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the
time periods specified in the Commission’s rules and forms. The Company’s certifying officers have evaluated the effectiveness
of the disclosure controls and procedures of the Company and the Subsidiaries as of the end of the period covered by the most recently
filed periodic report under the Exchange Act (such date, the “Evaluation Date”). The Company presented in its
most recently filed periodic report under the Exchange Act the conclusions of the certifying officers about the effectiveness of
the disclosure controls and procedures based on their evaluations as of the Evaluation Date. Since the Evaluation Date, there have
been no changes in the internal control over financial reporting (as such term is defined in the Exchange Act) of the Company and
its Subsidiaries that have materially affected, or are reasonably likely to materially affect, the internal control over financial
reporting of the Company and its Subsidiaries.


 






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(t)Certain Fees. No
brokerage or finder’s fees or commissions are or will be payable by the Company or any Subsidiary to any broker, financial
advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated
by the Transaction Documents. The Purchaser shall have no obligation with respect to any fees or with respect to any claims made
by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection with the transactions
contemplated by the Transaction Documents.


 


(u)Investment Company.
The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the Shares, will not be or be an Affiliate
of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended. The Company shall
conduct its business in a manner so that it will not become an “investment company” subject to registration under the
Investment Company Act of 1940, as amended.


 


(v)Registration Rights.
No Person has any right to cause the Company or any Subsidiary to effect the registration under the Securities Act of any securities
of the Company or any Subsidiary.


 


(w)Listing and Maintenance
Requirements. The Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act, and the Company has taken
no action designed to, or which to its knowledge is likely to have the effect of, terminating the registration of the Common Stock
under the Exchange Act nor has the Company received any notification that the Commission is contemplating terminating such registration.
The Company has not, in the 12 months preceding the date hereof, received notice from any Trading Market on which the Common Stock
is or has been listed or quoted to the effect that the Company is not in compliance with the listing or maintenance requirements
of such Trading Market. The Company is, and has no reason to believe that it will not in the foreseeable future continue to be,
in compliance with all such listing and maintenance requirements.


 






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(x)Disclosure. Except
with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Company confirms
that neither it nor any other Person acting on its behalf has provided the Purchaser or its agents or counsel with any information
that it believes constitutes or might constitute material, non-public information which is not otherwise disclosed in the Prospectus
Supplement. The Company understands and confirms that the Purchaser will rely on the foregoing representation in effecting transactions
in securities of the Company. All of the disclosure furnished by or on behalf of the Company to the Purchaser regarding the Company
and its Subsidiaries, their respective businesses and the transactions contemplated hereby is true and correct and does not contain
any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein,
in light of the circumstances under which they were made, not misleading. The Company acknowledges and agrees that Purchaser does
not make and has not made any representations or warranties with respect to the transactions contemplated hereby other than those
specifically set forth in Section 3.2 hereof.


 


(y)No Integrated Offering.
Assuming the accuracy of the Purchaser’s representations and warranties set forth in Section 3.2, neither the Company, nor
any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any
security or solicited any offers to buy any security, under circumstances that would cause this offering of the Shares to be integrated
with prior offerings by the Company for purposes of any applicable shareholder approval provisions of any Trading Market on which
any of the securities of the Company are listed or designated.


 


(z)Solvency. Based
on the consolidated financial condition of the Company as of each Closing Date, after giving effect to the receipt by the Company
of the proceeds from the sale of the Shares hereunder, (i) the fair saleable value of the Company’s assets exceeds the amount
that will be required to be paid on or in respect of the Company’s existing debts and other liabilities (including known
contingent liabilities) as they mature, (ii) the Company’s assets do not constitute unreasonably small capital to carry on
its business as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital
requirements of the business conducted by the Company, consolidated and projected capital requirements and capital availability
thereof, and (iii) the current cash flow of the Company, together with the proceeds the Company would receive, were it to liquidate
all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in
respect of its liabilities when such amounts are required to be paid. The Company does not intend to incur debts beyond its ability
to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt).
The Company has no knowledge of any facts or circumstances which lead it to believe that it will file for reorganization or liquidation
under the bankruptcy or reorganization laws of any jurisdiction within one year from Initial Closing Date. The SEC Reports sets
forth as of the date hereof all outstanding secured and unsecured Indebtedness of the Company or any Subsidiary, or for which the
Company or any Subsidiary has commitments. For the purposes of this Agreement, “Indebtedness” means (x) any
liabilities for borrowed money or amounts owed in excess of $50,000 (other than trade accounts payable incurred in the ordinary
course of business), (y) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether
or not the same are or should be reflected in the Company’s consolidated balance sheet (or the notes thereto), except guaranties
by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business;
and (z) the present value of any lease payments in excess of $50,000 due under leases required to be capitalized in accordance
with GAAP. Neither the Company nor any Subsidiary is in default with respect to any Indebtedness.


 






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(aa)Tax Status. Except
for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect,
the Company and its Subsidiaries each (i) has made or filed all United States federal, state and local income and all foreign income
and franchise tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) has paid all taxes
and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports
and declarations and (iii) has set aside on its books provision reasonably adequate for the payment of all material taxes for periods
subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount
claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company or of any Subsidiary know of no
basis for any such claim.


 


(bb)Foreign Corrupt Practices.
Neither the Company nor any Subsidiary, nor to the knowledge of the Company or any Subsidiary, any agent or other person acting
on behalf of the Company or any Subsidiary, has (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment
or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed
to disclose fully any contribution made by the Company or any Subsidiary (or made by any person acting on its behalf of which the
Company is aware) which is in violation of law, or (iv) violated in any material respect any provision of FCPA.


 


(cc)Accountants. To
the knowledge and belief of the Company, the Company’s accounting firm (i) is a registered public accounting firm as required
by the Exchange Act and (ii) has expressed, in the Company’s most recent Form 10-K, its opinion with respect to the financial
statements to be included in the Company’s Annual Report for the fiscal year ended December 31, 2013.


 


(dd) Acknowledgment Regarding
Purchaser’s Purchase of Shares. The Company acknowledges and agrees that the Purchaser is acting solely in the capacity
of an arm’s length purchaser with respect to the Transaction Documents and the transactions contemplated thereby. The Company
further acknowledges that the Purchaser is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity)
with respect to the Transaction Documents and the transactions contemplated thereby and any advice given by the Purchaser or any
of its respective representatives or agents in connection with the Transaction Documents and the transactions contemplated thereby
is merely incidental to the Purchaser’s purchase of the Shares. The Company further represents to the Purchaser that the
Company’s decision to enter into this Agreement and the other Transaction Documents has been based solely on the independent
evaluation of the transactions contemplated hereby by the Company and its representatives.


 






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(ee)Regulation M Compliance. 
The Company has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly, any action designed
to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or
resale of any of the Shares, (ii) sold, bid for, purchased, or, paid any compensation for soliciting purchases of, any of the Shares,
or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase any other securities of the Company.


 


(ff)Office of Foreign Assets
Control. Neither the Company nor any Subsidiary nor, to the Company's knowledge, any director, officer, agent, employee or
affiliate of the Company or any Subsidiary is currently subject to any U.S. sanctions administered by the Office of Foreign Assets
Control of the U.S. Treasury Department (“OFAC”).


 


(gg)Money Laundering.
The operations of the Company and its Subsidiaries are and have been conducted at all times in compliance with applicable financial
record-keeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, applicable
money laundering statutes and applicable rules and regulations thereunder (collectively, the “Money Laundering Laws”),
and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving
the Company or any Subsidiary with respect to the Money Laundering Laws is pending or, to the knowledge of the Company or any Subsidiary,
threatened.


 


3.2Representations and Warranties
of the Purchaser. The Purchaser hereby represents and warrants as of the date hereof and as of each Closing Date to the Company
as follows (unless as of a specific date therein):


 


(a)Organization; Authority.
The Purchaser is either an individual or an entity duly incorporated or formed, validly existing and in good standing under the
laws of the jurisdiction of its incorporation or formation with full right, corporate, partnership, limited liability company or
similar power and authority to enter into and to consummate the transactions contemplated by this Agreement and otherwise to carry
out its obligations hereunder and thereunder. The execution and delivery of this Agreement and performance by the Purchaser of
the transactions contemplated by this Agreement have been duly authorized by all necessary corporate, partnership, limited liability
company or similar action, as applicable, on the part of the Purchaser. Each Transaction Document to which it is a party has been
duly executed by the Purchaser, and when delivered by the Purchaser in accordance with the terms hereof, will constitute the valid
and legally binding obligation of the Purchaser, enforceable against it in accordance with its terms, except: (i) as limited by
general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by
applicable law.


 






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(b)Understandings or Arrangements.
The Purchaser is acquiring the Shares as principal for its own account and has no direct or indirect arrangement or understandings
with any other persons to distribute or regarding the distribution of such Shares (this representation and warranty not limiting
the Purchaser’s right to sell the Shares pursuant to the Registration Statement or otherwise in compliance with applicable
federal and state securities laws). The Purchaser is acquiring the Shares hereunder in the ordinary course of its business.


 


(c)Purchaser Status.
At the time the Purchaser was offered the Shares, it was, and as of each Closing Date, it will be an “accredited investor”
as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act.


 


(d)Experience of the Purchaser.
The Purchaser, either alone or together with its representatives, has such knowledge, sophistication and experience in business
and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Shares, and has
so evaluated the merits and risks of such investment. The Purchaser is able to bear the economic risk of an investment in the Shares
and, at the present time, is able to afford a complete loss of such investment.


 


(e)Certain Transactions and
Confidentiality. Other than consummating the transactions contemplated hereunder, the Purchaser has not, nor has any Person
acting on behalf of or pursuant to any understanding with the Purchaser, directly or indirectly executed any purchases or sales,
including Short Sales, of the securities of the Company during the period commencing as of the time that the Purchaser first
received a term sheet (written or oral) from the Company or any other Person representing the Company setting forth the material
terms of the transactions contemplated hereunder and ending immediately prior to the execution hereof. Notwithstanding the foregoing,
in the case of a Purchaser that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions
of the Purchaser’s assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio
managers managing other portions of the Purchaser’s assets, the representation set forth above shall only apply with respect
to the portion of assets managed by the portfolio manager that made the investment decision to purchase the Shares covered by this
Agreement. Other than to other Persons party to this Agreement, the Purchaser has maintained the confidentiality of all disclosures
made to it in connection with this transaction (including the existence and terms of this transaction). Notwithstanding the foregoing,
for avoidance of doubt, nothing contained herein shall constitute a representation or warranty, or preclude any actions, with respect
to the identification of the availability of, or securing of, available shares to borrow in order to effect Short Sales or similar
transactions in the future.


 


(f)Access to Information.
The Purchaser acknowledges that it has had the opportunity to review the Transaction Documents (including all exhibits and schedules
thereto) and the SEC Reports and has been afforded (i) the opportunity to ask such questions as it has deemed necessary of, and
to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Shares and the
merits and risks of investing in the Shares; (ii) access to information about the Company and its financial condition, results
of operations, business, properties, management and prospects sufficient to enable it to evaluate its investment; and (iii) the
opportunity to obtain such additional information that the Company possesses or can acquire without unreasonable effort or expense
that is necessary to make an informed investment decision with respect to the investment.


 






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The Company acknowledges and agrees that the
representations contained in Section 3.2 shall not modify, amend or affect the Purchaser’s right to rely on the Company’s
representations and warranties contained in this Agreement or any representations and warranties contained in any other Transaction
Document or any other document or instrument executed and/or delivered in connection with this Agreement or the consummation of
the transaction contemplated hereby.


 


ARTICLE
IV.

OTHER AGREEMENTS OF THE PARTIES


 


4.1Registration Statement. The
Company shall use best efforts to keep a registration statement (including the Registration Statement) registering the issuance
or resale of the Shares (including the issuance of Overallotment Shares pursuant to the Overallotment Right) effective during the
term of the Overallotment Right.


 


4.2Furnishing of Information.
Until the time that the Purchaser owns no Shares, the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to
the Exchange Act.


 


4.3Integration. The Company shall
not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of
the Securities Act) that would be integrated with the offer or sale of the Shares for purposes of the rules and regulations of
any Trading Market such that it would require shareholder approval prior to the closing of such other transaction unless shareholder
approval is obtained before the closing of such subsequent transaction.


 


4.4Securities Laws Disclosure; Publicity.
The Company shall file a Current Report on Form 8-K, including descriptions of the Transaction Documents or including the Transaction
Documents as exhibits thereto, with the Commission within the time required by the Exchange Act. The Company and the Purchaser
shall consult with each other in issuing any press releases with respect to the transactions contemplated hereby. Notwithstanding
the foregoing, the Company shall not publicly disclose the name of the Purchaser, or include the name of the Purchaser in any filing
with the Commission or any regulatory agency or Trading Market, without the prior written consent of the Purchaser, except (a)
as required by federal securities law in connection with the filing of final Transaction Documents with the Commission and (b)
to the extent such disclosure is required by law or Trading Market regulations, in which case the Company shall provide the Purchaser
with prior notice of such disclosure permitted under this clause (b).


 






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4.5Shareholder Rights Plan. No
claim will be made or enforced by the Company or, with the consent of the Company, any other Person, that the Purchaser is an “Acquiring
Person” under any control share acquisition, business combination, poison pill (including any distribution under a rights
agreement) or similar anti-takeover plan or arrangement in effect or hereafter adopted by the Company, or that the Purchaser could
be deemed to trigger the provisions of any such plan or arrangement, by virtue of receiving Shares under the Transaction Documents
or under any other agreement between the Company and the Purchaser.


 


4.6Non-Public Information. Except
with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Company covenants
and agrees that neither it, nor any other Person acting on its behalf will provide the Purchaser or its agents or counsel with
any information that the Company believes constitutes material non-public information, unless prior thereto the Purchaser shall
have entered into a written agreement with the Company regarding the confidentiality and use of such information. The Company understands
and confirms that the Purchaser shall be relying on the foregoing covenant in effecting transactions in securities of the Company.


 


4.7Use of Proceeds. Except as
set forth in the Prospectus Supplement, the Company shall use the net proceeds from the sale of the Shares hereunder for working
capital purposes and shall not use such proceeds: (a) for the satisfaction of any portion of the Company’s debt (other than
payment of trade payables in the ordinary course of the Company’s business and prior practices), (b) for the redemption of
any Common Stock or Common Stock Equivalents, (c) for the settlement of any outstanding litigation or (d) in violation of FCPA
or OFAC regulations.


 


4.8Indemnification of Purchaser.
Subject to the provisions of this Section 4.8, the Company will indemnify and hold the Purchaser and its directors, officers, shareholders,
members, partners, employees and agents (and any other Persons with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title), each Person who controls the Purchaser (within the meaning of Section
15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members, partners
or employees (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack
of such title or any other title) of such controlling persons (each, a “Purchaser Party”) harmless from any
and all losses, liabilities, obligations, claims, contingencies, damages, costs and expenses, including all judgments, amounts
paid in settlements, court costs and reasonable attorneys’ fees and costs of investigation that any such Purchaser Party
may suffer or incur as a result of or relating to (a) any breach of any of the representations, warranties, covenants or agreements
made by the Company in this Agreement or in the other Transaction Documents or (b) any action instituted against the Purchaser
Parties in any capacity, or any of them or their respective Affiliates, by any stockholder of the Company who is not an Affiliate
of such Purchaser Party, with respect to any of the transactions contemplated by the Transaction Documents (unless such action
is based upon a breach of such Purchaser Party’s representations, warranties or covenants under the Transaction Documents
or any agreements or understandings such Purchaser Party may have with any such stockholder or any violations by such Purchaser
Party of state or federal securities laws or any conduct by such Purchaser Party which constitutes fraud, gross negligence, willful
misconduct or malfeasance). If any action shall be brought against any Purchaser Party in respect of which indemnity may be sought
pursuant to this Agreement, such Purchaser Party shall promptly notify the Company in writing, and the Company shall have the right
to assume the defense thereof with counsel of its own choosing reasonably acceptable to the Purchaser Party. Any Purchaser Party
shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Purchaser Party except to the extent that (i) the employment thereof has been specifically
authorized by the Company in writing, (ii) the Company has failed after a reasonable period of time to assume such defense and
to employ counsel or (iii) in such action there is, in the reasonable opinion of counsel, a material conflict on any material issue
between the position of the Company and the position of such Purchaser Party, in which case the Company shall be responsible for
the reasonable fees and expenses of no more than one such separate counsel. The Company will not be liable to any Purchaser Party
under this Agreement (y) for any settlement by a Purchaser Party effected without the Company’s prior written consent, which
shall not be unreasonably withheld or delayed; or (z) to the extent, but only to the extent that a loss, claim, damage or liability
is attributable to any Purchaser Party’s breach of any of the representations, warranties, covenants or agreements made by
such Purchaser Party in this Agreement or in the other Transaction Documents. The indemnification required by this Section 4.8
shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are
received or are incurred. The indemnity agreements contained herein shall be in addition to any cause of action or similar right
of any Purchaser Party against the Company or others and any liabilities the Company may be subject to pursuant to law.


 






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4.9Reservation of Common Stock.
As of the date hereof, the Company has reserved and the Company shall continue to reserve and keep available at all times, free
of preemptive rights, a sufficient number of shares of Common Stock for the purpose of enabling the Company to issue Shares pursuant
to this Agreement. 


 


4.10Listing of Common Stock.
The Company hereby agrees to use best efforts to maintain the listing or quotation of the Common Stock on the Trading Market on
which it is currently listed. The Company further agrees, if the Company applies to have the Common Stock traded on any other Trading
Market, it will then use best efforts to include in such application all of the Shares, and will take such other action as is necessary
to cause all of the Shares to be listed or quoted on such other Trading Market as promptly as possible. The Company will then take
all action reasonably necessary to continue the listing and trading of its Common Stock on a Trading Market and will comply in
all respects with the Company’s reporting, filing and other obligations under the bylaws or rules of the Trading Market.


 


4.11Certain Transactions and Confidentiality.
The Purchaser covenants that neither it nor any Affiliate acting on its behalf or pursuant to any understanding with it will execute
any purchases or sales, including Short Sales of any of the Company’s securities during the period commencing with the execution
of this Agreement and ending at such time that the transactions contemplated by this Agreement are first publicly announced pursuant
to the initial press release as described in Section 4.4.  The Purchaser covenants that until such time as the transactions
contemplated by this Agreement are publicly disclosed by the Company pursuant to the initial press release as described in Section
4.4, the Purchaser will maintain the confidentiality of the existence and terms of this transaction.  Notwithstanding the
foregoing and notwithstanding anything contained in this Agreement to the contrary, the Company expressly acknowledges and agrees
that (i) the Purchaser makes no representation, warranty or covenant hereby that it will not engage in effecting transactions in
any securities of the Company after the time that the transactions contemplated by this Agreement are first publicly announced
pursuant to the initial press release as described in Section 4.4, (ii) the Purchaser shall not be restricted or prohibited from
effecting any transactions in any securities of the Company in accordance with applicable securities laws from and after the time
that the transactions contemplated by this Agreement are first publicly announced pursuant to the initial press release as described
in Section 4.4 and (iii) the Purchaser shall not have any duty of confidentiality to the Company or its Subsidiaries after the
issuance of the initial press release as described in Section 4.4.  Notwithstanding the foregoing, in the case of a Purchaser
that is a multi-managed investment vehicle whereby separate portfolio managers manage separate portions of the Purchaser’s
assets and the portfolio managers have no direct knowledge of the investment decisions made by the portfolio managers managing
other portions of the Purchaser’s assets, the covenant set forth above shall only apply with respect to the portion of assets
managed by the portfolio manager that made the investment decision to purchase the Shares covered by this Agreement.


 






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ARTICLE
V.

MISCELLANEOUS


 


5.1Termination.  This Agreement
may be terminated by the Purchaser, or terminated by the Company, by written notice to the other parties, if the Initial Closing
has not been consummated without breach hereof by the terminating party on or before June 27, 2014; provided, however,
that no such termination will affect the right of any party to sue for any breach by any other party (or parties).


 


5.2Fees and Expenses. Except
as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisers,
counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation,
execution, delivery and performance of this Agreement. The Company shall pay all Transfer Agent fees (including, without limitation,
any fees required for same-day processing of any instruction letter delivered by the Company), stamp taxes and other taxes and
duties levied in connection with the delivery of any Shares to the Purchaser.


 


5.3Entire Agreement. The Transaction
Documents, together with the exhibits and schedules thereto, the Prospectus and the Prospectus Supplement, contain the entire understanding
of the parties with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, oral
or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules.


 


5.4Notices. Any and all notices
or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given
and effective on the earliest of: (a) the date of transmission, if such notice or communication is delivered via facsimile, with
confirmation of delivery, at the facsimile number set forth on the signature pages attached hereto at or prior to 5:30 p.m. (New
York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered
via facsimile, with confirmation of delivery, at the facsimile number set forth on the signature pages attached hereto on a day
that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (c) upon delivery if sent by U.S. nationally
recognized overnight courier service or (d) upon actual receipt by the party to whom such notice is required to be given. The address
for such notices and communications shall be as set forth on the signature pages attached hereto.


 






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5.5Amendments; Waivers. No provision
of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed, in the case of an amendment,
by the Company and the Purchaser or, in the case of a waiver, by the party against whom enforcement of any such waived provision
is sought. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to
be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement
hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such
right.


 


5.6Headings. The headings herein
are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions
hereof.


 


5.7Successors and Assigns. This
Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company
may not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Purchaser (other
than by merger). The Purchaser may assign any or all of its rights under this Agreement (other than the Overallotment Right, which
shall be non-transferrable) to any Person to whom the Purchaser assigns or transfers any Shares, provided that such transferee
agrees in writing to be bound, with respect to the transferred Shares, by the provisions of the Transaction Documents that apply
to the “Purchaser.”


 


5.8No Third-Party Beneficiaries.
This Agreement is intended for the benefit of the parties hereto, and their respective successors and permitted assigns and is
not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section
4.8.


 


5.9Governing Law. All questions
concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law
thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions
contemplated by this Agreement and any other Transaction Documents (whether brought against a party hereto or its respective affiliates,
directors, officers, shareholders, partners, members, employees or agents) shall be commenced exclusively in the state and federal
courts sitting in the City of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in the City of New York, Borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith
or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction
Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or is an inconvenient
venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served
in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence
of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof, effective upon receipt. Nothing contained herein shall be deemed to
limit in any way any right to serve process in any other manner permitted by law. If either party shall commence an action, suit
or proceeding to enforce any provisions of the Transaction Documents, then, in addition to the obligations of the Company under
Section 4.8, the prevailing party in such action, suit or proceeding shall be reimbursed by the other party for its reasonable
attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action
or proceeding.


 






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5.10Survival. The representations
and warranties contained herein shall survive the Closings and the delivery of the Shares.


 


5.11Execution. This Agreement
may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and delivered to each other party, it being understood
that the parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or
by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the
party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf”
signature page were an original thereof.


 


5.12Severability. If any term,
provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void
or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force
and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable
efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would
have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared
invalid, illegal, void or unenforceable.


 


5.13Rescission and Withdrawal Right.
Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) any of the other Transaction
Documents, whenever the Purchaser exercises a right, election, demand or option under a Transaction Document and the Company does
not timely perform its related obligations within the periods therein provided, then the Purchaser may rescind or withdraw, in
its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in
part without prejudice to its future actions and rights.


 


5.14Replacement of Shares. If
any certificate or instrument evidencing any Shares is mutilated, lost, stolen or destroyed, the Company shall issue or cause to
be issued in exchange and substitution for and upon cancellation thereof (in the case of mutilation), or in lieu of and substitution
therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss,
theft or destruction. The applicant for a new certificate or instrument under such circumstances shall also pay any reasonable
third-party costs (including customary indemnity) associated with the issuance of such replacement Shares.


 






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5.15Remedies. In addition to
being entitled to exercise all rights provided herein or granted by law, including recovery of damages, the Purchaser and the Company
will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate
compensation for any loss incurred by reason of any breach of obligations contained in the Transaction Documents and hereby agree
to waive and not to assert in any action for specific performance of any such obligation the defense that a remedy at law would
be adequate.


 


5.16Payment Set Aside. To the
extent that the Company makes a payment or payments to the Purchaser pursuant to any Transaction Document or the Purchaser enforces
or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof
are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required
to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other Person under any law (including,
without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any
such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force
and effect as if such payment had not been made or such enforcement or setoff had not occurred.


 


5.17Saturdays, Sundays, Holidays,
etc.If the last or appointed day for the taking of any action or the expiration of any right required or granted herein
shall not be a Business Day, then such action may be taken or such right may be exercised on the next succeeding Business Day.


 


5.18Construction. The parties
agree that each of them and/or their respective counsel have reviewed and had an opportunity to revise the Transaction Documents
and, therefore, the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation of the Transaction Documents or any amendments thereto. In addition, each and every
reference to share prices and shares of Common Stock in any Transaction Document shall be subject to adjustment for reverse and
forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the
date of this Agreement.


 


5.19WAIVER OF JURY TRIAL.
IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ONE PARTY AGAINST THE OTHER PARTY, THE PARTIES EACH KNOWINGLY
AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY
WAIVES FOREVER TRIAL BY JURY. 


 






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IN WITNESS WHEREOF, the parties hereto have
caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated
above.


 


 


	DOCUMENT SECURITY SYSTEMS, INC.


	 	
        Address for Notice:

        First Federal Plaza, Suite 1525

        28 East Main Street

        Rochester, NY 14614

	
        By: 
	 	 	Fax: (585) 325-2977
	
         

         

         

         
	
        Name:

        Title:

         
	 	 


 


 


 


[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK;


SIGNATURE PAGE FOR PURCHASER FOLLOWS]


 






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[PURCHASER SIGNATURE PAGE TO SECURITIES PURCHASE AGREEMENT]


 


IN WITNESS WHEREOF, the undersigned has
caused this Securities Purchase Agreement to be duly executed by its respective authorized signatory as of the date first indicated
above.


 


	Name of Purchaser:	 


 


	Signature of Authorized Signatory of Purchaser:	 


 


	Name of Authorized Signatory:	 


 


	Title of Authorized Signatory:	 


 


	Email Address of Authorized Signatory:	 


 


	Facsimile Number of Authorized Signatory:	 


 


	Address for Notice to Purchaser:	 


 


 


 


Address for Delivery of Shares to Purchaser (if not same as
address for notice):


 


 


 


 


	Subscription Amount:	$_________________



  



	Shares:	_________________



  


	Overallotment Shares:	_______________



  


	EIN Number:	_______________________


 


o
Notwithstanding anything contained in this Agreement to the contrary, by checking this box (i) the obligations of the above-signed
to purchase the securities set forth in this Agreement to be purchased from the Company by the above-signed, and the obligations
of the Company to sell such securities to the above-signed, shall be unconditional and all conditions to Initial Closing shall
be disregarded, (ii) the Initial Closing shall occur on the third (3rd) Trading Day following the date of this Agreement
and (iii) any condition to Initial Closing contemplated by this Agreement (but prior to being disregarded by clause (i) above)
that required delivery by the Company or the above-signed of any agreement, instrument, certificate or the like or purchase price
(as applicable) shall no longer be a condition and shall instead be an unconditional obligation of the Company or the above-signed
(as applicable) to deliver such agreement, instrument, certificate or the like or purchase price (as applicable) to such other
party on the Initial Closing Date.


 






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