DOCUMENT
SECURITY SYSTEMS, INC.

    28 East
Main Street

    Suite
1525

    Rochester,
NY 14614

     


    December
11, 2009

    


    FAGENSON
& CO., INC.

    60 Broad
Street

    39TH
Floor

    New York,
NY  10004

    Attention:
Robert Fagenson

     

    
      Re:         
   Letter Agreement: Conversion of Debt into
Equity and Extension of Credit Agreement Term

    

    


    Gentlemen:

    


    Reference
is made to CREDIT AGREEMENT (“Credit Agreement”) dated as of January 4, 2008
between DOCUMENT SECURITY SYSTEMS, INC., (“DSS”) as Borrower, and FAGENSON &
CO, INC. (“Lender”) as Agent for Lenders pursuant to which DSS has borrowed an
aggregate of $2,583,000 from Lender.

    


    In
consideration of the Lender converting $2,000,000 of the amount due under the
Credit Agreement into shares of Common Stock, DSS shall issue to the Lender, or
its assigns, 1,250,000 restricted shares of its Common Stock (the “Restricted Shares”).
DSS agrees to use best efforts to register the Restricted Shares on a
Registration Statement Form S-3 with the Securities and Exchange Commission
within 90 days of this letter.   The Lender, or its assigns,
confirm that they are accredited investors and have read and are familiar with
Document Security Systems, Inc.’s filing made with the Securities and Exchange
Commission of Forms 10-K, 10-Q, 8-K and any other relevant filings available at
www.sec.gov
pertaining to Document Security Systems, Inc.

    


    Furthermore,
the Lender agrees to the following Amendments to the Credit
Agreement:

    


    a)  Section
1.1 (xiii)   “Maximum Revolving Commitment” shall mean
$1,000,000.00

    


    a)  Section
1.1 (xxiii) “Termination Date” shall mean January 4, 2012

    


    This
letter agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature were the original
thereof.

    


    Kindly
acknowledge your agreement to the foregoing by signing in the place indicated
below.

    


    Very
truly yours,

     

    DOCUMENT
SECURITY SYSTEMS, INC.

    


    
      
        
          
            
              
                	
                        By:

                      	 
      
	
                        Name:

                      
	
                        Title:

                      


              

            

          

        

      

    

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    Acknowledged
and agreed:

    


    
      
        
          
            
              	
                      FAGENSON
      & CO, INC. as Agent For Lenders

                    
	 
      	 
      
	
                      By:

                    	 
      
	
                      Name:

                    
	
                      Title:

                    


            

          

        

      

    

    


    
      
        
          
            
              
                
                  
                    
                      
                        	
                                Acknowledged
      and agreed:

                              
	 
      	 
      
	
                                LENDERS

                              
	 
      	 
      
	
                                By:

                              	 
      
	
                                Name:

                              
	 
      	 
      
	
                                By:

                              	 
      
	
                                Name: