WARRANT


 


DOCUMENT SECURITY SYSTEMS, INC.


 


WARRANT TO PURCHASE COMMON STOCK


 


VOID AFTER 5:30 P.M., EASTERN 


TIME, ON THE EXPIRATION DATE


 


THIS WARRANT AND ANY SHARES ACQUIRED
UPON THE EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”),
AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED, DONATED OR OTHERWISE TRANSFERRED WITHOUT COMPLIANCE WITH THE REGISTRATION OR QUALIFICATION
PROVISIONS OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR APPLICABLE EXEMPTIONS THEREFROM.


 


DOCUMENT SECURITY
SYSTEMS, INC., a New York corporation (the “Company”), on even date herewith (the “Issuance Date”)
hereby agrees to sell upon the terms and on the conditions hereinafter set forth, but no later than 5:30 p.m., Eastern Time, on
the Expiration Date (as hereinafter defined) to MAYER LAUFER, or his registered assigns (the “Holder”),
sixty thousand (60,000) fully paid and non-assessable shares of the Company’s common stock, par value $0.02 per share (the
“Common Stock” or “Warrant Stock”), at the per share purchase prices set forth in Section
2 hereof (the “Warrant Price”), pursuant to this warrant (this “Warrant”). Holder’s
right to purchase under this Warrant shall be subject to and contingent upon the Company receiving prior NYSE MKT additional listing
approval for the underlying Warrant Stock. The number of shares of Warrant Stock to be so issued and the Warrant Price are subject
to adjustment in certain events as hereinafter set forth. The term “Common Stock” or “Warrant Stock”
shall mean, when used herein, unless the context otherwise requires, the stock receivable upon the exercise of this Warrant.


 


1.          Exercise
of Warrant.


 


a.           The
Holder may exercise this Warrant according to its terms by (i) surrendering this Warrant, properly endorsed, to the Company at
the address set forth in Section 10, (ii) executing the subscription form attached hereto (the “Form of Exercise”),
and (iii) making payment of the purchase price to the Company for the number of shares of the Warrant Stock specified in the Form
of Exercise, or as otherwise provided in this Warrant, prior to 5:30 p.m., Eastern Time, on May 24, 2018 (the
“Expiration Date”). Such exercise shall be deemed effected by the surrender of the Warrant, together
with a duly executed copy of the Form of Exercise, to Company at its principal office along with payment to the Company of an amount
equal to the aggregate Warrant Price for the number of shares of Warrant Stock being purchased in cash, check or bank draft.


 




    	 



    	 



    

 


b.           This
Warrant may be exercised in whole or in part. If exercised in part, the Company shall deliver to the Holder a new Warrant, identical
in form, in the name of the Holder, evidencing the right to purchase the number of shares of Warrant Stock as to which this Warrant
has not been exercised. The term Warrant as used herein shall include any subsequent Warrant issued as provided herein.


 


c.           No
fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. If any fraction of
a Warrant Stock would, except for the provisions of this Section 1(c), be issuable on the exercise of a Warrant, the number of
Warrant Stock to be issued by the Company shall be rounded to the nearest whole number, with one-half or greater being rounded
up.


 


d.           In
the event of any exercise of the rights represented by this Warrant, a certificate or certificates for the Warrant Stock so purchased,
registered in the name of the Holder, shall be delivered to the Holder within a reasonable time after such rights shall have been
so exercised. The person or entity in whose name any certificate for the Warrant Stock is issued upon exercise of the rights represented
by this Warrant shall for all purposes be deemed to have become the holder of record of such shares immediately prior to the close
of business on the date on which the Warrant was surrendered and payment of the Warrant Price and any applicable taxes was made,
irrespective of the date of delivery of such certificate, except that, if the date of such surrender and payment is a date when
the stock transfer books of the Company are closed, such person shall be deemed to have become the holder of such shares at the
opening of business on the next succeeding date on which the stock transfer books are open.


 


2.          Vesting
and Warrant Prices. This Warrant shall vest immediately upon issuance (the “Issuance Date”), and shall have an
exercise price of $3.00 per share (the “Warrant Price”).


 


3.          Disposition
of Warrant and Warrant Stock.


 


a.           The
Holder hereby acknowledges that this Warrant and any Warrant Stock purchased pursuant hereto are, as of the date hereof, not registered:
(i) under the Securities Act of 1933, as amended (the “Act”), on the ground that the issuance of this Warrant
is exempt from registration under Section 4(2) of the Act and/or Regulation D thereunder as not involving any public offering or
(ii) under any applicable state securities law because the issuance of this Warrant does not involve any public offering; and that
the Company’s reliance on the Section 4(2) exemption of the Act and/or Regulation D and the other rules and regulations promulgated
thereunder, and under applicable state securities laws is predicated in part on the representations hereby made to the Company
by the Holder that it is acquiring this Warrant and will acquire the Warrant Stock for investment for its own account, with no
present intention of dividing its participation with others or reselling or otherwise distributing the same, subject, nevertheless,
to any requirement of law that the disposition of its property shall at all times be within its control.


 


The Holder hereby agrees
that it will not sell or transfer all or any part of this Warrant and/or Warrant Stock unless and until it shall first have given
notice to the Company describing such sale or transfer and furnished to the Company either (i) an opinion, satisfactory to counsel
for the Company, to the effect that the proposed sale or transfer may be made without registration under the Act and without registration
or qualification under any state law, or (ii) an interpretative letter from the Securities and Exchange Commission to the effect
that no enforcement action will be recommended if the proposed sale or transfer is made without registration under the Act.


 




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b.           If,
at the time of issuance of the shares issuable upon exercise of this Warrant, no registration statement is in effect with respect
to such shares under applicable provisions of the Act, the Company may at its election require that the Holder provide the Company
with written reconfirmation of the Holder’s investment intent and that any stock certificate delivered to the Holder of a
surrendered Warrant shall bear legends reading substantially as follows:


 


“THE SHARES REPRESENTED
BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 OR AN OPINION OF COUNSEL SATISFACTORY
TO THE ISSUER OF THIS CERTIFICATE THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT.”


 


In addition, so long as the foregoing legend
may remain on any stock certificate delivered to the Holder, the Company may maintain appropriate “stop transfer” orders
with respect to such certificates and the shares represented thereby on its books and records and with those to whom it may delegate
registrar and transfer functions.


 


4.          Reservation
of Shares. The Company hereby agrees that at all times there shall be reserved for issuance upon the exercise of this Warrant
such number of shares of its Common Stock as shall be required for issuance upon exercise of this Warrant. The Company further
agrees that all shares which may be issued upon the exercise of the rights represented by this Warrant will be duly authorized
and will, upon issuance and against payment of the exercise price, be validly issued, fully paid and non-assessable, free from
all taxes, liens, charges and preemptive rights with respect to the issuance thereof, other than taxes, if any, in respect of any
transfer occurring contemporaneously with such issuance and other than transfer restrictions imposed by federal and state securities
laws.


 


5.          Exchange,
Transfer or Assignment of Warrant. This Warrant is exchangeable, without expense, at the option of the Holder, upon presentation
and surrender hereof to the Company or at the office of its stock transfer agent, if any, for other Warrants of different denominations,
entitling the Holder or Holders thereof to purchase in the aggregate the same number of shares of Common Stock purchasable hereunder.
Upon surrender of this Warrant to the Company or at the office of its stock transfer agent, if any, along with a duly executed
assignment form and funds sufficient to pay any transfer tax, the Company shall, without charge, execute and deliver a new Warrant
in the name of the assignee named in such instrument of assignment and this Warrant shall promptly be canceled. This Warrant may
be divided or combined with other Warrants that carry the same rights upon presentation hereof at the office of the Company or
at the office of its stock transfer agent, if any, together with a written notice specifying the names and denominations in which
new Warrants are to be issued and signed by the Holder hereof.


 




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6.          Capital
Adjustments. This Warrant is subject to the following provisions:


 


A.      Adjustment
for Stock Splits, Stock Dividends, Recapitalizations. The number of Warrant Stock issuable upon exercise of each Warrant and
the Warrant Price shall each be proportionately adjusted to reflect any stock dividend, stock split, reverse stock split, recapitalization
or the like affecting the number of outstanding shares of Common Stock that occurs after the date hereof.


 


B.      Adjustments
for Reorganization, Consolidation, Merger. If after the date hereof, the Company (or any other entity, the stock or other securities
of which are at the time receivable on the exercise of the Warrants), consolidates with or merges into another entity or conveys
all or substantially all of its assets to another entity, then, in each such case, Holder, upon any permitted exercise of a Warrant,
at any time after the consummation of such reorganization, consolidation, merger or conveyance, shall be entitled to receive, in
lieu of the stock or other securities and property receivable upon the exercise of the Warrant prior to such consummation, the
stock or other securities or property to which such Holder would have been entitled upon the consummation of such reorganization,
consolidation, merger or conveyance if such Holder had exercised the Warrant immediately prior thereto. The successor or purchasing
entity in any such reorganization, consolidation, merger or conveyance (if other than the Company) shall duly execute and deliver
to Holder a written acknowledgment of such entity’s obligations under the Warrants and this Agreement. With respect to the
Company’s pending merger transaction with Lexington Technology Group, Inc., the Company will be the surviving legal entity
post-merger and, as such, this Warrant will not be affected by said merger.


 


C.      Stock
Dividends. If the Company at any time while this Warrant is outstanding and unexpired shall issue or pay the holders of its
Common Stock, or take a record of the holders of its Common Stock for the purpose of entitling them to receive, a dividend payable
in, or other distribution of, Common Stock, then the Warrant Price shall be adjusted as provided herein and the number of shares
of Warrant Stock purchasable upon exercise of this Warrant shall be adjusted to the number of shares of Common Stock that the Holder
would have owned immediately following such action had this Warrant been exercised immediately prior thereto.


 


D.      Purchase
Adjustments. Except as otherwise provided herein, whenever the number of shares of Warrant Stock purchasable upon exercise
of this Warrant is adjusted, as herein provided, the Warrant Price payable upon the exercise of this Warrant shall be adjusted
to that price determined by multiplying such Warrant Price immediately prior to such adjustment by a fraction (i) the numerator
of which shall be the number of shares of Warrant Stock purchasable upon exercise of this Warrant immediately prior to such adjustment,
and (ii) the denominator of which shall be the number of shares of Warrant Stock purchasable upon exercise of this Warrant immediately
thereafter. The number of shares of Common Stock outstanding at any given time for purposes of the adjustments set forth in this
Section 6 shall exclude any shares then directly or indirectly held in the treasury of the Company.


 




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E.      Exception
to Purchase Adjustments. The Company shall not be required to make any adjustment pursuant to this Section 6 if the amount
of such adjustment would be less than one percent (1%) of the Warrant Price in effect immediately before the event that would otherwise
have given rise to such adjustment. In such case, however, any adjustment that would otherwise have been required to be made shall
be made at the time of and together with the next subsequent adjustment which, together with any adjustment or adjustments so carried
forward, shall amount to not less than one percent (1%) of the Warrant Price in effect immediately before the event giving rise
to such next subsequent adjustment. Following each computation or readjustment as provided in this Section 5, the new adjusted
Warrant Price and number of shares of Warrant Stock purchasable upon exercise of this Warrant shall remain in effect until a further
computation or readjustment thereof is required.


 


7.          Notice
to Holders.


 


a.           In
case:


 


(i)          the
Company shall take a record of the holders of its common stock (or other stock or securities at the time receivable upon the exercise
of this Warrant) for the purpose of entitling them to receive any dividend (other than a cash dividend payable out of earned surplus
of the Company) or other distribution, or any right to subscribe for or purchase any shares of stock of any class or any other
securities, or to receive any other right;


 


(ii)         of
any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation with or
merger of the Company into another corporation, or any conveyance of all or substantially all of the assets of the Company to another
corporation; or


 


(iii)        of
any voluntary dissolution, liquidation or winding-up of the Company;


 


then, and in each such case, the Company
will mail or cause to be mailed to the Holder hereof at the time outstanding a notice specifying, as the case may be, (i) the date
on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character
of such dividend, distribution or right, or (ii) the date on which such reorganization, reclassification, consolidation, merger,
conveyance, dissolution, liquidation or winding-up is to take place, and the time, if any, is to be fixed, as of which the holders
of record of Common Stock (or such stock or securities at the time receivable upon the exercise of this Warrant) shall be
entitled to exchange their shares of Common Stock (or such other stock or securities) for securities or other property deliverable
upon such reorganization, reclassification, consolidation, merger, conveyance, dissolution or winding-up. Such notice shall be
mailed at least ten (10) days prior to the record date therein specified, or if no record date shall have been specified therein,
at least ten (10) days prior to such specified date, provided, however, failure to provide any such notice shall not affect the
validity of such transaction.


 




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8.          
Loss, Theft, Destruction or Mutilation. Upon receipt by the Company of evidence satisfactory to it, in the exercise of its
reasonable discretion, of the ownership and the loss, theft, destruction or mutilation of this Warrant and, in the case of loss,
theft or destruction, of indemnity reasonably satisfactory to the Company and, in the case of mutilation, upon surrender and cancellation
thereof, the Company will execute and deliver in lieu thereof, without expense to the Holder, a new Warrant of like tenor dated
the date hereof.


 


9.          Warrant
Holder Not a Stockholder. The Holder of this Warrant, as such, shall not be entitled by reason of this Warrant to any rights
whatsoever as a stockholder of the Company.


 


10.         Notices.
Any notice required or contemplated by this Warrant shall be deemed to have been duly given if transmitted by registered or certified
mail, return receipt requested, or nationally recognized overnight delivery service, to the Company at its principal executive
offices located at 28 Main Street East, Suite 1525, Rochester, New York 14614, Attn: Chief Executive Officer, or to the Holder
at the name and address set forth in the Warrant Register maintained by the Company.


 


11.         Choice
of Law. THIS WARRANT IS ISSUED UNDER AND SHALL FOR ALL PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL
LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.


 


12.         Venue.
THE HOLDER BY RECEIPT OF THIS WARRANT HEREBY CONSENTS TO AND IRREVOCABLY SUBMITS TO PERSONAL JURISDICTION OVER SUCH HOLDER BY THE
APPLICABLE STATE OR FEDERAL COURTS OF THE STATE OF NEW YORK, COUNTY OF MONROE, IN ANY ACTION OR PROCEEDING, IRREVOCABLY WAIVES
TRIAL BY JURY AND PERSONAL SERVICE OF ANY AND ALL PROCESS AND OTHER DOCUMENTS AND SPECIFICALLY CONSENTS THAT IN ANY SUCH ACTION
OR PROCEEDING, ANY SERVICE OF PROCESS MAY BE EFFECTUATED UPON THE HOLDER BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, IN ACCORDANCE
WITH SECTION 10 AND WAIVES TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING ARISING OUT OF THIS WARRANT .


 


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IN WITNESS WHEREOF, the
Company has duly caused this Warrant to be signed on its behalf, in its corporate name and by its duly authorized officer, as of
this 24th day of May, 2013.


 


	 	DOCUMENT SECURITY SYSTEMS, INC.
	 	 	 
	 	By: 	/s/ Robert B. Bzdick
	 	 	Name: Robert B. Bzdick
	 	 	Title:  Chief Executive Officer


  




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FORM OF EXERCISE


 


(to be executed by the registered holder
hereof)


 


The undersigned hereby exercises the right
to purchase _________ shares of common stock, par value $0.02 per share (“Common Stock”), of Document Security Systems,
Inc. evidenced by the within Warrant for a Warrant Price of $______ per share and herewith makes payment of the purchase price
in full of $__________ in cash. Kindly issue certificates for shares of Common Stock (and for the unexercised balance of the Warrants
evidenced by the within Warrant Certificate, if any) in accordance with the instructions given below.


  


Dated:____________________
, 20___ .


 


______________________________


 


Instructions for registration
of stock


 


_____________________________


              Name
(Please Print)


 


Social Security or other
identifying Number:


 


Address:__________________________________


                           City/State
and Zip Code


 


Instructions for registration
of certificate representing


the unexercised balance
of Warrants (if any)


 


_____________________________


Name (Please Print)


 


Social Security or other
identifying Number: ___________


 


Address:____________________________________


                           City,
State and Zip Code


 








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