NEITHER
THESE SECURITIES NOR THE SECURITIES FOR WHICH THESE SECURITIES ARE EXERCISABLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE STATE
SECURITIES OR BLUE SKY LAWS.

     

    DOCUMENT
SECURITY SYSTEMS, INC.

     

    WARRANT

     

    Warrant
No. C-1

     

    Dated:
December 18, 2008

     

    Document
Security Systems, a New York corporation (the “Company”), hereby certifies
that, for value received, Baum Capital Investments Inc., or its registered
assigns (the “Holder”),
is entitled to purchase from the Company up to a total of 250,000 shares of the
common stock, par value $0.02 per share (the “Common Stock”) of the Company
(each such share, a “Warrant
Share” and all such shares, the “Warrant Shares”) at an
exercise price equal to:  $1.60 per share for 50,000 of the Warrant
Shares; $2.00 per share for 150,000 of the Warrant Shares and $2.40 per share
for 50,000 of the Warrant Shares (as adjusted as provided in Section 8, the
“Exercise Price”);
subject, however, to the provisions and upon the terms and conditions set forth
in this Warrant (the “Warrant”). This expires at
6.00 PM (Eastern Time) on December 17, 2013 (the “Expiration
Date”).

     

    1. Registration of
Warrant.  The Company shall register this Warrant, upon records
to be maintained by the Company for that purpose (the “Warrant Register”), in the
name of the record Holder hereof from time to time. The Company may deem and
treat the registered Holder of this Warrant as the absolute owner hereof for the
purpose of any exercise hereof or any distribution to the Holder, and for all
other purposes, absent actual notice to the contrary.

    


    2.
Registration of
Transfers. This Warrant may not be sold, transferred or assigned by the
Holder, without the prior written consent of the Company, which will not be
unreasonably withheld or delayed. The Company shall register any transfer of any
portion of this Warrant made in accordance with the terms hereof in the Warrant Register, upon
surrender of this Warrant, with the Form of Assignment attached hereto duly
completed and signed, to the Company (or to the warrant transfer agent for the
Company, if any) at its address specified herein. Upon any such permitted
registration of transfer, a new warrant to purchase Common Stock, in
substantially the form of this Warrant (any such new warrant, a “New Warrant”), evidencing the
portion of this Warrant so transferred shall be issued to the transferee and a
New Warrant evidencing the remaining portion of this Warrant not so transferred,
if any, shall be issued to the transferring Holder. The acceptance of the New
Warrant by the transferee thereof shall be deemed the acceptance by such
transferee of all of the rights and obligations of a holder of a
Warrant.


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    3. Exercise and Duration of
Warrants.

     

    (a) This
Warrant shall become exercisable by the registered Holder with respect all of
the Warrant Shares sixty (60) days after the date on which the Company’s
acquisition, or a wholly owned subsidiary’s acquisition, of substantially all of
the assets of DPI of Rochester, LLC is consummated.  At 6:30 PM, New
York City time, on the Expiration Date, the portion of this Warrant not
exercised prior thereto shall be and become void and of no
value.   If the Company, or a wholly owned subsidiary, of the
Company does not acquire substantially all of the assets of DPI of Rochester,
LLC on or prior to November 1, 2009, this Warrant shall become void and of no
value.

    


    (b)
Holder may exercise this Warrant by delivering to the Company (i) an exercise
notice, in the form attached hereto (the “Exercise Notice”),
appropriately completed and duly signed, and (ii) payment of the Exercise Price
for the number of Warrant Shares as to which this Warrant is being exercised in
immediately available funds or bank check, and the date such items are sent to
the Company (as determined in accordance with the notice provisions hereof) is
an “Exercise Date.” The Holder shall not be required to deliver the original
Warrant in order to effect an exercise hereunder, provided, as a condition of
the Company effecting such exercise, Holder complies with any requests the
Company may make pursuant to Section 6 (relating to lost, stolen or destroyed
warrants) herein. Execution and giving of the Exercise Notice shall have the
same effect as cancellation of the original Warrant and issuance of a New
Warrant evidencing the right to purchase the remaining number of Warrant
Shares.

    


    4. Delivery of Warrant
Shares.

    


    (a) Upon
exercise of this Warrant, the Company shall promptly (but in no event later than
three Business Days after the Exercise Date) issue or cause to be issued and
cause to be delivered to or upon the written order of the Holder and in such
name or names as the Holder may designate, a certificate for the Warrant Shares
upon such exercise, free of restrictive legends unless a registration statement
covering the resale of the Warrant Shares and naming the Holder as a selling
stockholder thereunder is not then effective and the Warrant Shares are not
freely transferable without volume restrictions pursuant to Rule 144 under the
Securities Act and such issuance shall be promptly recorded in the Company's
share registry. The Holder, or any Person so designated by the Holder to receive
Warrant Shares, shall be deemed to have become holder of record of such Warrant
Shares as of the Exercise Date. For purposes of this Agreement, Business Days
shall mean any day on which Banks in New York State are open for
business.

     

    (b) Upon
surrender of this Warrant following one or more partial exercises, the Company
shall issue or cause to be issued, at its expense, a New Warrant evidencing the
right to purchase the remaining number of Warrant Shares.


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    (c) The
Company's obligations to issue and deliver Warrant Shares in accordance with the
terms hereof are absolute and unconditional, irrespective of recovery of any
judgment against any Person or any action to enforce the same, or any setoff,
counterclaim, recoupment, limitation or termination, or any breach or alleged
breach by the Holder or any other Person of any obligation to the Company,
excluding breach of this Warrant. Nothing herein shall limit a Holder's right to
pursue any other remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company's failure to timely deliver
certificates representing shares of Common Stock upon exercise of the Warrant as
required pursuant to the terms hereof.

    


    5. Charges, Taxes and
Expenses. Issuance and delivery of certificates for shares of Common
Stock upon exercise of this Warrant shall be made without charge to the Holder
for any issue or transfer tax, transfer agent fee or other incidental tax or
expense in respect of the issuance of such certificates, all of which taxes and
expenses shall be paid by the Company; provided, however, that the Company shall
not be required to pay any tax which may be payable in respect of any transfer
involved in the registration of any certificates for Warrant Shares or Warrants
in a name other than that of the Holder. The Holder shall be responsible for all
other tax liability that may arise as a result of holding or transferring this
Warrant or receiving Warrant Shares upon exercise hereof.

    


    6. Replacement of
Warrant. If this Warrant is mutilated, lost, stolen or destroyed, the
Company shall issue or cause to be issued in exchange and substitution for and
upon cancellation hereof, or in lieu of and substitution for this Warrant, a New
Warrant, but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft, or destruction and customary and reasonable bond or
indemnity, if requested. Applicants for a New Warrant under such circumstances
shall also comply with such other reasonable regulations and procedures and pay
such other reasonable third-party costs as the Company may
prescribe.

    


    7. Reservation of Warrant
Shares. The Company covenants that it will at all times reserve and keep
available out of the aggregate of its authorized but unissued and otherwise
unreserved Common Stock, solely for the purpose of enabling it to issue Warrant
Shares upon exercise of this Warrant as herein provided, the number of Warrant
Shares which are then issuable and deliverable upon the exercise of this entire
Warrant, free from preemptive rights or any other contingent purchase rights of
persons other than the Holder (after giving effect to the adjustments and
restrictions of Section 8, if any). The Company covenants that all Warrant
Shares so issuable and deliverable shall, upon issuance and the payment of the
applicable Exercise Price in accordance with the terms hereof, be duly and
validly authorized, issued and fully paid and nonassessable. The Company will
take all such action as may be necessary to assure that such shares of Common
Stock may be issued as provided herein without violation of any applicable law
or regulation, or of any requirements of any securities exchange or automated
quotation system upon which the Common Stock may be listed.

    


    8. Certain Adjustments.
The Exercise Price and number of Warrant Shares upon exercise of this Warrant
are subject to adjustment from time to time as set forth in this Section
8.

     

    (a) Stock Dividends and
Splits. If the Company, at any time while this Warrant is outstanding,
(i) pays a stock dividend on its Common Stock or otherwise makes a distribution
on any class of capital stock that is payable in shares of Common Stock, (ii)
subdivides outstanding shares of Common Stock into a larger number of shares, or
(iii) combines outstanding shares of Common Stock into a smaller number of
shares, then in each such case the Exercise Price shall be multiplied by a
fraction of which the numerator shall be the number of shares of Common Stock
outstanding immediately before such event and of which the denominator shall be
the number of shares of Common Stock outstanding immediately after such event.
Any adjustment made pursuant to clause (i) of this paragraph shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution, and any
adjustment pursuant to clause (ii) or (iii) of this paragraph shall become
effective immediately after the effective date of such subdivision or
combination.


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    (b) Fundamental
Transactions. If, at any time while this Warrant is outstanding the
Company effects any reclassification of the Common Stock or any compulsory share
exchange pursuant to which the Common Stock is effectively converted into or
exchanged for other securities, cash or property (other than as a result of a
subdivision or combination of shares of Common Stock covered by Section 8(a)
above) (a “Fundamental Transaction”), then the Holder shall have the right
thereafter to receive, upon exercise of this Warrant, the same amount and kind
of securities, cash or property as it would have been entitled to receive upon
the occurrence of such Fundamental Transaction if it had been, immediately prior
to such Fundamental Transaction, the holder of the number of Warrant Shares then
issuable upon exercise in full of this Warrant (the “Alternate Consideration”).
The aggregate Exercise Price for this Warrant will not be affected by any such
Fundamental Transaction, but the Company shall apportion such aggregate Exercise
Price among the Alternate Consideration in a reasonable manner reflecting the
relative value of any different components of the Alternate Consideration. If
holders of Common Stock are given any choice as to the securities, cash or
property to be received in a Fundamental Transaction, then the Holder shall be
given the same choice as to the Alternate Consideration it receives upon any
exercise of this Warrant following such Fundamental Transaction.

    


    (c) Number of Warrant
Shares. Simultaneously with any adjustments to the Exercise Price
pursuant to paragraphs (a) or (b) of this Section, the number of Warrant Shares
that may be purchased upon exercise of this Warrant shall be increased or
decreased proportionately, so that after such adjustment the aggregate Exercise
Price payable hereunder for the increased or decreased number of Warrant Shares
shall be the same as the aggregate Exercise Price in effect immediately prior to
such adjustment.

    


    (d) Calculations. All
calculations under this Section 8 shall be made to the nearest cent or the
nearest 1/100th of a share, as applicable. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or for
the account of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock. The number of shares of Common
Stock outstanding at any given time shall in addition to issued and outstanding
shares of Common Stock include all shares of Common Stock issuable upon
exercise, conversion or exchange of any Convertible Securities. In calculating
the offering price in connection with Convertible Securities, the price per
share of Common Stock issuable upon conversion or exchange shall be determined
by dividing (x) the total amount received by the Company as consideration for
the issue or sale of such Convertible Securities, plus the aggregate amount of
consideration, if any, payable to the Company upon the conversion or exchange
thereof, by (y) the total number of shares of Common Stock upon the conversion
or exchange of all such Convertible Securities.


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    (e) Notice of
Adjustments. Upon the occurrence of each adjustment pursuant to this
Section 8, the Company at its expense will promptly compute such adjustment in
accordance with the terms of this Warrant and prepare a certificate setting
forth such adjustment, including a statement of the adjusted Exercise Price and
adjusted number or type of Warrant Shares or other securities upon exercise of
this Warrant (as applicable), describing the transactions giving rise to such
adjustments and showing in detail the facts upon which such adjustment is
based.

     

    (g) Fractional Shares.
The Company shall not be required to issue or cause to be issued fractional
Warrant Shares on the exercise of this Warrant. If any fraction of a Warrant
Share would, except for the provisions of this Section, be issuable upon
exercise of this Warrant, the number of Warrant Shares to be issued will be
rounded up to the nearest whole share.

     

    10. Notices. Any and all
notices or other communications or deliveries required or permitted to be
provided hereunder (including without limitation any Exercise Notice) 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
at the facsimile number specified in this Section prior to 6:30 p.m. (local time
of the recipient) on a Business Day, (b) the next Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number specified in tlns Section on a day that is not a Business Day
or later than 6:30 p.m. (local time of the recipient) on any Business Day, (c)
the Business Day (or second Business Day in the case of a recipient outside the
United States) following the date of deposit with a nationally recognized
overnight courier service, or (d) upon actual receipt by the party to whom such
notice is required to be given. The addresses for such notices or communications
shall be:

     

    
      
        	
                Document
      Security Systems, Inc.

                28
      East Main. Street, Suite 1525

                Rochester,
      NY 14614

                Attn:  Chief
      Executive Officer

              	
                Baum
      Capital Investments Inc.

                C/o
      Stafford Higgins Industries

                11
      Willard Road

                Norwalk,
      CT  06851

                Attn:  Walter
      Baum

              


      

    

     

    11. No Voting or Dividend
Right. Except as otherwise expressly provided herein, nothing contained
in this Warrant shall be construed as conferring upon Holder the right to vote
or consent or to receive notice as a shareholder of the Company or any other
matters or any rights whatsoever as a shareholder of the Company.

     

    12. Break-Up
Fee.  The Company agrees and acknowledges that the Holder is
entitled to twenty-five percent (25%) of any break-up fee received by the
Company or any of its subsidiaries pursuant to Section 6.04 of that certain
Asset Purchase Agreement between the Secuprint Inc., a wholly owned subsidiary
of the Company, and DPI of Rochester, LLC.

     

    13. Miscellaneous.

     

    (a)
Nothing in this Warrant shall be construed to give to any Person other than the
Company and the Holder any legal or equitable right, remedy or cause of action
under this Warrant. This Warrant may be amended only in writing signed by the
Company and the Holder and their successors and assigns.


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    (b) The
Company will not, by amendment of its governing documents or  through
any reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this Warrant, but
will at all times in good faith assist in the carrying out of all such terms and
in the taking of all such action as may be necessary or appropriate in order to
protect the rights of the Holder against impairment. Without limiting the
generality of the foregoing, the Company (i) will not increase the par value of
any Warrant Shares above the amount payable therefor on such exercise, (ii) will
take all such action as may be reasonably necessary or appropriate in order that
the Company may validly and legally issue fully paid and nonassessable Warrant
Shares on the exercise of this Warrant, and (iii) will not close its shareholder
books or records in any manner which interferes with the timely exercise of this
Warrant.

     

    (c)
Governing Law: Venue; Waiver of Trial. All questions concerning the
construction, validity, enforcement and interpretation of this warrant shall be
governed by and construed and enforced in accordance with the laws of the state
of New York. Each party hereby irrevocably submits to the exclusive jurisdiction
of the state and federal courts sitting in the city of Rochester, New York 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. 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. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
The parties hereby waive all rights to a trial by jury.

     

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

     

    (e) In
case any one or more of the provisions of this Warrant shall be invalid or
unenforceable in any respect, the validity and enforceability of the remaining
terms and provisions of this Warrant shall not in any way be affected or
impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.

    


    [REMAINDER OF PAGE INTENTIONALLY LEFT
BLANK, SIGNATURE PAGE FOLLOWS]

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

     

    IN
WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its
authorized officer as of the date first indicated above.

     

    
      
        	
                DOCUMENT
      SECURITY SYSTEMS, INC.

              
	 
      	 
      
	
                By:

              	
                /s/ Patrick White

              
	 
      	
                Name:
      Patrick White

              
	 
      	
                Title:
      Chief Executive Officer

              


      

    


    
      
         


      

      
         


        
          

        

      

      
         


      

    

    


    FORM OF EXERCISE
NOTICE

     

    (To be
executed by the Holder to exercise the right to purchase shares of Common Stock
under the foregoing Warrant)

     

    To:  Document
Security Systems, Inc.

     

    The
undersigned is the Holder of Warrant No. _______ (the “Warrant”) issued by Document
Security Systems, Inc., a New York corporation (the “Company”).  Capitalized
terms used herein and not otherwise defined have the respective meanings set
forth in the Warrant.

     

    
      	
              1.

            	
              The
      Warrant is currently exercisable to purchase a total of ______________
      Warrant Shares.

            


    

     

    
      	
              2.

            	
              The
      undersigned Holder hereby exercises its right to purchase
      _________________ Warrant Shares pursuant to the
  Warrant.

            


    

     

    
      	
              3.

            	
              The
      Holder shall pay the sum of $___________ to the Company in accordance with
      the terms of this Warrant.

            


    

     

    
      	
              4.

            	
              Pursuant
      to this exercise, the Company shall deliver to the holder _______________
      Warrant Shares in accordance with the terms of the
  Warrant.

            


    

     

    
      	
              5.

            	
              Following
      this exercise, the Warrant shall be exercisable to purchase a total of
      ______________ Warrant Shares.

            


    

     

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    
                                      
                                        
                                          
                                            
                                              	
                                                      Dated:
      __________________

                                                    	 
      	
                                                      Name
      of Holder:

                                                    	 
	 
      	 
      	 
      	 
      	 
	 
      	 
      	
                                                      (Print)

                                                    	 
      	 
	 
      	 
      	 
      	 
      	 
	 
      	 
      	
                                                      By:

                                                    	 
      	 
	 
      	
                                                           

                                                    	
                                                      Name:  

                                                    	 
      	 
	 
      	 
      	
                                                      Title:

                                                    	 
      	 
	 
      	 
      	 
      	 
      	 
	 
      	 
      	
                                                      (Signature
      must conform in all respects to name of holder 

                                                      as
      specified on the face of the
Warrant)

                                                    


                                            

                                          

                                        

                                      

                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    


    
      
         


      

      
         


        
          

        

      

      
         


      

    

     

    FORM OF
ASSIGNMENT

     

    [To be
completed and signed only upon transfer of Warrant]

     

    FOR VALUE
RECEIVED, the undersigned hereby sells, assigns and transfers unto
________________________________ the right represented by the within Warrant to
purchase  ____________ shares of Common Stock of Document Security
Systems, Inc. to which the within Warrant relates and appoints ________________
attorney to transfer said right on the books of  Document Security
Systems, Inc. with full power of substitution in the premises.

     

    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  	
                                          Dated:
      ________________, __

                                        	 	 
      	 
	 
      	 	 
      	 
	 
      	 	 
      	 
	 
      	 	
                                          (Signature
      must conform in all respects to name of holder 

                                          as
      specified on the face of the Warrant)

                                        
	 
      	 	 
      	 
	 
      	 	 
      	 
	 
      	 	
                                          Address
      of Transferee

                                        
	 
      	 	 
      	 
	 
      	 	 
      	 
	 
      	 	 
      	 
	 
      	 	 
      	 
	 
      	 	 
      	 
	
                                          In
      the presence of: