THIS NOTE
HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS
AMENDED (THE “SECURITIES ACT”), OR
ANY APPLICABLE STATE LAW, AND MAY NOT BE SOLD, OFFERED FOR SALE, DISTRIBUTED,
ASSIGNED, OFFERED, PLEDGED OR OTHERWISE TRANSFERRED UNLESS (A) THERE IS AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE, OR FOREIGN
SECURITIES LAWS COVERING ANY SUCH TRANSACTION OR (B) SUCH TRANSACTION IS EXEMPT
FROM REGISTRATION.

     

    SECURED
PROMISSORY NOTE

     

    
      	
              Up
      to $1,000,000.00

            	
              December
      18, 2008

            
	 
      	
              Rochester,
      New York

            


    

     

    FOR VALUE
RECEIVED, DOCUMENT SECURITY SYSTEMS, INC. (“DSSI”) and SECUPRINT INC.
(“Secuprint,” and, with DSSI, collectively, the “Borrower”), promises to pay to
BAUM CAPITAL INVESTMENTS INC. (the “Lender”), or to its order, the principal sum
of up to ONE MILLION and 00/100 U.S. DOLLARS ($1,000,000.00) (the “Principal
Amount”), together with interest in arrears on the unpaid principal balance from
time to time outstanding from the date hereof until the entire principal amount
due hereunder is paid in full at the rate(s) provided below.

     

    1.           Maturity. The
aggregate Principal Amount, together with all accrued interest thereon and
expenses incurred by the Lender in connection herewith (cumulatively, the
“Outstanding Amount”), shall be due and payable in full on the earliest to occur
of (the earliest of such events, the “Maturity Date”): (i) December 17, 2009
(the “Scheduled Maturity Date”) and (ii) the acceleration of this Note upon the
occurrence of an Event of Default. Unless payment is made following a demand
therefor by the Lender, the Borrower shall provide the Lender with not less than
five (5) business days’ prior written notice of its intent to repay the amounts
outstanding hereunder.

     

    2.           Interest. This
Secured Promissory Note (this “Note”) shall bear interest at a rate of fifteen
percent (15%). Interest shall be calculated on the basis of a year of 360 days
for the actual number of days elapsed. If, for the period from the first day of
the month following the date of this Note to the date three months thereafter
(“Test Period”), Secuprint is “Profitable” (as defined herein), then the
interest rate shall be reduced to twelve percent (12%) beginning on that
date.  Profitable shall mean Secuprint’s aggregate cash receipts shall
exceed its aggregate cash expenditures (Secuprint handling its receipts and
expenditures in the normal course of business).  From and after the
occurrence of an Event of Default, the unpaid principal balance of this Note
and, to the extent permitted by law, overdue interest shall bear interest at a
rate per annum equal to four (4%) percent over the then applicable interest rate
due under this Note (the “Default Rate”).


    
      
         


      

      
         


        
          

        

      

      
         


      

    


    3.           Payment. The Borrower
shall pay eleven (11) consecutive monthly installments of interest commencing on
January 1, 2009 and continuing on the same day of each month thereafter; and one
(1) last payment consisting of the entire outstanding principal amount together
with interest, accrued thereon, which payment is due and payable on the Maturity
Date.  All payments by the Borrower under this Note shall be made in
United States Dollars without deduction, set-off or counterclaim and shall be
free and clear and without any deduction or withholding for any taxes or fees of
any nature whatever, unless the obligation to make such deduction or withholding
is required by law.  Unless otherwise expressly provided in this Note,
the Borrower, to the extent permitted by applicable law, waives presentment for
payment, protest, and demand, and notice of protest, demand, and/or dishonor and
nonpayment of this Note, notice of any Event of Default under this Note, and all
other notices or demands otherwise required by law that the Borrower may
lawfully waive.

     

               Immediately
upon full repayment of the Outstanding Amount in accordance with the terms
hereof, the Borrower shall be released from the repayment obligation set forth
in this Note, the pledge and security interest shall be terminated, and the
Lender shall execute releases of financing statements.

    


    4.           Usury.  All
agreements between the Borrower and the Lender are hereby expressly limited so
that in no contingency or event whatsoever, whether by reason of acceleration of
maturity of the indebtedness evidenced hereby or otherwise, shall the amount
paid or agreed to be paid to the Lender for the use, forbearance, or detention
of the indebtedness evidenced hereby exceed the maximum permissible amount under
applicable law. If, from any circumstance whatsoever, fulfillment of any
provision hereof at the time performance of such provision shall be due shall
involve transcending the limit of validity prescribed by law, the obligation to
be fulfilled shall automatically be reduced to the limit of such validity, and
if from any circumstances the Lender should ever receive as interest an amount
which would exceed the highest lawful rate, such amount which would be excessive
interest shall be applied to the reduction of the principal balance evidenced
hereby and not to the payment of interest, and, if the principal amount of this
Note has been paid in full, shall be refunded to the Borrower.

     

    5.           Late
Charge.  If an interest payment is not received within ten days
of its due date, Borrower shall pay a late charge equal to twenty-five percent
(25%) of the delinquent amount; any excess collected by mistake shall be
refunded on request, and each such late charge shall be separately charged and
collected by the Lender.  Payments may be applied in any order in the
sole discretion of the Lender but prior to demand, shall be applied first to
past due interest, expenses and late charges, then to scheduled principal
payments, if any, which are past due, then to current interest, expenses and
late charges, and last to remaining principal.

    


    6.           Security Interest and
Collateral. This Note is secured by a first priority security interest in
all the assets of Secuprint as more fully described in and pursuant to the terms
of the Security Agreement, of even date hereof, made by Secuprint in favor of
the Lender (the “Security Agreement,” together with this Note, the “Transaction
Documents”).


    
      
         


      

      
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    7.           Replacement of Note.
If this Note is mutilated, lost, stolen or destroyed, the Borrower shall issue
or cause to be issued in exchange and substitution for and upon cancellation
hereof, or in lieu of and substitution for this Note, a new Note, but only upon
receipt of evidence reasonably satisfactory to the Borrower of such loss, theft
or destruction and customary and reasonable bond or indemnity, if
requested.

    


    8.           Events of
Default.  The following constitute an event of default (“Event
of Default”):

    


    a.           Borrower
fails to pay any of its material liabilities, obligations, and indebtedness to
Lender of any and every kind and nature, whether heretofore, now or hereafter
owing, arising, due or payable and howsoever evidenced, created, incurred,
acquired, or owing, whether primary, secondary, direct, contingent, fixed or
otherwise whether arising under or in accordance with the Transaction Documents
or otherwise. when due and said failure continues for a period of ten (10)
days;

    


    b.           Secuprint’s
fails to be Profitable as of the end of the Test Period and on a cumulative
basis as of the end of each month thereafter.  Profitable shall mean
for the applicable period Secuprint’s aggregate cash receipts shall exceed its
aggregate cash expenditures (Secuprint handling its receipts and expenditures in
the normal course of business);

    


    c.           Secuprint’s
fails to be Profitable for any two consecutive months after the Test
Period.  Profitable shall mean for each of two consecutive months
Secuprint’s monthly cash receipts shall exceed its monthly cash expenditures
(Secuprint handling its receipts and expenditures in the normal course of
business);

    


    d.           Borrower
fails or neglects to perform, keep or observe any of the covenants, conditions
or agreements contained in this Note;

    


    e.           Any
warranty or representation now or hereafter made by the Borrower in connection
with this Note is untrue or incorrect in any material respect, or any schedule,
certificate, statement, report, financial data, notice, or writing furnished at
any time by the Borrower to the Lender is untrue or incorrect in any material
respect, on the date as of which the facts set forth therein are stated or
certified;

    


    f.           A
proceeding under any bankruptcy, reorganization, arrangement of debt,
insolvency, readjustment of debt or receivership law or statute is filed against
Borrower which is not dismissed within sixty (60) days of its filing, or a
proceeding under any bankruptcy, reorganization, arrangement of debt,
insolvency, readjustment of debt or receivership law or statute is filed by
Borrower or the Borrower makes an assignment for the benefit of creditors or
Borrower takes any corporate action to authorize any of the
foregoing;

    


    g.           Borrower
voluntarily or involuntarily dissolves or is dissolved, terminates or is
terminated;


    
      
         


      

      
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    h.           Borrower
becomes insolvent or fails generally to pay its debts as they become due, and
said failure continues for a period of thirty (30) days after written notice of
same from the Lender to the Borrower;

    


    i.           A
default under any of the other Transaction Documents;

    


    j.           One
or more judgments, decrees, or judicial orders for the payment of money which in
the aggregate, in any fiscal year of Borrower, exceeds $250,000.00 shall be
rendered against the Borrower or any of its subsidiaries, and such judgments,
decrees, or judicial orders shall continue unsatisfied and in effect for a
period of thirty (30) consecutive days without being vacated, discharged,
satisfied, or stayed or appealed;

    


    9.           Financials. Secuprint
agrees to provide to Lender within fifteen (15) days after the end of each month
the following:

    


    a.           an
unaudited internally prepared financial statement of Secuprint as of the end of
such month, which financial statement shall consist of income and cash flows for
the month, for the corresponding month in the previous fiscal year and for the
period from the end of the previous fiscal year, with a balance sheet as of the
month end;

    b.           a
statement signed by Secuprint’s chief financial officer certifying that no event
of default has occurred or is continuing to occur under the Transaction
Documents, together with calculations demonstrating compliance with Profitable
requirements contained in Paragraphs 2, 8.b. and 8.c above.

    


    10.           Liability of Each
Borrower: Each Borrower of this Note agrees to be jointly and severally
liable for all amounts and obligations which become due under this Note and for
compliance with all of the terms and conditions of this Note.

    


    11.           Purpose.  The
Loan proceeds shall be used for the business purpose of purchasing the assets of
DPI of Rochester, LLC

     

    12.           Miscellaneous.

    


    a.           Authority and
Enforceability; Etc. The Borrower hereby represents and warrants to the
Lender that:

    


    i.           it
has full power and authority and has taken or shall take all required corporate
and other action necessary to permit it to execute, deliver, and perform all of
its obligations contained in this Note, the Security Agreement, and any other
documents or instruments delivered in connection herewith, and to borrow
hereunder, and such actions to the best of its knowledge will not violate any
provision of law applicable to, or the organizational documents of, the
Borrower, or result in the breach of or constitute a default under any material
agreement or instrument to which the Borrower is a party or by which it is
bound, which default has not been waived in writing on or prior to the date
hereof;


    
      
         


      

      
        4

        
          

        

      

      
         


      

    

    


    ii.           this
Note has been duly authorized and validly executed by and is the valid and
binding obligation of the Borrower enforceable in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, or other laws affecting creditors’ rights and remedies
generally, and by general principles of equity (regardless of whether
enforceability is considered in a proceeding in equity or at law);

    


    iii.           neither
the execution and delivery by the Borrower of this Note, nor the performance by
the Borrower of its obligations hereunder, requires the consent, approval or
authorization of any person or governmental authority, which consent, approval,
or authorization has not been obtained; and

     

    b.           Notices. All notices
to any party required or permitted hereunder shall be in writing and shall be
sent to the address or facsimile number set forth for such party as
follows:

    


    i.            If
to the Lender:

     

    Baum
Capital Investments Inc.

    c/o
Stafford Higgins Industries

    11
Willard Road

    Norwalk,
Connecticut 06851

    Attn:
Walter Baum

     

    ii.           If
to DSSI:

    


    Document
Security Systems, Inc.

    28 East
Main Street, Suite 1525

    Rochester,
NY 14614

    Attention: Vice President of
Finance 

     

    iii.          If
to Secuprint:

    


    Secuprint
Inc.

    c/o
Document Security Systems, Inc.

    28 East
Main Street, Suite 1525

    Rochester,
NY 14614

    Attention: Vice President of
Finance 

    


    Any such
notice shall be deemed effectively given (i) upon personal delivery to the party
to be notified; (ii) when sent by confirmed facsimile if sent during normal
business hours of the recipient, if not, then on the next business day; (iii)
three days after having been sent by registered or certified mail, return
receipt requested, postage prepaid; or (iv) one day after deposit with a
recognized national overnight courier, specifying next day delivery, or two days
after deposit with a recognized international overnight courier, specifying two
day delivery, in each case with written verification of
receipt.


    
      
         


      

      
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    c.           Waiver. No failure to
exercise, and no delay in exercising, on the part of the Lender, any right,
power, or privilege hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, power, or privilege hereunder preclude
any other or further exercise thereof or the exercise of any other right, power,
or privilege. The rights and remedies herein provided are cumulative and not
exclusive of any rights or remedies provided by law.

     

    d.           Amendments. Any term,
covenant, or condition of this Note may be amended or waived only by written
consent of the Borrower and the Lender.

     

    e.           Expenses. Any
reasonable expense incurred by the Lender (including, without limitation,
reasonable attorneys’ fees and disbursements) in connection with the
administration, or enforcement of this Note and any other document executed by
the Borrower in connection with the obligations of Borrower hereunder or any
amendment hereto or thereto, or the exercise of any right or remedy upon the
occurrence of an Event of Default, including, without limitation, the recording
and filing fees to perfect the liens granted under the Security Agreement and
the costs of collection and reasonable attorneys’ fees and expenses, shall be
paid by the Borrower within 15 days of receiving written notice thereof from the
Lender. Any such expense incurred by the Lender and not timely paid by the
Borrower shall be added to the other obligations hereunder and shall earn
interest at the same rate per annum as the principal hereunder.

     

    f.           Governing Law. This
Note shall be governed by and construed in accordance with the laws of the State
of New York without giving effect to any conflict or choice of laws
principles.

     

    g.           Transfer; Successors and
Assigns. The terms and conditions of this Note shall inure to the benefit
of and be binding upon the respective successors and assigns of the parties.
This Note shall not be assignable by any Lender without the prior written
consent of the Borrower, provided that the Lender may assign or transfer any of
its rights, privileges, or obligations set forth in, arising under, or created
by this Agreement to any entity controlled by, controlling or under common
control with the Lender. The Borrower may not assign this Note without prior
written consent of the Lender, provided that the Borrower may assign this Note
to any successor of all or substantially all of its assets or business, or any
entity surviving the merger, combination or consolidation with the
Borrower.

     

    h.           Entire Agreement.
This Note and any other agreement or instrument entered into in connection
herewith contains the entire agreement of the Borrower and the Lender with
respect to the subject matter hereof.


    
      
         


      

      
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    i.           Confidentiality. In
addition to separate confidentiality agreement, if any, the Lender will at all
times keep confidential and not divulge, use or make accessible to anyone the
terms and conditions of this Agreement and the transactions described herein,
and any non-public material information concerning or relating to the business
or financial affairs of the Borrower to which such party has been or will become
privy relating to this Agreement, except to its employees and advisors in such
capacity, as required to perform its obligations hereunder, if required by law
or rules of a stock exchange on which its or its parent’s securities are listed,
or with the prior written consent of the Borrower.

    


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    IN
WITNESS WHEREOF, the Borrower has caused this Note to be executed by its duly
authorized representative as of the day and year first above
written.

      

    
      
        	
                DOCUMENT
      SECURITY SYSTEMS, INC.

              
	
                 
       

              	
                 
       

              
	
                By:  

              	
                /s/ Philip Jones

              
	 
      	
                Name:
      Philip Jones

                Title:
      Vice President of Finance

              
	 
      	 
      
	
                By:  

              	
                 /s/ Patrick White

              
	 
      	
                Name:
      Patrick White

                Title:
      Chief Executive Officer

              
	 
      	 
      
	
                SECUPRINT
      INC.

              
	
                 
       

              	
                 
       

              
	
                By:  

              	
                /s/ Patrick White

              
	 
      	
                Name:
      Patrick White

                Title:
      Chief Executive Officer

              


      

    


    
      
         


      

      
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