Schedule 13D

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JZQZQU6VTIYytFjIZvisjeKt7P7nv25jDOrtw+Y9Ch3FMe2za2YZMy1qvacAGMAa IxcB0lS5eJkyFYwSMxNUeA== 0001193125-03-088174.txt : 20031202 0001193125-03-088174.hdr.sgml : 20031202 20031202112206 ACCESSION NUMBER: 0001193125-03-088174 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20031202 GROUP MEMBERS: HOWARD S. JONAS GROUP MEMBERS: IDT CORPORATION SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: DOCUMENT SECURITY SYSTEMS INC CENTRAL INDEX KEY: 0000771999 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MOTION PICTURE & VIDEO TAPE PRODUCTION [7812] IRS NUMBER: 161229730 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-50256 FILM NUMBER: 031031571 BUSINESS ADDRESS: STREET 1: 36 WEST MAIN ST STREET 2: SUITE 710 CITY: ROCHESTER STATE: NY ZIP: 14614 BUSINESS PHONE: 585 232 1500 MAIL ADDRESS: STREET 1: 36 W MAIN ST STREET 2: SUITE 710 CITY: ROCHESTER STATE: NY ZIP: 14614 FORMER COMPANY: FORMER CONFORMED NAME: NEW SKY COMMUNICATIONS INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: THOROUGHBREDS USA INC DATE OF NAME CHANGE: 19861118 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: IDT VENTURE CAPITAL CORP CENTRAL INDEX KEY: 0001271478 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: IDT CORP STREET 2: 520 BROAD ST CITY: NEWARK STATE: NJ ZIP: 07102 BUSINESS PHONE: 9734384389 MAIL ADDRESS: STREET 1: IDT CORP STREET 2: 520 BROAD ST CITY: NEWARK STATE: NJ ZIP: 07102 SC 13D 1 dsc13d.htm SCHEDULE 13D Schedule 13D

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 13D

UNDER THE SECURITIES EXCHANGE ACT OF 1934

DOCUMENT SECURITY SYSTEMS, INC.

(Name of Issuer)

Common Stock, par value $0.02 per share

(Title of Class of Securities)

648726 30 5

(CUSIP Number)

with a copy to:

IDT Corporation

520 Broad Street

Newark, NJ 07102

Attn: Ira A. Greenstein

Tel.: (973) 438-1000

McDermott, Will & Emery

50 Rockefeller Plaza

New York, NY 10020

Attn: Mark S. Selinger, Esq.

Tel: (212) 547-5400

(Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications)

December 2, 2003

(Date of Event which Requires Filing of this Statement)

If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box: ¨

The information required on the remainder of this cover page shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934 (“Act”) or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the act (however, see the Notes).

SCHEDULE 13D

CUSIP No. 648726 30 5


1	NAME OF REPORTING PERSON IDT Venture Capital Corporation I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)
	22-3833980

2	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) ¨ (b) x

3	SEC USE ONLY

4	SOURCE OF FUNDS AF

5	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e)	¨

6	CITIZENSHIP OR PLACE OF ORGANIZATION Delaware

NUMBER OF

BENEFICIALLY

OWNED BY

EACH

REPORTING

PERSON

WITH

7 SOLE VOTING POWER

600,000¹

8 SHARED VOTING POWER

-0-

9 SOLE DISPOSITIVE POWER

600,000¹

10 SHARED DISPOSITIVE POWER

-0-

11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 600,000¹

12	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES	¨

13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 6.44%

14	TYPE OF REPORTING PERSON CO

Includes (a) 100,000 shares of the Issuer’s Common Stock, par value $0.02 per share (the “Common Stock”) and (b) up to 500,000 shares of Common Stock issuable upon the exercise of the Common Stock Purchase Warrant granted by the Issuer to IDT Venture Capital Corporation on October 31, 2003 (the “Warrant”).

SCHEDULE 13D

CUSIP No. 648726 30 5


1	NAME OF REPORTING PERSON IDT Corporation I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)
	22-3415036

2	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) ¨ (b) x

3	SEC USE ONLY

4	SOURCE OF FUNDS AF

5	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e)	¨

6	CITIZENSHIP OR PLACE OF ORGANIZATION Delaware

NUMBER OF

BENEFICIALLY

OWNED BY

EACH

REPORTING

PERSON

WITH

7 SOLE VOTING POWER

600,000¹

8 SHARED VOTING POWER

-0-

9 SOLE DISPOSITIVE POWER

600,000¹

10 SHARED DISPOSITIVE POWER

-0-

11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 600,000¹

12	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES	¨

13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 6.44%

14	TYPE OF REPORTING PERSON CO

¹	Includes (a) 100,000 shares of the Common Stock and (b) up to 500,000 shares of Common Stock issuable upon the exercise of the Warrant.

SCHEDULE 13D

CUSIP No. 648726 30 5


1	NAME OF REPORTING PERSON Howard S. Jonas I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)


2	CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) ¨ (b) x

3	SEC USE ONLY

4	SOURCE OF FUNDS AF

5	CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e)	¨

6	CITIZENSHIP OR PLACE OF ORGANIZATION Unites States

NUMBER OF

BENEFICIALLY

OWNED BY

EACH

REPORTING

PERSON

WITH

7 SOLE VOTING POWER

600,000¹

8 SHARED VOTING POWER

-0-

9 SOLE DISPOSITIVE POWER

600,000¹

10 SHARED DISPOSITIVE POWER

-0-

11	AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 600,000¹

12	CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES	¨

13	PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 6.44%

14	TYPE OF REPORTING PERSON IN

¹	Includes (a) 100,000 shares of the Common Stock and (b) up to 500,000 shares of Common Stock issuable upon the exercise of the Warrant.

SCHEDULE 13D

Item 1.

Security and Issuer

This statement on Schedule 13D (this “Schedule 13D”) relates to Common Stock, par value $0.02 per share (the “Common Stock”), of Document Security Systems, Inc., a New York corporation (“DSS” or the “Issuer”), having its principal executive offices at 36 West Main Street, Suite 710, Rochester, New York 14614.

Item 2.

Identity and Background

(a), (b), (c) and (f)

This Schedule 13D is being filed jointly by IDT Venture Capital Corporation, a Delaware corporation (“IDT Venture”), IDT Corporation, a Delaware corporation (“IDT”), and Howard S. Jonas, an individual (collectively, the “Reporting Persons”).

IDT is a multinational communications company that provides services and products to retail and wholesale customers worldwide, including prepaid debit and rechargeable calling cards, wholesale telecommunications carrier services and consumer phone services. IDT’s principal place of business is 520 Broad Street, Newark, NJ 07102.

IDT Venture, a subsidiary of IDT, principally invests in opportunities that complement IDT’s internal endeavors. IDT Venture’s principal place of business is 520 Broad Street, Newark, NJ 07102.

Howard S. Jonas is the Chairman of the Board, founder and controlling shareholder of IDT. Howard S. Jonas is a United States Citizen. The address of his principal place of business is 520 Broad Street, Newark, NJ 07102.

Set forth on Schedule I to this Schedule 13D, and incorporated herein by reference, is the name, business address and present principal occupation or employment and citizenship of each executive officer and director of IDT and IDT Venture, and the name of any corporation or other organization in which such employment is conducted, together with the principal business and address of any such corporation or organization other than the aforementioned entities, as the case may be, for which such information is set forth.

(d) and (e)

During the last five years, none of the Reporting Persons nor, to the knowledge of the Reporting Persons, any executive officer or director of such entities has been (i) convicted in any criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) a party to a civil proceeding of a judicial or administrative body resulting in a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws, or finding any violations with respect to such laws.

Item 3.

Source and Amount of Funds or Other Consideration

IDT Venture acquired 100,000 shares (the “Purchased Shares”) of Common Stock pursuant to that certain Securities Purchase Agreement between DSS and IDT Venture, dated as of October 31, 2003 (the “Securities Purchase Agreement”) and the right to acquire 500,000 shares (the “Warrant Shares”) of Common Stock upon exercise of the Warrant (collectively, the “Shares”) for an aggregate purchase price of $211.875.83, consisting of certain legal and other expenses incurred by IDT on behalf of the Issuer. In exercising the Warrant to purchase the Warrant Shares, IDT Venture would pay $2.50 per Warrant Share, subject to certain adjustments set forth in the Warrant.

The funds that were used to purchase the Purchased Shares were provided by IDT’s cash on hand and no funds were borrowed for such purpose. Further, in the event the Warrant is exercised and the consideration used is cash, the funds that would be required to purchase the Warrant Shares is expected to be provided by IDT’s and/or IDT Venture’s cash on hand and not funded by borrowing money from an outside source. IDT Venture may also exercise the Warrant by paying the exercise price in shares of Common Stock owned by IDT Venture.

Item 4.

Purpose of Transaction

IDT Venture acquired the Purchased Shares, and may exercise the Warrant to purchase the Warrant Shares, to obtain a minority equity interest in the Issuer. The Reporting Persons believe this transaction is an attractive investment. Each of the Reporting Persons intends to continuously review its direct or indirect investment in the Issuer, and may in the future determine, either alone or as part of a group, (i) to directly or indirectly acquire additional securities of the Issuer, through open market purchases, private agreements or otherwise, (ii) to dispose or cause the disposition of all or a portion of the securities of the Issuer beneficially owned by it, subject to the restrictions on transfer in the Securities Purchase Agreement or (iii) to take any other available course of action, which could involve one or more of the types of transactions or have one or more of the results described in paragraphs (a) through (j) of Item 4 of Schedule 13D. Notwithstanding anything contained herein, each of the Reporting Persons specifically reserves the right to change its intention with respect to any or all of such matters. In reaching any decision as to its course of action (as well as to specific elements thereof), each of the Reporting Persons currently expects that it would take into consideration a variety of factors, including, but not limited to, the Issuer’s business and prospects, other developments concerning the Issuer and its business generally, other business opportunities available to the Reporting Persons, developments with respect to the business of IDT Venture, changes in law and government regulations, general economic conditions and money and stock market conditions, including the market price of the securities of the Issuer.

On October 31, 2003, pursuant to the Securities Purchase Agreement, IDT Venture acquired the Purchased Shares and the Warrant for an aggregate purchase price of $211.875.83. The purchase price consisted of certain legal and other expenses incurred by IDT Venture, IDT and/or any affiliates of either on behalf of the Issuer. The description of the Securities Purchase Agreement throughout this Schedule 13D is qualified by reference to the

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Securities Purchase Agreement, a copy of which is filed as Exhibit 1 hereto and is incorporated herein by reference.

Pursuant to the Securities Purchase Agreement, the Purchased Shares, the Warrant and the Warrant Shares were not registered, and are exempt from registration, under the Securities Act of 1933, as amended (the “Act”). IDT Venture was granted demand registration rights (exercisable on or after April 30, 2004) and piggyback registration rights with respect to the Purchased Shares, the Warrant and the Warrant Shares (together with any other securities issued and issuable with respect to any such Purchased Shares or Warrant Shares by way of a stock dividend, stock distribution or stock split or in connection with a combination of shares, recapitalization, reorganization, merger, consolidation, sale of assets or reclassification).

The Warrant provides that IDT Venture has the right to acquire up to an aggregate of 500,000 shares of Common Stock in addition to the Purchased Shares. The Warrant is exercisable, in whole or in part, at any time and from time to time during the period beginning on February 1, 2004 and ending at 11:59 p.m., New York City time, on February 1, 2014. The initial exercise price of the Warrant is $2.50 per Warrant Share, and such exercise price is subject to adjustment in the event of (i) stock splits, subdivisions, reclassifications, and combinations of the Common Stock, (ii) certain other distributions by the Issuer, and (iii) issuances of additional Common Stock, additional warrants to purchase Common Stock or securities convertible into Common Stock by the Issuer. The Warrant may be exercised by payment in cash or in Common Stock owned by IDT Venture. The description of the Warrant throughout this Schedule 13D is qualified by reference to the Warrant, a copy of which is filed as Exhibit 2 hereto and is incorporated herein by reference.

The Warrant Shares are reported herein as being beneficially owned by IDT Venture, IDT and Howard S. Jonas because the Reporting Persons may acquire such shares within 60 days after filing of this Schedule 13D.

Item 5.

Interest in Securities of the Issuer

(a) IDT Venture directly beneficially owns 100,000 shares of the Common Stock. In addition, IDT Venture is entitled under the Warrant to purchase an additional 500,000 shares of the Common Stock within 60 days of December 1, 2003. Accordingly, IDT Venture may be deemed the direct beneficial owner of 600,000 shares of the Common Stock, representing 6.44% of the outstanding Common Stock. The calculations herein are based on 9,318,818 shares of Common Stock outstanding as of November 10, 2003, as reported on the Issuer’s Form 10-QSB filed with the Securities and Exchange Commission on November 14, 2003.

IDT does not directly own any shares of the Issuer. IDT is the 100% shareholder of IDT Venture, and as such may be deemed the indirect beneficial owner of 600,000 shares of the Common Stock representing 6.44% shares of the outstanding Common Stock.

Howard S. Jonas does not directly own any shares of the Issuer. As of November 5, 2002, Mr. Jonas beneficially owned 9,816,988 shares of Class A Common Stock, par value $0.01 of IDT and 9,317,548 shares of Class B Common Stock, par value $0.01 of IDT, representing approximately 21.5% of the outstanding shares of IDT and 56.2% of the combined

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voting power of IDT. Mr. Jonas may be deemed the indirect beneficial owner of 600,000 shares of the Common Stock representing 6.44% shares of the outstanding Common Stock.

(b) By virtue of its direct ownership of 600,000 shares of the Common Stock, IDT Venture may be deemed to have the sole power to vote and dispose of 600,000 shares of the Common Stock.

By virtue of its ownership of all the outstanding shares of IDT Venture, IDT may be deemed to have the sole power to vote and dispose of 600,000 shares of the Common Stock.

By virtue of his ownership of shares of IDT representing approximately 56.2% of the combined voting power of IDT, Howard Jonas has the power to control the election of directors to IDT’s board of directors, and therefore he may be deemed to have the sole power to vote and dispose of 600,000 shares of the Common Stock.

(c) Except as described herein and as previously described in this Item and in Item 3 and Item 4 above, no transactions in the Common Stock of the Issuer have been effected by the Reporting Persons, nor to the best knowledge of the Reporting Persons, by the persons listed on Schedule 1 to this Schedule 13D, during the last 60 days.

(d) Not applicable.

(e) Not Applicable.

Item 6.

Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Issuer

Except as described in Item 4 to this Schedule 13D, none of the Reporting Persons nor to the best of the Reporting Persons’ knowledge, any directors or executive officers of the Reporting Persons have any contracts, arrangements, understandings or relationships (legal or otherwise) with any person with respect to the Common Stock, including transfer or voting thereof, finder’s fees, joint ventures, loan or option arrangements, puts or calls, guarantees of profits, division of profits or loss, or the giving or withholding of proxies.

Item 7.

Material to be Filed as Exhibits


Exhibit 1		Securities Purchase Agreement between Document Security Systems, Inc. and IDT Venture Capital Corporation, dated as of October 31, 2003.

Exhibit 2		Common Stock Purchase Warrant granted by Document Security Systems, Inc. to IDT Venture Capital Corporation, dated October 31, 2003.

Exhibit 3		Joint Filing Agreement among IDT Venture Capital Corporation, IDT Corporation and Howard S. Jonas, dated December 2, 2003.

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SIGNATURE

After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this Schedule 13D is true, complete and correct.

Dated: December 2, 2003

IDT VENTURE CAPITAL CORPORATION

By:		/s/ Ira A. Greenstein

Name: Ira A. Greenstein Title: Chief Executive Officer

IDT CORPORATION

By:		/s/ Ira A. Greenstein

Name: Ira A. Greenstein Title: President


By:		/s/ Howard S. Jonas

Name: Howard S. Jonas, individually

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SCHEDULE I

Additional Information Concerning the Reporting Persons

Set forth below are the name, position, present principal occupation or employment and business address of each director and executive officer of IDT. Unless otherwise indicated, each occupation set forth opposite an individual’s name refers to employment with IDT. Each person listed below is a citizen of the United States.

Name	Position	Principal Occupation	Business Address
Howard S. Jonas	Chairman of the Board and Director	Chairman of the Board	c/o IDT 520 Broad Street Newark, NJ 07102

James A. Courter	Chief Executive Officer, Vice Chairman of the Board and Director	Chief Executive Officer, Vice Chairman of the Board and Director	c/o IDT 520 Broad Street Newark, NJ 07102

Ira A. Greenstein	President	President	c/o IDT 520 Broad Street Newark, NJ 07102

Stephen R. Brown	Chief Financial Officer, Treasurer and Director	Chief Financial Officer, Treasurer and Director	c/o IDT 520 Broad Street Newark, NJ 07102

Marcelo Fischer	Chief Accounting Officer and Controller	Chief Accounting Officer and Controller	c/o IDT 520 Broad Street Newark, NJ 07102

Joyce J. Mason	Senior Vice President, General Counsel, Secretary and Director	Senior Vice President, General Counsel, Secretary and Director	c/o IDT 520 Broad Street Newark, NJ 07102

Marc E. Knoller	Senior Vice President and Director	President and Chief Operating Officer of IDT Media, Inc.	c/o IDT 520 Broad Street Newark, NJ 07102

Moshe Kaganoff	Executive Vice President of Strategic Planning and Director	Executive Vice President of Strategic Planning	c/o IDT 520 Broad Street Newark, NJ 07102

Geoffrey Rochwarger	Executive Vice President of Telecommunications	Executive Vice President of Telecommunications	c/o IDT 520 Broad Street Newark, NJ 07102

Morris Lichtenstein	Executive Vice President of Business Development	Executive Vice President of Business Development	c/o IDT 520 Broad Street Newark, NJ 07102

E. Brian Finkelstein	Executive Vice President of Business Development	Executive Vice President of Business Development	c/o IDT 520 Broad Street Newark, NJ 07102

Name	Position	Principal Occupation	Business Address
Jonathan Levy	Executive Vice President of Corporate Development	Executive Vice President of Corporate Development	c/o IDT 520 Broad Street Newark, NJ 07102

J. Warren Blaker	Director	Professor, Fairleigh Dickinson University	c/o IDT 520 Broad Street Newark, NJ 07102

Rudy Boschwitz	Director	Chairman of the Advisory Committee of the Center for Global Food Issues, Former U.S. Senator	c/o IDT 520 Broad Street Newark, NJ 07102

Saul Fenster	Director	President Emeritus of the New Jersey Institute of Technology	c/o IDT 520 Broad Street Newark, NJ 07102

Jack F. Kemp	Director	Former U.S. Congressman and former Secretary of Housing and Urban Development	c/o IDT 520 Broad Street Newark, NJ 07102

Michael J. Levitt	Director	Chairman of Stone Tower Capital LLC	c/o IDT 520 Broad Street Newark, NJ 07102

William A. Owens	Director	Vice Chairman of the Board and Co-Chief Executive Officer of Teledisc LLC and former Vice Chairman of the Joint Chiefs of Staff	c/o IDT 520 Broad Street Newark, NJ 07102

William F. Weld	Director	Principal, Leeds Weld & Co. and former Governor of Massachusetts	c/o IDT 520 Broad Street Newark, NJ 07102

James S. Gilmore III	Director	Partner, Kelley Drye & Warren LLP and former Governor of Virginia	c/o IDT 520 Broad Street Newark, NJ 07102

Set forth below are the name, position, present principal occupation or employment and business address of each director and executive officer of IDT Venture. Unless otherwise indicated, each occupation set forth opposite an individual’s name refers to employment with IDT. Each person listed below is a citizen of the United States.

Name	Position	Principal Occupation	Business Address
Ira A. Greenstein	Chief Executive Officer and Director	President	c/o IDT 520 Broad Street Newark, NJ 07102

Stephen R. Brown	Chief Financial Officer	Chief Financial Officer, Treasurer and Director	c/o IDT 520 Broad Street Newark, NJ 07102

Joyce J. Mason	Secretary and Director	Senior Vice President, General Counsel, Secretary and Director	c/o IDT 520 Broad Street Newark, NJ 07102

EX-99.1 3 dex991.htm SECURITIES PURCHASE AGREEMENT, DATED AS OF OCTOBER 31, 2003 Securities Purchase Agreement, dated as of October 31, 2003

Exhibit 1

SECURITIES PURCHASE AGREEMENT

SECURITIES PURCHASE AGREEMENT (this “Agreement”), dated as of October 31, 2003, between Document Security Systems, Inc., a New York corporation (the “Company”), and IDT Venture Capital Corporation, a Delaware corporation (the “Investor”).

WHEREAS, the Investor desires to purchase shares of common stock, par value $0.02 per share, of the Company (the “Common Stock”), and the Company desires to issue and sell shares of Common Stock to the Investor, upon the terms and subject to the conditions set forth in this Agreement; and

WHEREAS, the Investor desires to purchase a warrant to acquire shares of Common Stock attached hereto as Exhibit A (the “Warrant”), and the Company desires to issue and sell the Warrant to the Investor, upon the terms and subject to the conditions set forth in this Agreement.

NOW, THEREFORE, the Company and the Investor hereby agree as follows:

Section 1. Sale and Purchase.

1.1 Sale and Purchase of Common Stock and the Warrant; Purchase Price. The Company hereby agrees to issue and sell, and the Investor hereby agrees to purchase from the Company, 100,000 shares of Common Stock (the “Shares”) and the Warrant (together with the Shares, the “Investor Securities”) for an aggregate purchase price consisting of certain legal and other expenses incurred by the Investor, its parent, IDT Corporation (“IDT”), and/or any affiliates (within the meaning of Rule 405 of the Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “Act”)) of IDT on behalf of the Company (the “Purchase Price”). The Company hereby acknowledges receipt of (and the adequacy and sufficiency of) the Purchase Price.

1.2 Issuance of the Shares and the Warrant. Simultaneously herewith, the Company is issuing and delivering to the Investor a share certificate or certificates representing the Shares and an original executed Warrant, which certificate or certificates and Warrant shall be registered in the Investor’s name.

Section 2. Representations, Warranties and Acknowledgments of the Investor. The Investor hereby represents, warrants and acknowledges to the Company as follows:

2.1 No Registration of Investor Securities. The Investor is aware that the Investor Securities (and the shares of Common Stock issuable upon exercise of the Warrant (the “Warrant Shares”)) have not been registered under the Act, that such offer and sale are intended to be exempt from registration under the Act and the rules promulgated thereunder by the SEC, and that the Investor Securities (and the Warrant Shares) cannot be offered, sold, assigned, transferred or otherwise disposed of unless they are subsequently registered under the Act or an exemption from such registration is available. The Investor is also aware that sales or transfers of the Investor Securities (and the Warrant Shares) are further restricted by state securities laws

and that the Warrant and certificates evidencing the Shares will bear appropriate legends restricting their transfer pursuant to applicable laws.

2.2 Suitability of Investment. (a) The Investor is an “accredited investor” within the meaning of Rule 501 of Regulation D of the Act as presently in effect and is acquiring the Investor Securities for its own account, or for the account of another “accredited investor” who is an affiliate of the Investor, for investment purposes only and not with a view to the resale or distribution thereof;

(b) The Investor has such knowledge and experience in financial or business matters that it can, and it has, adequately analyzed the risks of an investment in the Investor Securities (and the Warrant Shares) and it has determined that the Investor Securities (and the Warrant Shares) are a suitable investment for the Investor and that the Investor is able to bear the economic risk of a total loss of its investment in the Company; and

(c) The Investor is aware that there are substantial risks incident to an investment in the Investor Securities (and the Warrant Shares).

2.3 Corporate Authority. The Investor has all requisite corporate power and authority and has taken all corporate and other action necessary in order to execute, deliver and perform its obligations under the applicable provisions of this Agreement. This Agreement is a valid and binding agreement of the Investor, enforceable against it in accordance with its respective terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights and to general equity principles.

Section 3. Representations, Warranties and Acknowledgments of the Company. The Company hereby represents, warrants and acknowledges to the Investor as follows:

3.1 Organization, Good Standing, Qualification and Investment Company. (a) Each of the Company and its subsidiaries (as defined by Rule 405 under the Act) (each a “Company Subsidiary”) is a corporation duly organized, validly existing and in good standing under the laws of its respective jurisdiction of organization and has all requisite corporate or similar power and authority to own, lease and operate its properties and assets and to carry on its business as currently conducted. Each of the Company and each Company Subsidiary is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction where the ownership, lease or operation of its assets or properties or conduct of its business requires such qualification, except where the failure to be so qualified or in good standing, when taken together with all other such failures, would not have a Company Material Adverse Effect (as defined below).

As used in this Agreement, the term “Company Material Adverse Effect” means a material adverse effect on the condition, properties, prospects, assets, business or operations of the Company and its subsidiaries taken as a whole.

(b) All of the outstanding shares of capital stock of each Company Subsidiary beneficially owned by the Company have been validly issued and are fully paid and

nonassessable and are so owned free and clear of any mortgage, pledge, lien, security interest, claim, restriction, charge or encumbrance of any kind (“Lien”).

3.2 Corporate Authority. The Company has all requisite corporate power and authority and has taken all corporate action necessary in order to execute, deliver and perform its obligations under this Agreement and the Warrant and to consummate the transactions contemplated hereby and thereby (the “Transactions”). The Company has duly executed and delivered this Agreement and the Warrant. Each of this Agreement and the Warrant is a legal, valid and binding agreement of the Company enforceable against the Company in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights and to general equity principles.

3.3 Capital Structure. (a) The authorized capital stock of the Company consists solely of 200,000,000 shares of Common Stock, of which 9,309,818 shares are outstanding. All of the outstanding shares of Common Stock have been duly authorized and are validly issued, fully paid and nonassessable. The Investor Securities have been duly authorized and the Shares have been validly issued, fully paid and nonassessable, and the issuance of the Shares and the Warrant are not subject to any preemptive rights or made in violation of any Applicable Law.

The term “Applicable Law” for purposes of this Agreement means (i) any foreign, United States Federal, state or local law, statute, rule, regulation, order, writ, injunction, judgment, decree or permit of any governmental or regulatory authority, agency, commission, body or other governmental entity or court (“Governmental Entity”) and (ii) any rule or listing requirement of any applicable national stock exchange or association or listing requirement of any national stock exchange or association or SEC recognized trading market on which securities issued by the Company are listed or quoted.

(b) Except as set forth in the Company Reports (as defined below), there are (i) no outstanding options, warrants, agreements, conversion rights, exchange rights, preemptive rights or other rights (whether contingent or not) to subscribe for, purchase or acquire any issued or unissued shares of capital stock of the Company or any Company Subsidiary, (ii) no authorized or outstanding stock appreciation, phantom stock, profit participation, or similar rights with respect to the Company or any Company Subsidiary, (iii) no rights, contracts, commitments or arrangements (contingent or otherwise) obligating the Company or any Company Subsidiary to either (A) redeem, purchase or otherwise acquire, or offer to purchase, redeem, or otherwise acquire, any outstanding shares of, or any outstanding warrants or rights of any kind to acquire any shares of, or any outstanding securities that are convertible into or exchangeable for any shares of, capital stock of the Company or (B) pay any dividend or make any distribution in respect of any shares of, or any outstanding securities that are convertible or exchangeable for any shares of, capital stock of the Company, (iv) no agreements or arrangements under which the Company or any Company Subsidiary is obligated to register the sale of any of its securities under the Act (except as provided hereunder) and (v) no restrictions upon, or Contracts (as defined in Section 3.4(a)) or understandings of the Company or any subsidiary of the Company, or, to the knowledge of the Company, Contracts or understandings of any other Person, with respect to, the voting or transfer of any shares of capital stock of the Company or any Company Subsidiary. Except as set forth in the Company Reports, there are no

securities or instruments containing antidilution or similar provisions that will be triggered by the consummation of the Transactions. Except as set forth in the Company Reports, no party has any right of first refusal, right of first offer, right of co-sale or other similar right regarding the Company’s securities. As used in this Agreement, the term “Person” means any individual, partnership, corporation, limited liability company, joint venture, association, joint-stock company trust, unincorporated organization, government or agency or political subdivision thereof, or other entity.

(c) The Warrant Shares have been duly authorized and adequately reserved in contemplation of the exercise of the Warrant, and, when issued and delivered in accordance with the terms of the Warrant, will be validly issued and fully paid and nonassessable, and the issuance thereof will not have been subject to any preemptive rights or made in violation of any Applicable Law.

3.4 No Violation; Consents. (a) Subject to any filings referred to in Section 3.4(b), the execution, delivery and performance by the Company of this Agreement and the Warrant and the consummation by the Company of the Transactions do not and will not, directly or indirectly (with or without notice, lapse of time or both), contravene any Applicable Law. The execution, delivery and performance by the Company of this Agreement and the Warrant and the consummation of the Transactions do not and will not, directly or indirectly (with or without notice, lapse of time or both), constitute or result in (i) a breach or violation of, or a default under, the acceleration of any obligations, any party obtaining the right to exercise any remedy under, or the creation of a Lien on or with respect to any assets owned or used by the Company or any Company Subsidiary pursuant to, any agreement, lease, license, contract, note, mortgage, indenture, arrangement or other obligation (“Contracts”) to which the Company or any Company Subsidiary is a party or by which the Company or any Company Subsidiary is bound or to which any of their respective assets is subject or any law or governmental or non-governmental permit or license to which the Company or any Company Subsidiary is subject, (ii) any change in the rights or obligations of any party under any of such Contracts or (iii) a breach or violation of, or a default under, the certificate of incorporation or by-laws of the Company or any Company Subsidiary currently in effect or any resolution adopted by the board of directors or the stockholders of the Company or any Company Subsidiary.

(b) Except for applicable filings, if any, required by applicable federal and state securities laws, which, in each case, are not required to be made on or prior to the date hereof (and which shall be made in a timely manner by the Company), no consent, authorization or order of, or filing or registration with, any Governmental Entity or other Person is required to be obtained or made by the Company or the Company Subsidiaries for the execution and delivery of this Agreement or the Warrant or the consummation by the Company of the Transactions.

3.5 Company Reports; Financial Statements. (a) The Company has filed all reports, registration statements and other filings, together with any amendments or supplements required to be made with respect thereto, that it has been required to file with the SEC under the Act and the Securities Exchange Act of 1934, as amended (the “1934 Act”). As of the respective dates of their filing with the SEC (and, with respect to registration statements, as of their respective effective dates), the Company Reports complied in all respects with the applicable provisions of

the Act and the 1934 Act and the rules and regulations of the SEC thereunder and did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading. All reports, registration statements and other filings filed by the Company with the SEC since January 1, 2002 (including exhibits and any amendments thereto and documents incorporated by reference therein) are referred to in this Agreement as the “Company Reports.”

(b) Each of the consolidated balance sheets included in or incorporated by reference into the Company Reports (including the related notes and schedules) fairly presents the consolidated financial position of the Company and its subsidiaries as of the date of such balance sheet and each of the consolidated statements of income, changes in stockholders’ equity, and cash flows included in or incorporated by reference into the Company Reports (including any related notes and schedules) fairly presents the results of operations, cash flows, and changes in stockholders’ equity, as the case may be, of the Company and its subsidiaries for the periods set forth in such statements (subject, in the case of unaudited statements, to notes and normal and recurring year-end audit adjustments that are not and will not be material in amount or effect), all in accordance with generally accepted accounting principles consistently applied during the periods involved (“GAAP”), and in each case, has been prepared in accordance with GAAP, except as may be noted therein, and in compliance in all respects with the rules and regulations of the SEC.

3.6 Absence of Certain Changes. Except as disclosed in the Company Reports filed and publicly available prior to the date hereof, since June 30, 2003, there has not been any event or occurrence or any change in the financial condition, properties, prospects, business or results of operations of the Company that has had or may result in a Company Material Adverse Effect.

3.7 Compliance with Laws. Except as set forth in the Company Reports filed and publicly available prior to the date hereof, the business of the Company has not been, and is not being, conducted in violation of any Federal, state, local or foreign law, statute, ordinance, rule, regulation, judgment, order, injunction, decree, arbitration award, agency requirement, license or permit of any Governmental Entity, except for violations or possible violations that, individually or in the aggregate, would not be reasonably expected to have a Company Material Adverse Effect or prevent or materially burden or materially impair the ability of the Company to consummate the Transactions. Except as set forth in the Company Reports filed and publicly available prior to the date hereof, no investigation or review by any Governmental Entity with respect to the Company or the Company Subsidiaries is pending or, to the knowledge of the executive officers of the Company, threatened, nor has any Governmental Entity indicated an intention to conduct the same, except for those the outcome of which are not, individually or in the aggregate, reasonably likely to have a Company Material Adverse Effect or prevent or materially burden or materially impair the ability of the Company to consummate the Transactions.

3.8 Private Offering. Based, in part, on the Investor’s representations in Section 2, the offer and sale of the Investor Securities (and the Warrant Shares) are exempt from the registration and prospectus delivery requirements of the Act. Neither the Company, nor anyone acting on behalf of it, has offered or sold or will offer or sell any securities, or has taken or will

take any other action (including, without limitation, any offering of any securities of the Company under circumstances that would require, under the Act, the integration of such offering with the offering and sale of the Investor Securities (or the Warrant Shares)), that would subject the issuance of the Investor Securities (or the Warrant Shares) to the registration provisions of the Act.

3.9 Litigation. Except as disclosed in the Company Reports filed and publicly available prior to the date hereof, there are not any (a) outstanding judgments against or affecting the Company or any of the Company Subsidiaries or (b) Proceedings pending or, to the knowledge of the Company, threatened against or affecting the Company or any of the Company Subsidiaries that (i) in any manner challenge or seek to prevent, enjoin, alter or materially delay the Transactions or (ii) if resolved adversely to the Company or any Company Subsidiary, would have, individually or in the aggregate, a Company Material Adverse Effect.

For purposes of this Agreement, “Proceeding” means any action, arbitration, audit, hearing, investigation, litigation or suit (whether civil, criminal, administrative, investigative or informal).

3.10 Permits and Licenses. The Company and the Company Subsidiaries have obtained all governmental permits, licenses, franchises and authorizations required for the Company and its subsidiaries to conduct their respective businesses as currently conducted, except for those the failure of which to be obtained would not have a Material Adverse Effect.

3.11 Intellectual Property, etc. The Company and the Company Subsidiaries have taken all reasonable efforts to ensure that they have, and have no reason to believe that they do not have, all right, title and interest in, or a valid and binding license to use, all Company Intellectual Property (as defined below). The Company and the Company Subsidiaries (a) have not defaulted in any material respect under any license to use any Company Intellectual Property, (b) are not the subject of any Proceeding for infringement of any third party intellectual property, (c) have no knowledge of circumstances that would be reasonably expected to give rise to any such Proceeding and (d) have no knowledge of circumstances that are causing or would be reasonably expected to cause the loss or impairment of any Company Intellectual Property, other than a default, Proceeding, loss or impairment that is not having or would not be reasonably expected to have, individually or in the aggregate, a Company Material Adverse Effect.

For purposes of this Agreement, “Company Intellectual Property” means patents and patent rights, trademarks and trademark rights, tradenames and tradename rights, service marks and service mark rights, copyrights and copyright rights, trade secret and trade secret rights, and other intellectual property rights, and all pending applications for and registrations of any of the foregoing that are used in the conduct of the business of the Company or the Company Subsidiaries as presently conducted.

Section 4. Registration Rights.

4.1 Piggyback Registration Rights. If at any time the Company proposes to file a registration statement under the Act with respect to a public offering of shares of Common Stock (which, for purposes of this Section 4, shall be deemed to include any stock into which Common

Stock shall have been changed or any stock resulting from any combination of shares, recapitalization, reorganization, merger, consolidation, sale of assets or reclassification) for its own account (other than a registration statement (a) on Form S-8 or any successor form thereto, (b) filed solely in connection with a dividend reinvestment plan or employee benefit plan covering officers or directors of the Company or its affiliates (within the meaning of Rule 405 of the SEC under the Act) or (c) on Form S-4 or any successor form thereto, in connection with a merger, acquisition, exchange offer or similar corporate transaction) or for the account of any holder of shares of Common Stock, then the Company shall give written notice of such proposed filing to the Investor (and IDT) at least forty (40) days before the anticipated filing date. Such notice shall offer the Investor the opportunity to register all or any portion of the Shares, the Warrant and the Warrant Shares (collectively, with any other securities issued and issuable with respect to any such Shares or Warrant Shares by way of a stock dividend, stock distribution or stock split or in connection with a combination of shares, recapitalization, reorganization, merger, consolidation, sale of assets or reclassification, the “Registrable Shares”) as they may request (a “Piggyback Registration”). The Company shall include in each such Piggyback Registration all Registrable Shares with respect to which the Company has received a written request for inclusion therein within thirty (30) days after such notice has been given to the Investor (and IDT). The Investor shall be permitted to withdraw all or any portion of the Registrable Shares from a Piggyback Registration at any time prior to the effective date of such Piggyback Registration. The Investor shall be entitled to an unlimited number of Piggyback Registrations. The Company shall permit the Investor to include all the Registrable Shares on the same terms and conditions as any similar securities, if any, of the Company included therein.

4.2 Demand Registration.

(a) From and after April 30, 2004, after receipt of a written request from Investor (or IDT) requesting that the Company effect a registration (a “Demand Registration”) under the Act covering all or part of the Registrable Securities which specifies the intended method or methods of disposition thereof, the Company shall, as expeditiously as is possible, but in any event no later than thirty (30) days after receipt of a written request for a Demand Registration, file with the Securities and Exchange Commission (“SEC”) and use its best efforts to cause to be declared effective as soon as practical after the filing thereof a registration statement (a “Demand Registration Statement” and together with a registration statement pursuant to a Piggyback Registration, a “Registration Statement”) relating to all Registrable Securities which the Company has been so requested to register by Investor, to the extent required to permit the disposition (in accordance with the intended method or methods thereof, as aforesaid) of the Registrable Securities so registered.

(b) Investor shall be entitled to an aggregate of three (3) registrations of Registrable Securities pursuant to Section 4.2(a) in respect of an underwritten secondary offering.

4.3 Registration Procedures. If the Company is required by the provisions of Section 4.1 or 4.2 to use its best efforts to effect the registration of any of its securities under the Act, the Company will, as expeditiously as possible:

(a) prepare and file with the SEC a Registration Statement with respect to such securities and use its best efforts to cause such Registration Statement promptly to become and remain effective for a period of time required for the disposition of such securities by the holders thereof; provided, however, that before filing such Registration Statement or any amendments thereto, the Company shall furnish the representatives of the Investor (referred to in Section 4.3(m)) copies of all documents proposed to be filed, which documents will be subject to the review of such counsel. The Company shall not be deemed to have used its best efforts to keep a Registration Statement effective during the applicable period if it voluntarily takes any action that would result in the holders of such Registrable Securities not being able to sell such Registrable Securities during that period, unless such action is required under applicable law;

(b) prepare and file with the SEC such amendments and supplements to such Registration Statement and the prospectus used in connection therewith as may be necessary to keep such Registration Statement effective and to comply with the provisions of the Act with respect to the sale or other disposition of all securities covered by such Registration Statement until the earlier of such time as all of such securities have been disposed of;

(c) furnish to such selling security holders such number of conformed copies of the applicable Registration Statement and each such amendment and supplement thereto (including in each case all exhibits), and copies of a summary prospectus or other prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents, as such selling security holders may reasonably request;

(d) use its best efforts to register or qualify the securities covered by such Registration Statement under such other securities or blue sky laws of such jurisdictions within the United States and Puerto Rico as each holder of such securities shall reasonably request, to keep such registration or qualification in effect for so long as reasonably necessary to enable such seller to consummate the disposition in such jurisdiction of the securities owned by such holder, and do such other reasonable acts and things as may be required of it to enable such holder to consummate the disposition in such jurisdiction of the securities covered by such Registration Statement;

(e) furnish, at the request of any holder requesting registration of Registrable Securities pursuant to Section 4.1 or 4.2, if the method of distribution is by means of an underwriting, on the date that the shares of Registrable Securities are delivered to the underwriters for sale pursuant to such registration, or if such Registrable Securities are not being sold through underwriters, on the date that the registration statement with respect to such shares of Registrable Securities becomes effective, (i) a signed opinion, dated such date, of the independent legal counsel representing the Company for the purpose of such registration, addressed to the underwriters, if any, and if such Registrable Securities are not being sold through underwriters, then to the holders making such request, as to such matters as such underwriter or the holders, as the case may be, may reasonably request and as would be customary in such a transaction and (ii) letters dated such date and the date the offering is priced from the independent certified public accountants of the Company, addressed to the underwriters, if any, and if such Registrable Securities are not being sold through underwriters, then to the holders making such request and, if such accountants refuse to deliver such letters to such holders, then to the Company (A) stating that they are independent certified public

accountants within the meaning of the Act and that, in the opinion of such accountants, the financial statements and other financial data of the Company included in the Registration Statement or the prospectus, or any amendment or supplement thereto, comply as to form in all material respects with the applicable accounting requirements of the Act and (B) covering such financial matters (including information as to the period ending not more than five (5) business days prior to the date of such letters) with respect to the registration in respect of which such letter is being given as such underwriters or the holders, as the case may be, may reasonably request and as would be customary in such a transaction;

(f) enter into customary agreements (including if the method of distribution is by means of an underwriting, an underwriting agreement in customary form) and take such other actions as are reasonably required in order to expedite or facilitate the disposition of such Registrable Securities;

(g) otherwise use its best efforts to comply with all applicable rules and regulations of the SEC, and make earnings statements satisfying the provisions of Section 11(a) of the Act generally available to the holders no later than forty-five (45) days after the end of any twelve (12) month period (or ninety (90) days, if such period is a fiscal year) (i) commencing at the end of any fiscal quarter in which Registrable Securities are sold to underwriters in an underwritten public offering or (ii) if not sold to underwriters in such an offering, beginning with the first month of the Company’s first fiscal quarter commencing after the effective date of the Registration Statement, which statements shall cover said twelve (12) month periods;

(h) use its best efforts to cause all such Registrable Securities to be listed on each securities exchange or quotation system on which similar securities issued by the Company are listed or traded;

(i) give written notice to the Investor (and IDT):

(i) when such Registration Statement or any amendment thereto has been filed with the SEC and when such Registration Statement or any post-effective amendment thereto has become effective;

(ii) of any request by the SEC for amendments or supplements to such Registration Statement or the prospectus included therein or for additional information;

(iii) of the issuance by the SEC of any stock order suspending the effectiveness of such Registration Statement or the initiation or threatening of any proceeding for such purpose;

(iv) of the receipt by the Company or its legal counsel of any notification with respect to the suspension of the qualification of the Common Stock for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and

(v) of the happening of any event that requires the Company to make changes in such Registration Statement or the prospectus in order to make the statements therein not misleading (which notice shall be accompanied by an instruction to suspend the use of the prospectus until the requisite changes have been made);

(j) use its best efforts to prevent the issuance or obtain the withdrawal of any order suspending the effectiveness of such Registration Statement at the earliest possible time;

(k) furnish to each holder of Registrable Securities, without charge, at least one (1) copy of such Registration Statement and any post-effective amendment thereto, including financial statements and schedules, and, if such holder so requests in writing, all exhibits (including those, if any, incorporated by reference);

(l) upon the occurrence of any event contemplated by Section 4.3(i)(v) above, promptly prepare a post-effective amendment to such Registration Statement or a supplement to the related prospectus or file any other required document so that, as thereafter delivered to the holders, the prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. If the Company notifies the holders in accordance with Section 4.3(i)(v) above to suspend the use of the prospectus until the requisite changes to the prospectus have been made, then the holders shall suspend use of such prospectus and use their reasonable efforts to return to the Company all copies of such prospectus (at the Company’s expense) other than permanent file copies then in such holder’s possession;

(m) make reasonably available for inspection by the representatives of the holders, any underwriter participating in any disposition pursuant to such Registration Statement and any attorney, accountant or other agent retained by such representative or any such underwriter all relevant financial and other records, pertinent corporate document and properties of the Company and cause the Company’s officers, directors and employees to supply all relevant information reasonably requested by such representative or any such underwriter, attorney, accountant or agent in connection with the registration;

(n) in connection with any underwritten offering pursuant to a Demand Registration under Section 4.2, make appropriate officers of the Company and the senior executives of the Company available to the selling security holders for meetings with prospective purchasers of the Registrable Securities and prepare and present to potential investors customary “road show” material in each case in accordance with the recommendations of the underwriters and in all respects in a manner consistent with other new issuances of securities in an offering of a similar size to such offering of the Registrable Securities, in connection with any proposed sale of the Registrable Securities; and

(o) use best efforts to procure the cooperation of the Company’s transfer agent in settling any offering or resale of Registrable Securities, including with respect to the transfer of physical stock certificates into book-entry form in accordance with any procedures reasonably requested by the holders or the underwriters.

4.4 Expenses. All expenses incurred in connection with each registration pursuant to Section 4 of this Agreement, excluding underwriters’ discounts and commissions, but including without limitation all registration, filing and qualification fees, word processing, duplicating, printers’ and accounting fees (including the expenses of any special audits or “comfort” letters required by or incident to such performance and compliance), fees of the NASD or listing fees, messenger and delivery expense, all fees and expenses of complying with state securities or blue

sky laws, fees and disbursements of counsel for the Company, fees and expenses of the Company and the underwriters relating to “road show” investor presentations, including the reasonable fees and disbursement of one counsel for the selling holders (which counsel shall be selected by the Holders), shall be paid by the Company.

4.5 Rule 144 Information. The Company covenants that it will file the reports required to be filed by it under the Act and the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (or, if the Company is not required to file such reports, it will, upon the request of any holder of Registrable Securities, make publicly available such information as is described in Rule 144(c)(2) under the Act). Upon the request of any holder, the Company will deliver to such holder a written statement that it has complied with such requirements.

4.6 Indemnification and Contribution.

(a) The Company shall indemnify and hold harmless each holder of Registrable Securities and its affiliates (as defined in the Act) and their affiliates, directors and officers, each person who participates in the offering of such Registrable Securities, including underwriters (as defined in the Act), and each person, if any, who controls such holder or participating person within the meaning of the Act, against any losses, claims, damages or liabilities, joint or several, to which they may become subject under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or proceedings in respect thereof) arise out of or are based on any untrue or alleged untrue statement of any material fact contained in such Registration Statement on the effective date thereof (including any prospectus filed under Rule 424 under the Act or any amendments or supplements thereto) or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and shall reimburse each such holder and its affiliates, their affiliates, directors and officers, such participating person or controlling person for any legal or other expense reasonably incurred by them (but not in excess of expenses incurred in respect of one counsel for all of them unless there is an actual conflict of interest between any indemnified parties, which indemnified parties may be represented by separate counsel) in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this Section 4.6(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld); provided, however, that the Company shall not be liable to any holder and its affiliates, and their affiliates, directors and officers, participating person or controlling person in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in connection with such Registration Statement, preliminary prospectus, final prospectus or amendments or supplements thereto, in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any such holder and its affiliates, and their affiliates, directors and officers, participating person or controlling person. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of any such holder and its affiliates, and their affiliates, directors and officers, participating person or controlling person, and shall survive the transfer of such securities by such holder.

(b) Each holder requesting or joining in a registration severally and not jointly shall indemnify and hold harmless the Company, each of its directors and officers, each person, if any, who controls the Company within the meaning of the Act, and each agent and any underwriter for the Company (within the meaning of the Act) against any losses, claims, damages or liabilities, joint or several, to which the Company or any such director, officer, controlling person, agent or underwriter may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or proceedings in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in such Registration Statement on the effective date thereof (including any prospectus filed under Rule 424 under the Securities Act or any amendments or supplements thereto) or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission as made in such Registration Statement, preliminary or final prospectus, or amendments or supplements thereto, in reliance upon and in conformity with written information furnished by or on behalf of such holder expressly for use in connection with such registration; and each such holder shall reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer, controlling person, agent or underwriter (but not in excess of expenses incurred in respect of one counsel for all of them unless there is an actual conflict of interest between any indemnified parties which indemnified parties may be represented by separate counsel) in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this Section 4.6(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of such holder (which consent shall not unreasonably withheld); and provided further that the ability of each holder hereunder shall be limited to the proportion of any such loss, claim, damage, liability or expense which is equal to the proportion that the net proceeds from the sale of the securities sold by such holder under such Registration Statement bears to the total net proceeds from the sale of all securities sold thereunder, but not in any event to exceed the net proceeds received by such holder from the sale of Registrable Securities covered by such Registration Statement.

(c) If the indemnification provided for in this 4.6 from the indemnifying party is unavailable to an indemnified party hereunder in respect of any losses, claims, damages, liabilities or expenses referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and indemnified parties in connection with the actions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified parties shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such indemnifying party or indemnified parties, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding.

If the allocation provided in this Section 4.6(c) is not permitted by applicable law, the parties shall contribute based upon the relevant benefits received by the Company from the initial offering of the Registrable Securities on the one hand and the net proceeds received by the holders from the sale of Registrable Securities on the other.

The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 4.6(c) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.

(d) Any person entitled to indemnification hereunder (the “Indemnified Party”) agrees to give prompt written notice to the indemnifying party (the “Indemnifying Party”) after the receipt by the Indemnified Party of any written notice of the commencement of any action, suit, proceeding or investigation or threat thereof made in writing for which the Indemnified Party intends to claim indemnification or contribution pursuant to this Agreement; provided that the failure so to notify the Indemnified Party shall not relieve the Indemnifying Party of any liability that it may have to the Indemnified Party hereunder unless such failure is materially prejudicial to the Indemnifying Party. If notice of commencement of any such action is given to the Indemnifying Party as above provided, the Indemnifying Party shall be entitled to participate in and, to the extent it may wish, to assume the defense of such action at its own expense, with counsel chosen by it and reasonably satisfactory to such Indemnified Party. The Indemnified 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 paid by the Indemnified Party unless (a) the Indemnifying Party agrees to pay the same, (b) the Indemnifying Party fails to assume the defense of such action or (c) the named parties to any such action (including any impleaded parties) have been advised by such counsel that either (i) representation of such Indemnified Party and the Indemnifying Party by the same counsel would be inappropriate under applicable standards of professional conduct or (ii) there are one or more legal defenses available to it which are substantially different from or additional to those available to the Indemnifying Party. No Indemnifying Party shall be liable for any settlement entered into without its written consent, which consent shall not be unreasonably withheld.

4.7 Transferability of Registration Rights. The registration rights set forth in this Section 4 are transferable to any transferee or purchaser of the Shares, the Warrant and/or the Warrant Shares. The agreements contained in this Section 4 shall survive the transfer of the Registrable Securities by any holder and sale of all the Registrable Securities pursuant to any Registration Statement and shall remain in full force and effect, regardless of any investigation made by or on behalf of any Holder or such director, officer or participating or controlling Person.

Section 5. Transfer Limitations: 1933 Act Legend.

5.1 Unless sold pursuant to an effective registration statement, each certificate representing the Shares shall bear a legend substantially in the following form:

“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL SUCH SHARES ARE REGISTERED UNDER THE ACT OR, EXCEPT AS OTHERWISE PERMITTED PURSUANT TO RULE 144 UNDER THE ACT OR ANOTHER EXEMPTION FROM REGISTRATION UNDER THE ACT.”

5.2 The foregoing legend shall be removed from the certificates representing any shares of Common Stock, at the request of the holder thereof, at such time as (a) they are sold pursuant to an effective registration statement, (b) they become eligible for resale pursuant to Rule 144(k) or another provision of Rule 144 of the Act pursuant to which all or a portion of the Shares could be sold in a single transaction or (c) an opinion of counsel is obtained to the effect that the proposed transfer is exempt from the Act.

Section 6. Miscellaneous.

6.1 Survival of Representations, Warranties and Covenants. All representations, warranties, covenants and obligations in this Agreement shall survive indefinitely.

6.2 Successors and Assigns. This Agreement may not be assigned by the Investor or the Company without the prior written consent of the other party hereto and any attempted or purported assignment shall be void; provided, however, that the Investor may, without the written consent of the Company, assign its rights and obligations hereunder to any of its affiliates (within the meaning of Rule 405 of the SEC under the Act). Nothing in this Agreement, express or implied, is intended to confer upon any party, other than the parties hereto or their respective successors and permitted assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

6.3 Governing Law; Submission to Jurisdiction. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York, without giving effect to the conflicts of laws principles thereof. Each of the Company and the Investor hereby submits to the exclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State court sitting in New York City for purposes of all legal proceedings arising out of or relating to this Agreement and the transactions contemplated hereby. Each of the Company and the Investor irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum.

6.4 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, and all of which together shall be deemed to constitute one and the same instrument.

6.5 Captions and Headings. The captions and headings used in this Agreement are for convenience only and are not to be considered in construing or interpreting this Agreement.

6.6 Notices. Unless otherwise provided, any notice or other communication required or permitted to be given or effected under this Agreement shall be in writing and shall be deemed effective upon personal delivery to the party to be notified or one business day after deposit with an internationally recognized courier service, delivery fees prepaid, or three business days after the deposit with the U.S. mail, return receipt requested, postage prepaid, and in each case, addressed to the party to be notified at the following respective addresses, or at such other addresses as may be designated by written notice; provided that any notice of change of address shall be deemed effective only upon receipt:

If to the Company, to it at:

36 West Main Street

Suite 710

Rochester, New York 14614

Attn: Chief Executive Officer

If to the Investor, to it at:

520 Broad Street

Newark, New Jersey 07102

Attn: Chief Executive Officer

with copies to:

IDT Corporation

520 Broad Street

Newark, New Jersey 07102

Attn: Chief Executive Officer

and

McDermott, Will & Emery

50 Rockefeller Plaza

New York, New York 10020-1605

Attn: Mark S. Selinger, Esq.

6.7 Amendments and Waivers. All terms of this Agreement may be amended, and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of each of the Company and the Investor. Any amendment or waiver effected in accordance with this Section 6.7 shall be binding upon all of the parties to this Agreement.

6.8 Severability. If one or more provisions of this Agreement are held to be invalid or unenforceable under applicable law, such provisions shall be excluded from this Agreement and the balance of this Agreement shall be interpreted as if such provisions were so excluded and shall be valid and enforceable in accordance with its terms. Any provision of this Agreement held invalid or unenforceable only in part or degree will remain valid and enforceable to the extent not held invalid or unenforceable.

6.9 Entire Agreement. This Agreement and the Warrant (and the schedules and exhibits hereto and thereto, if any) constitute the entire agreement among the parties with respect to the subject matter hereof and thereof and supersede all prior agreements, understandings and discussions between them.

6.10 Specific Enforcement. The parties hereto agree that irreparable harm would occur in the event that any of the provisions of this Agreement were not performed in accordance with its specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof, this being in addition to any other remedy to which they are entitled at law or in equity.

6.11 Expenses. All costs and expenses incurred in connection with this Agreement shall be paid by the party incurring such cost or expense.

6.12 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THIS SECTION 6.12 HAS BEEN FULLY DISCUSSED BY EACH OF THE PARTIES HERETO AND THESE PROVISIONS SHALL NOT BE SUBJECT TO ANY EXCEPTIONS. EACH PARTY HERETO HEREBY FURTHER WARRANTS AND REPRESENTS THAT SUCH PARTY HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT SUCH PARTY KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, SUPPLEMENTS OR MODIFICATIONS TO (OR ASSIGNMENTS OF) THIS AGREEMENT. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL (WITHOUT A JURY) BY THE COURT.

6.13 The parties agree (a) to furnish upon request to each other such further information, (b) to execute and deliver to each other such other documents and (c) to do such other acts and things, all as the other party may reasonably request for the purpose of carrying out the intent of this Agreement and any other documents referred to in this Agreement.

[Signatures on the following page.]

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

DOCUMENT SECURITY SYSTEMS, INC.

By:		/s/ Patrick White

		Name: Patrick White Title: Chief Executive Officer/President

IDT VENTURE CAPITAL CORPORATION

By:		/s/ Ira A. Greenstein

		Name: Ira A. Greenstein Title: Chief Executive Officer

Exhibit A

Common Stock Purchase Warrant

EX-99.2 4 dex992.htm COMMON STOCK PURCHASE WARRANT Common Stock Purchase Warrant

Exhibit 2

COMMON STOCK PURCHASE WARRANT

THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE ACT AND SUCH LAWS OR REGISTRATION UNDER THE ACT AND SUCH LAWS IS NOT REQUIRED.

DOCUMENT SECURITY SYSTEMS, INC.

No.		Void after
500,000 Shares of Common Stock		February 1, 2014

WARRANT TO PURCHASE COMMON STOCK

This certifies that, for value received, IDT Venture Capital Corporation or its registered assigns (the “Holder”) is entitled to acquire from Document Security Systems, Inc., a New York corporation (the “Company”), in whole or in part, up to an aggregate of 500,000 fully paid and nonassessable shares of Common Stock of the Company, at a per share purchase price equal to $2.50, subject to the provisions and upon the terms and conditions hereinafter set forth. The number and type of shares and the Current Warrant Price (as defined below) are subject to adjustment from time to time pursuant to the provisions of Section 5 hereof.

As used herein, the terms “Common Stock” and “Common Shares” shall mean the Company’s presently authorized common stock, par value $0.02 per share, and any stock into or for which such common stock may hereafter be converted or exchanged.

Definitions.

Unless the context otherwise requires, when used herein the following terms shall have the respective meanings set forth below:

(a) “Additional Common Shares” shall mean all Common Shares issued by the Company after the date hereof, other than Common Shares issuable upon exercise of this Warrant.

(b) “Board” shall mean the board of directors of the Company.

(c) “Convertible Securities” shall mean evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable, with or without payment of additional consideration in cash or property, for Additional Common Shares, either immediately or upon the occurrence of a specified date or a specified event.

(d) “Corporate Transaction” shall mean (x) any reorganization, consolidation, merger, share exchange or similar business combination transaction involving the Company with any other entity, (y) the sale, assignment, conveyance, transfer, lease or other disposition by the Company

of all or substantially all of its assets or (z) the liquidation of the Company’s assets or the dissolution of the Company.

(e) “Current Warrant Price” shall mean the price at which a Common Share may be purchased at any date pursuant to the exercise of this Warrant on such date; the initial Current Warrant Price is stated in the preamble to this Warrant.

(f) “Exercise Period” shall have the meaning set forth in Section 2 of this Warrant.

(g) “Market Price” shall mean, with respect to a particular security, on any given day, the average of the highest and lowest reported sale prices regular way or, in case no such reported sales takes place on such day, the average of the highest asked and lowest bid prices regular way, in either case on the principal national securities exchange on which the applicable securities are listed or admitted to trading, or if not listed or admitted to trading on any national securities exchange, (i) the average of the highest and lowest sale prices for such day reported by the Nasdaq Stock Market if such security is traded over-the-counter and quoted in the Nasdaq Stock Market, or (ii) if such security is so traded, but not so quoted, the average of the highest reported asked and lowest reported bid prices of such security as reported by the Nasdaq Stock Market or any comparable system, or (iii) if such security is not traded on the Nasdaq Stock Market or any comparable system, the average of the highest asked and lowest bid prices as furnished by two members of the National Association of Securities Dealers, Inc. selected from time to time by the Company in good faith for that purpose. If such security is not listed and traded in a manner that the quotations referred to above are available for the period required hereunder, the Market Price per share of Common Stock shall be deemed to be the fair value per share of such security as determined in good faith by the Board.

(h) “Person” shall mean any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, incorporated organization, association, corporation, institution, public benefit corporation, entity or government (whether federal, state, provincial, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof).

(i) “Warrant” shall mean the warrant represented hereby, as the same may be amended, restated, supplemented or otherwise modified from time to time.

Term of Warrant.

The purchase right represented by this Warrant is exercisable, in whole or in part, at any time and from time to time during the period beginning on February 1, 2004 and ending at 11:59 p.m., New York City time, on February 1, 2014 (the “Exercise Period”).

3. Method of Exercise; Payment; Issuance of New Warrant.

The purchase right represented by this Warrant may be exercised by the Holder at any time and from time to time during the Exercise Period, in whole or in part, by (a) the surrender of this Warrant (with the notice of exercise form attached hereto as Exhibit 1 duly executed) at the principal office of the Company and (b) the payment to the Company of an amount equal to the Current

Warrant Price multiplied by the number of shares then being purchased, at the election of the Holder in one of the following manners: (i) by certified or cashier’s check or by wire transfer payable to the order of the Company, (ii) by delivering to the Company shares of Common Stock equal in value to the aggregate Current Warrant Price as to which this Warrant is so exercised (or any portion thereof) based on the Market Price of the Common Stock on the trading day prior to the date on which this Warrant is surrendered as aforesaid; or (iii) any combination of the foregoing. The Company agrees that the shares so purchased shall be deemed to be issued to the Holder as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such shares as aforesaid. In the event of any exercise of this Warrant, certificates for the shares of stock so purchased shall be delivered to the Holder within a reasonable time, not to exceed three (3) business days thereafter, and, unless this Warrant has been fully exercised or expired, a new Warrant representing the portion of the shares, if any, with respect to which this Warrant shall not then have been exercised, shall also be issued to the Holder within a reasonable time, not exceeding such three (3)-business day period.

Stock Fully Paid; Reservation of Shares; Listing.

All Common Shares which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be duly and validly authorized and issued, fully paid and nonassessable, free from all preemptive rights and free from all taxes, liens, security interests and charges with respect to the issue thereof. Until the expiration of the Exercise Period, the Company shall at all times have authorized, and reserved for the purpose of the issuance upon exercise of the purchase rights evidenced by this Warrant, a sufficient number of shares of its Common Stock to provide for the exercise of the rights represented by this Warrant. The Company will procure, at its sole expense, the listing of the shares issuable upon exercise of this Warrant on the principal stock exchange (or the Nasdaq Stock Market) on which the Common Stock is then listed or traded (if any). The Company agrees to take all action necessary to ensure that the shares issuable upon exercise of this Warrant may be issued without violation of any applicable law or regulation or of any requirement of any securities exchange (or the Nasdaq Stock Market) on which such shares are listed or traded.

Adjustment of Purchase Price and Number of Shares.

The kind of securities purchasable upon the exercise of this Warrant, the Current Warrant Price and the number of shares purchasable upon exercise of this Warrant shall be subject to adjustment from time to time upon the occurrence of the following events:

(a) Stock Splits, Subdivisions, Reclassifications and Combinations. If at any time the Company shall (i) fix a record date for the holders of its Common Shares for the purpose of entitling them to receive a dividend payable in, or other distribution of, shares of Common Stock, (ii) subdivide or reclassify its outstanding Common Shares into a larger number of Common Shares or (iii) combine or reclassify its outstanding Common Shares into a smaller number of Common Shares, then, (A) the number of Common Shares issuable upon exercise of this Warrant immediately after the occurrence of any such event shall be adjusted to equal the number of Common Shares which a holder of the same number of Common Shares issuable upon exercise of this Warrant immediately prior to the occurrence of such event would own or be entitled to receive after the happening of such event and (B) the Current Warrant Price shall be adjusted to equal the quotient determined by dividing (1) the product of (x) the Current Warrant Price and (y) the number of Common Shares

issuable upon exercise of this Warrant immediately prior to the adjustment, by (2) the new number of shares issuable upon exercise of this Warrant resulting from the adjustment made pursuant to clause (A) above.

(b) Certain Other Distributions. If at any time the Company shall fix a record date for the holders of its Common Shares for the purpose of entitling them to receive any dividend or other distribution of (i) cash (other than ordinary cash dividends), (ii) any evidence of indebtedness of the Company or any subsidiary thereof, any shares of any Person or any other assets or property of any nature whatsoever (other than Common Shares or Convertible Securities) or (iii) any warrants or other rights to subscribe for or purchase any evidence of indebtedness of the Company or any subsidiary thereof, any shares of any Person or any other assets or property of any nature whatsoever (other than Common Shares or Convertible Securities), then, in each such case, (A) the number of Common Shares issuable upon exercise of this Warrant shall be increased to equal the product of the number of Common Shares issuable upon exercise of this Warrant immediately prior to such adjustment multiplied by a fraction, (x) the numerator of which is the Market Price per Common Share on such record date and (y) the denominator of which is such Market Price per Common Share minus the amount of such cash (if any) and the fair market value (as reasonably determined in good faith by the Board and supported by an opinion from an investment banking firm of recognized national standing acceptable to the Holder) of any and all such evidences of indebtedness, shares, other assets or property or warrants or other subscription or purchase rights distributable to a holder of one Common Share, and (B) the Current Warrant Price shall be reduced to equal (x) the Current Warrant Price multiplied by the number of Common Shares issuable upon exercise of this Warrant immediately prior to such adjustment divided by (y) the new number of shares issuable upon exercise of this Warrant resulting from the adjustment made pursuant to clause (A) above; provided, that if the event requiring adjustment by this Section 5(b) would cause the Current Warrant Price to be equal to or less than $0, no such adjustment shall be made and the Company shall distribute to each Holder such cash, any and all evidences of indebtedness, shares of stock, other securities or property or warrants or other subscription or purchase rights that would be distributable to such Holder had such Holder exercised this Warrant immediately prior to such distribution.

(c) Issuance of Additional Common Shares. If at any time the Company shall issue or sell any Additional Common Shares for consideration in an amount per Additional Common Share less than the Market Price as of the day of such issuance or sale, then (A) the number of shares of Common Stock for which this Warrant is exercisable shall be increased to equal the product obtained by multiplying the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such issuance or sale by a fraction (x) the numerator of which shall be the number of shares of Common Stock outstanding immediately after such issuance or sale and (y) the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issuance or sale plus the number of shares which the aggregate offering price of the total number of such Additional Common Shares would purchase at the Market Price (on the last trading day immediately preceding such issuance or sale) and (B) the Current Warrant Price shall be reduced to a price determined by multiplying such Current Warrant Price by a fraction (x) the numerator of which shall be the number of shares for which this Warrant is exercisable immediately prior to such issue or sale and (y) the denominator of which shall be the number of shares of Common Stock purchasable immediately after such issuance or sale.

(d) Issuance of Warrants or Other Rights. If at any time the Company shall fix a record date for the holders of its Common Shares for the purpose of entitling them to receive a distribution of, or shall in any manner (whether directly or by assumption in a merger in which the Company is the surviving corporation) issue or sell, any warrants or other rights to subscribe for or purchase any Additional Common Shares or any Convertible Securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the consideration received by the Company for any Additional Common Shares issuable upon the exercise of such warrants or other rights or upon conversion or exchange of such Convertible Securities shall be less than the Market Price as of the day of such distribution, issuance or sale, then the Current Warrant Price and the number of Common Shares issuable upon exercise of this Warrant shall be adjusted as provided in Section 5(c) hereof on the basis that (i) the maximum number of Additional Common Shares issuable pursuant to all such warrants or other rights or necessary to effect the conversion or exchange of all such Convertible Securities shall be deemed to have been issued and outstanding and (ii) the Company shall have received all of the consideration, if any, payable for such warrants or other rights as of the date of the actual issuance thereof. No further adjustments of the Current Warrant Price or the number of shares issuable upon exercise of this Warrant shall be made upon the actual issuance of such Common Shares or of such Convertible Securities upon exercise of such warrants or other rights or upon the actual issuance of such Common Shares upon such conversion or exchange of such Convertible Securities.

(e) Issuance of Convertible Securities. If at any time the Company shall fix a record date for the holders of its Common Shares for the purpose of entitling them to receive a distribution of, or shall in any manner (whether directly or by assumption in a merger in which the Company is the surviving corporation) issue or sell, any Convertible Securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the consideration received by the Company for any Additional Common Shares issuable upon the conversion or exchange of such Convertible Securities shall be less than the Market Price as of the day of such distribution, issuance or sale, then the Current Warrant Price and the number of Common Shares issuance upon exercise of this Warrant shall be adjusted as provided in Section 5(c) hereof on the basis that (i) the maximum number of Additional Common Shares issuable upon the conversion or exchange of all such Convertible Securities shall be deemed to have been issued and outstanding and (ii) the Company shall have received all of the consideration, if any, payable for such Convertible Securities as of the date of actual issuance of such Convertible Securities. No further adjustment of the Current Warrant Price or the number of shares issuable upon exercise of this Warrant shall be made under this Section 5(e) upon the issuance of any Convertible Securities which are issued pursuant to the exercise of any warrants or other subscription or purchase rights therefor, if any such adjustment shall previously have been made upon the issuance of such warrants or other rights pursuant to Section 5(d) hereof. No further adjustment of the Current Warrant Price or the number of shares issuable upon exercise of this Warrant shall be made upon the actual issuance of such Common Shares upon conversion or exchange of such Convertible Securities and, if any issuance or sale of such Convertible Securities is made upon exercise of any warrant or other right to subscribe for or to purchase any such Convertible Securities for which adjustments thereof have been or are to be made pursuant to other provisions of this Section 5, no further adjustments shall be made by reason of such issuance or sale.

(f) Superseding Adjustment. If, at any time after any adjustment of the Current Warrant Price and the number of Common Shares issuable upon exercise of this Warrant shall have

been made pursuant to Section 5(d) or 5(e) hereof as the result of any issuance of warrants, rights or Convertible Securities and either (i) such warrants or rights, or the right of conversion or exchange in such other Convertible Securities, shall expire, and all or a portion of such warrants or rights, or the right of conversion or exchange with respect to all or a portion of such other Convertible Securities, as the case may be, shall not have been exercised or (ii) the consideration per share for which Common Shares are issuable pursuant to such warrants or rights, or such other Convertible Securities, shall be increased or decreased by virtue of provisions therein contained, then such previous adjustment shall be rescinded and annulled and the Additional Common Shares which were deemed to have been issued by virtue of the computation made in connection with the adjustment so rescinded and annulled shall no longer be deemed to have been issued by virtue of such computation. Thereupon, a recomputation shall be made of the effect of such warrants or rights or other Convertible Securities on this Warrant on the basis of (x) treating the number of Additional Common Shares or other property, if any, theretofore actually issued or issuable pursuant to the previous exercise of any such warrants or rights or any such right of conversion or exchange, as having been issued on the date or dates of any such exercise and for the consideration actually received and receivable therefor and (y) treating any such warrants or rights or any such other Convertible Securities which then remain outstanding as having been granted or issued immediately after the time of such increase or decrease of the consideration per share for which Common Shares or other property are issuable under such warrants or rights or other Convertible Securities, whereupon a new adjustment of the Current Warrant Price and the number of Common Shares issuable upon exercise of this Warrant shall be made pursuant to Section 5(d) or 5(e) hereof, as appropriate, which new adjustment shall supersede the previous adjustment so rescinded and annulled; provided, however, that no rescission or recomputation adjustment shall be made under this Section 5(f) in respect of any portion of this Warrant which has been exercised prior to the occurrence of any action otherwise requiring such rescission or recomputation adjustment.

(g) Other Provisions Applicable to Adjustments Under this Section. The following provisions shall be applicable to the making of adjustments provided for in this Section 5:

(i) Computation of Consideration. To the extent that any Additional Common Shares or any Convertible Securities or any warrants or other rights to subscribe for or purchase any Additional Common Shares or any Convertible Securities shall be issued for cash consideration, the consideration received by the Company therefor shall be the amount of the cash received by the Company therefor, or, if such Additional Common Shares or Convertible Securities are offered by the Company for subscription, the subscription price, or, if such Additional Common Shares or Convertible Securities are sold to underwriters or dealers for public offering without a subscription offering, the public offering price (in any such case subtracting (x) any amounts paid or receivable for accrued interest or accrued dividends and (y) any compensation, discounts or expenses paid or incurred by the Company for and in the underwriting of, or otherwise in connection with, the issuance thereof). To the extent that such issuance shall be for a consideration other than cash, then, except as herein otherwise expressly provided, the amount of such consideration shall be deemed to be the fair value of such consideration at the time of such issuance as reasonably determined in good faith by the Board. In case any Additional Common Shares or any Convertible Securities or any warrants or other rights to subscribe for or purchase such Additional Common Shares or Convertible Securities shall be issued in connection with any merger in which the Company issues any securities, the amount of consideration therefor shall be deemed to be the fair value, as reasonably determined in good faith by the Board, of such portion of the assets and business of the nonsurviving corporation

as such Board in good faith shall reasonably determine to be attributable to such Additional Common Shares, Convertible Securities, warrants or other rights, as the case may be. The consideration for any Additional Common Shares issuable pursuant to any warrants or other rights to subscribe for or purchase the same shall be the consideration received by the Company for issuing such warrants or other rights plus the lowest amount of additional consideration payable to the Company upon exercise of such warrants or other rights. The consideration for any Additional Common Shares issuable pursuant to the terms of any Convertible Securities shall be the consideration, if any, received by the Company for issuing warrants or other rights to subscribe for or purchase such Convertible Securities, plus the consideration paid or payable to the Company in respect of the subscription for or purchase of such Convertible Securities, plus the lowest amount of additional consideration, if any, payable to the Company upon the exercise of the right of conversion or exchange in such Convertible Securities. In case of the issuance at any time of any Additional Common Shares or Convertible Securities in payment or satisfaction of any dividends upon any class of stock other than Common Shares, the Company shall be deemed to have received for such Additional Common Shares or Convertible Securities a consideration equal to the amount of such dividend so paid or satisfied.

(ii) When Adjustments to be Made; Rounding of Calculations; Minimum Adjustments. The adjustments required by this Section 5 shall be made whenever and as often as any specified event requiring an adjustment shall occur. All calculations under this Section 5 shall be made to the nearest one-tenth (1/10th) of a cent or to the nearest one-hundredth (1/100th) of a share, as the case may be. No adjustment in the Current Warrant Price or the number of Common Shares into which this Warrant is exercisable is required if the amount of such adjustment would be less than $0.01 or one-tenth (1/10th) of a Common Share, as the case may be; provided, however, that any adjustments which by reason of this Section 5(g)(ii) are not required to be made will be carried forward and given effect upon the earlier of (x) the date of any subsequent adjustment and (y) the date of exercise of this Warrant. For the purpose of any adjustment, any specified event shall be deemed to have occurred at the close of business on the date of its occurrence.

(iii) When Adjustment Not Required. If the Company shall take a record of the holders of its Common Shares for the purpose of entitling them to receive a dividend or distribution or subscription or purchase rights and shall thereafter and before the distribution to shareholders thereof legally abandon its plan to pay or deliver such dividend, distribution, subscription or purchase rights, then, thereafter, no adjustment shall be required by reason of the taking of such record and any such adjustment previously made in respect thereof shall be rescinded and annulled.

(iv) Escrow of Warrant Stock. If after any property becomes distributable pursuant to this Section 5 by reason of the taking of any record of the holders of Common Shares, but prior to the occurrence of the event for which such record is taken, the Holder exercises this Warrant, then any Additional Common Shares issuable and other property distributable upon exercise by reason of such adjustment shall be held in escrow for the Holder by the Company to be issued and/or distributed to the Holder upon and to the extent that the event actually takes place. Notwithstanding any other provision to the contrary herein, if the event for which such record was taken fails to occur or is rescinded, then such escrowed shares shall be cancelled by the Company and escrowed property returned.

(v) Challenge to Good Faith Determination. Whenever the Board shall be required to make a determination in good faith of the fair value of any item under this Section 5, such determination may be challenged by the Holder, and any dispute shall be resolved by an investment banking firm of recognized national standing selected by the Company and acceptable to such Holder, with all costs thereof borne by the Company.

(h) Corporate Transactions. In case of any Corporate Transaction or reclassification of Common Shares (other than a reclassification of Common Shares referred to in Section 5(a) hereof), any Common Shares issued or issuable upon exercise of this Warrant after the date of such Corporate Transaction or reclassification (or, in the case of a liquidation of assets or a dissolution, upon such liquidation or dissolution, without taking any further action) will be exchangeable for the number of shares of stock or other securities or property (including cash) to which the Common Shares issuable (at the time of such Corporate Transaction or reclassification) upon exercise of this Warrant immediately prior to such Corporate Transaction or reclassification would have been entitled upon such Corporate Transaction or reclassification; and in any such case, if necessary, the provisions set forth herein with respect to the rights and interests thereafter of the Holder shall be appropriately adjusted so as to be applicable, as nearly as may reasonably be, to any shares of stock or other securities or property thereafter deliverable on the exercise of this Warrant. In determining the kind and amount of stock, securities or the property receivable upon consummation of such Corporate Transaction or reclassification, if the holders of Common Shares have the right to elect the kind or amount of consideration receivable upon consummation of such Corporate Transaction or reclassification, then the Holder shall have the right to make a similar election upon exercise of this Warrant with respect to the number of shares of stock or other securities or property which the Holder will receive upon exercise of this Warrant (or, in the case of a liquidation of assets or a dissolution, upon such liquidation or dissolution, without taking any further action). The foregoing provisions of this Section 5(h) shall similarly apply to successive Corporate Transactions or such reclassifications.

(i) Other Action Affecting Common Shares. If at any time or from time to time the Company shall take any action in respect of its Common Shares, other than any action described in this Section 5 for which a specific adjustment is provided, then, unless such action will not have a materially adverse effect upon the rights of the Holder, the number of Common Shares or other stock issuable upon exercise of this Warrant and/or the Current Warrant Price shall be adjusted in such manner as may be equitable in the circumstances.

Notice of Adjustments.

Whenever the Current Warrant Price or the number of Common Shares or the class or type of stock or other property issuable upon exercise of this Warrant shall be adjusted pursuant to Section 5 hereof, the Company shall prepare a certificate signed by its chief financial officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated (including a description of the basis on which the Board determined the fair value of any evidences of indebtedness, shares of stock, other securities or property or warrants or other subscription or purchase rights referred to in Section 5(b) or 5(g)(i) hereof), the Current Warrant Price after giving effect to such adjustment and the number of shares then issuable upon exercise of this Warrant and (if such adjustment was made pursuant to Section 5(h) or 5(i) hereof) describing the number and kind of any other shares of stock or other property issuable upon exercise of this Warrant, and shall cause copies of such certificate to be mailed (by

first class mail, postage prepaid) to the Holder of this Warrant at the address specified in Section 15(c) hereof, or at such other address as may be provided to the Company in writing by the Holder. The Company shall keep at its principal office copies of all such certificates and cause the same to be available for inspection at said office during normal business hours by the Holder or any prospective purchaser of a Warrant designated by the Holder. The Holder shall be entitled to the same rights to receive notice of corporate action as any holder of Common Shares.

Fractional Shares.

No fractional shares of Common Stock will be issued in conjunction with any exercise hereunder, but in lieu of such fractional shares the Company shall make a cash payment therefore on the basis of the Market Price then in effect.

Compliance with Securities Act.

The Holder of this Warrant, by acceptance hereof, agrees that this Warrant and the shares of Common Stock to be issued on exercise hereof are being acquired for investment and that it will not offer, sell or otherwise dispose of this Warrant or any shares of Common Stock to be issued upon exercise hereof except under circumstances which will not result in a violation of the Securities Act of 1933, as amended (the “Act”). This Warrant and all shares of Common Stock issued upon exercise of this Warrant shall be stamped and imprinted with a legend substantially in the following form, unless sold pursuant to an effective registration statement:

“THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE ACT AND SUCH LAWS OR REGISTRATION UNDER THE ACT AND SUCH LAWS IS NOT REQUIRED.”

The foregoing legend shall be removed from the certificates representing the Warrant and any shares of Common Stock issued upon exercise of the Warrant, at the request of the holder thereof, at such time as (i) they are sold pursuant to an effective registration statement, (ii) they become eligible for resale pursuant to Rule 144(k) or another provision of Rule 144 of the Act pursuant to which all or a portion of the Shares could be sold in a single transaction or (iii) an opinion of counsel is obtained to the effect that the proposed transfer is exempt from the Act.

Transfer and Exchange of Warrant.

This Warrant may be transferred or exchanged without the consent of the Company upon the Holder providing to the Company a written opinion by counsel reasonably satisfactory to the Company opining that the transfer or exchange will not violate any Federal or applicable state securities laws; provided, however, that no such opinion shall be required in connection with a transfer from any affiliate (within the meaning of Rule 405 under the Act) of IDT Corporation to IDT Corporation or any other affiliate thereof or from IDT Corporation to any affiliate thereof.

10.

Registration Rights.

The Holder shall be entitled to certain registration rights with respect to the resale of this Warrant by Holder and the shares of Common Stock issuable upon exercise of this Warrant as set forth in that certain Securities Purchase Agreement, dated as of the date hereof, by and between the Company and the original Holder hereof (the “Securities Purchase Agreement”).

11.

Rule 144 Information.

The Company covenants that it will file the reports required to be filed by it under the Act and the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (or, if the Company is not required to file such reports, it will, upon the request of any Holder, make publicly available such information as is described in Rule 144(c)(2) under the Act). Upon the request of any Holder, the Company will deliver to such Holder a written statement that it has complied with such requirements.

12.

Merger or Consolidation of the Company.

The Company shall not merge or consolidate into, or sell, transfer or lease all or substantially all of its property to, any other Person unless the successor, transferee or lessee corporation or other Person, as the case may be (if not the Company), (a) expressly assumes the due and punctual performance and observance of each and every covenant and condition of this Warrant to be performed and observed by the Company, including, without limitation, the registration rights contained in the Securities Purchase Agreement and (b) expressly agrees to exchange, at the Holder’s option, this Warrant for a warrant or warrants for such surviving corporation’s or other Person’s shares of capital stock on terms substantially similar to the terms under this Warrant.

13.

Indemnification.

The Company agrees to indemnify and hold harmless the Holder, its officers, directors, employees, partners, agents and attorneys from and against any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys’ fees, expenses and disbursements of any kind which may be imposed upon, incurred by or asserted against the Holder in any manner relating to or arising out of (a) the Holder’s exercise of this Warrant and/or ownership of any shares of Common Stock issued in consequence thereof or (b) any litigation to which the Holder is made a party in its capacity as a shareholder or warrantholder of the Company; provided, however, that the Company shall not be liable hereunder to the extent that any liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, attorneys’ fees, expenses or disbursements are found in a final non-appealable judgment by a court to have resulted from the Holder’s gross negligence or willful misconduct in its capacity as a shareholder or warrantholder of the Company.

14.

No Impairment.

The Company shall not, by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issuance 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 shall at all times in good faith assist in the

carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate in order to protect the rights of the Holder against impairment.

15.

Miscellaneous.

(a) No Rights as Shareholder. The Holder of this Warrant shall not be entitled to vote or receive dividends or be deemed the Holder of Common Stock or any other securities of the Company that may at any time be issuable on the exercise hereof for any purpose, nor shall anything contained herein be construed to confer upon the Holder of this Warrant, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance of stock, reclassification of stock, change of par value or change of stock to no par value, consolidation, merger, conveyance or otherwise) or to receive notice of meetings, or to receive dividends or subscription rights or otherwise until the Warrant shall have been exercised and the shares purchasable upon the exercise hereof shall have become deliverable, as provided herein.

(b) Replacement. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of this Warrant and, in the case of mutilation, on surrender and cancellation of this Warrant, the Company, at the Holder’s expense (it being understood that any such expense must be reasonable), will execute and deliver, in lieu of this Warrant, a new Warrant of like tenor.

(c) Notice. Any notice given to either party under this Warrant shall be in writing, and any notice hereunder shall be deemed to have been given upon the earlier of delivery thereof by hand delivery, by courier, or by standard form of telecommunication or three (3) business days after the mailing thereof in the U.S. mail if sent registered mail with postage prepaid, addressed to the Company at its principal executive offices and to the Holder at its address set forth in the Company’s books and records or at such other address as the Holder may have provided to the Company in writing.

(d) GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED AND CONSTRUED UNDER THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF.

(e) Amendments. This Warrant may be amended, and the observance of any term of this Warrant may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of each of the Company and the Holder.

(f) Successors and Assigns. Subject to the provisions of Section 9 hereof, (i) this Warrant and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and assigns of the Holder and (ii) the provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant, and shall be enforceable by any such Holder.

This Warrant is dated as of the 31st day of October, 2003.

DOCUMENT SECURITY SYSTEMS, INC.

By:		/s/ Patrick White

		Name: Patrick White
		Title: Chief Executive Officer/President

EXHIBIT 1

FORM OF NOTICE OF EXERCISE

TO:	DOCUMENT SECURITY SYSTEMS, INC.

1. The undersigned hereby elects to purchase shares of Common Stock of DOCUMENT SECURITY SYSTEMS, INC. pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in the following manner:

Method(s) of Payment of aggregate Current Warrant Price: ______________________________________________________

______________________________________________________________________________________________________

2. Please issue a certificate or certificates representing said shares of Common Stock in the name of the undersigned or in such other name as is specified below:

(Name)

(Address)

Signature

EX-99.3 5 dex993.htm JOINT FILING AGREEMENT Joint Filing Agreement

Exhibit 3

Joint Filing Agreement

Each of the undersigned hereby agrees that the Schedule 13D filed herewith is filed jointly on behalf of each of them pursuant to rule 13d-1(k) under the Act.

Signature

After reasonable inquiry and to the best of all the undersigned’s knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct.

Date: December 2, 2003

IDT VENTURE CAPITAL CORPORATION

By:		/s/ Ira A. Greenstein

Name: Ira A. Greenstein Title: Chief Executive Officer

IDT CORPORATION

By:		/s/ Ira A. Greenstein

Name: Ira A. Greenstein Title: President


By:		/s/ Howard S. Jonas

Name: Howard S. Jonas, individually

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