8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): December 26, 2006

DOCUMENT SECURITY SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

New York	1-32146	16-1229730
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

First Federal Plaza, Suite 1525 28 East Main Street Rochester, NY	14614
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (585) 325-3610

Not Applicable

(Former name or former address, if changed since last report.)

  Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01. Entry Into a Material Definitive Agreement.

The information contained in Item 3.02 relating to the definitive agreements that were entered into in connection with a private placement by Document Security Systems, Inc. are incorporated herein by reference.

Item 3.02. Unregistered Sales of Equity Securities.

On December 26, 2006, Document Security Systems, Inc. (the “Company”, “we” or “us”) sold 87 units at a price of $50,000 per unit for gross cash proceeds of $4,350,000, consisting of 511,560 unregistered shares of our common stock and five-year warrants to purchase up to an aggregate of 255,780 shares of our common stock, at an initial exercise price of $11.75 per share. The foregoing securities were issued pursuant to an offering, which is continuing, solely to institutional and accredited investors of up to 130 units.

The net proceeds from the offering, following the payment of offering-related expenses, will be utilized, in part, to expand the San Francisco-based manufacturing facilities of Plastic Printing Professionals (“P3”), our wholly owned subsidiary. P3’s facilities would be expanded to accommodate anticipated increased order volume in 2007, which is expected to exceed P3’s current facility’s production capacity, and to certify P3 for a wide range of security printing applications such as identification documents, consumer product and pharmaceutical packaging, labels, tickets and vital records.  In addition to the P3 manufacturing expansion, net proceeds from our offering will be used to expand our sales, marketing, customer service and support operations as well as for working capital needs.

Perrin, Holden & Davenport Capital Corp., the placement agent for the offering, earned consideration equal to 9% commissions and 1% non-accountable fees, as well as a five-year warrant to purchase up to 22,932 shares of our common stock, at an initial exercise price of $11.75.

The common stock, warrants and common stock issuable upon exercise of the warrants have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), and were issued and sold in reliance upon the exemption from registration contained in Section 4(2) of the Securities Act and Regulation D promulgated thereunder. These securities may not be offered or sold in the United States in the absence of an effective registration statement or exemption from the registration requirements under the Securities Act.

Copies of the definitive agreements relating to the issuance and sale of the common stock and warrants are filed herewith as Exhibits 4.1, 10.1 and 10.2, and are incorporated herein by reference. The foregoing summary descriptions of the definitive agreements are qualified in their entirety by reference to the full texts of each of such exhibits.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits.

Exhibit No.	Description
4.1	Form of Warrant to Purchase Common Stock of Document Security Systems, Inc. for each investor and for the Placement Agent.
10.1	Form of Subscription Agreement between Document Security Systems, Inc. and each investor.
10.2	Registration Rights Agreement, dated as of December 12, 2006, between Document Security Systems, Inc. and Perrin, Holden & Davenport Capital Corp.

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated: December 27, 2006

DOCUMENT SECURITY SYSTEMS, INC.
By:	/s/ Patrick A. White
	Name: Patrick A.White Title: Chief Executive Officer

EXHIBIT INDEX

ExhibitNumber	Description
4.1	Form of Warrant to Purchase Common Stock of Document Security Systems, Inc. for each investor and for the Placement Agent.
10.1	Form of Subscription Agreement between Document Security Systems, Inc. and each investor.
10.2	Registration Rights Agreement, dated as of December 12, 2006, between Document Security Systems, Inc. and Perrin, Holden & Davenport Capital Corp.

EX-4.1

NO SALE, OFFER TO SELL OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS WARRANT OR ANY INTEREST THEREIN SHALL BE MADE UNLESS A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, WITH RESPECT TO SUCH TRANSACTION IS THEN IN EFFECT, OR THE ISSUER HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO IT THAT SUCH TRANSFER DOES NOT REQUIRE REGISTRATION UNDER THAT ACT.

This Warrant will be void after 5:00 p.m. New York time on December 25, 2011 (i.e. five years from the first closing date of the Offering).

COMMON STOCK PURCHASE WARRANT

WARRANT NO. B-

To Subscribe for and Purchase Shares of

Document Security Systems, Inc.

(Transferability Restricted as Provided in Paragraph 2 Below)

THIS CERTIFIES THAT, for value received, ________, or registered assigns, is entitled to subscribe for and purchase from Document Security Systems, Inc., a corporation incorporated under the laws of the State of New York (the “Company”) 2,940 fully paid and non-assessable shares of Common Stock of the Company at the “Warrant Price” as hereinafter defined and during the period hereinafter set forth, subject, however, to the provisions and upon the terms and conditions hereinafter set forth. This Warrant is one of an issue of the Company’s Common Stock purchase warrants (herein called the “Warrants”), identical in all respects except as to the names of the holders thereof and the number of Common Shares purchasable thereunder and issued pursuant to the Placement Agent Agreement.

1. As used herein:

(a) “Common Stock” or “Common Shares” shall initially refer to the Company’s Common Stock, $0.02 par value, per share as more fully set forth in Section 4 hereof.

(b) “Warrant Price” shall be $11.75, which is subject to adjustment pursuant to Section 4 hereof.

(c) “Placement Agent” shall refer to Perrin, Holden & Davenport Capital Corp.

(d) “Placement Agent Agreement” shall refer to the Placement Agent Agreement dated December 12, 2006 between the Company and the Placement Agent.

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(e) “Warrants” or “Placement Agent Warrants” shall refer to Warrants to purchase Common Shares issued to the Placement Agent or its designees by the Company pursuant to the Placement Agent Agreement, as such may be adjusted from time to time pursuant to the terms of Section 4 and including any Warrants represented by any certificate issued from time to time in connection with the transfer, partial exercise, exchange of any Warrants or in connection with a lost, stolen, mutilated or destroyed Warrant certificate, if any, or to reflect an adjusted number of Common Shares.

(f) “Underlying Securities” shall refer to and include the Common Stock issuable or issued upon exercise of the Warrants.

(g) “Holders” shall mean the registered holder of such Warrants or any issued Underlying Securities.

(h) “Memorandum” shall mean the Company’s Confidential Private Placement Memorandum dated December 12, 2006, as amended and supplemented, which is being used (or was used) in connection with the private offering of Common Stock and Series A Common Stock Purchase Warrants pursuant to the Placement Agent Agreement.

(i) “Placement Agent Securities” shall refer and mean the warrants and shares of Common Stock issued and/or issuable upon exercise of the Warrants.

(j) “Offering” means the private offering of Common Stock and Series A Common Stock Purchase Warrants in accordance with the Memorandum.

2. The purchase rights represented by this Warrant may be exercised by the holder hereof, in whole or in part at any time, and from time to time, during the period commencing December 26, 2006 (the “Commencement Date”) until 5:00 New York Time on December 25, 2011 (the “Expiration Date”), by the presentation of this Warrant, with the purchase form attached duly executed, at the Company’s office (or such office or agency of the Company as it may designate in writing to the Holder hereof by notice pursuant to Section 14 hereof), and upon payment by the Holder to the Company in cash or by certified check of the Warrant Price for the Common Shares. The purchase price of the Common Shares issuable pursuant to the Warrants, shall be payable in cash and/or by certified bank check. The Company agrees that the Holder hereof shall be deemed the record owner of such Common Shares as of the close of business on the date on which this Warrant shall have been presented and payment made for such Common Shares as aforesaid. Certificates for the Common Shares so purchased shall be delivered to the Holder hereof within a reasonable time, not exceeding ten (10) business days, after the rights represented by this Warrant shall have been so exercised. If this Warrant shall be exercised in part only, the Company shall, upon surrender of this Warrant for cancellation, deliver a new Warrant evidencing the rights of the Holder hereof to purchase the balance of the Common Shares which such Holder is entitled to purchase hereunder. Exercise in full of the rights represented by this Warrant shall not extinguish the registration rights granted under Section 8 hereof and Section 2 of the Placement Agent Agreement.

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3. Subject and pursuant to the provisions of this Section 4, the Warrant Price and number of Common Shares subject to this Warrant shall be subject to adjustment from time to time as set forth hereinafter in this Section 3.

(a) Dividends and Distributions. In case the Company shall at any time after the date hereof pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock, then upon such dividend or distribution, the Exercise Price in effect immediately prior to such dividend or distribution shall be reduced to a price determined by dividing an amount equal to the total number of shares of Common Stock outstanding immediately prior to such dividend or distribution multiplied by the Exercise Price in effect immediately prior to such dividend or distribution, by the total number of shares of Common Stock outstanding immediately after such dividend or distribution. For purposes of any computation to be made in accordance with the provisions of this Section 3, the Common Stock issuable by way of dividend or distribution shall be deemed to have been issued immediately after the opening of business on the date following the date fixed for determination of shareholders entitled to receive such dividend or distribution.

(b) Subdivision and Combination. In case the Company shall at any time subdivide or combine the outstanding Common Stock, the Exercise Price shall forthwith be proportionately decreased in the case of subdivision or increased in the case of combination.

(c) Adjustment in Number of Warrant Shares. Upon each adjustment of the Exercise Price pursuant to the provisions of this Article 7, the number of Warrant Shares issuable upon the exercise of each Warrant shall be adjusted to the nearest full shares of Common Stock by multiplying a number equal to the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Shares issuable upon exercise of the Warrants immediately prior to such adjustment and dividing the product so obtained by the adjusted Exercise Price.

(d) Reclassification, Consolidation, Merger, etc. In case of any reclassification or change of the outstanding shares of Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), or in the case of any consolidation of the Company with, or merger of the Company into, another corporation (other than a consolidation or merger in which the Company is the surviving corporation and which does not result in any reclassification or change of the outstanding shares of Common Stock, except a change as a result of a subdivision or combination of such shares or a change in nominal value, as aforesaid), or in the case of a sale or conveyance to another corporation of the property of the Company as an entirety, the Holder shall thereafter have the right to purchase the kind and number of shares of stock and other securities and property receivable upon such reclassification, change, consolidation, merger, sale or conveyance as if the Holder were the owner of the Warrant Shares issuable upon exercise of the Warrants immediately prior to any such events at a price equal to the product of (x) the number of Warrant Shares issuable upon exercise of the Warrants and (y) the Exercise Price in effect immediately prior to the record date for such reclassification, change, consolidation, merger, sale or conveyance as if such Holder had exercised the Warrants.

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(e) Determination of Outstanding Shares. The number of shares of Common Stock at any one time outstanding shall include the aggregate number of shares issued or issuable upon the exercise of outstanding options, rights, warrants and upon the conversion or exchange of outstanding convertible or exchangeable securities.

(f) Except as otherwise specifically provided herein the date of issuance or sale of Common Stock shall be deemed to be the date the Company is legally obligated to issue such Common Shares. In case at any time the Company shall take a record date for the purpose of determining the Holders of Common Stock entitled (i) to receive a dividend or other distribution payable in Common Stock or in Options or Convertible Securities or (ii) to subscribe for or purchase Common Stock, Options or Convertible Securities then such record date shall be deemed to be the date of issue or sale of the Common Shares, Options or Convertible Securities deemed to have been issued or sold upon the declaration of such dividend or the making of such distribution or the granting of such right of subscription or purchase, as the case may be.

4. For the purposes of this Warrant, the terms “Common Shares” or “Common Stock” or “Warrant Shares” shall mean (i) the class of stock designated as the common stock, $0.02 par value, of the Company on the date set forth on the first page hereof or (ii) any other class of stock resulting from successive changes or re-classifications of such Common Stock consisting solely of changes in par value, or from no par value to par value, or from par value to no par value. If at any time, as a result of an adjustment made pursuant to Section 3, the securities or other property obtainable upon exercise of this Warrant shall include shares or other securities of the Company other than Common Shares or securities of another corporation or other property, thereafter, the number of such other shares or other securities or property so obtainable shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Shares contained in Section 3 and all other provisions of this Warrant with respect to Common Shares shall apply on like terms to any such other shares or other securities or property. Subject to the foregoing, and unless the context requires otherwise, all references herein to Common Shares shall, in the event of an adjustment pursuant to Section 3, be deemed to refer also to any other securities or property then obtainable as a result of such adjustments.

5. The Company covenants and agrees that:

(a) During the period within which the rights represented by the Warrant may be exercised, the Company shall, at all times, reserve and keep available out of its authorized capital stock, solely for the purposes of issuance upon exercise of this Warrant, such number of its Common Shares as shall be issuable upon the exercise of this Warrant; and if at any time the number of authorized Common Shares shall not be sufficient to effect the exercise of this Warrant, the Company will take such corporate action as may be necessary to increase its authorized but unissued Common Shares to such number of shares as shall be sufficient for such purpose; the Company shall have analogous obligations with respect to any other securities or property issuable upon exercise of this Warrant;

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(b) All Common Shares which may be issued upon exercise of the rights represented by this Warrant will, upon issuance be validly issued, fully paid, nonassessable and free from all taxes, liens and charges with respect to the issuance thereof; and

(c) All original issue taxes payable in respect of the issuance of Common Shares upon the exercise of the rights represented by this Warrant shall be borne by the Company but in no event shall the Company be responsible or liable for income taxes or transfer taxes upon the transfer of any Warrants.

6. Until exercised, this Warrant shall not entitle the Holder hereof to any voting rights or other rights as a stockholder of the Company, except that the Holder of this Warrant shall be deemed to be a stockholder of this Company for the purpose of bringing suit on the ground that the issuance of shares of stock of the Company is improper under the New York Business Corporation Law.

7. In no event shall this Warrant be sold, transferred, assigned or hypothecated except in conformity with the applicable provisions of the Securities Act of 1933, as amended and as then in force (the “Act”), or any similar Federal statute then in force, and all applicable “Blue Sky” laws.

8. The Holder of this Warrant, by acceptance hereof, agrees that, prior to the disposition of this Warrant or of any Common Shares theretofore purchased upon the exercise hereof, under circumstances that might require registration of such securities under the Act, or any similar Federal statute then in force, such Holder will give written notice to the Company expressing such Holder’s intention of effecting such disposition, and describing briefly such Holder’s intention as to the disposition to be made of this Warrant and/or the securities theretofore issued upon exercise hereof. Promptly upon receiving such notice, the Company shall present copies thereof to its counsel and the provisions of the following subdivisions shall apply:

(a) If, in the opinion of such counsel, the proposed disposition does not require registration under the Act or qualification pursuant to Regulation A promulgated under the Act, or any similar Federal statute then in force, of this Warrant and/or the securities issuable or issued upon the exercise of this Warrant, the Company shall, as promptly as practicable, notify the Holder hereof of such opinion, whereupon such Holder shall be entitled to dispose of this Warrant and/or such Common Shares theretofore issued upon the exercise hereof, all in accordance with the terms of the notice delivered by such Holder to the Company.

(b) If, in the opinion of either such counsel, such proposed disposition requires such registration or qualification under the Act, or similar Federal statute then in effect, of this Warrant and/or the Common Shares issuable or issued upon the exercise of this Warrant, the Company shall promptly give written notice to all then Holders of the Warrants, at the respective addresses thereof shown on the books of the Company.

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The holder of this Warrant shall also be entitled to the registration rights as stated in the Placement Agent Agreement.

9. The Company agrees to indemnify and hold harmless the holder of this Warrant, or of Underlying Securities issuable or issued upon the exercise hereof, from and against any claims and liabilities caused by any untrue statement of a material fact, or omission to state a material fact required to be stated, in any such registration statement, prospectus, notification or offering circular under Regulation A, except insofar as such claims or liabilities are caused by any such untrue statement or omission based on information furnished in writing to the Company by such holder, or by any other such holder affiliated with the holder who seeks indemnification, as to which the holder hereof, by acceptance hereof, agrees to indemnify and hold harmless the Company.

10.If this Warrant, or any of the Underlying Securities issuable pursuant hereto, require qualification or registration with, or approval of, any governmental official or authority (other than registration under the Act, or any similar Federal statute at the time in force), before such shares may be issued on the exercise hereof, the Company, at its expense, will take all requisite action in connection with such qualification, and will use its best efforts to cause such securities to be duly registered or approved, as may be required.

11.This Warrant is exchangeable, upon its surrender by the registered holder at such office or agency of the Company as may be designated by the Company, for new Warrants of like tenor, representing, in the aggregate, the right to subscribe for and purchase the number of Common Shares that may be subscribed for and purchased hereunder, each of such new Warrants to represent the right to subscribe for and purchase such number of Common Shares as shall be designated by the registered holder at the time of such surrender. Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant, and, in the case of any such loss, theft or destruction, upon delivery of a bond of indemnity satisfactory to the Company, or in the case of such mutilation, upon surrender or cancellation of this Warrant, the Company will issue to the registered holder a new Warrant of like tenor, in lieu of this Warrant, representing the right to subscribe for and purchase the number of Common Shares that may be subscribed for and purchased hereunder. Nothing herein is intended to authorize the transfer of this Warrant except as permitted by applicable law.

12.Every Holder hereof, by accepting the same, agrees with any subsequent Holder hereof and with the Company that this Warrant and all rights hereunder are issued and shall be held subject to all of the terms, conditions, limitations and provisions set forth in this Warrant, and further agrees that the Company and its transfer agent may deem and treat the registered Holder of this Warrant as the absolute owner hereof for all purposes and shall not be affected by any notice to the contrary.

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13. All notices required hereunder shall be given by first-class mail, postage prepaid; if given by the holder hereof, addressed to the Company at 28 Main Street East, Suite 1525, Rochester, NY 14614 or such other address as the Company may designate in writing to the holder hereof; and if given by the Company, addressed to the holder at the address of the holder shown on the books of the Company.

15. The validity, construction and enforcement of this Warrant shall be governed by the laws of the State of New York and jurisdiction is hereby vested in the Courts of said State in the event of the institution of any legal action under this Warrant.

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IN WITNESS WHEREOF, Document Security Systems, Inc. has caused this Warrant to be signed by its duly authorized officers under its corporate seal, to be dated December 26, 2006.

DOCUMENT SECURITY SYSTEMS, INC.
By:
	Name: Patrick White Title: Chief Executive Officer

(Corporate Seal)

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PURCHASE FORM

To Be Executed

Upon Exercise of Warrant

The undersigned hereby exercises the right to purchase _______ Common Shares evidenced by the within Warrant, according to the terms and conditions thereof, and herewith makes payment of the purchase price in full. The undersigned requests that certificates for such shares shall be issued in the name set forth below.

Dated:, ______	Signature
	_________________________ Print Name of Signatory Name to whom certificates are to be issued if different from above Address: __________________________ __________________________ __________________________ Social Security No. or other identifying number

If said number of shares shall not be all the shares purchasable under the within Warrant, the undersigned requests that a new Warrant for the unexercised portion shall be registered in the name of :

___________________________

(Please Print)

Address:

__________________________

__________________________

__________________________

Social Security No.

or other identifying number

_________________________

Signature

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EX-10.1

DOCUMENT SECURITY SYSTEMS, INC.

SUBSCRIPTION AGREEMENT

NONE OF THE SECURITIES OFFERED PURSUANT TO THIS SUBSCRIPTION AGREEMENT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”) OR THE SECURITIES LAWS OF ANY U.S. STATE OR ANY FOREIGN JURISDICTION AND ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND SUCH LAWS. SUCH UNITS, THE SHARES OF COMMON STOCK THAT COMPRISE A PART OF THE UNITS, THE WARRANTS THAT COMPRISE A PART OF THE UNITS AND THE SHARES ISSUABLE UPON EXERCISE OF SUCH WARRANTS MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED TO ANY PERSON AT ANY TIME IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT COVERNG SUCH SECURITIES UNDER THE ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY TO THE EFFECT THAT SUCH REGISTRATION IS NOT NECESSSARY.

INVESTMENT IN THE COMPANY IS HIGHLY SPECULATIVE AND INVOLVES SUBSTANTIAL RISK, INCLUDING, BUT NOT LIMITED TO THE RISKS SET FORTH IN THE SECTION ENTITLED “RISK FACTORS” IN THE PRIVATE OFFERING MEMORANDUM ATTACHED HERETO. YOU SHOULD READ THE PRIVATE OFFERING MEMORANDUM CAREFULLY BEFORE INVESTING.

This Subscription Agreement (this “Subscription Agreement”) is entered into on December ___, 2006, by and between DOCUMENT SECURITY SYSTEMS, INC., a New York corporation (the “Company”), and _______________, an individual or entity (“Subscriber”). As used herein, the Company and Subscriber are individually and respectively referred to as a “Party” and collectively as the “Parties.” Terms not otherwise defined herein shall have the meanings ascribed to them in the Private Offering Memorandum attached hereto as Exhibit A (the “Private Offering Memorandum”).

1. Subscription.

Subscriber subscribes for and offers to purchase, and the Company agrees to issue and sell, an equity interest in the Company (the “Units”), entitling Subscriber to the rights of Subscribers described in the Private Offering Memorandum for a purchase price equal to the amount set forth on the signature page below (the“Investment Amount”), subject to the terms and conditions set forth herein.

2. Investment Amount; Escrow Funds.

(a) Deliveries Upon Signing. Simultaneous with the execution of this Subscription Agreement, Subscriber shall execute and deliver to Placement Agent an Investor Questionnaire substantially in the form of Exhibit B hereto (the “Investor Questionnaire”).

(b) Payment of Investment Amount. Concurrent with the execution of this Subscription Agreement, Subscriber shall transmit a wire transfer or check to the escrow agent (the “Escrow Agent”) designated in the Escrow Agreement substantially in the form of Exhibit C hereto (the “Escrow Agreement”) in an amount equal to such Subscriber’s Investment Amount in accordance with the instructions for the Escrow Agent set forth in the Escrow Agreement. For purposes of this Agreement, “Payment” shall mean Subscriber’s implementation of such wire transfer or receipt by Escrow Agent of the bank check. Subscriber funds deposited into the Escrow Account will be maintained separate and apart from funds of the Company. The Parties hereby agree that Subscriber shall not be deemed to have purchased the Units until the Company shall have provided a Closing Notice (as defined herein).

(c) Closing. At any time on or prior to March 12, 2007, the Company, at the Company’s sole discretion, may elect to accept the subscription of the Subscriber. The Company’s acceptance of the subscription shall be effective upon the Company’s transmitting a notice to the Subscriber according to the notice information for the Subscriber set forth herein informing the Subscriber of such acceptance (“Closing Notice”). The Company shall use commercially reasonable efforts to effect a closing within 21 days after the Company has obtained executed Subscription Agreements with an aggregate Investment Amount of at least $1,500,000.

(d) Trigger for Return of Investment Amount. If by March 12, 2007, the Company has failed to obtain executed Subscription Agreements with an aggregate Investment Amount of at least $1,500,000, then the Company shall instruct the Escrow Agent to return to the Subscriber an amount equal to the Subscriber’s Investment Amount to the Subscriber pursuant to the terms set forth in the Escrow Agreement. In the event that the Company has provided Closing Notice to the Subscriber and is nonetheless obligated to return funds to Subscriber pursuant to this Section 2(d), the Subscriber shall be deemed to have authorized the Company to take all steps necessary to terminate Subscriber’s Units in the Company and Subscriber shall execute any documents provided by the Company to effect such termination. If the Company does not accept the subscription of the Subscriber within 45 days after Subscriber’s Payment, Subscriber may, at Subscriber’s sole discretion, provide written notice to the Company to return Subscriber’s payment (the “Return Notice”). The Company shall, within 3 business days of receipt of the Return Notice, instruct Escrow Agent to return the Subscriber’s Payment to Subscriber.

3. The Offering.

Subscriber understands that the details of the offering (the “Offering”) are set forth in the Private Offering Memorandum. The Offering will terminate on, or prior to, March 12, 2007, subject to extension and/or modification in the sole discretion of the Company, and may be extended or modified without notice as described in the Private Offering Memorandum.

Subscriber understands that this Subscription Agreement is not binding upon the Company unless and until such time as (i) payment of the Investment Amount is transferred from the Escrow Account, and clears and is credited to the Escrow Agent’s bank account, and (ii) the Company accepts Subscriber’s subscription in writing (the “Closing Date”).

Subscriber acknowledges that the Company reserves the right, in its sole discretion, to accept or reject any Subscription Agreement.

Subscriber acknowledges that Subscriber has received, read, understands and is familiar with this Subscription Agreement, any attachments, including but not limited to the Private Offering Memorandum and all such information provided by the Placement Agent, if any, and together with any other filed regulatory documents (collectively “Offering Material”), and Subscriber further acknowledges that Subscriber has not relied upon any information concerning the Offering, written or oral, other than those contained in this Subscription Agreement and the Offering Material. Subscriber further understands that any other information or literature, regardless of whether distributed prior to, simultaneously with, or subsequent to, the date of this Subscription Agreement shall not be relied upon by Subscriber in determining whether to make an investment in the Units and Subscriber expressly acknowledges, agrees and affirms that Subscriber has not relied upon any such information or literature in making Subscriber’s determination to make an investment in the Units and that Subscriber understands that, except as otherwise provided herein, the Company is under no obligation to (and that Subscriber does not expect it to) update, revise, amend or add to any of the information heretofore furnished to Subscriber.

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4. Representations and Warranties of Subscriber.

(a) In order to induce the Company to accept Subscriber’s subscription, Subscriber further represents and warrants to the Company, its Affiliates, as defined in the Securities Act of 1933 (the “Securities Act”), and counsel to the Company (the “Company’s Counsel”), and their respective agents and representatives as follows:

1. SUBSCRIBER HAS READ THE PRIVATE OFFERING MEMORANDUM AND EXAMINED THE RISK FACTORS SET FORTH THEREIN, AND UNDERSTANDS THE SPECULATIVE NATURE OF AND SUBSTANTIAL RISK INVOLVED IN INVESTMENT IN THE COMPANY.

2. If Subscriber has chosen to do so, Subscriber has been represented by such legal and tax counsel and other professionals, each of whom has been personally selected by Subscriber, as Subscriber has found necessary to consult concerning the purchase of the Units, and such representation has included an examination of all applicable documents and an analysis of all tax, financial, and securities law aspects thereof deemed to be necessary. Subscriber, together with Subscriber’s counsel, Subscriber’s advisors, and such other persons, if any, with whom Subscriber has found it necessary or advisable to consult, have sufficient knowledge and experience in business and financial matters to evaluate the information set forth in this Subscription Agreement and in the Offering Material and the risks of the investment and to make an informed investment decision with respect thereto. Further, Subscriber has been given the opportunity for a reasonable time period prior to the date hereof to ask questions of, and receive answers from, the Company or its representatives concerning the terms and conditions of the Offering and other matters pertaining to this investment and has been given the opportunity for a reasonable time period prior to the date hereof to verify the accuracy of the Company’s information.

3. With respect to the United States federal, state and foreign tax aspects of Subscriber’s investment, Subscriber is relying solely upon the advice of Subscriber’s own tax advisors, and/or upon Subscriber’s own knowledge with respect thereto.

4. Subscriber has not relied, and will not rely upon, any information with respect to this offering other than the information contained herein and in the Offering Material.

5. Subscriber understands that no person has been authorized to make representations or to give any information or literature with respect to this offering that is inconsistent with the information that is set forth herein and in the Offering Material.

6. Subscriber understands that, other than as provided herein and in the Offering Materials, no covenants, representations, or warranties have been authorized by or will be binding upon the Company, with regard to this Subscription Agreement, the performance of the Company or any expectation of investment returns, including any representations, warranties or agreements contained or made in any written document or oral communication received from or had with the Company, its Affiliates, Company Counsel or any of their respective representatives or agents. Subscriber has not relied upon any information or representation that may be or have been made or given except as permitted under this paragraph.

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7. Subscriber understands that the Offering has not been, and it is not anticipated that the same will be, registered under the Securities Act, or pursuant to the provisions of the securities or other laws of any other applicable jurisdictions, but is being made in reliance upon the provisions of Section 4(2) and/or 4(6) of the Securities Act and/or Regulation D and the other rules and regulations promulgated thereunder, and/or upon such other exemption from the registration requirements of the Securities Act as may be available with respect to any or all of the investments in securities to be made hereunder. Subscriber is fully aware that the Units subscribed for by Subscriber are to be sold to Subscriber in reliance upon such safe harbor based upon Subscriber’s representations, warranties, and agreements as set forth herein. Subscriber is fully aware of the restrictions on sale, transferability and assignment of the Units (including the shares of Common Stock and the Warrants that comprise the Units, and the shares of Common Stock issuable upon exercise of such Warrants), and that Subscriber must bear the economic risk of Subscriber’s investment herein for an indefinite period of time because the offering has not been registered under the Securities Act and, therefore, the Securities cannot be offered or sold unless such offer is subsequently registered under the Securities Act or an exemption from such registration is available to Subscriber.

8. Subscriber is an “accredited investor” (as defined in Rule 501 of Regulation D promulgated under the Securities Act).

9. Subscriber’s execution and delivery of this Subscription Agreement has been duly authorized by all necessary action and all necessary consents have been obtained. Subscriber has no present intention to sell, distribute, pledge, assign, or otherwise transfer the Units (including the shares of Common Stock and the Warrants that comprise the Units, and the shares of Common Stock issuable upon exercise of such Warrants), which Subscriber acquires pursuant to this offering. Subscriber is making the investment hereunder solely for Subscriber’s own account and not for the account of others and for investment purposes only and not with a view to or for the transfer, assignment, resale or distribution thereof, in whole or in part. Subscriber has no present plans to enter into any such contract, undertaking, agreement, or arrangement.

10. Except as provided in Section 2(c), Subscriber agrees that Subscriber will not cancel, terminate or revoke this Subscription Agreement, which has been executed by Subscriber, and that this Subscription Agreement shall survive any sale, assignment or other transfer of control over, or of all or substantially all of Subscriber’s assets or business and Subscriber’s bankruptcy, except as otherwise provided pursuant to the laws of any applicable jurisdiction.

11. Subscriber has substantial investment experience and is familiar with investments of the type contemplated by this Subscription Agreement. Subscriber confirms that although one of Subscriber’s motivations for investing in the Company is to derive economic benefits therefrom, Subscriber is aware that purchase of the Units is a speculative investment involving a high degree of risk and there is no guarantee that Subscriber will realize any gain from Subscriber’s investment or realize any tax benefits therefrom and Subscriber is further aware that Subscriber may lose all or a substantial part of Subscriber’s investment. Subscriber understands that there are substantial restrictions on the transferability of, and there is no existing public market for, the Units (including the Warrants that are included in the Units) and it may not be possible to liquidate an investment in the Units (including the shares of Common Stock and the Warrants that comprise the Units, and the shares of Common Stock issuable upon exercise of such Warrants). Subscriber affirms that Subscriber acknowledges that this investment is highly speculative, involves a high degree of risk and, accordingly, Subscriber can afford to lose the entire investment.

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12. The address set forth herein is Subscriber’s true and correct address and Subscriber has no present intention of becoming a resident of any other country, state, or jurisdiction prior to, or after, Subscriber’s purchase of the Units.

13. Subscriber understands the meaning and legal consequences of the foregoing representations and warranties, which are true and correct as of the date hereof and will be true and correct as of the date of Subscriber’s purchase of the Units subscribed for herein. Each such representation and warranty shall survive such purchase.

14. Subscriber acknowledges and agrees that it shall not be a defense to a suit for damages for any misrepresentation or breach of covenant or warranty made by Subscriber that the Company, its Affiliates, the Company’s Counsel and their respective agents or representatives knew or had reason to know that any such covenant, representation or warranty in this Subscription Agreement or furnished or to be furnished to the Company by Subscriber contained untrue statements. The foregoing shall survive any investigation of Subscriber’s representations and warranties in this Subscription Agreement made by the Company, its Affiliates, the Company’s Counsel and their respective agents or representatives.

15. No representation or warranty that Subscriber has made in this Subscription Agreement, or in a writing furnished or to be furnished pursuant to this Subscription Agreement, contains or shall contain any untrue statement of fact, or omits or shall omit to state any fact which is required to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading.

16. Subscriber has full right, power, and authority to execute and deliver this Subscription Agreement and to perform Subscriber’s obligations hereunder. This Subscription Agreement has been duly authorized, executed and delivered by or on behalf of Subscriber and is a valid, binding and enforceable obligation of Subscriber, enforceable against Subscriber in accordance with its terms subject to bankruptcy, insolvency, reorganization, moratorium or similar laws from time to time in effect and affecting creditors’ rights generally and to general equity principles.

17. The execution and delivery of this Subscription Agreement by Subscriber will not result in any violation of, or be in conflict with, or result in the default of, any term of any material agreement or instrument to which Subscriber is a party or by which Subscriber is bound, or of any law or governmental order, rule or regulation which is applicable to Subscriber.

18. Subscriber is duly and validly organized, validly existing and in good tax and corporate standing as a corporation under the laws of the jurisdiction of its incorporation with full power and authority to purchase the Units to be purchased by it and to execute and deliver this Subscription Agreement.

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19. To Subscriber’s knowledge, except for the Placement Agent, all negotiations relative to this Agreement and the transactions contemplated hereby have been carried out by Subscriber directly with the Company without the intervention of any person or entity in such manner as to give rise to any valid claim by any person or entity against Subscriber or the Company for a finder’s fee, brokerage commission or similar payment. To the extent Subscriber becomes aware of an additional claim to such fees, commission or payments, other than to Placement Agent, Subscriber shall promptly provide the Company with notice of such claim. To the extent any person or entity claims to be entitled to a finder’s fee, brokerage commission, or similar payment in connection with the transactions contemplated hereby, Subscriber shall be liable for all such fees and expenses related thereto to the extent any such claims relate to acts or omissions of Subscriber or to this transaction. In the event a payment is payable by the Company to any broker, finder, agent or other person, other than to Placement Agent, in connection with Subscriber’s investment in the Company, such payment shall be deducted from the amount paid by Subscriber in connection with this Agreement.

5. Legend.

Any certificate representing Subscriber’s interest in the Company shall bear the following legend:

THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS IN WHICH THE TRANSFEROR PROVIDES THE COMPANY WITH AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY TO THE EFFECT THAT REGISTRATION IS NOT NECESSSARY.

6. Indemnification by Subscriber.

Subscriber hereby agrees to indemnify and hold harmless the Company, its Affiliates, the Company’s Counsel, Placement Agent and their respective officers, directors, employees, agents and representatives, from any and all damages, losses, costs, and expenses (including reasonable attorneys’ fees to collect such amount of damages, losses, costs, expenses) which they, or any of them, may incur by reason of Subscriber’s failure to fulfill any of the terms and conditions of this Subscription Agreement or by reason of Subscriber’s breach of any of Subscriber’s representations and warranties contained in this Subscription Agreement.

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7. Confidential Information.

For purposes of this Agreement, the term “Confidential Information” will mean and refer to any information, technical data or know-how, patentable and un-patentable, including, but not limited to, software, machinery, research, product plans, product services, customer lists, marketing materials, developments, inventions, process designs, finances, or other trade secrets of the Company or similar items relating to the Company’s business and litigation activities, or that of any supplier, customer or prospective customer, which Confidential Information is designated in writing to be confidential or proprietary, or if given orally, to Subscriber under circumstances reasonably demonstrating or suggesting the confidential or proprietary nature of such information. The restrictions in this Section shall not apply to information, which (i) prior to or after the time of disclosure becomes part of the public knowledge or literature, not as a result of any inaction or action of Subscriber; (ii) must be delivered in response to a valid order by a court or governmental body, (iii) became or becomes generally available to the recipient on a non-confidential basis from a source other than the Company; or (iv) is approved by the Company, in writing, for release. Subscriber covenants and agrees not to use any Confidential Information for Subscriber’s own use or benefit (directly or indirectly), or for the benefit of any party other than Company. Subscriber may not disclose Confidential Information to third parties except employees, consultants, or professional advisers of the Company in connection with Company business who are required to have the information in order to carry out their duties for the Company. Subscriber agrees that it will take all reasonable measures to protect the secrecy of and avoid disclosure or use of Confidential Information of the Company in order to prevent the Confidential Information from falling into the public domain or the possession of persons other than those persons authorized hereunder to have such information, which measures shall include the highest degree of care that Subscriber uses to protect Subscriber’s own Confidential Information of a similar nature. Subscriber agrees to immediately notify the Company in writing of any misuse or misappropriation of the Confidential Information, which may come to Subscriber’s attention. All proceeds from a misuse or disclosure of the Company’s Confidential Information will be recoverable from Subscriber responsible for such misuse or disclosure, which Subscriber shall be liable to the Company to the fullest extent of the law.

8. General Provisions.

(a) Headings. The headings contained in this Subscription Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Subscription Agreement.

(b) Enforceability. If any provision, which is contained in this Subscription Agreement, for any reason, should be held to be invalid or unenforceable in any respect under the laws of any State of the United States or any other jurisdiction, such invalidity or unenforceability shall not affect any other provision of this Subscription Agreement. Instead, this Subscription Agreement shall be construed as if such invalid or unenforceable provisions had not been contained herein.

(c) Notices. Any notice or other communication required or permitted hereunder (“Notice”) must be in writing and sent by either (i) registered or certified mail, postage prepaid, return receipt requested, (ii) overnight delivery with confirmation of delivery, or (iii) confirmed facsimile transmission, in each case addressed as follows:

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To the Company: Document Security Systems, Inc. Attn: Chief Executive Officer 28 East Main Street Suite 1525 Rochester, NY 14614 Facsimile No: (585) 325-2977

To Subscriber: _________________________ _________________________ _________________________ Attention: _________________ Facsimile No: _______________

or in each case to such other address and facsimile number as shall have last been furnished by like Notice. If mailing by registered or certified mail is impossible due to an absence of postal service, and if the other methods of sending Notice set forth in this Section 8 are not otherwise available, Notice shall be in writing and personally delivered to the aforesaid addresses. Each Notice or communication shall be deemed to have been given as of the date so mailed or delivered, as the case may be; provided, however, that any Notice sent by facsimile shall be deemed to have been given as of the date sent by facsimile.

(d) Governing Law; Disputes. This Subscription Agreement shall in all respects be construed, governed, applied and enforced with the laws of the State of New York without giving effect to the principles of conflicts of laws. The Parties hereby consent to and irrevocably submit to personal jurisdiction over each of them by the applicable State or Federal Courts of the State of New York, County of Monroe, in any action or proceeding, irrevocably waive trial by jury and personal service of any and all process and other documents and specifically consent that in any such action or proceeding, any service of process may be effectuated upon any of them by certified mail, return receipt requested, in accordance with this Section 8.

(e) Further Assurances. The Parties agree to execute any and all such other and further instruments and documents, and to take any and all such further actions, which are reasonably required to effectuate this Subscription Agreement and the intents and purposes hereof.

(f) Binding Agreement. This Subscription Agreement shall be binding upon and inure to the benefit of the Parties hereto and their heirs, executors, administrators, personal representatives, successors and assigns.

(g) Waiver. Except as otherwise expressly provided herein, no waiver of any covenant, condition, or provision of this Subscription Agreement shall be deemed to have been made unless expressly set forth in writing and signed by the Party against whom such waiver is charged; and, (i) the failure of any Party to insist in any one or more cases upon the performance of any of the provisions, covenants, or conditions of this Subscription Agreement or to exercise any option herein contained, shall not be construed as a waiver or relinquishment for the future of any such provisions, covenants, or conditions; (ii) the acceptance of performance of anything required by this Subscription Agreement to be performed with knowledge of the breach or failure of a covenant, condition, or provision hereof shall not be deemed a waiver of such breach or failure; and, (iii) no waiver by any Party of one breach by another Party shall be construed as a waiver with respect to any other or subsequent breach.

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(h) Counterparts. This Subscription Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

(i) Entire Agreement. The Parties have not made any representations, warranties, or covenants with respect to the subject matter hereof, orally or in writing, which are not expressly set forth herein, and this Subscription Agreement, together with any instruments or other agreements executed simultaneously herewith, constitutes the entire agreement between them with respect to the subject matter hereof. All understandings and agreements heretofore had between the Parties with respect to the subject matter hereof are merged in this Subscription Agreement, which alone fully and completely expresses their agreement. This Subscription Agreement may not be changed, modified, extended, terminated, or discharged orally, but only by an agreement in writing, which is signed by all of the Parties to this Subscription Agreement.

(j) Subscription Irrevocable. Except as set forth herein, this Subscription is irrevocable, is subject to all of the terms and provisions contained in the Subscription Agreement, and will survive the death, dissolution, or disability of the Subscriber.

(k) Limited Liability. The Company, its Affiliates, the Company’s Counsel and the Company’s applicable agents and representatives shall not be liable for taking any action pursuant to this Subscription Agreement in the absence of their respective willful misconduct or fraud.

(l). Assignability. This Agreement is not transferable or assignable by the Subscriber.

9. Certification.

Under penalties of perjury Subscriber certifies as follows:

If it has been provided, the number shown below, as Subscriber’s taxpayer’s identification number is Subscriber’s correct taxpayer identification number. Subscriber is not subject to backup withholding either because Subscriber has not been notified by the Internal Revenue Service that Subscriber is subject to backup withholding as a result of a failure to report all interest or dividends, or the Internal Revenue Service has notified Subscriber that it is no longer subject to backup withholding.

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IN WITNESS WHEREOF, the Subscriber has executed this Subscription Agreement as of the date first written above.

Investment Amount: $_________

Print Name of Subscriber: ________________________

Signature of Subscriber:

Individual:

____________________________

Business Entity:

By: ___________________________

Name: ___________________________

Title: ___________________________

Taxpayer ID Number: ________________

Date: ________________

Address ____________________ ____________________ ____________________

Accepted and Agreed to:

DOCUMENT SECURITY SYSTEMS, INC.

By: _____________________________________

Name: Patrick White

Title: Chief Executive Officer

Date: _______________________

EXHIBIT A

PRIVATE OFFERING MEMORANDUM

EXHIBIT B

INVESTOR QUESTIONNIARE

EXHIBIT C

ESCROW AGREEMENT

EX-10.2

REGISTRATION RIGHTS AGREEMENT

REGISTRATION RIGHTS AGREEMENT (the “Agreement”), dated as of the 12th day of December, 2006, executed and delivered by DOCUMENT SECURITY SYSTEMS, INC., a New York corporation (the “Company”), and PERRIN, HOLDEN & DAVENPORT CAPITAL CORP., as agent for and on behalf of, the Holders (as defined below).

RECITALS

WHEREAS, simultaneously with the execution and delivery of this Agreement, the Company, pursuant to terms and conditions set forth in the Confidential Private Offering Memorandum of the Company, dated December 12, 2006, including the exhibits thereto and any and all supplements thereof and amendments thereto, and all documents incorporated by reference therein (collectively, the (Memorandum”) is offering for sale (the “Offering”) up to 130 units (the “Units”), each Unit consisting of (i) 5,880 shares (“Shares”) of its Common Stock, par value $.02 per share (“Common Stock”) and (ii) Series B Common Stock Warrants (the “Warrants”) to purchase up to an aggregate of 2,940 shares (the “Warrant Shares”) of Common Stock;

WHEREAS, Perrin, Holden & Davenport Capital Corp. (“Perrin”) is acting as placement agent in connection with the Offering, and in connection therewith the investors in the Offering whose names appear on Exhibit A annexed hereto as may be amended during the Offering (“Holders”); and

WHEREAS, the terms and conditions of the Offering provide for the execution and delivery of this Agreement.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the Company, the Company hereby agrees as follows:

1.  Automatic Registration. The Company shall use its best efforts to file a registration statement (“Registration Statement”) with the Securities and Exchange Commission under the Securities Act of 1933 (the “Act”), on appropriate form, and such other documents, including a prospectus, as may be necessary (in the opinion of counsel for the Company), in order to comply with the provisions of the Act, within 60 business days after the final closing of the Offering, so as to allow for the resale under the Act by any Holder or combination of Holders of all Registerable Shares (as defined in Section 2) held by all of the Holders, at the sole expense of the Company, so as to permit the public resale by the Holder of the Registerable Shares pursuant thereto.

2.  Registerable Shares. For purposes of this Agreement, the term “Registerable Shares” shall include” (a) the Shares purchased as a component of the Units in the Offering; (b) any securities issued or issuable with respect to the Warrants; or (c) Warrant Shares; or (d) any other shares of Common Stock issued to the Holders by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise. Anything herein contained to the contrary notwithstanding, the provisions of this Agreement shall not apply to, and the term “Registerable Shares” as used in this Agreement shall not include, Shares of Common Stock or Warrant Shares after they have been sold by a Holder pursuant to an effective Registration Statement under the Act or sold pursuant to Rule 144.

3.  Additional Covenants of the Company With Respect to Registration.

The Company covenants and agrees as follows:

(a) In connection with any registration under Section 1 above, the Company shall file the Registration Statement no event later than 60 business days following the final closing of the Offering, and use reasonable efforts to have such Registration Statement declared effective at the earliest possible time.

(b) In connection with any registration of Registerable Shares pursuant to Section 1 above, the Company shall furnish each Holder of Registerable Shares included in a Registration Statement with such reasonable number of copies of such Registration Statement, related preliminary prospectus and prospectus meeting the requirements of the Act, and other documents necessary or incidental to the registration and public offering of such Registerable Shares, as shall be reasonably requested by the Holder to permit the Holder to make a public distribution of such Registerable Shares.

(c) Once effective, the Company covenants and agrees to use its best efforts to maintain the effectiveness of any Registration Statement until the earlier of (i) a date which is two years from the final closing date of the Offering, or (ii) the date that the Holders of the Registerable Shares receive an opinion of counsel to the Company that all of the Registerable Shares may be freely traded (without limitation or restriction as to quantity or timing and without registration under the Act) pursuant to Rule 144 or otherwise; provided, however, the Company may suspend the use of any Registration Statement for a period not to exceed 45 days in any 12-month period for valid business reasons (not including avoidance of the Company’s obligations hereunder), including the acquisition or divestiture of assets, public filings with the SEC, pending corporate developments and similar events.

(d) If any stop order shall be issued by the SEC in connection with any Registration Statement filed pursuant to Sections 1 above, the Company will use its best efforts to obtain the removal of such order.

(e) The Company shall pay all costs, fees, and expenses in connection with all Registration Statements filed pursuant to Section 1 above, including, without limitation, the Company’s legal and accounting fees, printing expenses, and blue sky fees and expenses; provided, however, that the Holders shall be solely responsible for the fees of any counsel retained by the Holders in connection with such registration and any transfer taxes or underwriting discounts, commissions or fees applicable to the Registerable Shares sold by the Holders pursuant thereto.

4. Indemnification.

(a) In the event of any registration of any the Registerable Shares under the Act, the Company shall indemnify and hold harmless each Holder, the affiliates of each such Holder, the directors, partners, officers, employees and agents of each such Holder and any person who controls any such Holder within the meaning of the Act or the Securities Exchange Act of 1934, as amended (the “Exchange Act”), against any and all losses, claims, damages or liabilities, joint or several, to which they or any of them may become subject under the Act, the Exchange Act or other Federal or State statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) caused by, arising out of or based on any untrue statement or alleged untrue statement of a material fact contained in any registration statement under which such securities were registered under the Act, any preliminary prospectus, final prospectus or summary prospectus contained therein, or any amendment or supplement thereto, or arise out of or are based upon any 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 agrees to reimburse each such indemnified party, as incurred, for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that (i) the Company will not be liable in any case to the extent that any such loss, claim, damage or liability arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made therein in reliance upon and in conformity with written information furnished to the Company by or on behalf of any such Holder specifically for inclusion therein, (ii) the Company will not be liable to any indemnified party under this indemnity agreement with respect to any Registration Statement or Prospectus to the extent that any such loss, claim, damage or liability of such indemnified party results from the use of the Prospectus during a period when the use of the Prospectus has been suspended in accordance with Section 3(c) hereof, provided that the Holders received prior notice of such suspension; and (iii) the Company shall not be liable to any indemnified party with respect to any preliminary Prospectus to the extent that any such loss, claim, damage or liability of such indemnified party results from the fact that such indemnified party sold Registerable Securities to a person as to whom there was not sent or given, at or prior to the written confirmation of such sale, a copy of the Prospectus or of the Prospectus as then amended or supplemented in any case where such delivery is required by the Act, if the loss, claim, damage or liability of such indemnified party results from an untrue statement or omission of a material fact contained in the preliminary Prospectus which was corrected in the Prospectus or in the Prospectus as then amended or supplemented.

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(b)Promptly after receipt by an indemnified party of notice of the commencement of any action or proceeding involving a claim referred to in the preceding subdivisions of this Section 4, such indemnified party will, if a claim in respect thereof is to be made against an indemnifying party, give written notice to the latter of the commencement of such action, provided that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under the preceding subdivisions of this Section 4, except to the extent that the indemnifying party is materially prejudiced by such failure to give notice. In case any such action is brought against an indemnified party, unless in such indemnified party’s reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim, the indemnifying party shall be entitled to participate in and to assume the defense thereof, jointly with any other indemnifying party similarly notified, to the extent that the indemnifying party may wish, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof other than reasonable costs of investigation. Notwithstanding the indemnifying party’s election to appoint counsel to represent the indemnified party in an action, the indemnified party shall have the right to employ separate counsel (including local counsel), and the indemnifying party shall bear the reasonable fees, costs and expenses of such separate counsel (and local counsel) if (i) the use of counsel chosen by the indemnifying party to represent the indemnified party would present such counsel with a conflict of interest, (ii) the actual or potential defendants in, or targets of, any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, (iii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of the institution of such action or (iv) the indemnifying party shall authorize the indemnified party to employ separate counsel at the expense of the indemnifying party. An indemnified party shall not settle or compromise any action for which it seeks indemnification or contribution hereunder without the prior written consent of the indemnifying party, which consent shall not be unreasonably withheld. An indemnifying party will not, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or proceeding.

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(c) The provisions of this Section 4 shall remain in full force and effect regardless of any investigation made by or on behalf of any Holder or the Company or any other persons who are entitled to indemnification pursuant to the provisions of this Section 4, and shall survive the sale by a Holder of Registerable Shares pursuant to the Registration Statement.

5.  Amendments. This Agreement may not be amended, modified or supplemented, and waivers of or consents to departures from the provisions of this Agreement may not be given, unless it would not have an adverse effect upon the rights of any of the Holders and the Company has obtained the written consent of Holders then holding a majority of the Registerable Shares.

6.  Notices. Except as otherwise provided in this Agreement, all notices, requests and other communications (which shall include publication) to any person provided for hereunder shall be in writing and shall be given by hand delivery, registered or certified mail or by any courier providing overnight delivery (i) if to the Company, Perrin or the initial Holder, at the address set forth in the Subscription Agreement and (ii) if to a subsequent Holder, to the address set forth on the books and records of the Company. All such notices, requests or communications shall not be effective until received.

7. Assignment. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto. In addition, and whether or not any express assignment shall have been made, the provisions of this Agreement which are for the benefit of Holder shall also be for the benefit of and enforceable by any subsequent holder of the Registerable Shares. Holder agrees, by accepting any portion of the Registerable Shares after the date hereof, to the provisions of this Agreement.

8.  Governing Law.

(a)  THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAWS OF THE STATE OF NEW YORK WITHOUT REFERENCE TO THE PRINCIPLES OF CONFLICTS OF LAWS.

(b) Each of the Company and Holder hereby irrevocably and unconditionally consents to submit to the exclusive jurisdiction of any State Court in New York County, New York and the United States District Court for the Southern District of New York (the “NY Courts”) for any litigation arising out of or relating to this Agreement and the transactions contemplated hereby (and agrees not to commence any litigation relating thereto except in such courts), waives any objection to the laying of venue of any such litigation in the NY Courts and agrees not to plead or claim that such litigation brought in any NY Courts has been brought in an inconvenient forum.

9. Counterparts. This Agreement may be executed by facsimile and may be signed simultaneously in any number of counterparts, each of which shall be deemed an original, but all such counterparts shall together constitute one and the same instrument.

10.Entire Agreement. This Agreement embodies the entire agreement of between the Company relating to the subject matter hereof and supersedes all prior agreements and understandings relating to such subject matter.

11.Severability. If any provision of this Agreement, or the application of such provisions to any person or circumstance, shall be held invalid, the remainder of this Agreement, or the application of such provision to persons or circumstances other than those to which it is held invalid, shall not be affected thereby.

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12. Third Party Beneficiaries. The Holders from time to time shall each be a third party beneficiary of the agreements of the Company contained herein.

13. Headings. The headings which are contained in this Agreement are for the sole purpose of convenience of reference, and shall not limit or otherwise affect the interpretation of any of the provisions hereof.

14. Further Assurances. The Company will from time to time after the date hereof take any and all actions, and execute, acknowledge and deliver any and all documents and instruments, at its cost and expense, as any Holder may from time to time reasonably request in order to more fully perfect or protect the rights intended to be granted to it hereunder.

15. Interpretation. As used in this Agreement, unless the context otherwise requires: words describing the singular number shall include the plural and vice versa; words denoting any gender shall include all genders; words denoting natural persons shall include corporations, partnerships and other entities, and vice versa; and the words “hereof”, “herein” and “hereunder”, and words of similar import, shall refer to this Agreement as a whole, and not to any particular provision of this Agreement.

16. Waiver. The failure of the Company or any Holder to at any time enforce any of the provisions of this Agreement shall not be deemed or construed to be a waiver of any such provision, nor to in any way affect the validity of this Agreement or any provision hereof or the right of the Company or any Holder to thereafter enforce each and every provision of this Agreement.

[signature page appears next]

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IN WITNESS WHEREOF, the undersigned has duly executed and delivered this Agreement as of the date first above written.

DOCUMENT SECURITY SYSTEMS, INC.
By:
	Name: Patrick White Title: Chief Executive Officer

Accepted and Agreed

As Agent on Behalf of the Holders:

PERRIN, HOLDEN & DAVENPORT CAPITAL CORP.

By:                                                                                 

Name:

Title:

EXHIBIT A

LIST OF HOLDERS