NOTE

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

  FOR VALUE RECEIVED, DOCUMENT SECURITY SYSTEMS, INC. (“DSSI”) and SECUPRINT INC. (“Secuprint,” and, with DSSI, collectively, the “Borrower”), promises to pay to BAUM CAPITAL INVESTMENTS INC. (the “Lender”), or to its order, the principal sum of up to ONE MILLION and 00/100 U.S. DOLLARS ($1,000,000.00) (the “Principal Amount”), together with interest in arrears on the unpaid principal balance from time to time outstanding from the date hereof until the entire principal amount due hereunder is paid in full at the rate(s) provided below.   1.           Maturity. The aggregate Principal Amount, together with all accrued interest thereon and expenses incurred by the Lender in connection herewith (cumulatively, the “Outstanding Amount”), shall be due and payable in full on the earliest to occur of (the earliest of such events, the “Maturity Date”): (i) December 17, 2009 (the “Scheduled Maturity Date”) and (ii) the acceleration of this Note upon the occurrence of an Event of Default. Unless payment is made following a demand therefor by the Lender, the Borrower shall provide the Lender with not less than five (5) business days’ prior written notice of its intent to repay the amounts outstanding hereunder.   2.           Interest. This Secured Promissory Note (this “Note”) shall bear interest at a rate of fifteen percent (15%). Interest shall be calculated on the basis of a year of 360 days for the actual number of days elapsed. If, for the period from the first day of the month following the date of this Note to the date three months thereafter (“Test Period”), Secuprint is “Profitable” (as defined herein), then the interest rate shall be reduced to twelve percent (12%) beginning on that date.  Profitable shall mean Secuprint’s aggregate cash receipts shall exceed its aggregate cash expenditures (Secuprint handling its receipts and expenditures in the normal course of business).  From and after the occurrence of an Event of Default, the unpaid principal balance of this Note and, to the extent permitted by law, overdue interest shall bear interest at a rate per annum equal to four (4%) percent over the then applicable interest rate due under this Note (the “Default Rate”).
   

 
3.           Payment. The Borrower shall pay eleven (11) consecutive monthly installments of interest commencing on January 1, 2009 and continuing on the same day of each month thereafter; and one (1) last payment consisting of the entire outstanding principal amount together with interest, accrued thereon, which payment is due and payable on the Maturity Date.  All payments by the Borrower under this Note shall be made in United States Dollars without deduction, set-off or counterclaim and shall be free and clear and without any deduction or withholding for any taxes or fees of any nature whatever, unless the obligation to make such deduction or withholding is required by law.  Unless otherwise expressly provided in this Note, the Borrower, to the extent permitted by applicable law, waives presentment for payment, protest, and demand, and notice of protest, demand, and/or dishonor and nonpayment of this Note, notice of any Event of Default under this Note, and all other notices or demands otherwise required by law that the Borrower may lawfully waive.              Immediately upon full repayment of the Outstanding Amount in accordance with the terms hereof, the Borrower shall be released from the repayment obligation set forth in this Note, the pledge and security interest shall be terminated, and the Lender shall execute releases of financing statements.
4.           Usury.  All agreements between the Borrower and the Lender are hereby expressly limited so that in no contingency or event whatsoever, whether by reason of acceleration of maturity of the indebtedness evidenced hereby or otherwise, shall the amount paid or agreed to be paid to the Lender for the use, forbearance, or detention of the indebtedness evidenced hereby exceed the maximum permissible amount under applicable law. If, from any circumstance whatsoever, fulfillment of any provision hereof at the time performance of such provision shall be due shall involve transcending the limit of validity prescribed by law, the obligation to be fulfilled shall automatically be reduced to the limit of such validity, and if from any circumstances the Lender should ever receive as interest an amount which would exceed the highest lawful rate, such amount which would be excessive interest shall be applied to the reduction of the principal balance evidenced hereby and not to the payment of interest, and, if the principal amount of this Note has been paid in full, shall be refunded to the Borrower.   5.           Late Charge.  If an interest payment is not received within ten days of its due date, Borrower shall pay a late charge equal to twenty-five percent (25%) of the delinquent amount; any excess collected by mistake shall be refunded on request, and each such late charge shall be separately charged and collected by the Lender.  Payments may be applied in any order in the sole discretion of the Lender but prior to demand, shall be applied first to past due interest, expenses and late charges, then to scheduled principal payments, if any, which are past due, then to current interest, expenses and late charges, and last to remaining principal.
6.           Security Interest and Collateral. This Note is secured by a first priority security interest in all the assets of Secuprint as more fully described in and pursuant to the terms of the Security Agreement, of even date hereof, made by Secuprint in favor of the Lender (the “Security Agreement,” together with this Note, the “Transaction Documents”).
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7.           Replacement of Note. If this Note is mutilated, lost, stolen or destroyed, the Borrower shall issue or cause to be issued in exchange and substitution for and upon cancellation hereof, or in lieu of and substitution for this Note, a new Note, but only upon receipt of evidence reasonably satisfactory to the Borrower of such loss, theft or destruction and customary and reasonable bond or indemnity, if requested.
8.           Events of Default.  The following constitute an event of default (“Event of Default”):
a.           Borrower fails to pay any of its material liabilities, obligations, and indebtedness to Lender of any and every kind and nature, whether heretofore, n