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NEITHER THESE SECURITIES NOR THE SECURITIES FOR WHICH THESE
SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES
AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE
IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES
OR BLUE SKY LAWS. DOCUMENT SECURITY SYSTEMS, INC.
WARRANT Warrant No. C-1 Dated: December 18, 2008
Document Security Systems, a New York corporation (the
“Company”), hereby certifies that, for value received,
Baum Capital Investments Inc., or its registered assigns (the
“Holder”), is entitled to purchase from the Company up
to a total of 250,000 shares of the common stock, par value $0.02
per share (the “Common Stock”) of the Company (each
such share, a “Warrant Share” and all such shares, the
“Warrant Shares”) at an exercise price equal
to: $1.60 per share for 50,000 of the Warrant Shares;
$2.00 per share for 150,000 of the Warrant Shares and $2.40 per
share for 50,000 of the Warrant Shares (as adjusted as provided in
Section 8, the “Exercise Price”); subject, however, to
the provisions and upon the terms and conditions set forth in this
Warrant (the “Warrant”). This expires at 6.00 PM
(Eastern Time) on December 17, 2013 (the “Expiration
Date”). 1. Registration of Warrant. The
Company shall register this Warrant, upon records to be maintained
by the Company for that purpose (the “Warrant
Register”), in the name of the record Holder hereof from time
to time. The Company may deem and treat the registered Holder of
this Warrant as the absolute owner hereof for the purpose of any
exercise hereof or any distribution to the Holder, and for all
other purposes, absent actual notice to the contrary.
2. Registration of Transfers. This Warrant may not be sold,
transferred or assigned by the Holder, without the prior written
consent of the Company, which will not be unreasonably withheld or
delayed. The Company shall register any transfer of any portion of
this Warrant made in accordance with the terms hereof in the
Warrant Register, upon surrender of this Warrant, with the Form of
Assignment attached hereto duly completed and signed, to the
Company (or to the warrant transfer agent for the Company, if any)
at its address specified herein. Upon any such permitted
registration of transfer, a new warrant to purchase Common Stock,
in substantially the form of this Warrant (any such new warrant, a
“New Warrant”), evidencing the portion of this Warrant
so transferred shall be issued to the transferee and a New Warrant
evidencing the remaining portion of this Warrant not so
transferred, if any, shall be issued to the transferring Holder.
The acceptance of the New Warrant by the transferee thereof shall
be deemed the acceptance by such transferee of all of the rights
and obligations of a holder of a Warrant.
3. Exercise and Duration of Warrants. (a) This Warrant shall
become exercisable by the registered Holder with respect all of the
Warrant Shares sixty (60) days after the date on which the
Company’s acquisition, or a wholly owned subsidiary’s
acquisition, of substantially all of the assets of DPI of
Rochester, LLC is consummated. At 6:30 PM, New York City
time, on the Expiration Date, the portion of this Warrant not
exercised prior thereto shall be and become void and of no
value. If the Company, or a wholly owned
subsidiary, of the Company does not acquire substantially all of
the assets of DPI of Rochester, LLC on or prior to November 1,
2009, this Warrant shall become void and of no value.
(b) Holder may exercise this Warrant by delivering to the Company
(i) an exercise notice, in the form attached hereto (the
“Exercise Notice”), appropriately completed and duly
signed, and (ii) payment of the Exercise Price for the number of
Warrant Shares as to which this Warrant is being exercised in
immediately available funds or bank check, and the date such items
are sent to the Company (as determined in accordance with the
notice provisions hereof) is an “Exercise Date.” The
Holder shall not be required to deliver the original Warrant in
order to effect an exercise hereunder, provided, as a condition of
the Company effecting such exercise, Holder complies with any
requests the Company may make pursuant to Section 6 (relating to
lost, stolen or destroyed warrants) herein. Execution and giving of
the Exercise Notice shall have the same effect as cancellation of
the original Warrant and issuance of a New Warrant evidencing the
right to purchase the remaining number of Warrant Shares.
4. Delivery of Warrant Shares.
(a) Upon exercise of this Warrant, the Company shall promptly (but
in no event later than three Business Days after the Exercise Date)
issue or cause to be issued and cause to be delivered to or upon
the written order of the Holder and in such name or names as the
Holder may designate, a certificate for the Warrant Shares upon
such exercise, free of restrictive legends unless a registration
statement covering the resale of the Warrant Shares and naming the
Holder as a selling stockholder thereunder is not then effective
and the Warrant Shares are not freely transferable without volume
restrictions pursuant to Rule 144 under the Securities Act and such
issuance shall be promptly recorded in the Company's share
registry. The Holder, or any Person so designated by the Holder to
receive Warrant Shares, shall be deemed to have become holder of
record of such Warrant Shares as of the Exercise Date. For purposes
of this Agreement, Business Days shall mean any day on which Banks
in New York State are open for business. (b) Upon surrender
of this Warrant following one or more partial exercises, the
Company shall issue or cause to be issued, at its expense, a New
Warrant evidencing the right to purchase the remaining number of
Warrant Shares.
(c) The Company's obligations to issue and deliver Warrant Shares
in accordance with the terms hereof are absolute and unconditional,
irrespective of recovery of any judgment against any Person or any
action to enforce the same, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged
breach by the Holder or any other Person of any obligation to the
Company, excluding breach of this Warrant. Nothing herein shall
limit a Holder's right to pursue any other remedies available to it
hereunder, at law or in equity including, without limitation, a
decree of specific performance and/or injunctive relief with
respect to the Company's failure to timely deliver certificates
representing shares of Common Stock upon exercise of the Warrant as
required pursuant to the terms hereof.
5. Charges, Taxes and Expenses. Issuance and delivery of
certificates for shares of Common Stock upon exercise of this
Warrant shall be made without charge to the Holder for any issue or
transfer tax, transfer agent fee or other incidental tax or expense
in respect of the issuance of such certificates, all of which taxes
and expenses shall be paid by the Company; provided, however, that
the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the registration of
any certificates for Warrant Shares or Warrants in a name other
than that of the Holder. The Holder shall be responsible for all
other tax liability that may arise as a result of holding or
transferring this Warrant or receiving Warrant Shares upon exercise
hereof.
6. Replacement of Warrant. If this Warrant is mutilated, lost,
stolen or destroyed, the Company shall issue or cause to be issued
in exchange and substitution for and upon cancellation hereof, or
in lieu of and substitution for this Warrant, a New Warrant, but
only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft, or destruction and customary and
reasonable bond or indemnity, if requested. Applicants for a New
Warrant under such circumstances shall also comply with such other
reasonable regulations and procedures and pay such other reasonable
third-party costs as the Company may prescribe.
7. Reservation of Warrant Shares. The Company covenants that it
will at all times reserve and keep available out of the aggregate
of its authorized but unissued and otherwise unreserved Common
Stock, solely for the purpose of enabling it to issue Warrant
Shares upon exercise of this Warrant as herein provided, the number
of Warrant Shares which are then issuable and deliverable upon the
exercise of this entire Warrant, free from preemptive rights or any
other contingent purchase rights of persons ot
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