On February 13, 2012, Palladium Capital Advisors, LLC acted as placement agent for Document Security Systems, Inc. (the “Company”) in conjunction with the sale of $3,000,000 of investment units (the “Units”) in a private placement (the “Offering”) pursuant to subscription agreements (each a “Subscription Agreement”, and collectively, the “Subscription Agreements”) with three accredited investors (the “Investors”).

A total of 30 Units were sold, at a price of $100,000 per Unit. Each Unit consists of (i) 32,258 shares of the Company’s common stock, par value $.02 per share (the “Common Stock”), and (ii) a five-year warrant to purchase up to 16,129 shares of Common Stock at an exercise price of $3.10 per share (each individually a “Warrant”, and collectively, the “Warrants”). The Warrants (and Placement Agent Warrants described below) contain a provision for cashless exercise in the event that a registration statement is not effective for the resale by the holder of all of the Warrant Stock issuable upon exercise of the Warrant. In addition, the holder is not entitled to exercise the Warrant if (i) the number of shares of Common Stock beneficially owned by the holder and its affiliates and (ii) the number shares of Common Stock issuable upon the exercise of this Warrant would result in beneficial ownership by the holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock except that this restriction may be waived upon 61 days prior notice from the holder to increase such percentage up to 9.99%.

The Offering resulted in aggregate cash proceeds to the Company of $3,000,000. A total of 967,740 shares of Common Stock were sold, and Warrants to purchase up to an additional 483,870 shares of Common Stock (the “Warrant Stock”) were issued to the Investors in the Offering.