SECURITY AGREEMENT
 
THIS SECURITY AGREEMENT (this “Agreement”) is made this 12th day of February,
2010 in favor of RBS CITIZENS, N.A., a national banking association, with
offices at 833 Broadway, Albany, New York 12207 (“Bank”) by PREMIER PACKAGING
CORPORATION, a corporation formed under the laws of the State of New York with
offices at 6 Framark Drive, Victor, New York 14564 (“Premier”), DOCUMENT
SECURITY SYSTEMS, INC., a corporation formed under the laws of the State of New
York with offices at 28 East Main Street, Rochester, New York 14614 (“DSS”),
SECUPRINT, INC., a corporation formed under the laws of the State of [New York]
with offices at 1560 Emerson Street, Rochester, New York 14606 (“Secuprint”),
PLASTIC PRINTING PROFESSIONALS, INC., a corporation formed under the laws of the
State of New York with offices at 151 Park Lane, Brisbane, California 94005
(“Plastic Printing,” and together with Premier, DSS and Secuprint bound hereby
jointly and severally, and individually and collectively called, “Grantor”).
 
1.           DEFINITIONS.
 
Unless otherwise indicated in this Agreement, all terms shall have the same
meanings as given to them in the Credit Facility Agreement, dated on even date
herewith, and to the extent not inconsistent therewith in the Uniform Commercial
Code of the State of New York as amended from time to time.
 
(a)           “Collateral” means all assets and property including, without
limitation, all goods, tangible property, machinery, equipment, furniture,
vehicles, parts, leasehold improvements, accounts (including, but not limited
to, the Escrow Account), inventory, chattel paper, documents, choses in action,
general intangibles, goodwill, insurance policies and proceeds, and intellectual
property (including among others operating systems, patents, copyrights,
trademarks, tradenames, licenses, trade secrets, know-how, franchises, and
proprietary and other rights in data, engineering, technical plans, drawings,
information, methods, systems, processes, inventions, formulas, applications,
software, programs, manuals, and technology, and all other technology and
proprietary rights of Grantor and all applications to acquire such rights, and
in all rights and interests in any of them unless the same are licensed or
leased pursuant to an agreement that prohibits the granting of a security
interest in or similar assignment of the same), of any kind or nature in which
the Grantor has an interest now or in the future, and which are now existing or
hereafter created or acquired, together with all additions, replacements,
accessions, products, and proceeds in any form thereof.
 
(b)           “Debtor” means Premier Packaging Corporation and its successors,
legal representatives, and assigns.
 
(c)           “Liabilities” mean all indebtedness, liabilities, and obligations
of every kind or nature, whether absolute or contingent, primary or secondary,
direct or indirect, joint or several, and whether heretofore or hereafter
created, arising, or existing or at any time due and owing from Grantor and/or
Debtor to Bank (including without limitation all obligations and liabilities of
the Grantor and/or Debtor under (i) interest rate swap agreements, interest rate
cap agreements and interest rate collar agreements, and all other agreements or
arrangement with the Bank designed to protect the Grantor and/or Debtor against
fluctuations in interest rates or currency exchange rates, (ii) guarantees, and
all sums expended by the Bank for protection of its interests such as payments
made for taxes, insurance, and expenses of collection).

 
 

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(d)           “Credit Facility Agreement” means the Credit Facility Agreement
between the Bank and Borrower, dated on even date herewith, as the same may be
modified, extended, or replaced from time to time.
 
2.           SECURITY INTEREST.  The Grantor hereby grants to the Bank a
security interest in the Collateral to secure the payment and performance of the
Liabilities.  This security interest is specifically intended to be a continuing
interest and shall cover Collateral in which the Grantor acquires an interest
after the date of this Agreement as well as Collateral in which the Grantor now
has an interest.  This security interest shall continue until terminated as
described in this Agreement even if all Liabilities are paid in full from time
to time.  The Bank shall have the right to apply the Collateral and any proceeds
therefrom to all or any part of the Liabilities as and in the order the Bank may
elect, whether such Liabilities are otherwise secured.  Without limiting the
generality of the foregoing, the Bank shall have a first priority security
interest on all business assets of the Debtor and a first priority security
interest on the equipment listed on Schedule B hereto.
 
3.           LOCATIONS OF GRANTOR AND COLLATERAL.  The principal office of the
Grantor is at the address shown in the preamble to this Agreement.  All
locations at which the Collateral will be kept or at which the Grantor does
business are indicated on Schedule A attached to and made a part of this
Agreement.  Grantor will notify the Bank immediately of any new or changed
locations at which any of the Collateral is kept or where the Grantor does
business, and of any change in the name of the Grantor.  At the request of Bank,
the Grantor will provide disclaimers of interest and removal agreements, in form
satisfactory to the Bank, signed by all parties other than Grantor having an
interest in premises at which any Collateral is located.
 
4.           GRANTOR’S REPRESENTATION.  Except for the security interest granted
hereby and as otherwise allowed by the Credit Facility Agreement, (i) Grantor is
the owner of the Collateral free from all liens, encumbrances, and security
interests, (ii) Grantor will not sell or transfer the Collateral or any interest
(including, without limitation, a security interest) therein without the prior
written consent of the Bank except for sales in the ordinary course of business
for fair value, sales of obsolete equipment, and transfers of assets that do not
constitute a material portion of its assets for a fair consideration, and (iii)
Grantor will defend the Collateral against the claims and demands of all persons
(except for those persons who have a claim or lien permitted under the Credit
Facility Agreement), and will cause the immediate removal and termination of any
levy, execution, judgment or other lien, or similar claim of third persons to
the Collateral (except for those persons who have a claim or lien permitted
under the Credit Facility Agreement).

 
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5.           PERFECTION OF SECURITY INTEREST.  Grantor will execute and deliver
to the Bank such financing statements, security agreements, assignments, and
other documents as Bank may at any time reasonably request that are required to
perfect or protect the security interest granted hereby.  Grantor hereby
authorizes the Bank to execute and file financing statements with or without the
signature of the Grantor from time to time as the Bank may deem necessary or
desirable.  If the Collateral is a motor vehicle required to be titled under
applicable law, Grantor warrants that the Bank’s security interest will be
recorded on the title certificates covering the Collateral and will deliver such
certificates or other evidence of ownership to the Bank, as the Bank
requests.  Grantor hereby appoints Bank as its attorney in fact to execute and
deliver notices of lien, financing statements, assignments, and any other
documents, notices, and agreements necessary for the perfection of Bank’s
security interests in the Collateral.  Grantor agrees to pay the costs of filing
or perfection of the Bank’s security interests and searches of the public
records necessary to confirm perfection and relative priority of Bank’s security
interests.
 
6.           USE OF COLLATERAL/MAINTENANCE. The Grantor will keep the Collateral
in good order and repair except for normal wear and tear in the ordinary course
of business.  The Grantor will not use the Collateral in violation of law or any
policy of insurance thereon.  The Bank or its nominees may inspect the
Collateral and the Grantor’s records regarding the same at any reasonable time,
wherever located, and may make extracts therefrom and copies thereof.
 
7.           TAXES.  The Grantor will pay promptly, when due, all taxes and
assessments upon the Collateral or its use or operation, or upon this Agreement.
 
8.           INSURANCE.  The Grantor at all times will keep the Collateral
insured in such amounts, with such insurance companies chosen by the Grantor,
and against such risks, all as are reasonably satisfactory to the Bank.  All
insurance policies shall name the Bank as additional insured/loss payee and
shall provide for losses covered thereby to be payable to the Bank and the
Grantor as their respective interests may appear.  All policies of insurance
shall provide for not less than thirty (30) days’ prior notice of cancellation
to the Bank.  The Grantor will deliver evidence required insurance to the Bank
upon its request and in any event at least annually.
 
After any Event of Default hereunder, the Bank may, but need not, (i) cancel, in
accordance with applicable law, any insurance contract covering the Collateral
or its ownership or operation, (ii) demand and receive any return premiums,
unearned premium refunds and dividends payable in respect thereof (the Grantor
hereby irrevocably designating, constituting and appointing the Bank as its true
and lawful attorney in fact so to do) and (iii) apply any and all sums received
by the Bank as a result of such cancellation, after deducting therefrom any and
all expenses incident thereto, toward payment of the Liabilities.
 
The Grantor will notify insurer and the Bank in the event of any loss, damage,
or other casualty affecting a material portion of the Collateral.  The Grantor
hereby assigns to the Bank any and all monies which may become due and payable
under any policy insuring the Collateral, directs any such insurance company to
make payments directly to the Bank, and authorizes the Bank to apply such monies
in payment on account of the Liabilities, whether or not due, and to remit any
surplus to the Grantor; provided, however, that the Bank will make available to
the Grantor such insurance proceeds to repair or replace the Collateral provided
that no Event of Default has occurred and that the Grantor has provided evidence
satisfactory to the Bank that such proceeds together with any necessary
additional funds from sources acceptable to the Bank are available for such
repair or replacement and that such repair or replacement can be accomplished
within a reasonable period of time and without unreasonable disruption of the
Grantor’s business or operations beyond any period covered by business
interruption insurance.  After an Event of Default, the Grantor hereby
irrevocably appoints the Bank as its attorney in fact, with full power of
substitution, to (i) make and adjust claims, (ii) receive all proceeds and
payments including the return of unearned premiums, (iii) execute proofs of
claim, (iv) endorse drafts and other instruments for the payment of money, (v)
execute releases, (vi) negotiate settlements, (vii) cancel any insurance
referred to in this Agreement, and (viii) do all other things necessary and
required to effect a settlement under or to realize the benefits of any
insurance policy.

 
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9.           PROTECTION OF BANK’S INTEREST.  Seven or more days after the day
the Bank mails the Grantor notice, upon failure of the Grantor to (i) remove
liens or interests prohibited by Section 4 of this Agreement, (ii) comply with
obligations to maintain Collateral pursuant to Section 6 of this Agreement,
(iii) pay taxes or assessments as required by Section 7 of this Agreement, or
(iv) provide evidence satisfactory to the Bank of insurance as required by
Section 8 of this Agreement, the Bank in its discretion may discharge any such
liens or interests, pay taxes or assessments, and obtain insurance coverage on
the Collateral.  The Bank also may pay any costs of perfection and searches
pursuant to Section 5 of this Agreement.  The Grantor agrees to reimburse the
Bank on demand for any and all expenditures so made, and until paid the amount
thereof also shall be part of the Liabilities secured by the Collateral.  The
Bank shall have no obligation to the Grantor to make any such expenditures nor
shall the making thereof relieve any default hereunder.
 
10.         GRANTOR’S COVENANTS.  So long as this Agreement remains in effect
the Grantor will: (i) furnish the Bank at such intervals as the Bank may
reasonably prescribe with a certificate (in such form as the Bank may from time
to time specify) containing such information with respect to the Collateral as
the Bank may reasonably require, including, without limitation, inventory
listings and account agings; and  (ii) keep accurate and complete records of the
Collateral in accordance with generally accepted accounting principles
consistently applied.
 
If requested by the Bank, the Grantor will also: (a) mark its records evidencing
the Collateral in a manner satisfactory to the Bank so as to indicate the
security interest of the Bank hereunder; (b) following an Event of Default
deliver to the Bank to hold pursuant hereto any chattel paper, instruments, or
other documents representing or relating to any of the Collateral; (c) promptly
reflect in its books, records, and reports to the Bank any claims made in regard
to any Collateral; (d) immediately notify the Bank if any of the Collateral
arises out of contracts for the improvement of real property, deals with a
public improvement or is with the United States, any state, or any department,
agency or instrumentality thereof, and execute any instruments and take an steps
required by the Bank in order that all moneys due or to become due under any
such contract shall be assigned to the Bank and notice thereof be given as
required by law; and (e) fully cooperate with the Bank in the exercising of its
rights and methods for verification of the Collateral.
 
11.         DEFAULT.  The following events or conditions shall be an “Event of
Default” under this Agreement: (a) any Event of Default under the Credit
Facility Agreement or (b) loss, theft, material damage or destruction of a
material portion of the Collateral which is not covered by insurance.

 
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12.         REMEDIES.  Upon the occurrence of an Event of Default, the Bank may
declare all of the Liabilities to be immediately due and payable and the Bank
shall have the rights and remedies of a secured party under the Uniform
Commercial Code of the State of New York as amended from time to time in any
jurisdiction where enforcement of this Agreement is sought, in addition to all
other rights and remedies at law or in equity.  Among other remedies, the Bank
may take immediate possession of the Collateral and for that purpose the Bank
may, so far as the Grantor can give authority therefor, enter upon any premises
on which the Collateral or any part thereof may be situated and secure or remove
the same therefrom. Upon request of the Bank, the Grantor will assemble and make
the Collateral available to the Bank, at a reasonable place and time designated
by the Bank.  The Grantor’s failure to take possession of any Collateral in
possession or under control of the Bank at any time and place reasonably
specified by the Bank in writing to the Grantor shall constitute an abandonment
of such property.  The Grantor agrees that notice of the time and place of
public sale of any of the Collateral or of the time after which any private sale
thereof is to be made or of other disposition of the Collateral shall be deemed
reasonable notice seven days after such notice is deposited in the mail or
otherwise delivered to the Grantor at the address shown in the preamble of this
Agreement.
 
In addition to its other rights, following an Event of Default the Bank may but
shall not be obligated to notify any parties which are obligated to pay the
Grantor any Collateral or proceeds thereof, to make all payments directly to the
Bank.  The Grantor authorizes such parties to make such payments directly to the
Bank and to rely on notice from the Bank without further inquiry.  The Bank may
demand and take all necessary or desirable steps to collect such Collateral in
either its or the Grantor’s, name, with the right to enforce, compromise,
settle, or discharge any of the foregoing.  The Bank may endorse the Grantor’s
name on any checks, commercial paper, instruments, and the like pertaining to
the foregoing.
 
The Bank shall not be responsible to the Grantor for loss or damage resulting
from the Bank’s failure to enforce or collect any Collateral or any monies due
or to become due under any Liability of the Grantor to the Bank.  The Bank shall
have no obligation to take, and the Grantor shall have the sole responsibility
for taking, any and all steps to preserve rights against any and all prior
parties to any Collateral, whether or not in the Bank’s possession.
 
After an Event of Default, the Grantor (i) will make no change in any account
(or the contract underlying such account), chattel paper, or general intangible,
and (ii) shall receive as the sole property of the Bank and hold in trust for
the Bank all monies, checks, notes, drafts, and other property (collectively
called “items of payment”) representing the proceeds of any Collateral.  After
an Event of Default, the Bank may but shall be under no obligation to: (a)
notify all appropriate parties that the Collateral, or any part thereof, has
been assigned to the Bank; (b) collect any or all accounts, chattel paper or
general intangibles in its or the Grantor’s name, and apply any such collections
against such Liabilities as the Bank may select; (c) take control of any cash or
non-cash proceeds of any item of the Collateral; (d) compromise, extend or renew
any account, chattel paper, general intangible, or document, or deal with the
same as it may deem advisable; and (e) make exchanges, substitutions or
surrender of items comprising the Collateral.
 
The rights of the Bank are cumulative, and the Bank may enforce its rights under
this Agreement irrespective of any other collateral, guaranty, right, or remedy
it may have.  The exercise of all or a part of its rights or remedies hereunder
shall not prevent the Bank from exercising at the same or any other time any
other right or remedy with respect to the Liabilities.  The Grantor authorizes
the Bank in its sole discretion to direct the order or manner of the disposition
of the Collateral.

 
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From the proceeds realized from the Collateral the Bank shall be entitled to
retain all sums secured hereby as well as their reasonable expenses of
collection including without limitation those of retaking, holding,
safeguarding, accounting for, preparing for sale, selling, and reasonable
attorneys’ fees and legal expenses.  If the proceeds realized from the
Collateral are not sufficient to defray said expenses and to satisfy the balance
due on the Liabilities, the Grantor shall remain liable for such expenses.  Any
payments or proceeds from realization on the Collateral may be applied to the
Liabilities in whatever order or manner the Bank elect.
 
13.         CONTINUING AGREEMENT, TERMINATION.  This is a continuing Agreement,
and no notice of the creation or existence of the Liabilities, renewal,
extension or modification thereof need be given to the Grantor.  This Agreement
may be terminated only (i) by a written agreement of the Bank, or (ii) upon
written request of the Grantor at such time as the Liabilities have been
satisfied in full and the Bank has no remaining commitments to Debtor of any
kind.
 
14.         NO WAIVER.  The Grantor agrees that no representation, promise, or
agreement made by the Bank or by any officer or employee of the Bank, at, prior,
or subsequent to the execution and delivery of this Agreement shall modify,
alter, limit, or otherwise abridge the rights and remedies of the Bank hereunder
unless agreed by the Bank in writing.  None of the rights and remedies of the
Bank hereunder shall be modified, altered, limited, or otherwise abridged or
waived by any representation, promise, or agreement hereafter made or by any
course of conduct hereafter pursued by the Bank.  No delay or omission on the
part of the Bank in exercising any right hereunder shall operate as a waiver of
such right or of any other right under this Agreement, and waiver of any right
shall not be deemed waiver of any other right unless expressly agreed by the
Bank in writing.
 
15.         CONFLICT WITH CREDIT FACILITY AGREEMENT.  If any provision hereof
expressly conflicts with any specific provision of the Credit Facility
Agreement, the terms of the Credit Facility Agreement shall be controlling.
 
16.         LAWS.  The validity, construction, and performance of this Agreement
shall be governed by the laws of the State of New York, without giving effect to
any choice of law or conflict of law rules or provisions (whether of the State
of New York or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of New York.
 
17.         PARTIES IN INTEREST.  All of the terms and provisions of this
Agreement shall inure to the benefit of, be binding upon and be enforceable by
the respective legal representatives, successors, and assigns of the parties
hereto.
 
18.         SEVERABILITY.  Any partial invalidity of the provisions of this
Agreement shall not invalidate the remaining portions hereof or thereof.
 
19.         WAIVER.  The Grantor hereby expressly waives demand, presentment,
protest, or notice of dishonor on any and all of the Liabilities and with
respect to the Collateral.

 
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IN WITNESS WHEREOF, the Grantor has caused this Agreement to be executed by its
duly authorized officer as of the date first set forth above
 
PREMIER PACKAGING CORPORATION
 
DOCUMENT SECURITY SYSTEMS, INC.
     
By:______________________________
 
By:________________________
Name:
Title:
 
Name:  Patrick White
Title:    President
   
 
SECUPRINT, INC.
 
PLASTIC PRINTING PROFESSIONALS, INC. 
     
By:________________________
   
Name:   Patrick White
 
By:________________________
Title:     President
 
Name: Patrick White
 
  
Title:   President

STATE OF NEW YORK
 
)
   
)SS.:
COUNTY OF MONROE
  
)

On the 12th day of February in the year 2010 before me, the undersigned, a
notary public in and for said state, personally appeared Patrick White,
personally known to me or proved to me on the basis of satisfactory evidence to
be the individual whose name is subscribed to the within instrument and
acknowledged to me that he executed the same in his capacities, and that by his
signatures on the instrument, the individual, or the persons upon behalf of
which the individual acted, executed the instrument.

     
Notary Public

STATE OF NEW YORK
 
)
   
)SS.:
COUNTY OF MONROE
  
)

On the 12th day of February in the year 2010 before me, the undersigned, a
notary public in and for said state, personally
appeared  ______________________________, personally known to me or proved to me
on the basis of satisfactory evidence to be the individual whose name is
subscribed to the within instrument and acknowledged to me that he executed the
same in his capacities, and that by his signatures on the instrument, the
individual, or the persons upon behalf of which the individual acted, executed
the instrument.

     
Notary Public

 
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ACKNOWLEDGED BY:
RBS CITIZENS, N.A.

By:
     
Jeffrey R. Morse, Assistant Vice President
 

STATE OF NEW YORK
)
 
)SS.:
COUNTY OF MONROE
)

On the 12th day of February in the year 2010 before me, the undersigned, a
notary public in and for said state, personally appeared Jeffrey R. Morse,
personally known to me or proved to me on the basis of satisfactory evidence to
be the individual whose name is subscribed to the within instrument and
acknowledged to me that he executed the same in his capacities, and that by his
signature on the instrument, the individual, or the persons upon behalf of which
the individual acted, executed the instrument.

 
 
 
Notary Public

 
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