EMPLOYMENT AGREEMENT

This  EMPLOYMENT  AGREEMENT  executed  on August 19,  2004 and  effective  as of
January 1, 2004 between Databit Inc., a Delaware  corporation  (the  "Company"),
Shlomie  Morgenstern  (the  "Executive")  and Data  Systems & Software  Inc.,  a
Delaware corporation ("DSSI").

WHEREAS,  the  Executive  has been  employed by the  Company  since 1996 and has
served as its President since 1998;

WHEREAS,  the Executive has been an executive  officer of DSSI and has served as
Vice President - Operations of DSSI since February 2000;

WHEREAS,  during the Executive's tenure, the Company has established itself as a
successful  and  profitable   value-added  reseller  of  hardware  and  software
products, which has and is operating at a profit;

WHEREAS, the Company and DSSI desire to assure the Executive's continued service
to the Company by entering into an Employment  Agreement with the Executive with
appropriate  provisions  to assure such  continued  service and  non-competition
covenants;

WHEREAS,  the Company  desires to employ the  Executive  as its Chief  Executive
Officer on the terms hereinafter set forth;

WHEREAS,  in order to secure the  services  of the  Executive,  the  Company has
requested  DSSI to  guarantee  its  obligations  and provide  certain  financial
incentives under an agreement with the Executive,  and DSSI is willing to do so,
as hereinafter set forth;

WHEREAS,  the  Executive  desires to remain in the  Company's  employment on the
terms hereinafter set forth.

NOW,  THEREFORE,  in  consideration  of the  mutual  covenants  and  obligations
hereinafter set forth, the parties hereto hereby agree as follows:

SECTION 1. EMPLOYMENT.  Effective as of January 1, 2004 ("the date hereof"), the
Company  hereby  employs  the  Executive,   and  the  Executive  hereby  accepts
employment  by the  Company,  upon  the  terms  and  subject  to the  conditions
hereinafter set forth.

SECTION 2. TERM. The employment of the Executive  hereunder shall commence as of
the date  hereof and  terminate  on the fourth  anniversary  of such date unless
earlier  terminated  under Section 6 (Termination)  or Section 7 (Termination by
the Company for Cause) hereof (the "Initial  Term").  Upon the conclusion of the
Initial Term,  unless either party shall have given the other written  notice of
its intent to terminate  not less than ninety (90) days prior to the  expiration
of the Initial Term,  this Agreement  shall  automatically  renew for additional
terms of one year each (each, a "Renewal Term"), unless terminated in the manner
set forth above.
<PAGE>

SECTION 3.  DUTIES.  The  Executive  shall be  employed  as the Chief  Executive
Officer and President of the Company,  or in such other  position as the Company
and the  Executive  shall agree in writing.  The  Executive  shall  perform such
executive  duties and services of a responsible  nature as are  appropriate  and
commensurate with the Executive's  position. In his capacity as President of the
Company,  the  Executive  shall be  subject to the  supervision  of the Board of
Directors of the Company and shall report  directly to such Board of  Directors.
Notwithstanding  the above,  the Executive  shall not be required to perform any
duties and  responsibilities  which  would,  or would be likely to,  result in a
non-compliance with or violation of any applicable law,  regulation,  regulatory
bulletin, and/or any other regulatory requirement.

SECTION 4. TIME TO BE DEVOTED TO EMPLOYMENT.

            (a)  Except  for four (4)  weeks of  vacation  per  year,  which the
Executive is entitled to ("Vacation"),  absences due to temporary illness,  such
holidays as are observed by the Company and  traditional  and recognized  Jewish
holidays,  during  the Term,  the  Executive  shall  devote the  business  time,
attention and energies necessary to perform his obligations and responsibilities
as the Chief Executive Officer and President of the Company.

            (b) During the Term, the Executive shall not be engaged in any other
business  activity which  conflicts with the duties of the Executive  hereunder,
whether or not such  activity  is pursued  for gain,  profit or other  pecuniary
advantage; provided, however, that the Executive shall be allowed, to the extent
such  activities do not  substantially  interfere  with the  performance  by the
Executive  of his  duties  and  responsibilities  hereunder,  (a) to manage  his
personal  affairs,  and (b) to serve on boards or committees of  corporations or
other companies, civic or charitable organizations and/or trade associations.

            (c) At all times  during the Initial and each  Renewal  Term hereof,
the  Company's  principal  offices,  at which  Executive  shall be based,  shall
continue to be located at 200 Route 17, Mahwah,  New Jersey 07430,  or elsewhere
within a radius of not more than  thirty-five  (35) miles from Monsey,  New York
unless such other  location  shall be  acceptable  to Executive  within his sole
determination.

SECTION 5. COMPENSATION; BENEFITS; REIMBURSEMENT.

            (a) Base Salary.

                  (i) The Company shall pay to the Executive  during the initial
      twelve (12) month period of this Agreement (the "Initial  Year"), a salary
      (the "Base Salary") of not less than two hundred fifty thousand ($250,000)
      dollars,  payable  in  accordance  with  the  Company's  standard  payroll
      schedule.  Such Base Salary shall be applied  retroactive to the beginning
      of 2004.


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<PAGE>

                  (ii) Thereafter, during each subsequent twelve month period of
      the balance of the Initial Term and each  Renewal Term (each,  a "Contract
      Year"),  Executive's  salary shall be approved by the  Company's  Board of
      Directors;  provided,  however,  that in each Contract Year, the amount of
      such  salary  shall  not be less than that  paid  during  the  immediately
      preceding Contract Year.

            (b) Bonus.

                  (i) With respect to each  calendar  year,  including  the year
      ending  December 31, 2004,  the Company shall pay to the Executive a bonus
      (referred to generally as the "Bonus")  consisting of an amount equivalent
      to twenty  percent (20%) of the  Company's  Gross Profit in excess of $2.8
      million for the year. For purposes of this Agreement  "Gross Profit" shall
      mean the  Company's  total net sales in  accordance  with GAAP  (including
      freight  revenue)  minus  the  direct  cost of  goods  (including  cost of
      freight),  without any other cost  allocation.  The Bonus shall not exceed
      fifty percent (50%) of the Base Salary in the event the Company realizes a
      Net Income for the applicable year or thirty-six percent (36%) of the Base
      Salary in the event the  Company  does not  realize a Net  Income  for the
      applicable  year.  For purposes of this  Agreement "Net Income" shall mean
      income before taxes in accordance with GAAP (after  including the Bonus in
      SG&A for the  applicable  year)  but  shall be before  any  deduction  for
      allocations  of  DSSI  corporate  overhead  (such  as  professional  fees,
      directors'  and  officers'  liability  insurance,  listing  fees  etc.) or
      management fees, if any.

                  (ii)  Executive  may make  quarterly  draws  against the Bonus
      equal to 20% of the  Company's  Gross Profit in excess of $700,000 for the
      preceding quarter,  provided,  however,  that no such quarterly draw shall
      exceed 30% of the  Executive's  Base  Salary for such  quarter.  Any draws
      shall be  reconciled  against the Bonus as  computed  after the end of the
      Company's fiscal year.

            (c)   Reimbursement.   The  Company  shall  promptly  reimburse  the
Executive,  in accordance  with the Company's  policies and  practices,  for all
reasonable and necessary traveling expenses,  disbursements and other reasonable
and  necessary  incidental  expenses  incurred  by him for or on  behalf  of the
Company in the  performance  of his duties  hereunder upon  presentation  by the
Executive to the Company of appropriate  receipts and  documentation.  Executive
shall be  entitled  to fly  business  class for any flights in excess of 4 hours
traveling time.

            (d) Automobile  Allowance.  During the Initial Term and each Renewal
Term,  the  Company  shall lease an  automobile  for  Executive  or shall pay to
Executive an allowance  equivalent  to  Executive's  lease or financing  payment
costs for the automobile of Executive's  choice and the Company shall pay all of
Executive's insurance, repairs and maintenance, and fuel costs.

            (e) Standard  Benefits.  During the Term and to the extent available
to  executives  of the  Company  and  DSSI  (including  its  subsidiaries),  the
Executive  shall be entitled  generally  to  participate  in all benefit  plans,
welfare  and  retirement   plans,   401(k)  plans,   life  insurance,   medical,


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<PAGE>

hospitalization and prescription  coverage (individual and  family)(collectively
"Medical  Insurance"),  sick leave,  vacation  and holiday  policies,  long-term
disability  coverage and such other standard benefits maintained or sponsored by
the Company or its subsidiaries.  Notwithstanding the foregoing, (i) the Company
shall pay the premiums on a term life insurance policy selected and owned by the
Executive which total amount of the face value of such policy for any given year
shall be five (5) times the aggregate Base Salary for the preceding  year,  (ii)
the Company shall pay Executive's premiums for supplemental  disability coverage
which  shall  provide  for  benefits  of up to 80% of Base  Pay;  and  (iii) the
Executive  shall be  entitled to no less than the  following:  four (4) weeks of
vacation; five (5) personal days; (5) five sick days; and the Executive will not
be required to work on or utilize  vacation or personal days for all traditional
and recognized Jewish holidays.

            (f) Stock Grant and Options. Upon execution of this Agreement,  DSSI
shall issue to the  Executive  or his  designees,  which may include one or more
trusts,  under the Company' 1994 Stock Incentive Plan, (i) 100,000 shares of the
common stock of DSSI, as well as an additional 95,000 shares which shall vest in
accordance with the following schedule:

            -------------------------------------------------------------------
            Vesting Date                                       Number of Shares
            -------------------------------------------------------------------
            2nd Year Anniversary of the Date Hereof            31,666
            -------------------------------------------------------------------
            3rd Year  Anniversary of the Date Hereof           31,667
            -------------------------------------------------------------------
            4th Year Anniversary of the Date Hereof            31,667
            -------------------------------------------------------------------

and (ii) options (the "Options") to purchase  305,000 shares of the common stock
of DSSI in accordance  with the 1994 Stock  Incentive  Plan,  and subject to the
following vesting schedule:

            --------------------------------------------------------------------
            Vesting Date                                       Number of Options
            --------------------------------------------------------------------
            24 Month Anniversary of the Date Hereof            105,000
            --------------------------------------------------------------------
            30 Month Anniversary of the Date Hereof            100,000
            --------------------------------------------------------------------
            42 Month Anniversary of the Date Hereof            100,000
            --------------------------------------------------------------------

The Options shall expire on January 1, 2014 subject to earlier  termination upon
termination  of  employment of the  Executive,  in which event the Options shall
terminate no earlier than twelve (12) months  subsequent to the  termination  of
employment of the Executive,  other than in the event of a Termination for Cause
(as defined in Section 7 hereof),  in which event the  Options  shall  terminate
three (3) months  subsequent to the  termination of employment of the Executive.
In the event of a Change of Control (as defined in Section 6(c) all stock grants
and option grants pursuant to this Section 5(f) shall become  immediately  fully
vested.

            (g) Unused  Vacation.  All unused  vacation will accrue from year to
year.

SECTION 6. TERMINATION FOR DEATH OR DISABILITY; TERMINATION BY THE EXECUTIVE.

            (a) If the  Executive  is  incapacitated  or disabled  by  accident,
sickness or other cause so as to render him mentally or physically  incapable of
performing the services required to be performed by him under this Agreement for


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<PAGE>

a period  of 180 days or  longer  (whether  consecutively  or in the  aggregate)
during any  twelve-month  period (such  condition  being herein referred to as a
"Disability"),  prior to the Executive resuming the performance of his duties as
contemplated  herein,  the Company may terminate the employment of the Executive
under  this  Agreement  and upon such  termination  the  Executive's  employment
hereunder shall terminate.

            (b) If the Executive dies during the Term, his employment  hereunder
shall be deemed to terminate as of the date of his death.

            (c) If  there  is a  Change  of  Control,  and  within  one (1) year
thereafter  the  Executive  shall have  delivered a notice to the Company of the
termination of his employment hereunder,  Executive's employment hereunder shall
be deemed to terminate as of the date of delivery of such notice to the Company.
As used herein,  the term  "Change of Control"  shall mean the  occurrence  with
respect  to the  Company  or DSSI,  as the case may be, of any of the  following
events:

                  i. An acquisition  of any voting  securities of the Company or
      DSSI (as the case may be, the "Voting Securities") by any "Person" (as the
      term  Person  is used  for  purposes  of  Section  13(d)  or  14(d) of the
      Securities  Exchange  Act  of  1934,  as  amended  (the  "Exchange  Act"))
      immediately after which such Person has "Beneficial Ownership" (within the
      meaning of Rule 13d-3  promulgated  under the Exchange Act) of 50% or more
      of the combined voting power of the then  outstanding  Voting  Securities;
      provided  that  prior  to such  acquisition  such  Person  had  Beneficial
      Ownership of less than 50% of the then outstanding Voting Securities;

                  ii. The individuals who, as of the date hereof, are members of
      the Board of DSSI (as the case may be, the "Incumbent  Board"),  cease for
      any reason to  constitute  at least a majority  of such  Board;  provided,
      however,  that if the election or nomination for election by the Company's
      or  DSSI's,  as the  case may be,  stockholders  of any new  director  was
      approved by a vote of at least a majority of the Incumbent Board, such new
      director shall, for purposes of this Agreement,  be considered as a member
      of the Incumbent Board;  provided,  further,  however,  that no individual
      shall be considered a member of the Incumbent Board if (A) such individual
      initially  assumed  office as a result  of either an actual or  threatened
      "Election  Contest"  (as  described in Rule 14a-11  promulgated  under the
      Exchange  Act) or other actual or  threatened  solicitation  of proxies or
      consents  by or on  behalf  of a Person  other  than the  Board (a  "Proxy
      Contest"),  including  by reason  of any  agreement  intended  to avoid or
      settle any Election  Contest or Proxy Contest,  or (B) such individual was
      designated by a Person who has entered into an agreement  with the Company
      or  DSSI,  as the case  may be,  to  effect  a  transaction  described  in
      subsection  (c)(ii)(A)(1)  or  (c)(ii)(A)(3)  below;  or (iii) approval by
      stockholders of the Company or DSSI, as the case may be, of:

                  (A) A merger,  consolidation or reorganization  involving such
                  company, unless,


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<PAGE>

                        (1) the stockholders of the Company or DSSI, as the case
                        may be, immediately before such merger, consolidation or
                        reorganization, own, directly or indirectly, immediately
                        following such merger,  consolidation or reorganization,
                        at least a majority of the combined  voting power of the
                        outstanding  Voting  Securities of the corporation  (the
                        "Surviving Corporation");

                        (2) the  individuals  who were members of the  Incumbent
                        Board   immediately   prior  to  the  execution  of  the
                        agreement  providing for such merger,  consolidation  or
                        reorganization  constitute  at least a  majority  of the
                        members  of the  board  of  directors  of the  Surviving
                        Corporation; and

                        (3) no Person  (other than any Person  who,  immediately
                        prior to such merger,  consolidation or  reorganization,
                        had  Beneficial  Ownership  of a majority or more of the
                        then  outstanding   Voting  Securities)  has  Beneficial
                        Ownership of a majority or more of the  combined  voting
                        power of the Surviving  Corporation's  then  outstanding
                        Voting Securities.

                  (B) A complete liquidation or dissolution of such company; or

                  (C) An agreement for the sale or other  disposition  of all or
                  substantially all of the assets of such company to any Person.

Notwithstanding the foregoing,  a Change of Control shall not be deemed to occur
solely because any Person (the "Subject Person") acquired  Beneficial  Ownership
of more than the permitted  percentage of the outstanding Voting Securities as a
result of the  acquisition  of Voting  Securities by the Company or DSSI, as the
case may be,  which,  by reducing the number of Voting  Securities  outstanding,
increased the proportional  number of shares  Beneficially  Owned by the Subject
Person;  provided that if a Change of Control would occur (but for the operation
of this  sentence) as a result of the  acquisition  of Voting  Securities by the
Company or DSSI,  as the case may be, and after  such share  acquisition  by the
Company or DSSI, as the case may be, the Subject  Person  becomes the Beneficial
Owner of any  additional  Voting  Securities  Beneficially  Owned by the Subject
Person, then a Change of Control shall be deemed to have occurred.

            (d) If the Company shall have breached a material  provision of this
Agreement (including,  but not limited to, the Company significantly diminishing
the Executive's his position,  duties,  authority,  or  responsibilities  or the
Company's  breach of its  obligations  under Section 5 hereof),  and such breach
remains uncured for ten (10) calendar days after the notice thereof is delivered
to the  Company,  than the  Executive's  employment  hereunder  shall be  deemed
terminated by the Executive upon the expiration of such 10-day cure period.


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<PAGE>

SECTION 7.  TERMINATION BY THE COMPANY FOR CAUSE.  The Company may terminate the
Executive's  employment  hereunder for "Cause" (a  "Termination  for Cause") and
upon such  termination the Executive's  employment  hereunder shall be deemed to
terminate upon the delivery to the Executive of the notice thereof. For purposes
of this  Agreement,  "Cause" shall be limited to the  Executive's (i) willful or
gross  misconduct  in  performing  his  duties on behalf of the  Company  or its
subsidiaries  or  affiliates  (including  misconduct  or fraud which  results in
material financial injury to the Company),  or (ii)  misappropriation  of funds,
properties or assets of the Company (including its subsidiaries and affiliates).

SECTION 8. EFFECT OF TERMINATION OF EMPLOYMENT OR NON-RENEWAL.

            (a) Upon the  termination of the  Executive's  employment  hereunder
pursuant  to  Section  6(a)  or  6(b)  hereof,  neither  the  Executive  nor his
beneficiary  or estate  shall  have any  further  rights or claims  against  the
Company under this Agreement,  except (i) to receive payment from the Company to
Executive  (or his  estate) of Base  Salary and a pro rata  portion of his Bonus
through the date of  Termination,  and (ii) all grants  pursuant to Section 5(f)
hereof will immediately vest and shall be exercisable in accordance with Section
5(f) hereof.

            (b) If this  Agreement is not renewed  after the Initial Term or any
Renewal Term,  the Executive  shall have no further rights or claims against the
Company under this  Agreement,  except to receive  payment from the Company of a
lump sum equal to the Base Salary and Bonus  provided in Sections  5(a) and 5(b)
for a period of one (1)  Contract  Year from the date of such  Termination;  and
(ii) all grants pursuant to Section 5(f) hereof will  immediately vest and shall
be  exercisable in accordance  with Section 5(f) hereof.  In such case, the Base
Salary and Bonus required to be paid hereunder  shall be equivalent to that paid
or payable for the Contract Year in which such Termination occurred.

            (c) Upon a  Termination  for  Cause,  the  Executive  shall  have no
further  rights or claims  against the Company  under this  Agreement  except to
receive the payment of his Base Salary through the effective date of Termination
for Cause.

            (d) If the Company shall terminate Executive's employment during the
Term of this Agreement other than for Cause or the Executive shall terminate his
employment  hereunder  pursuant to Section  6(c) or 6(d)  hereof,  all grants of
stock and options  pursuant to Section 5(f) hereof shall  immediately  vest (and
shall be exercisable  in accordance  with Section 5(f) hereof) and the Executive
shall be entitled to an amount equal to:

                  (i) 2.9 times the  Executive's  then  current Base Salary plus
      (ii) 2.9 times the  average  of the  Bonuses  which  have been paid to the
      Executive based upon the three prior years,  or, if the Executive has been
      employed by the Company for less than three  years,  2.9 times the average
      of the  Bonuses  granted  based  upon all  prior  years  during  which the
      Executive has been employed by the Company;

                  (ii) any unpaid  portion of the Base  Salary  provided  for in
      Section  5(a) (Base  Salary),  computed on a pro rata basis to the date of
      termination;


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<PAGE>

                  (iii) cash compensation equal to the product of (A) the number
      of days of accrued Vacation,  if any,  accumulated by the Executive to the
      effective date of termination divided by the total number of work days per
      annum  multiplied by (B) the Base Salary and any adjustments  which are in
      effect at the time of termination;

                  (iv)  reimbursement  for any expenses for which the  Executive
      shall not have  theretofore  been  reimbursed  as provided in Section 5(c)
      (Reimbursement);  and

                  (v) any other  compensation and benefits as may be provided in
      accordance  with the  terms  and  provisions  of any  applicable  plans or
      programs, if any, of the Company or any subsidiary of the Company on a pro
      rata basis to the date of termination.

            (e) In the  event  of  any  termination  of  employment  under  this
Agreement,  the Executive shall be under no obligation to seek other  employment
or to mitigate damages,  and there shall be no offset against any amounts due to
the Executive under this Agreement on account of any  remuneration  attributable
to any subsequent  employment that would not constitute a breach of the covenant
set forth in Section 9  (Non-Competition;  Non-Disclosure of Information) hereof
that the  Executive  may obtain.  Any amounts due are in the nature of severance
payments,  or  liquidated  damages,  or  both,  and are not in the  nature  of a
penalty.

SECTION 9. NON-COMPETITION; NON-DISCLOSURE OF INFORMATION.

            (a) The Executive  shall not during the Initial Term and any Renewal
Term, and for a period of one (1) year following the end of the Initial Term and
any Renewal Term (or earlier  termination  of the  employment  relationship  for
whatever reason):  (i) directly or indirectly engage in any Competitive Business
(as defined below),  whether such engagement shall be as an employee,  employer,
owner,  consultant,  partner or other  participant in any Competitive  Business,
(ii)  assist  others in  engaging  in any  Competitive  Business  in the  manner
described in the foregoing  clause (i), (iii) induce employees of the Company or
any of its  subsidiaries  or affiliates to terminate  their  employment with the
Company or any of its  subsidiaries  or  affiliates  and accept  employment in a
competitive  business  or engage in any  Competitive  Business  or (iv)  solicit
customers or vendors of the Company or any of its  subsidiaries or affiliates to
alter or terminate  their business  relationship  with the Company or any of its
subsidiaries  or  affiliates;  provided,  however,  that the  Executive  may own
directly  or  indirectly,  solely as a  passive  investment,  securities  of any
Competitive  Business  traded on any national  securities  exchange or quotation
system if the Executive is not a controlling  person of, nor a member of a group
which controls such person and does not, directly or indirectly,  own 5% or more
of any class of securities of such person. As used herein, the term "Competitive
Business" shall mean the business of re-selling  Hewlett-Packard,  Dell Computer
and IBM hardware in New York, New Jersey and Los Angeles, California.

            (b) The Executive  understands  that the foregoing  restrictions may
limit  his  ability  to earn a  livelihood  in a  Competitive  Business,  but he
nevertheless   believes  that  he  has  received  and  will  receive  sufficient
consideration  and other benefits  (including stock option grants) in connection
with his  employment to clearly  justify such  restrictions.  Nothing  contained


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<PAGE>

herein shall  prohibit the  Executive  from engaging in a business that is not a
Competitive  Business,  as long as he remains  otherwise in compliance with this
Agreement.

            (c)   Anything   contained   in  this  Section  9  to  the  contrary
notwithstanding,  the  enforceability  of the  provisions  hereof by the Company
against  Executive  shall  be  entirely   conditioned  and  dependent  upon  the
observance by the Company of its  obligations to Executive  hereunder  including
the payment by Company to Executive of all amounts  provided under  subparagraph
5(a), 5(b), 8(a) and 8(b).

            (d) The  Executive  agrees  that he will not,  at any time during or
after the Term,  disclose  to any person,  firm,  corporation  or other  entity,
except as required by law, a court of competent jurisdiction,  or any recognized
subpoena  power,  or to  prosecute  claims under this  Agreement,  any secret or
confidential  information  not already in,  available  to or known by the public
domain  concerning  the  business,  clients  or  affairs  of the  Company or any
subsidiary or affiliate thereof for any reason or purpose  whatsoever other than
in  furtherance  of the  Executive's  work for the Company or any  subsidiary or
affiliate  thereof  nor shall the  Executive  make use of any of such  secret or
confidential  information  for his own purpose or for the benefit of any person,
firm,  corporation or other business entity except the Company or any subsidiary
or affiliate thereof.

SECTION  10.  MUTUAL  NON-DISPARAGEMENT.   In  consideration  of  the  foregoing
provisions of this  Agreement,  each party agrees that it will not,  directly or
indirectly,  make or cause others to make any  statement or take any action that
could reasonably be construed to be a false or misleading statement of fact or a
libelous,  slanderous or  disparaging  statement of or concerning the Executive,
the Company, its subsidiaries,  its affiliates, its businesses or its employees,
officers, directors, agents, consultants or stockholders.

SECTION 11. ENFORCEMENT.  It is the desire and intent of the parties hereto that
the  provisions  of this  Agreement  shall be  enforced  to the  fullest  extent
permissible  under the laws and public policies applied in each  jurisdiction in
which enforcement is sought.  Accordingly,  if any particular  provision of this
Agreement  shall be adjudicated to be invalid or  unenforceable,  such provision
shall be deemed amended to delete  therefrom the portion thus  adjudicated to be
invalid or  unenforceable,  such  amendment  to apply  only with  respect to the
operation  of such  provision  in the  particular  jurisdiction  in  which  such
adjudication  is  made;  provided,  however,  that  if any  one or  more  of the
provisions  contained in this  Agreement  shall be  adjudicated to be invalid or
unenforceable  because  such  provision  is held to be  excessively  broad as to
duration,  geographical  scope,  activity or subject,  such  provision  shall be
deemed amended by limiting and reducing it so as to be valid and  enforceable to
the maximum extent  compatible  with the applicable  laws of such  jurisdiction,
such  amendment to apply only with respect to the operation of such provision in
the particular jurisdiction in which such adjudication is made.


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<PAGE>

SECTION 12. REMEDIES; SURVIVAL.

            (a)  Notwithstanding  anything  contained  in this  Agreement to the
contrary, the provisions of this Agreement shall survive the expiration or other
termination of the Term or this Agreement until, by their terms, such provisions
are no longer operative.

            (b) It is  understood  and agreed that the  provisions  of Section 9
(Non-Competition;   Non-Disclosure   of  Information)  and  Section  10  (Mutual
Non-disparagement)  of this  Agreement  are separate and distinct from any other
agreement between the parties hereto.  Accordingly,  in the event of a breach of
such provisions,  the breaching party shall only be held responsible for damages
arising  under such  provisions  and not for any damages which may be claimed to
arise  under or with  respect  to any  other  agreement  that is not  separately
breached.

SECTION 13. KEY PERSON INSURANCE.  The Company may, for its own benefit,  in its
sole discretion,  maintain  "key-person" life and disability  insurance policies
covering  the  Executive.  The  Executive  will  cooperate  with the Company and
provide such  information  as the Company may  reasonably  request in connection
with the Company's obtaining and maintaining such policies.

SECTION 14. NOTICES.  Except as otherwise  expressly provided in this Agreement,
any notice, request, demand, statement,  authorization or consent made hereunder
shall be in writing  and shall be (a) hand  delivered  or (b) sent by  facsimile
followed  by  receipted  U.S.  Express  Mail or a reputable  nationwide  private
overnight  courier  service for delivery on the next  business day, and shall in
any case be deemed given when first received at the following addresses:

            If to the Executive:

            Shlomie Morgenstern
            4 Shalvah Place
            Monsey, New York 10952
            Facsimile: 201-529-3163

            with a copy to:
            Edward Burnbaum, Esq.
            Burnbaum, Edward
            Novack, Burnbaum & Crystal, P.C.
            300 East 42nd Street
            New York, New York  10017
            Facsimile: (212) 986-2907


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<PAGE>

            If to the Company or DSSI:

            c/o DSSI
            200 Route 17
            Mahwah, New Jersey 07430
            Attention: Chief Executive Officer
            Facsimile: 201-529-3163

            with a copy to:

            Keith Moskowitz, Esq.
            Ehrenreich Eilenberg & Krause LLP
            11 East 44th Street, Suite 1700
            New York, New York 10017
            Facsimile: 212-986-2399

SECTION 15. BINDING AGREEMENT.  This Agreement shall inure to the benefit of and
be enforceable by the Executive's personal or legal representatives,  executors,
administrators,  successors,  heirs, distributees and devisees. If the Executive
should die while any amount  would still be payable to him  hereunder,  all such
amounts,  unless otherwise provided herein, shall be paid in accordance with the
terms of this  Agreement to the  beneficiary  designated  by the  Executive in a
writing delivered to the Company, or if there be no such designated beneficiary,
to his estate.

SECTION 16. GOVERNING LAW; JURISDICTION. This Agreement shall be governed by the
laws of the State of New York,  without  regard to conflicts of laws  principles
thereof.  All  disputes  arising out of or relating to this  Agreement  shall be
subject to the non-exclusive jurisdiction of the state and federal courts in New
York City,  New York to which the parties  irrevocably  submit.  Notwithstanding
this Section 16, either party may commence  proceedings or seek remedies  before
the  courts  or  any   competent   authority  of  any  country  for  interim  or
interlocutory remedies in relation to any breach of this Agreement.

SECTION  17.  WAIVER OF BREACH.  The  waiver by either  party of a breach of any
provision of this  Agreement by the other party must be in writing and shall not
operate  or be  construed  as a waiver of any  subsequent  breach by such  other
party.

SECTION 18. ENTIRE AGREEMENT; AMENDMENTS; EXECUTION. This Agreement contains the
entire  agreement  between  the  parties  with  respect  to the  subject  matter
contained herein and supersedes all prior agreements or understandings among the
parties with respect thereto. This Agreement may be amended only by an agreement
in writing signed by the parties  hereto.  This Agreement may be executed in any
number of counterparts,  each of which shall be deemed an original  document but
all of which shall constitute but one agreement.


                                       11
<PAGE>

SECTION 19. SEVERABILITY.  Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability  without  invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render  unenforceable such provision in any
other jurisdiction.

SECTION  20.  ASSIGNMENT.  With  respect to the  Executive,  this  Agreement  is
personal  in its nature and the  Executive  shall not  assign or  transfer  this
Agreement or any rights or obligations hereunder.  This Agreement and its rights
and obligations  herein shall inure to the benefit of, and be binding upon, each
successor of the Company,  whether by merger,  consolidation,  recapitalization,
transfer of all or substantially all assets, or otherwise.

SECTION 21. GUARANTEE.  DSSI, by its execution of this Agreement  hereunder,  in
consideration  of the benefits and advantages which accrue and will accrue to it
as the parent of the Company,  and in  consideration  of other good and valuable
consideration,  the receipt and sufficiency of which is hereby acknowledged, and
intending  to be  legally  bound  hereby,  does  unconditionally  guarantee  the
performance  of all of the duties and  obligations  of the  Company set forth in
this Agreement.

IN WITNESS WHEREOF,  the parties have duly executed this Employment Agreement on
August 19, 2004 with an effective date as of January 1, 2004.

/s/ SHLOMIE MORGENSTERN
-------------------------------------
SHLOMIE MORGENSTERN

DATABIT INC.


By: /s/ Alice Knoll
   ----------------------------------
   Name:  Alice Knoll
   Title: Treasurer

DATA SYSTEMS & SOFTWARE INC.


By: /s/ Yacov Kaufman
   ----------------------------------
   Name:  Yacov Kaufman
   Title: Vice President and Chief Financial Officer


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