Document:

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                                                                    Exhibit 10.9

                          LICENSE AND SUPPLY AGREEMENT

         This Agreement is entered into this fifth day of October, 2001,
between Appleton Papers Inc. ("Appleton"), a Delaware corporation having its
principal place of business at Appleton, Wisconsin, and Spectra Systems
Corporation ("Spectra"), a Delaware corporation having its principal place of
business at Providence, Rhode Island.

         WHEREAS, Spectra is the owner of certain technology pertaining to
taggents and their use in connection with security and other applications in the
paper technologies, and is the owner of certain United States patent
applications pertaining thereto; and

         WHEREAS, Appleton desires to obtain from Spectra a license to use and
market that Spectra technology (including rights arising from such patent
applications filed by Spectra with respect to certain aspects of the
technology).

         NOW THEREFORE, Appleton and Spectra agree as follows:

I.       DEFINITIONS

         A TAGGENT is a Spectra POLYSTAR(TM) plastic particle (excluding a
fiber) [***].

         DEVELOPMENT FUNDS are monies that Appleton may from time to time pay to
Spectra for the development of Readers or for the further development of
Taggents or Tagged Products.

         IMPROVEMENTS shall mean any invention, improvement, modification,
upgrade, or derivative work based on or arising out of the Spectra Technology,
without regard to the author of the invention, improvement modification, upgrade
or derivative work.

         The SPECTRA TECHNOLOGY is (i) all know how and trade secrets owned or
licensed by Spectra required to use Taggents, Readers , and Tagged Products;
(ii) all know how owned or licensed by Spectra required to construct or
manufacture Readers and Tagged Products (other than the manufacture of
Taggents); and (iii) the license and right to use the processes covered by
claims set forth in the Patent Application, and to grant sublicenses of the
same, with respect to the use of Readers and Tagged Products. Notwithstanding
the foregoing, the Spectra Technology to be licensed under this Agreement does
not include the Syscop digital watermarking software described .

         FIELD shall have the meaning set forth in Section II.D.

         The SPECTRA TRADEMARKS are POLYSTAR(TM)and POCKET EYE(TM).

[*] = Information redacted pursuant to a confidential treatment request.
An unredacted version of this exhibit has been filed separately with
the Commission.

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         LICENSED PATENTS shall mean [***], and patents issued with respect to
[***](and with respect to divisionals, continuations, continuations
in part, reissues and reexamination certificates ), all counterpart
applications, improvement applications, including foreign counterparts that
relate to the foregoing patent or application or that pertain to the SPECTRA
TECHNOLOGY or IMPROVEMENTS. LICENSED PATENTS include any third party or other
patents that are licensed by Spectra or in which Spectra has any ownership or
other interest and that are required to practice, perform, or use the Taggents.

         PERSON shall mean any individual, partnership, limited liability
company, corporation, firm, association, unincorporated organization, joint
venture, trust, or other entity.

         A READER is a device sold by Spectra that performs one or more of the
following functions: [***].

         READER OPERATING SOFTWARE is any software (including without limitation
firmware and software embedded in a read-only device such as a ROM device or a
PROM device) that, for a given Reader, is necessary for the operation of said
Reader in performing one or more of the functions of said Reader. Reader
Operating Software does not include software that optionally may be used in
connection with the operation of a Reader.

         A TAGGED PRODUCT is a substrate, such as paper, synthetics, or
non-woven materials, that includes one or more embedded Taggents. This
definition shall include products that include or incorporate such substrate,
such as in the form of a label, tag, or security indicia.

         TERRITORY shall have the meaning set forth in Section II.E.

II.      GRANT OF LICENSE

         A.       License Grant

                  Subject to the terms of this Agreement, Spectra hereby grants
to Appleton the right and license under the LICENSED PATENTS and SPECTRA
TECHNOLGY in the Territory (the "LICENSE GRANT") and solely in the Field (i) to
use, sell, display, perform, distribute, and market the Tagged Products and the
Taggents (only as part of one or more Tagged Products) to third parties,
including directly to customers and

[*] = Information redacted pursuant to a confidential treatment request.
An unredacted version of this exhibit has been filed separately with
the Commission.

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indirectly through manufacturing representatives or other agents or
distributors, and to manufacture Tagged Products, solely within the Field and in
the Territory; (ii) to use the Readers and Reading Operating Software in
connection with the foregoing; (iii) to sell, display, distribute, and license
the Readers and Reading Operating Software to end-users (in both cases, solely
in connection with such end-users' use of the Taggents and Tagged Products sold
to them by Appleton pursuant to the license granted hereunder). In consideration
of this license grant, Appleton agrees that it shall not, whether during or
after the termination of this Agreement for any reason, permit any of its agents
or affiliates to, reverse engineer, decompile, or deconstruct any Spectra
Technology. Nothing in this Agreement shall grant any right or interest to
Appleton to use, market, or distribute any Spectra Technology outside of the
Field or outside of the Territory.

         B.       Reservation of Rights

         Spectra reserves the exclusive right to make, have made, use and sell,
and to license to any Person and to authorize further sublicenses by such Person
rights under the Spectra Technology outside the Field and/or outside the
Territory. Spectra reserves all rights arising under the Patent Application to
(a) use processes covered by the Patent Application for applications other than
the Taggents, the Tagged Products, and/or the Readers (and to grant exclusive
licenses and sublicenses of the same), and (b) use processes covered by the
Patent Application for the purpose of developing Improvements.

         C.       Improvements

         It is contemplated that Improvements to the Spectra Technology may
arise during the term of this Agreement. The parties agree that Spectra shall
retain all right, title, interest, and patent rights with respect to
Improvements made by it. The parties agree that Appleton shall own all right,
title, interest and patent rights with respect to Improvements made solely by
it; provided, however, that nothing in this Section II(C) shall expand the scope
of the License Grant beyond that set forth in Section II(A). Spectra and
Appleton agree that, prior to any future collaboration resulting in the
development of any new Improvement, the parties will reach mutual agreement in
writing on the ownership of and license rights to mutually developed
Improvements.

         D.       Field

         The scope of the License Grant is limited to the following types of
Tagged Products (the "FIELD"):

         (1) Government documents, including without limitation any seal, label,
bar code, data glyph, [***], stamp, form, or other document used or issued by
any federal, state, county, local, foreign, or other governmental body or
quasi-governmental body, but excluding government currency and further excluding
passports issued by the United States government. For purposes of this paragraph
and the following paragraph, the term [***].

[*] = Information redacted pursuant to a confidential treatment request.
An unredacted version of this exhibit has been filed separately with
the Commission.

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Appleton is further licensed to market Readers and Reader Operating Software
into these markets in connection with the sale by Appleton of Tagged Products in
the Field pursuant to the License Grant.

         (2) Business documents, including without limitation any seal, label,
bar code, data glyph, [***], stamp, form, or other document used or issued by
any non-governmental entity in any capacity whatsoever, including business
markets, commercial markets, financial markets, and including documents taking
the form of insurance, prescription, pharmaceutical, corporate scrip,
transportation, shipping, or other documents. Such business documents shall be
deemed to include, without limitation, photocopy paper (such as anti-copy paper
for use in a paper- or photocopy-based anti-copying system); checks, drafts,
negotiable orders of withdrawal, money orders, and the like; and brand
authentication tags and labels (including without limitation tags and labels
used in the textile markets). Appleton is further licensed to market Readers and
Reader Operating Software into these markets solely in connection with the sale
by Appleton of Tagged Products in the Field pursuant to the License Grant.

         In connection with any of the foregoing markets, this license to
Appleton is limited to the manufacture of Tagged Products incorporating Taggents
in any paper substrate (but Appleton may manufacture Tagged Products
incorporating Taggents in paper substrates for use in the textile markets and
industries, including without limitation authentication and tracking tags, and
may market Readers and Reader Operating Software into these markets solely in
connection with the sale by Appleton of Tagged Products in the Field pursuant to
the license granted hereunder).

         E.       Territories

         The scope of the License Grant shall be [***], [***]; provided
however, that except as otherwise provided as exclusive in Paragraph F, the
License Grant shall be nonexclusive; and provided further, however, that in the
event that Appleton cannot demonstrate sales in [***] within two years of the
date of this Agreement, Spectra will have the option to grant an exclusive
license to a third party in [***].

         F.       Exclusivity

         Subject to the provisions of this Agreement, the scope of the licenses
granted to Appleton in the territories of the United States, Canada, and Mexico
(the "NAFTA countries") shall be exclusive to Appleton with respect to the
FIELD; provided, however, that Spectra may sell or license Taggents to parties
in the NAFTA countries for use by end-users outside the NAFTA countries' and
provided further, however, that, on a case by case basis, Spectra shall have the
right to sublicense, sell, or manufacture Taggents for use in the Field in the
NAFTA countries in the event that Appleton is notified of a proposed application
of the Taggents and Appleton fails to license or commercialize the Taggents for
use in such application in a commercially reasonable time, in any event solely
to the extent required by such application. During the period when said licenses

[*] = Information redacted pursuant to a confidential treatment request.
An unredacted version of this exhibit has been filed separately with
the Commission.

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remain exclusive to Appleton pursuant to this Agreement, Spectra shall not
market, sell, or offer to sell Taggents (for use within Tagged Products),
Readers, or Reader Operating Software within the Field in the United States,
Canada or Mexico except in accordance with the terms of this Agreement or in
manufacturing or supplying products for Appleton pursuant to Appleton's request.

         Subject to the provisions of this Agreement, the scope of the licenses
granted to Appleton in the Territories other than the NAFTA countries
("Non-NAFTA Territory") shall NOT be exclusive to Appleton. Spectra reserves the
right to market, sell, or offer to sell Taggents (for use within Tagged
Products), Readers, or Reader Operating Software within the Non-NAFTA Territory.

         The exclusivity of the licenses granted to Appleton shall be contingent
on the following exclusivity requirements: Appleton shall purchase TAGGENTS
and/or READERS from Spectra, and/or grant DEVELOPMENT FUNDS to Spectra, in the
following total amounts and in accordance with the following timetable and with
the other provisions of this Agreement:

         (1)   During the period from the date of this Agreement to a date
[***] from the date of this Agreement, DEVELOPMENT FUNDS, TAGGENTS and/or
READERS in a combined amount of at least [***];

         (2)   During the period from the date [***] from the date of this
Agreement to the date [***] from the date of this Agreement, DEVELOPMENT FUNDS,
TAGGENTS and/or READERS in a combined amount of at least [***];

         (3)   During the period from the date [***] from the date of this
Agreement to the date [***] from the date of this Agreement, DEVELOPMENT FUNDS,
TAGGENTS and/or READERS in a combined amount of at least [***];

         (4)   During the period from the date [***] to the date [***] from the
date of this Agreement, DEVELOPMENT FUNDS, TAGGENTS and/or READERS in a combined
amount of at least [***];

         (5)   During the period from the date [***] to the date [***] from the
date of this Agreement, DEVELOPMENT FUNDS, TAGGENTS and/or READERS in a combined
amount of at least [***];

         (6)   During the period from the date [***] to the date [***] from the
date of this Agreement, DEVELOPMENT FUNDS, TAGGENTS and/or READERS in a combined
amount of at least [***];

[*] = Information redacted pursuant to a confidential treatment request.
An unredacted version of this exhibit has been filed separately with
the Commission.

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         (7)   During the period from the date [***] to the date [***] from the
date of this Agreement, DEVELOPMENT FUNDS, TAGGENTS and/or READERS in a combined
amount of at least [***];

         (8)   During the period from the date [***] to the date [***] from the
date of this Agreement, DEVELOPMENT FUNDS, TAGGENTS and/or READERS in a combined
amount of at least [***]; and,

         (9)   After the date [***] from the date of this Agreement, DEVELOPMENT
FUNDS, TAGGENTS and/or READERS in a combined amount of [***] per [***] period
thereafter.

         In any of the foregoing periods, any shortfall in the total dollar
amount of DEVELOPMENT FUNDS, TAGGENTS and/or READERS purchased from Spectra may
be made up by Appleton via lump sum payment of DEVELOPMENT FUNDS. Said lump sum
payment shall be due at the end of the foregoing periods. Within 45 days prior
to the end of any one of the foregoing periods in which the foregoing dollar
amounts have not been met, Appleton shall provide notice to Spectra as to
whether it intends to make a lump sum payment of DEVELOPMENT FUNDS as specified
herein.

         Should Appleton fail to meet these minimum amounts during any of the
foregoing time periods, the licenses granted hereinabove shall remain in effect,
except that beginning on a date one month following any of the foregoing time
periods such licenses shall convert to non-exclusive licenses for the remaining
term of this Agreement.

         G.       Trademarks

         Spectra grants Appleton a right to use the Spectra Trademarks in
describing those components of Appleton's products or services based on or using
Spectra Technology and otherwise in connection with the sale of those of
Appleton's products or services based upon or incorporating Spectra Technology.
Nothing in this Agreement shall preclude Appleton from selling products or
services under its own trademarks, whether now existing or developed in the
future, unless such products or services contain the Taggents or are otherwise
based upon Spectra Technology, in which case Appleton shall be required to make
reference to any relevant Spectra Trademarks.

         Should Spectra adopt any new trademark that serves to identify Taggents
and/or Readers and/or Reader Operating Software, Spectra agrees upon Appleton's
request to license said trademark to Appleton under the terms of this Agreement
and without additional consideration; provided, however, that if Spectra adopts
a new trademark for a particular product line of Taggents and/or Readers and/or
Reader Operating Software not used by Appleton, Spectra shall not be obligated
to license said trademark to Appleton.

III.     SPECTRA'S AGREEMENT TO PROVIDE TAGGENTS, READERS, AND READER OPERATING
         SOFTWARE

[*] = Information redacted pursuant to a confidential treatment request.
An unredacted version of this exhibit has been filed separately with
the Commission.

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     A.   TAGGENTS

     Appleton shall have the right to place one or more purchase orders to
Spectra for the Taggents specified in Exhibit A to this Agreement, and Spectra
shall be obligated to provide such Taggents to Appleton in fulfillment of said
purchase orders, up to the maximum quantities set forth in Exhibit A. Spectra
shall use reasonable commercial efforts to fulfill purchase orders for
quantities exceeding the maximum quantities set forth in Exhibit A. Appleton
agrees to purchase its supply needs of Taggents solely from Spectra.

     (1)  The specification sheet attached hereto as Exhibit A may be amended
from time to time upon mutual agreement of the parties or for a given order as
the parties may specify upon mutual agreement. Nothing in this Agreement shall
be construed as precluding Spectra from developing new, improved, or alternative
forms of Taggents, nor Appleton from purchasing any such new, improved, or
alternative forms of Taggents from Spectra. The price for such new, improved, or
alternate forms of Taggents shall be negotiated in good faith by Spectra and
Appleton, provided that Spectra shall remain obligated to provide Taggents which
conform to the specification sheet attached hereto as Exhibit A, unless Appleton
shall agree otherwise in writing.

     (2)  Beginning on the date of execution of this Agreement, and continuing
for fifteen months thereafter, the price of the Taggents shall be the price as
specified in the price list attached as Exhibit B to this Agreement, which shall
be deemed the list price for such Taggents for such period. These prices shall
apply to the first [***] kg of Taggents purchased by Appleton (regardless of
color and cumulative of all colors purchased by Appleton) in the fifteen months
following the date of this Agreement. Beginning with the [***] kg of Taggents,
and up to and including [***] kg of Taggents, the applicable prices shall be
reduced non-cumulatively to [***] of the list price. Beginning with the [***] kg
of Taggents purchase, the applicable price shall be reduced non-cumulatively to
[***] of the list price.

     (3)  On the date [***] months from the date of this Agreement, and on
each successive twelve month anniversary following said date, the list price of
the Taggents shall be adjusted in accordance with the percentage change in the
Consumer Price Index published by the United States Bureau of Labor Statistics,
or, if such index is no longer published, then by an index that the parties
mutually agree may be substituted for that index. The purchase price for an
order placed but not filled prior to the date [***] from the date of this
Agreement or during a [***] period following any succeeding [***] thereof shall
be the price of Taggents in effect at the time said purchase order is placed.
The list prices shall apply to the first [***] of Taggents purchased by Appleton
(regardless of color and cumulative of all colors purchased by Appleton) in each
twelve month period following the fifteen month anniversary of this Agreement.
Beginning with the [***] kg of Taggents, and up to and including [***] kg of
Taggents sold in each twelve month period following the [***] anniversary of
this Agreement, the list prices shall be reduced non-cumulatively to

[*] = Information redacted pursuant to a confidential treatment request.
An unredacted version of this exhibit has been filed separately with
the Commission.

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[***] of the list price. Beginning with the [***] kg of Taggents purchased in
each [***] period following the [***] anniversary of this Agreement, the price
shall be reduced non-cumulatively to [***] of the list price.

     (4)  Appleton shall order a minimum quantity of [***]. of Taggents in each
purchase order, and, for each color of Taggents specified in said purchase
order, shall purchase a minimum of [***] of each such color.

     (5)  [***]

     B.   READERS

     Appleton shall have the right to place one or more purchase orders to
Spectra for the Readers specified in Exhibit C to this Agreement, and Spectra
shall be obligated to provide such Readers (with accompanying Reader Operating
Software where necessary) to Appleton, up to the maximum quantities set forth on
Exhibit C. Appleton agrees to purchase its supply needs of Readers solely from
Spectra. Spectra shall use reasonable commercial efforts to fulfill purchase
orders for quantities exceeding the maximum quantities set forth on Exhibit C.
Upon receipt of such purchase order, Spectra shall manufacture Readers and shall
supply said Readers to Appleton, under the following terms:

     (1)  The specification sheet attached hereto as Exhibit C may be amended
from time to time upon mutual agreement of the parties or for a given order as
the parties may specify upon mutual agreement. Nothing in this Agreement shall
be construed as precluding Spectra from developing new, improved, or alternative
forms of Readers or Reader Operating Software, nor Appleton from purchasing any
such new, improved, or alternative forms of Readers or Reader Operating Software
from Spectra. The price for such new, improved, or alternate forms of Readers or
Reader Operating Software will be negotiated in good faith by Appleton and
Spectra, provided that Spectra shall remain obligated to provide Readers and
Reader Operating Software which conforms with the specification sheet attached
hereto as Exhibit C, unless Appleton shall agree otherwise in writing.

     (2)  Beginning on the date of execution of this Agreement, and continuing
for [***] thereafter, the price of the Readers shall be no more than [***].
After the first [***] and up to and including [***] Readers, the price of the
Readers shall be no more than [***]. These prices shall include any necessary
Reader Operating Software.

[*] = Information redacted pursuant to a confidential treatment request.
An unredacted version of this exhibit has been filed separately with
the Commission.

                                       8

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     (2)(A) Beginning on the date of execution of this Agreement, and continuing
for [***] thereafter, the price of the "Pocket-Eye" Readers shall be [***].
After the first [***]. These prices shall include any necessary "Pocket-Eye"
Reader Operating Software. For purposes of this agreement, purchases of
"Pocket-Eye" Readers by Appleton shall count toward Appleton's purchase
obligations of Readers.

     (3)    On the date [***] from the date of this Agreement, and on each
successive [***] anniversary following said date, the price of the Readers and
"Pocket-Eye" Readers shall be adjusted in accordance with the percentage change
in the Consumer Price Index published by the United States Bureau of Labor
Statistics, or, if such index is no longer published, then by an index that the
parties mutually agree may be substituted therefor. The purchase price for an
order placed but not filled prior to the date [***]from the date of this
Agreement or during a [***] period following any succeeding [***] anniversary
thereof shall be the price of Readers in effect at the time said purchase order
is placed.

     (4)    There shall be no minimum quantity of Readers or Reader Operating
Software in each purchase order.

     (5)    All Readers shall be provided by Spectra with any Reader Operating
Software. Appleton shall own the medium containing any copy of the Reader
Operating Software provided by Spectra, and shall have a license with respect to
such Reader Operating Software itself, but shall not own any copyright in said
Reader Operating Software. The provision of a Reader to Appleton constitutes a
license to use said Reader Operating Software in connection with the use of said
Reader and the right for Appleton to grant sublicenses of said Reader Operating
Software to customers and end users in accordance with the terms of this
Agreement.

     (6)    Should Spectra offer Readers or Reader Operating Software to any
customer other than Appleton at a different price or upon different terms,
Appleton at its option shall have the right to elect to purchase Readers or
Reader Operating Software from Spectra at such other price or upon such
different terms, and said price or different terms will be deemed a part of this
Agreement.

     (7)    Appleton may at its option submit a request for the purchase of both
Taggents and Readers in the same purchase order.

     C.     Delivery and Business Operation

     (1)    The terms of this Agreement govern the purchase of Taggents and
Readers (including any necessary Reader Operating Software) from Spectra by
Appleton. For the

[*] = Information redacted pursuant to a confidential treatment request.
An unredacted version of this exhibit has been filed separately with
the Commission.

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convenience of the parties, either party may place or fill a purchase order
using a preprinted or other order form prepared by said party. To the extent
anything in such order form is contrary to the terms of this Agreement, the
terms of this Agreement shall control.

     (2)  Appleton shall initiate a purchase of Taggents or Readers, as the case
may be, via a purchase order to Spectra. Appleton may specify any reasonable
delivery time in such purchase order, and Spectra agrees to use its reasonable
commercial efforts to meet said delivery time. Spectra will not be in breach of
any purchase order for Taggents if the delivery time of said Taggents is less
than four weeks, unless for a given purchase order Spectra agrees in advance to
an earlier delivery commitment.

     (3)  Delivery of Taggents and Readers shall be FOB Spectra's Rhode Island
facilities, with title and risk of loss there passing to Appleton. The cost of
delivery and any insurance are to be borne by Appleton.

     (4)  Delivery of Taggents and Readers shall be made within 30 days, unless
a shorter or longer time is agreed to by the parties for a given purchase order.
Spectra shall render its invoice for each purchase order to Appleton within a
reasonable time after delivery, provided, however, that payment for Taggents
and/or Readers for a given purchase order shall be due not less than 30 days
after delivery. Appleton shall have the right to inspect any purchase order
after delivery and within 30 days to reject said delivery if said delivery is
nonconforming. In such event, Spectra agrees to use its best efforts to provide
a conforming delivery within a reasonable time after notice of rejection of
delivery by Appleton. At Spectra's option, Appleton will dispose of the
nonconforming Taggents or Readers or will return same to Spectra at Spectra's
expense. [***]

     (5)  At no additional charge, Spectra will provide technical and customer
assistance to Appleton to the extent reasonably necessary to effectuate the
purposes of this Agreement. Spectra shall cause employees of Spectra to meet
with representatives of Appleton at Appleton's facilities as reasonably
requested by Appleton. Reasonable travel, lodging, and meal expenses shall be
borne by Appleton, but otherwise the costs and expenses (including without
limitation salaries of Spectra employees for such meetings) shall be borne by
Spectra.

     (6)  Spectra shall ensure that its employees comply with Appleton's written
safety requirements (including but not limited to Appleton's drug and alcohol
policy) while performing work at Appleton's facilities Appleton agrees to
provide Spectra written copies of its safety requirements, including its drug
and alcohol policy, and Spectra shall disseminate the same to those of its
employees who are assigned to perform work at Appleton's facilities.

     Spectra warrants that its employees, agents, and subcontractors shall not
perform any work or service for Appleton while under the influence of alcohol or
any controlled

[*] = Information redacted pursuant to a confidential treatment request.
An unredacted version of this exhibit has been filed separately with
the Commission.

                                       10

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     substance. Neither Spectra nor its employees shall misuse lawful drugs or
     possess, use, distribute, or sell alcoholic beverages or illicit or
     un-prescribed controlled substances or drugs on Appleton's property.

          If any injury occurs to any person, including death, or if damage
     occurs to any property, and if it shall have been determined by a court of
     final adjudication that the same occurred exclusively due to the failure of
     Spectra to comply with the requirements of this Section or due to the
     failure of Spectra's employees, agents or representatives to comply with
     Appleton's safety policies while on Appleton's premises (without a finding
     of any contributory fault on Appleton's part) then Spectra shall release
     Appleton of all liability and agrees to indemnify, defend and hold Appleton
     harmless from all resulting damage, liability and expense (including
     reasonable attorney fees).

          (7)  Throughout the term of this Agreement, Spectra will maintain the
     following insurance coverages underwritten by insurers and on a form
     acceptable to Appleton:

               (a)  Commercial General Liability insurance providing policy
                    limits of at least $2,000,000 per occurrence for bodily
                    injury and property damage combined.

               (b)  Workers Compensation Insurance providing statutory benefits
                    and Employers Liability coverage applicable to all employees
                    of Spectra who perform activities for or provide support for
                    Appleton under this Agreement.

          Immediately upon entering into this Agreement, Spectra will provide
     Appleton with a certificate of Insurance on an Accord form evidencing the
     above coverages and a copy of the policy endorsement used to add Appleton
     to Spectra's Commercial General Liability policy as an additional Insured.
     Spectra may use a combination of primary and excess insurance to achieve
     the coverage limits required above.

          D.   Appleton's rights upon default in a purchase order or inability
               or unwillingness to Supply

          (1)  The provisions of this subsection apply in the case where Spectra
     becomes unable or unwilling in response to a purchase order of Appleton to
     supply Taggents, Readers , or Reader Operating Software for any reason
     other than Force Majeure, of for reasons of Force Majeure lasting for a
     period of more than 60 days. If for reasons of Force Majeure Spectra
     becomes unwilling or unable to supply Taggents, Readers , or Reader
     Operating Software for a period of 60 days or less, the provisions of
     Section X-I of this Agreement shall govern.

          (2)  If Spectra becomes unwilling or unable to supply Taggents,
     Readers, or Reader Operating Software for any reason other than Force
     Majeure, or for reasons of Force Majeure for a period of more than 60 days,
     or if Spectra fails within 60 days to provide conforming delivery of a
     previously rejected order as specified in Section III-C-(4) above,
     Appleton, at its option, shall provide to Spectra a written Notice of
     Default.

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     (3) Upon receipt of said Notice of Default, Spectra shall have 30 days to
cure the circumstances which have caused said Notice of Default, and shall
provide conforming product to Appleton in accordance with any purchase order
placed within the 60 days preceding the Notice of Default.

     (4) If Spectra complies with its obligations, under subsection (3) above,
the default will be deemed cured and the Notice of Default will be deemed
withdrawn. Nothing in this Agreement shall preclude Appleton from serving a
second or subsequent Notices of Default under appropriate circumstances.

     (5) If Spectra fails to comply with its obligations under subsection (3)
above, Appleton, at its option, may deem the default to be a Final Default, and
may terminate the Agreement immediately with no further obligations except those
of confidentiality set forth in Section X and payment of Spectra for goods
already received prior to the date of termination.

     (6) The provisions of this Section apply to any default in Spectra's
fulfillment of a purchase order, regardless of whether said purchase order is
for the purchase of Taggents as described in the specification sheet attached as
Exhibit A or for other Taggents as Spectra and Appleton may agree upon in a
given purchase order, or, in the case of Readers and Reader Operating Software,
regardless of whether said purchase order is for the purchase of Taggents as
described in the specification sheet attached hereto as Exhibit C or for other
Readers or Reader Operating Software as Spectra and Appleton may agree upon.

     E.   Minimum Purchase

Appleton agrees to purchase a minimum amount of [***] of TAGGENTS and/or READERS
within the period from the date of this Agreement to the date [***] from the
date of this Agreement. Appleton may make up any shortfall in these amounts via
a lump sum payment of DEVELOPMENT FUNDS.

IV.  [***]

     [***]

     [***]

[*] = Information redacted pursuant to a confidential treatment request.
An unredacted version of this exhibit has been filed separately with
the Commission.

                                       12

<PAGE>

V.       NEW INVENTIONS, TRADE SECRETS & PATENTS

         A.   Any new invention or discovery made by Spectra that pertains to
the use of Taggents, Readers, or Tagged Products, and arises out of, is based
on, or is derivative of the Spectra Technology, shall become the property of
Spectra. Subject to the provisions of Sections II and III of this Agreement,
Spectra shall have the sole right and discretion to seek patent protection for
such invention or discovery, or, where appropriate, to seek to maintain such
invention or discovery as a trade secret. Any costs in respect of procurement of
patents shall be borne exclusively by Spectra. Spectra shall have the right to
consult with third parties, to make inventions with such third parties, and to
seek patent protection with such third parties under such terms as Spectra may
negotiate with such third parties, provided, however, that Spectra shall not
enter into any agreement with any third party that is in derogation of Spectra's
obligations under this Agreement.

         The parties agree to execute and to have executed all documentation,
including without limitation declarations and assignments, as may reasonably be
necessary to effectuate the preparation and issuance of patent application and
patents and to transfer ownership interests in said patents.

         B.   DEVELOPMENT FUNDS

         It is contemplated by Appleton and Spectra that Spectra will make
reasonable use of any monies provided to Spectra as Development Funds for the
development of new Taggents, Readers, and/or Reader Operating Software. Within
nine months after receipt of any such Development Funds, Spectra shall provide
Appleton with a schedule that details how such Development Funds have been
expended, or, for any Development Funds not yet expended, how and when such
Development Funds are planned to be expended. Any payment of Development Funds
is intended to be expended by Spectra within five years after said payment.

VI.      THIRD PARTY INFRINGEMENT AND CLAIMS OF INFRINGEMENT

         A.   Third Party Infringement

         Should Appleton and/or Spectra learn of any infringement by any third
party of any patent or other intellectual property right forming any part of or
underlying the Spectra Technology, each party agrees to notify the other party
promptly. Spectra shall have the option to file a claim against such third
party, and Appleton agrees to provide all reasonable assistance in the pursuit
of such claim, including joining as co-plaintiff if required. Appleton further
shall have the option to join as co-plaintiff if permitted by the court. In
either case, the costs for conducting the prosecution of such claim shall be
borne by Spectra, except that Appleton shall bear the cost of providing its own
attorneys, and Spectra shall have control over such claim, except that Spectra
may not settle any

                                       13

<PAGE>

such claim in derogation of any rights of Appleton (including Appleton's
standing as exclusive licensee under the Spectra Technology within the Field in
the Territory) without Appleton's consent. Any recovery in said claim (whether
by judgment or settlement) shall be retained by Spectra if Appleton has not
joined or been compelled to join as co-plaintiff, in which case the parties
shall split such recovery equally after payment by each respective party of its
legal fees. Attorneys' fees and other costs to a party of prosecuting said claim
shall be borne by that party, and shall not be the basis for such party's
increasing its share of the recovery at the expense of the share of the other
party, unless the court shall have ordered the defendant to pay such party's
attorneys' fees and costs.

         If Spectra declines to pursue a claim of infringement, Appleton may, at
its opinion, pursue such claim of infringement. In such event Spectra agrees to
provide all reasonable assistance to Appleton, including joining as co-plaintiff
where required. In either case, the costs of conducting the claim shall be borne
by Appleton, except that Spectra shall bear the cost of providing its own
attorneys, and Appleton shall have control over such claim. Any recovery in said
claim (whether by judgment or settlement) shall be retained by Appleton if
Spectra has not joined or been compelled to join as co-plaintiff, in which case
the parties shall split such recovery equally after payment by each respective
party of its legal fees. Attorneys' fees and other costs to a party of
prosecuting said claim shall be borne by that party, and shall not be the basis
for such party's increasing its share of the recovery at the expense of the
share of the other party, unless the court shall have ordered the defendant to
pay such party's attorneys' fees and costs.

         B.   Third Party Claims of Infringement

         As an inducement to Appleton to enter into this Agreement, Spectra has
warranted elsewhere in this Agreement that, to Spectra's knowledge, no
infringement of any third party rights in connection with Taggents or Readers,
or to Reader Operating Software currently exists. In the event that Appleton or
Spectra are charged with infringement of any third party rights whether of
patents, trade secrets or other rights, then Spectra shall bear the costs of
defense with counsel of its choice, which counsel shall be reasonably acceptable
to Appleton. Appleton shall reasonably cooperate with Spectra and have the right
to participate, at Appleton's expense, in the defense of such claim. Spectra
shall not settle or compromise any such claim in derogation of any of Appleton's
rights under this Agreement (including without limitation Appleton's status as
exclusive licensee under the Spectra Technology within the Field in the
Territory) without Appleton's prior consent.

VII.

TERMINATION OF EXCLUSIVITY AND EXCLUSIVITY REQUIREMENTS

         A.   Termination of Exclusivity

                                       14

<PAGE>

The exclusivity of the licenses under the LICENSED PATENTS and SPECTRA TECHNOLGY
granted to Appleton pursuant to this Agreement will terminate upon the first to
occur of the following

              (1)     In the case where there has been no Final Default by
                      Spectra, Appleton's failure to meet the exclusivity
                      requirements specified in Section II of this
                      Agreement; or

              (2)     Upon the last to expire of the domestic LICENSED PATENTS.

In either such case, Appleton will continue to have a non-exclusive license
within the FIELD in the TERRITORY under the LICENSED PATENTS and SPECTRA
TECHNOLOGY.

         B.   Termination of Exclusivity Requirements

In the event of a Final Default by Spectra, Appleton will remain as exclusive
licensee within the FIELD in the TERRITORY under the LICENSED PATENTS and
SPECTRA TECHNOLOGY without further requirement for expenditure of DEVELOPMENT
FUNDS or payment of TAGGENTS, READERS or READER OPERATING SOFTWARE. In such
event of Final Default by Spectra, Appleton shall remain as exclusive licensee
for a period of ten years following the date of the Final Default, at which time
the licenses under the LICENSED PATENTS and SPECTRA TECHNOLOGY shall convert to
non-exclusive licenses.

         C.   For the purpose of this Agreement, the term "Final Default" shall
mean a material and unremedied default of a material provision of this
Agreement, which default remains unremedied after written notice specifying such
default and expressly indicating Appleton's intention to seek recourse under
this Section VII, and which remains unremedied 30 days after such notice.

VIII.    WARRANTIES

         A.   Appleton's Warranties

         Appleton warrants that it is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware, with
full corporate power and authority to conduct its business as it is now being
conducted, to own or otherwise possess or use the properties and assets that it
purports to own or otherwise possess or use, and to perform all its obligations
under the contracts to which it is a party or by which it is bound.

         B.   Spectra's Warranties

                                       15

<PAGE>

         Spectra warrants that it is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware, with
full corporate power and authority to conduct its business as it is now being
conducted, to own or otherwise possess or use the properties and assets that it
purports to own or otherwise possess or use, and to perform all its obligations
under the contracts to which it is a party or by which it is bound.

         Spectra warrants that it is owner or licensee of the Spectra Technology
and that it has the right to license the same to Appleton under the Spectra
Technology. Without limiting the generality of the foregoing, Spectra warrants
that it has the right to sell Readers to Appleton, and to sell Reader Operating
Software to Appleton.

         Spectra warrants that it is the sole owner of the Spectra Trademarks
and that it has the right to license the same to Appleton under the Spectra
Trademarks.

         Spectra warrants that it is unaware of any third party rights, whether
grounded in patent, trade secret, copyright, or other grounds, that would impede
Appleton or Spectra from the development, sale, or marketing of Taggents, Tagged
Products, or Readers in any of the territories or markets specified herein.
Spectra further warrants that it is not the subject of any claim for
infringement, nor is it aware of any threatened claim for infringement, of any
such third party right in any forum. Spectra further warrants that there is no
pending proceeding that has been commenced by or against Spectra or that
otherwise relates to or may affect the business of, or any of the assets owned
or used by, Spectra; or that challenges, or that may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, this
Agreement. To the knowledge of the Spectra, no such proceeding has been
threatened, and no event has occurred or circumstance exists that may give rise
to or serve as a basis for the commencement of any such proceeding.

         Spectra further represents and warrants that all services provided to
Appleton hereunder shall be performed in a good workmanlike manner, meeting or
exceeding standards in the industry. Spectra further warrants with respect to
any Reader or Reader Operating Software that such products are merchantable and
fit for the purpose for which they are being sold. This warranty is valid for
the one-year period following Appleton's delivery of such Reader or Reader
Operating Software to any customer. If Appleton receives a notice from one of
its customers of any significant malfunction of said Reader or Reader Operating
Software which is not due to the customer's misuse of the same, Spectra agrees
to repair or replace said Reader or Reader Operating Software, at Spectra's sole
option.

         C.   Mutual Warranties

         Each of the signatories to this License Agreement warrants, covenants
and agrees that he or she is authorized and has the power to enter into and
execute this Agreement on behalf of the party he or she represents.

         D.   Limitation of Liability

                                       16

<PAGE>

         SPECTRA MAKES NO WARRANTIES, EXPRESS OR IMPLIED, BEYOND THOSE SET FORTH
IN THIS SECTION VIII. APPLETON'S DAMAGES PURSUANT TO ANY CLAIM HEREUNDER SHALL
BE LIMITED TO THE LESSER OF APPLETON'S ACTUAL PROVED DAMAGES OR THE AGGREGATE
AMOUNT ACTUALLY PAID BY APPLETON TO SPECTRA PRIOR TO THE DATE OF THE INITIAL
NOTICE OF CLAIM. IN NO EVENT SHALL SPECTRA BE LIABLE TO APPLETON FOR ANY
SPECIAL, CONSEQUENTIAL, OR INDIRECT DAMAGES.

IX.      PROOF OF CONCEPT

         Appleton and Spectra acknowledge that an independent certification as
to the proof of concept of the Spectra Technology may be of mutual benefit to
the parties. Within 90 days after the date of this Agreement, Spectra and
Appleton will mutually develop parameters for the proof of concept and will
agree on the choice of a third party to certify the proof of concept. Spectra
shall be responsible for working with said third party to provide said proof of
concept and shall bear all of the expenses relating thereto, except that any fee
of said third party shall be paid in equal shares by Appleton and Spectra.
Appleton agrees to provide samples of paper incorporating Taggents in reasonable
quantities for the purpose of providing said proof of concept at Appleton's
expense.

X.       MISCELLANEOUS PROVISIONS

         A.   Severability

         Should any part of provision of this License Agreement be unenforceable
or otherwise in conflict with or in violation of the law of any jurisdiction,
the remainder of this Agreement shall remain binding in that particular
jurisdiction upon the parties.

         B.   Modification and Waiver

         No modification, amendment, deletion, addition, or other change in this
Agreement or any provision hereof, or waiver of any right or remedy herein
provided, shall be effective for any purpose unless specifically set further
herein or in a writing signed by an authorized representative of the party to be
bound thereby. The waiver by either party hereto of any right hereunder, shall
not be deemed a waiver of any other right hereunder or of any breach of failure
by said other party, whether of a similar nature or otherwise.

         C.   Successors and Assigns; Nonassignability

         The provisions of this Agreement shall be binding upon and inure to the
benefit of the parties and their successors and assigns. No other party is
intended to or shall have any right or interest under this Agreement except as
expressly provided in this Agreement.

                                       17

<PAGE>

         Neither party to this Agreement shall assign its rights under this
Agreement, except to a successor in interest of all or substantially all of the
business operations of said party relating to products covered by the Spectra
Technology. Neither party shall delegate its duties under this Agreement without
the consent of the other party.

         D.   Headings

         The article and section headings herein are for convenience only and
shall not limit in any way the scope of any provision of this Agreement.

         E.   Entire Agreement

         This Agreement sets forth the entire agreement and understanding
between the parties as to the Agreement, and merges all prior discussions
between them and neither of the parties shall be bound by any conditions,
definitions, warranties, or representations with respect to the subject matter
of this Agreement, except to matters expressly provided herein or duly set forth
subsequent to the date hereof in writing and signed by a proper and duly
authorized representative of the party to be bound thereby. Without limiting the
generality of the foregoing, no patent rights or licenses other than those
provided herein shall be implied by this Agreement.

         F.   Counterparts

         Duplicate copies of this Agreement will be executed, and each such copy
will be deemed an original hereof.

         G.   Non-Agency

         The parties are independent contractors. Nothing herein contained shall
be construed to place the parties in the relationship of partners or joint
venturers or principal and agent and no party shall have the power to obligate
or bind another party in any manner whatsoever. Neither party will represent
their relationship with the other parties to be anything other than that of
independent contractor.

         H.   Applicable Law

         This Agreement shall be governed by the law of Delaware, without regard
to principles of conflict of laws.

         I.   Force Majeure

         If either party is unable to carry out any of its obligations under
this Agreement because of Force Majeure, this Agreement shall remain in effect
but except as otherwise provided, both Parties' obligations shall be suspended
without liability for a period equal to the period of the continuing Force
Majeure, provided that:

                                       18

<PAGE>

         (1)  the non-performing Party gives the Other Party prompt notice
describing the Force Majeure, including the nature of the occurrence and its
expected duration and, where reasonably practicable, continues to furnish
regular reports with respect thereto during the period of Force Majeure;

         (2)  the suspension of obligations is of no greater scope and of no
longer duration than is required by the Force Majeure;

         (3)  no obligations of either party that accrued before the Force
Majeure are excused as a result of the Force Majeure; and

         (4)  the non-performing party uses all reasonable efforts to remedy its
inability to perform as quickly as possible.

Nothing in this clause shall be construed to require either party to settle a
strike, lockout or other industrial disturbance by acceding against its judgment
to demands made to it.

For the purpose of this Agreement, the term FORCE MAJEURE shall mean failure or
breach of this Agreement by a party where such failure or delay arises from any
cause beyond the reasonable control of the party, including, but not limited to,
strikes, lockouts, or industrial action of third parties, acts of god,
insurrection, or civil commotion, or any other cause which such party could not
reasonably be expected to have foreseen and avoided such cause.

         J.   Notices

         All notices required to be provided to Appleton shall be in writing and
shall be effective upon delivery of such notice to Appleton at the following
address:

Appleton Papers Inc.
Office of General Counsel
P.O. Box 359
1400 N. Rankin Street
Appleton, Wisconsin 54912

         All notices required to be provided to Spectra shall be in writing and
shall be effective upon delivery of such notice to Spectra at the following
address:

Spectra Systems Corporation
321 South Main Street
Suite 102
Providence, Rhode Island 02903

With a required copy to:

                                       19

<PAGE>

Kirkpatrick & Lockhart LLP
75 State Street
Boston, MA 02109
Attn: Jeffrey P. Donohue

         Either party may provide a substitute address at any time during the
term of this Agreement.

         K.   Confidentiality

         Appleton and Spectra shall keep the existence and terms of this
Agreement, the existence and number of sales of Taggents under this agreement,
and any information received from the other party (whether via oral, visual,
written, or other form of disclosure) concerning technology and business plans
confidential, except that either party may notify its customers and potential
customers through advertising or otherwise that Appleton has licensed Spectra
Technology relating to the Taggents from Spectra. Each party agrees to use any
information received from the other party solely for the purposes of
effectuating the goals of this Agreement. Access to any such information shall
be limited to these employees of the respective party who have a need to know
and who are involved with effectuating the goals of this Agreement. Nothing in
this Agreement shall preclude Appleton or Spectra from disclosing any
information required to be kept confidential in response to a subpoena or other
order to compel issued by an authority of competent jurisdiction, or if
otherwise required by law. In the event that either party receives such subpoena
or order to compel, the party receiving same shall notify the other party in
time for the other party to attempt to seek an order of protection. In any case
any party who is compelled to disclose any information required to be kept
confidential under this Agreement shall strive to keep such information as
confidential as reasonably possible, and where applicable shall designate such
information as CONFIDENTIAL or the like under the terms of an appropriate
protective order.

         Information that is required to be kept confidential shall not be
deemed to be confidential and the above provisions shall not apply if:

         (1) The information was generally available to the public at the time
of disclosure;

         (2) The information hereafter becomes generally available to the public
through no fault of either party, or in the case of confidential information
disclosed by one party to the other party, through no fault of the party
receiving the information.

         (3) The parties agree in writing that the information can be disclosed
to a third party;

         (4) In the case of confidential information disclosed by one party to
another, the information was in the possession of the party receiving the
information, as evidenced by its written records, prior to the disclosure by the
other party, through no fault or impropriety of the receiving party; or

                                       20

<PAGE>

         (5) In the case of confidential information disclosed by one party to
another, the information was received by a party from a source other than the
other party without restriction, through no fault or impropriety of the
receiving party.

         Except as expressly provided herein, nothing in this Agreement shall be
construed to prevent a party from disclosing its own technical information,
business plans, or other information.

         L.   Time

         Time shall be of the essence in this Agreement. Days, weeks, and months
shall be measured per the calendar.

         M.   No Third Party Rights

         Except as expressly provided herein, nothing expressed or referred to
in this Agreement will be construed to give any Person other than the parties to
this Agreement any legal or equitable right, remedy, or claim under or with
respect to this Agreement or any provision of this Agreement.

         N.   Drafting Party

         The provisions of this Agreement, and the exhibits referred to in this
Agreement, have been prepared, reviewed, negotiated and revised by both parties
and their respective attorneys, and no implication will be drawn, and no
provision will be construed against any party, by virtue of the purposed
identity of the draft of any portion of this Agreement.

         O.   Commencement and Termination

         This Agreement shall commence on the date that both parties have signed
the Agreement or duplicate copies thereof (which shall be the effective date of
this Agreement).

         Spectra may terminate this Agreement upon (i) non-payment by Appleton
of its monetary obligations hereunder for a period exceeding two calendar
quarters, (ii) upon a material breach by Appleton of a term of this Agreement
which can be reasonably foreseen to cause damage to Spectra or its business; or
(iii) as set forth in Section III.E.

         Either Appleton or Spectra may terminate this Agreement upon written
notice to the other party, in which event this Agreement shall be deemed
terminated 90 days following said written notice.

         IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by a duly authorized officer, all as of the dates
indicated below.

ACCEPTED AND AGREED TO BY:

                                       21

<PAGE>

SPECTRA SYSTEMS CORPORATION                    APPLETON PAPERS INC.
321 S. Main Street

                                               825 E. Wisconsin Ave.
Providence, RI 02903                           Appleton, WI 54912

By: /s/ Nabil M. Lawandy                       By: /s/ [Illegible]
   ------------------------------                 --------------------------
Date Signed:_____________________              Date Signed:_________________

                                       22

<PAGE>

                                    EXHIBIT A
                           Product Specifications for
                                Spectra PolyStar
                            UV Fluorescent Particles

[***]

PolyStar colors include [***].

       [***]

              [***]

              [***]

       [***].

       Available PolyStar size ranges for [***]:

              [***]

       Available PolyStar size ranges for [***]:
              [***]

       [***]

       [***]

[*] = Information redacted pursuant to a confidential treatment request.
An unredacted version of this exhibit has been filed separately with
the Commission.

                                       23

<PAGE>

Spectra PolyStar Specifications, page 2

         A Specification Certificate is attached, specifying the minimum
guaranteed quality per applicable line item for each color of interest. [***]

         Packaging:  PolyStar is shipped in sealed 5 gallon plastic pails
containing 10 Kg each.

[*] = Information redacted pursuant to a confidential treatment request.
An unredacted version of this exhibit has been filed separately with
the Commission.

                                       24

<PAGE>

EXHIBIT B                           --TO BE DISCUSSED-- DRAFT

                                PolyStar Pricing

<TABLE>
<CAPTION>
              Particle
   Color       Style        * [***]      [***]      [***]       [***]      [***]      [***]
   -----       -----        -------      -----      ------      ------     ------     -------
   <S>        <C>           <C>          <C>        <C>         <C>        <C>        <C>

   [***]       [***]         [***]       [***]      [***]       [***]      [***]      [***]

</TABLE>

* less than

[*] = Information redacted pursuant to a confidential treatment request.
An unredacted version of this exhibit has been filed separately with
the Commission.

                                       25

<PAGE>

                                    EXHIBIT C

                          PolyStar Reader Specification
          (These specifications are preliminary and subject to change)

Communications and IO:

[***]:                        [***]
CCD:                          [***]
Resolution                    [***]
Illumination:                 [***]
Durability:                   [***]

Power

AC:                           [***]

Software Specifications

                              [***]

USB                           [***].

Mechanical Specifications

Dimensions

Width:                        [***]
Length:                       [***]
Depth:                        [***]

Enclosure:                    [***]
Weight:                       [***]

Environmental Specifications

Operating Temperature:        [***]
Storage Temperature:          [***]
Humidity:                     [***]

[*] = Information redacted pursuant to a confidential treatment request.
An unredacted version of this exhibit has been filed separately with
the Commission.

                                       26<PAGE>

                                                                   Exhibit 10.10

                                     [LOGO]
                                 Spectra Science
                              C O R P O R A T I O N

                         Adaptive Labeling for the USPS

                                  Project Goal

Spectra Science proposes to develop an invisible labeling system based on
Spectra Science's proprietary and patent pending technology. Spectra Science
will target the demonstration of all three approaches in a form which is clearly
suitable for use in coding and reading flat mail at rates of ~1item/second using
the current bar code hardware used by the USPS. The development will focus on
the material systems of photochromics, thermochromics and the use of lower
critical solution temperature media long with the engineering of an appropriate
stimulus system, all with the required response time of several milliseconds or
less.

The following two-phase budget will have as deliverables a complete and detailed
report for the first tranche of funding and a satisfactory demonstration of at
least one labeling approach for the second. In addition, the second tranche of
funding will also serve as a fully paid-up, non-exclusive and non-transferable
license fee for use of the technology for the sorting of flat mail in the United
States.

Based on USPS times, Spectra Science proposes to begin work immediately with the
consummation of a contract with the USPS taking place no later than July 1,
2001.

                                      ------------------------------------------
                                      Contact Information: Nabil M. Lawandy, PhD
                                                                 President & CEO
                                                     Spectra Science Corporation
                                                321 South Main Street, Suite 102
                                                            Providence, RI 02903
                                                          Ph: 401-274-4700 x3007
                                                                Fx: 401-274-3127
                                            e-mail: nlawandy@spectra-science.com

<PAGE>

             Adaptive Labeling for the United States Postal Service

                                     Budget

Development of a compatible photochromic and thermochromic ink
   .    Labor (PhD Chemist and Technician)........................     214,500
LCST Materials Development
   .    Labor (PhD Chemist and Technician)........................     214,500
   .    Materials.................................................      88,000
Stimulus System Development.......................................     286,000
Capital Equipment.................................................     107,250
Supplies, Chemicals, Machining....................................      94,600
Consulting .......................................................     120,500
Project Total.....................................................   1,125,350

Note: Labor and materials expenses include all applicable indirect labor,
general and administrative overhead burdens per most recent DCAA audit.

--------------------------------------------------------------------------------

..    Spectra Science will assume 65% of the development costs and the USPS will
     assume up to 45% if the development results in a successful demonstration.

..    USPS cost sharing:

     .    Phase I deliverable includes a complete and detailed
          report of the Adaptive Labeling development (~16%).         177,243

     .    Phase II includes the satisfactory demonstration of at
          least one labeling approach. The second tranche of
          funding will also serve as a fully paid up,
          non-exclusive and non-transferable license for use of
          the flat mail sorting technology in the United States
          (~29%).                                                     329,164

..    Total USPS funding for completed technology, demonstration and
     license                                                          506,407

<PAGE>

                                     [LOGO]
                                 Spectra Science
                              C O R P O R A T I O N

December 11, 2001

Jeff Donohue
Kirkpatrick & Lockhart
75 State Street
Boston, MA 02109-1808

Dear Mr. Donohue,

Enclosed is a copy of the U.S. Postal Service contract award for your Due
Diligence file.

Regards,

/s/ Celeste Rodrigues
-------------------------------
Celeste Rodrigues

--------------------------------------------------------------------------------
321 South main Street, . Suite 102 Providence, RI 02903 . TEL: 401274-4700
.. FAX: 401-274-3127

<PAGE>

PURCHASING SPECIALIST
USPS AUTOMATION PURCHASING

[LETTERHEAD] UNITED STATES POSTAL SERVICE

December 7, 2001

Nabil M. Lawandy
Spectra Systems Corporation
321 South Main Street, Suite #102
Providence, RI 02903

Dear Mr. Lawandy:

Enclosed is contract award #512593-02-Z-0230 to provide the U.S. Postal Service
research, materials development, ink development, and hardware development. The
Postal Service looks forward to partnering with your company on this and future
efforts. If I can be further assistance to you, I may be contacted at (703)
280-7803.

Sincerely,

/s/ Robert L. Oates
-------------------------------
Robert L. Oates III, C.P.M.
Purchasing Specialist
USPS Automation Purchasing

Enclosures

8403 Lee HWY (Dewey Building)
Merrifield, VA 22082-8150
703-280-7803
Fax: 703-280-8412

<PAGE>

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
                                U.S. POSTAL SERVICE OFFER AND AWARD: GENERAL
--------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>
   1. CONTRACT NUMBER:512593-02-Z-0230                              2. SOLICITATION NUMBER: 102590-02-A-0007
   3. PR NUMBER: 01-07363                                           4. SOC/EC:  A  5. COMMODITY: 7510C
--------------------------------------------------------------------------------------------------------------
   6.  a. ISSUED BY:   ACO CODE: 512593                             b. FOR INFORMATION CALL:
                                                                       Name: Robert L. Oates C.P.M., A.P.P.
    U.S. POSTAL SERVICE                                                Title: Purchasing Specialist
    AUTOMATION PURCHASING                                              Tel: (703) 780-7803
    8403 LEE HIGHWAY DEWEY BLDG                                        (No Collect Calls)
    MERRIFIELD, VA 22082-8412                                          Fax: (703) 780-8412
                                                                       E-Mail: roates@email.usps.gov
--------------------------------------------------------------------------------------------------------------
   7.  a. SUPPLIER:
                                                                    b. Contact Name: NABIL M. LAWANDY
   SPECTRA SYSTEMS CORPORATION                                      c. Telephone No.: (401) 274-4700
   321 SOUTH MAIN STREET                                            d. TIN/SSN:       05-0491841
   SUITE 102                                                        e. Parent TIN:
   PROVIDENCE                        RI 02903                          TIN = Taxpayer Identification Number
                                                                       E-Mail:    STILLOTSON@SPSY.COM
--------------------------------------------------------------------------------------------------------------
       f. Remittance Name and/or Address: (If different from above)

--------------------------------------------------------------------------------------------------------------
   8. DELIVERY/PERFORMANCE REQUIREMENTS:

                                 See Section C.

--------------------------------------------------------------------------------------------------------------
   9. ITEMS & PRICES/GENERAL DESCRIPTION OF REQUIREMENT:

                                 See Section A.

--------------------------------------------------------------------------------------------------------------
   10. DISCOUNT FOR PROMPT PAYMENT:NET 30
--------------------------------------------------------------------------------------------------------------
   11. a. ACCEPTED AS TO ITEMS NUMBERED                                                    (Completed by USPS)

       b. GRAND TOTAL: $177,243.00                                  c. NET TOTAL:
--------------------------------------------------------------------------------------------------------------
   12. BILLING INSTRUCTIONS (Submit Invoices to):
       USPS ENGINEERING                            ATTN: GEORGE COUPAR
       8403 LEE HIGHWAY                            MERRIFIELD, VA 22082-8101
--------------------------------------------------------------------------------------------------------------
   13. SIGNATURES: SUPPLIER                               U.S. POSTAL SERVICE

   /s/ Nabil M. Lawandy               Dec., 4, 2001        /s/ Robert D. D'Orso                      12/9/01
   ---------------------------        -------------        ---------------------------             -----------
          Signature                       Date                     Signature                       Award Date

                   Nabil M. Lawandy CEO                                   Robert D. D'Orso C.P.M.
   ---------------------------------------------------     ---------------------------------------------------
   Type or Printed Name and Title of Person Authorized                  Name of Contracting Officer
                         to Sign Offer
--------------------------------------------------------------------------------------------------------------
</TABLE>

Distribution: Original-File Copy-Contractor

<PAGE>

U.S. POSTAL SERVICE SOLICITATION: GENERAL

U.S. POSTAL SERVICE: OFFER AND AWARD GENERAL

[INSERT FORM HERE]

<PAGE>

                              PRIVACY ACT STATEMENT

To the extent that the information you provide is about an individual, the
Privacy Act will apply. Collection of that information is authorized by 39 USC
401. As a routine use, the information may be disclosed to an appropriate
government agency, domestic or foreign, for law enforcement purposes; where
pertinent, in a legal proceeding to which the USPS is a party or has an
interest; to a government agency in order to obtain information relevant to a
USPS decision concerning employment, security clearances, contracts, licenses,
grants, permits or other benefits; to a government agency upon its request when
relevant to its decision concerning employment, security clearances, security or
suitability investigations, contracts, licenses, grants, or other benefits; to a
congressional office at your request; to an expert, consultant, or other person
under contract with the USPS to fulfill an agency function; to the Federal
Records Center for storage; to the Office of Management and Budget for review of
private relief legislation; to an independent certified public accountant during
an official audit of USPS finances; to an investigator, administrative judge or
complaints examiner appointed by the Equal Employment Opportunity Commission for
investigation of a formal EEO complaint under 29 CFR 1614; to the Merit Systems
Protection Board or Office of Special Counsel for proceedings or investigations
involving personnel practices and other matters within their jurisdiction; to a
labor organization as required by the National Labor Relations Act; to a
federal, state or local agency, financial institution or other appropriate
entity for the purpose of verifying an individual's or entity's eligibility or
suitability for engaging in a transaction. In addition, the following
disclosures may be made to any person: a solicitation mailing list when a
purchase is highly competitive and competitions will not be harmed by release,
or to provide an opportunity for potential subcontractors seeking business; a
list of lessors of real or personal property to the Postal Service; a list of
entities with whom the Postal Service transacts for goods or services, interests
in real property, construction, financial instruments, or intellectual property;
and the identity of the successful offeror. Completion of this form is
voluntary; however, if this information is not provided, we will be unable to
process your request.

<PAGE>

                                PART 1 - SCHEDULE

                          SECTION A - ITEMS AND PRICES

A.1  ITEMS AND PRICES (Clause OB-89) (June 1988)

     The contractor shall provide the following:

The Supplier shall provide research, materials development, ink development,
hardware development and test and validation of materials and hardware in
accordance with SOW (attachment I) and Supplier Proposal (attachment II). The
Postal Service has the right to exercise the option stated below at any time
during the period of performance.

Item Number: 001        PSN (If applicable):        PSIN (If applicable):

Supplies/Services: Photochromic/Thermochromic Ink - Phase I- Research, material
development, hardware development, test and validation.

Qty: 1     Unit: JB     Unit Price: $177,243.0000   Ext. Price: $177,243.00

Item Number: 002        PSN (If applicable):        PSIN (If applicable):

Supplies/Services: Option: Spectra Systems grants the Postal Service a
nonexclusive, nontransferable paid-up license to use the developed
Photochromic/Thermochromic materials and labeling system throughout the United
States by or on behalf of the Postal Service as set forth in Clause 8-15.

Qty: 1     Unit: JB     Unit Price: $329,164.0000   Ext. Price: $329,164.00

<PAGE>

                  SECTION B - SPECIFICATIONS/STATEMENT OF WORK

B.1  STATEMENT OF WORK/SPECIFICATIONS (Clause OB-31) (June 1997)

The statement of work/specifications listed in Section I are hereby made part of
this solicitation and any resultant contract.

<PAGE>

                        SECTION C - DELIVERY/PERFORMANCE

C.1 CLAUSES INCORPORATED BY REFERENCE

     The following clauses are incorporated by reference as if set forth in full
     text. The text of these clauses may be accessed electronically in Appendix
     B, Contract Clauses, of the Purchasing Manual (PM) at this address
     http://www.usps.com/cpim/ftp/manuals/pm/pmtc.pdf or will be provided by the
     contracting officer upon request. PM citations that prescribe the clauses
     are shown in parentheses.

CLAUSE
NUMBER   DATE           TITLE
------   ----           -----

B-15     January 1997   NOTICE OF DELAY (B.2.1)
B-16     January 1997   SUSPENSIONS AND DELAYS (B.2.1)
B-19     January 1997   EXCUSABLE DELAYS (B.2.1)
2-9      January 1997   DEFINITION OF DELIVERY TERMS AND
                        SUPPLIER'S RESPONSIBILITIES (2.2.5)
2-11     January 1997   POSTAL SERVICE PROPERTY-FIXED-PRICE
                        Alternate I (2.2.7d(1)

C.2 DEFINITE QUANTITY (Clause 2-41) (January 1997)

     a.   This is a definite-quantity contract. The Postal Service will order
          the quantity of supplies or services specified in the Schedule, and
          the supplier must furnish those supplies or services when ordered.
          Delivery or performance must be made at locations designated in orders
          issued in accordance with the Ordering clause and the contract
          Schedule. There is no limit on the number of orders that may be
          issued, unless specified in the Delivery-Order Limitations clause or
          in the contract Schedule. Orders may require delivery to multiple
          destinations or performance at multiple locations.

     b.   Any order issued during the effective period of this contract and not
          completed within that period must be completed by the supplier within
          the time specified in the order, and the rights and obligations of the
          supplier and the Postal Service with respect to the order will be the
          same as if the order were completed during the effective period of the
          contract.

<PAGE>

C.3 PROGRESS REPORTING (Clause OB-18) (June 1988)

     The contractor must submit a progress report at 30 day intervals covering
     work accomplished during each period of the contract performance within 5
     days days after the end of each such period. The progress report must be
     brief, factual, and prepared in accordance with the following format:

     a.   A cover page containing-

          (1)  Contract number and title;

          (2)  Type of report, sequence number of report, and period of
               performance being reported;

          (3)  Contractor's name and address;

          (4)  Author(s); and

          (5)  Date of report.

     b.   Section I-An introduction covering the purpose and scope of the
          contract effort. This must be limited to one paragraph in all but the
          first and final report's narrative.

     c.   Section II-A description of overall progress plus a separate
          description for each task or other logical segment of work on which
          effort was expended during the report period. This description must
          include pertinent data and/or graphs in sufficient detail to explain
          any significant results achieved.

     d.   Section III-A description of current technical or substantive
          performance and any problem(s) that may impede performance, along with
          proposed corrective action.

     e.   Section IV-A planning schedule must be included with the first
          progress report for all assigned tasks required under the contract,
          along with the estimated starting and completion dates for each task.
          The planning schedule must be updated and submitted with each
          subsequent technical progress report. An explanation of any difference
          between actual progress and planned progress, why the differences have
          occurred, and-if behind planned progress-what corrective steps are
          planned should be included.

     f.   Section V-If applicable, financial information must be submitted for
          each major task or line item cost. Data must include-

          (1)  The total estimated cost budgeted (fee excluded);

          (2)  The estimated cost expended during the current reporting period;

          (3)  Identification of direct labor hours of prime contractor and
               subcontractor(s) and/or consultant(s), if applicable;

          (4)  Total project to-date expenditures; and

<PAGE>

          (5)  Total remaining funds.

C.4 FINAL TECHNICAL REPORTS (Clause OB-36) (June 1988)

     The draft manuscript of the final report must be submitted in 3 copies.
     After approval of the draft, the contractor must perform the recommended
     adjustments and deliver one reproducible master and 3 copies in final form.
     In addition, the contractor must send one copy of the final report to the
     USPS Library, U.S. Postal Service Headquarters, 475 L'Enfant Plaza West,
     SW, Washington, DC 20260-6201.

C.5 WARRANTY OF SERVICES (Optional Clause OB-54) (June 1988)

     a.   "Acceptance," as used in this clause, means the act of an authorized
          representative of the Postal Service by which the Postal Service
          assumes for itself, or as an agent of another, ownership of existing
          and identified supplies, or approves specific services, as partial or
          complete performance of the contract. "Correction," as used in this
          clause, means the elimination of a defect.

     b.   Notwithstanding inspection and acceptance by the Postal Service or any
          provision concerning the conclusiveness thereof, the contractor
          warrants that all services performed under this contract will, at the
          time of acceptance, be free from defects in workmanship and conform to
          the requirements of this contract. The contracting officer will give
          written notice of any defect or nonconformance to the contractor
          within 30 Days of discovering any warranted defect. This notice will
          state either that (1) the contractor must correct or reperform any
          defective or nonconforming services or (2) the Postal Service does not
          require correction or reperformance.

     c.   If the contractor is required to correct or reperform, it must be at
          no cost to the Postal Service, and any services corrected or
          reperformed by the contractor will be subject to this clause to the
          same extent as work initially performed. If the contractor fails or
          refuses to correct or reperform, the contracting officer may, by
          contract or otherwise, correct or replace with similar services and
          charge to the contractor the cost occasioned to the Postal Service
          thereby, or make an equitable adjustment in the contract price.

     d.   If the Postal Service does not require correction or reperformance,
          the contracting officer may make an equitable adjustment in the
          contract price.

<PAGE>

                       SECTION D - PACKAGING AND MARKING

[For this document, there is no text in this section]

<PAGE>

                      SECTION E - INSPECTION AND ACCEPTANCE

E.1  CLAUSES INCORPORATED BY REFERENCE

     The following clauses are incorporated by reference as if set forth in full
text. The text of these clauses may be accessed electronically in Appendix B,
Contract Clauses, of the Purchasing Manual (PM) at this address
http://www.usps.com/cpim/ftp/manuals/pm/pmtc.pdf or will be provided by the
contracting officer upon request. PM citations that prescribe the clauses are
shown in parentheses.

CLAUSE
NUMBER   DATE           TITLE
------   ------------   ------------------------------------

2-48     June 1999      INSPECTION AND ACCEPTANCE - SERVICES
                        (2.2.1)
4-5      January 1997   INSPECTION OF PROFESSIONAL SERVICES
                        (4.6.3)

E.2  CERTIFICATE OF CONFORMANCE (Clause B-5) (January 2000)

     a.   When authorized in writing by the contracting officer, the supplier
          may use a Certificate of Conformance for supplies or services that
          would otherwise require inspection. The right of inspection under the
          inspection provisions of this contract is not prejudiced by this
          procedure.

     b.   The supplier's signed certificate must be attached to the inspection
          or receiving report.

     c.   The Postal Service has the right to reject defective supplies or
          services within a reasonable time after delivery, by written
          notification to the supplier. The supplier must promptly replace,
          correct, or repair the rejected supplies or services at the supplier's
          expense.

     d.   "I certify that on                    (supplier insert date), the
                             ------------------
                              (insert supplier's name) furnished the supplies
          -------------------
          called for by Contract No.                     (supplier check which
                                     -------------------
          is applicable) by shipment via                      (carrier) on
                                         --------------------
                              (identify the bill of lading or shipping document)
          -------------------
          or                      by placing them in local inventory. I further
             --------------------
          certify that the supplies are of the quality specified and conform in
          all respects with the contract requirements."

<PAGE>

     Date of Execution:

     ---------------------------------------------------------------------------

     Signature:

     ---------------------------------------------------------------------------

     Title:
            --------------------------------------------------------------------

E.3  DELAYED ACCEPTANCE (Clause 2-6) (January 1997)

     a.   Acceptance under this contract will not occur until the supplier has
          successfully completed the preacceptance tests set forth in the
          Schedule.

     b.   The supplier will remove any equipment and material not accepted under
          this contract and restore the Postal Service facility to its original
          condition, at no cost to the Postal Service.

     c.   The supplier will pay the costs of testing for all equipment and
          materials rejected for failure to meet the preacceptance test
          requirements.

E.4  CONTRACTING OFFICER'S REPRESENTATIVE (COR) (Clause OB-21) ALTERNATE II
     (June 1988)

     a.   The contracting officer's representative (COR) is responsible for the
          technical aspects of the project and technical liaison with the
          contractor. The COR is also responsible for the final inspection and
          acceptance of all reports and has such other responsibilities as the
          contract may specify.

     b.   It is the COR's responsibility to protect the Postal Service's
          interests in the actual performance of the contract work and to see
          that the work is accomplished according to the contract specifications
          and drawings. The COR will prepare and submit any periodic and/or
          special progress reports necessary to keep the contracting officer
          fully informed.

     c.   The COR is delegated the following duties and authority;

          1.   Inspect all work done, both during and after completion, as well
               as all materials furnished. Inspection may extend to any part of
               the work and the preparation, fabrication, and manufacture of the
               contractor-furnished materials to be used and incorporated on the
               job.

          2.   Notify the prime contractor of any failure of the work or
               materials to conform to the contract specifications or drawings,
               and of any delay in the schedule.

          3.   Reject materials or issue stop orders until any questions at
               issue can be referred to and decided by the contracting officer.

          4.   Approve or reject all engineering drawings submitted for review
               under the

<PAGE>

               contract terms.

          5.   Act as property administrator for any Postal Service property
               furnished to or acquired by the contractor and perform the duties
               and responsibilities outlined in the Postal-Service Property
               clause if applicable. Send the contractor's receipt for any
               Postal property delivered to the contractor to the contracting
               officer within seven days after the transfer has been effected.

          6.   Determine the amount and quality of the work performed and
               materials furnished, to be paid under any monthly progress
               payments.

          7.   Issue written stop work orders under emergency conditions when
               continuation of the work would adversely affect the completed
               project or cause that portion of work to be removed. The order
               must be signed by the contractor's on-site superintendent, and a
               copy will be immediately forwarded to the contracting officer for
               issuance of a formal stop work order.

     d.   The COR may designate assistant CORs to act for the COR by naming them
          in writing and transmitting a copy of the designation through the
          contracting officer to the contractor.

     e.   The COR may be changed at any time by the Postal Service without prior
          notice to the contractor, but notification of the change, including
          the name and address of the successor COR, will be promptly provided
          to the contractor by the contracting officer in writing.

     f.   The COR assigned to monitor performance under this contract is:

          George Coupar

<PAGE>

                         SECTION F - PAYMENT AND FUNDING

F.1  CLAUSES INCORPORATED BY REFERENCE

     The following clauses are incorporated by reference as if set forth in full
text. The text of these clauses may be accessed electronically in Appendix B,
Contract Clauses, of the Purchasing Manual (PM) at this address
http://www.usps.com/cpim/ftp/manuals/pm/pmtc.pdf or will be provided by the
contracting officer upon request. PM citations that prescribe the clauses are
shown in parentheses.

CLAUSE
NUMBER   DATE           TITLE
------   ----           -----

B-22     January 1997   INTEREST (B.2.1)
2-26     January 1997   PAYMENT - FIXED PRICE (2.4.3)

F.2  INVOICES (Clause B-20) (January 1997)

     a.   The supplier's invoices must be submitted before payment can be made.

     b.   The supplier agrees that submission of an invoice to the Postal
          Service for payment is a certification that:

          1.   Any services being billed for have been performed in accordance
               with the contract requirements; and

          2.   Any supplies for which the Postal Service is being billed have
               been shipped or delivered in accordance with shipping
               instructions issued by the contracting officer in the quantities
               shown on the invoice, and that the supplies are in the quantity
               and of the quality designated in the contract.

     c.   To ensure prompt payment, an invoice must be submitted for each
          destination and each shipment. Each invoice must contain:

          1.   The supplier's name and address;

<PAGE>

          2.   The contract number;

          3.   Any applicable task or delivery order number;

          4.   A description of the supplies or services and the dates delivered
               or performed;

          5.   The point of shipment or delivery;

          6.   Any applicable unit prices and extensions;

          7.   Shipping and payment terms; and

          8.   Any additional information required by the contract.

F.3  MILESTONE PAYMENTS (modified Clause)

     Milestone payments will be made to the supplier when requested as work
     progresses, but not more often than every 90 days, in amounts not to exceed
     one third (1/3) of total contract value as approved by the contracting
     officer, upon the following terms and conditions:

     a.   Computation of Amounts

          1.   No milestone payments may exceed 33 percent of the amount of the
               supplier's total costs.

          2.   The supplier's total costs must be reasonable, allocable to this
               contract, and consistent with sound and generally accepted
               accounting principles and practices.

     b.   Reports - Access to Records. The supplier must:

          1.   Furnish promptly such relevant reports, certificates, financial
               statements, and other information as may be reasonably requested
               by the contracting officer; and

          2.   Give the Postal Service reasonable opportunity to examine and
               verify the supplier's books, records, and accounts.

<PAGE>

F.3  PAYMENT DUE DATE (Clause OB-22) Alternate III (June 1988)

     a.   Payments under this contract will be due on the 30th calendar day
          after--

          1.   The date of actual receipt of a proper invoice in the office
               designated to receive the invoice; or

          2.   The date the deliverable are accepted by the Postal Service,
               whichever occurs later.

     b.   The date of the check issued in payment or the date of payment by wire
          transfer, when available, will be considered to be the date payment is
          made.

F.4  METHOD OF PAYMENT (Clause OB-23) (June 1988)

     a.   Payments under this contract will be made either by check to the
          contractor or by wire transfer, when available, to an account in the
          contractor's name in a bank designated by the contractor at the option
          of the Postal Service.

     b.   The contractor must forward the information called for in this
          paragraph (b) in writing to the address indicated in the "Billing
          Instructions" on the Offer and Award page of this document not later
          than seven calendar days after receipt of notice of award.

          1.   Full name (if practicable), title, phone number, and complete
               mailing address of responsible official(s)--

               (a)  To whom check payments are to be sent; and

               (b)  Who may be contacted concerning the bank account information
                    requested below.

          2.   The following bank account information for accomplishing wire
               transfers:

               (a)  Name, address, and telegraphic abbreviation of the receiving
                    financial institution.

               (b)  Receiving financial institution's nine-digit American
                    Bankers Association (ABA) identifying number for routing
                    transfer of funds. Provide this number only if the receiving
                    financial institution has access to the Federal Reserve
                    Communications System (FRCS).

               (c)  Recipient's name and account number at the receiving
                    financial institution to be credited with the funds.

               (d)  If the receiving financial institution does not have access
                    to the FRCS, provide the name of the correspondent financial
                    institution through which the receiving financial
                    institution receives electronic funds transfer messages. If
                    a correspondent financial institution is specified, also

<PAGE>

                    provide--

                    (1)  Address and telegraphic abbreviation of the
                         correspondent financial institution; and

                    (2)  The correspondent financial institution's nine-digit
                         ABA identifying number for routing transfer of funds.

     c.   Any changes to the information furnished under paragraph b above of
          this clause must be furnished in writing at least 30 calendar days
          before the effective date of the change. It is the contractor's
          responsibility to furnish these changes 30 calendar days before
          submitting invoices to avoid payments to erroneous addresses or bank
          accounts.

     d.   The document furnishing the information required in paragraphs (b) and
          (c) above must be dated and contain the signature, title, and
          telephone number of the contractor official authorized to provide it,
          as well as the contractor's name and contract number.

<PAGE>

                           SECTION G - SPECIAL CLAUSES

G.1  CLAUSES INCORPORATED BY REFERENCE

     The following clauses are incorporated by reference as if set forth in full
text. The text of these clauses may be accessed electronically in Appendix B,
Contract Clauses, of the Purchasing Manual (PM) at this address
http://www.usps.com/cpim/ftp/manuals/pm/pmtc.pdf or will be provided by the
contracting officer upon request. PM citations that prescribe the clauses are
shown in parentheses.

CLAUSE
NUMBER   DATE           TITLE
------   ----           -----
 B-26    January 1997   PROTECTION OF POSTAL SERVICE
                        BUILDINGS, EQUIPMENT, AND VEGETATION
                        (B.2.1)

G.2  CONTRACT TYPE (Clause B-3) (January 1997)

This is a firm fixed price contract.

G.3  POSTAL SERVICE-FURNISHED PROPERTY (Clause OB-24) (June 1988)

     The Postal Service will provide item(s) of Postal Service property to the
contractor for use in the performance of this contract. This property is
incorporated by reference in Section I. This property must be used and
maintained by the contractor in accordance with the Postal Service Property
clause of this contract.

G.4  Order of Precedence (January 1997)

Any inconsistency in the provisions of a solicitation, a contract awarded under
a solicitation, or a contract awarded without the issuance of a written
solicitation will be resolved by giving precedence in the following order:

a.   The Schedule.
b.   The solicitation provisions and instructions.

<PAGE>

c.   Special clauses and general clauses.
d.   Provisions contained in attendance or incorporated by reference.

<PAGE>

                        PART 2 - CLAUSES AND ATTACHMENTS

                           SECTION H - GENERAL CLAUSES

H.1  CLAUSES INCORPORATED BY REFERENCE

     The following clauses are incorporated by reference as if set forth in full
text. The text of these clauses may be accessed electronically in Appendix B,
Contract Clauses, of the Purchasing Manual (PM) at this address
http://www.usps.com/cpim/ftp/manuals/pm/pmtc.pdf or will be provided by the
contracting officer upon request. PM citations that prescribe the clauses are
shown in parentheses.

CLAUSE
NUMBER   DATE           TITLE
------   ----           -----
B-1      January 1997   DEFINITIONS (B.2.1)
B-2      January 1997   CHANGES (B.2.1)
B-8      January 1997   ASSIGNMENT OF CLAIMS (B.2.1)
B-9      January 1997   CLAIMS AND DISPUTES (B.2.1)
B-10     January 1997   PRICING OF ADJUSTMENTS (B.2.1)
B-11     January 1997   TERMINATION FOR CONVENIENCE (B.2.1)
B-13     January 1997   TERMINATION FOR DEFAULT (B.2.1)
B-14     January 1997   EXAMINATION OF RECORDS (B.2.1)
B-21     January 1997   CHANGE-ORDER ACCOUNTING (B.2.1)
B-25     January 1997   ADVERTISING OF CONTRACT AWARDS (B.2.1)
1-5      January 1997   GRATUITIES OR GIFTS (1.7.9)
1-6      January 1997   CONTINGENT FEES (1.9.2)
4-4      January 1997   NONDISCLOSURE (PROFESSIONAL SERVICES) (4.6.3)
4-7      January 1997   RECORDS OWNERSHIP (4.6.3)
5-1      January 1997   PRICE REDUCTION FOR DEFECTIVE COST OR PRICING DATA
                        (5.1.2)
5-2      January 1997   SUBCONTRACTOR COST OR PRICING DATA
6-1      January 1997   BANKRUPTCY (6.2.7)
7-8      January 1997   FEDERAL, STATE, AND LOCAL TAXES - NONCOMPETITIVE
                        CONTRACT
9-1      January 1997   CONVICT LABOR (9.2.2)
9-7      January 1997   EQUAL OPPORTUNITY (9.7.10)
9-9      January 1997   EQUAL OPPORTUNITY PREAWARD COMPLIANCE OF SUBCONTRACTS
                        (9.7.10)
9-13     January 1997   AFFIRMATIVE ACTION FOR HANDICAPPED

<PAGE>

                        WORKERS (9.2.2)
9-14     January 1997   AFFIRMATIVE ACTION FOR DISABLED VETERANS AND VETERANS
                        OF THE VIETNAM ERA (9.10.2)

H.2  NON-DISCLOSURE OF ADDRESS INFORMATION (Clause 1-7) (January 1997)

     a.   General. This contract requires the supplier to have access to address
          information (i.e., addresses and return addresses) that appears on
          pieces of mail. To ensure the confidentiality of this address
          information, except as permitted by this clause, no supplier or
          subcontractor, and no employee or former employee of any supplier or
          subcontractor may, at any time, during or after the completion of this
          contract, disclose to any third party any address information obtained
          in the performance of this contract. This contract does not give the
          supplier proprietary interest in address information, and the
          supplier's right to have, use, and disclose address information is
          restricted by the terms of this clause.

     b.   Restriction of Access. The supplier agrees to control and restrict
          access to address information to persons who need it to perform work
          under this contract, and to prohibit the reproduction of this
          information.

     c.   Confidentiality and Non-Disclosure Agreement. The supplier must
          require an employee (including any employee of a subcontractor) to
          sign the following agreement before the employee is granted access to
          address information:

                  CONFIDENTIALITY AND NON-DISCLOSURE AGREEMENT

          I agree to hold in confidence any and all address information (i.e.,
          addresses and return addresses) disclosed by the Postal Service or
          otherwise obtained or developed in the course of performance under
          Postal Service contract No.                . I understand that no
                                     ----------------
          address information may be disclosed to any third party without prior
          written consent of the United States Postal Service.

          ----------------------------------------------------------------------
          Signature

          ----------------------------------------------------------------------
          Date

     d.   Legal Demands for Information. If a legal demand is made for address
          information (such as by subpoena), the supplier will immediately
          notify the contracting officer and the nearest office of the postal
          inspectors. After notification, the Postal Service will then determine
          whether and to what extent, to resist the legal demand. Should the
          Postal Service give in to or unsuccessfully resist a legal demand, the
          supplier may, with the written permission of the contracting officer,
          release that address information specifically requested by the legal
          demand.

     e.   Indemnification. The supplier will indemnify the Postal Service, its
          employees and agents, against all liability (including costs and fees)
          for damages arising out of the intentional or negligent disclosure of
          address information other than as permitted by

<PAGE>

          this clause.

     f.   Subcontracts. The supplier must include this clause, modified as
          necessary, in any subcontract.

H.3  ORGANIZATIONAL CONFLICT OF INTEREST (Clause 1-8) (January 1997)

     a.   Warranty Against Existing Conflicts of Interest. The supplier warrants
          and represents that, to the best of its knowledge and belief, it does
          not presently have organizational conflicts of interest that would
          diminish its capacity to provide impartial, technically sound,
          objective research assistance or advice, or would result in a biased
          work product, or might result in an unfair competitive advantage,
          except for advantages flowing from the normal benefits of performing
          this agreement.

     b.   Restrictions on Contracting. The supplier agrees that during the term
          of this agreement, any extensions thereto, and for a period of two
          years thereafter, neither the supplier nor its affiliates will perform
          any of the following:

          1.   Compete for any Postal Service contract for production of any
               product for which the supplier prepared any work statement or
               specifications or conducted any studies under this agreement.

          2.   Contract (as the provider of a component or the provider of
               research or consulting services) with any offeror competing for
               any Postal Service contract for production of any product for
               which the supplier prepared any work statements or specifications
               or conducted any studies under this agreement.

          3.   Contract (as the provider of a component or the provider of
               research or consulting services) with the offeror which wins
               award of a Postal Service contract for production of any product
               for which the supplier prepared any work statement or
               specifications or conducted any studies under this agreement.

     c.   Possible Future Conflicts of Interest. The supplier agrees that, if
          after award of this agreement, it discovers any organizational
          conflict of interest that would diminish its capacity to provide
          impartial, technically sound, objective research assistance or advice,
          or would result in a biased work product, or might result in an unfair
          competitive advantage, except advantages flowing from the normal
          benefits of performing this agreement, the supplier will make an
          immediate and full disclosure in writing to the contracting officer,
          including a description of the action the supplier has taken or
          proposes to take to avoid, eliminate, or neutralize this conflict of
          interest.

     d.   Nondisclosure of Confidential Material

          1.   The supplier recognizes that, in performing this agreement, it
               may receive confidential information. To the extent that and for
               as long as the information is confidential, the supplier agrees
               to take the steps necessary to prevent its disclosure to any
               third party without the prior written consent of the contracting
               officer.

<PAGE>

          2.   The supplier agrees to indoctrinate its personnel who will have
               access to confidential information as to the confidential nature
               of the information, and the relationship under which the supplier
               has possession of this information.

          3.   The supplier agrees to limit access to the confidential
               information obtained, generated, or derived, and to limit
               participation in the performance of orders under this agreement
               to those employees whose services are necessary for performing
               them.

     e.   Postal Service Remedy. If the supplier breaches or violates any of the
          warranties, covenants, restrictions, disclosures or nondisclosures set
          forth under this clause, the Postal Service may terminate this
          agreement, in addition to any other remedy it may have for damages or
          injunctive relief.

H.4  PROHIBITION AGAINST CONTRACTING WITH FORMER OFFICERS OR PCES EXECUTIVES
     (Clause 1-11) (January 1997)

During the performance of this contract, former Postal officers or Postal Career
Executive Service (PCES) executives are prohibited from employment by the
contractor as key personnel, experts or consultants, if the individuals, within
five years after their retirement from the Postal Service, would be performing
substantially the same duties as they performed during their career with the
Postal Service.

H.5  OPTION ITEM (Clause 2-18) (January 1997)

The Postal Service may increase the quantity of supplies called for in this
contract by requiring the delivery of the numbered line item identified in the
Schedule as an option item, in the quantity and at the price set forth in the
Schedule. The contracting officer may exercise this option, at any time within
the period specified in the Schedule, by giving written notice to the supplier.
Delivery of the items added by the exercise of this option will continue
immediately after, and at the same rate as, delivery of like items called for
under this contract, unless the parties otherwise agree.

H.6  PATENT RIGHTS - SUPPLIER RETENTION (Clause 8-15) (modified)

     a.   Definitions

          1(a)."Subject Invention" means any invention or discovery of the
               supplier conceived and first actually reduced to practice in the
               course of or under this contract, and includes any art, method,
               process, machine, manufacture, design, or composition of matter,
               or any new and useful improvement thereof, or any variety of
               plant, which is or may be patentable under the Patent Laws of the
               United States of America or any foreign country, but does not
               include (1) any invention or discoveries preexisting to this
               contract nor (2) any inventions or discoveries that are conceived
               or reduced to practice in the course of or under this contract
               but are merely an improved version of a pre-existing invention or

<PAGE>

               discovery.

          1(b). "Pre-existing Invention" means any invention or discovery
               conceived or reduced to practice prior to this contract and any
               inproved versions thereof conceived or reduced to practice during
               the performance of this contract.

          2.   "Contract" means any contract, agreement, grant, or other
               arrangement, or subcontract entered into with or for the benefit
               of the Postal Service where a purpose of the contract is the
               conduct of experimental, developmental, or research work.

          3.   "States and Domestic Municipal Governments" means the states of
               the United States, the District of Columbia, Puerto Rico, the
               Virgin Islands, American Samoa, Guam, the Trust Territory of the
               Pacific Islands, and any political subdivision and agencies
               thereof.

          4.   "To Bring to the Point of Practical Application" means to
               manufacture in the case of a composition or product, to practice
               in the case of a process, or to operate in the case of a machine
               and under such conditions as to establish that the invention is
               being worked and that its benefits are reasonably accessible to
               the public.

     b.   Supplier Retains Title

          1.   The supplier may retain the entire right, title, and interest
               throughout the world or any country thereof in and to each
               pre-existing and each subject invention.

     c.   Minimum License Acquired by the Postal Service and option for License.
          The supplier:

          1.   (a) Hereby grants to the Postal Service a nonexclusive,
               nontransferable, paid-up irrevocable license to use each Subject
               Invention throughout the United States by or on behalf of the
               Postal Service.

               (b) Also grants the Postal Service the option of obtaining, upon
               payment of the sum set forth in CLIN 002, an exclusive
               irrevocable, paid-up license (including the right to sublicense)
               to use the pre-exising invention and the subject invention, and
               any of Supplier's inventions related to or used with or improved
               upon by the inventions (including those pre-existing to this
               contract) along with the labeling system. The exclusivity of this
               license to the Postal Service shall be limited to the delivery
               field, which shall include, but not be limited to, all delivery
               or postal applications or services such as receiving, preparing,
               handling and delivering the mail, letters, flats, packages,
               postcards, and any other item delivered by the Postal Service
               within the United States. The Postal Service shall have the right
               to choose who can use the technology for mail handled by the
               Postal Service.

          2.   agrees to grant to responsible applicants, upon request of the
               Postal Service, a license on terms that are reasonable under the
               circumstances;

<PAGE>

               (a)  unless the supplier, his licensee, or his assignee,
                    demonstrates to the Postal Service that effective steps have
                    been taken within three years after a patent issues on such
                    invention to bring the invention to the point of practical
                    application or that the invention has been made available
                    for licensing royalty-free or on terms that are reasonable
                    in the circumstances, or can show cause why the principal or
                    exclusive rights should be retained for a further period of
                    time, or

               (b)  to the extent that the invention is required for public use
                    by governmental regulations or for other public purposes
                    stipulated in this contract.

          3.   must submit written reports at reasonable intervals, upon request
               of the Postal Service during the term of the patent on the
               subject invention regarding:

               (a)  the commercial use that is being made or is intended to be
                    made of such invention; and

               (b)  the steps taken by the supplier or his transferee to bring
                    the invention to the point of practical application, or to
                    make the invention available for licensing.

          4.   agrees to arrange, when licensing any Subject Inventions or
               Pre-existing Inventions, to charge reasonable royalty on
               purchases involving the Postal Service or companies providing
               items for delivery to the Postal Service; and

          5.   agrees to provide for the Postal Service's paid-up license
               pursuant to paragraph c.1 of this clause in any instrument
               transferring rights in a subject invention and to provide for the
               granting of licenses as required by c.2 of this clause, and for
               the reporting of utilization information as required by paragraph
               c.3 of this clause whenever the instrument transfers principal or
               exclusive rights in any subject invention.

               (a)  Nothing contained in this paragraph c will be deemed to
                    grant to the Postal Service any rights with respect to any
                    invention other than a subject invention.

     d.   Invention Identification, Disclosures and Reports

          1.   The supplier must establish and maintain active and effective
               procedures to assure that subject inventions and improved
               versions of pre-existing inventions are promptly identified and
               timely disclosed. These procedures must include the

<PAGE>

               maintenance of laboratory notebooks or equivalent records and
               other records as are reasonably necessary to document the
               conception and/or the first actual reduction to practice of
               subject inventions, and records which show that the procedures
               for identifying and disclosing the inventions are followed. Upon
               request, suppliers must furnish contracting officers a
               description of such procedures so that they may evaluate and
               determine their effectiveness.

          2.   The supplier must furnish the contracting officer:

               (a)  a complete technical disclosure for each subject invention
                    and improved version of pre-exsiting inventions, within six
                    months after conception or first actual reduction to
                    practice, whichever occurs first in the course of or under
                    the contract, but in any event prior to any on sale, public
                    use, or publication of such invention known to the supplier.
                    The disclosure must identify the contract and inventor(s)
                    and be sufficiently complete in technical detail and
                    appropriately illustrated by sketch or diagram to convey to
                    one skilled in the art to which the invention pertains, a
                    clear understanding of the nature, purpose, operation, and
                    to the extent known, the physical, chemical, biological, or
                    electrical characteristics of the invention;

               (b)  interim reports, preferably on PS Form 882, at least every
                    twelve months from the date of the contract listing subject
                    inventions and improved versions of pre-existing inventions
                    during that period and certifying that:

                    (i)  the supplier's procedures for identifying and
                         disclosing subject inventions and improved versions of
                         pre-existing inventions as required by this paragraph e
                         have been followed throughout the reporting period; and

                    (ii) all subject inventions and improved versions of
                         pre-existing inventions have been disclosed or that
                         there are no such inventions; and

               (c)  A final report, preferably on PS Form 882, within three
                    months after completion of the contract work, listing all
                    subject inventions and improved versions of pre-existing
                    inventions or certifying that there were no such inventions.

          3.   The supplier must obtain patent agreements to effectuate the
               provisions of this clause from all persons in his employ who
               perform any part of the work under this contract except
               nontechnical personnel, such as clerical and manual labor
               personnel.

          4.   The supplier agrees that the Postal Service may duplicate and
               disclose subject invention disclosures and all other reports and
               papers furnished or required to be furnished pursuant to this
               clause.

     e.   Forfeiture of Rights in Unreported Subject Inventions

<PAGE>

          1.   The supplier must forfeit to the Postal Service all rights in any
               subject invention which he fails to disclose to the contracting
               officer within six months after the time he:

               (a)  files or causes to be filed a United States or foreign
                    application thereon, or

               (b)  submits the final report required by paragraph e.2.(c) of
                    this clause.

          2.   However, the supplier must not forfeit rights in a subject
               invention if, within the time specified in 1.(a) or 1.(b) of this
               paragraph f, the supplier:

               (a)  prepares a written decision based upon a review of the
                    record that the invention was neither conceived nor first
                    actually reduced to practice in the course of or under the
                    contract; or

               (b)  contending that the invention is not a subject invention, he
                    nevertheless discloses the invention and all facts pertinent
                    to his contention to the contracting officer; or

               (c)  establishes that the failure to disclose did not result from
                    his fault or negligence.

          3.   Pending written assignment of the patent applications and patents
               on a subject invention determined by the contracting officer to
               be forfeited (such determination to be a final decision under the
               Claims and Disputes clause), the supplier will be deemed to hold
               the invention and the patent applications and patents pertaining
               thereto in trust for the Postal Service. The forfeiture provision
               of this paragraph f will be in addition to and must not supersede
               other rights and remedies which the Postal Service may have with
               respect to subject inventions.

     f.   Examination of Records Relating to Inventions

          1.   The contracting officer or his authorized representative will,
               until the expiration of three years after final payment under
               this contract, have the right to examine any books (including
               laboratory notebooks), records, documents, and other supporting
               data of the supplier which the contracting officer reasonably
               deems pertinent to the discovery or identification of subject
               inventions or to determine compliance with the requirements of
               this clause.

          2.   The contracting officer or his authorized representative will
               have the right to examine all books (including laboratory
               notebooks), records, and documents of the supplier relating to
               the conception or first actual reduction to practice of
               inventions in the same field of technology as the work under this
               contract, to determine whether any such inventions are subject
               inventions if the supplier refuses or fails to:

<PAGE>

               (a)  establish the procedures of paragraph e.1 of this clause; or

               (b)  maintain and follow such procedures; or

               (c)  correct or eliminate any material deficiency in the
                    procedures within thirty days after the contracting officer
                    notifies the supplier of such a deficiency.

     g.   Withholding of Payment (Not Applicable to Subcontracts)

          1.   Any time before final payment of the amount of this contract, the
               contracting officer may, if he deems such action warranted,
               withhold payment until a reserve not exceeding $50,000 or five
               percent of the amount of this contract, whichever is less, will
               have been set aside if in his opinion the supplier fails to:

               (a)  establish, maintain and follow effective procedures for
                    identifying and disclosing subject inventions pursuant to
                    paragraph e.1 of this clause; or

               (b)  disclose any subject invention pursuant to paragraph e.2.(a)
                    of this clause; or

               (c)  deliver acceptable interim reports pursuant to paragraph
                    e.2.(b) of this clause; or

               (d)  provide the information regarding subcontracts pursuant to
                    paragraph i.5 of this clause.

          2.   Such reserve or balance will be withheld until the contracting
               officer has determined that the supplier has rectified whatever
               deficiencies exist and has delivered all reports, disclosures,
               and other information required by this clause.

          3.   Final payment under this contract will not be made before the
               supplier delivers to the contracting officer all disclosures of
               subject inventions required by paragraph e.2.(a) of this clause,
               an acceptable final report pursuant to e2(c) of this clause and
               all past due confirmatory instruments.

          4.   The contracting officer may, in his discretion, decrease or
               increase the sums withheld up to the maximum authorized above. If
               the supplier is a nonprofit organization, the maximum amount that
               may be withheld under this paragraph will not exceed $50,000 or
               one percent of the amount of this contract, whichever is less. No
               amount will be withheld under this paragraph while the amount
               specified by this paragraph is being withheld under other
               provisions of the contract. The withholding of any amount or
               subsequent payment thereof will not be construed as a waiver of
               any rights accruing to the government under this contract.

     h.   Subcontracts

<PAGE>

          1.   For the purpose of this paragraph, the term "supplier" means the
               Supplier in this contract and the term "subcontractor" means the
               party being awarded a subcontract, regardless of tier.

          2.   The supplier must ensure that every subcontract under this
               contract regardless of tier provides the Postal Service with the
               same rights it is to acquire under this Patent Rights clause.
               These rights may flow to the Postal Service through the Supplier
               in the event of a refusal by a subcontractor to accept such
               clause, the supplier:

               (a)  must promptly submit a written notice to the contracting
                    officer setting forth the subcontractor's reasons for such
                    refusal and other pertinent information which may expedite
                    disposition of the matter; and

               (b)  must not proceed with the subcontract without the written
                    authorization of the contracting officer.

          3.   All invention disclosures, reports, instruments, and other
               information required to be furnished by the subcontractor may, be
               furnished to the supplier for transmission to the contracting
               officer.

          4.   The supplier must promptly notify the contracting officer in
               writing upon the award of any subcontract containing a patent
               rights clause by identifying the subcontractor, the applicable
               patent rights clause, the work to be performed under the
               subcontract, and the dates of award and estimated completion.
               Upon request of the contracting officer, the supplier must
               furnish a copy of the subcontract. If there are no subcontracts
               containing patent rights clauses, a negative report must be
               included in the final report submitted pursuant to paragraph
               e.2.(c) of this clause.

          5.   The supplier must identify all subject inventions or pre-existing
               inventions of the subcontractor of which he acquires knowledge in
               the performance of this contract and must notify the contracting
               officer promptly upon the identification of the inventions.

          6.   It is understood that the Postal Service is a third party
               beneficiary of any subcontract clause granting rights to the
               Postal Service subject inventions, and the supplier hereby
               assigns to the Postal Service all rights that he would have to
               enforce the subcontractor's obligations for the benefit of the
               Postal Service with respect to subject inventions. The supplier
               will not be obligated to enforce the agreements of any
               subcontractor hereunder relating to the obligations of the
               subcontractor to the Postal Service in regard to subject
               inventions.

     i.   Filing of Domestic Patent Applications

          1.   With respect to each subject invention in which the supplier
               elects to retain domestic rights pursuant to paragraph b of this
               clause, the supplier must have a domestic patent application
               filed within six months after submission of the invention
               disclosure pursuant to paragraph e.2.(a) of this clause, or such
               longer period as may be approved in writing by the contracting
               officer for good cause

<PAGE>

               shown in writing by the supplier. With respect to such invention,
               the supplier must promptly notify the contracting officer of any
               decision not to file an application.

          2.   For each subject invention on which a patent application is filed
               by or on behalf of the supplier, the supplier must:

               (a)  within two months after such filing, or within two months
                    after submission of the invention disclosure if the patent
                    application previously has been filed, deliver to the
                    contracting officer a copy of the application as filed,
                    including the filing date and serial number;

               (b)  include the following statement in the second paragraph of
                    the specification of the application and any patents issued
                    on the subject invention.

                    "The U.S. Postal Service has rights in this invention
                    pursuant to Contract No.                   ".
                                            -------------------

               (c)  within six months after filing the application, or within
                    six months after submitting the invention disclosure if the
                    application has been filed previously, deliver to the
                    contracting officer a duly executed and approved instrument
                    on a form specified by the contracting officer fully
                    confirmatory of all rights to which the Postal Service is
                    entitled, and provide the Postal Service an irrevocable
                    power to inspect and make copies of the patent application
                    file;

               (d)  provide the contracting officer with a copy of the patent
                    within two months after a patent issues on the application;
                    and

               (e)  not less than thirty days before the expiration of the
                    response period for any action required by the Patent and
                    Trademark Office, notify the contracting officer of any
                    decision not to continue prosecution of the application and
                    deliver to the contracting officer executed instruments
                    granting the government a power of attorney.

          3.   For each subject invention in which the supplier initially elects
               not to retain principal domestic rights, the supplier must inform
               the contracting officer promptly in writing of the date and
               identity of any on sale, public use, or publication of such
               invention which may constitute a statutory bar under 35 U.S.C.
               102, which was authorized by or known to the supplier, or any
               contemplated action of this nature.

     j.   Filing of Foreign Patent Applications

          1.   With respect to each subject invention in which the supplier
               elects to retain principal rights in a foreign country pursuant
               to paragraph b.1 of this clause, the supplier must have a patent
               application filed on the invention in such country, in

<PAGE>

               accordance with applicable statutes and regulations, and within
               one of the following periods:

               (a)  eight months from the date of a corresponding United States
                    application filed by or on behalf of the supplier, or if
                    such an application is not filed, six months from the date
                    the invention is submitted in a disclosure pursuant to
                    paragraph e.2.(a) of this clause;

               (b)  six months from the date a license is granted by the
                    Commissioner of Patents and Trademarks to file foreign
                    applications when such filing has been prohibited by
                    security reasons; or

               (c)  such longer period as may be approved in writing by the
                    contracting officer.

          2.   The supplier must notify the contracting officer promptly of each
               foreign application filed and, upon written request, must furnish
               an English version of such foreign application without additional
               compensation.

<PAGE>

H.7  POSTAL SERVICE TITLE IN TECHNICAL DATA AND COMPUTER SOFTWARE (Clause 8-16)
     (Modified)

     a.   Definitions

          1.   Data. Data means technical data including drawings, technical
               reports, studies, and similar documents; computer software and
               computer software documentation, including but not limited to
               source code, object code, algorithms, formulas, and, other data
               that describe design, function, operation, or capabilities, and
               other recorded information, regardless of the form or the medium
               on which it may be recorded. It does not include information
               incidental to contract administration, such as financial,
               administrative, cost or pricing, or management information.

          2.   Form, fit, and function data. Data relating to an item or process
               that are sufficient to enable physical and functional
               interchangeability, as well as data identifying source, size,
               configuration, mating and attachment characteristics, functional
               characteristics, and performance requirements; except that for
               computer software, it means data identifying origin, functional
               characteristics, and performance requirements but specifically
               excludes the source code, algorithm, process, formulas, and
               machine-level flow charts of the computer software.

          3.   Limited rights data. Data other than computer software developed
               at private expense, including minor modifications of these data.

          4.   Technical data. Data other than computer software, of a
               scientific or technical nature.

          5.   Restricted computer software. Computer software developed at
               private expense that is a trade secret, is commercial or
               financial and confidential or privileged, or is published
               copyrighted computer software, including minor modifications of
               this computer software.

          6.   Restricted rights. The rights of the Postal Service in restricted
               computer software, as set forth in a Restricted Rights Notice as
               provided in paragraph h below, or as otherwise may be provided in
               a collateral agreement incorporated in and made part of this
               contract.

          7.   Unlimited rights. The rights of the Postal Service in technical
               data and computer software to use, disclose, reproduce, prepare
               derivative works, distribute copies to the public, and perform
               and display publicly, in any manner and for any purpose, and to
               have or permit others to do so.

     b.   Rights

          1.   The Supplier retains title to all data first produced in the
               performance of this contract. Accordingly, the supplier assigns
               all rights, title, and interest to the Supplier in all data first
               produced in performance of this contract. The supplier,

<PAGE>

               unless directed otherwise by the contracting officer, must place
               on all such data delivered under this contract the following
               notice:

               "This data is the confidential property of the Supplier and may
               not be used, released, reproduced, distributed or published
               without the express written permission of the Supplier."

          2.   The supplier grants to the Postal Service a royalty-free,
               nonexclusive, irrevocable license throughout the United States to
               use any manner any portion of data that is not first produced in
               the performance of this contract but in which copyright is owned
               by the supplier and that is incorporated in the data furnished
               under this contract, and to authorize others to do so for Postal
               Service purposes.

          3.   Unless the contracting officer's written approval is obtained,
               the supplier may not include in any data prepared for or
               delivered to the Postal Service under this contract any data
               which is not owned by the supplier or the Postal Service without
               acquiring for the Postal Service any right necessary to perfect a
               license of the scope set forth in subparagraph b.2.

     c.   Indemnity. The supplier indemnifies the Postal Service (and its
          officers, agents, and employees acting for the Postal Service) against
          any liability, including costs and expenses, (1) for violation of
          proprietary rights, copyrights, or rights of privacy or publicity,
          arising out of the creation, delivery, or use of any works furnished
          under this contract, or (2) based upon any libelous or other unlawful
          matter contained in these works. This provision does not apply to
          material furnished by the Postal Service and incorporated in the works
          to which this clause applies.

     d.   Additional Rights in Technical Data

          1.   Except as provided in paragraph b, the Postal Service has
               unlimited rights in:

               (a)  Form fit, and function data, including such data developed
                    at private expense, delivered under this contract, and

               (b)  Technical data delivered under this contract that constitute
                    manuals or instructional and training material for
                    installation, operation, or routine maintenance and repair
                    of items, components, or processes delivered or furnished
                    for use under this contract.

          2.   Copyright

               (a)  The contracting officer may direct the supplier to
                    establish, or authorize the establishment of, rights to use
                    the copyright in the technical data and to assign, or obtain
                    the written assignment of, the rights to use the copyright
                    to the Postal Service or its designated assignee.

<PAGE>

               (b)  The supplier may not, without prior written permission of
                    the contracting officer, incorporate in technical data
                    delivered under this contract any data not first produced in
                    the performance of this contract containing the copyright
                    notice of 176 U.S.C. 401 or 402, unless the supplier
                    identifies the data and grants to the Postal Service, or
                    acquires on its behalf at no cost to the Postal Service, a
                    paid-up, nonexclusive, irrevocable worldwide license in such
                    copyright data to reproduce, prepare derivative works,
                    distribute copies to the public, and perform and display the
                    data publicly.

               (c)  The Postal Service agrees not to remove any copyright
                    notices placed on data pursuant to this section d, and to
                    include such notices on all reproductions of the data.

     e.   Release, Publication, and Use of Technical Data and Computer Software

          1.   Unless prior written permission is obtained from the contracting
               officer or to the extent expressly set forth in this contract,
               the supplier will not use, release to others, reproduce,
               distribute, or publish any technical data or computer software
               first produced by the supplier in the performance of the
               contract.

          2.   The supplier agrees that if it receives or is given access to
               data or software necessary for the performance of this contract
               that contain restrictive markings, the supplier will treat the
               data or software in accordance with the markings unless otherwise
               specifically authorized in writing by the contracting officer.

     f.   Unauthorized Marking of Data or Computer Software

          1.   If any technical data or computer software delivered under this
               contract are marked with the notice specified in paragraph h and
               the use of such a notice is not authorized by this clause, or if
               the data or computer software bear any other unauthorized
               restrictive markings, the contracting officer may at any time
               either return the data or software or cancel the markings. The
               contracting officer must afford the supplier at least 30 days to
               provide a written justification to substantiate the propriety of
               the markings. Failure of the supplier to timely respond, or to
               provide written justification, may result in the cancellation of
               the markings. The contracting officer must consider any, written
               justification by the supplier and notify the supplier if the
               markings are determined to be authorized.

          2.   The foregoing procedures may be modified in accordance with
               Postal Service regulations implementing the Freedom of
               Information Act (5 U.S.C. 552) if necessary to respond to a
               request thereunder. In addition, the supplier is not precluded
               from bringing a claim in connection with any dispute that may
               arise as the result of the Postal Service's action to remove any
               markings on data or computer software, unless this action occurs
               as the result of a final disposition of the matter by a court of
               competent jurisdiction.

     g.   Omitted or Incorrect Markings

<PAGE>

          1.   Technical data or computer software delivered to the Postal
               Service without the limited rights notice or restricted notice
               authorized by paragraph h, or the data rights notice required by
               paragraph b, will be deemed to have been furnished with unlimited
               rights, and the Postal Service assumes no liability for the
               disclosure, use, or reproduction of such data or computer
               software. However, to the extent the data or software have not
               been disclosed outside the Postal Service, the supplier may
               request, within six months (or a longer time approved by the
               contracting officer) after delivery of the data or software,
               permission to have notices placed on qualifying technical data or
               computer software at the supplier's expense, and the contracting
               officer may agree to do so if the supplier:

               (a)  Identifies the technical data or computer software to which
                    the omitted notice is to be applied;

               (b)  Demonstrates that the omission of the notice was
                    inadvertent;

               (c)  Establishes that the use of the proposed notice is
                    authorized; and

               (d)  Acknowledges that the Postal Service has no liability with
                    respect to the disclosure, use, or reproduction of any such
                    data or software made before the addition of the notice or
                    resulting from the omission of the notice.

          2.   The contracting officer may also (a) permit correction of
               incorrect notices, at the supplier's expense, if the supplier
               identifies the technical data or computer software on which
               correction of the notice is to be made and demonstrates that the
               correct notice is authorized, or (b) correct any incorrect
               notices.

     h.   Protection of Rights

          1.   Protection of Limited Rights Data. When technical data other than
               data listed in section d., above, are specified to be delivered
               under this contract and qualify as limited rights data, if the
               supplier desires to continue protection of such data, the
               supplier must affix the following "Limited Rights Notice" to the
               data, and the Postal Service will thereafter treat the data,
               subject to paragraphs f. and g. above, in accordance with the
               Notice:

               "LIMITED RIGHTS NOTICE

               These technical data are submitted with limited rights under
               Postal Service Contract No.          (and subcontract         ,
                                          ---------                  -------
               if appropriate). These data may be reproduced and used by the
               Postal Service with the express limitation that they will not,
               without written permission of the supplier, be used for purposes
               of manufacture or disclosed outside the Postal Service; except
               that the Postal Service may disclose these data outside the
               Postal Service for the following purposes, provided that the
               Postal Service makes such disclosure subject to prohibition
               against further use and disclosure:

<PAGE>

               (1)  Use (except for manufacture) by support service suppliers.

               (2)  Evaluation by Postal Service evaluators.

               (3)  Use (except for manufacture) by other suppliers
                    participating in the Postal Service's program of which the
                    specific contract is a part, for information and in
                    connection with the work performed under each contract.

               (4)  Emergency repair or overhaul work.

                    This Notice must be marked on any reproduction of these
                    data, in whole or in part."

          2.   Protection of Restricted Computer Software

               (a)  When computer software is specified to be delivered under
                    this contract and qualifies as restricted computer software,
                    if the supplier desires to continue protection of such
                    computer software, the supplier must affix the following
                    "Restricted Rights Notice" to the computer software, and the
                    Postal Service will thereafter treat the computer software,
                    subject to paragraphs f and g above, in accordance with the
                    Notice:

                    "RESTRICTED RIGHTS NOTICE

                    a.   This computer software is submitted with restricted
                         rights under Postal Service Contract No.          (and
                                                                  --------
                         subcontract                  if appropriate). It may
                                     ----------------
                         not be used, reproduced, or disclosed by the Postal
                         Service except as provided below or as otherwise stated
                         in the contract.

                    b.   This computer software may be:

                         (1)  Used or copied for use in or with the computer or
                              computers for which it was acquired, including use
                              at any Postal Service installation to which the
                              computer or computers may be transferred;

                         (2)  Used or copied for use in a backup computer if any
                              computer for which it was acquired is inoperative;

                         (3)  Reproduced for safekeeping (archives) or backup
                              purposes;

                         (4)  Modified, adapted, or combined with other computer
                              software, provided that the modified, adapted, or
                              combined portions of any derivative software
                              incorporating restricted computer software are
                              made subject to the same restricted rights;

<PAGE>

                         (5)  Disclosed to and reproduced for use by support
                              service suppliers in accordance with 1 through 4
                              above, provided the Postal Service makes such
                              disclosure or reproduction subject to these
                              restricted rights; and

                         (6)  Used or copied for use in or transferred to a
                              replacement computer.

                    c.   Notwithstanding the foregoing, if this computer
                         software is published copyrighted computer software, it
                         is licensed to the Postal Service, without disclosure
                         prohibitions, with the minimum rights set forth in the
                         preceding paragraph.

                    d.   Any other rights or limitations regarding the use,
                         duplication, or disclosure of this computer software
                         are to be expressly stated in, or incorporated in, the
                         contract.

                    e.   This Notice must be marked on any reproduction of this
                         computer software, in whole or in part."

               (b)  When it is impracticable to include the above Notice on
                    restricted computer software, the following short-form
                    Notice may be used instead, on condition that the Postal
                    Service's rights with respect to such computer software will
                    be as specified in the above Notice unless otherwise
                    expressly stated in the contract.

                    "RESTRICTED RIGHTS NOTICE (SHORT FORM)

                    Use, reproduction, or disclosure is subject to restrictions
                    set forth in Contract No.              (and subcontract
                                              -----------
                                       , if appropriate) with
                    ------------------
                                          name of supplier and subcontractor)."
                    ---------------------

     i.   Subcontracting. The supplier has the responsibility to obtain from its
          subcontractors all computer software and technical data and the rights
          therein necessary to fulfill the supplier's obligations under this
          contract. If a subcontractor refuses to accept terms affording the
          Postal Service such rights, the supplier must promptly bring such
          refusal to the attention of the contracting officer and may not
          proceed with subcontract award without further authorization.

     j.   Standard Commercial License or Lease Agreements. The supplier
          unconditionally accepts the terms and conditions of this clause unless
          expressly provided otherwise in this contract or in a collateral
          agreement incorporated in and made part of this contract. Thus the
          supplier agrees that, notwithstanding any provisions to the contrary
          contained in the supplier's standard commercial license or lease
          agreement pertaining to any restricted computer software delivered
          under this contract, and irrespective of whether any such agreement
          has been proposed before or after issuance of this contract or of the
          fact that such agreement may be affixed to or accompany the restricted
          computer software upon delivery, the Postal Service has

<PAGE>

          the rights set forth in this clause to use any restricted computer
          software delivered under this contract.

     k.   Relationship to Patents. Nothing contained in this clause implies a
          license to the Postal Service under any patent or may be construed as
          affecting the scope of any license or other right otherwise granted to
          the Postal Service.

H.8  AUTHORIZATION AND CONSENT (Clause 8-2) (January 1997)

     a.   Research and Development Work. The Postal Service authorizes and
          consents to all use and manufacture of any invention covered by a U.S.
          patent in the performance of research, development, or experimental
          work called for, or performed as a necessary activity, in the
          performance of this contract or any subcontract, at any tier.

     b.   Supplies and Construction. The Postal Service authorizes and consents
          to all use and manufacture of any invention covered by a U.S. patent
          in performing this contract or subcontract, at any tier, that is:

          1.   Embodied in the structure or composition of any article, the
               delivery of which is accepted by the Postal Service under this
               contract; or

          2.   Used in machinery, tools, or methods whose use necessarily
               results from compliance by the supplier or subcontractor with (a)
               specifications or written provisions forming a part of this
               contract or (b) specific written instructions given by the
               contracting officer directing the manner of performance.

          3.   Determination of Liability. The liability of the Postal Service
               for patent infringement or for the unauthorized use of any patent
               will be determined by the provisions of any patent indemnity
               clause included in this contract or in any subcontract under this
               contract (at any tier) and by any indemnification or warranty
               (express or implied) otherwise provided by the supplier or
               subcontractor for similar products or services when supplied to
               commercial buyers.

          4.   Flowdown. The supplier must include, and require inclusion of,
               this clause, suitably modified to identify the parties, in all
               subcontracts under this contract at any tier that are expected to
               exceed $50,000.

<PAGE>

H.9  NOTICE AND ASSISTANCE REGARDING PATENT AND COPYRIGHT INFRINGEMENT (Clause
     8-3) (January 1997)

     a.   The supplier must report to the contracting officer, in writing,
          promptly and in reasonable detail, any notice, claim, or suit
          regarding patent or copyright infringement (or unauthorized use of a
          patent or copyright) based on performance of this contract.

     b.   At the contracting officer's request, the supplier must furnish all
          evidence and information in its possession pertaining to the suit or
          claim. The evidence and information will be furnished at the expense
          of the Postal Service except when the supplier has agreed to indemnify
          the Postal Service.

     c.   This clause must be included in all subcontracts under this contract,
          at any tier, over $50,000.

H.10 PATENT INDEMNITY (Clause 8-4) (January 1997)

     a.   Except as provided in paragraph d below, the supplier indemnifies the
          Postal Service, its employees, and its agents against liability,
          including costs and fees, for patent infringement (or unauthorized
          use) arising from the manufacture, use, or delivery of supplies, the
          performance of service, the construction or alteration of real
          property, or the disposal of property by or for the Postal Service, if
          the supplies, service, or property (with or without relatively minor
          modifications) have been or are being offered for sale or use in the
          commercial marketplace by the supplier.

     b.   The Postal Service must promptly notify the supplier of any claim or
          suit subject to the indemnity of paragraph a above alleging patent
          infringement or unauthorized use of a patent.

     c.   To the extent allowed by law, the supplier may participate in the
          defense of any suit to which this clause applies.

     d.   This indemnification does not apply to:

          1.   Infringements for the unauthorized use of a private patent
               covered by this indemnity resulting from the contracting
               officer's specific written direction, compliance with which
               requires an infringement; or

          2.   Infringement or unauthorized use claims that are unreasonably
               settled without the supplier's consent before litigation.

     e.   This clause must be included in all subcontracts under this contract,
          at any tier, over $50,000.

<PAGE>

H.11 Clause 8-17 Delivery of Limited Rights and Restricted Computer Software
     (January 1997)

     To the extent that the supplier has, in its proposal, identified
     pre-existing proprietary data or restricted computer software pursuant to
     the "Representation of Rights in Data" of the solicitation, the contracting
     officer, or a duly authorized representative, until the expiration of three
     years after final payment of this contract, will have the right to examine
     any books, records, documents or other data supporting the supplier's
     claim(s) hereunder. Notwithstanding the supplier's rights and claims of,
     and the Postal Service's agreement to protect, pre-existing proprietary
     data or software, the Postal Service will have unlimited or unrestricted
     rights without additional supplier compensation, to any data or software
     identified above, that is:
     (1) Obtained independent of this contract;
     (2) In the public domain; or
     (3) Determined, subsequent to the effective date of this contract, to not
     have qualified as pre-existing data or software or a derivative of
     pre-existing data or software to which the supplier would have such
     proprietary rights.

H.12 MANUFACTURE OF REPAIR PARTS (Clause 8-18) (January 1997)

     In addition to the Postal Service rights specified in the "Limited Rights
     Notice" of the clause entitled "Rights in Technical Data" paragraph g, the
     Postal Service has the unilateral right to use competitive procedures to
     procure repair parts or assemblies for the equipment or supply items being
     developed under this contract. If the repair parts or assemblies have been
     identified as being subject to protection under "Limited Data Rights" or
     "Restricted Computer Software" provisions of this contract, the Postal
     Service will obtain a nondisclosure agreement from interested offerors
     prior to releasing any drawings, specifications or other descriptive
     documentation suitable for manufacturing or reproducing such repair parts
     of assemblies.

<PAGE>

                         SECTION I - LIST OF ATTACHMENTS

Attachment No.   No. of Pages    Attachment Title
--------------   ------------   -----------------
      01              06        Statement of Work
      02              05        Supplier proposal

<PAGE>

                                  ATTACHMENT I
 Statement of Work: Development of Photochromic/Thermochromic Inks for Flat Mail
--------------------------------------------------------------------------------

                                Statement of Work

          Development of Photochromic/Thermochromic Inks for Flat Mail

1.   Background:

There have been significant advances in United States Postal Service (USPS) flat
mail technologies in recent years. Mail is automatically sorted to destination
point by recognition of customer applied, pre-barcoded POSTNET codes. In
addition, most non-bar-coded flat mail is sorted by address decoding using
Optical Character Recognition (OCR) techniques.

In Letter mail processing equipment, mail without customer applied barcodes or
OCR readable addresses, is identified (marked) using a fluorescent
identification (ID) code applied to a mailpiece by an Ink Jet Printer (IJP).
This allows for further decoding and processing by manual "keying" or computer
address recognition systems. The IJP technology is relatively mature and is
capable of printing on Letter mail sorting transports operating at 110-160
inches per, second (IPS). The USPS letter mail network "logs" mail IDs

Similarly, the destination for some flat mail pieces cannot be decoded by OCR or
barcode reading equipment. This mail has to be directed by manual "keying" of
portions of the address or ZIP code. Application of an ID code similar to Letter
mail has never been required on flat mail. Most flat mail is pre-barcoded and is
only sorted once at destination. However some pieces are keyed more than once as
they move through the automation system. This extra keying could be avoided if
an ID system were implemented on Flat mail.

There are several new automation initiatives being considered for flat mail.
Sorting flats to Carrier Sequence could provide considerable savings. There are
also opportunities to make use of a remote data base system to "look-up" and
track flat pieces in a similar manner to the Letter mail ID Code Sorting (ICS)
system. Both of these systems will require that a barcode or similar ID be
applied to flat mail to avoid multiple manual keying.

IJP printing methods used on Letter mail could be applied to flat mail. However,
flat mail materials are very different from those used on letter mail and there
are difficulties in applying IJP inks directly. Flat mail materials are often
high quality glossy or plastic and not suitable for water-based inks. Flats
often do not have an area clear of print and there is no standard "clear area",
as exists on letter mail, for printing a code. Mailers object to codes applied
over their commercial print and this can interfere with reading of the code.

The USPS has conducted a study to identify potential methodologies for marking
Flat Mail. A number of possible technologies were discovered.

One potential proprietary technology uses Photochromic or Thermochromic
materials. These materials are invisible until excited by UV light or microwave
radiation. The materials could be integrated into a variety of possible ink
bases for application on Postal Flat equipment. The Postal Service is
particularly interested in this technology. It is acceptable to Mailers and
would be used with existing Flat Mail sorter OCR scanner equipment. Any ink
developed could use an ink base with improved adhesion and drying
characteristics.

The purpose of this Statement of Work is to develop the proprietary
Photochromic/Thermochromic concept into a viable application solution for USPS
Flat Mail.

--------------------------------------------------------------------------------
                                        1

<PAGE>

 Statement of Work: Development of Photochromic/Thermochromic Inks for Flat Mail
--------------------------------------------------------------------------------

2.   Objectives:

2.1  General:

The objective of this task is to develop and/or refine an ID marking system for
USPS flat mail based on the previously identified material systems of
photochromics/thermochromics. The contractor will demonstrate a solution clearly
suitable for use in applying and reading an ID on flat mail at rates of up to
three items/second (1101PS) using the current imaging hardware of Flat mail
sorters.

The resulting solution will consist of a material or combination of materials
that can be applied to a Flat Mail piece on a typical USPS Flat Mail sorting
machine such as the AFSM 100. The material must be capable of being applied as
an ID barcode and must be clearly distinguishable and capable of being read on
the AFSM camera systems. The material must adhere to the various Flat Mail
materials used by mailers including, but not limited to polywrap (plastic),
tyvec and glossy print.

The ID marking system will primary consist of several ink and/or label materials
but this task also requires that a physical application method such as a printer
or labeler be defined and tested to complete the system solution. Any drying
mechanisms and emission reduction equipment must also be defined and tested.

In addition, this task requires engineering of Photochromic/Thermochromic
stimulus systems that will excite the material in the required response time of
several milliseconds or less.

The ID barcode protocol is not defined for this task and for initial testing is
left to the discretion of the contractor. However, the protocol must be capable
of being read by USPS AFSM camera systems. Possible coding schemes are
bar/no-bar and two or four state codes.

2.2  Components:

There are three main components to this task:

     .    Materials development

     .    Hardware Development

     .    Test and Validation of Materials and Hardware

Materials development is the development of the Photochromic/Thermochromic
marking material in a form that will be physically applied to the Flat mailpiece
to form an ID code. Materials also include a label method as an alternative to
direct application.

Hardware development is the development of equipment to apply the Material or
materials (above) to the Flat mailpiece and equipment to stimulate the material
for recognition of the applied ID code. The hardware development for this task
will primarily involve modifying existing printing, labeling and stimulus
products to function with the Photochromic/Thermochromic marking material.

--------------------------------------------------------------------------------
                                        2

<PAGE>

 Statement of Work: Development of Photochromic/Thermochromic Inks for Flat Mail
--------------------------------------------------------------------------------

Test and Validation of Materials and Hardware will consist of testing on sorter
bench test equipment to simulate USPS Flat mail sorters. Final testing will be
performed on an AFSM 100 Flat sorter test bed.

3.   Task Requirements:

3.1  Materials Development:

The requirements of the materials to be used to create the marking system are:

     .    Transparent ("clear" or "invisible") in normal state.

     .    Black on white in excited state.

     .    Adequate discrimination in excited state to allow reading by USPS
          scanner cameras, which are Charge Coupled Device (CCD) based.

     .    Compatible with printing/labeling systems to allow application on a
          110 Inches per second (IPS) transport or at 3 pieces per second.

     .    Good adhesion to Polywrap (plastic), tyvec and high gloss magazine
          covers.

     .    Good resilience with minimum damage to a code after six sort cycles
          through USPS Flat sorting equipment.

     .    Environmentally friendly both in application (volatility, emissions)
          and toxicity.

     .    Cost effective. A target material cost of less than .1c per
          application.

The developed materials will result in a black ID code over a white base
"primer" or label. The resulting ID code is required to have a high enough black
code to white background ratio (print contrast ratio) to be easily discriminated
by Flat mail sorter scanner cameras such as the Accusort AV1220 models used on
the USPS AFSM100.

The materials are required to be applied by printing and labeling devices that
can apply the black code, primer or label at transport speeds up to 110 IPS or
up to 3 Flat mail pieces per second.

The materials are required to adhere adequately to the prints and covers that
makeup Flat mailpieces. Flat mailpieces consist of, but are not limited to
Polywarps (plastics), tyvec, high gloss print, newspaper etc. In order to avoid
smudging, the materials must dry (or be dried) in 3 seconds or less. The
developed materials must also maintain consistency as the Flat mailpiece is
sorted through USPS sorting equipment over a period of up to 10 days.

It is accepted that the developed materials may not be water-based substances as
are currently used by the USPS. However, the USPS has a policy of reducing
Environmental impacts and it is difficult to distribute and store volatile
materials. The developed materials must have no toxicity and any emissions must
be adequately controlled. In addition, any material with a flash point below 100
degrees Fahrenheit would be problematic for USPS deployment.

--------------------------------------------------------------------------------
                                        3

<PAGE>

 Statement of Work: Development of Photochromic/Thermochromic Inks for Flat Mail
--------------------------------------------------------------------------------

In order to maximize the potential savings of a Flat mail ID system, the
developed material's cost per piece should be kept below $1 per thousand (.1c
each).

3.2  Hardware Development:

It is expected that hardware development for this task will be limited to
adapting existing commercial products to function for use in the Flats ID
system. These modules may include but are not limited to:

Label applicator.

Printer for base material.

Printer for ID code.

Ink curing or drying system.

Emission collector.

Ink excitation units.

A label applicator will apply any required transparent or opaque label to the
Flat mail piece.

Printers will apply any base "primer" coat and the final ID code to the Flat
mail piece.

Ink curing or drying systems may consist of light, radiation, heat or airflow
etc. to cure or dry applied inks or adhesives.

Emission collection devices may be required to remove any toxic or inflammable
emissions from ink or adhesive drying.

Ink excitation devices may consist of heat, light or microwave radiation etc. to
excite the applied ID code (and background) allowing reading by the Flat mail
scanner camera.

The Postal Service anticipates that the contractor will require assistance in
acquiring and setting up hardware modules. The cost of any hardware units
defined 3.2 above will be born by the USPS.

3.3  Test and Validation of Materials and Hardware:

Testing and validation of materials and hardware for this task will ensure the
feasibility and practicality of the Photochromic/Thermochromic solution.

Initial testing will be limited to material feasibility tests with marking
applied to various Flat Mail materials. These tests will be conducted at the
contractors' facilities.

Further testing will consist of applying the ID code solution to single pieces
of Flat test mail on a USPS provided bench tester to simulate the speed and
operation of the Flat mail sorter

--------------------------------------------------------------------------------
                                        4

<PAGE>

 Statement of Work: Development of Photochromic/Thermochromic Inks for Flat Mail
--------------------------------------------------------------------------------

transport. The various hardware modules to be used for the final solution will
be integrated into this bench device to facilitate testing. Results will be
tested for adhesion, readability, reliability, consistency and emissions. These
tests will be conducted at the contractors' facilities.

Final testing will be performed on an AFSM 100 induction station module and will
consist of applying the ID code solution to multiple pieces of Flat test mail at
standard AFSM 100 speeds. Test mail will consist of a wide variation of samples
and cover materials. Results will be tested for adhesion, readability,
reliability, consistency and emissions. These tests will be conducted at an East
Coast test facility to be determined by the USPS.

Mounting of required hardware, modifications to Flat Mail scanner cameras and
control or testing functions will be performed by USPS AFSM 100 contractors and
is outside the scope of this task. However, the contractor is responsible for
ensuring that equipment is installed correctly on the induction station module
and that performance criteria are met.

5.0  Schedule:

This is a development task and as such the USPS recognizes that flexibility in
schedule is required. However:

The duration of this task is 9 months from contract award.

Initial testing should be completed within 6 months from contract award.

Bench simulation testing should begin 6 months from contract award.

Final testing should begin 8 months from contract award.

5.0  Data Rights:

5.1  Materials:

The contractor reserves the rights to all formulas and procedures in connection
with development of the materials defined in 3.1 above.

5.2  Hardware Development, Test and Validation:

Excepting material development in 5.1 above, all Software, Hardware,
Documentation, Components, Process, Design Approach, Ideas and Data developed by
the Contractor, or by personnel employed by the contractor, on this project
shall remain the property of the USPS.

Excepting material development in 5.1 above, the prior, express written
permission of the USPS is required to establish claim to copyright or patent in
all developments first produced in performance of this contract.

--------------------------------------------------------------------------------
                                        5

<PAGE>

 Statement of Work: Development of Photochromic/Thermochromic Inks for Flat Mail
--------------------------------------------------------------------------------

5.3  USPS rights to Materials:

At completion of this task, the USPS reserves the right to purchase from the
contractor the non-exclusive and non-transferable license rights to use the
developed materials defined in 3.1 above.

6.   Deliverables:

A progress report that details progress will be provided to the USPS at each 30
day period after contract award.

A final operating solution as defined in 3.3 above will be provided to the USPS
270 days (9 months) after contract award along with a report defining how the
solution is implemented.

--------------------------------------------------------------------------------
                                       6

<PAGE>

                                  ATTACHMENT II                       [LOGO]
                                                                 Spectra Systems
                                                                   CORPORATION

Response to USPS Statement of Work:

             Adaptive Labeling for the United States Postal Service

Spectra Systems proposes to develop an invisible labeling system that is
suitable for flat mail coding and identification within an AFSM system.
Spectra's objective is to demonstrate a system which is clearly suitable for use
in coding and reading flat mail at rates of ~ 3 items/second using the current
or planned imaging hardware of the AFSM platform. The development activities
will include refinement of the previously identified material systems of
photochromics, thermochromics and the use of stimulus-based, phase change
coating from lower critical solution temperature media along with the
engineering of an appropriate stimulus system, all with the required response
time of several milliseconds or less.

The project can be divided into the following three task areas:

I.   Materials development
II.  Hardware Development
III. Test and Validation of Materials and Hardware

SOW 3.1 Materials Development

     A.   Reversible "White" background
          Spectra has identified two material systems that it will pursue in the
          development of a reversible clear-to-white-to-clear background
          coating. Spectra envisions a coating that can be directly printed on a
          flat mail substrate or layered on the surface of an adhesive
          transparent label. Both material systems (LCST and CES) use a
          localized shift in temperature for activation (clear to white).
          Critical design objectives will be the activation speed, low delta T,
          and print compatibility of the coating.

     B.   Ink development
          The goal of the ink development activity is to produce an IJP
          compatible, invisible ink that, upon appropriate stimulus, will
          reversibly turn from a relatively invisible state to a dark state thus
          providing high contrast against the reversible white background layer
          as described in section A above.

Upon completion of the materials development task, Spectra's materials will meet
the following requirements:

               .    Transparent ("clear" or "invisible") in normal state.
               .    Black on white in excited state.
               .    Adequate discrimination in excited state to allow reading by
                    USPS scanner cameras, which are Charge Coupled Device (CCD)
                    based.
               .    Compatible with printing/labeling systems to allow
                    application at a target rate of 3 pieces per second.
               .    Good adhesion to Polywrap (plastic), tyvec and high gloss
                    magazine covers.
               .    Good resilience with minimum damage to a code after six sort
                    cycles through USPS Flat Mail sorting equipment.

<PAGE>

                                                                      [LOGO]
                                                                 Spectra Systems
                                                                   CORPORATION

               .    Environmentally friendly both in application (volatility,
                    emissions) and toxicity.
               .    Cost effective. A target material cost of $0.003 per
                    application.

SOW 3.2 Hardware Development

As a hardware component to the invisible label system, a stimulus device will
serve to rapidly (and temporarily) transform the encoded dataform materials of
Section 3.1 on the flat mail from its clear state to a high contrast readable
state prior to the image reading system. Activities in this regard will be tasks
that will test and evaluate a variety of stimulus methods that can best meet the
requirements of speed and safety.

Spectra will develop appropriate stimulus hardware for reading and labeling a
demonstration label at AFSM 100 speeds. Spectra will work closely with the USPS
to select USPS recommended vendor hardware for applying the inks and labels.

SOW 3.3 Test and Validation of Materials and Hardware

Testing and validation of materials and hardware for this task will ensure the
feasibility and practicality of the Photochromic/Thermochromic solution.

Initial testing will be limited to material feasibility tests with marking
applied to various Flat Mail materials. These tests will be conducted at
Spectra's facilities.

Further testing will consist of applying the ID code solution to single pieces
of test Flat Mail on a USPS provided bench tester to simulate the speed and
operation of the Flat Mail sorter transport. The various hardware modules to be
used for the final solution will be integrated into this bench device to
facilitate testing. Results will be tested for adhesion, readability,
reliability, consistency and emissions. These tests will be conducted at
Spectra's facilities.

Final testing will be performed on an AFSM 100 induction station module and will
consist of applying ID code labels to multiple pieces of test Flat Mail at
standard AFSM 100 speeds. Test mail will consist of a wide variation of samples
and cover materials. Results will be tested for adhesion, readability,
reliability, consistency and emissions. These tests will be conducted at an East
Coast test facility to be determined by the USPS.

Spectra is responsible for ensuring that hardware components are installed
properly and that performance requirements are met.

Stimulus system performance:

     l.   Develop and conduct test bed demonstration of system performance at
          Spectra at simulated flat mail speeds.
     2.   Stimulus hardware and read capability with prototype hardware and
          consumables on an AFSM 100 induction station module provided at a USPS
          East Coast test facility.
     3.   Provide USPS a detailed report on material/system performance.

<PAGE>

                                                                      [LOGO]
                                                                 Spectra Systems
                                                                   CORPORATION

SOW 4.0 Schedule

The duration of this task is 9 months from contract award.
Initial testing should be completed within 6 months from contract award.
Bench simulation testing should begin 6 months from contract award.
Final testing should begin 8 months from contract award.

SOW 5.0 Data Rights

5.1 Materials:

Spectra reserves the rights to all formulas and procedures in connection with
development of the materials defined in 3.1 above.

5.2 Hardware Development, Test and Validation:

Excepting material development in 3.1 above and associated stimulus hardware in
3.2 above that is specific to material development and use, all Software,
Hardware, Documentation, Components, Process, Design Approach, Ideas and Data
for use on a USPS induction station developed by Spectra, or by personnel
employed by Spectra, on this project shall remain the property of the USPS.

5.3 USPS rights to Materials:

At completion of the development task, the USPS will have the right to purchase,
for $329,164 (the "second tranche"), a non-exclusive, (except as pertaining to
the postal application within the United States), and non-transferable license
to use the invisible labeling system technology. Where the U.S. postal
application is concerned, the USPS will have the right to choose which entities
can use the technology for mail that is handled by the USPS, so as to control
one standard for the postal labeling solution.

SOW 6.0 Deliverables:

A progress report that details progress will be provided to the USPS at 30 day
intervals beginning 30 days after the contract award date.

A final operating solution as defined in 3.3 above will be provided to the USPS
270 days (9 months) after the contract award date along with a report defining
the implementation of the solution.

<PAGE>

                                                                      [LOGO]
                                                                 Spectra Systems
                                                                   CORPORATION

Detailed Description of Work:

I.   Materials Development

     A.   Reversible "White" background

          Spectra has identified two material systems that it will pursue in the
          development of a reversible clear-to-white-to-clear background
          coating. Spectra envisions this as a coating that can be directly
          printed on to a flat mail substrate or to be layered on the surface of
          an adhesive transparent label. Both material systems (LCST and CES)
          use a localized shift in temperature for activation (clear to white).
          Critical design objectives will be the activation speed, low delta T,
          and print compatibility of the coating.

               1.   LCST development (Phase separation system)

                         i.   Identify microencapsulated LCST liquid systems:
                                   a.   Microencapsulation of selected LCST
                                        material
                                   b.   Evaluate ST, T, 1s optical performance
                                        (opacity)
                         ii.  Identify solid solution systems:
                                   a.   Combine phase change and PH transforming
                                        solid systems for color change
                                   b.   Evaluate ST, T, 1s optical performance
                                        (opacity)

               2.   Christianson Effect System (Index matching/mismatching
                    system)

                         i.   Identify solid solution systems:
                                   a.   Evaluation of solid and particle
                                        materials
                                   b.   Evaluation of polymer dispersed liquid
                                        phase materials
                                             .    Curable films with
                                                  non-crystalline liquids
                                             .    Polymer dispersed liquid
                                                  crystals
                         ii.  Evaluate ST, T, 1s optical performance (opacity)

               3.   Background layer application protocol

                         i.   Develop primer and application protocol
                         ii.  Evaluate printing parameters (film thickness,
                              curing method, curing time, and environmental
                              robustness)
                         iii. Evaluate and test on multiple types of flat mail
                              substrates

     B.   Ink development

          The goal of the ink development activity is to produce an UP
          compatible, invisible ink that upon appropriate stimulus, will
          reversibly turn from a relatively invisible state to a

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