Document:

EXHIBIT
10.1

    

     

    FIRST
AMENDMENT TO

    EAST
TENNESSEE MATERIALS

    &
ENERGY CORPORATION

    PROMISSORY
NOTE

    

     

    This
First Amendment, dated December 29, 2008 (“First Amendment”), to the East
Tennessee Materials & Energy Corporation (“M&EC”) Promissory Note, dated
June 7, 2001 (the “Note”), in the principal sum of $3,673,732.56, together with
variable interest on the unpaid principal balance at the rate and method set out
therein, made payable to Performance Development Corporation (“PDC”), amends the
Note as provided herein.

     

    WHEREAS,
as of December 31, 2008, and prior to the payment of the installment payment due
on December 31, 2008, as described in Section 1 of this First Amendment, the
unpaid balance of principal and accrued interest due on the Note will be
$3,066,226.64 (the “Remaining Balance”), consisting of the remaining unpaid
principal balance due under the Note and all of the interest due on the Note for
the periods after May 31, 2001, through December 31, 2008, all of which interest
was due and payable in one lump sum on December 31, 2008;

     

    WHEREAS,
PDC has represented to M&EC that it has not assigned or transferred, in any
manner, the Note, or any portion thereof, and is still the owner in all respects
of the Note;

     

    WHEREAS,
M&EC and PDC have agreed that the Note is hereby amended so that the
Remaining Balance due on the Note shall be payable, in the same manner and
amount, and with accrued interest on the same basis as set out in, that certain
letter dated December 22, 2008 (“Extension Letter”) from Camella Lucas, Revenue
Officer, Internal Revenue Service, to PDC, extending the terms and conditions of
the IRS Form 433-D, Installment Agreement, with PDC referred to in the Note
(“Installment Agreement”), as follows:

     

    1.           The
requirement to pay the Remaining Balance due on December 31, 2008 under the Note
is hereby deleted, and M&EC shall pay the Remaining Balance due on the Note
in the following installments:

     

    $500,000.00
payable on December 31, 2008 prior to noon;

    $­100,000.00
payable on January 27, 2009;

    $100,000.00
payable on February 27, 2009;

    $100,000.00
payable on March 27, 2009;

    $100,000.00
payable on April 27, 2009;

    $100,000.00
payable on May 27, 2009; and

    

    The
unpaid Remaining Balance, together with any accrued and unpaid interest due on
the unpaid Remaining Balance as required under the Note and as computed by the
IRS pursuant thereto, shall be payable by M&EC on June 30,
2009.

     

    2.           As
set forth in the Note, no payments shall be made by M&EC to PDC or any of
PDC’s affiliates, unless otherwise agreed in writing by M&EC and
PDC.  Rather, pursuant to the existing written instructions from PDC,
M&EC shall make all payments in the amounts and on the dates set forth in
Section 1 above of this First Amendment directly to the IRS, attn. Camella
Lucas, Revenue Officer, against PDC’s obligations as set forth in the Extension
Letter amending the Installment Agreement.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    3.           All
of the other terms and provisions of the Note shall remain
unchanged.

     

    4.           The
Note, as modified and amended by this First Amendment, shall remain in full
force and effect.

     

    5.           PDC
has represented to M&EC that PDC has not assigned or transferred the Note,
or any portion thereof, in any manner and is the sole owner, in all respects, of
the Note.

     

    6.           Each
of the parties hereto represent and warrant to the other that the execution and
delivery of this First Amendment have been duly and validly authorized and
approved by all requisite corporate action on its part.

     

    7.           PDC
shall mark the original of the Note as follows:  “As Amended by the
First Amendment, dated December 29, 2008”, and a copy of the Note, as so marked,
shall be delivered promptly to counsel of the maker at the following
address:  Conner & Winters, LLP, 1700 One Leadership Square, 211
North Robinson Avenue, Oklahoma City, Oklahoma 73102, Attn. Irwin H. Steinhorn,
Esq.

     

    8.           M&EC
acknowledges receipt of a copy of the Extension Letter.

     

    9.           This
First Amendment may be executed in one or more counterparts, all of which shall
be considered one and the same agreement and shall become effective when one or
more counterparts have been signed by each of the parties hereto and delivered
to each of the other parties hereto.

     

    IN
WITNESS WHEREOF, the parties have entered into this First Amendment on the date
set forth above.

     

    
      
        
          
            
              
                	 	EAST TENNESSEE ENERGY
      & MATERIALS CORPORATION
	 	 	 
	 	 	 	 
	
                         

                      	
                        By:
      

                      	/s/ Dr.
      Louis F. Centofanti	 
	 	 	Dr.
      Louis F. Centofanti, President	 
	 	 	 	 
	 	 	 	 
	 	(“M&EC”)	 

              

            

          

        

      

    

     

    

    

    
      
        
          
            
              	 	PERFORMANCE DEVELOPMENT
      CORPORATION	 
	 	 	 
	 	 	 	 
	
                       

                    	
                      By:
      

                    	/s/ Joe
      W. Anderson	 
	 	 	Joe
      W. Anderson, Chairman & Chief Executive Officer	 
	 	 	 	 
	 	 	 	 
	 	(“PDC”)AGREEMENT

     

    This
Agreement (the “Agreement”) is executed on August 20, 2008 and made effective as
of the Effective Date (as defined below), by and between Document Security
Systems, Inc., a New York corporation (“DSS”), having an office at 28 East Main
Street, Suite 1525, Rochester, New York 14614, and Trebuchet
Capital Partners, LLC,
a limited liability company formed under the laws of Delaware (“TREBUCHET”),
having an office at 609-3
Cantiague Rock Road, Westbury, New York 11590.
DSS and TREBUCHET are together referred to herein as the “Parties” or either of
them as the context makes clear is referred to as a “Party.” 

     

    RECITALS

     

    WHEREAS,
DSS is the owner of a certain Patent (hereinafter defined);

    

    WHEREAS,
DSS believes that multiple entities in Europe, including, without limitation,
the European Central Bank (the “ECB”), have infringed upon the Patent with
respect to the Euro and certain other world currencies;

    

    WHEREAS,
on August 1, 2005, DSS initiated a patent infringement lawsuit against the ECB
in the Court of First Instance, which lawsuit was dismissed on September 5,
2007, for lack of jurisdiction;

    

    WHEREAS,
in March 2006, the ECB initiated proceedings in nine European jurisdictions to
invalidate the Patent (the “Validity Proceedings”), which has resulted in the
Patent being declared valid in Germany and The Netherlands and invalid in the
United Kingdom and France, and the determinations in Germany, The Netherlands
and France are, as of the date of this Agreement, on appeal;

    

    WHEREAS,
DSS has expended significant financial and management resources with respect to
such infringement lawsuit and Validity Proceedings;

    

    WHEREAS,
management and the Board of Directors of DSS (the “Board”) have determined that
DSS does not currently have the required additional financial resources to
effectively defend the Validity Proceedings and otherwise assert the Patent
against all past, present and potential infringers, including but not limited to
the ECB, on its own without raising funds on terms that may, and in the
view of the Board likely would, not be acceptable to, or in the best interest
of, DSS and its shareholders, taking into account all relevant factors,
including without limitation, the potential for significant dilution to DSS
shareholders;

    

    WHEREAS,
DSS has determined that it has significant opportunities to expand its current
operating businesses and that such expansion of business will consume
significant amounts of management’s time and DSS’ resources; 

     

    
      CONFIDENTIAL
PORTIONS HAVE BEEN OMITTED FROM THIS DOCUMENT BASED UPON A REQUEST FOR
CONFIDENTIAL TREATMENT PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF
1934 AND HAVE BEEN SEPARATELY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
THE LOCATION OF OMITTED TEXT IS INDICATED BY AN ASTERISK (*)

       

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    WHEREAS,
management and the Board have determined, based upon advice provided by legal
counsel, that DSS has a strong legal basis to defend the Patent against validity
challenges and to assert the Patent against infringers;

    

    WHEREAS,
DSS has been advised by legal counsel that time is of the essence in order to
effectively defend the Patent against validity challenges and to assert the
Patent against infringers; 

    

    WHEREAS,
TREBUCHET has expressed a desire to provide significant financial and management
resources in order to defend the Patent against the Validity Proceedings and to
assert the Patent against infringers, on the terms as provided herein;

    

    WHEREAS,
TREBUCHET has conditioned its entering into this Agreement on TREBUCHET having
an ownership interest in the Patent and the exclusive right and license to sue
and recover, for the benefit of both TREBUCHET and DSS as separate owners of the
Patent, for any and all past, present and future infringement of the Patent,
along with a security interest in the Patent and in any and all past, present or
future recoveries resulting from the assertion of the Patent, and the sole
authority to make all decisions relating to the European Litigation and to the
Patent, including, without limitation, the right to sublicense the Patent as
warranted to resolve infringement claims, all as more specifically provided for
herein;

    

    WHEREAS,
management and the Board has determined, after taking into account, among other
things, its limited financial resources to properly fund the defense of the
Validity Proceedings and the assertion of the Patent, that it is in the best
interest of DSS and its shareholders to enter into this Agreement with TREBUCHET
pursuant to the terms and conditions contained herein; 

    

    WHEREAS,
in consideration of such funding, TREBUCHET will have full authority to manage
and resolve on behalf of DSS (and on its own behalf) the now existing and any
future challenges to the validity of the Patent by the Persons identified in
Schedule 1
and the contemplated future assertions of the Patent against the Persons
identified in Schedule 1
(which Persons include the ECB), and will share equally in revenue derived as a
result of such activities as more specifically provided herein, as well
as have the sole right to reimbursement of its fees and costs associated
therewith if awarded by the relevant Courts;
and

     

    WHEREAS,
the parties desire to formalize their respective rights and obligations as they
relate generally to the exploitation of the rights in the Patent, including but
not limited to the licensing thereof in connection with the now existing and
contemplated proceedings, as they relate specifically to the defense of the
validity of the Patent and to the assertion of the Patent, and to any and all
related proceedings and appeals. 

     

    NOW,
THEREFORE, in consideration of the mutual promises of the parties, and of other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, it is agreed by and between the parties as follows: 

    

    
      
        
        

      

      
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    ARTICLE 1

    

    DEFINITIONS

     

    For
the purpose of this Agreement the following capitalized terms are defined in
this Article 1 and shall have the meaning specified herein:

    

    1.1
APPLICABLE LAWS. “Applicable Laws” means any federal, state, local, municipal,
foreign, international, multinational or other law, statute, constitution,
principle of common law, resolution, ordinance, code, edict, decree, rule,
regulation, ruling or requirement issued, enacted, adopted, promulgated,
implemented or otherwise put into effect by or under the authority of any
governmental authority or agency. 

    

    1.2
CONTRACT. “Contract” means any written, oral or other agreement, contract,
subcontract, lease, understanding, instrument, note, warranty, license,
sublicense, insurance policy, benefit plan or legally binding commitment or
undertaking of any nature, whether express or implied.

     

    1.3
EFFECTIVE DATE. “Effective Date” means the date this Agreement was executed as
noted in the Preamble of this Agreement.

    

    1.4
EUROPEAN LITIGATION. The “European Litigation” means: 

     

    (a)
patent invalidity proceedings filed by the ECB with respect to the Patent, and
any appeals related thereto, which actions are identified in Schedule 2,

     

    (b)
patent assertion litigation currently pending and in the future to be filed
against the ECB with respect to the Patent, which currently pending actions are
identified in Schedule 3,

    

    (c)
future proceedings or litigations that may be brought by the ECB seeking a
declaration of invalidity or non-infringement with respect to the Patent,

     

    (d)
future proceedings or litigations that may be brought by Persons identified in
Schedule 1
(other than the ECB) alleging invalidity of the Patent and/or seeking a
declaration of non-infringement with respect to the Patent, it being understood
that TREBUCHET shall also have the right to defend against validity challenges
brought by persons not identified in Schedule 1, 

    

    (e)
future proceedings or litigations that may be brought against the Persons
identified in Schedule 1
(other than the ECB) alleging infringement by said Persons of the Patent,

     

    
      
        
        

      

      
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    (f)
future proceedings or litigations as the Parties may from time to time agree in
writing. 

    

    It
is understood that the term European Litigation includes facilitating
non-litigious or other alternative means of resolving disputes against any
Person or Persons identified in Schedule 1
(including the ECB), and thus does not necessarily mandate the commencement of
an actual proceeding or litigation. 

     

    1.5
MATERIAL ADVERSE EFFECT. “Material Adverse Effect” means any
event, change or effect that is materially adverse to the condition (financial
or otherwise), properties, assets, liabilities, business, operations or results
of operations of DSS and its Subsidiaries, taken as a whole.

     

      1.6
NON-DISCLOSURE AGREEMENT. “Non-Disclosure Agreement” means that certain Mutual
Non-Disclosure Agreement entered into between TREBUCHET and DSS on July 11, 2008
and made effective as of the date stated therein.

    

    1.7
PERSON(S). “Person(s)” means a natural person, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization or a governmental entity or any
department, agency or political subdivision thereof as otherwise indicated in
this Agreement, or the affiliate of any such Person. “Affiliate” as used herein
means a natural person, a partnership, a corporation, a limited liability
company, an association, a joint stock company, a trust, a joint venture, an
unincorporated organization or a governmental entity or any department, agency
or political subdivision thereof as otherwise indicated in this Agreement
controlled by, controlling or under the common control of the Person. The term
“Control” as used herein means having the power to direct the affairs or the
policies of the Person. 

    

    1.8
SUBSIDIARIES. “Subsidiaries” means DSS’s subsidiaries listed on Schedule 4.

    

    1.9
THIRD PARTY LICENSEE. “Third Party Licensee” means any licensee of DSS and
TREBUCHET with respect to the Patent under a Third Party License Agreement,
whether or not such agreement was entered into after the Effective Date of this
Agreement, with any Persons identified in Schedule 1.

     

    1.10
PATENT. The “Patent” means European Patent No. 0455750 and the patents that were
designated therein in the national contracting states of the European Union, as
more specifically identified in Schedule 5.

    

    1.11
TRANSACTION DOCUMENTS. “Transaction Documents” means this Agreement, the
Non-Disclosure Agreement, any document which the Parties hereto may need to
enter into to effectuate this Agreement including without limitation documents
to confirm the assignment of an interest in the Patent and a security interest
and/or lien in the remaining interest in Patent and proceeds thereof as herein
provided.

    

    

    
      
        
        

      

      
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    ARTICLE 2

    

    COVENANTS

     

    2.1
PATENT ASSIGNMENT AND RELATED COVENANTS

    

    In
consideration for TREBUCHET’s agreement to fund the European Litigation as more
specifically provided under this Agreement,

    

    
      	(a)  	
              DSS
      hereby transfers and assigns to TREBUCHET 49% (Forty Nine Percent) of all
      of its right, title and interest in the Patent and to the inventions
      described and claimed therein, such that both DSS and TREBUCHET shall each
      have a separate
      and distinct interest in and share of the Patent,
      along with the right to sue and recover in litigation, settlement or
      otherwise to collect royalties or
      other payments under or on account of the Patent and/or any of the
      foregoing,
      subject to the provisions for sharing any said recovery including
      royalties as provided in this Agreement, for all past, present and future
      causes of action including but not limited to actions asserting the
      infringement of the Patent. 

            

    

    

    
      	(b)  	
              With
      respect to DSS’s remaining 51% (Fifty One Percent) interest in the Patent,
      DSS grants to TREBUCHET the exclusive right and license to sue in the name
      of DSS, and to recover in litigation, settlement or otherwise to collect
      royalties or
      other payments under or on account of the Patent and/or any of the
      foregoing,
      subject to the provisions for sharing any said recovery including
      royalties as provided in this Agreement, for all past, present and future
      causes of action including but not limited to actions asserting the
      infringement of the Patent. DSS also grants to TREBUCHET the exclusive
      right and license (even as against DSS) to grant sublicenses or other
      rights under the Patent in compromise of or to resolve all past, present
      and future causes of action as warranted including but not limited to
      actions asserting the infringement of the Patent subject to the
      limitations otherwise set forth in this Agreement in subparagraph 2.2(b)
      below. With respect to the foregoing, it is understood that same does not
      prohibit DSS on its own account from practicing or using the
      Patent.

            

    

     

    
      	(c)  	
              DSS
      hereby agrees that it shall not hereinafter assign, transfer or license
      its remaining interest in the Patent or otherwise encumber its remaining
      interest the Patent in any way and acknowledges that any such assignment,
      transfer, license or encumbrance may materially impact the rights of
      TREBUCHET and would be a material breach of this Agreement. DSS further
      agrees that it shall not, without the written permission of TREBUCHET,
      grant any licenses of the Patent. 

            

    

     

     

    
      
        
        

      

      
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    The
assignment of an interest in the Patent and the exclusive license of rights as
provided hereinabove shall be recorded, as needed, by filing in the respective
national European contracting states where the Patent is in force or where
otherwise appropriate a confirmatory patent assignment in the form necessary to
comport with the filing requirements of each national European contracting state
where the Patent is in force in which the assignment may need to be officially
recorded. 

    

    2.2
MANAGEMENT AND COSTS. 

     

    (a)
TREBUCHET shall have the sole and exclusive right (even as against DSS) and
authority on behalf of DSS and in its own behalf as an owner of the Patent to
control the management of the European Litigation, including, without
limitation, the right to determine strategy including when to sue, where to sue,
which Person or Persons identified in Schedule 1
to sue, hire or fire counsel, hire or fire experts, and otherwise make all
decisions regarding the handling of any and all proceedings and litigations,
including, without limitation, whether to commence proceedings or litigations
identified in Schedule 8, whether to maintain or defend now existing proceedings
and litigations identified in Schedule 8, and the resolution of the proceedings
and litigations via settlement. TREBUCHET shall have the full authority to
determine whether to seek review or appeal a determination in any such
proceedings or litigations. TREBUCHET may in its discretion investigate the
legal basis of the claims to be made, may investigate the capacity of the
Persons identified in Schedule 1 to
meet any award or order made against them relating to the claims, may
investigate the interest of the Persons identified in Schedule 1
to resolve the claims by non-litigious means and may investigate any other
matters relevant to such claims. 

     

     (b)
TREBUCHET may on behalf of DSS and on its own behalf consent to entry of any
judgment or consent to enter into any settlement or to compromise any claim
related to the Patent with respect to the Persons identified in Schedule 1
or to the European Litigation without DSS’ consent including without limitation
granting rights under the Patent; provided that TREBUCHET
shall obtain DSS’ prior consent if the effect of such judgment or settlement is
to (i) permit any injunction, declaratory judgment, other order or other
non-monetary relief to be entered, directly or indirectly, against DSS, (ii)
require the payment by DSS of future royalties or any other payments in excess
of $5,000 in the aggregate, (iii) require DSS to make any payment not fully
indemnified under this Agreement (other than payments made or costs incurred by
DSS pursuant to Article 5), (iv) require DSS to grant any rights other than in
the Patent to any Person, including but not limited pursuant to a license to any
of its intellectual property other than the Patent, or (v) otherwise affect the
business, financial condition (including, but not by way of limitation, to
require DSS to provide ECB or any Person with debt, convertible debt or equity
in DSS) or operations of DSS or the rights of Third Party Licensees, in each
case under this sub-clause (v) in a material way. 

     

    (c)
TREBUCHET shall, as of the Effective Date, have received capital in the amount
not less than * and TREBUCHET shall, within the first six months following the
Effective Date after payment of the loan to Taiko III Corp. as provided in
Article 2.2(d)2)(i), have completed its review of all pending and potential
proceedings and claims related to the Patent against the Persons identified in
Schedule 1
and commenced its consideration with legal counsel of the manner to implement
the strategy TREBUCHET adopts, in its sole discretion, to satisfy its
undertakings under this Agreement.

     

    
      
        
        

      

      
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    (d)
Except as otherwise noted herein, beginning on the Effective Date, TREBUCHET
shall bear all fees and expenses including without limitation attorneys’ fees,
expert witness fees, court costs, translation fees, costs for the posting of
bonds and all expenses associated with the posting of bonds which may be
necessary for the commencement of, or otherwise related to, proceedings, and any
outstanding and future orders to pay fees or costs related to the European
Litigation (“Expenses”) that are or may be incurred. 

    

    1)
DSS understands and agrees that the following shall not be included as Expenses:

    

    (i)
the value of the time of DSS employees, consultants, and independent contractors
spent or to be spent on the European Litigation, provided, however, that
TREBUCHET shall be responsible for those future expenses that are associated
with Dr. Robert Vasl as are set forth in Schedule 6,
and 

    

    (ii)
any expenses associated with DSS’ hiring or use of its own independent counsel
or other advisors for the European Litigation (i.e.,
counsel different than the counsel selected and managed by TREBUCHET),
provided that
this clause (ii) does not limit TREBUCHET’s undertakings under Sections 2.2 of
this Agreement, and

    

    (iii)
the ECB’s fees and expenses, including without limitation attorneys’ fees, with
respect to the trial and appeal in the United Kingdom relating to the validity
of the Patent or to the trial in France relating to the validity of the Patent,
whether becoming the obligation of DSS as a result of a court order or
otherwise; provided, however, that fees or expenses, including without
limitation attorneys’ fees, that are paid or reimbursed to DSS or TREBUCHET
related to the validity trial in Germany shall be solely for the account of DSS
whether such fees and expenses are paid as a result of a court order or
otherwise except pursuant to an agreement entered into after the date hereof by
DSS without the prior written permission of Trebuchet.

    

    2)
In no event shall TREBUCHET be obligated to reimburse DSS for or to pay any
invoices for any fees or expenses incurred by DSS prior to the Effective Date
and all such fees and expenses incurred before such date shall remain the
obligation of DSS, provided, however, the Parties agree that Trebuchet shall, on
the Effective Date: 

    

    
      
        
        

      

      
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    (i)
pay the full amount of $500,000, plus accrued interest thereon, owed by DSS to
Taiko III Corp., thereby eliminating in full any and all indebtedness of DSS to
Taiko III Corp and; 

    

    (ii)
pay to DSS $400,000 in immediately available funds (the “ECB AP Amount”),
representing substantially all of the accrued but unpaid fees and expenses
previously incurred by DSS as indicated on Schedule 7,
which ECB AP Amount shall be used by DSS solely to pay and satisfy said accrued
but unpaid fees and expenses identified in Schedule 7. In consideration of this
subparagraph, DSS shall issue to TREBUCHET 100,000 shares of DSS common stock
(the “DSS Shares”). Within
four (4) business days after the Effective Date, DSS shall file all such
necessary documents with the American Stock Exchange to authorize the listing of
the DSS Shares on the American Stock Exchange, if such documents had not been
filed prior to the Effective Date. Promptly after DSS has received the approval
from the American Stock Exchange for the listing of the DSS Shares, but in no
event prior to the Effective Date, DSS shall deliver or cause to be issued in
the name of TREBUCHET one or more stock certificates evidencing the DSS Shares,
registered in the name of TREBUCHET (the "Certificates"). DSS shall also provide
TREBUCHET with proof of payment of the unpaid fees and expenses indicted in said
schedule within 30 days after the Effective Date of this Agreement.

    

    3)
TREBUCHET shall have no obligation to reimburse DSS for any costs or expenses
incurred by DSS subsequent to the entry of this Agreement in connection with the
European Litigation unless approved in advance in writing by TREBUCHET.

    

    4)
In connection with all of the foregoing funding undertakings, TREBUCHET has
relied on the informed assumptions made by DSS in Schedule 8
as to the anticipated Costs associated with funding the European Litigation, and
consequently its undertakings herein are premised solely on DSS’ informed
assumptions. TREBUCHET’s undertaking to fund any one or more of the Proposed
Infringement Proceedings and pending Validity Proceedings identified in Schedule
8 which in its sole and exclusive judgment it may determine to undertake and /
or continue to defend is conditioned on the understanding that the assumptions
made by DSS are reasonably accurate. TREBUCHET’s undertaking to fund any said
proceedings if it so elects to undertake same shall not unreasonably exceed the
estimates provided in said Schedule. 

    

    5)
DSS shall be responsible for the payment of and shall pay all and any annuities,
maintenance fees or other fees (collectively, the “Annuities”), however they are
denominated, to keep the Patent in force in each of the national contracting
states of the European Union where the Patent is in force as the Effective Date
of the Agreement and where actions against the Persons listed in Schedule 1
are contemplated. TREBUCHET shall have the right but not the obligation to make
those payments on behalf of DSS and deduct such Annuities from monies otherwise
due DSS if requested by DSS.

    

    
      
        
        

      

      
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    6) As a
condition precedent to TREBUCHET’s funding undertakings herein, DSS shall take
all steps necessary to ensure that the engagement letter with regard to the
Validity Proceedings between McDermott, Will & Emery LLP (“MWE”) and DSS
shall remain in effect and that MWE shall continue to zealously defend all
Validity Proceedings against the Patent. As a further condition precedent to
TREBUCHET’s funding undertakings herein, DSS shall deliver to TREBUCHET a letter
from MWE acknowledging its ongoing obligations irrespective of this Agreement
and its willingness to take direction in such Validity Proceedings from
TREBUCHET.

     

    (e)
TREBUCHET shall provide to DSS’ Board of Directors a monthly report in a form to
be mutually agreed upon in good faith, or more frequently at TREBUCHET’s
discretion, on the European Litigation. Without limiting the terms of Section
2.1(a) above, TREBUCHET agrees to consult with DSS at its reasonable request.
Without limiting the foregoing in this Section 2.1(c), immediately upon
execution of any agreement or issuance of any court order relating to the
Patent, TREBUCHET shall inform DSS of the material terms of the same and provide
a true copy of any documents.

     

    (f)
DSS acknowledges and agrees that TREBUCHET is capable of fulfilling the
undertakings and responsibilities undertaken by it in this Article with respect
to the control and management of the European Litigation and waives any and all
rights, claims and remedies relating to the control and management of the
European Litigation by TREBUCHET. DSS acknowledges and agrees that Robert
Girards shall act on behalf of TREBUCHET to manage and control the European
Litigation, and that his duties and activities on behalf of TREBUCHET do not and
will not impinge on any duties he may have at DSS. 

     

    2.3
COOPERATION 

     

    (a)
Each Party shall cooperate fully with the other Party in connection with the
European Litigation in a manner that will preserve any and all attorney-client
or other privilege and attorney work product protection thereto, including the
joint defense privilege, litigation privilege and/or common-interest privilege.
DSS shall direct all present counsel in connection with the European Litigation
to cooperate fully with TREBUCHET, to open their files to TREBUCHET, to fully
inform TREBUCHET with respect to the issues to be addressed and decisions to be
made in connection with the European Litigation, to respond to all inquires of
TREBUCHET and otherwise provide information, documentation and assistance to
TREBUCHET and to interface with TREBUCHET as if TREBUCHET had stepped into the
shoes of DSS. DSS shall direct present counsel in connection with the European
Litigation to take instructions from TREBUCHET.

     

    (b)
In the event that either Party receives any notice or other communication in
connection with the European Litigation that may affect the other Party’s rights
and undertakings under this Agreement or in any proceeding in the European
Litigation, such Party promptly but in no event less than two (2) business days,
shall notify the other Party and provide a copy of such notice or communication
or, if oral, information about such notice or communication in reasonable
detail. 

     

    
      
        
        

      

      
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    (c)
DSS agrees to afford to TREBUCHET and to all counsel in the European Litigation
reasonable access to witnesses, including but not limited to access to inventors
of the Patent who are employed by DSS, and to information and documents,
including but not limited to patent file histories, prior art and studies
conducted by counsel, that is reasonably required in connection with the
European Litigation. The foregoing includes, but is not limited to, an
obligation to provide witnesses and information as necessary for trial and other
proceedings, and documents to support the assertions or defense, and/or to
assist counsel in responding to discovery requests, as the case may be.
TREBUCHET shall be solely responsible for, and shall promptly reimburse, all
actual, out-of-pocket expenses incurred by DSS in its satisfaction of this
Section 2.3(c), provided that any costs for which reimbursement hereafter may be
claimed, if in excess of $500.00, shall have been approved in advance by
Trebuchet in writing.

    

    (d)
DSS agrees to be a named plaintiff in any Patent infringement action in the
European Litigation and to cooperate fully with TREBUCHET’s counsel in the
European Litigation as such counsel may request. DSS understands that it may be
the sole plaintiff in the European Litigation or a co-plaintiff or that the
action may be taken solely in the name of TREBUCHET, as warranted. 

    

    (e)
The Parties will also execute all documents and do all things that either of
them from time to time reasonably requires of the other to effect, perfect or
complete the provisions of this Agreement and any transaction or proceedings
contemplated thereby including but not limited to recording a confirmatory
patent assignment and patent security agreement in each of the contacting states
of the European Union if and where appropriate. 

    

    (f)
*

    

    (g)
At the
reasonable request of TREBUCHET, DSS will execute and deliver such other
instruments and do and perform such other lawful acts and things as may be
necessary or desirable for effecting completely the consummation of the
transactions contemplated hereby, including, without limitation, execution,
acknowledgment, and recordation of other such papers, and using commercially
reasonable efforts to obtain the same from the respective inventors, as
necessary or desirable for fully perfecting and conveying unto TREBUCHET the
benefit of the transactions contemplated hereby.

     

    2.4
REVENUE GENERATED AND PAID 

     

    (a)
To the extent that revenue is generated by the European Litigation or from the
ECB and other Persons identified in Schedule 1
after the Effective Date of this Agreement either by way of settlement, be that
lump sum payments, advances, royalties, and/or other payment structures,
including but not limited to license revenue such as advances or future
royalties paid over time as the case may be, as well as revenue specifically
attributable to past infringement and interest (including amounts for
infringements before the Effective Date of this Agreement and any interest
attributable thereto), or as a consequence of a judgment in any action
(“Revenue”), the parties shall share equally all such revenue generated
notwithstanding their respective ownership interests in the Patent as set forth
in Section 2.1 above, with 50% of the proceeds for the account of TREBUCHET and
50% of the proceeds for the account of DSS, each to be distributed according the
subparagraph 2.4(b) herein, except that, to the extent that a Court awards fees,
expenses or other remuneration to either DSS or TREBUCHET or both as the case
may be as the prevailing party or parties in any European Litigation, such fees
and expenses shall be solely payable to and for the account of TREBUCHET. For
all purposes of this Agreement, Revenue shall be calculated before, and without
regard to, reduction of or be offset by, any expense incurred by either Party,
including, but without limitation, any contingent legal or other fees expect as
noted in the foregoing sentence. 

     

    
      
        
        

      

      
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    (b)
Creation of Trust Account. Revenue shall be deposited into a Trust Account of
TREBUCHET managed by a managing lawyer, or its designee, to be selected by
TREBUCHET and such managing lawyer shall act at the instruction or direction of
TREBUCHET (“Managing Lawyer”). 

    

    
      	1)  	
              The
      Parties agree that the Managing Lawyer will (and will be directed to)
      receive all Revenue from the European Litigation and will immediately
      place same into said Trust Account kept for that purpose. The Managing
      Lawyer will hold that part of the Revenue due DSS in the Trust Account and
      will dispense such Revenue due DSS to DSS at the direction of TREBUCHET.
      The Managing Lawyer will hold that part of the Revenue due under this
      Agreement to TREBUCHET in the Trust Account in trust for TREBUCHET and
      will dispense such Revenue due TREBUCHET to TREBUCHET in accordance with
      the directions of TREBUCHET. 

            

    

    

    
      	2)  	
              The
      Parties expect that funds held in the Trust Account will be dispensed
      simultaneously to each of the Parties. If DSS or TREBUCHET directly or
      indirectly receives any part of the Revenues due to the other Party, it
      shall immediately pay such Revenues over to the Managing Lawyer to be paid
      into the Trust Account and dealt with under the terms of this Agreement.
      

            

    

    

    
      	3)  	
              TREBUCHET
      shall account to DSS for funds owed to DSS, to be paid at least once
      quarterly as long as there are funds in the Trust Account that can be paid
      over to DSS. 

            

    

    

    
      	4)  	
              TREBUCHET
      shall be entitled to use monies due TREBUCHET held in the Trust Account to
      meet its funding undertakings under this Agreement as provided in Section
      2.2, but only after DSS has been paid its share of the Revenue due
      it.

            

    

     

     

    
      
        
        

      

      
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      	5)  	
              Each
      Party shall pay its own taxes. 

            

    

    

    
      	6)  	
              Unless
      otherwise agreed by the Parties hereto in writing, monies in the Trust
      Account that have been received as a result of a decision by a national
      Court which awards royalties, damages, attorney fees or costs etc., shall
      not be distributed to either Party or to the Party to whom the money is
      due unless and until an appeal of any decision awarding such damages,
      attorney fees or costs is concluded and decided or the time for appeal has
      elapsed without appeal.

            

    

    

    ARTICLE 3

    

    FUTURE CLAIMS

     

    In
the event that the ECB or any other Person identified in Schedule 1
brings an invalidity action against the Patent or an action seeking a
determination of non infringement with respect to the Patent subsequent to the
Effective Date, TREBUCHET shall, in its sole discretion, undertake the defense
of said action provided further
that
TREBUCHET is notified of the claim within twenty (20) business days of written
notice to DSS. In the event that a validity proceeding is initiated by any
Person not identified on Schedule 1
and /or a validity proceeding is brought in a European national state not listed
in Schedule 9,
TREBUCHET shall have the right but not the obligation to defend such proceedings
and if elects to do so, it shall pay the expenses associated therewith.

     

    ARTICLE 4 

     

    SECURITY INTEREST IN PATENT AND IN
PROCEEDS

    

    4.1
IN THE PATENT. In consideration of the funding undertakings and management of
TREBUCHET, and to secure the payments to TREBUCHET set out in Article 2.4
herein, DSS hereby gives TREBUCHET a first priority security interest and/or
lien in its 51% ownership interest in the Patent as of the Effective Date
hereof. Such first priority security interest and/or lien in the Patent shall be
recorded, as needed, by filing in the respective national European contracting
states where the Patent is in force or where otherwise appropriate a
confirmatory patent security agreement in the form necessary to comport with the
filing requirements of each national European contracting state where the Patent
is in force in which the security interest and/or lien may need to be officially
recorded. TREBUCHET
shall promptly reimburse DSS all actual, out-of-pocket expenses reasonably
incurred by DSS in connection with it satisfying its obligations under this
Section 4.1.

    

    4.2
IN THE REVENUES. In consideration of the funding undertakings and management
undertaken by TREBUCHET, DSS hereby gives TREBUCHET a first priority security
interest and/or lien in any and all Revenues due DSS under Section 2.4 hereof
and by virtue of any assertion of the Patent with respect to the Persons listed
in Schedule 1,
including, without limitation, any Revenues resulting out of any future or
retroactive licenses or other agreements concerning payment of past damages
under the Patent with one or more such Persons, to secure any indebtedness,
obligations and liabilities of DSS to TREBUCHET which now exist or may
hereinafter arise. The Parties will cooperate to record and perfect as soon as
reasonably practical such security interest and/or lien as appropriate, and will
promptly enter into a separate security agreement if necessary to accomplish
same. TREBUCHET shall promptly reimburse DSS all actual, out-of-pocket expenses
reasonably incurred by DSS in connection with it satisfying its obligations
under this Section 4.2.

    

    
      
        
        

      

      
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    4.3
CONSENTS. DSS has obtained all consents required in connection with the granting
of the security interests described in Sections 4.1 and 4.2 hereof including,
without limitation, the consents of Fagenson & Co., Inc. and Patrick White,
as required under certain Credit Agreements between either of them and DSS,
dated January 4, 2008.

    

    4.4
DEFAULT. Upon, and only upon, any event that is determined by agreement or by
tribunal of competent jurisdiction to entitle TREBUCHET to terminate this
Agreement as provided hereinafter in Article 9(b)(a), 9(b)(b) or 9(b)(c), DSS
shall assign all its remaining right, title, and interest in the Patent and
TREBUCHET shall be entitled to take sole title in the Patent, including but not
limited to the right to enforce the Patent in its sole name and generate revenue
for all past and future infringements, along with the right to such revenue as
herein otherwise provided. Within 10 business days of the Effective Date, DSS
shall execute a document assigning and conveying all of its remaining right,
title and interest in the Patent to TREBUCHET, which document shall be effective
immediately prior to the event referred to herein (but not before) and which
document shall be held in escrow pending such event by the Managing Attorney.
Upon termination of this Agreement in accordance with any of Article 9 (b)
(a)-(c) herein, TREBUCHET shall be entitled to record the document as may be
required to perfect its sole title in the Patent. Notwithstanding the foregoing,
DSS shall be entitled to its share of the Revenue as otherwise provided herein
subject to any claim for damages held by TREBUCHET. 

    

    ARTICLE 5

    

    INDEMNIFICATION

    

    5.1
INDEMNIFICATION BY TREBUCHET. TREBUCHET shall promptly indemnify and hold DSS
and each of its officers, directors, employees, shareholders and agents harmless
for and pay any and all liabilities, damages, securities, penalties and all
other monetary relief awarded to the ECB and to those Persons against whom
assertions are made and/or who file invalidity and/or non-infringement suits,
however characterized, whether actual or enhanced, and any awards of costs,
expenses and attorneys’ fees, but only as long as same pertain to the European
Litigation. For the purposes of clarification and notwithstanding the foregoing,
TREBUCHET assumes no liability for any assertions of the Patent or for any
invalidity suits unless same involve the ECB or the Persons contemplated herein.
TREBUCHET further assumes no liability for any infringement actions or
infringement claims asserted against DSS, nor will it defend DSS in connection
with any such claims, irrespective of who brings such actions or claims unless
such actions or claims are initiated as a direct result solely of actions of
TREBUCHET or in the name of DSS by virtue of TREBUCHET’s rights granted in this
Agreement.

    

    
      
        
        

      

      
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    5.2
INDEMNIFICATION BY DSS. DSS shall promptly indemnify and hold TREBUCHET, and
each of its officers, directors, employees, members and agents, harmless for and
pay any and all liabilities, damages, securities, penalties and all other
monetary relief from and against (including the reasonable costs of defending
against) all claims, damages, liabilities as may arise from or out of its
relationship with DSS including but not limited to any material
misrepresentation of the representations and warranties contained in this
Agreement including without limitation the schedules hereto and Article 6,
except as to matters pertaining to the European Litigation arising from actions
taken by TREBUCHET after the Effective Date; provided, however, that the
provisions of this Section 5.2 shall not diminish TREBUCHET’s undertakings
provided in this Agreement. 

    

    ARTICLE 6

    

    REPRESENTATIONS AND WARRANTIES OF THE
PARTIES TO EACH OTHER

    

    6.1
REPRESENTATIONS AND WARRANTIES OF DSS. DSS represents and warrants to TREBUCHET
that each of the following statements is true and correct as of the Effective
Date:

    

    a.
Accuracy of
Schedules.
All Schedules and Exhibits to this Agreement, including, without limitation,
Schedule 10,
which provides the information of the European Litigation included in the PPM,
are accurate, complete, and true in all material respects. 

    

    b.
The entities listed in Schedule 1
are all of the Persons now known or deemed by DSS to, now or in the past,
infringe or allegedly infringe the Patent. DSS does not have knowledge or reason
to believe at this time that any other Persons are now infringing or have
infringed the Patent.

    

    c.
Patent Validity.
Except as set forth in the Schedule 10,
the Patent is valid and subsisting, has not expired or lapsed, and has not been
adjudicated invalid or unenforceable, in whole or in part. There is no decision
adverse to DSS’ right to enforce the Patent and there is no proceeding involving
such rights threatened or pending other than those set forth in Schedule 10.

    

    d.
Ownership of
Patent.
Except as specifically set forth in Schedule 11
and with respect to the assignment of a 49% interest in the Patent to TREBUCHET,
as provided for in this Agreement, DSS is the sole and exclusive owner of the
entire and unencumbered right, title and interest on and to the Patent, free and
clear of any liens, charges and encumbrances, including without limitation
licenses, immunities, privileges, pledges, claims, attachments, shop rights and
covenants by DSS not to sue third persons, and to the best knowledge of DSS,
none of the proprietary rights is subject of any claim in any applicable
jurisdiction. DSS has the sole right to mortgage, pledge and assign the Patent
and the sole and exclusive right to grant the assignment and security interest
and liens granted herein. There is no decision adverse to DSS’ claim of
ownership or claim of exclusive right to the Patent or DSS’ right to enforce the
Patent, and there is no proceeding involving such rights threatened or pending.
DSS has provided TREBUCHET with a copy of any and all opinions and other
writings prepared by MWE concerning the ownership issues of the Patent which
were identified in MWE’s retainer letter dated 2004, and if none are available,
has otherwise disclosed the results of that undertaking and engagement to
TREBUCHET. 

    

    
      
        
        

      

      
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    e.
European Law.
European counsel identified in Schedule 12
have been made aware of the fact that the European Litigation will be funded,
managed and controlled by TREBUCHET, and that TREBUCHET shall share in the
proceeds of any Revenue generated from assertions of the Patent as, inter alia.,
an owner of the Patent, and DSS represents and warrants that such European
counsel, and each of them, have advised DSS that they know of no reason why,
under the law of their respective applicable jurisdiction, TREBUCHET cannot so
fund, manage and control the European Litigation and cannot share in the
proceeds of any revenue generated from assertions of the Patent, and TREBUCHET,
in doing so, will not run afoul of any European or national legislation, rules
or practices that will have a material adverse effect on TREBUCHET.

     

    f.
Organization, Standing and
Power. Each of
DSS and its Subsidiaries (all of which are listed on Schedule 4) is a
corporation or limited liability company duly organized, validly existing and in
good standing, and no certificates of dissolution have been filed under the laws
of its jurisdiction of organization. Each of DSS and its Subsidiaries has the
power to own its properties and to carry on its business as now being conducted
and as presently proposed to be conducted and is duly authorized and qualified
to do business and is in good standing in each jurisdiction in which the failure
to be so qualified and in good standing would have a Material Adverse Effect on
DSS. Unless such have been filed as exhibits in the SEC Reports available on the
SEC’s EDGAR system, DSS has delivered or made available to TREBUCHET a true and
correct copy of its Certificate of Incorporation and By-laws, each as amended to
date. DSS is not in violation of any of the provisions of its Certificate of
Incorporation or By-laws. DSS is the direct or indirect owner of all outstanding
shares of capital stock of each of its Subsidiaries and all such shares are duly
authorized, validly issued, fully paid and nonassessable. All of the outstanding
shares of capital stock of each such Subsidiary are owned by DSS free and clear
of all liens, charges, claims or encumbrances or rights of others, other than a
security interest in the common stock of Plastic Printing Professionals, Inc. in
favor of Fagenson & Co., Inc., as agent, pursuant to that certain Credit
Agreement, dated January 4, 2008, between Fagenson & Co., Inc. and DSS.

    

    g.
Authority; Binding Nature of
Agreement. DSS has
all necessary corporate power and authority to enter into and to perform its
obligations under this Agreement and the other Transaction Documents, and the
execution, delivery and performance by DSS of the Transaction Documents have
been duly authorized by all necessary action on the part of DSS and its board of
directors and stockholders, as applicable. Each of the Transaction Documents to
which DSS is a party constitutes the legal, valid and binding obligation of DSS,
enforceable against DSS in accordance with its terms, subject to: (i) laws of
general application relating to bankruptcy, insolvency and the relief of
debtors; and (ii) rules of law governing specific performance, injunctive relief
and other equitable remedies.

     

    
      
        
        

      

      
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    h.
SEC Reports; Financial
Statements. DSS has
filed all reports required to be filed by it under the Securities Act and the
Exchange Act, including pursuant to Section 13(a) or 15(d) thereof (the
foregoing materials being collectively referred to herein as the “SEC Reports”)
on a timely basis or has received a valid extension of such time of filing and
has filed any such SEC Reports prior to the expiration of any such extension.
DSS has delivered or otherwise made available to TREBUCHET via the EDGAR website
copies of all SEC Reports filed within the 10 days preceding the date hereof.
Except as set forth in Schedule 13, as of
their respective dates, the SEC Reports complied in all material respects with
the requirements of the Securities Act and the Exchange Act and the rules and
regulations of the Commission promulgated thereunder, and none of the SEC
Reports, when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. Except as set forth in Schedule 13, the
financial statements of DSS included in the SEC Reports (the “Financial
Statements”) comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with respect
thereto as in effect at the time of filing. The Financial Statements have been
prepared in accordance with GAAP, except as may be otherwise specified in the
Financial Statements or the notes thereto, and fairly present in all material
respects the assets, liabilities, financial position and results of operations
of DSS as of and for the dates thereof and the results of operations and cash
flows for the periods then ended, subject, in the case of unaudited statements,
to normal, immaterial, year-end audit adjustments. The books and records of DSS
are true, accurate and complete in all material respects. All material
agreements to which DSS is a party or to which the property or assets of DSS are
subject are included as part of or specifically identified in the SEC
Reports.

     

    i.
Binding Agreement.
This Agreement is legal, valid, and binding upon the DSS, enforceable against
DSS in accordance with its terms, except to the extent limited by bankruptcy,
insolvency, moratorium, and other laws of general application relating to or
affecting the enforcement of creditors’ rights and general equity
principles.

     

    j.
Compliance with Applicable
Laws. DSS has
maintained the Patent in compliance with all Applicable Laws. DSS has never
received any notice or other communication from any person regarding any actual
or possible violation of, or failure to comply with, any Applicable Laws with
respect to the Patent. DSS has obtained all material permits, certificates and
licenses required by any Applicable Laws for the conduct of its business and the
ownership of its assets. DSS is not in violation of any such permit, certificate
or license, and no legal proceedings or other actions are pending or, to the
knowledge of DSS, threatened to revoke or limit any such permit, certificate or
license. DSS has maintained the Patent in force and paid all Annuities due on
the Patent through the date of this Agreement.

     

    
      
        
        

      

      
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    k.
Conflict with Other
Agreements.
The execution, delivery, and performance of this Agreement does not conflict
with, constitute a default under, or violate any provision of (i) the
Certificate of Incorporation of DSS, (ii) the By-laws of DSS, or (iii) any
instrument or agreement to which DSS is a party or under which DSS or any Patent
is bound. DSS further warrants that no award, citation, code, decree, edict,
injunction, judgment, law, order, ordinance, rule, regulation, or writ or
including but not limited to, those of federal, state and local governments,
agencies of those governments, courts or arbitration panels, have been issued or
are now pending against DSS or the Patent that would prohibit the consummation
of this transaction. DSS will not execute or otherwise enter into any agreement
in conflict with the rights granted to TREBUCHET under this Agreement without
TREBUCHET’S prior written permission. 

     

    l.
Consideration for Assignment and
Security Interest in /Lien on Patent.
The consideration to be delivered to DSS for the conveyance of an interest in
the Patent and a security interest in and/or lien on its remaining interest in
the Patent pursuant to this Agreement constitutes reasonably equivalent value
for TREBUCHET’s undertakings set forth in this Agreement. DSS has not been sued
or threatened with suit by any creditor before the execution of this Agreement,
and DSS has not concealed the Patent from any of its creditors.

    

    m.
Contracts.
There are no existing Contracts between DSS and any third party that (a) affect
the Patent, other than as disclosed in Schedule 11,
or (b) will bind or obligate TREBUCHET.

    

    n.
Disclosure.
No representation or warranty made by DSS in this Agreement, nor any statement
or certificate furnished or to be furnished to TREBUCHET pursuant hereto or in
connection with the transactions contemplated hereby, contains or shall contain
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained herein or therein not
misleading.

    

    o.
Liabilities.  DSS
has no material commitments, indebtedness, liabilities, or obligations of any
nature, whether absolute or contingent (“Liabilities”), except
for (i) Liabilities reflected on the Financial Statements, (ii) accounts payable
incurred in the ordinary course of business since the date of the last balance
sheet reflected in the Financial Statements, (iii) Liabilities under any
contracts, (iv) Liabilities incurred in connection with the negotiation of the
Transaction Documents and the transactions contemplated thereby and (v)
liabilities incurred in the ordinary course of business. In addition, DSS does
not have any Liabilities that
would adversely impact the transactions contemplated under this Agreement or any
of the other Transaction Documents.

    

    p.
Litigation.
Other than as set forth in the SEC Reports or on any of the Schedules to this
Agreement, DSS has no knowledge of any claims, actions, suits, proceedings,
arbitrations, or investigations, pending or threatened, in any court,
arbitration panel, Governmental Agency, or otherwise, against, by or affecting
the Patent, or which would prevent the performance of this Agreement or any of
the transactions contemplated hereby or declare the same unlawful or cause the
rescission thereof.

    

    
      
        
        

      

      
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    q.
Taxes.
DSS has, in the past, properly prepared in all material respects and has filed,
all federal, state, local and other tax returns and reports required to be filed
pursuant to all applicable laws, regulations, and statutes; DSS is not a party
to any action for collection of taxes; DSS does not know of any grounds
supporting any contemplated action concerning same.

    

    r.
Non-Infringement.
The technology disclosed in the Patent does not interfere with, infringe upon,
misappropriate, or violate any material intellectual property right or rights
(including, without limitation, patent, trademark, trade dress, trade secrets or
copyright) of any third party. 

    

    s. No Contravention.
Neither the execution and the delivery of this Agreement, nor the consummation
of the transactions contemplated hereby will (i) violate any constitution,
statute, regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or court to which
DSS is subject or any provision of its charter or bylaws or (ii) conflict with,
result in a breach of, constitute a default under, result in the acceleration
of, create in any party the right to accelerate, terminate, modify, or cancel,
or require any notice under any agreement, contract, lease, license, instrument,
or other arrangement to which DSS is a party or by which it is bound or to which
it Patent is subject. 

    

    t.
Funding. Schedule 8 lists
all current pending and proposed actions and provides an informed estimate of
the future costs and expenses which TREBUCHET may incur as a consequence of any
undertakings it determines to take with respect to the European Litigation. DSS
warrants and represents that Schedule 8
is accurate and complete. DSS acknowledges that TREBUCHET has entered into this
Agreement with the understanding that its costs and expenses will not in any
case unreasonably exceed the estimates provided in said Schedule. DSS further
acknowledges that TREBUCHET’S ability to raise capital is premised on the
accuracy and completeness of disclosures made in Schedule 8.

    

    u.
Broker.
Neither DSS nor any entity directly or indirectly controlling DSS has incurred
any liability or obligation to any agent, broker, or finder for any brokerage
fees, commissions, finder’s fees, or other compensation with respect to the
transactions contemplated by this Agreement. DSS acknowledges that the services
performed by Robert Girards, individually, do not constitute the acts of an
agent, broker, or finder for the purposes of this Agreement.

    

    6.2
REPRESENTATIONS AND WARRANTIES OF TREBUCHET. TREBUCHET represents and warrants
to DSS that each of the following statements is true and correct as of the
Effective Date:

    

    a.
TREBUCHET represents and warrants that it shall comply with the undertakings of
Article 3. If TREBUCHET does not pay, or arrange for any payment, as required
under Article 3 above, or otherwise satisfy on time and in full its undertakings
with respect to the European Litigation, if DSS shall have such funds available
to it on terms that are reasonable in the sole discretion of DSS, then DSS
promptly shall pay to ECB or any other Person the full amount required under
Article 3 above which remains outstanding on such date. Such payment by DSS
shall not limit the undertakings of TREBUCHET set forth above in Article 3 and,
to the extent DSS pays any money or other damages to ECB or any other Person
pursuant to this Article 3, TREBUCHET immediately shall reimburse DSS therefore.
DSS shall also be entitled to recover from TREBUCHET interest on any unpaid
principal balance from the date due until the date paid at the lesser of ten
percent (10%) per year or the maximum rate permitted by law. 

     

    
      
        
        

      

      
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    LIMITATION
OF LIABILITY. THE FOREGOING STATES TREBUCHET’S ENTIRE LIABILITY TO DSS ARISING
OUT OF OR RELATED TO THE EUROPEAN LITIGATION. IN NO EVENT SHALL TREBUCHET BE
LIABLE TO DSS FOR ANY INDIRECT, SPECIAL, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE
DAMAGES ARISING OUT OF OR RELATED TO ANY BREACH OF THIS AGREEMENT; PROVIDED,
THAT THIS LIMITATION SHALL NOT LIMIT TREBUCHET’S UNDERTAKINGS EXPRESSLY ASSUMED
IN THIS AGREEMENT. NOR SHALL TREBUCHET BE LIABLE FOR ANY CLAIMS BY DSS THAT IT
MISMANAGED THE EUROPEAN LITIGATION, OR THAT ITS ACTIONS OR NON-ACTIONS RESULTED
NEGLIGENTLY IN A LOSS OF PATENT RIGHTS.

     

    b. Authority; Binding Nature of
Agreement. TREBUCHET
has all necessary corporate power and authority to enter into and to perform its
undertakings under this Agreement and the other Transaction Documents, and the
execution, delivery and performance by TREBUCHET of the Transaction Documents
have been duly authorized by all necessary action on the part of TREBUCHET and
its Managing Member, as applicable. Each of the Transaction Documents to which
TREBUCHET is a party constitutes the legal, valid and binding obligation of
TREBUCHET, enforceable against TREBUCHET in accordance with its terms, subject
to: (i) laws of general application relating to bankruptcy, insolvency and the
relief of debtors; and (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies.

     

    c. Binding
Agreement.
This Agreement is legal, valid, and binding upon the DSS, enforceable against
TREBUCHET in accordance with its terms, except to the extent limited by
bankruptcy, insolvency, moratorium, and other laws of general application
relating to or affecting the enforcement of creditors’ rights and general equity
principles.

     

    d
Conflict with Other
Agreements.
The execution, delivery, and performance of this Agreement does not conflict
with, constitute a default under, or violate any provision of the articles of
organization of TREBUCHET or any instrument or agreement to which TREBUCHET is a
party or under which TREBUCHET is bound. TREBUCHET further warrants that no
award, citation, code, decree, edict, injunction, judgment, law, order,
ordinance, rule, regulation, or writ or including but not limited to, those of
federal, state and local governments, agencies of those governments, courts or
arbitration panels, have been issued or are now pending against TREBUCHET that
would prohibit the consummation of this transaction. TREBUCHET will not execute
or otherwise enter into any agreement in conflict with the rights granted to DSS
under this Agreement without DSS’ prior written permission.

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

    e.
Disclosure.
No representation or warranty made by TREBUCHET in this Agreement, nor any
statement or certificate furnished or to be furnished to DSS pursuant hereto or
in connection with the transactions contemplated hereby, contains or shall
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained herein or therein not
misleading.

     

    f.
No Contravention.
Neither the execution and the delivery of this Agreement, nor the consummation
of the transactions contemplated hereby (including the Assignment and Assumption
referred to in Section 1.2 above), will (i) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge, or other
restriction of any government, governmental agency, or court to which DSS is
subject or any provision of its charter or bylaws or (ii) conflict with, result
in a breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or cancel, or
require any notice under any agreement, contract, lease, license, instrument, or
other arrangement to which DSS is a party or by which it is bound or to which it
Patent is subject. 

     

    g.
Broker.
Neither TREBUCHET nor any entity directly or indirectly controlling TREBUCHET
has incurred any liability or obligation to any agent, broker, or finder for any
brokerage fees, commissions, finder’s fees, or other compensation with respect
to the transactions contemplated by this Agreement. TREBUCHET acknowledges that
the services performed by Robert Girards, individually, do not constitute the
acts of an agent, broker, or finder for the purposes of this
Agreement.

    

      

    ARTICLE 7

    

    EXCLUSIONS; OTHER
OBLIGATIONS

     

    OBLIGATIONS
TO THIRD PARTY LICENSEES. Notwithstanding its ownership interest in the Patent,
TREBUCHET assumes no responsibility for obligations to Third Party Licensees
under any Third Party License Agreements which it may enter into with respect of
the Patent, whether such agreements be entered in settlement of the European
Litigation or otherwise, other than those obligations specifically assumed by
TREBUCHET in this Agreement, including, by way of example and without
limitation, any obligations of DSS to, at DSS’ expense, indemnify such licensees
for any third party infringement claims and to provide infringement remedies,
such as providing non-infringing substitute products, conducting product
recalls, modifying current products to avoid further infringement or procuring
applicable licenses, all as my be set forth in such Third Party License
Agreements. 

    

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

    ARTICLE 8

    

    CONFIDENTIALITY

     

    The
terms of the Confidential Disclosure Agreement between the parties shall apply
to any Confidential Information (as defined therein) that pertains to this
Agreement. 

     

    ARTICLE 9

    

    TERMINATION

    

    (a) This
Agreement shall remain in full force and effect unless and until terminated by a
mutual written agreement of the parties. Each Party acknowledges and agrees that
its remedy for breach by the other Party of this Agreement shall be, subject to
the requirements of Article 10, to bring a claim to recover damages subject to
the limitations of this Agreement and to seek any appropriate equitable relief,
other than the termination of this Agreement. 

    

    (b) TREBUCHET
shall have the right to terminate this Agreement and all of its undertakings of
the Agreement effective immediately upon written notice to DSS: 

     

    a) in the
event that DSS shall i) apply for or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of itself
or of all or a substantial part of its property or assets, (ii) make a general
assignment for the benefit of its creditors, (iii) commence a voluntary case
under the United States Bankruptcy Code (as now or hereafter in effect) or under
the comparable laws of any jurisdiction (foreign or domestic), (iv) file a
petition seeking to take advantage of any bankruptcy, insolvency, moratorium,
reorganization or other similar law affecting the enforcement of creditors’
rights generally, (v) acquiesce in writing to any petition filed against it
in an involuntary case under United States Bankruptcy Code (as now or hereafter
in effect) or under the comparable laws of any jurisdiction (foreign or
domestic), (vi) issue a notice of bankruptcy or winding down of its operations
or issue a press release announcing same, or (vii) take any action under the
laws of any jurisdiction (foreign or domestic) analogous to any of the
foregoing; or 

     

    b) 
in the
event that a proceeding or case shall be commenced in respect of DSS, without
its application or consent, in any court of competent jurisdiction, seeking (i)
the liquidation, reorganization, moratorium, dissolution, winding up, or
composition or readjustment of its debts, (ii) the appointment of a trustee,
receiver, custodian, liquidator or the like of it or of all or any substantial
part of its assets in connection with the liquidation or dissolution of DSS
or (iii) similar relief in respect of it under any law providing for the
relief of debtors, and such proceeding or case described in clause (i), (ii) or
(iii) shall continue undismissed, or unstayed and in effect, for a period of
thirty (30) days or any order for relief shall be entered in an involuntary case
under United States Bankruptcy Code (as now or hereafter in effect) or under the
comparable laws of any jurisdiction (foreign or domestic) against DSS or
action under the laws of any jurisdiction (foreign or domestic) analogous to any
of the foregoing shall be taken with respect to DSS and shall continue
undismissed, or unstayed and in effect for a period of thirty (30) days; or

     

    
      
        
        

      

      
        21

        
          

        

      

      
        
        

      

    

    c) in the
event of a Material Adverse Effect as that term is defined herein; or

     

    d) in the
event of a material misrepresentation of the representations and warranties of
DSS contained in this Agreement including without limitation the schedules
hereto and Article 6 above and such misrepresentation has adversely affected the
rights of TREBUCHET under the Agreement; or

     

    e)
*

     

    f) in the
event that the Patent is not held valid after exhausting appeals in at least one
national contracting state of the European Union in which national contracting
state infringement proceedings can be brought against a Person or Persons
identified in Schedule 1.

     

    Notwithstanding
any such termination for the reasons provided hereinabove (a) - (e), or any
Dispute as that term is defined in Article 10 below arises, TREBUCHET shall
retain and maintain its equity interest in the Patent as an owner and be
entitled to any benefits to be derived as such including but not limited to the
right to any recoveries for past infringement, provided however that TREBUCHET’s
rights and interest following termination shall not exceed in scope or nature
its rights or interest prior to termination. Notwithstanding its right to do so,
in the case of a bankruptcy of DSS, TREBUCHET may elect to retain its
exclusivity in the intellectual property rights of DSS herein conveyed as
provided in 11 U.S.C. Section 365(n), providing however that TREBUCHET shall
continue to account and pay over to DSS revenue generated from the activities
related to the European Litigation and the Patent, including but not limited to
royalties, as specifically provided hereinabove in subparagraph 2.4. Nothing in
this Article 9 shall entitle TREBUCHET the right to reimbursement from DSS of
costs incurred by TREBUCHET pursuant to this Agreement, including, without
limitation, Section 2.2(d)(2) hereof.

     

    

    ARTICLE 10

    

    DISPUTE
RESOLUTION

    

    10.1
MEDIATION. If a dispute, controversy or claim (“Dispute”) arises between the
parties relating to the interpretation or performance of this Agreement,
appropriate senior executives (e.g. director or vice president level) of each
Party who shall have the authority to resolve the matter shall meet to attempt
in good faith to negotiate a resolution of the Dispute prior to pursuing other
available remedies. The initial meeting between the appropriate senior
executives shall be referred to herein as the “Dispute Resolution Commencement
Date.” Discussions and correspondence relating to trying to resolve such Dispute
shall be treated as confidential information developed for the purpose of
settlement and shall be exempt from discovery or production and shall not be
admissible in any proceeding concerning the Dispute. If the senior executives
are unable to resolve the Dispute within thirty (30) days from the Dispute
Resolution Commencement Date, and either Party wishes to pursue its rights
relating to such Dispute, then the Dispute will be mediated by a mutually
acceptable mediator appointed pursuant to the mediation rules of JAMS/Endispute
within thirty (30) days after written notice by one Party to the other demanding
non-binding mediation. Neither Party may unreasonably withhold consent to the
selection of a mediator or the location of the mediation. Both parties will
share the costs of the mediation equally, except that each Party shall bear its
own costs and expenses, including attorney’s fees, witness fees, travel
expenses, and preparation costs. The parties may also agree to replace mediation
with some other form of non-binding or binding Alternative Dispute Resolution
(“ADR”). 

     

    
      
        
        

      

      
        22

        
          

        

      

      
        
        

      

    

    10.2
ARBITRATION. Any Dispute which the parties cannot resolve through mediation
within ninety (90) days of the Dispute Resolution Commencement Date, unless
otherwise mutually agreed, shall be submitted to final and binding arbitration
under the then current Commercial Arbitration Rules of the American Arbitration
Association (“AAA”), by three (3) arbitrators in New York City, New York. Such
arbitrators shall be selected by the mutual agreement of the parties or, failing
such agreement, shall be selected according to the aforesaid AAA rules. The
arbitrators will be instructed to prepare and deliver a written, reasoned
opinion stating their decision within thirty (30) days of the completion of the
arbitration. The prevailing Party in such arbitration shall be entitled to
expenses, including costs and reasonable attorneys’ and other professional fees,
incurred in connection with the arbitration (but excluding any costs and fees
associated with prior negotiation or mediation). The decision of the arbitrator
shall be final and non-appealable and may be enforced in any court of competent
jurisdiction. The use of any ADR procedures will not be construed under the
doctrine of laches, waiver or estoppel to adversely affect the rights of either
Party. 

     

    10.3
COURT ACTION. Any Dispute regarding the following is not required to be
negotiated, mediated or arbitrated prior to seeking relief from a court of
competent jurisdiction: breach of any obligation of confidentiality;
infringement, misappropriation, or misuse of any intellectual property right
owned by one Party by the other Party; any other claim where interim relief from
the court is sought to prevent serious and irreparable injury to one of the
parties or to others. However, the parties to the Dispute shall make a good
faith effort to negotiate and mediate such Dispute, according to the above
procedures, while such court action is pending. 

     

    10.4
CONTINUITY OF PERFORMANCE. Unless otherwise mutually agreed in writing, the
parties will continue to honor all other commitments under this Agreement and
related agreements during the course of any dispute. 

    

    ARTICLE 11

    

    MISCELLANEOUS
PROVISIONS

     

    11.1
ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the
parties with respect to the European Litigation and supersedes all terms in any
other prior written and oral and all contemporaneous oral agreements and
understandings with respect to the European Litigation. 

     

    
      
        
        

      

      
        23

        
          

        

      

      
        
        

      

    

    11.2
GOVERNING LAW. This Agreement shall be construed in accordance with and all
Disputes hereunder shall be governed by the laws of the State of New York,
excluding its conflict of law rules. The Supreme Court of the State of New York
and/or the United States District Court for the Southern District of New York
shall have jurisdiction and venue over all Disputes between the parties that are
permitted to be brought in a court of law pursuant to Article 10 above.

     

    11.3
DESCRIPTIVE HEADINGS. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. When a reference is made in this Agreement to an Article or a
Section, such reference shall be to an Article or Section of this Agreement
unless otherwise indicated. 

     

    11.4
NOTICES. Notices, offers, requests or other communications required or permitted
to be given by either Party pursuant to the terms of this Agreement shall be
given in writing to the respective parties to the following addresses:

     

    If
to TREBUCHET: 

    Trebuchet
Capital Partners, LLC 

    609-3
Cantiague Rock Road

    Westbury,
New York 11590

    Attention:
Managing Member

    

    With
a copy to: 

    Trebuchet
Capital Partners, LLC

    PO Box
7866

    Hicksville,
New York 11802-7866

     

     If
to DSS: 

     

    Document
Security Systems, Inc. 

    28
East Main Street

    Suite
1525

    Rochester,
NY 14614

    Attention:
Chief Executive Officer

     

    or
to such other address as the Party to whom notice is given may have previously
furnished to the other in writing as provided herein. Any notice involving
non-performance, termination, or renewal shall be sent by hand delivery,
recognized overnight courier or, within the United States, may also be sent via
certified mail, return receipt requested. All other notices may also be sent by
fax, confirmed by first class mail. All notices shall be deemed to have been
given and received on the earlier of actual delivery or three (3) days from the
date of postmark. 

     

    
      
        
        

      

      
        24

        
          

        

      

      
        
        

      

    

    11.5
NONASSIGNABILITY. Neither Party may, directly or indirectly, in whole or in
part, whether by operation of law or otherwise, assign or transfer this
Agreement without the other Party’s prior written consent, and any attempted
assignment, transfer or delegation without such prior written consent shall be
voidable at the sole option of such other Party. Without limiting the foregoing,
this Agreement will be binding upon and inure to the benefit of the Parties and
their permitted successors and assigns, including any person that becomes party
to this Agreement by reason of merger, consolidation or sale of substantially
all of the assets or business of DSS. 

     

    11.6
SEVERABILITY. If any term or other provision of this Agreement is determined by
a court, administrative agency or arbitrator to be invalid, illegal or incapable
of being enforced by any rule of law or public policy, all other conditions and
provisions of this Agreement shall nevertheless remain in full force and effect
so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any manner materially adverse to either Party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner to the end that transactions
contemplated hereby are fulfilled to the fullest extent possible. 

     

    11.7
FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No failure or delay on
the part of either Party hereto in the exercise of any right hereunder shall
impair such right or be construed to be a waiver of, or acquiescence in, any
breach of any representation, warranty or agreement herein, nor shall any single
or partial exercise of any such right preclude other or further exercise thereof
or of any other right. All rights and remedies existing under this Agreement or
the Schedules attached hereto are cumulative to, and not exclusive of, any
rights or remedies otherwise available. 

     

    11.8
AMENDMENT. No change or amendment will be made to this Agreement except by an
instrument in writing signed on behalf of each of the parties to such agreement.

     

    11.9
COUNTERPARTS. This Agreement may be executed in counterparts, each of which
shall be deemed to be an original but all of which shall constitute one and the
same agreement. 

    

    WHEREFORE,
the parties have signed this Agreement effective as of the Effective Date.

     

    
      	
              Trebuchet
      Capital Partners, LLC

            	
               

            	
               

            	
               

            	
              Document
      Security Systems, Inc.

            
	 	 	 	 	 
	
              By:

            	
               

            	
              /s/
      Robert T. Girards

            	
               

            	
               

            	
               

            	
              By:

            	
               

            	
               /s/
      Patrick White

            
	
              Name:

            	
               

            	
              Robert
      T. Girards

            	
               

            	
               

            	
               

            	
              Name:

            	
               

            	
              Patrick
      White

            
	
              Title:

            	
               

            	
              Manager

            	
               

            	
               

            	
               

            	
              Title:

            	
               

            	
              Chief
      Executive Officer

            

    

    

    
      
        
        

      

      
        25

        
          

        

      

      
        
        

      

    

    SCHEDULE 1

    

    

    ECB
in Germany

    Bundesbank
in Germany

    Bundesdruckerei
in Germany

    Giesecke
& Devrient
in Germany

    ECB
in France if DSS is successful at appeal

    Banque
de France if DSS is successful at appeal

    François-Charles
Oberthur Fiduciaire, French Security Printers if DSS is successful at
appeal

    ECB
in the Netherlands

    De
Nederlandsche Bank

    Joh.
Enschedé the Dutch security printers

    ECB
in Spain

    Banco
de España

    Fábrica
Nacional de Moneda y Timbre,
the Spanish security printers

    ECB
in Austria

    Österreichische
Nationalbank

    Österreichische
Banknoten und Sicherheitsdruck
the Austrian security printers

    Jura,
the Austrian Hungarian document security software company

    ECB
in Belgium

    Nationale
Bank van België/Banque Nationale de Belgique

    Agfa
the Belgian document security software company

    ECB
in Italy

    Banca
d’Italia

    Istituto
Poligrafico e Zecca dello Stato
the Italian security printers

    ECB
in Luxembourg

    Banque
centrale du Luxembourg

    Orell
Füssli Security Printing Ltd the Swiss security printers

    Danish
National Bank and security printers

    Swedish
National Bank and security printers

    
      
        
        

      

      
        26

        
          

        

      

      
        
        

      

    

     

    SCHEDULE 2

    

    United
Kingdom:
First instance and appeal, both lost to ECB

    France:
First instance lost to ECB, DSS appealed

    Germany:
First instance DSS won, ECB appealing

    The
Netherlands:
First instance DSS won, ECB appealing

    Spain:
First instance trial is complete; awaiting judgment, which is expected in the
second half of 2008

    Italy:
First instance trial is expected in the first half of 2009

    Austria:
First instance trial is expected in the first half of 2009

    Belgium:
First instance trial is expected in February 2009

    Luxembourg:
ECB twice filed in the wrong court; *.

    
      
        
        

      

      
        27

        
          

        

      

      
        
        

      

    

     

    SCHEDULE 3

    

    DSS
has technically commenced assertion against the ECB in Belgium, with such action
currently stayed during validity proceedings 

    
      
        
        

      

      
        28

        
          

        

      

      
        
        

      

    

    SCHEDULE 4

    

    Document
Security Consultants, Inc. (New York) (100% owned)

    Thomas
M. Wicker Enterprises, Inc. (New York) (100% owned)

    Lester
Levin, Inc. (New York) (100% owned)

    Secured
Document Systems, Inc. (New York) (100% owned)

    Plastic
Printing Professionals, Inc. (New York) (100% owned)

    
      
        
        

      

      
        29

        
          

        

      

      
        
        

      

    

     

    SCHEDULE 5

    

    
      	
              Country

            	
              Patent
      Number

            
	
              Europe

            	
              455750

            
	
              Austria

            	
              455750

            
	
              Belgium

            	
              455750

            
	
              Switzerland

            	
              455750

            
	
              Germany

            	
              69033363

            
	
              Denmark

            	
              455750

            
	
              Spain

            	
              455750

            
	
              France
      (Currently Revoked)

            	
              455750

            
	
              United
      Kingdom (Currently Revoked)

            	
              455750

            
	
              Italy

            	
              455750

            
	
              Liechtenstein

            	
              455750

            
	
              Luxembourg

            	
              455750

            
	
              Netherlands

            	
              455750

            
	
              Sweden

            	
              455750

            

    

    

    
      
        
        

      

      
        30

        
          

        

      

      
        
        

      

    

    SCHEDULE 6

     

    *

    
      
        
        

      

      
        31

        
          

        

      

      
        
        

      

    

    SCHEDULE 7

     

    *

    
      
        
        

      

      
        32

        
          

        

      

      
        
        

      

    

    SCHEDULE 8

     

    *

     

    

    
      
        
        

      

      
        33

        
          

        

      

      
        
        

      

    

    SCHEDULE 9

     

    

     

    United
Kingdom

     

    Luxembourg

     

    Netherlands

     

    Belgium

     

    Italy

     

    France

     

    Spain

     

    Germany

     

    Austria.

     

    Switzerland

     

    Sweeden

    
      
        
        

      

      
        34

        
          

        

      

      
        
        

      

    

     

    SCHEDULE 10

     

    

    Summary of European
Litigation

    

    Explanatory Note

    

    Although
we refer to the DSS Patent as one patent, there is no single patent that covers
the entire European continent. When granted, a European patent is actually a
collection of individual national patents, each of which is limited in its
coverage to the relevant national jurisdiction. National courts have exclusive
jurisdiction to determine the validity of national patents. The coverage of any
European patent is determined by the states of the European Patent Convention
(“EPC”) that are designated by the applicant prior to grant. Because these are
national rights, there is no single court, even at the appeal levels, that can
rule in respect of the entire European continent.

    

    The
law of each of the signatory states to the EPC is built on the same foundations
governed by the EPC itself. For example, the provisions of novelty, inventive
step, insufficiency, added subject matter and claim construction are laid out in
the EPC. However, national courts can (and do) differ in their interpretation
and application of these laws. There are also “optional” provisions (e.g.
compulsory licensing) which differ between jurisdictions and substantive
procedural differences (e.g. whether exclusive licensees can sue).

    

    Since
the underlying principles are the same, most national courts will consider
decisions rendered by other national courts relating to the same patent. The
amount and type of consideration given to earlier decisions differs between
jurisdictions. However, earlier decisions are not binding in any way on actions
brought in other jurisdictions. 

    

    Infringement Claim brought by DSSI
in Luxembourg 

    

    On August
1, 2005, DSS commenced a lawsuit against the European Central Bank (“ECB”) in
the European Court of First Instance in Luxembourg (the “European Court of First
Instance”) alleging infringement by the ECB of the DSS Patent. In its complaint
DSS claimed that the ECB was circulating Euro banknotes incorporating certain
anti-counterfeiting technology, which protects against forgeries by digital
scanning and copying devices, and that the use of such technology infringes the
DSS Patent.
On September 5, 2007, the European Court of First Instance informed the parties
that it did not have jurisdiction to rule on this patent infringement claim.
Additionally, the European Court of First Instance instructed DSS to pay the
ECB’s attorneys’ fees and court fees with respect to such suit. The ECB
has formally
requested DSS to pay attorneys fees and court fees in the aggregate amount of
€93,752 (US$137,815 based on the applicable exchange rate on August 15, 2008).
If DSS does not pay that amount or if DSS contests the amount payable, this will
be subject to an assessment procedure that will not likely be concluded prior to
the end of this year. DSS has disclosed this amount as a contingent liability
but will not record it until the actual amount is known upon final
assessment.

    

    
      
        
        

      

      
        35

        
          

        

      

      
        
        

      

    

    Patent Invalidity
Challenges

    

    On
March 24, 2006, DSS was served with notice that the ECB filed separate claims in
the United Kingdom and Luxembourg courts seeking the invalidation of the
DSS Patent. Proceedings were commenced before the national courts seeking
revocation and declarations of invalidity
of the DSS Patent in each of the Netherlands, Belgium, Italy, France, Spain,
Germany and Austria.

    

    Invalidity Challenge by the
ECB in the United Kingdom

    

    On
March 26, 2007, the High Court of Justice, Chancery Division, Patents Court in
London, England (the “English Court”) ruled that the DSS Patent was invalid in
the United Kingdom. The English High Court rejected the ECB’s allegations of
invalidity based on lack of novelty, lack of inventive step and insufficiency,
but held that the patent was invalid for added subject matter. That is, the
English Court determined that language added to a patent claim at the appellate
level of registration was not supported by the earlier disclosure in the
specification and therefore was deemed “new matter,” rendering the patent
invalid. Pursuant to the English Court’s decision, on March 30, 2007, the
English Court awarded the ECB 30%
of their costs
(including legal fees) of the proceedings before the High Court. On
April 19, 2007, DSS paid the ECB £90,000 (US$182,000 based on the applicable
exchange rate on that date). DSS anticipates that it will be required to pay an
additional approximately £90,000 (US$168,300 based on the applicable exchange
rate on August 15, 2008) to reimburse the ECB for costs incurred by it in the
English High Court proceedings. If the amount payable by DSS is not agreed, then
the amount will be determined by separate assessment proceedings that can take
up to about one year to complete. 

    

    In
July 2007, the Company also posted a bond in the amount of £87,500 (US$177,000
based on the applicable exchange rate on that date), as collateral for the
payment of any costs payable to the ECB in connection with DSS’s appeal of the
English High Court decision. On March 19, 2008, the decision of the English High
Court, including the award of the ECB’s costs, was
upheld by the English Court of Appeal on appeal. The English Court of Appeal
also ordered DSS to pay the ECB’s costs of the English appeal proceedings
(including legal fees).

    

    On
June 19, 2008, the Company paid £87,500 ($177,000 based on the applicable
exchange rate on that date) towards the ECB’s costs of the English appeal The
ECB has informally quantified its total costs of the appeal to be €271,635.02
(US$399,303 based on the applicable exchange rate on August 15, 2008). In such
circumstances, a paying party would normally expect to pay from 66% to 75%
(€181,089 to €203,726 (US$266,201 to US$299,407 based on the applicable exchange
rate on August 15, 2008)) of the total costs incurred. Unless
the amounts are agreed by the parties, they will be subject to an assessment
procedure that will not likely be concluded earlier than the first quarter of
2009.

    

    
      
        
        

      

      
        36

        
          

        

      

      
        
        

      

    

    The
costs (including legal fees) of the assessment procedure are normally paid by
the party from whom costs are due. Interest normally accrues at 8% per annum
simple rate on unpaid costs from the date of the order giving rise to the
payment (i.e. March 30, 2007 in respect of High Court proceedings, March 19,
2008 in respect of appeal costs).

    

    The
determination of invalidity of the DSS Patent by the English Court does not
determine the validity of the DSS Patent in other European
countries.

     

    Invalidity Challenge by the
ECB in Germany

    

    On March
27, 2007 the Bundespatentgericht of the Federal Republic of Germany ruled that
the DSS Patent was valid. The court considered the English Court’s decision but,
unlike the English Court, determined that the added language in the claim was
supported by the specification. As
a result of this ruling, DSS expects to be awarded its costs in an amount of
€44,692
(US$65,697 based on the applicable exchange rate on August 15, 2008.
On September 3, 2007 the ECB
filed an appeal in the German Federal Supreme Court in an attempt to reverse the
decision of the Bundespatentgericht. The results of this appeal are not expected
until 2010. 

    

    Invalidity Challenge by the
ECB in France

    

    On
January 9, 2008 the Tribunal de Grande Instance de Paris (the
“French Court”) held that the DSS Patent was invalid in France, based on the
same reasoning as the English Court relating to the added subject matter. The
French Court did not make any findings on any other aspects of the case. The
French Court awarded the ECB attorneys’ fees of less than $3,000 with respect to
the invalidity action filed with the French Court. On May 7, 2008, DSS filed an
appeal of the French Court decision. A decision on this appeal is expected in or
around August 2009.

    

    Invalidity Challenge by the
ECB in the Netherlands

     

    On March
12, 2008 the District Court of the Hague (the “Dutch Court”), having considered
the decisions of the English Court, the German Court and the French Court ruled
that the DSS Patent is valid in the Netherlands. The ECB filed an appeal of the
Dutch Court decision on March 27, 2008. A decision on this appeal is not
expected until in or around August 2009.

    

    
      
        
        

      

      
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    Invalidity Challenge by the
ECB in Luxembourg

    

    The ECB
has twice withdrawn its case in Luxembourg due to procedural irregularities. On
the second occasion, the Court awarded DSS €1,000 in compensation for costs
incurred in withdrawal of the suit. There are currently no proceedings in
Luxembourg.

     

    Invalidity Challenge by the
ECB in Spain

    

    The
Commercial Court of Madrid (“the Spanish Court”) ordered, in accordance with
mandatory procedure, that a report be prepared and submitted by an examiner of
the Spanish Patent Office. That report was filed and recorded the examiner’s
opinion that the DSS Patent was invalid for lack of inventive step. The
examiner’s opinion did not address any other alleged ground of invalidity,
including on the ground of “added matter,” which was the grounds cited by the
English Court and the France Court in their determination of invalidity of the
DSS Patent. A validity trial was held in the Spanish Court in early June 2008
with final oral and written arguments made in July 2008. The Spanish Court’s
decision on the validity of the DSS Patent is expected in the second half of
2008.

     

    Invalidity Challenge by the
ECB in Austria

     

    Administrative
proceedings for the revocation of the DSS Patent were commenced by the ECB in
the Austrian Patent Office. Each of the parties has filed several written
briefs. A hearing date has not been set, and is not expected before the end of
2008. 

    

    Invalidity Challenge by the
ECB in Italy

    

    Proceedings
were commenced by the ECB in the District Court of Turin, Intellectual Property
Specialist Division (the “Italian Court”). The parties have each submitted four
“technical briefs” prepared by party-appointed technical (patent attorney)
experts to a Court-appointed technical expert. The Court appointed expert has
given his opinion in April 2008 that the patent is invalid for added matter. The
expert reviewed the English, German and French decisions, but did not take into
account the Netherlands decision. A hearing in May 2008 was held at which DSS
sought to re-open the technical submissions to the court-appointed expert on the
grounds that he should also consider the reasoning of the Netherlands decision.
A decision on that issue is expected in mid-September 2008.

    

     

    Invalidity Challenge in
Belgium

    

    The ECB
brought proceedings in the Brussels Court of First Instance (“the Belgian
Court”). On December 29, 2006, DSS filed a provisional infringement claim in
order to protect itself with respect to the 5-year limitation period in Belgium.
DSS cited the pending European Court of First Instance case and stated that it
did not intend to proceed with its infringement claim in Belgium pending
determination of the European Court of First Instance proceedings.

    

    Extensive
briefs (including technical expert reports) were filed in October 2006, December
2006 and April 2007. In October 2007, the ECB supplemented its arguments with
further technical expert reports and (following the rejection of jurisdiction by
the European Court of First Instance) requested that the invalidity and
infringement cases be heard together at trial. DSS opposed the hearing of
validity and infringement together. In June 2008, the Court decided that it
would hear only validity arguments at the trial to be held on February 12-13,
2009. A further brief from DSS on invalidity is due to be submitted in
mid-September 2008 and a final brief in January 2009. No timetable for the
infringement action has been set, although it is unlikely that the trial will
begin before March or April 2010. It is expected that DSS will need to formally
plead its infringement case (and provide evidence) in February or March
2009.

    

    
      
        
        

      

      
        38

        
          

        

      

      
        
        

      

    

    Plan for Future Infringement
Claims

    

    Other
than the suit filed by DSS in the European Court of First Instance in
Luxembourg, DSS has not yet initiated infringement actions, with respect to the
DSS Patent, in any jurisdiction covered by the DSS Patent. Prospective
defendants and jurisdictions for future infringement actions have been
determined and are identified in a schedule to the Litigation Agreement.
Identified defendants include, among others, certain non-governmental entities.
In addition to the jurisdictions where the validity of the DSS Patent is either
currently under consideration or where either DSS or the ECB is appealing
decisions, we have also identified ___________, __________ and __________ as
jurisdictions where infringement suits may be initiated. Our Manager, in
furtherance of our responsibilities under the Litigation Agreement, will
determine which defendants to file infringement suits against, the nature of
those suits and the jurisdictions where those suits will be filed. We anticipate
that such decisions will be based on, among other things: (i) the extent of the
infringement by a prospective defendant; (ii) the location of the infringing
action; (iii) whether a prospective defendant is a governmental entity or a
private enterprise; and (iv) the patent infringement laws of the applicable
jurisdictions (i.e. choice of jurisdictions that are more plaintiff friendly).

    
      
        
        

      

      
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    SCHEDULE 11

    

    *

    

    
      
        
        

      

      
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    SCHEDULE 12

     

    *

    
      
        
        

      

      
        41

        
          

        

      

      
        
        

      

    

     

    SCHEDULE 13

     

    

     

    SEC
Comment Letters addressed to DSS, dated April 11, 2008, June 6, 2008, July 11,
2008 and August 13, 2008, and DSS’ responses thereto. DSS has not yet responded
to the SEC Comment Letter dated August 13, 2008.

     

    

     

    

    
      
        
        

      

      
        42

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