Document:

ORPHAN MEDICAL, INC. EXHIBIT 10.20 TO FORM 10-K/A DATED 12-31-2003

EXHIBIT 10.16 

Services Agreement 

between 

Orphan Medical, Inc. 

and 

Express
Scripts Specialty Distribution Services, Inc 

	* 	  	
Denotes confidential information that has been omitted from the exhibit and filed
separately, accompanied by a confidential treatment request, with the Securities and
Exchange Commission pursuant to Rule 406 of the Securities Act of 1933. 

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SERVICES AGREEMENT  

        THIS
SERVICES AGREEMENT (this “Agreement”) is made this ___ day of July, 2002 (the
“Effective Date”), by and between EXPRESS SCRIPTS SPECIALTY DISTRIBUTION
SERVICES, INC., a Delaware corporation (“SDS”), having a business address at *,
and ORPHAN MEDICAL, INC. (“Orphan”), a Delaware corporation, having a business
address at 13911 Ridgedale Drive, Suite 250, Minnetonka, Minnesota 55305 

RECITALS 

        WHEREAS,
Orphan manufactures Product, and desires to enter into an agreement with SDS, whereby SDS
will facilitate the dispensing and distribution of Product, and perform certain ancillary
functions associated therewith; and 

        WHEREAS,
SDS has experience in providing the services desired by Orphan, and is willing to provide
such services for Orphan on the terms set forth in this Agreement. 

        NOW,
THEREFORE, in consideration of the premises and mutual promises herein stated, the receipt
and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 

TERMS OF AGREEMENT  

ARTICLE 1
DEFINITIONS  

        As
used in this Agreement, each of the following terms (and the plural or singular thereof,
when appropriate) shall have the meaning set forth herein, except where the context makes
it clear that such meaning is not intended: 

        1.1
“Act” shall mean the United States Federal, Food, Drug and
Cosmetic Act, as amended from time to time.  

        1.2
“AWP” shall mean the average wholesale price of Product as
reported by First Data Bank. 

        1.3
“Business Rules” shall mean those
written business rules mutually agreed upon and executed prior to the Implementation Date
by the parties (or subsequently agreed to by the parties by amendment to this Agreement),
which either further describe how the Covered Services are to be performed or describe
additional services to be performed under this Agreement. 

        1.4
“Confidential Information” shall have
the meaning assigned to it in Section 5.1.  

        1.5
“Covered Services” shall mean those
services to be performed by SDS as set forth on Exhibit A or as described in any SOP.  

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        1.6
“DEA” shall mean the United States
Drug Enforcement Administration. 

        1.7
“Facility” shall mean a distribution facility (or
facilities) owned and/or operated by SDS and utilized in connection with the Xyrem Risk
Management Program, as selected by SDS in its discretion and subject to change from time
to time. Orphan Medical reserves the right to inspect and approve any facility used for
Xyrem distribution prior to any change in the aforementioned facility. 

        1.8
“FDA” shall mean the United States Food and Drug
Administration. 

        1.9
“Fees” shall mean the fees as described in Section
4.2 hereof below to be paid by Orphan to SDS hereunder. 

        1.10
“HIPAA” shall mean Health Insurance Portability and
Accountability Act of 1996, as further defined in the United States Code of Federal
Regulations (CRF) 45, Part 164 – Security and Privacy section. 

        1.11
“Implementation Date” shall mean the
date on which SDS will first begin to perform the Covered Services, which will be
approximately 30 days after FDA approval of Xyrem. 

        1.12
“Non-PAP Order” shall mean each
shipment of Product by SDS to any Person other than a PAP Patient in accordance with
applicable law and FDA guidelines. 

        1.13
“Non-PAP Patient” shall mean a Patient
who is not eligible to participate in the PAP, as determined by NORD, but for whom SDS
dispenses Product pursuant to a Non-PAP Order. 

        1.14
“NORD” shall mean the National Organization of Rare
Disorders, which will be solely responsible for determination whether individuals are
eligible for participation for in the PAP, based on criteria established by NORD and/or
Orphan, and for communicating such eligibility to SDS. 

        1.15
“PAP” shall mean the patient assistance program established
by Orphan, pursuant to which SDS will provide dispensing services as described in the
applicable SOP. 

        1.16
“PAP Patient” shall mean a Patient who
has been approved by NORD as eligible to participate in the PAP. 

        1.17
“PAP Order” shall mean a valid
prescription indicating the dose, amount and strength of Product properly prescribed to a
PAP Patient by a health care practitioner who is licensed to prescribe Product, and which
is submitted to SDS in accordance with the relevant SOP. 

        1.18
“Patient” means an individual who: (a) properly completes all necessary intake
and Xyrem Patient Success forms (the form and content of which shall be mutually agreed
upon by  

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Orphan and SDS prior to the
Implementation Date, and which shall comply with applicable laws and all applicable FDA
requirements), as described in the relevant SOP; and (b) is either deemed eligible by
NORD to participate in the PAP, or is otherwise approved by SDS to receive Product. 

        1.19
“Patient Confidential
Information” means individually-specific medical or prescription
information and any other individually-identifiable information which may be deemed to be
confidential or protected under federal or state law or regulations, including, without
limitation, information that constitutes Protected Health Information under HIPAA. 

        1.20
“Person” shall mean any natural person, corporation,
organization, association, partnership, limited liability company, HMO, or similar entity. 

        1.21
“Product” shall mean Xyrem®
(sodium oxybate) oral solution and dosing kit. 

        1.22
“SOPs” shall mean those written standard operating
procedures mutually agreed upon and executed prior to the Implementation Date by the
parties (or subsequently agreed to by the parties by amendment to this Agreement), which
either further describe how the Covered Services are to be performed or describe
additional services to be performed under this Agreement. 

        1.23
“Territory” shall mean the United States of America. 

        1.24 “Marks”
shall mean those registered and common law trademarks of Orphan that are listed in Exhibit
C. 

ARTICLE II
SERVICES  

        2.1
Covered Services. From and after the Implementation Date, SDS shall provide
the Covered Services for the benefit of Orphan. 

        2.2
Exclusive Distributor. During the term of this Agreement, all Product sold
in the Territory, or made available through the PAP, will be distributed exclusively
through SDS pursuant to this Agreement. Further, Product sold, or made available through
the PAP, in the Territory shall be warehoused at the Facility in accordance with Exhibit A
and any related SOP. 

ARTICLE III
SUPPLY OF
PRODUCT; AUDIT  

      3.1
Consignment Relationship  

		    (a)        General.
Orphan shall deliver, at its own expense, to SDS’s possession at the Facility (on a
consignment basis) sufficient quantities of Product to enable SDS to provide the Covered
Services in accordance with this Agreement. The parties shall mutually agree upon a
sufficient level of inventory of Product to be maintained at the Facility. The Product to
be shipped pursuant to Non-PAP Orders will be furnished to, and held by, SDS on a
consignment  

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basis at all times, except as
provided in Subsection 3.1(b). The consignment of Product hereunder shall at no time be
construed as a loan or other debt financing or secured transaction arrangement between
the parties, and title to consigned Product shall remain with Orphan until transferred
pursuant to Subsection 3.1(b). 

		    (b)              Transfer of Title. Immediately
prior to the shipment of Product by SDS from the Facility pursuant to a Non-PAP
Order, SDS shall purchase from Orphan such Product being shipped. Title to the
consigned Product so purchased by SDS in connection with a Non-PAP Order shall
pass to SDS at the time of such purchase 

		    (c)              Shipment of Non-PAP Orders. Subject
to the restrictions set forth in Subsection 4.2(d) of this Agreement or any FDA
requirements, SDS shall have sole authority to determine to whom it will ship a
Non-PAP Order and at what price, although SDS shall not provide Product to any
Person suspected of diversion as outlined in the corresponding SOP.

        3.2
PAP Orders. The Product to be shipped by SDS pursuant to PAP Orders shall be
for the account of Orphan, and title to such Product shall remain with Orphan until
shipped to the PAP Patient, at which time title will pass to the PAP Patient. Once NORD
approves a Patient as eligible to participate in the PAP, SDS shall treat such Patient as
so eligible until notified otherwise by NORD. SDS shall fulfill PAP Orders and perform
certain ancillary services relating thereto as set forth in the applicable SOP. 

        3.3
Risk of Loss. All risk of Product loss or damage during the time that
such Product is at the Facility, after receipt in good condition by SDS at the Facility,
including inventory shortages which are unaccounted for, shall be borne by SDS, except to
the extent caused by the negligence or willful misconduct of Orphan. Payment to Orphan by
SDS for consigned Product lost or damaged while at SDS’s Facility shall be based on
Orphan’s reasonable replacement costs, as reasonably determined and documented by
Orphan. 

        3.4
Financial Audit. During the term of this Agreement (excluding the months of
December and January) and for a period of ninety (90) days after the expiration or
termination of this Agreement, upon reasonable prior notice and during normal business
hours, Orphan, or any third party auditor designated by Orphan shall be entitled to audit
and inspect those books and records of SDS which are maintained by SDS in connection with
its performance of the Covered Services, subject to confidentiality constraints and
applicable law. Such third party auditor (a) shall not have a conflict of interest with
SDS or any of its affiliates (as determined by SDS in good faith), and (b) will be
required to sign a confidentiality agreement in a form reasonably acceptable to SDS prior
to commencing such audit. Neither Orphan nor its auditor shall have access to any Patient
Confidential Information in the context of an audit. 

      3.5
Regulatory and Compliance Audits and Information Requests.  

         (a)       
SDS shall provide to Orphan and/or the FDA, DEA or any other governmental body
all documents and information requested by the FDA, DEA or any other
governmental body in support of Orphan’s regulatory filings or any
governmental investigations or inquires. Copies of all documents to be provided
to the FDA or DEA shall be provided to 

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Orphan in advance, if practicable,
or otherwise within two (2) business days of delivery to the FDA or DEA. SDS shall notify
Orphan immediately upon receipt of notice of any inspection by the FDA or DEA directed
specifically toward Product, and Orphan shall have the right to have an employee present
at any such inspection, if allowed by law. In addition, SDS shall notify Orphan of any
FDA or DEA correspondence or inspections that concern SDS generally and which are related
to any SDS compliance issues that may adversely impact SDS’s ability to perform the
services contemplated by this Agreement. SDS shall notify Orphan immediately of any
notices, requests for information or other communications related to Product from the
U.S. Department of Health and Human Services or any other government agency or any state
healthcare program or other state agency and, to the extent permitted under applicable
law, shall give Orphan copies of such communications. 

		    (b)                        SDS
shall from time to time submit to audits and inspections by Orphan during normal
business hours or at any other time during which the services being audited are
ongoing, including but not limited to, audits of regulatory and quality
assurance SOPs and of records of contacts with regulatory agencies, provided the
scope of any such audit or inspection shall be limited to information and
facilities pertaining to Orphan’s program. Orphan shall give SDS at least
two (2) business days prior notice of any such inspection and at least thirty
(30) days prior notice for any such audit, and Orphan shall bear the out of
pocket costs of such audit or inspection. 

        3.6
Returns and Replacement. In the event that SDS-purchased Product is
damaged in transit as a result of SDS’s negligence or its designated shipper, SDS
will replace the Product to the Patient free of charge once the damaged Product is
returned to SDS. SDS will monitor all reports of lost Product for the potential for abuse
and diversion. SDS will cooperate with state and federal authorities fully in any
investigations of lost Product, and will provide reports of such loss to Orphan on a
monthly basis for the purpose of allowing Orphan to track the Product and satisfy its FDA
reporting requirements. SDS will investigate the loss of Product by interviewing the
Patient, and/or physician, report the loss to Orphan and to the appropriate regulatory
authorities, as required by law, and record the loss in the Patient’s file. Where
there is suspicion of abuse of diversion, SDS will contact the Orphan designee responsible
for DEA issues, and lost Product will not be replaced without Orphan’s approval.
Where abuse or diversion is not suspected, SDS will replace the lost Product at no charge
to the Patient in the event such loss is the result of SDS’s negligence or its
designated shipper and record the shipment in the Patient file. SDS will treat a repeat
request for lost Product as a suspicion of abuse or diversion and report to the Orphan
designee responsible for DEA issues, and SDS will not replace the lost Product without
Orphan’s approval. For damaged Product, SDS will make a good faith effort to arrange
for the damaged Product to be returned to SDS. Upon receipt of damaged Product, SDS will
keep the damaged Product in a secure locked area, and will dispose of it at SDS’s
cost in compliance with the applicable SOP for destruction of Product. SDS shall not be
required to disclose any Patient Confidential Information to Orphan pursuant to this
Section 3.6 to the extent such disclosure is not permitted under HIPAA and other federal
and state law. 

        3.7
Recalls. If Orphan is required to recall or, on its own initiative, recalls or
withdraws Product sold in the Territory, SDS shall reasonably assist Orphan in such recall
in accordance with applicable laws and regulations. For such purposes, SDS shall maintain
a 

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complete and current list of all
Patients and other third parties to who SDS has shipped (or dispensed) Product, as well
as from whom SDS as accepted returns of Product, with the lot numbers of Product
dispensed/distributed or returned. Orphan shall pay for all costs and expenses of SDS in
connection with any such recall. SDS shall provide to Orphan, at Orphan’s request,
any information reasonably requested by Orphan in connection with Orphan investigations
relating to recalled Product, subject to the confidentiality constraints imposed by HIPAA
and any other federal or state law. 

        3.8
Expired Product. Orphan will at its cost replace Product that expires.
Orphan will not replace expired Product once it has been purchased by SDS. SDS will
dispose of, or return, expired Product as reasonably directed by Orphan, subject to
applicable law, and Orphan shall promptly reimburse SDS for all reasonable expenses
incurred in complying with this Section 3.8 

ARTICLE IV
PURCHASE
PRICE OF PRODUCT; FEES 

        4.1
Set-up Fee. On the Effective Date, Orphan shall pay SDS a non-refundable
set-up fee in the amount set forth on Exhibit B, as payment for up-front expenses
anticipated to be incurred by SDS in preparation for the performance of the Covered
Services. 

      4.2
Purchase Price of Product.  

		    (a)                        With
respect to all Product purchased by SDS pursuant to Subsection 3.1(b),
SDS shall pay a purchase price to Orphan equal to Orphan’s current
wholesale price, as it may be changed by Orphan from time to time on at least 30
days prior written notice to SDS. 

		    (b)                        The
purchase price for Product purchased by SDS within the first ninety (90) days
after the Implementation Date shall be due and payable to Orphan within ninety
(90) days from the date of sale. Thereafter, the purchase price for Product
purchased by SDS shall be due and payable to Orphan within thirty (30) days from
the date of sale. SDA shall provide Orphan with written confirmation of sales of
Product on a weekly basis. If SDS makes payment of the purchase price of Product
within the applicable time period, it shall be entitled to a two percent (2%)
discount off the purchase price of such Product, and the discount shall be
applied by SDS by reducing the amount due and payable to Orphan by two percent
(2%). 

		    (c)                        SDS
shall be responsible for any sales tax or similar taxes payable in connection
with the sale of Product to SDS. 

		    (d)                        SDS
shall have the right to establish the price at which it resells Product to
Non-PAP Patients, and shall have all right, title and interest in and to any
amounts that SDS receives from third parties in connection with Product
dispensed or distributed pursuant to Non-PAP Orders; provided, however, that the
price at which SDS sells Product shall not exceed the greater of (i) 125% of
Orphans’ then-current wholesale price for Product or (ii) the then AWP of
Product. 

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        4.3
Fees. As compensation for the Covered Services performed by SDS, Orphan shall pay
SDS the Fees described in Exhibit B. SDS shall invoice Orphan for the Fees on a bi-weekly
basis, commencing on the second Friday after the Implementation Date, and such Fees shall
be due and payable to SDS within thirty (30) days of the date of SDS’s invoice. On
the first anniversary of the Implementation Date, and each anniversary thereafter, SDS
shall be entitled to increase each of the Fees by no more than a percentage which is equal
to the percentage increase to the then current twelve (12) month Consumer Price Index (all
items) as published by the U.S. Department of Labor, Bureau of Labor Statistics during
such twelve (12) month period. SDS shall notify Orphan in writing within thirty (30) days
after the effective time of any such increase in Fees. 

        4.4
Late Penalty. Any amount not paid by the owing party on or before the
respective due date thereof shall bear interest at the rate of 18% per annum (1.5% per
month) or, if lower, the highest interest rate permitted by law. 

        4.5
Adjustment. In December, 2003, and annually thereafter, the parties will, in good
faith, re-evaluate the pricing set forth on Exhibit B to determine whether an adjustment
thereto is warranted in light of certain unanticipated expenditures, efficiencies,
reductions or other circumstances that may necessitate such an adjustment; provided,
however, in no event shall either party be obligated at such time to agree to any such
adjustment. 

ARTICLE V
CONFIDENTIAL
INFORMATION  

        5.1
Nondisclosure Commitments. The parties acknowledge that, as a result of this
Agreement, each may learn confidential and proprietary information, including, but not
limited to, information about Orphan’s operations, business, and products, and
information about SDS’s report formats, computer software, business, and operations
(all of which shall collectively be considered the “Confidential Information” of
the respective party). Except as specifically provided herein, neither Orphan nor SDS
shall disclose any Confidential Information of the other to any person or entity, or use,
or permit any person or entity to use, any of such Confidential Information, excepting
only: (a) disclosures to and use by the employees of Orphan or SDS who have a reasonable
need to know such information in connection with performance to this Agreement, (b)
disclosures which are required by law, and (c) disclosures that are made on a confidential
basis to the attorneys, accountants, and other professional advisors of Orphan or SDS in
connection with matters relating to this Agreement. Notwithstanding the foregoing,
Confidential Information shall not include: (x) information which is public or becomes
public through no fault of the receiving party, (y) information of which the receiving
party has knowledge prior to receipt, and (z) information which is received by one party
from a third person not under an obligation of confidentiality to the other party to this
Agreement. 

        5.2
Patient Confidential Information. Except as otherwise provided in
Section 6.7, Orphan shall neither have access to nor be entitled to receive
any Patient Confidential Information, except to the extent Orphan must have access to such
Patient Confidential Information to satisfy its FDA reporting requirements associated with
Product. Each party shall maintain the confidentiality of all information and records,
including patient information if such 

8

party receives Patient
Confidential Information in any form or manner, to the extent required by
applicable law, including, but not limited to, HIPAA. All patient-related data
and information obtained by SDS hereunder shall be and remain the property of
SDS and shall be deemed the Confidential Information of SDS. SDS will not
utilize Patient Confidential Information it comes into possession of as a result
of this Agreement outside the scope of this Agreement. SDS will not engage in
any activity designed to expand its information of individual Patients through
the use of third parties for a purpose other than to effectuate the uses and
disclosures contemplated by this Agreement. There shall be no prior use of
Patient Confidential Information outside of the scope of this Agreement.
Notwithstanding anything to the contrary, however, SDS and/or its affiliates may
use any such Patient Confidential Information in the aggregate and on a
de-identified basis with other drug-use data, to the extend permitted by law,
without charge, for research, cost analysis, and other business purposes of SDS
and its affiliates, so long as there is no specific disclosure of the
Confidential Information of Orphan. Notwithstanding anything to the contrary
herein, with respect to any information or documents that are subject to
disclosure or that are requested pursuant to Section 3.5 or otherwise, and which
contain Patient Confidential Information, SDS shall only be required to disclose
such information and documents to the extent permitted by federal and state
confidentiality laws and regulations, including, but not limited to, HIPAA and,
in connection with any such disclosure to Orphan pursuant to Section 3.5 or
otherwise which involves Patient Confidential Information, Orphan hereby
represents that such disclosure is required by law or is intended for one of the
purposes described in 45 C.F.R. § 164.512(b) and that such documents and
information received by Orphan will be used solely to comply with such law or
with one of the intended purposes under 45 C.F.R. § 164.512(b). 

ARTICLE VI
TERM AND
TERMINATION 

        6.1
Initial Term; Renewal. The initial term of this Agreement shall begin
on the Effective Date and continue for a period of three (3) years after the
Implementation Date, and may be terminated earlier or automatically extended in accordance
with the terms thereof. Not less than one hundred twenty (120) days prior to the end of
the initial or any renewal term of this Agreement, either party may notify the other party
in writing that it desires to terminate this Agreement, effective as of the end of the
then current term. If no such written notification is given, this Agreement shall
automatically continue with the same terms and conditions as set forth herein for an
additional one (1) year term, subject to the right of termination as otherwise provided
herein. 

        6.2
Termination for Bankruptcy. Either party shall have the right to
terminate this Agreement upon five (5) days’ written notice, if (a) the other party
files a petition for reorganization or liquidation under any federal or state bankruptcy
law, or any such petition is filed against such other party and, in either case, the
petition is not withdrawn or dismissed within sixty (60) days after filing, or (b) a
receiver is appointed for any part of its assets and said appointment is not vacated
within sixty (60) days. 

        6.3
Termination for Noncompliance. Orphan shall have the right to
terminate this agreement upon five (5) days’ written notice to SDS if SDS is cited as
non-compliant with regulatory requirements as determined by an audit of SDS facilities by
Orphan and confirmed by 

9

a third-party audit, or if SDS is
cited as non-compliant as determined by a regulatory body, and appropriate corrective
action cannot be mutually agreed to by the parties within thirty (30) days after such
determination of non-compliance or such earlier date as is specified by the regulatory
body. 

        6.4
Termination for Cause. Notwithstanding anything to the contrary
herein, either party may give the other written notice of a material breach of this
Agreement. If the breaching party has not cured said breach within thirty (30) days from
the date such notice was sent, this Agreement may be terminated at the option of the
non-breaching party. If the amount of time commercially reasonable for the breach to be
cured is longer than thirty (30) days, this Agreement may not be terminated by the
non-breaching party pursuant to this provision until such commercially reasonable period
of time has elapsed; provided, however, that in no event shall such cure period exceed
sixty (60) days from the date such notice was sent. Notwithstanding the foregoing, Orphan
may terminate this Agreement under Section 10.5 if SDS is precluded from rendering Covered
Services as a result of an event of force majeure. 

        6.5
Transition of Covered Services. Upon termination or expiration
of this Agreement, the parties shall mutually agree on an expeditious schedule of
transition of the Covered Services. SDS shall promptly return to Orphan (or to any other
third party as directed by Orphan) all Product then in SDS’s possession or control
which has not been purchased by SDS pursuant to Subsection 3.1(b). If this Agreement has
been terminated by Orphan under Sections 6.2, 6.3, or 6.4, SDS shall be responsible for
the costs of returning Product to Orphan; otherwise, Orphan shall be responsible for such
costs. 

        6.6
Return of Confidential Information. Upon termination or
expiration of this Agreement, each party shall, if requested by the other party, promptly:
(a) return to the other party all documentation and other materials (including all copies
of original documentation or other materials) containing any Confidential Information, and
(b) certify to the other party as to the destruction or return of all such documentation
and other materials public through no fault of the receiving party. 

        6.7
Transfer of Patient Information, Etc. Upon termination
or expiration of this Agreement, for whatever reason, Orphan shall have the right to
transfer all mutually-developed Xyrem Risk Management SOPs and the toll free Xyrem
telephone number to another specialty pharmacy and/or distributor of its choice, and SDS
shall cooperate with Orphan in the transfer of such items to another qualified specialty
pharmacy and/or distributor. In addition, Orphan may request that SDS also transfer
Patient Confidential Information to such other specialty pharmacy for the purpose of
continuing “treatment” (as that term is defined under HIPAA) of such Patients,
and SDS shall expeditiously honor such request to the extent disclosure of such Patient
Confidential Information by SDS is permitted under applicable law, including, but not
limited to, HIPAA. If this Agreement has been terminated by Orphan under Sections 6.2, 6.3
or 6.4, Orphan shall promptly reimburse SDS for all expenses incurred in connection with
the transition described in this Section 6.7; otherwise, SDS shall be responsible for all
such costs incurred by SDS in connection with such transition. 

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ARTICLE VII
COMPLIANCE
WITH LAW; REPRESENTATIONS AND WARRANTIES  

        7.1
Compliance With Law. Each party agrees that it will perform its
respective obligations hereunder in accordance with applicable federal, state
and local laws, including but not limited to applicable DEA, FDA, state and
local retail and wholesale pharmacy requirements. FDA laws are not limited to
section 505 of the Federal Food, Drug and Cosmetic Act, but also include any
special considerations required by the FDA for approval of Product. SDS will be
notified of such requirements in writing by Orphan. In the event any such
special FDA requirements not communicated to SDS by the Effective Date cause
SDS’s obligations under this Agreement to be materially more burdensome or
expensive, the parties shall promptly negotiate an appropriate modification to
the Fees, and if the parties cannot agree on such a modification, or SDS in good
faith views such additional responsibility as too burdensome to continue with
the Agreement, SDS shall have the right to terminate this Agreement without
penalty upon five (5) days written notice to Orphan. 

      7.2
Representations and Warranties.  

		    (a)               Each
party hereby represents and warrants to the other party that: (i) it has all
requisite corporate power and authority to enter into this Agreement and perform
and observe all obligations and conditions required to be performed or observed
by that party under this Agreement; (ii) neither the execution and delivery of
the Agreement nor the performance by that party of its respective obligations
under this Agreement will conflict with or result in a breach of any covenant or
agreement between that party and any third party; (iii) this Agreement
represents the legal, valid and binding obligation of that party; and (iv) such
party has (or will have at such time as performance of its obligations under
this Agreement may require) obtained all of the local, state and federal
permits, licenses or another regulatory registrations or approvals necessary for
the performance of its obligations under this Agreement; provided, however, SDS
shall make a good faith effort to apply and obtain the requisite DEA license
necessary in order for SDS to distribute Product to Persons other than the
end-user, but the failure to obtain such license shall not constitute a breach
of this Agreement by SDS.  

		    (b)                        Orphan
hereby represents and warrants that Product at the time of shipment to
SDS’s facility: (i) shall not be adulterated or misbranded within the
meaning of the Act, or within the meaning of any applicable state or municipal
law in which the definitions of adulteration or misbranded are substantially the
same as those contained in the Act, as the Act and such laws are constituted and
effective at the time of shipment; and (ii) shall not be a product which may
not, under the provisions of the Act or FDA guidelines pertaining to the
Product, be introduced into interstate commerce. 

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ARTICLE VIII
INDEMNIFICATION
AND INSURANCE 

      8.1
Indemnification.  

		    (a)                        SDS
shall indemnify and hold harmless Orphan and its directors, officers, employees,
and affiliates from and against all claims, liabilities, losses, damages, costs,
and expenses (including without limitation reasonable attorneys’ fees)
arising out of: (i) any breach by SDS of this Agreement, including, but not
limited to, its representations and warranties; (ii) the negligent act or
negligent omission, or the willful misconduct, of SDS or any of its employees or
agents in connection with the performance of its obligations under this
Agreement; and (iii) SDS’s use of patient information in violation of
applicable laws governing confidentiality; except to the extend such claims
arise out of Orphan’s negligence or willful misconduct or breach hereunder,
including, but not limited to, a breach of Orphan’s representations and
warranties hereunder. 

		    (b)                        Orphan
shall indemnify and hold harmless SDS and its directors, officers, employees and
affiliates from and against all claims, liabilities, losses, damages, costs, and
expenses (including without limitation reasonable attorneys’ fees) arising
out of (i) any breach by Orphan of this Agreement, including , but not limited
to, its representations and warranties; (ii) the negligent act or negligent
omission, or the willful misconduct, of Orphan or any of its employees or agents
in connection with the performance of its obligations under this Agreement;
(iii) any claim relating to the manufacturing of the Product or use of the
Product by a Patient or other individual; and (iv) use by SDS of a Mark in
accordance with the terms of this Agreement, except to the extent such claims
arise out of SDS’s negligence or willful misconduct or breach hereunder,
including, but not limited to, a breach of SDS’s representations and
warranties hereunder. 

        8.2
Insurance. Each party shall procure and maintain during the term of this Agreement,
comprehensive general liability insurance in the amount of * per claim made, and in the
aggregate, including but not limited to, for contractual liability, personal and bodily
injury, and product liability. Each party shall provide the other party with evidence of
such insurance upon request. A party may not cause or permit such insurance to be canceled
without obtaining comparable replacement coverage or modified to materially reduce its
scope or limits of coverage during the term of the Agreement. 

ARTICLE IX
TRADEMARKS  

        9.1
Grant of License. Orphan grants to SDS a nonexclusive, royalty-free,
nontransferable license to use the Marks in the Territory in connection with the rendering
of the services and sale of Product contemplated by this Agreement, and SDS accepts the
license subject to the following terms and conditions. 

        9.2
Ownership of the Service Marks. SDS acknowledges that
Orphan is the exclusive owner of the Marks and that all use of the marks by SDS will inure
to the benefit of and be on 

12

behalf of Orphan. SDS will do
nothing inconsistent with such ownership and will reasonably assist Orphan in recording
the evidence of this license arrangement with any appropriate government authorities.
Nothing in this Agreement shall give SDS any right, title, or interest in the Marks other
than the right to use the Marks in accordance with this Agreement, and SDS will not
attack the title of Orphan to the Marks. 

        9.3
Quality Standards. All use of the marks by SDS will be in compliance with
the quality control standards that are furnished from time to time by Orphan or its
agents. SDS will reasonably cooperate with Orphan in facilitating Orphan’s ultimate
control of such nature and quality standards, will permit reasonable inspection of
SDS’s operation, and, upon request of Orphan, will supply Orphan with specimens of
all uses by SDS of the Marks. 

        9.4
Marking. SDS’s use of the Marks will comply with all marking requirements and
other laws pertaining to trademarks in force during the term of this Agreement. 

        9.5
Form of Use. SDS will use the Marks only in the form and manner and
with appropriate legends as prescribed from time to time by Orphan. 

        9.6
Infringement Proceedings. SDS will promptly notify Orphan of an unauthorized
uses of the Marks by others that come to SDS’s attention. Orphan will have the sole
right and discretion to bring infringement, dilution or unfair competition proceedings
involving the Marks. 

        9.7
Effect of Termination. Upon termination of this Agreement, SDS will
immediately discontinue all use of the Marks and any term or symbol confusingly similar
thereto, will cooperate with Orphan or its agents to apply to the appropriate authorities
to cancel any recording of evidence of this Agreement from all government records, and
will destroy all printed materials bearing the Marks. 

ARTICLE X
MISCELLANEOUS  

        10.1
Notices. Except as otherwise specified in this Agreement any notice or other
communication required or contemplated under the provisions of this Agreement shall be in
writing and (a) delivered in person, evidenced by a signed receipt, (b) deposited in the
United States mail, first class postage prepaid, (c) sent by electronic facsimile
transmission, or (d) sent via Federal Express, Airborne, or any other similar express
delivery service, to the addresses indicated below or to such other persons or addresses
as the parties may provide by written notice to the other. The date of the notice shall be
(x) the date of delivery if the notice is personally delivered or sent via Federal Express
or similar express service, or (y) three (3) days after the date of mailing if the notice
is mailed by United States mail. 

	If to SDS:	*
Attn: Vice President and General Manager
*

13

	with a copy to: 	*
Attn: General Counsel
*
	 
	If to Orphan:	Orphan Medical, Inc.
13911 Ridgedale Drive, Suite 250
Minnetonka, Minnesota 55305
Attn: Vice President of Commercial Operations
Fax No. 952-541-9209

        10.2
Invalidity. Should any of the provisions hereof become legally invalid or
unenforceable, the remainder of this Agreement shall remain effective, provided that the
essential purpose of the Agreement can still be carried out. In such event, the parties
agree to negotiate a mutually acceptable amendment to the terms and conditions of this
Agreement. 

        10.3
Non-Waiver. A failure by any party to insist upon strict compliance with any term
of this Agreement, to exercise any option, to enforce any right, or to seek any remedy
upon any default of any other party shall not affect, or constitute a waiver of, the first
party’s right to insist upon any default of the other party shall affect, or
constitute a waiver of, the first party’s right to insist upon strict compliance, to
exercise that option, to enforce that right, or to seek that remedy with respect to that
default or any prior, contemporaneous, or subsequent default. No custom or practice of the
parties at variance with any provision of this Agreement shall affect, or constitute a
waiver or, a party’s right to demand strict compliance with all provisions of this
Agreement 

        10.4
Remedies. The rights and remedies of each party under this Agreement shall be
cumulative and in addition to any other rights or remedies available to such party,
whether under any other agreement, at law, or in equity, including without limitation
specific performance, a temporary restraining order, and temporary or permanent
injunctions. 

        10.5
Force Majeure. If the performance of any part of this Agreement by either
party shall be affected for any length of time by fire or other casualty, government
restrictions, war, riots, strikes, or labor disputes, lock out, transportation delays, and
acts of God, or any other similar causes which are beyond the reasonable control of such
party, such party shall not be responsible for delay or failure of performance of this
Agreement for such length of time; provided, however, that the obligation of the parties
to pay amounts then due shall not be suspended or delayed; and provided, further, that if
SDS is precluded from rendering Covered Services for a continuous period in excess of ten
(10) business days, Orphan shall be entitled to terminate this Agreement upon five (5)
days written notice to SDS. 

        10.6
Governing Law. This Agreement and performance hereunder shall be governed
by, and construed in accordance with, the laws of the State of Delaware, without regard to
choice of law principles. 

        10.7
Successors and Assigns. This Agreement may not be assigned by any
party hereto without the prior written consent of the other parties, which consent shall
not be unreasonably withheld. 

14

        10.8
Relationship of the Parties. The parties are independent contractors and
shall not be considered as an employee, agent or legal representative of any
other party for any purposes whatsoever. Nothing herein shall be construed to
create a partnership, joint venture or general agency. Except as expressly
provided for herein, the parties shall have no authority to act for or on behalf
of the any party or to sign or otherwise enter into any kind of contract,
undertaking or agreement, or make any promise, warranty or representation, with
respect to the Product or any other matter on behalf of any other party, and no
other party shall be bound by or liable for any acts, obligations, or defaults
of the other party, its employees or agents. Each party shall have exclusive
liability and responsibility for workers’ compensation insurance, taxes and
other obligations with respect to itself, its employees and agents. 

        10.9
Complete Agreement; Amendment. This Agreement (together with the
exhibits, all of which are hereby incorporated herein by reference) contains the entire
agreement between the parties and supersedes all prior or contemporaneous discussions,
negotiations, representations, warranties, or agreements relating to the subject matter of
this Agreement. This Agreement may not be amended or changed in any of its provisions
except by a subsequent written agreement between the parties. 

        10.10
Headings. The article, section and paragraph headings used in this Agreement are
for convenience only and are not part of the agreement between the parties. 

        10.11
Survival. Notwithstanding any provisions of this Agreement to the contrary,
Section 3.3, Section 3.5(a), Article IV, Article V, Section 6.5, Article
VII, Article VIII, and Sections 10.3, 10.4, 10.6 and 10.11 shall survive the expiration or
termination of this Agreement for any reason. 

        IN
WITNESS WHEREOF, the parties have signed this Agreement effective as of the Effective
Date. 

	EXPRESS SCRIPTS SPECIALTY
DISTRIBUTION SERVICES, INC.	ORPHAN MEDICAL, INC.
	
 	
 
	By: _____________________________
Name: ___________________________
Title: ____________________________	By: _____________________________
Name: ___________________________
Title: ____________________________

15

EXHIBIT A
COVERED
SERVICES  

	• 	  	Administration
of the Xyrem Success ProgramSM  

        *  

	• 	  	Inventory
Management  

        *  

	• 	  	Master
Warehouse  

        *  

	• 	  	Reporting  

        *  

16

	•  	  	SOPs
and BUSINESS RULES  

Any other services as mutually
agreed upon by the parties and memorialized in written SOPs or Business RuLes. 

17

EXHIBIT B
FEES  

	

	Type of Fee	Amount Owed by Orphan
	

	Set-Up Fee	 	 	*	 	 
	

	Non-PAP Administrative Fee	 	 	*	 	 
	

	PAP Administrative Fee	 	 	*	 	 
	

	PAP Order Dispensing Fee	 	 	*	 	 
	

	PAP Order Shipping Costs	 	 	*	 	 
	

	Custom and ad hoc reports	 	 	*	 	 
	

*The  *  is based on the current
strength, dosage and bottle size of Product as of the Effective Date, and is subject to
change as mutually determined in good faith by SDS and Orphan if the current strength,
dosage or bottle size changes.  

18

EXHIBIT C
XYREM 

XYREM & DESIGN (As
identified in U.S. Reg. No. 2,472,156) 

XYREM &DESIGN (Color)(As
identified in U.S. Reg. No. 2,423,880) 

XYREM CIII SODIUM OXYBATE ORAL
SOLUTION & DESIGN  

XYREM SUCCESS PROGRAM  

XYREM PATIENT SUCCESS PROGRAM  

XYREM PHYSICIAN SUCCESS PROGRAM  

1-866-XYREM88  

ORPHAN MEDICAL & Design (As
shown in U.S. Reg. No. 1,906,107) 

ORPHAN  

ORPHAN MEDICAL  

ORPHAN MEDICAL, INC.  

19THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE HEREOF
CAN BE TRANSFERRED ONLY IN COMPLIANCE WITH THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND APPLICABLE STATE SECURITIES LAWS. THE SHARES
OF COMMON STOCK UNDERLYING THIS WARRANT MAY NOT BE SOLD, TRANSFERRED, OR
ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT, UNLESS, IN THE
OPINION OF COUNSEL FOR DOCUMENT SECURITY SYSTEMS, INC., REGISTRATION IS NOT THEN
REQUIRED.

                              DATED JULY 18 , 2003

                                     WARRANT

             TO SUBSCRIBE FOR AND PURCHASE SHARES OF COMMON STOCK OF

                         DOCUMENT SECURITY SYSTEMS, INC.

           THIS WARRANT EXPIRES FIVE YEARS AFTER THE DATE OF VESTING.

         THIS CERTIFIES THAT, for value received, HOWARD SAFIR, or his
registered assigns as permitted under Section 2 below (the "Holder"), is
entitled to subscribe for and purchase from DOCUMENT SECURITY SYSTEMS, INC.
("DCSS"), a New York corporation, whose corporate offices are located at 36 W.
Main Street; Suite 710; Rochester, NY; 14614, at any time from and after the
date of vesting of each portion of the total Warrant, and prior to five (5)
years after the date of such vesting (the "Exercise Period"), an aggregate of
100,000 fully paid and nonassessable shares of DCSS's common stock, $0.02 par
value, at a per share price of $3.00 (the "Share Purchase Price"); subject,
however, to the provisions and upon the terms and conditions of issuance set
forth in this Warrant (the "Warrant") and the Consulting Agreement, dated on the
even date herewith, between DCSS and Safir. The shares of common stock (or other
securities pursuant to Section 6 below) deliverable upon exercise of this
Warrant shall be referred to in this Warrant as the "Shares."

         1. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENTS FOR SHARES; VESTING.
This Warrant may be exercised by the Holder, in whole or in part (subject to the
vesting schedule below), at any time or from time to time during the Exercise
Period, upon presentation and surrender of this Warrant to DCSS at its principal
office as set forth on Page 1 of this Warrant, or at any other place DCSS may
designate by notice in writing to the Holder, with a duly-executed subscription
in the form of the Subscription Agreement attached to this Warrant (the
"Subscription Agreement") and accompanied by payment of the applicable Share
Purchase Price for each Share purchased. The payment shall be made in cash or by
certified, bank, or cashier's check, payable to the order of Document Security
Systems, Inc. Upon receipt thereof DCSS shall, as promptly as practicable, and
in any event within 10 business days thereafter, execute or cause to be executed
and deliver to the Holder a certificate or certificates representing the
aggregate number of Shares specified in said Subscription Agreement. The Shares

                                       1
<PAGE>

purchased shall be deemed to have been issued to the Holder as of the close of
business on the date next following the date on which this Warrant is
surrendered to DCSS, along with the Subscription Agreement and full payment for
the Shares purchased. DCSS shall pay all expenses, taxes and other charges
payable in connection with the preparation, execution and delivery of stock
certificates pursuant to this Section, except that in case such stock
certificates shall be registered in a name or names other than the name of the
registered holder of this Warrant, funds sufficient to pay all stock transfer
taxes which shall be payable upon the execution and delivery of such stock
certificate or certificates shall be paid by the registered holder hereof to
DCSS at the time of delivering this Warrant to DCSS as mentioned above. In the
event that this Warrant is exercised in part, DCSS will execute and deliver a
new warrant of like tenor exercisable for the number of Shares for which this
Warrant may then be exercised.

          Notwithstanding the foregoing, this Warrant may not be exercised for
more than the number of Shares which have vested. The right to the shares shall
vest according to the following schedule: 40,000 shares shall vest immediately
upon the granting of this Warrant. The right to 30,000 shares of the Warrant
shall vest contingent upon SAFIR and/or The November Group, his security
consulting firm, making presentation/promotions to their contacts and clients
and generating $1,000,000 in sales or licensing fees of DCSS products or
technology during the first year following the date of issuance of this Warrant.
The right to the last 30,000 shares of the Warrant shall vest contingent upon
SAFIR and/or The November Group making presentation/promotions to their contacts
and clients and generating $1,000,000 in sales or licensing fees of DCSS
products or technology during the second year following the date of issuance of
this Warrant.

         2. RESTRICTIONS ON TRANSFER OF WARRANT. The Holder may sell, assign,
transfer, or hypothecate this Warrant without prior written permission from
DCSS.

         3. EXCHANGE, ASSIGNMENT, OR LOSS OF WARRANT.

         (a) This Warrant is exchangeable, at the option of the Holder and
without expense other than as provided in this Section, for other Warrants of
different denominations entitling the Holder to purchase in the aggregate the
same number of Shares purchasable under this Warrant, upon presentation and
surrender of this Warrant to DCSS.

         (b) This Warrant may be sold, transferred, assigned, or hypothecated as
permitted under Section 2 above. Any sale, transfer, or assignment shall be made
by surrender of this Warrant to DCSS, together with a duly executed assignment
(in the form of the assignment attached to this Warrant) and funds sufficient to
pay any transfer costs. Upon receipt of the assignment and the appropriate
payment, DCSS shall execute and deliver a new Warrant in the name of the
assignee named in the assignment, and this Warrant shall promptly be canceled.

                                       2
<PAGE>

         (c) This Warrant may be divided or combined with other Warrants that
carry the same rights upon presentation and surrender of this Warrant at the
office of DCSS together with a written notice, signed by the Holder, specifying
the names and denominations in which new Warrants are to be issued.

         (d) DCSS will execute and deliver a duplicate of this Warrant upon
receipt by DCSS of evidence satisfactory to it of the loss, theft, destruction,
or mutilation of this Warrant, and (i) in the case of loss, theft, or
destruction, upon receipt by DCSS of indemnity satisfactory to DCSS, or (ii) in
the case of mutilation, upon presentation, surrender, and cancellation of this
Warrant.

         (e) The term "Warrant" as used in this Section includes any Warrants
issued in substitution for or replacement of this Warrant, or into which this
Warrant may be divided or exchanged.

         (f) DCSS shall pay all federal and state taxes and any other
governmental charge applicable to any issuance of new Warrants under this
Section.

         4. NO RIGHTS AS SHAREHOLDER. The Holder shall not, by virtue of this
Warrant, be entitled to any rights of a shareholder in DCSS, either at law or
equity. The rights of the Holder are limited to those expressed in the Warrant
and are not enforceable against DCSS except to the extent set forth in this
Warrant.

         5. ANTI-DILUTION PROVISIONS: ADJUSTMENTS. The Share Purchase Price and
the number of Shares purchasable hereunder are subject to adjustment from time
to time as follows:

         (a) MERGER, SALE OF ASSETS, ETC. If at any time while this Warrant, or
any portion hereof, is outstanding and unexpired there shall be (i) a
reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (ii) a merger or
consolidation of DCSS with or into another corporation in which DCSS is not the
surviving entity, or a reverse triangular merger in which DCSS is the surviving
entity but the shares of DCSS's capital stock outstanding immediately prior to
the merger are converted by virtue of the merger into other property, whether in
the form of securities, cash, or otherwise, or (iii) a sale or transfer of
DCSS's properties and assets as, or substantially as, an entirety to any other
person, then, as a part of such reorganization, merger, consolidation, sale or
transfer, lawful provision shall be made so that the holder of this Warrant
shall thereafter be entitled to receive upon exercise of this Warrant, during
the period specified herein and upon payment of the Share Purchase Price then in
effect, the number of shares of stock or other securities or property of the

                                       3
<PAGE>

successor corporation resulting from such reorganization, merger, consolidation,
sale or transfer that a holder of the shares deliverable upon exercise of this
Warrant would have been entitled to receive in such reorganization,
consolidation, merger, sale or transfer if this Warrant had been exercised
immediately before such reorganization, merger, consolidation, sale or transfer,
all subject to further adjustment as provided in this Section 5. The foregoing
provisions of this Section 5(a) shall similarly apply to successive
reorganizations, consolidations, mergers, sales and transfers and to the stock
or securities of any other corporation that are at the time receivable upon the
exercise of this Warrant. If the per share consideration payable to the Holder
hereof for shares in connection with any such transaction is in a form other
than cash or marketable securities, then the value of such consideration shall
be determined in good faith by DCSS's Board of Directors. In all events,
appropriate adjustment (as determined in good faith by DCSS's Board of
Directors) shall be made in the application of the provisions of this Warrant
with respect to the rights and interests of the Holder after the transaction, to
the end that the provisions of this Warrant shall be applicable after that
event, as near as reasonably may be, in relation to any shares or other property
deliverable after that event upon exercise of this Warrant.

          (b) RECLASSIFICATION, ETC. If DCSS, at any time while this Warrant, or
any portion hereof, remains outstanding and unexpired shall, by
reclassification, combination, exchange or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under this
Warrant exist into the same or a different number of securities of any other
class or classes, this Warrant shall thereafter represent the right to acquire
such number and kind of securities as would have been issuable as the result of
such change with respect to the securities that were subject to the purchase
rights under this Warrant immediately prior to such reclassification or other
change and the Share Purchase Price therefor shall be appropriately adjusted,
all subject to further adjustment as provided in this Section 5.

          (c) SPLIT, SUBDIVISION OR COMBINATION OF SHARES. If DCSS at any time
while this Warrant, or any portion hereof, remains outstanding and unexpired
shall split, subdivide or combine the securities as to which purchase rights
under this Warrant exist, into a different number of securities of the same
class, the Share Purchase Price for such securities shall be proportionately
decreased in the case of a split or subdivision or proportionately increased in
the case of a combination.

          (d) ADJUSTMENTS FOR DIVIDENDS IN STOCK OR OTHER SECURITIES OR
PROPERTY. If while this Warrant, or any portion hereof, remains outstanding and
unexpired the holders of the securities as to which purchase rights under this
Warrant exist at the time shall have received, or, on or after the record date
fixed for the determination of eligible stockholders, shall have become entitled
to receive, without payment therefor, other or additional stock or other
securities or property (other than cash) of DCSS by way of dividend, then and in
each case, this Warrant shall represent the right to acquire, in addition to the
number of shares of the security receivable upon exercise of this Warrant, and
without payment of any additional consideration therefor, the amount of such
other or additional stock or other securities or property (other than cash) of
DCSS that such holder would hold on the date of such exercise had it been the
holder of record of the securities receivable upon exercise of this Warrant on
the date hereof and had thereafter, during the period from the date hereof to
and including the date of such exercise, retained such shares and/or all other
additional stock available to, it as aforesaid during such period, giving effect
to all adjustments called for during such period by the provisions of this
Section 5.

                                       4
<PAGE>

          (e) FRACTIONAL SHARES. No fractional Shares or scrip representing
fractional Shares shall be issued upon the exercise of this Warrant, and DCSS
shall have no obligation for any cash payment with respect to any such Shares.

          (f) NO CHANGE IN WARRANT. Regardless of any adjustment or change in
the Share Purchase Price or the number of Shares or other securities actually
purchasable under the Warrant, any Warrant may continue to express the Share
Purchase Price and the number of Shares purchasable under the Warrant as the
price and number of shares were expressed in the Warrant when initially issued,
subject to the Holder's rights under Section 3 to exchange the Warrant for a new
Warrant that reflects the terms of any such adjustment or change.

          (g) DEFINITION OF "STOCK." As used in this Warrant, "Stock" shall mean
shares of DCSS's capital stock of any class, whether now or subsequently
authorized, that has the right to participate in the distribution of earnings
and assets of DCSS without limit as to amount or percentage. On the date of this
Warrant, Stock consists of 200,000,000 authorized shares of DCSS's common stock
at $0.02 par value per share. The number of shares of Stock of any class at any
time outstanding shall include all shares of Stock of that class then owned or
held by or for the account of DCSS.

         6. NOTIFICATION BY DCSS.
            (a) In case at any time:

                    (i) DCSS shall pay any dividend payable in stock upon its
                    Stock or make any distribution (other than cash dividends
                    which are not in a greater amount per share than the then
                    most recent cash dividend) to the holders of its Stock;

                    (ii) DCSS shall make an offer for subscription pro rata to
                    the holders of its Stock of any additional shares of stock
                    of any class or make any offer to receive any other rights;

                    (iii) there shall be any capital reorganization,
                    reclassification of the capital stock of DCSS, consolidation
                    or merger of DCSS with, or sale of all or substantially all
                    of its assets to, another corporation; or

(iv) there shall be a voluntary or involuntary dissolution, liquidation or
winding-up of DCSS;

then, in any one or more of such cases, DCSS shall give written notice to the
registered holder of this Warrant of the date on which (a) the books of DCSS
shall close, or a record shall be taken for such dividend, distribution or
subscription rights, or (b) such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up shall take
place, as the case may be. Such notice shall also specify the date as of which
the holders of Stock of record shall participate in such dividend, distribution
or subscription rights, or shall be entitled to exchange their Stock for
securities or other property deliverable upon such reorganization,

                                       5
<PAGE>

reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such written notice shall be given not less than
30 and not more than 90 days prior to the record date or the date on which
DCSS's transfer books are closed in respect thereto and such notice may state
that the record date is subject to the effectiveness of a registration statement
under the Securities Act, or to a favorable vote of stockholders, if either is
required.

         (b) Whenever the Share Purchase Price or number of shares purchasable
hereunder shall be adjusted pursuant to Section 5 hereof, DCSS shall issue a
certificate setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated, and the Share Purchase Price and number of shares purchasable
hereunder after giving effect to such adjustment, and shall cause a copy of such
certificate to be delivered or given in the manner provided in Section 13 hereof
to the holder or holders of this Warrant.

         7. REGISTRATION. The Holder shall, with respect to the Shares issuable
upon exercise of this Warrant, have the "piggy-back" registration rights in the
Rider attached hereto. Such registration rights are incorporated by reference
herein as if such provisions had been set forth herein in full. .

         8. TRANSFER TO COMPLY WITH THE SECURITIES ACT. This Warrant and the
Shares or any other security issued or issuable upon exercise of this Warrant
may not be offered or sold except in conformity with the Securities Act and then
only against receipt of an agreement of the person to whom the offer or sale is
made to comply with the provisions of this Section 8 with respect to any resale
or other disposition of the securities and subject to the restrictions contained
in Section 2 above; except that no such agreement shall be required from any
person purchasing Shares or other security issued or issuable upon exercise of
this Warrant pursuant to a registration statement effective under the Securities
Act.

         9. FURTHER ASSURANCES. DCSS will take all action that may be necessary
or appropriate so that DCSS may validly and legally issue fully paid and
nonassessable Shares or other securities upon the exercise of this Warrant.

         10. RESERVATION OF STOCK, AVOIDANCE OF CERTAIN ACTIONS. DCSS will at
all times reserve and keep available, solely for issuance and delivery upon the
exercise of the Warrants, all Shares (or other securities) from time to time
issuable upon the exercise of this Warrant, and it will have at all times any
other rights or privileges provided for therein sufficient to enable it at any
time to fulfill all of its obligations hereunder. DCSS will not, by amendment of
its certificate of incorporation or through any reorganization, transfer of
assets, consolidation, merger, issue or sale of securities or otherwise, avoid
or take any action which would have the effect of avoiding the observance or
performance of any of the terms to be observed or performed hereunder by DCSS,
but will at all times in good faith assist in carrying out all of the provisions
of this Warrant and in taking all such action as may be necessary or appropriate
in order to protect the rights of the holders of this Warrant against dilution
or other impairment.

                                       6
<PAGE>

         11. APPLICABLE LAW. This Warrant shall be governed by, and construed in
accordance with, the laws of the State of New York (without regard to the choice
of law principles thereof).

         12. NOTICE. Any notices or certificates by DCSS to the Holder shall be
deemed delivered if in writing and delivered personally or sent by certified
mail to the Holder at 437 Madison Avenue, New York, NY 10022 or to any other
address if the Holder shall have designated another address by notice in writing
to DCSS; and if to DCSS, addressed to it at the address appearing for it on page
1 of this Warrant. DCSS may change its address for purposes of service of notice
by written notice to the Holder at the address provided above.

         13. SURVIVAL. The various rights and obligations of DCSS as set forth
in Section 7 of this Warrant shall survive the exercise and surrender of this
Warrant. This Warrant shall be binding upon any corporation or entity succeeding
to DCSS by merger, consolidation or acquisition of all or substantially all of
DCSS's assets.

         14. MISCELLANEOUS. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party (or any predecessor in interest thereof) against which
enforcement of the same is sought. The descriptive headings of the several
Sections of this Warrant are inserted for convenience only and do not constitute
a part of this Warrant.

         IN WITNESS WHEREOF, DCSS has caused this Warrant to be signed by its
duly authorized officer, and to be dated and effective as of the 18th day of
July, 2003.

                                 DOCUMENT SECURITY SYSTEMS, INC.

                                 By:
                                    -------------------------------
                                     Patrick White, President / CEO

                                       7
<PAGE>

                                   ASSIGNMENT

         FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers to ___________________________, of ___________________________, the
right to purchase ___________________________ (__________) of the shares
evidenced by the Warrant issued to them by Document Security Systems, Inc.
("DCSS"), dated July 18, 2003, and they do irrevocably constitute and appoint
______________________ to transfer the right on the books of DCSS, with full
power of substitution.

Dated:
      ----------------------------.

------------------------------------
NAME

------------------------------------
NAME

NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the within Warrant, in every particular, without
alteration or enlargement, or any change whatsoever, and must be guaranteed by a
trust company or a bank, other than a savings bank, that has an office in NEW
YORK, NEW YORK, or by a firm having membership on a registered national
securities exchange and an office in NEW YORK, NEW YORK.

                                        8
<PAGE>

                             SUBSCRIPTION AGREEMENT

DOCUMENT SECURITY SYSTEMS, INC.

         The undersigned hereby elects to purchase, pursuant to the provisions
of the Warrant dated July 18, 2003, held by the undersigned, the following
number of shares of common stock, par value $.02 per share, of DOCUMENT SECURITY
SYSTEMS, INC., a New York corporation, as provided in the Warrant, at a price of
$3.00 per share:

                                        shares
                          ---------------

         Payment of the purchase price per share and applicable taxes required
under the Warrant accompanies this Subscription Agreement.

Dated:
      -----------------

                                               ------------------------------
                                               Name

                                               ------------------------------
                                               Name

                                               ------------------------------
                                               Address

                                       9
<PAGE>

                                      RIDER

                               REGISTRATION RIGHTS

         1. COMPANY REGISTRATION. The Holder shall have certain "Piggy-back"
registration rights with respect the Registrable Securities as hereinafter
provided:

                  (a) At any time or times the Company determines to file with
the Securities and Exchange Commission ("SEC"') a registration statement under
the Securities Act registering any shares of its common stock $.02 par value
("Common Stock"), the Company shall give written notice to the Holder prior to
such filing.

                  (b) Within fifteen (15) days after such notice from the
Company, the Holder shall give written notice to the Company whether or not the
Holder desires to have all of the Holder's Registrable Securities included in
the registration statement. If the Holder fails to give such notice within such
period, the Holder shall not have the right to have its Registrable Securities
registered pursuant to such registration statement. If the Holder gives such
notice, then the Company shall include the Holder's Registrable Securities in
the registration statement, at the Company's sole cost and expense, subject to
the remaining terms of this Section 2.

                  (c) If the registration statement relates to an underwritten
offering, and the underwriter shall determine in writing that the total number
of Shares to be included in the offering, including the Registrable Securities,
shall exceed the amount which the underwriter deems to be appropriate for the
offering, the number of shares of the Registrable Securities shall be reduced in
the same proportion as the remainder of the shares in the offering and the
Holder's Registrable Securities included in such registration statement will be
reduced proportionately. For this purpose, if other securities in the
registration statement are derivative securities, their underlying shares shall
be included in the computation. The Holder shall enter into such agreements as
may be reasonably required by the underwriters and the Holder shall pay to the
underwriters commissions relating to the sale of the Holder's Registrable
Securities.

                  (d) The Holder of this Warrant shall have two (2)
opportunities to have the Registrable Securities registered under this Section
2.

                  (e) The Holder shall furnish in writing to the Company such
information as the Company shall reasonably require in connection with a
registration statement.

         2. If and whenever the Company is required by the provisions hereof to
register any Registrable Securities under the Securities Act, the Company shall,
as expeditiously as possible under the circumstances:

                  (a) Prepare and file with the SEC a registration statement
with respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective as soon as possible after filing
and remain effective.

<PAGE>

                  (b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement current and
effective and to comply with the provisions of the Securities Act, and any
regulations promulgated thereunder, with respect to the sale or disposition of
all Registrable Securities covered by the registration statement required to
effect the distribution of the securities, but in no event shall the Company be
required to do so for a period of more than five (5) years following the
effective date of the registration statement.

                  (c) Furnish to the Holder copies (in reasonable quantities) of
summary, preliminary, final, amended or supplemented prospectuses, in conformity
with the requirements of the Securities Act and any regulations promulgated
thereunder, and other documents as reasonably may be required in order to
facilitate the disposition of the securities, but only while the Company is
required under the provisions hereof to keep the registration statement current.

                  (d) Use its best efforts to register or qualify the
Registrable Securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions of the United States as the
Holder shall reasonably request, and do any and all other acts and things which
may be reasonably necessary to enable the Holder to consummate the disposition
of the Registrable Securities in such jurisdictions.

                  (e) Notify the Holder at any time when a prospectus relating
to any Registrable Securities covered by such registration statement is required
to be delivered under the Securities Act, of the Company's becoming aware that
the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing, and promptly
prepare and furnish to the Holder a reasonable number of copies of a prospectus
supplemented or amended so that, as thereafter delivered to the purchasers of
such Registrable Securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing.

                  (f) As soon as practicable after the effective date of the
registration statement, and in any event within eighteen (18) months thereafter,
make generally available to the Holder an earnings statement (which need not be
audited) covering a period of at. least twelve (12) consecutive months beginning
after the effective date of the registration statement, which earnings statement
shall satisfy the provisions of Section 11(a) of the Securities Act, including,
at the Company's option, Rule 158 thereunder. To the extent that the Company
files such information with the SEC in satisfaction of the foregoing, the
Company need not deliver the above referenced earnings statement to the Holder.

                   (g) Holder agrees that it will use its best efforts not to
interfere unreasonably with the Company's business and Holder shall keep any
such information received confidential.

<PAGE>

                  (h) Provide a transfer agent and registrar located in the
United States for all such Registrable Securities covered by such registration
statement not later than the effective date of such registration statement.

                  (i) List the Registrable Securities covered by such
registration statement on such exchanges and/or on the NASDAQ as the shares of
Common Stock are then currently listed upon.

(j) Pay all Registration Expenses incurred in connection with a registration of
Registrable Securities pursuant to Section 1 of this Rider, whether or not such
registration statement shall become effective; provided that Holder shall pay
all underwriting discounts, commissions and transfer taxes, and its own counsel
fees, if any, relating to the sale or disposition of such Holder's Registrable
Securities pursuant to a registration statement. As used herein, "Registration
Expenses" means any and all reasonable and customary expenses incident to
performance of or compliance with the registration rights set forth herein,
including, without limitation, (i) all SEC and stock exchange or National
Association of Securities Dealers, Inc. registration and filing fees, (ii) all
fees and expenses of complying with state securities or blue sky laws (including
reasonable fees and disbursements of counsel for the underwriters in connection
with blue sky qualifications of the Registrable Securities but no other expenses
of the underwriters or their counsel), (iii) all printing, messenger and
delivery expenses, and (iv) the reasonable fees and disbursements of counsel for
the Company and the Company's independent public accountants.

                  (k) Include as selling security holders under such
registration statement the Holder and its successors, assigns, and transferees
(the "Selling Security Holders") such that any Registrable Securities sold by
such persons would be registered thereunder.

         3. INDEMNIFICATION BY COMPANY. In the event the Company effects any
registration under the Securities Act of any Registrable Securities pursuant to
Section 1 above, the Company shall indemnify, to the extent permitted by law,
and hold harmless the Holder, any underwriter, any officer, director, employee
or agent of the Holder or underwriter, and each other person, if any, who
controls the Holder or underwriter within the meaning of Section 15 of the
Securities Act, against any losses, claims, damages or liabilities, judgment,
fines, penalties, costs and expenses, joint or several, or actions in respect
thereof (collectively, the "Claims"), to which each such indemnified party
becomes subject, under the Securities Act or otherwise, insofar as such Claims
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the registration statement or prospectus or
any amendment or supplement thereto or any document filed under a state
securities or blue sky law (collectively, the "Registration Documents") or
insofar as such Claims arise out of or are based upon the omission or alleged
omission to state in any Registration Document a material fact required to be
stated therein or necessary to make the statements made therein not misleading,
and will reimburse any such indemnified party for any legal or other expenses
reasonably incurred by such indemnified party in investigating or defending any
such Claim; provided that the Company shall not be liable in any such case to a
particular indemnified party to the extent such Claim is based upon an untrue
statement or alleged untrue statement of a material fact or omission or alleged
omission of a material fact made in any Registration Document in reliance upon
and in conformity with written information furnished to the Company by or on
behalf of such indemnified party specifically for use in the preparation of such
Registration Document.

<PAGE>

         4. INDEMNIFICATION BY HOLDER. In connection with any registration
statement in which the Holder is participating, the Holder shall indemnify, to
the extent permitted by law, and hold harmless the Company, each of its
directors, each of its officers who have signed the registration statement, each
other person, if any, who controls the Company within the meaning of Section 15
of the Securities Act, each underwriter, any officer, director, employee or
agent of any such underwriter and each other person, if any, who controls such
underwriter within the meaning of Section 15 of the Securities Act against any
Claims to which each such indemnified party may become subject under the
Securities Act or otherwise, insofar as such Claims (or actions in respect
thereof) are based upon any untrue statement or alleged untrue statement of any
material fact contained in any Registration Document, or insofar as any Claims
are based upon the omission or alleged omission to state in any Registration
Document a material fact required to be stated therein or necessary to make the
statements made therein not misleading, and will reimburse any such indemnified
party for any legal or other expenses reasonably incurred by such indemnified
party in investigating or defending any such claim; provided, however, that such
indemnification or reimbursement shall be payable only if, and to the extent
that, any such Claim arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in any
Registration Document in reliance upon and in conformity with written
information furnished to the Company by the Holder specifically for use in the
preparation thereof.

         5. NOTICE OF CLAIM; RIGHT TO PARTICIPATE. Any person entitled to
indemnification under Sections 3 or 4 above shall notify promptly the
indemnifying party in writing of the commencement of any Claim if a claim for
indemnification in respect thereof is to be made against an indemnifying party
under this Section 5, but the omission of such notice shall not relieve the
indemnifying party from any liability which it may have to any indemnified
party, except to the extent that such failure shall materially adversely affect
any indemnifying party or its rights hereunder. In case any action is brought
against the indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
in, and, to the extent that it chooses, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party; and, after written
notice from the indemnifying party to the indemnified party that it so chooses,
the indemnifying party shall not be liable for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that
(i) if the indemnifying party fails to take reasonable steps necessary to defend
diligently the Claim within twenty (20) days after receiving notice from the
indemnified party that the indemnified party believes it has failed to do so;
(ii) if the indemnified party who is a defendant in any action or proceeding
which is also brought against the indemnifying party reasonably shall have
concluded that there are legal defenses available to the indemnified party which
are not available to the indemnifying party; or (iii) if representation of both
parties by the same counsel is otherwise inappropriate under applicable
standards of professional conduct, the indemnified party shall have the right to
assume or continue its own defense as set forth above (but with no more than one
firm of counsel for all indemnified parties in each jurisdiction, except to the

<PAGE>

extent any indemnified party or parties reasonably shall have concluded that
there are legal defenses available to such party or parties which are not
available to the other indemnified parties or to the extent representation of
all indemnified parties by the same counsel is otherwise inappropriate under
applicable standards of professional conduct) and the indemnifying party shall
be liable for any reasonable expenses therefor; provided, that no indemnifying
party shall be subject to any liability for any settlement of a Claim made
without its consent (which may not be unreasonably withheld, delayed or
conditioned). If the indemnifying party assumes the defense of any Claim
hereunder, such indemnifying party shall not enter into any settlement without
the consent of the indemnified party if such settlement attributes liability to
the indemnified party.

           6. CONTRIBUTION. If for any reason the indemnity provided in Sections
3 or 4 above is unavailable or is insufficient to hold harmless an indemnified
party, then the indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of any Claim in such proportion as
is appropriate to reflect the relative benefits received by the indemnifying
party on the one hand and the indemnified party on the other from the
transactions contemplated by this Rider. If, however, the allocation provided in
the immediately preceding sentence is not permitted by applicable law, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the indemnifying party and the
indemnified party as well as any other relevant equitable considerations. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The amount paid or payable in respect of any Claim shall
be deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such Claim.
Notwithstanding the foregoing, no underwriter or controlling person thereof if
any, shall be required to contribute, in respect of such underwriter's
participation as an underwriter in the offering, any amount in excess of the
amount by which the total price at which the Registrable Securities underwritten
by it and distributed to the public exceeds the amount of any damages which such
underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The obligation of any underwriters
to contribute pursuant to this Section 6 shall be several in proportion to their
respective underwriting commitments and not joint.

           9. The provisions of Sections 3 through 6 of this Rider shall be in
addition to any other rights to indemnification or contribution which any
indemnified party may have pursuant to law or contract and shall remain
operative and in full force and effect regardless of any investigation made or
omitted by or on behalf of any indemnified party and shall survive the transfer
of the Registrable Securities by any such party.

<PAGE>

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