MARKETING AND DISTRIBUTION AGREEMENT

Exhibit 10.21

MARKETING AND DISTRIBUTION AGREEMENT

This Agreement ("Agreement") is made and entered into as of the 19th day of January, 2005, (the "Effective Date") by and between the DOCUMENT SECURITY SYSTEMS, INC. ("DSS"), a corporation organized and existing under the laws of the State of New York with its primary business address at First Federal Plaza, Suite 1525, 28 East Main Street, Rochester, New York 14614 and BOISE WHITE PAPER L.L.C. with its primary business address at 1111 West. Jefferson Street, Boise, Idaho 83702 ("Boise"). DSS and Boise may sometimes be referred to herein individually as a "Party" and together as the the "Parties".

Background

WHEREAS, DSS is engaged in the business of designing and developing systems and products in the nature of security printing and has acquired and developed substantial technology and know-how useful for creating encoded images in paper products utilized in security printing, copying and scanning; and

WHEREAS, Boise and its affiliates are engaged in the business of, among other things manufacturing, marketing, selling and distributing paper products, including security papers and office papers and desire to market and distribute the Products (as defined below); and

WHEREAS, Boise wishes to acquire, and DSS is willing to grant, a limited exclusive right to market, sell and distribute the Products upon the terms and conditions contained herein;

NOW, THEREFORE, the Parties, intending to be legally bound, agree as follows:

1. Definitions.

1.1 "Afiliate" shall mean any corporation, partnership or limited liability company of which more than 50% of the voting control and economic ownership is owned, directly, or indirectly, by a Party or which is, directly or indirectly, under common control.

1.2 "Boise" shall mean, unless the context otherwise requires, Boise White Paper L.L.C. and its Affiliates, successors and permitted assigns.

1.2 "Boise Marks" shall mean the name, logo, service marks, tradenames, trademarks, and other marks of Boise and its Affiliates, whether registered or not, including, without limitation the tradename "Boise Beware".

1.3 "Confidential Information" shall have the meaning ascribed to such term in the Confidentiality Agreement dated as of February 27, 2004 between Boise Cascade Corporation and DSS.

1.4 "DSS Marks" means the name, logo, service marks, tradenames, trademarks and other marks of DSS used in connection with the marketing of the Products, whether registered or not and shall include, without limitation, the tradename "AuthentiGuard" and otherwise as set forth on Exhibit E.

1.5 "End Users" shall mean any person or entity utilizing or wishing to utilize the Products for its internal business purposes and not for redistribution, remarketing or reselling.

1.6 "Intellectual Property" means, wherever existing in the world, (i) patents, whether in the form of utility patents, design patents or industrial designs, and all pending applications for registration thereof, (ii) trademarks, trade names, service marks, domain names, designs, logos, trade dress and trade styles, whether or not registered, and all pending applications for registration thereof, (iii) copyrights, whether or not registered, and all pending applications for registration thereof, (iv) inventions, research records, trade secrets, engineering specifications and drawings, technical information, formulas, (v) computer software and programs, and related flow charts, programmer notes, documentation, updates, and data, whether in object or source code form, and (vi) all other similar intellectual property rights, whether or not registered.

1.7  "Products" shall mean all "Safety or Security" paper products of DSS as described on Exhibit A as may be amended from time to time, in writing, by the Parties.

1.8  "Territory" shall mean the United States, Canada and Mexico.

2. Sales, Distribution and Marketing Program for Products.

2.1  Sales and Distribution of Products. DSS shall sell to Boise and Boise shall purchase from DSS, the Products as set forth on Exhibit A as may be amended or supplemented by the Parties from time to time in writing executed by both Parties. Boise shall have the limited exclusive right to market, sell and distribute the Products in the Territory. Boise may market, sell and distribute the Products in the Territory through, among other venues, direct sales efforts and office products wholesalers and through the Internet on the websites of Boise and/or its Affiliates and such other venues or distribution outlets as it deems necessary or desirable from time to time in its discretion.

2.2 Sales Reports and Reversion of Territory. Boise shall deliver to DSS, on a quarterly basis, a written report of all sales of the Products which report shall (i) be due within 30 days of the end of each calender quarter during the term hereof commencing December 31, 2004 (ii) quantify the type of Products sold and (iii) set forth the amount of Products sold in each country in the Territory. In the event that the number of sheets of 8.5 by 11 Safety Paper sold in the Territories during the term of this agreement does not comport with the following schedules, then the Territory may modified by DSS to remove the country or countries which do not satisfy such minimum sales:

A.                    United States

B.                    Mexico and Canada

2.3 Marketing Program. Boise shall use its best efforts to promote and market the Products during the term of this Agreement. Boise may appoint sub-distributors, agents, or other representatives to market the DSS Products without the prior written consent of DSS but shall ensure that such persons do not sell or market the Products outside of the Territory or violate the terms of Sections 7 or 10 hereof.. Boise shall sell and market the Products utilizing the DSS marks in conjunction with its own proprietary marks, including the "Boise Beware" brand, and shall not market or sell the products without the DSS Marks. Boise and DSS shall complete a marketing plan to promote the sales and marketing of the Products. This marketing plan shall be completed within 60 days of the Effective Date and address, among other topics, specific areas for cooperation, pricing plans, timing, duration and level of marketing efforts and financial commitments for advertising, as well as "in store" promotional efforts.. Boise shall use reasonable efforts to update this marketing plan from time to time. Notwithstanding anything to the contrary in this Agreement, Boise shall spend a minimum of * * * * by January 19, 2006 for advertising the Products, including flyers, newspaper and trade magazine advertisements, and other promotional efforts, including attendance at trade shows and producing sales collateral and at least * * * * in each year thereafter that this Agreement is in effect. Such amounts shall be reduced pro rata to the date of termination in the event of early termination of this Agreement Boise shall provide a written summary of such expenditures to DSS on a semi- annual basis during each year of the term of this agreement.

  2.4 Exclusivity. (A) Boise agrees that , it will not enter into any marketing or distribution relationship during the term of this Agreement with any other provider of products or services whereby Boise will market, sell or distribute any products which are either directly or indirectly competitive to the Products (a "Competitive Service"). Further, during the term of this Agreement and for a period of 18 months after termination hereof, regardless of the manner of termination of this Agreement, neither Boise nor any of its Affiliates shall, in connection with the sale of its Boise Beware products, or any similar products that compete directly with the Products and which are distributed, marketed or sold by or through Boise or its Affiliates, promote or utilize any competing technology which competes with the Intellectual Property of DSS.

(B) In consideration of the Agreements by Boise set forth in paragraph (A) above, DSS hereby agrees that neither it nor any Affiliate shall enter into any marketing or distributorship agreement or arrangement with any third party in the Territory with respect to the Products or replacement products during the term of this Agreement; provided, however, DSS shall have the right to continue to market and sell Products to the entities appearing on Exhibit C ("Existing Market"). Notwithstanding the foregoing, nothing contained herein shall be deemed to prohibit DSS from marketing and selling the Products to End Users. Further, Boise and DSS mutually agree that both DSS and Boise shall have the right to market and sell custom printed Safety Paper.

2.5 Boise Responsibilities and Obligations. For the term of this agreement Boise will actively promote the Products by, among other things:

                        · develop or integrate appropriate marketing and advertising materials regarding the Products;
                        · publish, jointly with DSS or independently, press releases;
                        · publish letters/mailings to customers; and
                        · advertising in trade publications and attending trade shows.

2.6 DSS Responsibilities and Obligations. For the term of this Agreement, DSS hereby agrees that:

                        · it shall not enter into any marketing or distribution agreement with any third party for sales of Product to End Users and/or the Existing Market in the Territory;
                        · it shall use commercially reasonably efforts to supply Boise with Products in a timely manner in the amount that Boise shall request from time to time and in the event that it cannot fully satisfy the order of Boise, it shall use commercially reasonable efforts to satisfy the order in full as promptly as possible and in the event an allocation of available Product is required by DSS, it shall allocate to Boise an amount equal to at least the pro rated amount relative to the percentage of Products sold by Boise as compared to the total orders for Products; and
                        · it shall not sell the Products to non-End Users, other than the Existing Market, except with the prior written consent of Boise.
                        · DSS, in the performance of this Agreement , shall comply with applicable federal, state, and local statutes, rules of law, ordinances, regulations, and regulatory orders, including, but not limited to, the Fair Labor Standards Act of 1938, as amended, Walsh-Healy Act, Robinson-Patman Act, applicable state Workers' Compensation laws, state and federal Occupational Safety and Health Acts, and all rules and regulations passed pursuant thereto, applicable to DSS, which are incorporated herein by this reference.
                        · DSS shall cause its manufacturer(s) of the Products to implement and adhere quality controls to assure the Product Quality Standards as set forth on Exhibit D.

3. Representations and Warranties

3.1  Boise warrants and represents to DSS that:

                        (A) This Agreement is the binding legal obligation of Boise and is enforceable according to its terms and shall be binding upon Boise’s Affiliates;
                        (B) The execution, delivery, and performance of this Agreement will not result in any violation of any other agreement to which Boise is a party;
                        (C) Boise shall conduct its business for its own account, in its own name, and not as an agent, employee, or partner of DSS and shall conduct business in a manner that reflects favorably at all times on the Products and DSS’s goodwill, Intellectual Property and reputation and make no false or misleading representations with regard to DSS, its affiliates or DSS’ Intellectual Property.

3.2  DSS warrants and represents to Boise that:

                        (A)  This Agreement is the binding legal obligation of DSS and is enforceable according to it terms and shall be binding upon DSS Affiliates;
                        (B) The execution, delivery, and performance of this Agreement will not result in any violation of any other agreement to which DSS is a party;
                        (C) DSS shall conduct its business for its own account, in its own name, and not as an agent, employee, or partner of Boise and shall conduct business in a manner that reflects favorably at all times on the Products, Boise and Boise’s goodwill and reputation and make no false or misleading representations with regard to Boise or its Affiliates.

4.  Pricing and Payment Terms.

            The prices to be paid by Boise to DSS for the Products shall be determined in accordance with Exhibit B annexed hereto, as may be amended or supplemented from time to time. DSS shall have the right, upon prior notice to Boise, to increase the prices for the Products, including increases related to, without limitation, costs of raw materials upon *** prior notice. Payments of purchase price shall be net cash ** days or ** percent cash discount for payment **. Amounts overdue shall incur interest charges after 45 days at the rate of ** per annum on the amount outstanding. Upon failure by Boise to pay amounts due, DSS shall have the right, at its option and without prejudice to other remedies available to it, to suspend further shipments and deliveries to Boise and no forbearance, course of dealings or prior payments shall affect this right of DSS. Notwithstanding the foregoing, in the event of a good faith dispute by Boise of an invoice term or amount, DSS shall not have the right to suspend shipments and deliveries hereunder without a good faith attempt by the Parties to mutually resolve the dispute and without 30 days prior written notice.

5. Shipment and Delivery Terms; Packaging Terms; Quality Claims and Product Returns.

5.1 Shipment and Delivery Terms. Boise shall deliver written purchase orders to DSS in form and substance acceptable to the Parties from time to time. Products shall be shipped F.O.B. Henrietta, New York to Boise’s Regional Servicenters or other warehouses designated by Boise as Boise shall notify DSS in any purchase orders. Boise shall bear the cost of all carrier charges to its Regional Servicenters or other warehouses designated by Boise. Boise hereby acknowledges that depending upon the type and amount of Product ordered, delivery time may be as long as approximately six weeks. In addition, custom image designs requested by Boise may require additional delivery time and will require minimum order levels.

5.2 Packaging Terms. Within 30 days of the date hereof, the Parties shall mutually agree upon packaging standards for the initial Products including co-branding requirements for labels and packaging, appearance of tradenames, trademarks and other information to be placed upon the Product packaging, and the size of packaging.

5.3 Quality Claims and Product Returns. (A) Boise shall maintain written records in reasonable detail of all shipments of Product which are claimed to be non-performing or defective ("Deficiency Claim") by Boise (or its customers), which records shall include (i) the relevant information from packaging labels to identify the lot run and (ii) a description of the claimed defect or non-performance of the Products. Boise shall provide DSS with a copy of such records in writing ("Deficiency Notice"). Within seven (7) business days of receipt of a Deficiency Notice, DSS shall provide a written response to Boise of its intended action with respect to the Deficiency Claim. In the event that DSS cannot correct the Deficiency Claim within a reasonable time and such Deficiency Claim is the result of either (A) a failure of the Product to perform in accordance with the Product description on Exhibit A or (B) does not satisfy the Quality Controls on Exhibit D, then Boise shall return the defective Product to DSS at DSS’ expense and DSS shall replace the defective Product at no extra cost or expense to Boise.

            (B) In the event of a dispute between the Parties as to the nature of the Deficiency Claim under paragraph (A) above, the Parties shall meet within 10 business days to attempt to resolve the dispute. In the event that within an additional 10 business days the Parties are unable to mutually agree upon a satisfactory resolution, the Parties will submit the dispute to the Rochester Institute of Technology ("RIT") which shall act as arbiter for determining the nature of the Deficiency Claim (or any other third party acceptable to both Parties if RIT declines to accept such appointment). The decision of RIT shall be final and binding upon the Parties. The costs of RIT to resolve the dispute shall be borne by the Party that loses the dispute.

6.  Inspection and Audit Rights. During the term of this Agreement and for one (1) year thereafter, DSS shall have the right, upon reasonable advance notice, to inspect Boise’s records and facilities with respect to its compliance with this Agreement. Boise will make its facilities (hereafter "Facilities") available to DSS and its representatives upon reasonable notice and during normal business hours. During the term of this Agreement and for one (1) year thereafter, Boise shall have the right, upon reasonable advance notice, to inspect DSS’ records and facilities with respect to its compliance with this Agreement. DSS will make its facilities (hereafter "Facilities") available to Boise and its representatives upon reasonable notice and during normal business hours.

7. License to Marks. (a) Subject to Boise’s compliance with all of the terms and conditions of this Agreement, DSS hereby grants to Boise a non-transferable, limited (to the extent expressly set forth herein) license to use the DSS Marks solely for purposes of the marketing and promotional activities for the Products contemplated by this Agreement. Boise acknowledges that, without the prior approval of DSS, Boise shall not create a unitary or composite mark based on or incorporating a DSS Mark. Boise shall not use any DSS Marks or any other trademarks, service marks, trade names, logos or symbols of DSS in any corporate, business or trading name of Boise or any other entity or any other identification associated with Boise or any other entity, including any trading or "ticker" symbol associated with Boise’s or any other entity’s securities, or in any offering, circular, prospectus or other corporate marketing material without DSS’s prior written approval, which DSS may grant or withhold in its discretion. Boise agrees to comply with such specific standards for use of DSS Marks as DSS may, in its reasonable discretion, establish and modify from time to time in writing and provide to Boise. All use by Boise of DSS Marks, including, without limitation, any DSS Marks contained in Boise’s advertising, shall be subject to prior written approval of DSS. Once DSS has approved a specific use of a mark, Boise may continue such specific use or cease and resume such specific use without additional approvals from DSS until such approval is revoked in writing or this Agreement is terminated. Unl