Exhibit 99.1

                , 2008

Dear Digimarc Corporation Stockholder:

        As previously announced, Digimarc Corporation has entered into a merger agreement with L-1 Identity Solutions, Inc., and its wholly owned subsidiary, Dolomite Acquisition Co., pursuant to which Dolomite Acquisition Co. will merge with and into Digimarc Corporation and Digimarc Corporation will survive and continue as a wholly owned subsidiary of L-1 Identity Solutions, Inc. We refer to the merger of Digimarc Corporation and Dolomite Acquisition Co. as the Digimarc/L-1 merger. In connection with the Digimarc/L-1 merger, the Board of Directors of Digimarc Corporation approved a plan to separate its secure ID systems and digital watermarking businesses. To accomplish the separation, Digimarc Corporation is, prior to and in connection with the merger of Dolomite Acquisition Co., a wholly owned subsidiary of L-1 Identity Solutions, Inc., with and into Digimarc Corporation, spinning off the limited liability company interests of a newly formed subsidiary, which we refer to as DMRC LLC, containing all of the assets and liabilities of Digimarc Corporation's digital watermarking business. The interests will be distributed to Digimarc Corporation's stockholders on the basis of one unit of DMRC LLC for every three and one-half shares of Digimarc Corporation common stock held by the stockholder. Immediately following the spin-off, DMRC LLC will merge with and into its wholly owned subsidiary, DMRC Corporation, with DMRC Corporation being the surviving company in the merger. Each unit of DMRC LLC will be converted into one share of DMRC Corporation common stock. As a result, each Digimarc Corporation stockholder will receive one share of DMRC Corporation for every three and one-half shares of Digimarc common stock held by the stockholder.

        Stockholder approval of the spin-off is not required, and you are not required to take any action to receive your DMRC Corporation common stock.

        Following the spin-off, Dolomite Acquisition Co. will merge with and into Digimarc Corporation, with Digimarc Corporation being the surviving company in the merger. After the merger, the surviving company will change its name, and DMRC Corporation will change its name to Digimarc Corporation.

        The attached information statement, which is being mailed to all Digimarc Corporation stockholders of record as of                 , 2008, the record date, describes the spin-off and contains important information, including financial statements, about DMRC Corporation. DMRC Corporation intends to file an application to list its common stock under the trading symbol "DMRCD" on The Nasdaq Global Market.

        We look forward to our future as a separately-traded public company and to your support as a holder of DMRC Corporation common stock.

Sincerely,

Bruce Davis
Chairman and Chief Executive Officer

The information contained herein is not complete and may be changed. A Registration Statement on Form 10 relating to these securities has been filed with the United States Securities and Exchange Commission under the United States Securities Exchange Act of 1934, as amended. This preliminary information statement is not an offer to sell or a solicitation of an offer to buy any securities.

Preliminary and Subject to Completion, dated June 23, 2008

INFORMATION STATEMENT

DMRC Corporation
Common Stock
(Par value $0.001 per share)

         This information statement is being furnished in connection with the issuance of shares of DMRC Corporation common stock to holders of Digimarc Corporation common stock in connection with the spin-off of DMRC LLC, referred to as the spin-off, and the subsequent merger of DMRC LLC with and into DMRC Corporation, which we refer to as the DMRC Corporation merger.

         As previously announced, Digimarc Corporation has entered into a merger agreement, which we refer to as the Digimarc/L-1 merger agreement, with L-1 Identity Solutions, Inc. and its wholly owned subsidiary, Dolomite Acquisition Co., pursuant to which Dolomite Acquisition Co. will merge with and into Digimarc Corporation and Digimarc Corporation will survive and continue as a wholly owned subsidiary of L-1 Identity Solutions, Inc. We refer to this merger as the Digimarc/L-1 merger. Digimarc Corporation will, prior to and in connection with the Digimarc/L-1 merger, spin off the limited liability company interests of its digital watermarking subsidiary containing all of the assets and liabilities associated with Digimarc's digital watermarking business, known as DMRC LLC. The interests will be distributed to Digimarc Corporation's stockholders on the basis of one unit of DMRC LLC for every three and one-half shares of Digimarc Corporation common stock outstanding. Following the spin-off, DMRC LLC will merge with and into its wholly owned subsidiary, DMRC Corporation, with DMRC Corporation being the surviving company in the merger. Each unit of DMRC LLC will be converted into one share of DMRC Corporation common stock. We refer to this merger as the DMRC Corporation merger.

         The units of DMRC LLC will be distributed to holders of Digimarc Corporation common stock of record on                 , 2008, which will be the record date. These stockholders will receive one unit of DMRC LLC for every three and one-half shares of Digimarc Corporation common stock held by the stockholder on the record date. The distribution will be effective as of                 , 2008, the record date, which we also refer to as the distribution date. Following the distribution, each unit of DMRC LLC will be converted into one share of DMRC Corporation in the DMRC Corporation merger. As a result these stockholders will receive one share of DMRC Corporation common stock for every three and one-half shares of Digimarc Corporation common stock held by the stockholder on the record date. Following the DMRC Corporation merger, DMRC Corporation will be an independent public company, and Dolomite Acquisition Co. will merge with and into Digimarc, with Digimarc surviving as a wholly owned subsidiary of L-1 Identity Solutions, Inc.

         YOUR VOTE IS NOT REQUIRED, AND WE ARE NOT ASKING YOU FOR A PROXY.

         All of the outstanding shares of DMRC Corporation common stock are owned indirectly by Digimarc Corporation. Accordingly, there currently is no public trading market for DMRC Corporation common stock. DMRC Corporation intends to file an application to list its common stock under the trading symbol "DMRCD" on The Nasdaq Global Market. We anticipate that normal trading of DMRC Corporation common stock will begin on the first day following the distribution date.

          In reviewing this information statement, you should carefully consider the matters described under the caption "Risk Factors" beginning on page 10.

          Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this information statement is truthful or complete. Any representation to the contrary is a criminal offense.

         This information statement does not constitute an offer to sell or the solicitation of an offer to buy any securities.

         The date of this information statement is                , 2008.

         This information statement was first mailed to Digimarc Corporation stockholders on or about                , 2008.

TABLE OF CONTENTS

This information statement contains trademarks, trade names and service marks of companies other than DMRC Corporation, which are the property of their respective owners.

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SUMMARY

         This summary highlights information contained elsewhere in this information statement and provides an overview of our company and the material aspects of our spin-off from Digimarc Corporation. You should read this entire information statement carefully, especially the risk factors discussed beginning on page 10 and our pro forma financial statements and notes to those statements appearing elsewhere in this information statement. Unless the context otherwise requires, references in this information statement to (i) "DMRC Corporation," "DMRC," "we," "our" and "us" refer to DMRC Corporation and (ii) "Digimarc" refers to Digimarc Corporation and its consolidated subsidiaries (other than us).

         You should not assume that the information contained in this information statement is accurate as of any date other than the date set forth on the cover. Changes to the information contained in this information statement may occur after that date, and we undertake no obligation to update the information, except in the normal course of our public disclosure obligations and practices.

Our Business

        DMRC Corporation is a leading innovator and technology provider, enabling governments and enterprises around the world to give digital identities to media and objects that computers can sense and recognize and to which they can react. Our technology provides the means to infuse persistent digital information, perceptible only to computers and digital devices, into all forms of media content. The unique digital identifier placed in media persists with it regardless of the distribution path and whether it is copied, manipulated or converted to a different format, and does not affect the quality of the content or the enjoyment or usefulness of it. Our technology permits computers and digital devices to quickly identify relevant data from vast amounts of media content.

        Our technologies, and those of our licensees, span the complete range of media content, enabling governments and enterprises to:

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Quickly identify and effectively manage music, movies, television programming, digital images, documents and other printed materials, especially in light of new non-linear distribution over the internet;



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Deter counterfeiting of money, media and goods, and piracy of movies and music;



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Support new digital media distribution models and methods to monetize media content;



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Leverage the power of intuitive computing to instantly link consumers to a wealth of information and/or interactive experiences related to the media and objects they encounter each day;



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Provide consumers with more choice and access to media content when, where and how they want it;



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Enhance imagery and video by associating metadata or authenticate the content for government and commercial uses; and



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Better secure identity documents to enhance national security and to combat identity theft and fraud.

        At the core of our intellectual property is a signal processing technology innovation known as "digital watermarking" which allows imperceptible digital information to be embedded in all forms of digitally designed, produced or distributed media content and some physical objects, including photographs, movies, music, television, personal identification documents, financial instruments, industrial parts and product packages. The digital information can be detected and read by a wide range of computers, mobile phones, and other digital devices.

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        We provide technology-based solutions directly and through our licensees. Our proprietary technologies have proven to be a powerful element of document security, giving rise to our long-term relationship with a consortium of central banks, which we refer to as Central Banks, and many leading companies in the information technology industry. In addition, we and our licensees have successfully propagated digital watermarking in music, movies, television broadcasts, images and printed materials. Digital watermarks have been used in these applications to provide improved media rights and asset management, reduce piracy and counterfeiting losses, improve marketing programs, permit more efficient and effective distribution of valuable media content and enhance consumer experiences.

        To protect our significant efforts in creating these technologies, we have implemented an extensive intellectual property protection program that relies on a combination of patent, copyright, trademark and trade secret laws, and nondisclosure agreements and other contracts. As a result, we believe we have one of the world's most extensive patent portfolios in the field of digital watermarking and related media enhancement innovations, with over 350 U.S. and over 85 foreign issued patents and more than 400 U.S. and foreign patent applications on file as of March 31, 2008.

The Separation and the Merger

        Digimarc will, prior to and in connection with the Digimarc/L-1 merger, spin off the limited liability company interests of DMRC LLC, which holds all of the assets and liabilities of its digital watermarking business, which we refer to as the Digital Watermarking Business. The interests will be distributed to Digimarc's stockholders on the basis of one unit of DMRC LLC for every three and one-half shares of Digimarc common stock outstanding. Following the spin-off, DMRC LLC will merge with and into its wholly owned subsidiary, DMRC Corporation, with DMRC Corporation being the surviving company in the merger. Each unit of DMRC LLC will be converted into one share of DMRC Corporation common stock. As a result, each Digimarc stockholder will receive one share of DMRC Corporation for every three and one-half shares of Digimarc common stock held by the stockholder. When we refer in this information statement to shares of DMRC Corporation common stock, we mean the shares of DMRC Corporation common stock that Digimarc stockholders will receive following the conversion of the units of DMRC LLC into shares of DMRC Corporation common stock in the DMRC Corporation merger. Following the spin-off and completion of the DMRC Corporation merger, we will issue to the executive officers of DMRC Corporation shares of Series A Redeemable Nonvoting Preferred stock in the aggregate amount of $50,000.

        Following and in connection with the spin-off, a wholly owned subsidiary of L-1 will merge with and into Digimarc, which will consist principally of the secure ID business, which we refer to as the Secure ID Business. The distribution and the Digimarc/L-1 merger will take place on                 , 2008.

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         You should carefully read the "Risk Factors" beginning on page 10 of this information statement.

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Corporate Information and Structure

        We were incorporated in Delaware on June 18, 2008 by Digimarc to facilitate the separation of its Secure ID Business and its Digital Watermarking Business through the spin-off and the Digimarc/L-1 merger. Our principal executive offices are located at 9405 S.W. Gemini Drive, Beaverton, Oregon 97008, and our telephone number is (503) 469-4800. We will maintain a Web site, which, following the DMRC Corporation merger, we expect to be at www.digimarc.com . Our Web site and the information contained on that site, or connected to that site, are not incorporated into this information statement.

Summary Historical and Pro Forma Financial Information

        The following table sets forth our selected historical financial data as of and for each of the periods indicated. We derived the selected historical financial data as of and for each of the five years ended December 31 and for the three months ended March 31 from our financial statements. The pro forma financial information set forth below portrays how our spin off from Digimarc might have affected our historical financial information if it had occurred on March 31, 2008 for balance sheet purposes and on January 1, 2007 for income statement purposes. This information is only a summary and you should read it in conjunction with our historical financial statements included in this information statement and the related notes, the pro forma financial information and the related notes and the section entitled "Management's Discussion and Analysis of the Financial Condition and Results of Operations," included in this information statement. As you read this, you should understand that the pro forma financial information is presented for informational purposes only, and is not intended to show what our financial position or results of operations would have been had we been operating as an independent, publicly-traded company during these periods or what our financial position or results of operations might be in the future. Our financial information may not be indicative of our future performance and does not necessarily reflect what our financial condition and results of operations would have been had we operated as an independent, stand-alone entity for the periods presented, particularly since many changes will occur in our operations and capitalization as a result of our spin-off from Digimarc.

        The pro forma financial information presented reflects our financial results as fully described in the financial statements and the notes to our financial statements beginning on page F-3 of this information statement and gives effect to the following pro forma transactions:

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the impact on cash receipts and expenditures related to the merger and spin-off; and



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our conversion from a limited liability company to a Delaware corporation pursuant to the merger, the authorization and issuance of preferred stock, and the distribution of our common stock to the stockholders of Digimarc.

        The pro forma financial information presented does not give effect to the following:

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estimated expenses and related reimbursement under the transition services agreement with L-1; and



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expected, incremental expenses as a stand-alone company versus the allocation of shared services methodology as applied to the financial statements in this information statement.

        It is expected that the initial operating costs of DMRC on a stand-alone basis will be higher than those allocated to the DMRC operations under the shared services methodology applied in the audited financial statements of DMRC. Consequently, the financial position, results of operations and cash flows of DMRC reflected in the financial statements of DMRC may not be indicative of those that would have been achieved or that might be achieved in the future had DMRC been operated as a separate, stand-alone entity for the periods reflected in its financial statements.

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        The dollar amounts in the tables below are in thousands.

(1)

The merger agreement governing the Digimarc/L-1 merger provides that all cash and cash equivalents, short term investments and restricted cash (aggregate cash) of Digimarc are treated as cash retained by DMRC Corporation in its carved-out financial statements. As a result, the presentation of the financial statements and operating data of DMRC Corporation during the carve-out periods, reflect the cash flow of Digimarc, including its Secure ID Business, combined with DMRC Corporation. During 2003 through 2007, the consolidated results of Digimarc reflected operating losses of $0.1 million, $9.5 million, $23.6 million, $13.1 million and $1.6 million, respectively. Cash provided by (used in) operations for those same periods were $25.3 million, $4.7 million, ($3.2) million, $9.3 million and $16.3 million respectively. Also, capital expenditures for those periods were $14 million, $39.7 million, $15.5 million, $10.5 million and $17.7 million respectively. In addition, aggregate cash balances were reduced from $78.6 million at the end of 2003 to $32.7 million at the end of 2007, reflecting the funding of operating losses for the combined Secure ID Business and Digital Watermarking Business and for funding capital expenditures, the majority being for the Secure ID Business.

Prior to the acquisition of the Secure ID Business from Polaroid by Digimarc in late December 2001, DMRC Corporation operated as a separate entity. Its revenues for 2000 and 2001 were $11.9 million and $13.2 million, respectively, and its operating losses exceeded $20 million in each of those years. In the years after the acquisition and up through the present date, Digimarc's business, including DMRC Corporation, began to benefit from a shared services operating model where its general and administrative costs, among others, could be spread more efficiently across multiple operating activities. In addition, beginning in mid-2005, after incurring significant operating losses in 2004 and projecting further significant losses in the future, the company began a reorganization of its business to focus on its core strengths while significantly reducing its cost of operations in all areas, while growing revenues in both the Secure ID Business and Digital Watermarking Business. The change in the operating results of DMRC Corporation since its early loss years prior to the acquisition began to benefit from the shared services operating model in 2002, and later, beginning in 2005, as operating costs were reduced and revenues began to rise to current levels. As a result, DMRC Corporation's operating losses, reduced over the years to $1.3 million in 2007 and eventually achieved an operating profit of $0.6 million in the first quarter of 2008.

(2)

Certain financial data for the years ended December 31, 2003 and 2004 have been omitted from this information statement because they are not available without unreasonable effort and expense. We believe the omission of these financial data for the years ended December 31, 2003 and 2004 are not material to an understanding of our financial performance and related trends.

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RISK FACTORS

         You should carefully consider each of the following risks and all of the other information set forth in this information statement. The following risks relate principally to our business, our relationship with Digimarc and our status as a separate publicly-traded company, as well as risks related to the nature of the spin-off itself. The risks and uncertainties described below are not the only ones facing our company. Additional risks and uncertainties not presently known to us or that we now believe to be immaterial may also adversely affect our business. If any of the following risks and uncertainties develop into actual events, our business, financial condition or results of operations could be materially adversely affected. In that case, the trading price of our common stock could decline.

Risks Related to our Common Stock and the Spin-off

A trading market may not develop for shares of DMRC common stock, which could adversely affect the market price of those shares.

        Until the spin-off, DMRC will be 100% owned by Digimarc and, accordingly, there currently is no trading market for shares of DMRC common stock. We do not assure you that such a market will develop or be sustained after the completion of the spin-off. DMRC will apply to have its shares of common stock listed on the Nasdaq Global Market under the symbol "DMRCD." We cannot predict the extent to which investor interest will lead to the development of an active and liquid trading market in our common stock on the Nasdaq Global Market or otherwise. If an active trading market does not develop, you may have difficulty selling any of your shares of common stock.

Substantial sales of our common stock following the spin-off may have an adverse impact on the trading price of our common stock.

        Digimarc expects that under the United States federal securities laws all of the shares of DMRC common stock distributed to Digimarc stockholders in the spin-off will be eligible for resale in the public market, except for shares held by our affiliates. Some of the Digimarc stockholders who receive our shares of common stock may decide that their investment objectives do not include ownership of our shares, and may sell their shares of common stock following the spin-off. In particular, Digimarc stockholders that are institutional investors may have investment parameters that require their portfolio companies to maintain a minimum market capitalization that we may not achieve as a result of the separation from Digimarc. We cannot predict whether stockholders will sell large numbers of our shares of common stock in the public market following the spin-off, or how quickly they may sell these shares. If our stockholders sell large numbers of our shares of common stock over a short period of time, or if investors anticipate large sales of our shares of common stock over a short period of time, the trading price of our shares of common stock could be adversely affected.

We have no recent operating history as a separate company. Our historical and pro forma financial information are not necessarily representative of the results we would have achieved as a separate publicly-traded company, and they may not be a reliable indicator of our future results.

        Digimarc did not account for DMRC, and DMRC was not operated, as a stand-alone public company for the periods presented in DMRC's financial statements included in this information statement. The financial statements of DMRC have been "carved out" from Digimarc's consolidated financial statements and reflect assumptions and allocations made by Digimarc. The financial statements do not fully represent what DMRC's financial position, results of operations and cash flow would have been had DMRC operated as a stand-alone public company for the periods presented. Significant changes may occur in our cost structure, tax structure, management, financing and business operations as a result of our operating as a public company separate from Digimarc. These changes may result in increased costs associated with reduced economies of scale, marketing expenses, the

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incurrence of debt and interest expense, stand-alone costs for services currently provided by Digimarc, the need for additional personnel to perform services now provided by Digimarc, and the legal, accounting, compliance and other costs associated with being a public company with equity securities listed on a national exchange. As a result, the historical and pro forma information included in this information statement are not necessarily indicative of what DMRC's financial position, results of operations and cash flow will be following the spin-off. For more information, see "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Pro Forma Financial Information" and DMRC's financial statements and related notes included elsewhere in this information statement.

Our common stock price may be volatile, and you could lose all or part of your investment in shares of DMRC common stock.

        The price of shares of our common stock may fluctuate as a result of changes in our operating performance or prospects and other factors. Some specific factors that may have a significant effect on the price of shares of our common stock include:

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the public's reaction to DMRC's public disclosures;



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actual or anticipated changes in DMRC's operating results or future prospects;



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strategic actions by DMRC or its competitors, such as acquisitions or restructurings;



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new laws or regulations or new interpretations of existing laws or regulations applicable to DMRC's business;



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changes in accounting standards, policies, guidance, interpretations or principles applicable to DMRC;



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conditions of the industry as a result of changes in financial markets or general economic or political conditions;



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the failure of securities analysts to cover our common stock after the distribution, or changes in financial estimates by analysts;



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changes in analyst recommendations or earnings estimates regarding DMRC, other comparable companies or the industry generally, and our ability to meet those estimates;



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future issuances of DMRC common stock or the perception that future sales could occur; and



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volatility in the equity securities market.

We have the ability to issue additional equity securities, which would lead to dilution of our issued and outstanding common stock.

        The issuance of additional equity securities or securities convertible into equity securities would result in dilution of our existing stockholders' equity interests. We are authorized to issue, without stockholder approval, up to 2,500,000 shares of preferred stock, par value $0.001 per share, in one or more series, which may give other stockholders dividend, conversion, voting, and liquidation rights, among other rights, which may be superior to the rights of holders of our common stock. In addition, we are authorized to issue up to 50,000,000 shares of common stock, par value $0.001 per share. We are authorized to issue, without stockholder approval except as required by law or Nasdaq regulations, securities convertible into either common stock or preferred stock.

        Following the spin-off and completion of the DMRC Corporation merger, we will issue to the executive officers of DMRC Corporation shares of Series A Redeemable Nonvoting Preferred stock in the aggregate amount of $50,000. In the event of the liquidation, dissolution or other winding up of

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DMRC Corporation, before any payment or distribution is made to the holders of common stock, holders of the Series A Redeemable Nonvoting Preferred Stock will be entitled to receive a value of $5.00 per share of Series A Redeemable Nonvoting Preferred stock held by the stockholder. The Series A Redeemable Nonvoting Preferred has no voting rights, and may be redeemed by the board of directors at any time on or after June 18, 2013.

Our corporate governance documents as well as Delaware law may delay or prevent an acquisition of us that stockholders may consider favorable, which could decrease the value of your shares.

        Our certificate of incorporation and bylaws and Delaware law contain provisions that could make it more difficult for a third party to acquire us without the consent of our board of directors. These provisions include supermajority voting requirements for stockholders to amend our organizational documents and limitations on actions by our stockholders by written consent. In addition, our board of directors has the right to issue preferred stock without stockholder approval, which could be used to dilute the stock ownership of a potential hostile acquirer. Delaware law also imposes some restrictions on mergers and other business combinations between any holder of 15% or more of our outstanding common stock and us. Although we believe these provisions protect our stockholders from coercive or otherwise unfair takeover tactics and thereby provide for an opportunity to receive a higher bid by requiring potential acquirers to negotiate with our board of directors, these provisions apply even if the offer may be considered beneficial by some stockholders. See "Description of Our Capital Stock."

Risks Related to Our Business

We have a history of losses and we may not achieve or sustain profitability, particularly if we were to lose large contracts.

        Digimarc's Digital Watermarking Business has incurred significant net losses from inception. Digimarc's accumulated deficit was $100 million as of December 31, 2007. Although we anticipate that DMRC will be a profitable company from its inception, in order to achieve sustained profitability we will need to generate higher revenue than Digimarc's Digital Watermarking Business has in prior years and control expenditures. Achieving sustained profitability will depend upon a variety of factors, including the extent to which we may be required to increase the size of our workforce in order to execute our business strategy and capitalize on new opportunities. In addition, we will evaluate our strategy and market opportunities on an ongoing basis and will adjust our approach to market conditions from time to time. Finally, various adverse developments, including the loss of large contracts or cost overruns on our existing contracts, could have a negative effect on our revenue or our margins. Accordingly, increases in our expenses may not be offset by revenue increases and as a result we may not be able to achieve or sustain profitability.

A small number of customers account for a substantial portion of our revenues and the loss of any large contract may result in loss of revenue.

        Historically, we have derived a significant portion of our revenues from a limited number of customers. Two customers represented approximately 73% of our revenue for the three months ended March 31, 2008. Contracts between our large central banking, federal and commercial customers generally have terms of three to five or more years in length and sometimes for the life of the patents under license, which could be up to 20 years. Some contracts we enter into contain termination for convenience provisions. If we were to lose a contract due to termination for convenience or in a competitive situation, our financial results could be adversely affected.

        We expect to continue to depend upon a small number of customers for a significant portion of our revenues for the foreseeable future. The loss of, or decline in, orders or backlog from one or more major customers could reduce our revenues and have a material adverse effect on our financial results.

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The majority of our revenue is subject to commercial contracts and development of new markets that may involve unpredictable delays and other unexpected changes, which might limit our actual revenue in any given quarter or year.

        We derive substantial portions of our revenue from commercial contracts tied to development schedules or development of new markets, which could shift for months, quarters or years as the needs of our customers and the markets in which they participate change. Government agencies and commercial customers also face budget pressures that introduce added uncertainty. Any shift in development schedules, the markets in which we or our licensees participate, or customer procurement processes, which are outside our control and may not be predictable, could result in delays in bookings forecasted for any particular period, could affect the predictability of our quarterly and annual results, and might limit our actual revenue in any given quarter or year, resulting in reduced and less predictable revenue and adversely affecting profitability.

The market for our products is highly competitive and alternative technologies or larger companies may undermine, limit or eliminate the market for our products' technologies, which would decrease our revenue and profits.

        The markets in which we compete for business are intensely competitive and rapidly evolving. We expect competition to continue from both existing competitors and new market entrants. We face competition from other companies and from alternative technologies. Because the market solutions based on our technologies is still in an early stage of development, we also may face competition from unexpected sources.

        Alternative technologies that may directly or indirectly compete with particular applications of our watermarking technologies include:

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Encryption—securing data during distribution using a secret code so it cannot be accessed except by authorized users;



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Containers—inserting a media object in an encrypted wrapper, which prevents the media object from being duplicated and is used for content distribution and transaction management;



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DataGlyphs®—a slightly visible modification of the characteristics of an image or document that is machine-readable;



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Scrambled Indicia®—an optical refraction-based data-hiding technique that is inserted into an image and can be read with a lens;



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Traditional anti-counterfeiting technologies—a number of solutions used by many governments (and that compete for budgetary outlays) designed to deter counterfeiting, including optically sensitive ink, magnetic threads and other materials used in the printing of currencies;



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Radio frequency tags—embedding a chip that emits a signal when in close proximity with a receiver, which is being used in photo identification credentials, labels and tags;



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Internet technologies—numerous existing and potential Internet access and search methods are competitive with Digimarc Mobile systems and the searching capabilities of Digimarc ImageBridge;



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Digital fingerprints and signatures—a metric, or metrics, computed solely from a source image or audio or video track, that can be used to identify an image or track, or authenticate the image or track;



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Smart cards—badges and cards including a semiconductor memory and /or processor used for authentication and related purposes; and



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Bar codes or QR codes—data-carrying codes, typically visible in nature (but may be invisible if printed in ultraviolet- or infrared-responsive inks).

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        In the competitive environment in which we operate, product generation, development and marketing processes relating to technology are uncertain and complex, requiring accurate prediction of demand as well as successful management of various development risks inherent in technology development. In light of these dependencies, it is possible that failure to successfully accommodate future changes in technologies related to our technologies could have a long-term effect on our growth and results of operations.

        New developments are expected to continue, and we do not assure you that discoveries by others, including current and potential competitors, will not render our services and products noncompetitive. Moreover, because of rapid technological changes, we may be required to expend greater amounts of time and money than anticipated to develop new products and services, which in turn may require greater revenue streams from these products and services to cover developmental costs. Many of the companies that compete with us for some of our business, as well as other companies with whom we may compete in the future, are larger and may have greater technical, financial, marketing, and political resources than we do. These resources could enable these companies to initiate severe price cuts or take other measures in an effort to gain market share or otherwise impede our progress. We do not assure you that we will be able to compete successfully against current or future participants in our market or against alternative technologies, or that the competitive pressures we face will not decrease our revenue and profits in the future.

We depend on our management and key employees for our future success. If we are not able to retain, hire or integrate these employees, we may not be able to meet our commitments.

        Our success depends to a significant extent on the performance and continued service of our management and our intellectual property team. The loss of the services of any of these employees could limit our growth or undermine customer relationships.

        Due to the high level of technical expertise that our industry requires, our ability to successfully develop, market, sell, license and support our products, services, and intellectual property depends to a significant degree upon the continued contributions of our key personnel in engineering, sales, marketing, operations, legal and licensing, many of whom would be difficult to replace. We believe our future success will depend in large part upon our ability to retain our current key employees and our ability to attract, integrate and retain these personnel in the future. It may not be practical for us to match the compensation some of our employees could garner at other employment. In addition, we may encounter difficulties in hiring and retaining employees because of concerns related to our financial performance. These circumstances may have a negative effect on the market price of our common stock, and employees and prospective employees may factor in the uncertainties relating to our stability and the value of any equity-based incentives in their decisions regarding employment opportunities and decide to leave our employ. Moreover, our business is based in large part on patented technology, which is unique and not generally known. New employees require substantial training, involving significant resources and management attention. Competition for experienced personnel in our business can be intense. If we do not succeed in attracting new, qualified personnel or in integrating, retaining and motivating our current personnel, our growth and ability to deliver products and services that our customers require may be hampered. Although our employees generally have executed agreements containing non-competition clauses, we do not assure you that a court would enforce all of the terms of these clauses or the clauses generally. If these clauses were not fully enforced, our employees could be able to freely join our competitors. Although we generally attempt to control access to and distribution of our proprietary information by our employees, we do not assure you that the confidential nature of our proprietary information will be maintained in the course of such future employment. Any of these events could have a material adverse effect on our financial and business prospects.

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If leading companies in our industry or standard-setting bodies or institutions downplay, minimize, or reject the use of our technologies, deployment may be slowed and we may be unable to achieve revenue growth, particularly in the media and entertainment sectors.

        Many of our business endeavors, such as our licensing of intellectual property in support of audio and video copy-control applications, can be impeded or frustrated by larger, more influential companies or by standard-setting bodies or institutions downplaying, minimizing or rejecting the value or use of our other technologies. A negative position by these companies, bodies or institutions, if taken, may result in obstacles for us that we would be incapable of overcoming and may block or impede the adoption of digital watermarking, particularly in the media and entertainment market. In addition, potential customers in the media and entertainment industry may delay or reject initiatives that relate to deployment of our technologies. Such a development would make the achievement of our business objectives in this market difficult or impossible.

If we are unable to respond to regulatory or industry standards effectively, or if we are unable to develop and integrate new technologies effectively, our growth and the development of our products and services could be delayed or limited.

        Our future success will depend in part on our ability to enhance and improve the responsiveness, functionality and features of our products and services, and those of our business partners, in accordance with regulatory or industry standards. Our ability to remain competitive will depend in part on our ability to influence and respond to emerging industry and governmental standards in a timely and cost-effective manner. If we are unable to influence these or other standards or respond to such standards effectively, our growth and the development of certain products and services could be delayed or limited.

        Our market is characterized by new and evolving technologies. The success of our business will depend on our ability to develop and integrate new technologies effectively and address the increasingly sophisticated technological needs of our customers in a timely and cost-effective manner. Our ability to remain competitive will depend in part on our ability to:

•

enhance and improve the responsiveness, functionality and other features of the products and services we offer or plan to offer;



•

continue to develop our technical expertise; and



•

develop and introduce new services, applications and technologies to meet changing customer needs and preferences and to integrate new technologies.

        We do not assure you that we will be successful in responding to these technological and industry challenges in a timely and cost-effective manner. If we are unable to develop or integrate new technologies effectively or respond to these changing needs, our margins could decrease, and our release of new products and services and the deployment of our watermarking technology could be adversely affected.

We may need to retain additional employees or contract labor in the future in order to take advantage of new business opportunities arising from increased demand, which could impede our ability to achieve or sustain profitability.

        We have staffed our company with the intent of achieving and sustaining profitability. Our current staffing levels could affect our ability to respond to increased demand for our services. In addition, to meet any increased demand and take advantage of new business opportunities in the future, we may need to increase our workforce through additional employees or contract labor, which would increase our costs. If we experience such an increase in costs, we may not succeed in achieving or sustaining profitability.

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Our future growth will depend to some extent on our successful implementation of our technology in solutions provided by third parties, including partners and suppliers.

        Our business and strategy rely substantially on deployment of our technologies by third-party software developers and original equipment manufacturers. For example, one of our technologies is commonly deployed in image editing applications to permit users of these products to read data embedded in imagery, and thereby identify ownership and discern the identities of image owners. Another of our technologies is used in our anti-counterfeiting products. If third parties who include our technologies in their products cease to do so, or we fail to obtain other partners who will incorporate, embed, integrate or bundle our technologies, or these partners are unsuccessful in their efforts, our efforts to expand deployment of our technologies would be adversely affected and, consequently, our ability to increase revenues would be adversely affected and we may suffer other adverse effects to our business. In addition, if our technologies do not perform according to market expectations, our future sales would suffer as customers seek other providers.

Our growth of IP licensing revenues depends on successful implementation of solutions by our licensees and third parties and successful development of new markets for our technologies.

        Our IP licensing business and strategy rely, in part, on successful deployment of our technologies by our licensees and other third-party software developers and original equipment manufacturers. For example, our technology is being deployed as part of Digital Cinema systems to theatres around the world by companies that integrate technologies and subsystems. If third parties who license our intellectual property for their products cease to do so, or we fail to obtain other partners who will incorporate, embed, integrate or bundle our technologies and intellectual property, or these partners are unsuccessful in their efforts, our ability to increase licensing revenues would be adversely affected. In addition, if our technologies do not perform according to market expectations, our future sales would suffer as customers seek other providers.

The loss of international customers or the failure to find new international customers could adversely affect our profitability and slow our growth.

        We believe that revenue from sales of products and services to commercial, governmental and other customers outside the U.S. could represent a growing percentage of our total revenue in the future. International sales and services are subject to a number of risks that can adversely affect our sales of products and services to customers outside of the United States, including the following:

•

changes in foreign government regulations and security requirements;



•

export license requirements, tariffs and taxes;



•

trade barriers;



•

difficulty in protecting intellectual property;



•

difficulty in collecting accounts receivable;



•

currency fluctuations;



•

longer payment cycles than those for customers in the United States;



•

difficulty in managing foreign operations; and



•

political and economic instability.

        We do not have an extensive operational infrastructure for international business. We generally depend on local or international business partners and subcontractors for performance of substantial portions of our business. These factors may result in greater risk of performance problems or of

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reduced profitability with respect to our international programs in these markets. In addition, if foreign customers, in particular foreign government authorities, terminate or delay the implementation of our products and services, it may be difficult for us to recover our potential losses.

        We are exposed to currency exchange fluctuations and do not engage in foreign currency hedging transactions. We may in the future choose to limit our exposure by the purchase of forward foreign exchange contracts, collared options, currency swap agreements or through similar hedging strategies. No currency hedging strategy, however, can fully protect against exchange-related losses.

The terms and conditions of our contracts could subject us to damages, losses and other expenses if we fail to meet delivery and other performance requirements.

        Our service contracts typically include provisions imposing (i) development, delivery and installation schedules and milestones, (ii) customer acceptance and testing requirements and (iii) other performance requirements. To the extent these provisions involve performance over extended periods of time, risks of noncompliance may increase. From time to time we have experienced delays in system implementation, timely acceptance of programs, concerns regarding program performance and other contractual disputes. Any failure to meet contractual milestones or other performance requirements as promised, or to successfully resolve customer disputes, could result in us incurring liability for damages, as well as increased costs, lower margins, or compensatory obligations in addition to other losses, such as harm to our reputation. Any unexpected increases in costs to meet our contractual obligations or any other requirements necessary to address claims and damages with regard to our customer contracts could have a material adverse effect on our business and financial results.

Our products could have unknown defects or errors, which may give rise to claims against us, divert application of our resources from other purposes or increase our project implementation and support costs.

        Products and services as complex as those we offer or develop may contain undetected defects or errors. Furthermore, we often provide complex implementation, integration, customization, consulting and other technical services in connection with the implementation and ongoing maintenance of our products. Despite testing, defects or errors in our products and services may occur, which could result in delays in the development and implementation of products and systems, inability to meet customer requirements or expectations in a timely manner, loss of revenue or market share, increased implementation and support costs, failure to achieve market acceptance, diversion of development resources, injury to our reputation, increased insurance costs, increased service and warranty costs and warranty or breach of contract claims. Although we attempt to reduce the risk of losses resulting from warranty or breach of contract claims through warranty disclaimers and liability limitation clauses in our sales agreements when we can, these contractual provisions are sometimes not included and may not be enforceable in every instance. If a court refuses to enforce the liability-limiting provisions of our contracts for any reason, or if liabilities arose that were not contractually limited or adequately covered by insurance, the expense associated with defending these actions or paying the resultant claims could be significant.

The security systems used in our product and service offerings may be circumvented or sabotaged by third parties, which could result in the disclosure of sensitive information or private personal information or cause other business interruptions that could damage our reputation and disrupt our business.

        Our business relies on computers and other information technologies, both internal and at customer locations. The protective measures that we use may not prevent security breaches, and failure to prevent security breaches may disrupt our business, damage our reputation, and expose us to litigation and liability. A party who is able to circumvent security measures could misappropriate sensitive or proprietary information or materials or cause interruptions or otherwise damage our products, services and reputation, and the property of our customers. If unintended parties obtain

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sensitive data and information, or create bugs or viruses or otherwise sabotage the functionality of our systems, we may receive negative publicity, incur liability to our customers or lose the confidence of our customers, any of which may cause the termination or modification of our contracts. Further, our insurance coverage may be insufficient to cover losses and liabilities that may result from these events.

        In addition, we may be required to expend significant capital and other resources to protect ourselves against the threat of security breaches or to alleviate problems caused by these breaches. Any protection or remedial measures may not be available at a reasonable price or at all, or may not be entirely effective if commenced.

We are subject to risks encountered by companies developing and relying upon new technologies, products and services for substantial amounts of their growth or revenue.

        Our business and prospects must be considered in light of the risks and uncertainties to which companies with new and rapidly evolving technologies, products and services are exposed. These risks include the following:

•

we may be unable to develop sources of new revenue or sustainable growth in revenue because our current and anticipated technologies, products and services may be inadequate or may be unable to attract or retain customers;



•

the intense competition and rapid technological change in our industry could adversely affect the market's acceptance of our existing and new products and services;



•

we may be unable to develop and maintain new technologies upon which our existing and new products and services are dependent in order for our products and services to be sustainable and competitive and in order for us to expand our revenue and business; and



•

our licensees may not be able to successfully enter new markets or grow their businesses, limiting the royalties payable to us and our associated revenues and profits.

        Some of our key technologies and solutions from our patent or technology licensees are in the development stage. Consequently, products incorporating these technologies and solutions are undergoing technological change and are in the early stage of introduction in the marketplace. Delays in the adoption of these products or adverse competitive developments may result in delays in the development of new revenue sources or the growth in our revenue. In addition, we may be required to incur unanticipated expenditures if product changes or improvements are required. Additionally, new industry standards might redefine the products that we or our licensees are able to sell, especially if these products are only in the prototype stage of development. If product changes or improvements are required, success in marketing these products by us or our licensees and achieving profitability from these products could be delayed or halted. We also may be required to fund any changes or improvements out of operating income, which could adversely affect our profitability.

We may not be able to protect adequately our intellectual property, and we may be subject to infringement claims and other litigation, which could adversely affect our business.

        Our success depends in part on licensing our proprietary technologies. To protect our intellectual property portfolio, we rely on a combination of patent, copyright, trademark and trade secret rights, confidentiality procedures and licensing arrangements. Unlicensed copying and use of our intellectual property or infringement of our intellectual property rights result in the loss of revenue to us.

        We face risks associated with our patent position, including the potential need from time to time to engage in significant legal proceedings to enforce our patents, the possibility that the validity or enforceability of our patents may be denied, and the possibility that third parties will be able to compete against us without infringing our patents. Budgetary concerns may cause us not to file, or

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continue, litigation against known infringers of our patent rights, or may cause us not to file for, or pursue, patent protection for all of our inventive technologies in jurisdictions where they may have value. Some governmental entities that might infringe our intellectual property rights may enjoy sovereign immunity from such claims. Failure to reliably enforce our patent rights against infringers may make licensing more difficult. If we fail to protect our intellectual property rights and proprietary technologies adequately, if there are changes in applicable laws that are adverse to our interests, or if we become involved in litigation relating to our intellectual property rights and proprietary technologies or relating to the intellectual property rights of others, our business could be seriously harmed because the value ascribed to our intellectual property could diminish and result in a lower stock price or we may incur significant costs in bringing legal proceedings against third parties who are infringing our patents.

        Effective protection of intellectual property rights may be unavailable or limited. Patent protection throughout the world is generally established on a country-by-country basis. We have applied for patent protection in the United States and in various other countries. We do not assure you, however, that pending patents will be issued or that issued patents will be valid or enforceable. Failure to obtain these patents or failure to enforce those patents that are obtained may result in a loss of revenue to us. We do not assure you that the protection of our proprietary rights will be adequate or that our competitors will not independently develop similar technologies, duplicate our services or design around any of our patents or other intellectual property rights.

        We are the exclusive licensee under some third-party patents, and may need the assistance of these parties if we choose to enforce any of these patent rights. The cooperation of these third parties cannot be assured even though we rely on some of these technologies for our products or for our licenses to third parties.

        As more companies engage in business activities relating to digital watermarking, and develop corresponding intellectual property rights, it is increasingly likely that claims may arise which assert that some of our products or services infringe upon other parties' intellectual property rights. These claims could subject us to costly litigation, divert management resources and result in the invalidation of our intellectual property rights. These claims may require us to pay significant damages, cease production of infringing products, terminate our use of infringing technologies or develop non-infringing technologies. In these circumstances, continued use of our technologies may require that we acquire licenses to the intellectual property that is the subject of the alleged infringement, and we might not be able to obtain these licenses on commercially reasonable terms or at all. Our use of protected technologies may result in liability that threatens our continuing operation.

        Some of our contracts include provisions regarding our non-infringement of third-party intellectual property rights. As deployment of our technology increases, and more companies enter our markets, the likelihood of a third party lawsuit resulting from these provisions increases. If an infringement arose in a context governed by such a contract, we may have to refund to our customer amounts already paid to us or pay significant damages, or we may be sued by the party allegedly infringed upon. Similarly, as we seek to broaden the number of companies licensed under our patent portfolio, some may seek contractual assurances that we will pursue—by litigation if necessary—their competitors who use our patented technology but are not licensed to do so. Compliance with any such contract provisions may require that we pursue litigation where our costs exceed our likely recovery.

        As part of our confidentiality procedures, we generally enter into non-disclosure agreements with our employees, directors, consultants and corporate partners, and attempt to control access to and distribution of our technologies, solutions, documentation and other proprietary information. Despite these procedures, third parties could copy or otherwise obtain and make unauthorized use of our technologies, solutions or other proprietary information or independently develop similar technologies, solutions or information. The steps that we have taken to prevent misappropriation of our solutions,

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technologies or other proprietary information may not prevent their misappropriation, particularly outside the United States where laws or law enforcement practices may not protect our proprietary rights as fully as in the United States.

We do not assure that our internal controls and procedures will succeed in achieving their stated goals under all potential future conditions, regardless of how remote.

        We have deployed significant resources to design, implement, and maintain effective internal controls and procedures, including disclosure controls and procedures. Although our internal controls and procedures are designed to provide reasonable assurance of achieving their objectives, the design of any system of controls is based in part upon various assumptions about the likelihood of future events, and we do not assure you that our system will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. Any failure to maintain adequate controls or to adequately implement required new or improved controls could harm our operating results or cause us to fail to meet our reporting obligations in a timely and accurate manner.

If our revenue models and pricing structures relating to products and services that are under development do not gain market acceptance, the products and services may fail to attract or retain customers and we may not be able to generate new or sustain existing revenue.

        Some of our business involves embedding digital watermarks in traditional and digital media, including identification documents, secure documents, audio, video and imagery, and licensing our intellectual property. Our revenue stream is based primarily on a combination of development, consulting, subscription and license fees from copyright protection and counterfeit deterrence applications. We have not fully developed revenue models for some of our future digital watermarking applications and licensing endeavors. Because some of our products and services are not yet well-established in the marketplace, and because some of these products and services will not directly displace existing solutions, we cannot be certain that the pricing structure for these products and services will gain market acceptance or be sustainable over time or that the marketing for these products and services will be effective.

While we currently have no claims, litigation or regulatory actions filed or pending by or against DMRC, future claims, litigation or enforcement actions could arise, and any obligation to pay a judgment or damages could materially harm our business or financial condition.

        From time to time, Digimarc has been engaged in litigation and incurred significant costs relating to these matters. The inherent uncertainties of litigation, and the ultimate cost and outcome of litigation cannot be predicted. We carry director and officer liability insurance and other insurance policies that provide protection against various liabilities relating to claims against us and our executive officers and directors up to prescribed policy limits. If these policies do not adequately cover expenses and liabilities relating to future lawsuits, our financial condition could be materially harmed. In addition, if this insurance coverage becomes unavailable to us or premiums increase significantly in the future, it could make it more difficult for us to retain and attract officers and directors and could expose us to potentially self-funding certain future liabilities ordinarily mitigated by director and officer liability insurance.

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THE SPIN-OFF

Reasons for the Spin-Off

        On March 22, 2008, Digimarc's board of directors approved the Digimarc/L-1 merger and the spin-off. Digimarc believes that the Digimarc/L-1 merger and spin-off will enhance value for stockholders of Digimarc and stockholders of DMRC Corporation, by creating significant opportunities and benefits, including:

•

unlocking stockholder value in the Secure ID Business through the sale of the Secure ID Business to L-1;



•

allowing the management of DMRC Corporation to focus its efforts on maximizing the value of our proprietary digital watermarking and related technologies; and



•

increasing our ability to attract and retain employees by providing equity and non-equity compensation tied directly to our business objectives.

The Separation of the Digital Watermarking Business from Digimarc

        We are a wholly owned subsidiary of DMRC LLC, which has been and will be immediately prior to the spin-off a wholly owned subsidiary of Digimarc. DMRC LLC was formed in Delaware on June 18, 2008, in anticipation of the spin-off of the Digital Watermarking Business. Prior to the spin-off, Digimarc will transfer to DMRC LLC generally all of the assets, and DMRC LLC will assume generally all of the liabilities, comprising the Digital Watermarking Business. In addition, Digimarc will transfer all of its cash to DMRC LLC. We refer to this transfer of assets and assumption of liabilities as the "separation." We do not believe that the asset transfer will result in the loss of any significant customers or contracts.

Description of the Spin-Off

        Digimarc will transfer to DMRC LLC generally all of the assets, and DMRC LLC will assume generally all of the liabilities, comprising the Digital Watermarking Business. All of the limited liability company interests of DMRC LLC then will be distributed to the stockholders of Digimarc on a basis of one unit of DMRC LLC for every three and one-half shares of Digimarc common stock held by the stockholder on                 , 2008, the record date for the distribution. We refer to the distribution of the limited liability company interests and the separation collectively as the "spin-off." The ratio of units of DMRC LLC to be issued for each share of Digimarc common stock is subject to change as a result of market conditions and other factors. Following the spin-off, in a transaction which we refer to as the DMRC Corporation merger, DMRC LLC will merge with and into DMRC Corporation, with DMRC Corporation continuing as the surviving company of the DMRC Corporation merger. In the DMRC Corporation merger, each DMRC LLC interest will be converted into one share of DMRC Corporation common stock. As a result of these transactions, each Digimarc stockholder will receive one share of DMRC Corporation common stock for every three and one-half shares of Digimarc common stock held by the stockholder.

Manner of Effecting the Spin-Off

        The general terms and conditions of the spin-off will be set forth in the separation agreement to be entered into by and among Digimarc, DMRC LLC and us. For a description of the terms of the separation agreement, see "Our Relationship with Digimarc After the Spin-Off—Separation Agreement."

        Digimarc stockholders are not required to pay for shares of our common stock to be received in connection with the spin-off and the DMRC Corporation merger or to surrender or exchange shares of

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Digimarc common stock in order to receive our common stock or to take any other action in connection with the distribution and the DMRC Corporation merger. No vote of Digimarc stockholders is required or sought in connection with the spin-off or the DMRC Corporation merger, and Digimarc stockholders have no appraisal rights in connection with the distribution and the DMRC Corporation merger. The occurrence of the spin-off is a condition to the occurrence of the Digimarc/L-1 merger.

        On the distribution date, registered holders of Digimarc common stock will have their shares of DMRC Corporation common stock credited to book-entry accounts established for them by Computershare. Computershare will mail an account statement to each such registered holder stating the number of shares of DMRC Corporation common stock credited to the holder's account. Holders of record shall receive cash equal to the fair market value of any fractional shares of DMRC Corporation common stock. After the spin-off and the DMRC Corporation merger, any holder may request:

•

a transfer of all or a portion of their DMRC Corporation shares to a brokerage or other account; and



•

receipt of one or more physical share certificates representing their DMRC Corporation shares.

        If you become a registered holder of our common stock in connection with the spin-off and the DMRC Corporation merger and you prefer to receive one or more physical share certificates representing your shares of our common stock, you will receive one or more certificates for all shares of DMRC Corporation common stock. Computershare will mail you certificates representing your shares of our common stock as soon after the date of request as practicable.

        For those holders of Digimarc common stock who hold their shares through a broker, bank or other nominee, Computershare will credit the shares of our common stock to the accounts of those nominees who are registered holders, who, in turn, will credit their customers' accounts with our common stock. We and Digimarc anticipate that brokers, banks and other nominees will generally credit their customers' accounts with DMRC Corporation common stock on or shortly after                 , 2008.

Results of the Spin-Off

        Following the spin-off and the DMRC Corporation merger, we will be an independent, publicly-traded company owning and operating the Digital Watermarking Business. We expect that approximately                 shares of our common stock will be issued and outstanding immediately following the spin-off, based upon the distribution of one share of our common stock for every three and one-half shares of Digimarc common stock, and the approximate number of outstanding shares of Digimarc common stock on                 , 2008. The actual number of shares to be distributed will be determined based on the number of Digimarc shares outstanding on                 , 2008, the record date.

        Stockholder approval of the spin-off is not required, and you are not required to take any action to receive your DMRC Corporation common stock.

Market for Our Common Stock

        There is currently no trading market for our common stock. We will apply to list our common stock on The Nasdaq Global Market under the symbol "DMRCD." We have not and will not set the initial price of our common stock. The initial price will be established by the public markets.

        We cannot predict the price at which our common stock will trade after the spin-off. The price at which our common stock trades is likely to fluctuate significantly, particularly until an orderly public market develops. Trading prices for our common stock will be determined in the public markets and

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may be influenced by many factors. For more information, see "Risk Factors—Risks Related to Our Common Stock and the Spin-Off."

        Shares of our common stock distributed to holders in connection with the spin-off will be transferable without registration under the Securities Act except for shares received by persons who may be deemed to be our affiliates. Persons who may be deemed to be our affiliates after the distribution generally include individuals or entities that control, are controlled by or are under common control with us, which may include our executive officers, directors or principal stockholders. Securities held by our affiliates will be subject to resale restrictions under the Securities Act. Our affiliates will be permitted to sell shares of our common stock only pursuant to an effective registration statement or an exemption from the registration requirements of the Securities Act, such as the exemption afforded by Rule 144 under the Securities Act.

Spin-Off Conditions and Termination

        We expect that the distribution will be effective on the distribution date,                 , 2008, provided that, among other things:

•

the Securities and Exchange Commission has declared effective our registration statement on Form 10, of which this information statement is a part, under the Securities Exchange Act of 1934, as amended, and no stop order relating to the registration statement is in effect;



•

all of the closing conditions of the merger agreement have been satisfied or waived (other than those conditions to be satisfied on the closing date of the Digimarc/L-1 merger, which must be satisfied as of the date of the separation) and the transactions contemplated by the Digimarc/L-1 merger agreement are set to close immediately following the separation;



•

we have paid in full all inter-group indebtedness and all actions in respect of liability novation contemplated under the separation agreement have occurred;



•

we and Digimarc have received all permits, registrations and consents required under the securities or blue sky laws of states or other political subdivisions of the United States or of foreign jurisdictions in connection with the spin-off;



•

no order, injunction or decree issued by any court of competent jurisdiction or other legal restraint or prohibition preventing consummation of the distribution or any of the transactions related thereto, including the transfers of assets and liabilities contemplated by the distribution agreement, is in effect; and



•

we have received any other material approvals and consents necessary to complete the spin-off.

        The spin-off is contemplated in connection with completion of the Digimarc/L-1merger. The merger agreement may be terminated at any time prior to closing of the Digimarc/L-1 merger, whether before or after the approval of Digimarc stockholders has been obtained:

•

by mutual written consent of Digimarc and L-1, duly authorized by each of their respective boards of directors;



•

by either Digimarc or L-1:



•

if the merger has not been completed on or before December 31, 2008; provided, that the parties may mutually agree to extend the date if all of the conditions to closing have been, or are capable of being, satisfied as of this date, other than the condition requiring the termination or expiration of all antitrust waiting periods, unless the failure of the merger to be completed by this date was primarily due to the party seeking to terminate failing to perform any of its obligations under the merger agreement;

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•

if there is in effect a final and non-appealable law, injunction, judgment or ruling that enjoins, restrains, prevents or prohibits the completion of the merger or making the completion of the merger illegal, unless the issuance of the law, injunction, judgment or ruling was primarily due to the party seeking to terminate failing to perform any of its obligations under the merger agreement; or



•

if the approval of Digimarc stockholders to adopt the merger agreement has not been obtained at the stockholders meeting convened for that purpose or any adjournment or postponement of the meeting;



•

by L-1:



•

if Digimarc has materially breached or failed to perform any of its representations, warranties, covenants or agreements contained in the merger agreement, which breach or failure would cause various conditions to the obligation of L-1 to effect the merger not to be satisfied, subject to specified cure rights specified in the merger agreement;



•

if:



•

Digimarc's board of directors withdraws or modifies (or publicly proposes to withdraw or modify) in a manner adverse to L-1, Digimarc's board of directors' recommendation that Digimarc's stockholders adopt the merger agreement;



•

Digimarc's board of directors approves or recommends (or publicly proposes to approve or recommend) a takeover proposal to Digimarc's stockholders;



•

a tender offer or exchange offer for shares of Digimarc's stock that constitutes a takeover proposal is commenced prior to obtaining the Digimarc stockholder approval of the adoption of the merger agreement and Digimarc's board of directors fails to recommend the rejection of the tender offer or exchange offer by Digimarc stockholders (including, for these purposes, by taking no position with respect to the acceptance of the tender offer or exchange offer by Digimarc's stockholders, which would constitute a failure to recommend the rejection of the tender offer or exchange offer) within 10 business days after commencement;



•

Digimarc enters into a definitive agreement with respect to any takeover proposal; or



•

Digimarc fails to include in its proxy statement Digimarc's board of directors' recommendation to Digimarc's stockholders that they adopt the merger agreement; or



•

by Digimarc:



•

if L-1 has materially breached or failed to perform any of its representations, warranties, covenants or agreements contained in the merger agreement, which breach or failure would cause various conditions to Digimarc's obligation to effect the merger not to be satisfied, subject to cure rights specified in the merger agreement;



•

if all of the conditions to the completion of the spin-off pursuant to the separation agreement have been satisfied and all of the obligations of L-1 to effect the merger (other than conditions which are to be satisfied upon the closing of the merger) have been satisfied and L-1 has failed to complete the merger no later than 5 business days after the date on which Digimarc notifies L-1 that all conditions to Digimarc's obligations to effect the merger have been satisfied or waived (other than conditions which are to be satisfied by actions taken at the closing of the merger but which conditions would be satisfied if the date were the closing date); or

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•

prior to obtaining Digimarc stockholder approval of the adoption of the merger agreement, in order to enter into a definitive agreement providing for the implementation of a transaction that is a superior proposal, if Digimarc complies with specified notice and negotiation requirements and prior to or concurrently with the termination, Digimarc pays to L-1 a termination fee pursuant to the merger agreement.

DIVIDEND POLICY

        We do not expect to pay any dividends on our common stock in the foreseeable future. Payment of future cash dividends will be at the discretion of our board of directors in accordance with applicable law after taking into account various factors, including our financial condition, operating results, current and anticipated cash needs, plans for expansion and contractual restrictions with respect to the payment of dividends.

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CAPITALIZATION

        The following table shows our capitalization as of March 31, 2008 on both an historical basis and a pro forma basis giving effect to our anticipated post-spin-off capital structure as if the spin-off occurred on March 31, 2008. This table should be read in conjunction with our historical financial statements and accompanying notes included in this information statement and the sections entitled "Selected Historical Financial Information," "Pro Forma Financial Information," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Description of Our Capital Stock."

        Our pro forma capitalization is not necessarily indicative of our capitalization had the spin-off been completed on March 31, 2008. The pro forma capitalization below may not reflect the capitalization or financial condition that would have resulted had we been operating as an independent, publicly-traded company at that date, and is not necessarily indicative of our future capitalization or financial condition. For an explanation of the pro forma adjustments made to our historical financial statements for the anticipated spin-off and the transactions related to the proposed spin-off to derive the pro forma capitalization described below, please see "Pro Forma Financial Information."