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As filed with the Securities and Exchange Commission on August 13, 2008

Registration No. 001-34108



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Amendment No. 2
to
FORM 10

GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of The Securities Exchange Act of 1934

DMRC Corporation
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)
  26-2828185
(I.R.S. Employer
Identification No.)

9405 SW Gemini Drive
Beaverton, Oregon
(Address of principal executive offices)

 

97008
(Zip Code)

Registrant's telephone number, including area code:
(503) 469-4800

Securities to be registered pursuant to Section 12(b) of the Act:

Title of Each Class
to be so Registered

  Name of Each Exchange on
Which Each Class is to be Registered

Common Stock, par value $0.001 per share   The Nasdaq Stock Market LLC

Securities to be registered pursuant to Section 12(g) of the Act:
None.

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o   Accelerated filer o   Non-accelerated filer o
(Do not check if a smaller reporting company)
  Smaller reporting company ý





Information Required in Registration Statement

Cross-Reference Sheet Between the Information Statement and Items of Form 10

        Our information statement is filed on Exhibit 99.1 to this Form 10. For your convenience, we have provided below a cross-reference sheet identifying where the items required by Form 10 can be found in the information statement.

Item 1.     Business

        The information required by this item is contained under the sections "Summary," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business of DMRC Corporation" of the information statement, which sections are incorporated herein by reference.

Item 1A.     Risk Factors

        The information required by this item is contained under the section "Risk Factors" of the information statement, which section is incorporated herein by reference.

Item 2.     Financial Information

        The information required by this item is contained under the sections "Selected Historical Financial Information" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" of the information statement, which sections are incorporated herein by reference.

Item 3.     Properties

        The information required by this item is contained under the section "Business of DMRC Corporation—Properties and Facilities" of the information statement, which section is incorporated herein by reference.

Item 4.     Security Ownership of Certain Beneficial Owners and Management

        The information required by this item is contained under the section "Security Ownership of Certain Beneficial Owners and Management" of the information statement, which section is incorporated herein by reference.

Item 5.     Directors and Executive Officers

        The information required by this item is contained under the section "Management" of the information statement, which section is incorporated herein by reference.

Item 6.     Executive Compensation

        The information required by this item is contained under the section "Executive Compensation" of the information statement, which section is incorporated herein by reference.

Item 7.     Certain Relationships and Related Transactions, and Director Independence

        The information required by this item is contained under the sections "Our Relationship with Digimarc Corporation after the Spin-Off" and "Management" of the information statement, which sections are incorporated herein by reference.

Item 8.     Legal Proceedings

        The information required by this item is contained under the section "Business of DMRC Corporation—Legal Proceedings" of the information statement, which section is incorporated herein by reference.



Item 9.     Market Price of and Dividends on the Registrant's Common Equity and Related Stockholder Matters

        The information required by this item is contained under the sections "Summary," "The Spin-Off," "Dividend Policy," "Capitalization," "Management" and "Description of Our Capital Stock" of the information statement, which sections are incorporated herein by reference.

Item 10.     Recent Sales of Unregistered Securities

        Not applicable.

Item 11.     Description of Registrant's Securities to be Registered

        The information required by this item is contained under the section "Description of Our Capital Stock" of the information statement, which section is incorporated herein by reference.

Item 12.     Indemnification of Officers and Directors

        The information required by this item is contained under the section "Limitation of Liability and Indemnification of Directors and Officers" of the information statement, which section is incorporated herein by reference.

Item 13.     Financial Statements and Supplementary Data

        The information required by this item is contained under the sections "Summary," "Pro Forma Financial Information," "Selected Historical Financial Information" and "Financial Statements" of the information statement, which sections are incorporated herein by reference.

Item 14.     Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

        None.

Item 15.     Financial Statements and Exhibits

        (a)     Financial Statements.     The information required by this item is contained under the section "Index to Financial Statements" beginning on page F-1 of the information statement, which section is incorporated herein by reference.


        (b)     Exhibits.     The following documents are filed as exhibits hereto:

Exhibit Number

  Exhibit Description
2.1   Separation Agreement among DMRC Corporation, DMRC LLC, Digimarc Corporation and, with respect to certain sections, L-1 Identity Solutions, Inc.(1)†

3.1

 

Certificate of Incorporation of DMRC Corporation(2)

3.2

 

Bylaws of DMRC Corporation(2)

4.1

 

Specimen common stock certificate of DMRC Corporation(1)

4.2

 

Rights Agreement, dated July 31, 2008, between DMRC Corporation and Computershare Trust Company, N.A. as Rights Agent(1)

4.3

 

Form of Certificate of Designation of Series R Preferred Stock (attached as an exhibit to the Rights Agreement filed as Exhibit 4.2 hereto)(1)

4.4

 

Form of Rights Certificate (attached as an exhibit to the Rights Agreement filed as Exhibit 4.2 hereto)(1)

10.1

 

Form of Transition Services Agreement between DMRC Corporation and Digimarc Corporation(2)

10.2

 

Form of License Agreement between DMRC Corporation and L-1 Identity Solutions Operating Company(2)

10.3

 

Agreement, dated as of October 1, 2007, between Digimarc Corporation and The Nielsen Company(1)(3)

10.4

 

Counterfeit Deterrence System Development and License Agreement, dated as of January 1, 1999(1)(3)

10.5

 

Form of Indemnification Agreement between DMRC Corporation and each of its executive officers and directors(1)

99.1

 

Information Statement of DMRC Corporation(1)

The Separation Agreement contains a brief list identifying all schedules and exhibits thereto. Such schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Registrant agrees to furnish supplementally a copy of the omitted schedules and exhibits to the Securities and Exchange Commission upon request.

(1)
Filed herewith.

(2)
Previously filed.

(3)
Confidential treatment has been requested for certain portions omitted from this exhibit pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. Confidential portions of this exhibit have been separately filed with the Securities and Exchange Commission.


SIGNATURES

        Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this amendment to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: August 13, 2008

    DMRC CORPORATION

 

 

By:

/s/  
BRUCE DAVIS       
Bruce Davis
Chairman and Chief Executive Officer


EXHIBIT INDEX

Exhibit
Number

  Exhibit Description
2.1   Separation Agreement among DMRC Corporation, DMRC LLC, Digimarc Corporation and, with respect to certain sections, L-1 Identity Solutions, Inc.(1)†

3.1

 

Certificate of Incorporation of DMRC Corporation(2)

3.2

 

Bylaws of DMRC Corporation(2)

4.1

 

Specimen common stock certificate of DMRC Corporation(1)

4.2

 

Rights Agreement, dated July 31, 2008, between DMRC Corporation and Computershare Trust Company, N.A. as Rights Agent(1)

4.3

 

Form of Certificate of Designation of Series R Preferred Stock (attached as an exhibit to the Rights Agreement filed as Exhibit 4.2 hereto)(1)

4.4

 

Form of Rights Certificate (attached as an exhibit to the Rights Agreement filed as Exhibit 4.2 hereto)(1)

10.1

 

Form of Transition Services Agreement between DMRC Corporation and Digimarc Corporation(2)

10.2

 

Form of License Agreement between DMRC Corporation and L-1 Identity Solutions Operating Company(2)

10.3

 

Agreement, dated as of October 1, 2007, between Digimarc Corporation and The Nielsen Company(1)(3)

10.4

 

Counterfeit Deterrence System Development and License Agreement, dated as of January 1, 1999(1)(3)

10.5

 

Form of Indemnification Agreement between DMRC Corporation and each of its executive officers and directors(1)

99.1

 

Information Statement of DMRC Corporation(1)

The Separation Agreement contains a brief list identifying all schedules and exhibits thereto. Such schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Registrant agrees to furnish supplementally a copy of the omitted schedules and exhibits to the Securities and Exchange Commission upon request.

(1)
Filed herewith.

(2)
Previously filed.

(3)
Confidential treatment has been requested for certain portions omitted from this exhibit pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. Confidential portions of this exhibit have been separately filed with the Securities and Exchange Commission.



QuickLinks

Information Required in Registration Statement Cross-Reference Sheet Between the Information Statement and Items of Form 10
SIGNATURES
EXHIBIT INDEX

EXHIBIT 2.1

 

SEPARATION AGREEMENT

by and among

DIGIMARC CORPORATION,

DMRC LLC,

 

DMRC CORPORATION

 

and

 

L-1 IDENTITY SOLUTIONS, INC

(solely for the purposes of Section 3.02, 4.09(b)(iii) and Section 4.13)

 

Dated as of August 1, 2008

 



 

TABLE OF CONTENTS

 

 

 

 

 

Page

 

 

 

 

 

ARTICLE I

DEFINED TERMS

 

2

 

 

 

 

 

Section 1.01.

General

 

2

 

 

 

 

 

ARTICLE II

THE RESTRUCTURING

 

16

 

 

 

 

 

Section 2.01.

Business Separation

 

16

 

 

 

 

 

Section 2.02.

Documents Relating to the Transfer of DMRC Assets and Assumption of DMRC Liabilities

 

19

 

 

 

 

 

Section 2.03.

Novation of DMRC Liabilities

 

19

 

 

 

 

 

Section 2.04.

Issuance of Units

 

20

 

 

 

 

 

Section 2.05.

Other Transaction Agreements

 

20

 

 

 

 

 

ARTICLE III

THE DISTRIBUTION

 

20

 

 

 

 

 

Section 3.01.

Record Date and Distribution Date

 

20

 

 

 

 

 

Section 3.02.

Distribution Agent

 

21

 

 

 

 

 

Section 3.03.

Deliveries to the Distribution Agent

 

21

 

 

 

 

 

Section 3.04.

Distribution

 

21

 

 

 

 

 

Section 3.05.

Fractional Interests; Unclaimed Units

 

22

 

 

 

 

 

Section 3.06.

Timing of the Distribution

 

22

 

 

 

 

 

Section 3.07.

DMRC Merger

 

23

 

 

 

 

 

ARTICLE IV

ADDITIONAL COVENANTS

 

24

 

 

 

 

 

Section 4.01.

Access to Information

 

24

 

 

 

 

 

Section 4.02.

Privileged Matters.

 

25

 

 

 

 

 

Section 4.03.

Ownership of Information

 

26

 

 

 

 

 

Section 4.04.

Compensation for Providing Information

 

27

 

 

 

 

 

Section 4.05.

Record Retention

 

27

 

 

 

 

 

Section 4.06.

Limitation of Liability

 

28

 

 

 

 

 

Section 4.07.

Other Agreements Providing for Exchange of Information

 

28

 

 

 

 

 

Section 4.08.

Production of Witnesses

 

28

 

 

 

 

 

Section 4.09.

Employees and Employee Benefit Plans

 

28

 

 

 

 

 

Section 4.10.

Non-Competition and Non-Solicitation

 

31

 

 

 

 

 

Section 4.11.

Tax Matters.

 

35

 

i



 

 

 

 

 

Page

 

 

 

 

Section 4.12.

No Representations or Warranties

 

37

 

 

 

 

 

Section 4.13.

Payment of Purchase Price Excess or Shortfall

 

38

 

 

 

 

 

ARTICLE V

MUTUAL RELEASES; INDEMNIFICATION

 

38

 

 

 

 

 

Section 5.01.

Mutual Release of Pre-Closing Claims

 

38

 

 

 

 

Section 5.02.

Indemnification by DMRC

 

40

 

 

 

 

 

Section 5.03.

Indemnification by Digimarc

 

40

 

 

 

 

 

Section 5.04.

Indemnification Procedures

 

41

 

 

 

 

 

Section 5.05.

Indemnification Obligations Net of Insurance Proceeds and Other Amounts

 

43

 

 

 

 

 

Section 5.06.

No Relief of Insurer Obligations

 

44

 

 

 

 

 

Section 5.07.

Subrogation

 

44

 

 

 

 

 

Section 5.08.

Joint Defense and Cooperation

 

44

 

 

 

 

 

Section 5.09.

Survival of Rights and Obligations

 

44

 

 

 

 

 

ARTICLE VI

INSURANCE

 

45

 

 

 

 

 

Section 6.01.

Insurance Coverage; Cooperation

 

45

 

 

 

 

 

Section 6.02.

Rights Under Insurance Policies

 

45

 

 

 

 

 

Section 6.03.

DMRC Insurance Coverage After the Distribution Date

 

46

 

 

 

 

 

Section 6.04.

Responsibilities for Self-Insured Obligations and Other Obligations

 

46

 

 

 

 

 

Section 6.05.

Claims Administration

 

46

 

 

 

 

 

Section 6.06.

Procedures Regarding Insufficient Limits of Liability

 

46

 

 

 

 

 

Section 6.07.

Cooperation

 

47

 

 

 

 

 

Section 6.08.

No Assignment or Waiver

 

47

 

 

 

 

 

Section 6.09.

No Liability

 

47

 

 

 

 

 

Section 6.10.

No Restrictions

 

47

 

 

 

 

 

Section 6.11.

Further Agreements

 

47

 

 

 

 

 

Section 6.12.

Insurance Proceeds

 

47

 

 

 

 

 

ARTICLE VII

CONDITIONS TO THE SEPARATION

 

48

 

 

 

 

 

Section 7.01.

Conditions to the Separation

 

48

 

ii



 

 

 

 

 

Page

 

 

 

 

ARTICLE VIII

FURTHER ASSURANCES AND ADDITIONAL COVENANTS

 

48

 

 

 

 

 

Section 8.01.

Further Assurances

 

48

 

 

 

 

 

Section 8.02.

Name Change

 

49

 

 

 

 

 

Section 8.03.

Use of Names

 

50

 

 

 

 

 

Section 8.04.

Licenses

 

50

 

 

 

 

 

Section 8.05.

Notices to Third Parties

 

50

 

 

 

 

 

ARTICLE IX

TERMINATION

 

51

 

 

 

 

 

Section 9.01.

Termination

 

51

 

 

 

 

 

Section 9.02.

Effect of Termination

 

51

 

 

 

 

 

ARTICLE X

LEGAL MATTERS

 

51

 

 

 

 

 

Section 10.01.

Control of Legal Matters

 

51

 

 

 

 

 

Section 10.02.

Claims Against Third Parties

 

53

 

 

 

 

 

Section 10.03.

Notice to Third Parties; Service of Process; Cooperation

 

53

 

 

 

 

 

Section 10.04.

IDMarc Software

 

53

 

 

 

 

 

ARTICLE XI

GENERAL PROVISIONS

 

53

 

 

 

 

 

Section 11.01.

Entire Agreement; No Third-Party Beneficiaries

 

53

 

 

 

 

 

Section 11.02.

Expenses

 

54

 

 

 

 

 

Section 11.03.

Governing Law; Jurisdiction; Waiver of Jury Trial

 

54

 

 

 

 

 

Section 11.04.

Notices

 

54

 

 

 

 

 

Section 11.05.

Counterparts

 

56

 

 

 

 

 

Section 11.06.

Assignment

 

56

 

 

 

 

 

Section 11.07.

Enforcement

 

56

 

 

 

 

 

Section 11.08.

Severability

 

57

 

 

 

 

 

Section 11.09.

Headings

 

57

 

 

 

 

 

Section 11.10.

Attorneys’ Fees

 

57

 

 

 

 

 

Section 11.11.

Amendment

 

57

 

 

 

 

 

Section 11.12.

Limited Liability

 

57

 

 

 

 

 

Section 11.13.

Interpretation

 

57

 

iii



 

SEPARATION AGREEMENT

 

This SEPARATION AGREEMENT, dated as of August 1, 2008 (this “ Agreement ”), is entered into by and among DIGIMARC CORPORATION, a Delaware corporation (“ Digimarc ”), DMRC LLC, a Delaware limited liability company and a wholly owned subsidiary of Digimarc (“ DMRC ”), DMRC Corporation, a Delaware corporation and a wholly-owned subsidiary of DMRC (“ DMRC Sub ”), and, solely with respect to Section 3.02, Section 4.09(b)(iii) and Section 4.13, L-1 Identity Solutions, Inc., a Delaware corporation (“ L- 1” and, together with DMRC, Digimarc and Digimarc Sub, the “ Parties ” and each, a “ Party ”).  Capitalized terms used but not defined in this Agreement have the meanings ascribed to them in the Merger Agreement (as defined below).

 

W I T N E S S E T H

 

WHEREAS, Digimarc is engaged in the (a) Secure ID Business (as defined below) and (b) Digital Watermarking Business (as defined below);

 

WHEREAS, Digimarc entered into an Agreement and Plan of Merger, dated as of March 23, 2008, by and among Digimarc, L-1, and Dolomite Acquisition Co., a Delaware corporation and wholly owned subsidiary of L-1 (“ Merger Sub ”), pursuant to which Digimarc would become a wholly owned subsidiary of L-1;

 

WHEREAS, Digimarc has entered into an Amended and Restated Agreement and Plan of Merger, dated as of June 29, 2008, as amended (the “ Merger Agreement ”), by and among Digimarc, L-1 and Merger Sub, which provides, among other things, for the Offer and the Merger;

 

WHEREAS, the parties to the Merger Agreement have agreed that the Separation (as defined below) is a condition to the closing of, and integral to, the Offer and the Distribution (as defined below) and shall occur prior to the Initial Expiration Date or the Extended Expiration Date, as applicable (as defined below);

 

WHEREAS, the Digimarc Board of Directors has determined that it is in the best interests of Digimarc and its stockholders to (a) to engage in the Restructuring (as defined below) and (b) distribute to holders of Digimarc Common Stock (as defined below) as provided for herein, all of the outstanding DMRC Units (as defined below) beneficially owned by Digimarc through a pro-rata distribution of DMRC Units (the “ Distribution ” and, together with the Restructuring, the “ Separation ”);

 

WHEREAS, for U.S. federal and applicable state and local Income Tax purposes, it is intended that the Distribution, the Offer and the Merger be treated as an integrated transaction in redemption and disposition of the shares of Digimarc Common Stock;

 



 

WHEREAS, to further effect the Separation, Digimarc intends to retain ownership and possession of all Assets (as defined below) other than the DMRC Assets (as defined below) and DMRC intends to assume ownership of the DMRC Assets;

 

WHEREAS, to further effect the Separation, Digimarc intends to remain solely liable for all Liabilities (as defined below) other than the DMRC Liabilities (as defined below) and DMRC intends to assume all DMRC Liabilities;

 

WHEREAS, following the Distribution or the Trust Transfer (as defined below), as applicable, DMRC will merge with and into DMRC Sub (the “ DMRC Merger ”) pursuant to the DMRC Merger Agreement (as defined below); and

 

WHEREAS, the Parties intend this Agreement, including the exhibits and schedules hereto, to set forth the arrangements between them regarding the Separation.

 

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, the Parties hereby agree as follows:

 

ARTICLE I

DEFINED TERMS

 

Section 1.01.     General .  When used in this Agreement, the following terms shall have the respective meanings specified below (such meanings to be equally applicable to both the singular and plural forms of the terms defined).

 

2008 Plan Year ” shall have the meaning set forth in Section 4.09(c)(ii) .

 

Acceptance Time ” shall have the meaning set forth in the Merger Agreement.

 

 “ Action ” shall mean any action, claim, charge, grievance, complaint, arbitration, proceeding, review, audit, hearing, investigation, litigation or suit (whether civil, criminal, administrative, investigative or informal) commenced, brought or heard by or before any Governmental Authority.

 

Affiliate ” shall have the meaning set forth in the Merger Agreement.

 

Agreement ” shall have the meaning set forth in the preamble hereof.

 

Assets ” shall mean assets, properties and rights (including goodwill), wherever located, whether personal, tangible, intangible or contingent, in each case whether or not recorded or reflected or required to be recorded or reflected on the books and records or financial statements of any Person, excluding interests in real property,  Intellectual Property and Technology, but including the following:

 

2



 

(a)           all accounting and other books, records and files whether in paper, electronic or other form or medium;

 

(b)           all computers and other electronic data processing equipment, electrical devices, fixtures, equipment, furniture, office equipment, motor vehicles and other transportation equipment, special and general tools, and other tangible personal property;

 

(c)           all inventories of materials, parts, raw materials, supplies, work-in-process and finished goods and products;

 

(d)           all interests in any capital stock or other equity interests of any Subsidiary or any other Person, all bonds, notes, debentures or other securities issued by any Subsidiary or any other Person, all loans, advances or other extensions of credit or capital contributions to any Subsidiary or any other Person and all other investments in securities of any Person;

 

(e)           all deposits, letters of credit and performance and surety bonds;

 

(f)            all cost information, sales and pricing data, customer prospect lists, public inspection files, industry and advertising studies and analyses, marketing and demographic data, marketing and promotional materials, sales correspondence, credit and sales reports, logs, supplier records, customer and supplier lists, records pertaining to customer accounts, performance data, and other consumer data, business plans, strategies, marketing and promotional materials, share price performance, production data, artwork, design, vendor and customer drawings, including any of the foregoing created, developed or prepared by consultants and other third parties;

 

(g)           all prepaid expenses, trade accounts and other accounts and notes receivable;

 

(h)           all claims or similar rights against any Person arising from the ownership of any Asset, in each case, whether accrued or contingent;

 

(i)            all insurance proceeds and rights under Insurance Policies and all rights in the nature of insurance, indemnification or contribution;

 

(j)            all Licenses that have been issued by any Governmental Authority;

 

(k)           all right, title and interest in, to and under all Contracts; and

 

(l)            all Cash.

 

Benefit Plans ” shall mean all “employee benefit plans” (as defined in Section 3(3) of ERISA), and all other pension, profit-sharing, savings, deferred compensation, bonus, incentive, stock option (or other equity-based), employment,

 

3



 

severance, change in control, welfare (including post-retirement medical and life insurance) plans, programs, arrangements and fringe benefits, whether or not subject to ERISA (a) sponsored, maintained or contributed to or required to be contributed to by Digimarc or any of its Subsidiaries or (b) to which Digimarc or any of its Subsidiaries is a party immediately prior to the Distribution Date or Trust Transfer Date, as applicable.

 

Business Day ” shall have the meaning set forth in the Merger Agreement.

 

Cash ” shall mean all of the cash of Digimarc immediately prior to the Distribution Date or Trust Transfer Date, as applicable, including (a) all currency, checks, drafts and other equivalents in banks, in lock boxes, on Digimarc premises, as deposits in transit or in the banking system collection process, less any outstanding checks or payments in transit, (b) all cash equivalents (including money market funds, certificates of deposit, commercial paper and investments in government bonds), (c) all short term investments (including federal agency notes, company notes and commercial paper), (d) all restricted cash, (e) any cash paid to Digimarc for the exercise of stock options for Digimarc Common Stock on or prior to the Distribution Date or Trust Transfer Date, as applicable, whether or not such cash is in the brokerage system collection process or received in a Digimarc account prior to the Distribution Date or Trust Transfer Date, as applicable, (f) any reimbursements or refunds of directors and officers insurance premiums that are refunded on or after the Distribution Date or Trust Transfer Date, as applicable, for insurance policies purchased by Digimarc before the Distribution Date or Trust Transfer Date, as applicable, (g) any other cash or cash equivalent held in any and all bank accounts and investment accounts by Digimarc and its Subsidiaries in any location around the world, and (h) any cash deposited by Digimarc with customers serving in place of performance bond requirements returned to Digimarc on or after the Distribution Date or Trust Transfer Date, as applicable.

 

Code ” shall mean the U.S. Internal Revenue Code of 1986, as amended.

 

Competing Business ” shall have the meaning set forth in Section 4.10(a)  and 4.10(b) .

 

Consents ” shall mean any material consents, waivers or approvals from any third parties, other than Governmental Approvals, as listed on Schedule 1.01 (Consents).

 

Contract ” shall mean any written or oral agreement, arrangement, authorization, sale order, purchase order, open bid, commitment, contract, indenture, mortgage, note, instrument, evidence of Indebtedness, loan, license, obligation, restriction, memorandum of understanding, letter of intent, covenant, or undertaking of any kind or character, or other document to which any Person is a party or that is binding on any Person or its capital stock, assets or business, in each case, whether express or implied, including all amendments, modifications and supplements thereto and waivers and consents thereunder.

 

4


 

Corporate Level Liabilities ” shall mean any and all (a) Liabilities related primarily to the Secure ID Business, (b) Liabilities arising from corporate level activities of Digimarc (including SEC reporting, corporate finance, treasury and investor relations) that do not relate specifically to either the Digital Watermarking Business or the Secure ID Business, and (c) Income Taxes of Digimarc and its Subsidiaries and Affiliates (including, any Income Taxes of DMRC and its Subsidiaries and Affiliates through the Distribution Date or Trust Transfer Date, as applicable, which Taxes shall be determined on the basis of the closing of the books as of the end of the Distribution Date or Trust Transfer Date, as applicable) and any Separation Tax Liabilities.

 

Delayed Transfer Assets ” shall mean any DMRC Assets that this Agreement or any other Transaction Agreement provides or contemplates are to be transferred to DMRC in connection with the Separation and that require the removal of a Legal Impediment or the receipt of a Consent or Governmental Approval to transfer, which Legal Impediment is not removed or Consent or Governmental Approval is not obtained on or prior to the Distribution Date or Trust Transfer Date, as applicable.

 

Delayed Transfer Liabilities ” shall mean any DMRC Liabilities that this Agreement or any other Transaction Agreement provides or contemplates are to be assumed by DMRC in connection with the Separation and that require the removal of a Legal Impediment or the receipt of a Consent or Governmental Approval for the transfer and assumption of such DMRC Liabilities, which Legal Impediment is not removed or Consent or Governmental Approval is not obtained on or prior to the Distribution Date or Trust Transfer Date, as applicable.

 

Digimarc ” shall have the meaning set forth in the preamble hereof.

 

Digimarc Board of Directors ” shall mean the Board of Directors of Digimarc.

 

Digimarc Cafeteria Plan ” shall have the meaning set forth in Section 4.09(c)(ii) .

 

Digimarc Claims ” shall mean all right, title and interest to, in or under any claim, demand or Action that relates primarily to the Secure ID Business, whether arising before, on or after the Distribution Date.

 

Digimarc Common Stock ” shall mean common stock of Digimarc, par value $0.001 per share.

 

Digimarc Entities ” shall mean Digimarc and its Subsidiaries, other than the DMRC Entities, following the Distribution Date or Trust Transfer Date, as applicable.

 

Digimarc Group ” shall mean the Digimarc Entities and, after the Distribution Date or Trust Transfer Date, as applicable, each of their respective Affiliates

 

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and Subsidiaries, and any corporation or entity that may become part of such group from time to time, other than the DMRC Group.

 

Digimarc Indemnitee ” shall mean Digimarc, each Affiliate of Digimarc at any time immediately after the Acceptance Time, each of their respective present and former officers, directors and employees, each of the heirs, executors, successors and assigns of any of the foregoing and each Person, if any, who controls Digimarc within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act.

 

Digimarc Litigation Matters ” shall mean the existing Actions to be retained by Digimarc, as listed on Schedule 1.01 (Digimarc Litigation Matters).

 

Digimarc Retirement Plans ” shall have the meaning set forth in Section 4.09(b)(i) .

 

Digimarc Stockholders ” shall have the meaning set forth in Section 3.05(a) .

 

Digimarc Subsidiaries ” shall mean the Subsidiaries of Digimarc.

 

Digital Watermarking Business ” shall mean the portion of Digimarc’s business immediately prior to the Distribution Date or Trust Transfer Date, as applicable, engaged in the licensing or sale of products, services, Intellectual Property or Technology for digital watermarking, media fingerprinting (pattern recognition but not including biometric identifiers), digital rights management or other media management approaches.

 

Distributed Corporation ” shall have the meaning set forth in Section 4.11(g) .

 

Distribution ” shall have the meaning set forth in the recitals hereof.

 

Distribution Agent ” shall mean the distribution agent (which shall be a bank or trust company) to be appointed by Digimarc to receive, on behalf of the holders of Digimarc Common Stock as of the Record Date, the DMRC Units which such holders are entitled to receive pursuant to the Distribution.

 

Distribution Agent Agreement ” shall have the meaning set forth in Section 3.02 .

 

Distribution Date ” shall mean the date and time, which shall be prior to the Initial Expiration Date or the Extended Expiration Date, as applicable, as of which the Distribution shall be effected, to be determined by, or under the authority of, the Digimarc Board of Directors consistent with the terms and provisions of this Agreement and the other Transaction Agreements and in compliance with applicable Law.

 

Distribution-Related Proceeding ” shall mean any audit or other examination, or judicial or administrative proceeding relating to liability for, or refunds

 

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or adjustments with respect to, Income Taxes of Digimarc and its Subsidiaries or Affiliates, in which the Internal Revenue Service, another Tax authority or any other party asserts a position that could reasonably be expected to adversely affect the intended treatment of the Transactions set forth in Section 4.11(d) .

 

DMRC ” shall have the meaning set forth in the preamble hereof.

 

DMRC Assets ” shall mean:

 

(a)           any Assets used primarily in the operation of the Digital Watermarking Business;

 

(b)           any DMRC Shared Assets;

 

(c)           the Intellectual Property and Technology set forth on Schedule 1.01 (DMRC Intellectual Property and Technology);

 

(d)           the DMRC Equity Investments;

 

(e)           the DMRC Real Property;

 

(f)            all Cash;

 

(g)           all accounts receivable accrued primarily in the operation of the Digital Watermarking Business;

 

(h)           the DMRC Claims; and

 

(i)            all of DMRC’s right, title and interest in, to and under all Contracts relating primarily to the operation of the Digital Watermarking Business, which Contracts are set forth on Schedule 1.01 (Digital Watermarking Business Contracts) to the extent such Contracts expressly provide for sum certain payments in excess of $250,000 over the term of the Contract.

 

Notwithstanding the foregoing or anything to the contrary herein, DMRC Assets do not include any Shared Assets other than the DMRC Shared Assets.

 

DMRC Claims ” shall mean all right, title and interest in any claim, demand or Action that relates primarily to the Digital Watermarking Business, whether arising before, on or after the Distribution Date or Trust Transfer Date, as applicable.

 

DMRC Director/Officer ” shall mean any officer or director of DMRC who is or was an officer or director of Digimarc at any time prior to the Acceptance Time.

 

DMRC Employee ” shall mean those employees set forth on Schedule 1.01 (DMRC Employees), including any employees hired after the date of the Merger

 

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Agreement and any employees who the Parties agree to add to Schedule 1.01 (DMRC Employees) after the date hereof.

 

DMRC Entities ” shall mean DMRC, DMRC Sub and each of the DMRC Subsidiaries, if any.

 

DMRC Equity Investments ” shall mean equity investments made by Digimarc prior to the Distribution Date or Trust Transfer Date, as applicable, in companies in the Digital Watermarking Business and listed on Schedule 1.01 (DMRC Equity Investments).

 

DMRC Group ” shall mean the DMRC Entities, the DMRC Equity Investments and, after the Distribution Date or Trust Transfer Date, as applicable, each of their respective Subsidiaries and Affiliates and any corporation or entity that may become part of such group from time to time, other than any member of the Digimarc Group.

 

DMRC Indemnitee ” shall mean DMRC, DMRC Sub, the DMRC Subsidiaries, each Affiliate of DMRC immediately after the Distribution Date or Trust Transfer Date, as applicable, each of their respective present and former officers, directors and employees, each of the heirs, executors, successors and assigns of any of the foregoing and each Person, if any, who, at any time after the Separation, controls DMRC within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act.

 

DMRC Liabilities ” shall mean, in each case, whether occurring, arising, existing or asserted before, on or after the Distribution Date, but expressly excluding Corporate Level Liabilities:

 

(a)           Liabilities primarily relating to, arising out of or resulting from the Digital Watermarking Business and the DMRC Assets, including any such Liability relating to, arising out of or resulting from any act or failure to act by any Representative (whether or not such act or failure to act is or was within such Person’s authority), excluding Liabilities relating to, arising out of or resulting from IDMarc Software or IDMarc Source Code exclusively licensed to L-1 Identity Solutions Operating Company and its Affiliates pursuant to the License Agreement;

 

(b)           Liabilities allocated to DMRC and set forth on Schedule 1.01 (DMRC Assumed Liabilities), each of which are Liabilities other than Corporate Level Liabilities that are not primarily related to either the Secure ID Business or the Digital Watermarking Business;

 

(c)           Liabilities, agreements and obligations of any DMRC Entity under this Agreement or any of the other Transaction Agreements;

 

(d)           Liabilities relating to, arising out of or resulting from the operation of any business conducted by any DMRC Entity (including any Liability relating to,

 

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arising out of or resulting from any act or failure to act by any Representative or any DMRC Entity (whether or not such act or failure to act is or was within such Person’s authority));

 

(e)           Liabilities arising out of or resulting from any Benefit Plan with any DMRC Employee after the Distribution Date or Trust Transfer Date, as applicable, or relating to, arising out of or resulting from any Contract with any DMRC Employee (other than claims incurred but not paid under Digimarc’s group welfare plans prior to the Distribution Date or Trust Transfer Date, as applicable);

 

(f)            Liabilities triggered at the Acceptance Time or any termination of employment concurrently therewith or thereafter arising under any Contracts entered into between Digimarc (or any of its Subsidiaries) and any of Robert P. Chamness, Bruce Davis, Michael McConnell or Reed Stager and any other employee of Digimarc who becomes employed by DMRC;

 

(g)           Liabilities for severance costs relating to, arising out of, or resulting from the termination of employment of (i) any DMRC Employees, (ii) any employees not employed by Digimarc or its Subsidiaries immediately prior to the Acceptance Time (including employees performing general corporate functions for Digimarc prior to the Distribution or Trust Transfer) and (iii) all employees of Digimarc or its Subsidiaries terminated prior to the Acceptance Time in connection with the Separation;

 

(h)           all costs, expenses and fees (including attorneys’, financial advisory, accounting and fairness opinion fees) incurred in connection with the Transactions by or on behalf of Digimarc prior to the Acceptance Time or by or on behalf of DMRC, whether prior to, at or following the Acceptance Time;

 

(i)            Liabilities relating to, arising out of, or resulting from any indemnification or exculpation claims by any DMRC Employees or DMRC Director/Officer under any Contract, bylaw or other governing document or statutory provision; provided that such claim for indemnification or exculpation must relate to, arise out of, or result from the acts or omissions of such indemnified person with respect to the Digital Watermarking Business; and

 

(j)            Liabilities relating to, arising out of or resulting from the DMRC Litigation Matters.

 

DMRC Litigation Matters ” shall mean the existing Actions to be assumed by DMRC, as listed on Schedule 1.01 (DMRC Litigation Matters).

 

DMRC Merger ” shall have the meaning set forth in the recitals hereof.

 

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DMRC Merger Agreement ” shall mean the Agreement and Plan of Merger to be entered into by and between DMRC and DMRC Sub prior to the Distribution Date.

 

DMRC Real Property ” shall mean all right, title and interest in the real property located at 9405 SW Gemini Drive, Beaverton, Oregon 97008, subject to that certain Full Service Lease, dated March 22, 2004, by and between PS Business Parks, L.P., as lessor, and Digimarc, as lessee.

 

DMRC Shared Assets ” shall mean the Shared Assets allocated to the Digital Watermarking Business and set forth on Schedule 1.01 (Shared Assets), with an asterisk or other marking indicating such allocation.

 

DMRC Sub ” shall have the meaning set forth in the preamble hereof.

 

DMRC Sub Common Stock ” shall mean common stock of DMRC Sub, par value $0.001 per share.

 

DMRC Subsidiaries ” shall mean all direct and indirect Subsidiaries of DMRC, if any.

 

DMRC Units ” shall mean limited liability company interests of DMRC.

 

Effective Time ” shall have the meaning set forth in the Merger Agreement.

 

Election Statement ” shall have the meaning set forth in Section 4.11(g) .

 

Encumbrances ” shall mean all liens, security interests, pledges, mortgages, deeds of trusts, charges, options, encumbrances or other restrictions, including restrictions on the use, voting, transfer, receipt of income or other exercise of any attributes of ownership, and all other similar rights of third parties, of any kind or nature.

 

Environmental Claims ” shall mean any claim, action, notice, letter, demand or request for information (in each case in writing) by any Person or entity alleging potential liability (including potential liability for investigatory costs, cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries or penalties) arising out of, based on or resulting from any violation of Environmental Law (as defined in the Merger Agreement) or the release, emission, discharge, presence or disposal of any Hazardous Material (as defined in the Merger Agreement) at any location.

 

Exchange Act ” shall have the meaning set forth in the Merger Agreement.

 

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Final Determination ” shall mean the final resolution of liability for any Income Tax, which resolution may be for a specific issue or adjustment or for a taxable year or period, by (a) IRS Form 870 or 870-AD (or any successor forms thereto), on the date of acceptance by or on behalf of the taxpayer, or by a comparable form under the Laws of a state or local taxing jurisdiction, except that a Form 870 or 870-AD or comparable form shall not constitute a Final Determination to the extent that it reserves (whether by its terms or by operation of Law) the right of the taxpayer to file a claim for refund or the right of the Tax authority to assert a further deficiency in respect of such issue or adjustment or for such taxable period (as the case may be); (b) a decision, judgment, decree, or other order by a court of competent jurisdiction, which has become final and unappealable; (c) a closing agreement or accepted offer in compromise under Sections 7121 or 7122 of the Code, or a comparable agreement under the Laws of a state or local taxing jurisdiction; (d) any allowance of a refund or credit in respect of an overpayment of Income Tax, but only after the expiration of all periods during which such refund may be recovered (including by way of offset) by the jurisdiction imposing such Income Tax; or (e) any other final disposition, including by reason of the expiration of the applicable statute of limitations or by mutual agreement of the parties.

 

Form 10 ” shall mean the registration statement on Form 10 filed with the SEC by DMRC Sub to effect the registration of DMRC Sub Common Stock pursuant to the Exchange Act in connection with the Distribution, as such registration statement may be amended or supplemented from time to time.

 

FSAs ” shall have the meaning set forth in Section 4.09(c)(ii) .

 

Future DMRC Litigation Matters ” shall have the meaning set forth in Section 10.01(c)(i) .

 

 “ Future ID Litigation Matter ” shall have the meaning set forth in Section 10.01(c)(ii) .

 

Future Joint Litigation Matter ” shall have the meaning set forth in Section 10.01(c)(iii) .

 

 “ Governmental Approvals ” shall mean any material notices, reports or other filings to be made, or any consents, registrations, approvals, permits or authorizations to be obtained from, any Governmental Authority, as listed on Schedule 1.01 (Governmental Approvals).

 

Governmental Authority ” shall have the meaning set forth in the Merger Agreement.

 

Group ” shall mean the Digimarc Group or the DMRC Group, as the case may be.

 

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IDMarc Software ” shall have the meaning set forth in the License Agreement.

 

IDMarc Source Code ” shall have the meaning set forth in the License Agreement.

 

Income Taxes ” shall mean any and all Taxes that are based upon, measured by, or calculated with respect to (a) net income or profits (including, but not limited to, any capital gains, gross receipts, or minimum Tax, and any Tax on items of Tax preference, but not including sales, use, value added, real property gains, real or personal property, transfer or similar Taxes), (b) multiple bases (including, but not limited to, corporate franchise, doing business, occupation and similar Taxes), if one or more of the bases upon which such tax may be based, by which it may be measured, or with respect to which it may be calculated is described in clause (a) of this definition, or (c) any net worth, franchise or similar tax.

 

Indebtedness ” shall mean, with respect to any Person, (a) any obligation of such Person (i) for borrowed money, (ii) evidenced by a note, debenture or similar instrument (including a purchase money obligation) given in connection with the acquisition of any property or assets, including securities, (iii) for the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business, or (iv) under any lease or similar arrangement that would be required to be accounted for by the lessee as a capital lease in accordance with GAAP (as defined in the Merger Agreement); (b) any guarantee (or keepwell agreement) by such Person of any Indebtedness of others described in the preceding clause (a); and (c) all obligations to reimburse any bank or other Person for amounts paid under a letter of credit or similar instrument.

 

Indemnifying Party ” shall mean the Person having the obligations to indemnify pursuant to Article V .

 

Indemnitee ” shall mean a Person that has the right to indemnification pursuant to Article V .

 

Information ” shall mean all records, books, work papers, reports, plans, schedules and other documents, instruments, computer data and other data and information of a Person.

 

Insurance Policies ” shall mean the insurance policies written by insurance carriers under which, prior to the Distribution Date or Trust Transfer Date, as applicable, Digimarc and/or DMRC or one or more of their respective Subsidiaries or Affiliates (or their respective officers or directors) are insured parties.

 

Intellectual Property ” shall have the meaning set forth in the Merger Agreement.

 

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Inter-Group Indebtedness ” shall mean any intercompany receivables, payables, accounts, advances, loans, guarantees, commitments and Indebtedness for borrowed funds between a member of the Digimarc Group and a member of the DMRC Group; provided that “Inter-Group Indebtedness” shall not include any contingent Liabilities and accounts payable arising pursuant to the Transaction Agreements and any agreements with respect to continuing transactions between the Digimarc Group and the DMRC Group.

 

Joint Claims ” shall mean all right, title and interest to, in or under any claim, demand or Action that primarily relates to both the Secure ID Business and the Digital Watermarking Business, including those claims set forth on Schedule 1.01 (Joint Claims) , whether arising before, on or after the Distribution Date.

 

L-1 ” shall have the meaning set forth in the preamble hereof.

 

L-1 401(k) Plan ” shall have the meaning set forth in Section 4.09(b)(iii) .

 

Law ” shall have the meaning set forth in the Merger Agreement.

 

Legal Impediment ” shall mean a legal impediment preventing or restricting the transfer of a DMRC Asset or the assumption of a DMRC Liability, as the case may be, in the Restructuring as listed on Schedule 1.01 (Legal Impediments).

 

Liabilities ” shall mean any and all losses, charges, debts, demands, Actions, damages, obligations, payments, costs and expenses, bonds, indemnities and similar obligations, covenants, controversies, promises, omissions, guarantees, make whole agreements and similar obligations, Taxes and other liabilities, including all contractual obligations, whether absolute or contingent, inchoate or otherwise, matured or unmatured, liquidated or unliquidated, accrued or unaccrued, known or unknown, whenever arising, and including those arising under any Action, threatened or contemplated Action (including the costs and expenses of demands, assessments, judgments, settlements and compromises relating thereto and attorneys’ fees and any and all costs and expenses, whatsoever incurred in investigating, preparing or defending against any such Actions or threatened or contemplated Actions), order or consent decree of any Governmental Authority or any award of any arbitrator or mediator of any kind, and those arising under any Contract, including those arising under this Agreement or any other Transaction Agreement or incurred by a party hereto or thereto in connection with enforcing its rights to indemnification hereunder or thereunder, in each case, whether or not recorded or reflected or required to be recorded or reflected on the books and records or financial statements of any Person.

 

License ” shall mean any license, ordinance, authorization, permit, certificate, right, easement, variance, exemption, consent, franchise or approval from any Governmental Authority.

 

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License Agreement ” shall mean the License Agreement to be entered into by and among L-1 Identity Solutions Operating Company and DMRC Sub.

 

Liquidating Trust Agreement ” shall mean the Liquidating Trust Agreement that may be entered into by and among Digimarc, DMRC, DMRC Sub and the individuals listed on Exhibit A of such Liquidating Trust Agreement.

 

 “ M&A Qualified Beneficiaries ” shall have the meaning set forth in Section 4.08(d) .

 

 “ Merger Agreement ” shall have the meaning set forth in the recitals hereof.

 

Net Proceeds ” shall have the meaning set forth in Section 5.05(b) .

 

Notice of Claim ” shall have the meaning set forth in Section 5.04(a) .

 

Offer ” shall have the meaning set forth in the Merger Agreement.

 

 “ Party ” and “ Parties ” shall have the meaning set forth in the preamble hereof.

 

Person ” shall have the meaning set forth in the Merger Agreement.

 

Proxy Statement ” shall have the meaning set forth in the Merger Agreement.

 

Purchase Price Excess ” shall mean the amount, if any, by which the aggregate price paid to holders of Digimarc Common Stock in the Offer and Merger exceeds  $310,000,000.

 

 “ Purchase Price Shortfall ” shall mean the amount, if any, by which the aggregate price paid to holders of Digimarc Common Stock in the Offer and Merger is less than $310,000,000.

 

 “ Record Date ” shall mean the close of business on the date to be determined by the Digimarc Board of Directors in accordance with applicable Law as the record date for determining stockholders of Digimarc entitled to receive the Distribution.

 

Representative ” shall have the meaning set forth in the Merger Agreement.

 

Restructuring ” shall mean the internal restructuring undertaken by Digimarc and its Subsidiaries in connection with the transfer of the DMRC Assets to, and the assumption of the DMRC Liabilities by, the DMRC Entities.

 

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Restructuring Date ” shall mean a date prior to the Distribution Date on which the Restructuring shall occur, as designated by the Parties.

 

SEC ” shall mean the United States Securities and Exchange Commission.

 

Section 336(e) Election ” shall have the meaning set forth in Section 4.11(g) .

 

Secure ID Business ” shall mean the portion of the Digimarc Group’s business immediately prior to the Distribution Date or Trust Transfer Date, as applicable engaged in the licensing or sale of products, services, Intellectual Property or Technology related to driver licenses, passports, state or national identification cards, and government-issued credentials.

 

Secure ID Business Employees ” shall have the meaning set forth in Section 4.09(b)(iii) .

 

Securities Act ” shall have the meaning set forth in the Merger Agreement.

 

Separation ” shall have the meaning set forth in the recitals hereof.

 

Separation Tax Liabilities ” shall mean any and all Liabilities for Taxes of Digimarc, DMRC and each of their respective Subsidiaries and Affiliates relating to, arising out of or resulting from the Separation, including, any and all Income Taxes, withholding, sale, use, documentary, stamp, real estate transfer, stock transfer, registration, duty or similar fees or Taxes or governmental charges imposed as a result of the transactions contemplated by this Agreement.

 

Shared Assets ” shall mean any Assets shared, or to be shared, by Digimarc (as the owner of the Secure ID Business) and DMRC (as the owner of the Digital Watermarking Business) and set forth on Schedule 1.01 (Shared Assets).

 

Subsidiary ” shall have the meaning set forth in the Merger Agreement.

 

Target Spin-Off Date ” shall have the meaning set forth in the Merger Agreement.

 

 “ Taxes ” shall have the meaning set forth in the Merger Agreement.

 

Technology ” shall have the meaning set forth in the Merger Agreement.

 

Third Party Claims ” shall have the meaning set forth in Section 5.04(b) .

 

Transaction Agreements ” shall mean collectively this Agreement, the Merger Agreement, the Transition Services Agreement, the License Agreement, the Liquidating Trust Agreement and all other documents related to the Transactions.

 

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Transactions ” shall have the meaning set forth in the Merger Agreement.

 

Transition Services Agreement ” shall have the meaning set forth in the Merger Agreement.

 

Trust Transfer ” shall have the meaning set forth in the Merger Agreement.

 

Trust Transfer Date ” shall mean the date the Trust Transfer is effected.

 

ARTICLE II

THE RESTRUCTURING

 

Section 2.01.                              Business Separation .

 

(a)           Transfer of Assets .  On the Restructuring Date and subject to the satisfaction or waiver of the conditions set forth in Section 7.01 (other than the condition set forth in Section 7.01(f) ), Digimarc shall assign, transfer, convey and deliver to DMRC or a DMRC Subsidiary, and cause the applicable Digimarc Subsidiaries to assign, transfer, convey and deliver to DMRC or a DMRC Subsidiary, and DMRC or a DMRC Subsidiary shall accept from Digimarc and the applicable Digimarc Subsidiaries, all of Digimarc’s and the applicable Digimarc Subsidiaries’ respective right, title and interest in and to all of the DMRC Assets, other than the Delayed Transfer Assets.

 

(b)           Assumption of Liabilities .  On the Restructuring Date and subject to the satisfaction or waiver of the conditions set forth in Section 7.01 (other than the condition set forth in Section 7.01(f) ), DMRC shall, and shall cause the DMRC Subsidiaries to, assume, pay and agree faithfully to perform and discharge when due all of the DMRC Liabilities (other than the Delayed Transfer Liabilities) in accordance with their respective terms.  DMRC or a DMRC Subsidiary shall be responsible for all DMRC Liabilities (including any Delayed Transfer Liabilities), regardless of (i) when or where or against whom such Liabilities are asserted or determined, (ii) whether asserted or determined prior to or after the Distribution Date and (iii) whether arising from or alleged to arise from the negligence, recklessness, strict liability or violation of Law by or of any DMRC Entity or Digimarc Entity or any of their respective Representatives or Affiliates.  The Digimarc Entities shall be responsible for all Liabilities of Digimarc and its Subsidiaries other than DMRC Liabilities, regardless of (i) when or where or against whom such Liabilities are asserted or determined, (ii) whether asserted or determined prior to or after the Distribution Date and (iii) whether arising from or alleged to arise from the negligence, recklessness, strict liability or violation of Law by or of any Digimarc Entity or any of their respective Representatives or Affiliates.

 

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(c)           Delayed Transfer Assets and Liabilities .

 

(i)            Notwithstanding anything in this Agreement to the contrary, neither Digimarc nor any of the Digimarc Subsidiaries is obligated to assign, transfer, convey or deliver to DMRC or any DMRC Subsidiary, and neither DMRC nor any DMRC Subsidiary is obligated to assume, any of the rights and obligations under any Delayed Transfer Asset or Delayed Transfer Liability until such time as all Legal Impediments are removed and/or all Consents or Governmental Approvals necessary for the legal transfer and/or assumption thereof are obtained.  Each of the Parties agrees that the Delayed Transfer Assets shall be assigned, transferred, conveyed and delivered, and the Delayed Transfer Liabilities shall be assumed, in accordance with the provisions of Section 2.02 .

 

(ii)           On the Distribution Date or the Trust Transfer Date, as applicable, DMRC shall deliver to Digimarc a schedule setting forth all material Delayed Transfer Assets and Delayed Transfer Liabilities known to be existing as of the Distribution Date or Trust Transfer Date, as applicable.  Digimarc shall thereafter, (A) with respect to any such Delayed Transfer Assets, use commercially reasonable efforts, with the costs of Digimarc related thereto to be promptly reimbursed by DMRC, to hold such DMRC Asset in trust for the use and benefit of DMRC and (B) with respect to any such Delayed Transfer Liability, use commercially reasonable efforts, with the costs of Digimarc related thereto to be promptly reimbursed by DMRC, to retain such DMRC Liability for the account of DMRC, in each case, in order to place each Party, insofar as is reasonably possible, in the same position as would have existed had such Delayed Transfer Asset or Delayed Transfer Liability been contributed, assigned, transferred, conveyed, delivered or assumed as contemplated hereby; provided that Digimarc shall not be required to take any action pursuant to this Section 2.01(c)(ii)  that would, or could reasonably be expected to, result in any unreimbursed financial obligation to it or any restriction on its business or operations.

 

(iii)          To the extent that DMRC is provided the use or benefit of any DMRC Asset or has any DMRC Liability held for its account pursuant to this Section 2.01(c) , DMRC shall perform, for the benefit of Digimarc and any third Person, the obligations of Digimarc thereunder or in connection therewith, or as may be directed by Digimarc and, if DMRC shall fail to perform to the extent required herein, DMRC shall hold Digimarc harmless and indemnify Digimarc therefor pursuant to Section 5.02(d) .

 

(iv)          Each Party shall, and shall cause its Affiliates to, as and when any such Delayed Transfer Asset or Delayed Transfer Liability becomes contributable, assignable, transferable, conveyable, deliverable or assumable by such Party, effect such contribution, assignment, transfer, conveyance, delivery or assumption, as applicable, as promptly as practicable thereafter without payment of additional consideration.

 

(d)           Subsequent Transfers .  In the event that at any time or from time to time after the Distribution Date or the Trust Transfer Date, as applicable, any Party (or any Subsidiary thereof) becomes aware that it possesses any Asset, interest of Digimarc

 

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or DMRC in real property, Intellectual Property or Technology, or Liability that is allocated to the other Party pursuant to this Agreement or any other Transaction Agreement, such Party shall promptly transfer, or cause to be transferred, such Asset or Liability to the Party so entitled thereto.  Prior to any such transfer, the Party possessing such Asset or Liability shall hold such Asset or Liability in trust for any such other Party.  As of the Distribution Date or the Trust Transfer Date, as applicable, each Party (or, as applicable, such Subsidiary of such Party) shall be deemed to have acquired (or, as applicable, retained) complete and sole beneficial ownership over all the Assets, together with all rights, powers and privileges incident thereto, and shall be deemed to have assumed in accordance with the terms of this Agreement all the Liabilities, and all duties, obligations and responsibilities incident thereto, which such Party (or, after giving effect to the Restructuring and the Distribution, any Subsidiary of such Party) is entitled to acquire or required to assume pursuant to the terms of this Agreement.  The costs and expenses of the Party who held such subsequently transferred Asset or Liability shall be promptly reimbursed by the Party who acquires such Asset or Liability, as the case may be, in order to place each Party, insofar as is reasonably possible, in the same position as it would have been in had such Asset or Liability been contributed, assigned, transferred, conveyed, delivered or assumed as contemplated by Section 2.01(c) .

 

(e)           Inter-Company Agreements and Indebtedness .

 

(i)            Subject to Section 2.01(e)(iii) , on or prior to the Distribution Date or the Trust Transfer Date, as applicable, the Digimarc Entities, on the one hand, and the DMRC Entities, on the other hand, shall terminate any and all Contracts between or among Digimarc and/or any Digimarc Entity, on the one hand, and DMRC and/or any DMRC Entity, on the other hand, effective as of the Distribution Date or the Trust Transfer Date, as applicable.  No such terminated Contract (including any provision thereof that purports to survive termination) shall be of any further force or effect after the Distribution Date or the Trust Transfer Date, as applicable, and all parties shall be released from all obligations thereunder.  Each Party shall, at the reasonable request of the other Party, take, or cause to be taken, such other actions as may be necessary to effect the foregoing.

 

(ii)           On or prior to the Distribution Date or the Trust Transfer Date, as applicable, all Inter-Group Indebtedness shall be paid in full and settled.

 

(iii)          The provisions of Section 2.01(e)(i)  shall not apply to terminate this Agreement, the other Transaction Agreements, any agreement contemplated by the Transaction Agreements or any agreement set forth on Schedule 2.01(e) .

 

(f)            Certain Resignations . On or prior to the Distribution Date or the Trust Transfer Date, as applicable, Digimarc shall cause each employee and director of Digimarc and its Subsidiaries who will not be employed by DMRC or a DMRC Subsidiary after the Distribution Date to resign, effective not later than the Distribution Date or the Trust Transfer Date, as applicable, from all boards of directors or similar

 

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governing bodies of DMRC or any DMRC Subsidiary on which they serve, and from all positions as officers of DMRC or any DMRC Subsidiary in which they serve.   On or prior to the Distribution Date or the Trust Transfer Date, as applicable, DMRC will cause each employee and director of DMRC and its Subsidiaries who will not be employed by Digimarc or a Digimarc Subsidiary after the Distribution Date or the Trust Transfer Date, as applicable, to resign, effective not later than the Distribution Date or the Trust Transfer Date, as applicable, from all boards of directors or similar governing bodies of any Digimarc Subsidiary on which they serve, and from all positions as officers of Digimarc or any Digimarc Subsidiary in which they serve.

 

Section 2.02.          Documents Relating to the Transfer of DMRC Assets and Assumption of DMRC Liabilities .  In furtherance of the assignment, transfer and conveyance of DMRC Assets and the assumption of DMRC Liabilities pursuant to this Agreement, on or prior to the Distribution Date or the Trust Transfer Date, as applicable, and, with respect to Delayed Transfer Assets and Delayed Transfer Liabilities, at such time after the Distribution Date or Trust Transfer Date, as applicable, as such Delayed Transfer Asset or Delayed Transfer Liability can be transferred:

 

(a)           Digimarc shall execute and deliver and, if applicable, shall cause its Subsidiaries, to execute and deliver, such bills of sale, stock powers, certificates of title, assignments of Contracts and other instruments of transfer, conveyance and assignment as and to the extent necessary to evidence the transfer, conveyance and assignment of Digimarc’s right, title and interest in and to the DMRC Assets to DMRC; provided that the instruments executed and delivered pursuant to this Section 2.02(a)  shall be in a form reasonably satisfactory to the Parties and consistent with the terms of this Agreement; and

 

(b)           DMRC shall execute and deliver to Digimarc such instruments of assumption as and to the extent necessary to evidence the valid and effective assumption by DMRC of the DMRC Liabilities; provided that any instruments executed and delivered pursuant to this Section 2.02(b)  shall be in a form reasonably satisfactory to the Parties and consistent with the terms of this Agreement.

 

Section 2.03.                              Novation of DMRC Liabilities .

 

(a)           Before and after the Distribution Date or the Trust Transfer Date, as applicable, DMRC shall use its commercially reasonable efforts to (i) obtain, or to cause to be obtained, any release, Consent, substitution, approval or amendment required to novate all Digimarc Entities from, and assign all obligations under, Contracts, Licenses, Benefit Plans and other obligations or Liabilities of any nature whatsoever that constitute DMRC Liabilities, or to obtain in writing the unconditional release of all Digimarc Entities from such obligations, so that, in any such case, the DMRC Entities shall be solely responsible for such DMRC Liabilities and (ii) terminate, or to cause DMRC Assets to be substituted in all respects for any Assets retained by Digimarc in respect of, any Encumbrances on Assets retained by Digimarc which are securing any DMRC Liabilities; provided , however , that neither Digimarc nor DMRC shall be

 

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obligated to pay any consideration therefor to any third party from whom such releases, Consents, substitutions, approvals, amendments or terminations are requested except as expressly set forth in the applicable Contract, License or Benefit Plan.

 

(b)           If DMRC is unable to obtain, or to cause to be obtained, any release, Consent, substitution, approval or amendment required pursuant to Section 2.03(a) , (i) the applicable Digimarc Entity shall continue to be bound by such Contracts, Licenses and other obligations, (ii) unless not permitted by Law or the terms thereof, DMRC shall, as agent or subcontractor for such Digimarc Entity, pay, perform and discharge fully all the obligations or other Liabilities of such Digimarc Entity thereunder from and after the Distribution Date or the Trust Transfer Date, as applicable, and (iii) DMRC shall indemnify and hold harmless each Digimarc Indemnitee against any Liabilities arising in connection therewith.

 

(c)      Without the prior written consent of Digimarc, from and after the Distribution Date or the Trust Transfer Date, as applicable, DMRC shall not, and shall not permit any DMRC Entity to, renew or extend the term of or increase its obligations under any Contract, License or other obligation for which a Digimarc Entity is or may be liable, or for which any Digimarc Asset is or may be encumbered, unless all obligations of the Digimarc Entities and all Encumbrances on any Digimarc Asset with respect thereto are thereupon released and terminated by documentation reasonably satisfactory in form and substance to Digimarc.

 

Section 2.04.          Issuance of Units .  At or prior to the Distribution Date or the Trust Transfer Date, as applicable, and subject to the satisfaction or waiver of the conditions set forth in Section 7.01 , the Parties shall take all steps necessary so that on the Distribution Date or the Trust Transfer Date, as applicable, the number of DMRC Units outstanding and held by Digimarc shall be equal to the amount necessary to provide for the issuance of one DMRC Unit for every three and one-half shares of Digimarc Common Stock outstanding on the Record Date, subject to adjustment for fractional interests pursuant to Section 3.05 .

 

Section 2.05.          Other Transaction Agreements .  At or prior to the Distribution Date or the Trust Transfer Date, as applicable, and subject to the satisfaction or waiver of the conditions set forth in Section 7.01 , each of Digimarc and DMRC shall execute and deliver the other Transaction Agreements that were not previously executed and delivered.

 

ARTICLE III

THE DISTRIBUTION

 

Section 3.01.          Record Date and Distribution Date .  Prior to the Distribution Date or the Trust Transfer Date, as applicable, the Digimarc Board of Directors, in accordance with applicable Law, shall establish the Record Date and the Distribution Date or the Trust Transfer Date, as applicable, and any appropriate procedures in connection with the

 

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Distribution, including authorizing Digimarc to effect the Distribution or Trust Transfer, as applicable prior to the Target Spin-Off Date.  Digimarc will provide notice to the National Association of Securities Dealers no later than ten (10) days prior to the Record Date in compliance with Rule 10b-17 under the Exchange Act.

 

Section 3.02.          Distribution Agent .  Prior to the Distribution Date, Digimarc shall enter into an agreement with the Distribution Agent (the “ Distribution Agent Agreement ”), which shall be on terms that are reasonably satisfactory to L-1, providing for the Distribution of DMRC Units in accordance with the terms of this Agreement.

 

Section 3.03.          Deliveries to the Distribution Agent .  Subject to the satisfaction or waiver of the conditions set forth in Section 7.01 (other than conditions that by their nature are to be satisfied at the time of the Restructuring or the Distribution and shall in fact be satisfied at such time), on or prior to the Distribution Date, Digimarc shall deliver to the Distribution Agent (a) for the benefit of holders of record of Digimarc Common Stock on the Record Date, book entry transfer authorizations for such number of DMRC Units equal to the number of DMRC Units to be distributed in connection with the Distribution, and (b) all Information required to complete the Distribution on the basis set forth herein and under the Distribution Agent Agreement.  Following the Distribution Date, upon request of the Distribution Agent, DMRC shall provide to the Distribution Agent all certificates (or book-entry transfer authorizations) for DMRC Units or DMRC Sub Common Stock, as applicable, that the Distribution Agent shall require in order to further effect the Distribution.

 

Section 3.04.          Distribution .

 

(a)      Subject to the satisfaction or waiver of the conditions set forth in Section 7.01 , the Distribution shall be effective on the Distribution Date and Digimarc shall instruct the Distribution Agent at or prior to the Acceptance Time to distribute, on or as soon as practicable after the Distribution Date, to each holder of record of Digimarc Common Stock as of the Record Date, one (1) DMRC Unit (or one (1) share of DMRC Sub Common Stock, if the DMRC Merger has already occurred) for every three and one-half (3½) shares of Digimarc Common Stock held by such record holder on the Record Date; provided, however, that such ratio may be changed by Digimarc prior to the Distribution Date as reasonably determined by Digimarc as a result of market or other factors.  DMRC agrees to provide all book entry registration authorizations for DMRC Units or DMRC Sub Common Stock, as applicable, that Digimarc shall require (after giving affect to Section 2.04 ) in order to effect the Distribution.  DMRC shall direct the Distribution Agent to distribute on the Distribution Date, or as soon as reasonably practicable thereafter, the appropriate number of DMRC Units (or shares of DMRC Sub Common Stock, if the DMRC Merger has already occurred) to each such holder or the designated transferee of such holder.

 

(b)      Notwithstanding subparagraph (a) of this Section 3.04 , (i) to the extent the condition set forth in Section 7.01(f)  is not satisfied immediately prior to the expiration of the Offer period or the Target Spin-Off Date, and (ii) Digimarc and DMRC

 

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are reasonably satisfied that no Governmental Authority with oversight of the Trust Transfer and the Spin-Off will object to such transaction, Digimarc will, in accordance with the terms and conditions of this Agreement (excepting the condition set forth in Section 7.01(f) ) and those of the other Transaction Agreements, immediately prior to the expiration of the Offer period or the Target Spin-Off Date, effect the Trust Transfer.  If the Trust Transfer is effected, the DMRC Units (or, following the DMRC Merger, shares of DMRC Sub Common Stock) shall be held in trust on behalf of the Digimarc Stockholders (as defined below) as of the Record Date until such time as the condition set forth in Section 7.01(f)  is satisfied, immediately after which the trust shall effect the Distribution on the same terms and conditions contemplated by this Article III .  For all U.S. federal and applicable state and local income Tax purposes, the Parties will treat the Trust Transfer as a transfer of DMRC’s equity interests to Digimarc Stockholders followed by a transfer of such equity interests by such Digimarc Stockholders to the trust, and such Digimarc Stockholders will be treated as the grantors and owners of the equity interests of DMRC held in the trust pursuant to Sections 671 and 677 of the Code and the trust shall be treated as a liquidating trust within the meaning of Treasury Regulation Section 301.7701-4(d).  The trustees shall value, or cause to be valued, the equity interests of DMRC and notify Digimarc Stockholders in writing of such valuation.

 

Section 3.05.                              Fractional Interests; Unclaimed Units .

 

(a)           No Fractional Units .  Notwithstanding anything herein to the contrary, if the Distribution is effected without effecting the Trust Transfer, no certificate or scrip representing fractional DMRC Units shall be delivered to the Distribution Agent for the benefit of holders of record of Digimarc Common Stock on the Record Date (the “ Digimarc Stockholders ”).  In such case, Digimarc stockholders shall receive a cash payment for such fractional shares pursuant to the procedures set forth in Section 3.07(c) ..  If the Trust Transfer is effected, fractional DMRC Units and fractional shares of DMRC Sub Common Stock may be issued or recorded, prior to the completion of the Distribution by the trust as contemplated in Section 3.04(b)  and subject to Section 3.07(c) , for the benefit of Digimarc Stockholders.

 

(b)           Unclaimed Units .  Any DMRC Units or shares of DMRC Sub Common Stock, as applicable, made available to the Distribution Agent that remain undistributed one hundred eighty (180) days after the Distribution Date shall be delivered to DMRC.  DMRC shall hold such DMRC Units or shares of DMRC Sub Common Stock, as applicable, for the account of such Digimarc Stockholders and any such Digimarc Stockholder shall look only to DMRC for such DMRC Units or shares of DMRC Sub Common Stock, as applicable, subject to applicable escheat or other abandoned property Laws.

 

Section 3.06.                              Timing of the Distribution .  Digimarc shall consummate the Separation as promptly as practicable after satisfaction (or waiver to the extent permissible) of all of the conditions to the Restructuring and the Distribution or Trust Transfer, as applicable specified in Section 7.01 (other than conditions that by their nature are to be satisfied at the time of the Restructuring or Distribution or Trust Transfer

 

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and shall in fact be satisfied at such time).  The Restructuring shall occur on the Distribution Date prior to the Distribution or Trust Transfer Date prior to the Trust Transfer, as applicable, which shall occur at a time to be mutually agreed by the Parties on the Distribution Date or the Trust Transfer Date, as applicable.

 

Section 3.07.                              DMRC Merger .

 

(a)           The DMRC Merger shall occur as soon as practicable following the Distribution or Trust Transfer, as applicable.  As a result of the DMRC Merger, each holder of DMRC Units will receive one (1) share of DMRC Sub Common Stock for each DMRC Unit allocated to the holder in the Distribution or Trust Transfer, as applicable.  The DMRC Merger shall be effective as set forth in the certificate of merger filed with the Secretary of State of the State of Delaware to effect the DMRC Merger.

 

(b)           Prior to the Distribution Date, DMRC will deliver to the Distribution Agent for the benefit of the holders of Digimarc Common Stock on the Record Date, as holders of DMRC Units following the Distribution, stock certificates, endorsed by DMRC in blank, representing all of the outstanding shares of DMRC Sub Common Stock then owned by DMRC.  DMRC will cause the transfer agent for the DMRC Sub Common Stock to credit the appropriate class and number of such shares of DMRC Sub Common Stock to book entry accounts for each such holder or designated transferee of such holder. For stockholders of Digimarc who own Digimarc Common Stock through a broker or other nominee, their shares of DMRC Sub Common Stock will be credited to their respective accounts by such broker or nominee.

 

(c)           Fractional shares of DMRC Sub Common Stock will not be distributed nor credited to book-entry accounts in the Distribution. The Distribution Agent shall (i) determine the number of whole shares and fractional shares of DMRC Sub Common Stock allocable to each Digimarc Stockholder of record or beneficial owner of Digimarc Common Stock as of the Record Date, (ii) aggregate all such fractional shares into whole shares and sell, as provided in the immediately succeeding sentence, the whole shares of DMRC Sub Common Stock obtained thereby in open market transactions at then prevailing prices on behalf of holders who would otherwise be entitled to fractional shares of DMRC Sub Common Stock, and (iii) distribute to each such holder, or for the benefit of each such beneficial owner, such holder or owner’s ratable share of the net proceeds of such sale, based upon the average gross selling price per share of DMRC Sub Common Stock, after making appropriate deductions for any amount required to be withheld for Tax purposes. DMRC Sub shall bear the cost of brokerage fees incurred in connection with these sales of fractional shares, which such sales shall occur as soon as practicable after the Distribution Date, if the Distribution is effected without effecting the Trust Transfer, or the date the trust effects the Distribution as contemplated in Section 3.04(b) , if the Trust Transfer is effected, and as determined by the Distribution Agent. None of Digimarc, DMRC, DMRC Sub or the Distribution Agent will guarantee any minimum sale price for the fractional shares of DMRC Sub Common Stock. None of Digimarc, DMRC or DMRC Sub will pay any interest on the proceeds from the sale of fractional shares. The Distribution Agent will have the sole discretion to

 

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select the broker-dealers through which to sell the aggregated fractional shares and to determine when, how and at what price to sell such shares.

 

ARTICLE IV

ADDITIONAL COVENANTS

 

Section 4.01.                              Access to Information .

 

(a)           Except in the case of an adversarial Action by or against any Digimarc Entity or Entities, on the one hand, and any DMRC Entity or Entities, on the other hand (which shall be governed by such discovery rules as may be applicable thereto), and subject to Section 4.02 , each of Digimarc and DMRC, on behalf of the Digimarc Entities and the DMRC Entities, respectively, agrees to provide, or cause to be provided, to each other as soon as reasonably practicable after written request therefor, subject to applicable Laws relating to the exchange of information, and only in such manner that does not cause unreasonable disruption of the business of such Person, any Information existing as of the Distribution Date or the Trust Transfer Date, as applicable and in the possession or under the control of such Person that the requesting party reasonably needs (i) to comply with reporting, disclosure, filing or other requirements imposed on the requesting party (including under applicable securities Laws) by a Governmental Authority having jurisdiction over the requesting party, (ii) for use in any other judicial, regulatory, administrative or other proceeding or in order to satisfy audit, accounting, claims, regulatory, litigation or other similar requirements or (iii) to comply with its obligations, or confirm compliance of the other Party’s obligations, under this Agreement or any other Transaction Agreement; provided , however , that (A) the requesting Person shall agree in writing to keep any Information that includes proprietary, confidential or privileged Information of the providing Person confidential, except to the extent that such records or documents are required to be disclosed by applicable Law or legal process, (B) each Party agrees to notify the providing Person of any Action whereby such requesting Person might be required to disclose proprietary, confidential or privileged Information, so that the providing Person may seek a protective order, (C) in the event that any Party determines that any such provision of Information could be commercially detrimental, violate any applicable Law or provision of any material Contract, or waive any attorney-client privilege, the Parties shall take all reasonable measures to permit the compliance with such obligations in a manner that avoids any such harm or consequence and (D) if Information other than that pertaining to the Digital Watermarking Business or the Secure ID Business is contained in such records, Digimarc and DMRC shall either agree that such Information may be omitted or redacted by the providing Person, or shall enter into appropriate secrecy commitments to protect such Information.

 

(b)           Following the Acceptance Time, each Party shall make its employees reasonably available to the other Party during normal business hours and on reasonable prior notice to provide an explanation of any Information provided hereunder.

 

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Section 4.02.                              Privileged Matters .

 

(a)           The Parties recognize that legal and other professional services that have been and will be provided prior to the Distribution Date or the Trust Transfer Date, as applicable have been and will be rendered for the collective benefit of each of the members of the Digimarc Group and the DMRC Group, and that each of the members of the Digimarc Group and the DMRC Group should be deemed to be the client for the purposes of asserting all privileges that may be asserted under applicable Law.

 

(b)           Digimarc and DMRC intend that any transfer of Information pursuant to this Agreement that would otherwise be within the attorney-client privilege shall not operate as a waiver of any potentially applicable privilege.  Accordingly, the Parties agree as follows:

 

(i)            The Digimarc Group shall be entitled, in perpetuity, to control the assertion or waiver of all privileges in connection with privileged information that relates solely to the Secure ID Business, whether or not the privileged information is in the possession of or under the control of the Digimarc Group or the DMRC Group. The Digimarc Group shall also be entitled, in perpetuity, to control the assertion or waiver of all privileges in connection with privileged information that relates solely to the subject matter of any claims constituting Liabilities of Digimarc or any of its Subsidiaries (other than DMRC Liabilities), now pending or which may be asserted in the future, in any Action initiated against or by the Digimarc Group, whether or not the privileged information is in the possession of or under the control of the Digimarc Group or the DMRC Group.

 

(ii)           The DMRC Group shall be entitled, in perpetuity, to control the assertion or waiver of all privileges in connection with privileged information that relates solely to the Digital Watermarking Business, whether or not the privileged information is in the possession of or under the control of the Digimarc Group or The DMRC Group. The DMRC Group shall also be entitled, in perpetuity, to control the assertion or waiver of all privileges in connection with privileged information that relates solely to the subject matter of any claims constituting DMRC Liabilities, now pending or that may be asserted in the future, in any Action initiated against or by the DMRC Group, whether or not the privileged information is in the possession or under the control of the Digimarc Group or the DMRC Group.

 

(c)           The Parties hereto agree that they shall have a shared privilege, with equal right to assert or waive, subject to the restrictions in this Section 4.02 , with respect to all privileges not allocated pursuant to the terms of Section 4.02(b) . All privileges relating to any Action, dispute, or other matter that involves the Digimarc Group or the DMRC Group in respect of which such Parties retain any responsibility or liability under this Agreement, shall be subject to a shared privilege among them.

 

(d)           No Party may waive any privilege that could be asserted under any applicable Law, and in which any other Party has a shared privilege, without the consent

 

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of the other Party, which consent shall not be unreasonably withheld or delayed, except to the extent reasonably required in connection with any Action with third parties or as provided in subsection (e) below. Any such consent shall be in writing, or shall be deemed to be granted unless written objection is made within twenty (20) days after notice is provided by the Party requesting such consent in accordance with the terms of this Agreement.

 

(e)           In the event of any Action or dispute between one or more members of the Digimarc Group, on the one hand, and one or more members of the DMRC Group, on the other hand, then any such party, to the extent necessary in connection with such Action or dispute, may waive a privilege in which the other Party has a shared privilege, without obtaining the consent of the other Party, provided that such waiver of a shared privilege shall be effective only as to the use of information with respect to the Action or dispute between the relevant Parties and/or their Subsidiaries, and shall not operate as a waiver of the shared privilege with respect to third parties.

 

(f)            Upon receipt by any Party of any subpoena, discovery or other request that arguably calls for the production or disclosure of information subject to a shared privilege or as to which another Party has the sole right hereunder to assert a privilege, or if any Party obtains knowledge that any of its current or former Representatives has received any subpoena, discovery or other requests that arguably calls for the production or disclosure of such privileged information, such Party shall, to the extent practicable, promptly notify the other Party of the existence of the request and provide the other Party a reasonable opportunity to review the information (to the extent such information is available to such Party) and to assert any rights it or they may have under this Section 4.02 or otherwise to prevent the production or disclosure of such privileged information, unless such notice is prohibited by statute or court order.

 

(g)           The transfer of any Information pursuant to this Agreement is made in reliance on the agreement of Digimarc and DMRC, as set forth in Section 4.01 to maintain the confidentiality of privileged information and to assert and maintain all applicable privileges. The access to Information being granted pursuant to Section 4.01 , the agreement to provide witnesses and individuals pursuant to Sections 4.01 and 4.08 , the furnishing of notices and documents and other cooperative efforts contemplated by Section 4.01 , and the transfer of privileged information between and among the Parties pursuant to this Agreement shall not be deemed a waiver of any privilege that has been or may be asserted under this Agreement or otherwise.

 

Section 4.03.          Ownership of Information .  Any Information owned by either the DMRC Entities or the Digimarc Entities that is provided to a requesting Party pursuant to Section 4.01 shall be deemed to remain the confidential property of the providing Party.  Unless specifically set forth herein or in any Transaction Agreement, nothing contained in this Agreement shall be construed as granting or conferring rights of license or otherwise in any such Information.

 

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Section 4.04.                              Compensation for Providing Information .  Subject to the terms of the Merger Agreement and the Transition Services Agreement, the Party requesting such Information agrees to reimburse the Party providing such Information for the reasonable costs, if any, of creating, gathering and copying such Information, and making its employees available, to the extent that such costs are incurred for the benefit of the requesting Party.  Except as may be otherwise specifically provided elsewhere in this Agreement or in any other agreement between the Parties, such costs shall be computed in accordance with the providing Party’s standard methodology and procedures.

 

Section 4.05.                              Record Retention .

 

(a)                                   Information Other Than Iron Mountain Archive Files .  On or prior to the Distribution Date or the Trust Transfer Date, as applicable, (i) Digimarc agrees to use commercially reasonable efforts to transfer all Information primarily related to the Digital Watermarking Business to DMRC and (ii) DMRC agrees to use commercially reasonable efforts to transfer all Information primarily related to the Secure ID Business to Digimarc.  To facilitate the possible exchange of any Information pursuant to this Article IV and other provisions of this Agreement after the Distribution Date or the Trust Transfer Date, as applicable, subject to Section 4.05(b) , the Parties agree to use their commercially reasonable efforts to retain all Information existing as of the Distribution Date or the Trust Transfer Date, as applicable, and in their respective possession or control relating to the Digital Watermarking Business, the Secure ID Business, Assets, interests of Digimarc or DMRC in real property, Intellectual Property or Technology, or Liabilities, each as existing on the Distribution Date or the Trust Transfer Date, as applicable, in accordance with their respective record retention policies, as may be amended from time to time.  To the extent a Party discovers Information that is an Asset of the other Party, the discovering Party shall use its commercially reasonable efforts to notify the other Party of the proposed destruction and give the other Party the opportunity to take possession of such Information prior to destruction.

 

(b)                                  Iron Mountain Archive Files .  With  respect to the Information existing as of the Acceptance Time that Digimarc has placed with Iron Mountain Storage Company (“ Iron Mountain ”, and such Information, the “ Iron Mountain Archive Files ”), the Parties agree to handle access, retention and destruction of such Information in accordance with a Joint Storage Agreement to be entered into in a form to be mutually agreed upon by the Parties.  The Joint Storage Agreement to be entered into among the Parties shall include the following provisions:

 

(i)            no ownership rights to the Iron Mountain Archive Files shall be transferred;

 

(ii)           the Parties shall enter into any agreements required by Iron Mountain to continue the current storage arrangements; provided , however , that all decisions regarding access or destruction of the Iron Mountain Archive Files made after the Distribution Date or the Trust Transfer Date, as applicable, must be made jointly by Digimarc and DMRC;

 

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(iii)          no Party will have access to the Iron Mountain Archive Files without the permission of the other Party, which shall not be unreasonably withheld;

 

(iv)          the Parties will mutually instruct Iron Mountain to destroy all such Iron Mountain Archive Files (including the actual medium the Iron Mountain Archive Files reside on) on the later of (A) ninety (90) days after the Acceptance Time or (B) upon the settlement of the IPO related cases.

 

(v)           the Parties shall split the cost of the storage equally; provided , however , that any costs associated with storage for an additional time period requested by one Party shall be the sole responsibility of such party.

 

Section 4.06.                              Limitation of Liability .  No Party shall have any liability to any other Party in respect of Information exchanged or provided pursuant to this Article IV .

 

Section 4.07.                              Other Agreements Providing for Exchange of Information .  The rights and obligations granted under this Article IV are subject to any specific limitations, qualifications or additional provisions on the sharing, exchange or confidential treatment of Information set forth in any Transaction Agreement.

 

Section 4.08.                              Production of Witnesses .  Subject to Section 4.04 , after the Distribution Date or the Trust Transfer Date, as applicable, except in the case of an adversarial Action by or against any Digimarc Entity or Entities, on the one hand, and any DMRC Entity or Entities, on the other hand (which shall be governed by such discovery rules as may be applicable thereto), each of Digimarc and DMRC shall use its reasonable efforts, and shall use its reasonable efforts to cause each Digimarc Entity or DMRC Entity, as applicable, to make available to the other Party or any Affiliate or Subsidiary of the other Party, upon written request, such Party’s (and its Affiliates’ and Subsidiaries’) former (to the extent practicable) and current (to the extent practicable) directors, officers and employees as witnesses or otherwise to the extent that the requesting Party (giving consideration to business demands of such directors, officers and employees) reasonably determines that such Information relates to any such Action, administrative or other proceedings (including preparation for such matters or proceedings) relating to the Digital Watermarking Business or the Secure ID Business on or prior to the Distribution Date or the Trust Transfer Date, as applicable.  The costs and expenses incurred in the provision of such witnesses and Information shall be paid by the Party requesting the availability of such Persons.

 

Section 4.09.                              Employees and Employee Benefit Plans .

 

(a)           Employees .  As of the Distribution Date or the Trust Transfer Date, as applicable, the DMRC Employees shall cease to be employees of Digimarc and its Subsidiaries, as applicable, and shall become employees of DMRC or its Subsidiaries, as applicable.  Any employment records maintained by Digimarc relating to any such DMRC Employees shall be transferred to DMRC.

 

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(b)            401(k) and Company Contribution Plans .

 

(i)             Effective as of the Distribution Date or the Trust Transfer Date, as applicable, Digimarc shall assign to, and DMRC shall assume sponsorship of, the Digimarc 401(k) Plan and the Digimarc Company Contribution Plan (the “ Digimarc Retirement Plans ”) and the trusts related thereto.  The Parties shall take all such commercially reasonable actions as may be necessary to accomplish such transfer and shall use commercially reasonable efforts to obtain any necessary consents or approvals to such transfer from the trustee, third party administrators, service providers and any other individuals and entities from whom such consent or approval is required to effectuate such transfer.  Effective upon such transfer of sponsorship (A) Digimarc shall resign and cease to be the plan sponsor, named fiduciary and plan administrator of the Digimarc Retirement Plans, and (B) Digimarc shall cease to have any other authority or obligation with respect to the Digimarc Retirement Plans (other than for contributions due, but not yet paid, with respect to periods ending prior to the Distribution Date or Trust Transfer Date, as applicable).

 

(ii)            Effective as of the Distribution Date or the Trust Transfer Date, as applicable, all employees of Digimarc and its Subsidiaries (other than DMRC and its Subsidiaries) shall cease to be eligible to participate in the Digimarc Retirement Plans as active participants.

 

(iii)           At or as soon as practicable after the Effective Time, all employees of the Secure ID Business (“ Secure ID Business Employees ”) shall be eligible to participate in a 401(k) plan maintained by L-1 or one of its Affiliates (the “ L-1 401(k) Plan ”) and the account balances (and related assets, including any outstanding participant loans) of the Secure ID Business Employees under the Digimarc Retirement Plans shall be transferred from the Digimarc Retirement Plans to the L-1 401(k) Plan.  The Parties, L-1 and its Affiliates shall take all commercially reasonable actions as may be necessary to effectuate the transfer of account balances contemplated in the preceding sentence, including, without limitation, directing the trustees of the Digimarc Retirement Plans and the L-1 401(k) Plan to effectuate such transfer, and shall cooperate as necessary to provide all required notices and make all required filings attendant to such transfer (such as any required black out notices and any required Form 5310A filings).  In addition, L-1 shall amend, or cause to be amended, the L-1 401(k) Plan as may be necessary to ensure that such transfer does not violate Section 411(d)(6) or any other provision of the Code and shall implement, or cause to be implemented, payroll deduction procedures to facilitate continued repayment of any transferred participant loans.  Upon such transfer, DMRC and the Digimarc Retirement Plans shall cease to have any liability, authority or obligation with respect to such transferred accounts and such accounts shall be governed by the terms of the L-1 401(k) Plan.

 

(c)            Welfare Benefit Plans .

 

(i)             Effective as of the Distribution Date or the Trust Transfer Date, as applicable, DMRC Employees and their spouses and dependents shall cease to

 

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participate in those group welfare plans set forth on Schedule 4.09 ; provided , however , that DMRC Employees and their spouses and dependents participating in such plans prior to the Distribution Date or the Trust Transfer Date, as applicable, shall remain entitled to benefits under (and in accordance with the terms of) such plans for claims incurred, but not paid, prior to the Distribution Date or the Trust Transfer Date, as applicable.  Effective as of the Distribution Date or the Trust Transfer Date, as applicable, DMRC shall establish such new group welfare plans for the benefit of DMRC Employees as it deems desirable; provided , however , that DMRC shall establish such welfare benefit plans as it reasonably believes to be necessary to satisfy its obligations under Section 4.09(d) below.

 

(ii)            On or as soon as administratively practicable after the Distribution Date or the Trust Transfer Date, as applicable, Digimarc shall transfer to DMRC (or such other Person(s) as DMRC may designate) (A) the health care spending accounts and the dependent care spending accounts of all DMRC Employees under the Digimarc Corporation Health and Welfare Plan (also known as the Digimarc Corporation Health and Welfare Benefits Plan) (the “ Digimarc Cafeteria Plan ” and, collectively, the “ FSAs ”) and DMRC shall assume all liabilities related thereto, subject to Digimarc’s proper performance of its obligations under this Section 4.09(c)(ii), and (B) a cash payment equal to the amount by which the aggregate salary reductions (and other contributions) made for the plan year beginning May 1, 2008 (the “ 2008 Plan Year ”) by or on behalf of DMRC Employees under the FSAs on or before the Distribution Date or the Trust Transfer Date, as applicable, exceed the aggregate claims for the 2008 Plan Year paid to DMRC Employees under the FSAs on or before the Distribution Date or the Trust Transfer Date, as applicable; provided , however , that if the aggregate salary reductions (and other contributions) made for the 2008 Plan Year by (or on behalf of) DMRC Employees under the FSAs on or before the Distribution Date or the Trust Transfer Date, as applicable, are exceeded by the aggregate claims for 2008 Plan Year paid to DMRC Employees under the FSAs on or before the Distribution Date or the Trust Transfer Date, as applicable, DMRC shall transfer to Digimarc a cash payment equal to the amount of such deficit.  Within a reasonable period of time after the date of this Agreement (and, in any event, prior to the Distribution Date or the Trust Transfer Date, as applicable), Digimarc shall provide to DMRC copies of the 2008 Plan Year Digimarc Cafeteria Plan elections of all DMRC Employees.  On or before the Distribution Date or the Trust Transfer Date, as applicable, Digimarc shall provide DMRC with the calculation of the amount to be transferred pursuant to clause (B) above.

 

(d)            COBRA .  From and after the Distribution Date or the Trust Transfer Date, as applicable, (i) Digimarc and, following the Effective Time, the buying group (as defined in Treasury Regulation Section 54.4980B-9, Q&A-2(c)) of which it will be a part, shall be solely responsible for providing continuation coverage under COBRA to those individuals who are M&A qualified beneficiaries (as defined in Treasury Regulation Section 54.4980B-9, Q&A-4(b)) with respect to the transactions contemplated by this Agreement and the Merger Agreement (collectively, the “ M&A Qualified Beneficiaries ”), other than those M&A Qualified Beneficiaries who are DMRC

 

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Employees, and (ii) DMRC shall be solely responsible for providing continuation coverage under COBRA to those M&A Qualified Beneficiaries who are DMRC Employees.

 

(e)            No Third Party Beneficiaries .  Nothing in this Section 4.09 shall (i) limit the right of Digimarc or DMRC to terminate or suspend the employment of any employee, whether before, on or after the Distribution Date or the Trust Transfer Date, as applicable, (ii) be deemed to modify any rights or benefits of any participant or eligible employee under any Benefit Plan, (iii) prevent Digimarc or DMRC from amending or terminating any Benefit Plan, (iv) require Digimarc or DMRC to sponsor, maintain or contribute to any particular employee benefit plan, program or arrangement or to provide any particular benefit to employees, or (v) be construed as providing any rights to any employee or dependant (or any other Person) as a third party beneficiary with respect to the matters set forth in this Section 4.09 .

 

(f)             Cooperation .  Digimarc and DMRC shall cooperate and take any action reasonably requested by the other to document, confirm or facilitate the actions required by this Section 4.09 .

 

Section 4.10.                              Non-Competition and Non-Solicitation .

 

(a)                                   Non-Competition by the DMRC Group .

 

(i)             Except as expressly contemplated by this Agreement or the Transaction Agreements, during the five (5)-year period immediately following the Distribution Date or the Trust Transfer Date, as applicable, the DMRC Group will not, directly or through another Person, in the United States or in any other geographical location in which Digimarc or the Digimarc Group is then doing business, own, manage, operate, control, participate in, invest in, lend money to, acquire or hold any investment in, or otherwise carry on, a business which is engaged in the licensing or sale of products, services, Intellectual Property or Technology related to driver licenses, passports, state or national identification cards, and government-issued credentials (for purposes of this Section 4.10(a) , a “ Competing Business ”).

 

(ii)            Notwithstanding the foregoing:

 

(A)           the ownership by any member of the DMRC Group of less than five percent (5%) of the outstanding shares of capital stock of any corporation engaged in a Competing Business listed on a national securities exchange or publicly traded in the over-the-counter market shall not constitute a violation of Section 4.10(a)(i) ;

 

(B)            the DMRC Group may acquire control of an entity engaged in a Competing Business if such entity derived not more than ten percent (10%) of its revenues during its most recent fiscal year prior to acquisition by the DMRC Group from the Competing Business;

 

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(C)            if any third party not a member of the DMRC Group as of the Distribution Date or the Trust Transfer Date, as applicable, acquires, directly or indirectly, prior to the fifth (5th) anniversary of the Distribution Date or the Trust Transfer Date, as applicable, (1) beneficial ownership of fifty percent (50%) or more of the voting securities of DMRC, including by way of merger or any other business combination or (2) all or substantially all assets of DMRC, then, nothing in this Agreement shall: (x) be a limitation on any activities of such acquiring party or any entity directly or indirectly controlling, controlled by or under common control with such acquiring party (other than a DMRC Entity that is acquired and is subject to the provisions of this Agreement at the time of such acquisition) or (y) give rise to any obligation of DMRC with respect to the activities of such acquiring party or any entity directly or indirectly controlling, controlled by or under common control with such acquiring party (other than a DMRC Entity that is acquired and is subject to the provisions of this Agreement at the time of such acquisition); and

 

(D)           any Subsidiary or business sold or otherwise disposed of by any member of the DMRC Group shall no longer be subject to the provisions of this Agreement (and neither DMRC nor any other Person shall be subject to the provisions of this Agreement with respect to such Subsidiary or business); provided, that such Subsidiary or business (and DMRC with respect thereto) shall not be so released if any member of the DMRC Group retains a greater than twenty-five percent (25%) interest in such Subsidiary or business.

 

(b)            Non-Competition by the Digimarc Group .

 

(i)             Except as expressly contemplated by this Agreement or the Transaction Agreements, during the five (5)-year period immediately following the Distribution Date or the Trust Transfer Date, as applicable, the Digimarc Group will not, directly or through another Person, in the United States or in any other geographical location in which DMRC or the DMRC Group is then doing business, own, manage, operate, control, participate in, invest in, lend money to, acquire or hold any investment in, or otherwise carry on, a business which is engaged in the licensing or sale of products, services, Intellectual Property or Technology for digital watermarking, media fingerprinting (pattern recognition but not including biometric identifiers), digital rights management or other media management approaches (for purposes of this Section 4.10(b) , a “ Competing Business ”).

 

(ii)            Notwithstanding the foregoing:

 

(A)           the ownership by any member of the Digimarc Group of less than five percent (5%) of the outstanding shares of capital stock of any corporation engaged in a Competing Business listed on a national securities exchange or publicly traded in the over-the-counter market shall not constitute a violation of Section 4.10(b)(i);

 

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(B)            the Digimarc Group may acquire control of an entity engaged in a Competing Business if such entity derived not more than ten percent (10%) of its revenues during its most recent fiscal year prior to acquisition by the Digimarc Group from the Competing Business;

 

(C)            if any third party not a member of the Digimarc Group as of the Distribution Date or the Trust Transfer Date, as applicable, acquires, directly or indirectly, prior to the fifth (5th) anniversary of the Distribution Date or the Trust Transfer Date, as applicable, (1) beneficial ownership of fifty percent (50%) or more of the voting securities of Digimarc, including by way of merger or any other business combination with Digimarc or (2) all or substantially all assets of Digimarc, then, nothing in this Agreement shall: (x) be a limitation on any activities of such acquiring party or any entity directly or indirectly controlling, controlled by or under common control with such acquiring party (other than a Digimarc Entity that is acquired and is subject to the provisions of this Agreement at the time of such acquisition) or (y) give rise to any obligation of Digimarc with respect to the activities of such acquiring party or any entity directly or indirectly controlling, controlled by or under common control with such acquiring party (other than a Digimarc Entity that is acquired and is subject to the provisions of this Agreement at the time of such acquisition); and

 

(D)           any Subsidiary or business sold or otherwise disposed of by any member of the Digimarc Group shall no longer be subject to the provisions of this Agreement (and neither Digimarc nor any other Person shall be subject to the provisions of this Agreement with respect to such Subsidiary or business); provided, that such Subsidiary or business (and Digimarc with respect thereto) shall not be so released if any member of the Digimarc Group retains a greater than twenty-five percent (25%) interest in such Subsidiary or business.

 

(c)            Non-Solicitation of Employees .

 

(i)             Except as expressly contemplated by this Agreement or the Transaction Agreements, during the five (5)-year period immediately following the Distribution Date or the Trust Transfer Date, as applicable, the DMRC Group will not, on their own behalf or on behalf of any other Person, directly or indirectly, solicit or attempt to solicit for hire any person who is then an employee of the Digimarc Group; provided , however , that the prohibition against solicitation shall not apply to solicitations made to the general public (e.g., newspaper or similar advertisements) not specifically addressed to any such employee or solicitations by recruiting firms retained by the DMRC Group not specifically directed at the employees of the Digimarc Group.

 

(ii)            Except as expressly contemplated by this Agreement or the Transaction Agreements, during the five (5)-year period immediately following the Distribution Date or the Trust Transfer Date, as applicable, the Digimarc Group will not, on its own behalf or on behalf of any other Person, directly or indirectly, hire, engage, solicit or attempt to solicit for hire any person who is then an employee of the DMRC Group; provided , however , that the prohibition against solicitation shall not apply to

 

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solicitations made to the general public (e.g., newspaper or similar advertisements) not specifically addressed to any such employee or solicitations by recruiting firms retained by the Digimarc Group not specifically directed at the employees of the DMRC Group.

 

(d)            Non-Solicitation of Others .

 

(i)             Except as expressly contemplated by this Agreement or the Transaction Agreements, during the five (5)-year period immediately following the Distribution Date or the Trust Transfer Date, as applicable, the DMRC Group will not, directly or through another Person, in any manner or capacity, (A) solicit or attempt to solicit any Person or entity who was a customer of the DMRC Group or the Digimarc Group during the eighteen (18) months immediately prior to the Distribution Date or the Trust Transfer Date, as applicable, or who becomes a customer of the DMRC Group or the Digimarc Group during the term of the Transition Services Agreement, in each case, for the purposes of selling, marketing or engaging in any activity prohibited by Section 4.10(a) , or (B) solicit, request, advise or induce any supplier or other business contact of the Digimarc Group to cancel, curtail or otherwise adversely change its relationship with the Digimarc Group.

 

(ii)            Except as expressly contemplated by this Agreement or the Transaction Agreements, during the five (5)-year period immediately following the Distribution Date or the Trust Transfer Date, as applicable, the Digimarc Group will not, directly or through another Person, in any manner or capacity, (A) solicit or attempt to solicit any Person who was a customer of the DMRC Group or the Digimarc Group during the eighteen (18) months immediately prior to the Distribution Date or the Trust Transfer Date, as applicable, or who becomes a customer of the DMRC Group or the Digimarc Group during the term of the Transition Services Agreement, in each case, for the purposes of selling, marketing or engaging in any activity prohibited by Section 4.10(b) , or (B) solicit, request, advise or induce any supplier or other business contact of the DMRC Group to cancel, curtail or otherwise adversely change its relationship with the DMRC Group.

 

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Section 4.11.        Tax Matters .

 

(a)            Prorations .  Digimarc shall bear all property and ad valorem Tax liability and similar recurring Taxes payable with respect to the DMRC Assets for Tax years or periods ending on or prior to the Distribution Date or the Trust Transfer Date, as applicable.  All other property or ad valorem Tax obligations and similar recurring Taxes payable with respect to the DMRC Assets (including the Delayed Transfer Assets) for Tax years or periods beginning before, and ending after, the Distribution Date or the Trust Transfer Date, as applicable, shall be prorated between Digimarc and DMRC as of the Distribution Date or the Trust Transfer Date, as applicable, based on the number of days in the Tax year or period.  Digimarc shall be responsible for the same proportion of such Taxes as the part of the year or period up to and including the Distribution Date or the Trust Transfer Date, as applicable, bears to the whole of such Tax year or period.  DMRC shall be responsible for the same proportion of such Taxes as the part of the Tax year or period after the Distribution Date or the Trust Transfer Date, as applicable, bears to the whole of such Tax year or period.  With respect to Taxes described in this Section 4.11(a) , Digimarc shall timely file all Tax Returns due before the Distribution Date or the Trust Transfer Date, as applicable, with respect to such Taxes and DMRC shall prepare and timely file all Tax Returns due after the Distribution Date or the Trust Transfer Date, as applicable, with respect to such Taxes.  If one Party remits to the appropriate taxing authority payment for Taxes, which are subject to proration under this Section 4.11(a)  and such payment includes the other Party’s share of such Taxes, such other party shall promptly reimburse the remitting Party for its share of such Taxes within ten (10) days by wire transfer of immediately available funds to an account designated by such remitting Party.

 

(b)            Income Tax Returns .  For U.S. federal and applicable state and local Income Tax purposes, Digimarc shall include on its Income Tax Returns for all Tax years or periods that include the Distribution or Trust Transfer, as applicable, all items of income, gain, loss, deduction, credit and other Income Tax items relating or attributable to DMRC and its Subsidiaries and Affiliates, the DMRC Assets and the Digital Watermarking Business through the Distribution Date or the Trust Transfer Date, as applicable.

 

(c)            Cooperation on Tax Matters .  Digimarc and DMRC shall furnish or cause to be furnished to each other, as promptly as practicable, such information and assistance relating to the DMRC Assets and the DMRC Liabilities as is reasonably necessary for the preparation and filing of any Tax return, claim for refund or other filings relating to Tax matters, for the preparation for any Tax audit, for the preparation for any Tax protest, for the prosecution or defense of any suit or other proceeding relating to Tax matters.

 

(d)            Tax Treatment of the Transactions .  For U.S. federal and applicable state and local Income Tax purposes, the Parties intend that:

 

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(i)             prior to the Distribution or Trust Transfer, as applicable, each of DMRC and its Subsidiaries eligible to be disregarded as an entity separate from Digimarc for U.S. federal and applicable state and local Tax purposes under Treasury Regulations Section 301.7701-3 shall be so treated;

 

(ii)            the Distribution or Trust Transfer (as applicable), the Offer and the Merger shall be treated as an integrated transaction in redemption and disposition of the shares of Digimarc Common Stock;

 

(iii)           the Distribution or Trust Transfer, as applicable, shall be treated as a distribution of all of the DMRC Assets, subject to the DMRC Liabilities, to holders of Digimarc Common Stock in redemption of a portion of their shares of Digimarc Common Stock, followed by a contribution by such holders of such DMRC Assets, subject to such DMRC Liabilities, to DMRC in exchange for a pro rata share of the DMRC Units (which DMRC intends to be classified as a partnership for U.S. and applicable state and local Income Tax purposes immediately after the exchange); and

 

(iv)           the DMRC Merger shall be treated as a contribution by DMRC of all of the DMRC Assets, subject to the DMRC Liabilities, to DMRC Sub in exchange for DMRC Sub Common Stock, followed by the distribution of such DMRC Sub Common Stock to the holders of Digimarc Common Stock in liquidation of DMRC.

 

Except as required as a result of a Final Determination, neither Digimarc, DMRC, nor their respective Subsidiaries or Affiliates, shall take any position inconsistent with the foregoing treatment.

 

(e)            Refunds .  Each of Digimarc and DMRC shall be entitled to any refund (and any interest thereon received from the applicable Tax authority) in respect of Taxes for which such party is responsible under this Agreement.  A party receiving a refund to which another party is entitled pursuant to this Section 4.11(e)  shall pay the amount, net of any Taxes or other costs incurred in connection with the receipt thereof, to which such other party is entitled promptly after receipt (whether in cash or as a credit or other offset against other current Taxes).  Any refunds in respect of Taxes pro-rated under Section 4.11(a)  shall be equitably apportioned between Digimarc and DMRC in a manner consistent with the principles underlying the allocation methodologies in Section 4.11(a) .

 

(f)             Distribution-Related Proceedings .

 

(i)             Digimarc shall notify DMRC in writing of any communication with respect to any pending or threatened Distribution-Related Proceeding no later than ten (10) Business Days after Digimarc or any of its Subsidiaries or Affiliates first receives written notice thereof.  Digimarc shall include with such notification a true, correct and complete copy of any written communication, and an accurate and complete written summary of any oral communication, received by Digimarc or any of its Subsidiaries or Affiliates.

 

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(ii)            In the event of any Distribution-Related Proceeding (A) Digimarc shall consult with DMRC reasonably in advance of taking any significant action in connection with such proceeding, (B) Digimarc shall consult with DMRC and offer DMRC a reasonable opportunity to comment before submitting any written materials prepared or furnished in connection with such proceeding, (C) Digimarc shall defend such proceeding diligently and in good faith, (D) DMRC shall be entitled to participate in such proceeding with counsel of its own choosing and receive copies of any written materials relating to such proceeding received from the relevant Tax authority, and (E) Digimarc shall not settle, compromise or abandon any such proceeding without obtaining the prior written consent of DMRC, which consent shall not be unreasonably withheld or delayed.

 

(iii)           Notwithstanding anything to the contrary herein, in the event of a conflict between the procedures set forth in this Section 4.11(f)  and Section 5.04 , the provisions of this Section 4.11(f)  shall govern.

 

(g)            Section 336(e) Election .  Each of Digimarc and DMRC shall make a protective election pursuant to Section 336(e) of the Code (the “ Section 336(e) Election ”) with respect to the Distribution in the manner and form reasonably requested by DMRC and on any applicable Tax Return relating to the Distribution by attaching a statement (the “ Election Statement ”) to any such Tax Return explaining that in the event the Distribution is not treated for U.S. federal or applicable state and local Income Tax purposes as a distribution of the DMRC Assets (subject to the DMRC Liabilities) held by DMRC to the holders of Digimarc Common Stock, and instead is treated for U.S. federal or applicable state and local Income Tax purposes as a distribution of shares of stock in a corporation (the “ Distributed Corporation ”) to the holders of Digimarc Common Stock, such Party is making the Section 336(e) Election to treat the Distribution as a disposition of all of the assets held by the Distributed Corporation at the time of the Distribution.  The form of the Election Statement to be used by each Party in making the Section 336(e) Election on any applicable Tax Return shall be provided by DMRC; provided , however , such form shall reflect any reasonable comments made by Digimarc.

 

Section 4.12.           No Representations or Warranties .  EXCEPT AS EXPRESSLY SET FORTH HEREIN: (A) NEITHER DIGIMARC NOR ANY OTHER PERSON MAKES ANY REPRESENTATION OR WARRANTY OF ANY KIND WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO THE DMRC ASSETS OR THE DMRC LIABILITIES, ANY OF THE TRANSACTIONS (INCLUDING ANY CONSENTS OR APPROVALS REQUIRED IN CONNECTION THEREWITH) OR THE CONDITION OR PROSPECTS (FINANCIAL OR OTHERWISE) OF, OR ANY OTHER MATTER INVOLVING THE DMRC ASSETS OR DMRC LIABILITIES; (B) ALL OF THE DMRC ASSETS TO BE TRANSFERRED OR THE DMRC LIABILITIES TO BE ASSUMED OR TRANSFERRED IN ACCORDANCE WITH THIS AGREEMENT OR ANY OTHER TRANSACTION AGREEMENT SHALL BE TRANSFERRED OR ASSUMED ON AN “AS IS, WHERE IS” BASIS, AND ALL IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR OTHERWISE ARE HEREBY

 

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EXPRESSLY DISCLAIMED; AND (C) EXCEPT AS MAY BE EXPRESSLY SET FORTH IN ANY TRANSACTION AGREEMENT, NONE OF THE PARTIES HERETO OR ANY OTHER PERSON MAKES ANY REPRESENTATION OR WARRANTY WITH RESPECT TO ANY INFORMATION MADE AVAILABLE IN CONNECTION WITH THE RESTRUCTURING OR THE DISTRIBUTION.

 

Section 4.13.           Payment of Purchase Price Excess or Shortfall .  At the Closing, (a) if there is a Purchase Price Excess, DMRC Sub shall deliver to L-1 by wire transfer of immediately available funds an amount in cash equal to the Purchase Price Excess, and (b) if there is a Purchase Price Shortfall, Digimarc shall deliver to DMRC Sub by wire transfer of immediately available funds an amount in cash equal to the Purchase Price Shortfall.  For all relevant Tax purposes, the payment of the Purchase Price Excess or the Purchase Price Shortfall, as applicable, shall be deemed to be made immediately prior to the Distribution or Trust Transfer, as applicable.

 

ARTICLE V

MUTUAL RELEASES; INDEMNIFICATION

 

Section 5.01.        Mutual Release of Pre-Closing Claims .

 

(a)            Except as provided in Section 5.01(c) , effective as of the Distribution Date or Trust Transfer Date, as applicable, Digimarc shall, for itself and each other Digimarc Entity, release and forever discharge each DMRC Entity from any and all Liabilities whatsoever owing to any Digimarc Entity, whether at Law or in equity (including any right of contribution), whether arising under any Contract, by operation of Law or otherwise, existing or arising from any acts or events occurring or failing to occur or alleged to have occurred or to have failed to occur or any conditions existing or alleged to have existed on or before the Distribution Date or Trust Transfer Date, as applicable, whether or not known as of the Distribution Date or Trust Transfer Date, as applicable, including in connection with the Transactions and all other activities to implement the Restructuring and the Distribution or Trust Transfer, as applicable.

 

(b)            Except as provided in Section 5.01(c) , effective as of the Distribution Date or Trust Transfer Date, as applicable, DMRC shall, for itself and each DMRC Entity, release and forever discharge each Digimarc Entity from any and all Liabilities whatsoever owing to any DMRC Entity, whether at Law or in equity (including any right of contribution), whether arising under any Contract, by operation of Law or otherwise, existing or arising from any acts or events occurring or failing to occur or alleged to have occurred or to have failed to occur or any conditions existing or alleged to have existed on or before the Distribution Date or Trust Transfer Date, as applicable, whether or not known as of the Distribution Date or Trust Transfer Date, as applicable, including in connection with the Transactions and all other activities to implement the Restructuring and the Distribution or Trust Transfer, as applicable.

 

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(c)            Nothing contained in Sections 5.01(a)  or (b)  shall impair any right of any Person to enforce this Agreement, including, without limitation, the indemnification obligations set forth in Sections 5.02 and 5.03 , any other Transaction Agreement (including Section 6.13 of the Merger Agreement) or any Contract between any DMRC Entity and any Digimarc Entity that does not terminate as of the Distribution Date or Trust Transfer Date, as applicable, in each case in accordance with its terms.  In addition, nothing contained in Sections 5.01(a)  or (b)  shall release any Person from:

 

(i)             any Liability provided in or resulting from any Contract between any DMRC Entity, on the one hand, and any Digimarc Entity, on the other hand, that does not terminate as of the Distribution Date or Trust Transfer Date, as applicable;

 

(ii)            any Liability, contingent or otherwise, assumed, transferred, assigned or allocated to any DMRC Entity or Digimarc Entity, as the case may be, in accordance with, or any other Liability of such Person under, this Agreement or any other Transaction Agreement;

 

(iii)           any Liability, the release of which would result in the release of any Person other than a Digimarc Entity or a DMRC Entity; provided that the Parties agree not to bring suit or permit any of their Subsidiaries to bring suit against any Person with respect to any Liability to the extent that such Person would be released with respect to such Liability by this Section 5.01 but for the provisions of this clause (iii);

 

(iv)           any Inter-Group Indebtedness due and owing to the Digimarc Group or the DMRC Group up to and through the Distribution Date or Trust Transfer Date, as applicable; or

 

(v)            any Liability the Parties may have with respect to indemnification or contribution pursuant to any Transaction Agreement for Third Party Claims, which Liability shall be governed by the provisions of Article V and Article VI hereof and the applicable provisions of the Transaction Agreements, as applicable.

 

(d)            No Actions as to Released Claims .  DMRC agrees, for itself and as agent for each DMRC Entity, not to make any claim or demand, or commence any Action asserting any claim or demand, including any claim of contribution or any indemnification, against Digimarc or any Digimarc Entity, with respect to any Liabilities released pursuant to this Section 5.01 .  Digimarc agrees, for itself and as agent for each Digimarc Entity, not to make any claim or demand, or commence any Action asserting any claim or demand, including any claim of contribution or any indemnification, against DMRC or any other DMRC Entity, with respect to any Liabilities released pursuant to this Section 5.01 .

 

(e)            Further Instruments .  At any time, at the request of any other Party, each Party shall cause each other DMRC Entity or Digimarc Entity, as applicable, to execute and deliver releases reflecting the provisions of this Section 5.01 .

 

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Section 5.02.        Indemnification by DMRC .  DMRC shall, and shall cause each other DMRC Entity to indemnify, defend (or, where applicable, pay the defense costs for) and hold harmless Digimarc Indemnitees from, against and in respect of:

 

(a)            the DMRC Liabilities;

 

(b)            Liabilities relating to, arising out of or resulting from the failure of any DMRC Entity or any other Person to pay, perform or otherwise promptly discharge any DMRC Liabilities in accordance with their terms;

 

(c)            Liabilities relating to, arising out of or resulting from any breach by DMRC or any DMRC Entity of this Agreement or any of the Transaction Agreements, except to the extent any Transaction Agreement contains an express provision with respect to the limitation of liability;

 

(d)            Liabilities relating to, arising out of or resulting from the failure by DMRC to perform in connection with any Delayed Transfer Asset or Delayed Transfer Liability held by Digimarc for DMRC’s benefit pursuant to Section 2.01(c) ; and

 

(e)            Liabilities relating to, arising out of or resulting from any breach of the covenants contained in Section 4.11 .

 

Section 5.03.        Indemnification by Digimarc .  Digimarc shall, and shall cause each other Digimarc Entity to indemnify, defend (or, where applicable, pay the defense costs for) and hold harmless the DMRC Indemnitees from, against and in respect of:

 

(a)            Liabilities relating to, arising out of or resulting from the operation of the Digimarc Group, other than the DMRC Liabilities;

 

(b)            Liabilities relating to, arising out of or resulting from the failure of any Digimarc Entity to pay, perform or otherwise promptly discharge all Liabilities of the Digimarc Group, other than the DMRC Liabilities, in accordance with their terms;

 

(c)            Liabilities relating to, arising out of or resulting from any breach by Digimarc or any Digimarc Entity of this Agreement or any of the Transaction Agreements, except to the extent any Transaction Agreement contains an express provision with respect to the limitation of liability;

 

(d)            Liabilities relating to, arising out of or resulting from the failure by Digimarc to perform in connection with any Delayed Transfer Asset or Delayed Transfer Liability held by DMRC for Digimarc’s benefit pursuant to Section 2.01(c) ;

 

(e)            Liabilities relating to, arising out of or resulting from any breach of the covenants contained in Section 4.11 and

 

(f)             Liabilities relating to, arising out of or resulting from (i) Income Taxes of Digimarc and its Subsidiaries or Affiliates, and (ii) Separation Tax Liabilities.

 

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Section 5.04.       Indemnification Procedures .

 

(a)            Notice of Claims .  An Indemnitee shall give written notice (a “ Notice of Claim ”) to the Indemnifying Party within twenty (20) Business Days after the Indemnitee has knowledge of any Third Party Claim which an Indemnitee has determined has given or could reasonably be expected to give rise to a right of indemnification under this Agreement.  No failure to give such Notice of Claim within the time period specified above shall affect the indemnification obligations of the Indemnifying Party hereunder, except to the extent the Indemnifying Party can demonstrate such failure actually prejudiced such Indemnifying Party’s ability to successfully defend the matter giving rise to the claim.  The Notice of Claim shall state the nature of the claim, the amount of the liability, if known, and the method of computation thereof, all with reasonable particularity and containing a reference to the provisions of this Agreement in respect of which such right of indemnification is claimed or arises.

 

(b)            Third Party Claims .  The obligations and liabilities of an Indemnifying Party under this Article V with respect to Liabilities arising from claims of any third party that are subject to the indemnification provisions provided for in this Article V , but expressly excluding DMRC Litigation Matters and Digimarc Litigation Matters, which shall be governed by Article X (“ Third Party Claims ”) shall be governed by and contingent upon the following additional terms and conditions:

 

(i)             The Indemnitee at the time it gives a Notice of Claim to the Indemnifying Party of the Third Party Claim shall advise the Indemnifying Party that the Indemnifying Party shall be permitted, at its option, to assume and control the defense of such Third Party Claim at its expense and through counsel of its choice reasonably satisfactory to the Indemnitee if (A) it gives written notice of its intention to do so to the Indemnitee within twenty (20) days of its receipt of the Notice of Claim, (B) the Third Party Claim involves only money damages and does not seek an injunction or other equitable relief, (C) settlement of or an adverse judgment with respect to the Third Party Claim is not, in the good faith judgment of the Indemnitee, likely to establish a precedential custom or practice materially adverse to the continuing business interests or the reputation of the Indemnitee, and (D) the Indemnifying Party conducts the defense of the Third Party Claim actively and diligently.

 

(ii)            In the event the Indemnifying Party exercises its right to undertake the defense against any such Third Party Claim in accordance with this Section 5.04 , the Indemnitee shall cooperate with the Indemnifying Party in such defense and make available to the Indemnifying Party all witnesses and Information in its possession or under its control relating thereto as is reasonably requested by the Indemnifying Party; provided , however , that if the defendants in any Action shall include both the Indemnitee and the Indemnifying Party and such Indemnitee shall have concluded in good faith that counsel selected by the Indemnifying Party has a conflict of interest because of the availability of different or additional defenses to such Indemnitee, such Indemnitee shall have the right to select separate counsel reasonably acceptable to the Indemnifying Party to participate in the defense of such Action on its behalf, at the

 

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expense of the Indemnifying Party; provided , further , that such Indemnifying Party shall not, in connection with any one such Action or separate but substantially similar or related Actions, be liable for the reasonable fees and expenses of more than one separate firm of attorneys (in addition to any local counsel).

 

(iii)           Notwithstanding the foregoing, the Indemnitee, during the period the Indemnifying Party is determining whether to elect to assume the defense of a matter covered by this Section 5.04(b) , may take such reasonable actions, at the Indemnifying Party’s expense, as it deems necessary to preserve any and all rights with respect to the defense of such matter, without such actions being construed as a waiver of the Indemnitee’s rights to defense and indemnification pursuant to this Agreement.  In the event the Indemnitee is, directly or indirectly, conducting the defense against any such Third Party Claim, the Indemnifying Party (A) shall cooperate with the Indemnitee in such defense and make available to it all such witnesses and Information in its possession or under its control relating thereto as is reasonably requested by the Indemnitee and (B) may participate by its own counsel and at its own expense in the defense of such Third Party Claim.

 

(c)            Settlement Procedures .  Unless otherwise required by Law, in no event shall an Indemnitee admit any liability with respect to, or settle, compromise or discharge, any Third Party Claim without the Indemnifying Party’s prior written consent (such consent not to be unreasonably withheld or delayed); provided , however , that the Indemnitee shall have the right to settle, compromise or discharge such Third Party Claim without the consent of the Indemnifying Party if the Indemnitee releases the Indemnifying Party from its indemnification obligations hereunder with respect to such Third Party Claim and such settlement, compromise or discharge would not otherwise adversely affect the Indemnifying Party.  If the Indemnifying Party acknowledges in writing liability for a Third Party Claim (as between the Indemnifying Party and the Indemnitee), the Indemnifying Party shall be permitted to enter into, and the Indemnitee shall agree to, any settlement, compromise or discharge of such claim that the Indemnifying Party may recommend and that by its terms (i) obligates the Indemnifying Party to pay the full amount of the liability in connection with such claim and (ii) releases the Indemnitee completely in connection with such Third Party Claim and that would not otherwise adversely affect the Indemnitee; provided , further , that the Indemnifying Party shall not agree to any other settlement, compromise or discharge of a Third Party Claim not described above without the prior written consent of the Indemnitee (such consent not to be unreasonably withheld or delayed).

 

(d)            Direct Claims .  Any claim on account of a Liability that does not result from a Third Party Claim shall be asserted by written notice given by the Indemnitee to the Indemnifying Party.  Such Indemnifying Party shall have a period of thirty (30) days after the receipt of such notice within which to respond thereto.  If such Indemnifying Party does not respond within such thirty (30)-day period, such Indemnifying Party shall be deemed to have refused to accept responsibility to make payment.  If such Indemnifying Party does not respond within such thirty (30)-day period or rejects such claim in whole or in part, such Indemnitee shall be free to pursue such

 

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remedies as may be available to such party as contemplated by this Agreement and the other Transaction Agreements.

 

Section 5.05.                         Indemnification Obligations Net of Insurance Proceeds and Other Amounts .

 

(a)                                   The amount of any loss shall be:

 

(i)             increased (retroactively or prospectively) to take into account any cash net Tax cost actually incurred by an Indemnitee arising from any payments received from the Indemnifying Party (grossed up for such increase); and

 

(ii)            reduced (retroactively or prospectively) to take into account any cash net Tax benefit actually recognized by an Indemnitee arising from the incurrence or payment of any such loss.  In computing the amount of such Tax cost or Tax benefit, an Indemnitee shall be deemed to recognize all other items of income, gain, loss, deduction or credit before recognizing any item arising from the receipt or accrual of any payment with respect to any such loss or the incurrence or payment of any such loss.  If an Indemnitee shall have received or accrued the payment required by this Agreement from an Indemnifying Party and shall subsequently actually recognize any cash net Tax benefit arising from the incurrence or payment of such loss, then such Indemnitee promptly shall pay to such Indemnifying Party a sum equal to the amount of such net Tax benefit, up to the aggregate amount of any payments received from such Indemnifying Party pursuant to this Agreement in respect of such loss.

 

(b)            To the extent that any Liability that is subject to indemnification under this Agreement is covered by insurance, the amount of any indemnity payment shall be reduced by the Net Proceeds of any insurance policy paid to the Indemnitee with respect to such Liability.  For purposes of this Section 5.05 , “ Net Proceeds ” shall mean the insurance proceeds actually received, less any actual, additional, or increased premium, deductibles, co-payments, other payment obligations (including attorneys’ fees and other costs of collection) or the present value of any future cost which is quantifiable with reasonable certainty, that relates to or arises from the making of the claim for indemnification.  If any Indemnitee recovers an amount from a third Person in respect of any Liability for which indemnification is provided in this Agreement after (i) the full amount of such indemnifiable Liability has been paid by an Indemnifying Party or (ii) after an Indemnifying Party has made a payment towards such indemnifiable Liability and the amount received from the third Person exceeds the remaining unpaid balance of such indemnifiable Liability, then the Indemnitee will promptly remit to the Indemnifying Party the excess (if any) of (i) the sum of the amount previously paid by such Indemnifying Party in respect of such indemnifiable Liability plus the amount received by such Indemnified Party from such third Person in respect of such indemnifiable Liability (after deducting any costs and expenses that have not yet been paid or reimbursed by the Indemnifying Party); minus (ii) the full amount of such indemnifiable Liability.

 

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(c)            In no event shall an Indemnifying Party be liable for special, punitive, exemplary, incidental, consequential or indirect damages, or lost profits of an Indemnitee, whether based on contract, tort, strict liability, other Law or otherwise, provided such exclusion of damages shall not apply to claims for such damages made as part of a Third Party Claim.

 

(d)            An Indemnitee shall take all reasonable steps to mitigate a Liability upon becoming aware of any event, which could reasonably be expected to give rise to such Liabilities.  Liabilities shall be determined after taking into account any indemnity, contribution or other similar payment received by the Indemnitee from any third party with respect thereto.

 

Section 5.06.         No Relief of Insurer Obligations .  An insurer or other third Person who would otherwise be obligated to defend or make payment for any Liability or in response to any claim shall not be relieved of the responsibility with respect thereto or, solely by virtue of the indemnification and contribution provisions hereof or have any subrogation rights with respect thereto, it being expressly understood and agreed that no insurer or any other third party shall be entitled to a “windfall” (i.e., a benefit it would not be entitled to receive in the absence of the indemnification provisions hereof) by virtue of the indemnification provisions hereof.

 

Section 5.07.         Subrogation .  In the event of payment by or on behalf of any Indemnifying Party to any Indemnitee in connection with any Third Party Claim, such Indemnifying Party shall be subrogated to and shall stand in the place of such Indemnitee as to any events or circumstances in respect of which such Indemnitee may have any right, defense or claim relating to such Third Party Claim.  Such Indemnitee shall cooperate with such Indemnifying Party in a reasonable manner, and at the cost and expense of such Indemnifying Party, in prosecuting any subrogated right, defense or claim.

 

Section 5.08.         Joint Defense and Cooperation .  With respect to any Third Party Claim in which both Digimarc and DMRC are, or reasonably may be expected to be, named as parties, or that otherwise implicates both Digimarc and DMRC in a material fashion, the Parties shall reasonably cooperate with respect to such Third Party Claim and if the Parties agree, maintain a joint defense in a manner that will preserve applicable privileges.

 

Section 5.09.         Survival of Rights and Obligations .  The rights and obligations of each of Digimarc and DMRC and their respective Indemnitees under this Article V shall survive the distribution, sale or other transfer by any Party hereto of any Assets, interests in real property, Intellectual Property or Technology or businesses or the delegation or assignment by it of any Liabilities.

 

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ARTICLE VI

INSURANCE

 

Section 6.01.           Insurance Coverage; Cooperation .  All insurance policies of Digimarc shall constitute Assets of Digimarc and shall be retained by Digimarc and the other Digimarc Entities, together with all rights, benefits and privileges thereunder (including the right to receive any and all return premiums with respect thereto) to the extent coverage is continued by the insurers after the Distribution Date or Trust Transfer Date, as applicable, except that DMRC will have the rights in respect of Insurance Policies to the extent described in Section 6.02 .  Each of Digimarc and DMRC shall use commercially reasonable efforts to share such Information as is reasonably necessary in order to permit the other to manage and conduct its insurance matters in an orderly fashion.  Each of Digimarc and DMRC, at the request of the other, shall use commercially reasonable efforts to cooperate with and assist the other in recoveries for claims made under any insurance policy for the benefit of any DMRC Entity or Digimarc Entity, as applicable, and neither Digimarc nor DMRC, nor any DMRC Entity or Digimarc Entity, as applicable, shall take any action which would be reasonably likely to jeopardize or otherwise interfere with the ability of any DMRC Entity or Digimarc Entity, as applicable, to collect any proceeds payable pursuant to any insurance policy.  Nothing in this Section 6.01 shall (a) preclude any DMRC Entity or Digimarc Entity from presenting any claim or exhausting any policy limit, (b) require any DMRC Entity or Digimarc Entity to pay any premium or other amount or to incur any Liability (except that Digimarc or the applicable Digimarc Entity shall be responsible for paying any additional insurance premiums arising from insurance company audits after the Distribution Date or Trust Transfer Date, as applicable) or (c) require any DMRC Entity or Digimarc Entity to renew, extend or continue any policy in force, other than as expressly set forth in any Transaction Agreement.

 

Section 6.02.           Rights Under Insurance Policies .  Except as otherwise specified in this Article VI or any other Transaction Agreement, the DMRC Entities shall have no rights with respect to any insurance policies of Digimarc, except that DMRC will have the right to (i) assert claims and to resolve existing and pending claims under Insurance Policies for any loss, liability or damage arising out of insured incidents to the extent relating to the Digital Watermarking Business occurring from the date coverage thereunder first commenced until the Distribution Date or Trust Transfer Date, as applicable, and (ii) acquire all rights, privileges and proceeds of such Insurance Policies relating to the claims specified in clause (i); provided that, (A) all of Digimarc’s and each Digimarc Entity’s reasonable out-of-pocket costs and expenses, if any, incurred in connection with the foregoing shall be promptly paid by DMRC and (B) Digimarc and the Digimarc Entities may, at any time, without liability or obligation to any DMRC Entity, amend, commute, terminate, buy-out, extinguish liability under or otherwise modify any Insurance Policy (and such Insurance Policy shall be subject to any such amendments, commutations, terminations, buy-outs, extinguishments and modifications).  No Digimarc Entity shall bear any Liability for the failure of an insurer to pay any claim

 

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under any Insurance Policy.  Notwithstanding anything to the contrary herein, DMRC may at any time, and from time to time, inform Digimarc by written notice that it desires to terminate its rights to assert claims under any or all Insurance Policies, in which case DMRC’s rights to assert claims relating to DMRC Liabilities under such Insurance Policy or Insurance Policies shall terminate immediately.  In the case of any amendments, commutations, terminations, buy-outs, extinguishments and modifications of an Insurance Policy, Digimarc shall provide reasonable advance notice thereof to DMRC.

 

Section 6.03.      DMRC Insurance Coverage After the Distribution Date .  From and after the Distribution Date or Trust Transfer Date, as applicable, (a) DMRC, and DMRC alone, shall be responsible for obtaining and maintaining insurance programs for its risk of loss and (b) such insurance arrangements shall be separate and apart from Digimarc’s insurance programs.

 

Section 6.04.       Responsibilities for Self-Insured Obligations and Other Obligations .

 

(a)            DMRC will reimburse Digimarc for DMRC’s pro rata share (based on the aggregate amount of proceeds received in respect of claims relating to DMRC Liabilities under such Insurance Policy by the DMRC Entities) of all amounts necessary to exhaust or otherwise satisfy all applicable self-insured retentions and DMRC’s pro rata share of all amounts for fronted policies, overages, deductibles and retrospective or prospective premium adjustments and similar amounts not covered by Insurance Policies.

 

(b)            Each of Digimarc and DMRC does hereby, for itself and each other Digimarc Entity and DMRC Entity, agree that all duties and obligations under any Insurance Policy, including the fulfillment of any conditions and the payment of any deductibles, retentions, co-insurance payment or retrospective premiums, that correspond in any way with or may be necessary to perfect, preserve or maintain an insured’s right to obtain benefits under that Insurance Policy, will be performed by the insured that is seeking the benefits under that Insurance Policy, subject to the indemnification provisions set forth herein.

 

Section 6.05.         Claims Administration .  Digimarc or its designee shall be responsible for the claims administration with respect to claims of any Digimarc Entity under Insurance Policies.  DMRC or its designee shall be responsible for the claims administration with respect to claims of DMRC under Insurance Policies.

 

Section 6.06.         Procedures Regarding Insufficient Limits of Liability .  In the event that there are insufficient limits of liability available under the Insurance Policies in effect prior to the Distribution Date or Trust Transfer Date, as applicable, to cover the Liabilities of the Digimarc Entities and/or the DMRC Entities that would otherwise be covered by such Insurance Policies, then no DMRC Entity shall be entitled to recovery for any claims under such Insurance Policies until the claims of all Digimarc Entities have been satisfied thereunder.  If any DMRC Entity has received proceeds under any such Insurance Policies, DMRC shall reimburse Digimarc all amounts to which any

 

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Digimarc Entity would have been entitled had its claim under such Insurance Policies arisen prior to any recovery thereunder by any DMRC Entity.

 

Section 6.07.           Cooperation .  Digimarc and DMRC will use their commercially reasonable efforts to cooperate with each other and execute any additional documents which are reasonably necessary to effectuate the provisions of this Article VI .

 

Section 6.08.           No Assignment or Waiver .  This Agreement shall not be considered as an attempted assignment of any rights or interest in violation of any policy of insurance or as a contract of insurance and shall not be construed to waive any right or remedy of any Digimarc Entity in respect of any Insurance Policy or any other Contract or policy of insurance.

 

Section 6.09.           No Liability .  DMRC does hereby, for itself and as agent for each DMRC Entity, agree that no Digimarc Entity or any Digimarc Indemnitee shall have any Liability whatsoever as a result of the insurance policies and practices of Digimarc and its Subsidiaries as in effect at any time prior to the Distribution Date or Trust Transfer Date, as applicable, including as a result of the level or scope of any such insurance, the creditworthiness of any insurance carrier, the terms and conditions of any policy or the adequacy or timeliness of any notice to any insurance carrier with respect to any claim or potential claim.

 

Section 6.10.           No Restrictions .  Nothing in this Agreement shall be deemed to restrict any DMRC Entity from acquiring at its own expense any other insurance policy in respect of any Liabilities or covering any period.

 

Section 6.11.           Further Agreements .  The Parties acknowledge that they intend to allocate financial obligations without violating any Laws regarding insurance, self-insurance or other financial responsibility.  If it is determined that any action undertaken pursuant to this Agreement or any other Transaction Agreement is violative of any insurance, self-insurance or related financial responsibility Law, the Parties agree to work together to do whatever is necessary to comply with such Law while trying to accomplish, to the greatest possible extent, the allocation of financial obligations as intended in this Agreement and any other Transaction Agreement.

 

Section 6.12.           Insurance Proceeds .  Each of Digimarc and DMRC shall use its respective commercially reasonable efforts to collect any proceeds under its respective available and applicable third-party insurance policies to which it or any of its Subsidiaries is entitled prior to seeking indemnification or contribution under this Agreement, where allowed; provided , however , that any such actions by an Indemnitee will not relieve the Indemnifying Party of any of its obligations under this Agreement, including the Indemnifying Party’s obligation to pay directly or reimburse the Indemnitee for costs and expenses actually incurred by the Indemnitee.

 

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ARTICLE VII

CONDITIONS TO THE SEPARATION

 

Section 7.01.           Conditions to the Separation .  The obligations of Digimarc pursuant to this Agreement to effect the Separation shall be subject to the fulfillment (or waiver by Digimarc) at or prior to the Distribution Date or Trust Transfer Date, as applicable, of the following conditions (other than, with respect to the Trust Transfer Date, Section 7.01(f) ).  In no event shall the Separation occur unless the following conditions shall have been satisfied or waived (to the extent permitted by applicable Law) by Digimarc (other than, with respect to the Trust Transfer Date, Section 7.01(f) ):

 

(a)            each of the Transaction Agreements shall have been duly executed and delivered by the parties thereto;

 

(b)            each of the Transaction Agreements shall be in full force and effect and the parties thereto shall have performed or complied with all of their respective covenants, obligations and agreements contained herein and therein and as required to be performed or complied with prior to the Distribution Date or Trust Transfer Date, as applicable;

 

(c)            all Consents or Governmental Approvals required to complete the Separation and set forth on Schedule 7.01(c) shall have been received and be in full force and effect;

 

(d)            the Restructuring shall have been consummated in accordance with this Agreement;

 

(e)            all of the Offer Conditions shall have been satisfied or waived (other than those conditions to be satisfied on the Distribution Date or Trust Transfer Date, as applicable);

 

(f)             the Form 10 shall have been filed with, and declared effective by, the SEC, and there shall be no stop-order in effect with respect thereto;

 

(g)            Digimarc shall have established the Record Date and shall have provided notice to the National Association of Securities Dealers no later than ten (10) days prior to the Record Date in compliance with Rule 10b-17 under the Exchange Act; and

 

(h)            all Inter-Group Indebtedness shall have been paid in full.

 

ARTICLE VIII

FURTHER ASSURANCES AND ADDITIONAL COVENANTS

 

Section 8.01.           Further Assurances .

 

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(a)            In addition to the actions specifically provided for elsewhere in this Agreement and the other Transaction Agreements but subject to the provisions hereof and thereof, each of the Parties shall use its reasonable efforts, prior to, on and after the Distribution Date or Trust Transfer Date, as applicable, to take, or cause to be taken, all actions, and to do, or cause to be done, all things, reasonably necessary, proper or advisable under applicable Laws and Contracts to consummate and make effective the Transactions.

 

(b)            Without limiting the foregoing, prior to, on and after the Distribution Date or Trust Transfer Date, as applicable, each Party shall cooperate with the other Party, and without any further consideration, to execute and deliver, or use its reasonable efforts to cause to be executed and delivered, all instruments, including instruments of conveyance, assignment and transfer, and to make all filings with, and to obtain all consents, approvals or authorizations of, any Governmental Authority or any other Person under any License, Contract, indenture or other instrument (including any Consents or Governmental Approvals), and to take all such other actions as such Party may reasonably be requested to take by the other Party from time to time, consistent with the terms of this Agreement and the other Transaction Agreements, in order to effectuate the provisions and purposes of this Agreement, the other Transaction Agreements and the transfers of the DMRC Assets and the assignment and assumption of the DMRC Liabilities and the other transactions contemplated hereby and thereby.

 

(c)            On or prior to the Distribution Date or Trust Transfer Date, as applicable, Digimarc and DMRC in their respective capacities as direct and indirect stockholders of their respective Subsidiaries, shall each ratify any actions that are reasonably necessary or desirable to be taken by Digimarc and DMRC or any of their respective Subsidiaries, to effectuate the transactions contemplated by this Agreement.

 

(d)            Following the Distribution Date or Trust Transfer Date, as applicable, DMRC shall, and shall cause the DMRC Group to, deliver to the Digimarc Group, copies of any and all Information that is relevant to the operation of the Secure ID Business, to the extent such Information is stored in or part of any of the DMRC Assets.  In addition, following the Distribution Date or Trust Transfer Date, as applicable, DMRC shall, and shall cause the DMRC Group to, deliver to the Digimarc Group, copies of any and all Information that is relevant to the historical operation of Digimarc as a holding company prior to the Distribution Date or Trust Transfer Date, as applicable, to the extent such Information is stored in or part of any of the DMRC Assets.

 

Section 8.02.       Name Change .

 

(a)            At or prior to the Effective Time, DMRC shall take such action necessary to change its corporate name to “Digimarc Corporation”.

 

(b)            At or prior to the Effective Time, Digimarc shall take such action necessary to change its corporate name.

 

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(c)            At or prior to the Effective Time, Digimarc shall take such action necessary to remove the term “Digimarc” from the names of each of its Subsidiaries.

 

Section 8.03.       Use of Names .

 

(a)                                   Subject to the License Agreement, any material showing any affiliation or connection of Digimarc or any member of the Digimarc Group with DMRC or any member of the DMRC Group shall not be used by Digimarc or any member of the Digimarc Group after the Distribution Date or Trust Transfer Date, as applicable, except that the restrictions contained in this Section 8.03(a)  shall not apply to filings, reports and other documents required by applicable Law or regulations of securities exchanges to be filed and/or made publicly available.  On and after the Distribution Date or Trust Transfer Date, as applicable, neither Digimarc nor any of Digimarc’s Subsidiaries shall represent to third parties that any of them is affiliated or connected with DMRC or any member of the DMRC Group.

 

(b)                                  Any material showing any affiliation or connection of DMRC or any member of the DMRC Group with Digimarc or any member of the Digimarc Group shall not be used by DMRC or any member of the DMRC Group after the Distribution Date or Trust Transfer Date, as applicable, except that the restrictions contained in this Section 8.03(b)  shall not apply to filings, reports and other documents required by applicable Law or regulations of securities exchanges to be filed and/or made publicly available.  On and after the Distribution Date or Trust Transfer Date, as applicable, neither DMRC nor any other member of the DMRC Group shall represent to third parties that any of them is affiliated or connected with Digimarc or any member of the Digimarc Group.

 

Section 8.04.                              Licenses .  Each Party shall cause the appropriate members of its Group to prepare and file with the appropriate Governmental Authority applications for the transfer or issuance, as may be necessary or advisable in connection with the transactions contemplated by this Agreement and the other Transaction Agreements, to its Group of all material Licenses required for the members of its Group to operate its business after the Distribution Date or Trust Transfer Date, as applicable. The members of the DMRC Group and the members of the Digimarc Group shall cooperate and use all commercially reasonable efforts to secure the transfer or issuance of such Licenses.

 

Section 8.05.                              Notices to Third Parties .  In addition to the actions described in Section 8.04 , the members of the Digimarc Group and the members of the DMRC Group shall use commercially reasonable efforts to make all other filings and give notice to and obtain consents from all third parties that may be required to consummate the transactions contemplated by this Agreement and the other Transaction Agreements.

 

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ARTICLE IX

TERMINATION

 

Section 9.01.           Termination .  Notwithstanding any provision hereof, this Agreement may be terminated by Digimarc and the Separation may be abandoned prior to the Distribution Date or Trust Transfer Date, as applicable, at any time following termination of the Merger Agreement in accordance with its terms.

 

Section 9.02.           Effect of Termination .  In the event of any termination of this Agreement prior to the Distribution Date or Trust Transfer Date, as applicable, pursuant to Section 9.01 , no Party to this Agreement (or any of its Representatives) shall have any Liability or further obligation to any other Party or third party with respect to this Agreement, except as provided in the Merger Agreement.

 

ARTICLE X

LEGAL MATTERS

 

Section 10.01.        Control of Legal Matters .

 

(a)            On or prior to the Distribution Date or Trust Transfer Date, as applicable, DMRC shall assume control of each of the DMRC Litigation Matters, and, to the extent any member of the Digimarc Group is a defendant in such DMRC Litigation Matter, DMRC shall use its commercially reasonable efforts to have DMRC or a member of the DMRC Group substituted for such member of the Digimarc Group named as a defendant in such DMRC Litigation Matter; provided , however , that DMRC shall not be required to make any such effort if the removal of any member of the Digimarc Group would jeopardize insurance coverage or rights to indemnification from third parties applicable to such DMRC Litigation Matters.

 

(b)            On or prior to the Distribution Date or Trust Transfer Date, as applicable, Digimarc shall assume control of each of the Digimarc Litigation Matters, and, to the extent any member of the DMRC Group is a defendant in such Digimarc Litigation Matter, Digimarc shall use its commercially reasonable efforts to have Digimarc or a member of the Digimarc Group substituted for such member of the DMRC Group named as a defendant in such Digimarc Litigation Matter; provided , however , that Digimarc shall not be required to make any such effort if the removal of any member of the DMRC Group would jeopardize insurance coverage or rights to indemnification from third parties applicable to such Digimarc Litigation Matters.

 

(c)            Except (i) as provided in Sections 10.01(a)  and 10.01(b)  and (ii) for any claims for which a Notice of Claim has been delivered under Section 5.04(b) , after the Distribution Date or Trust Transfer Date, as applicable, the Parties agree that with respect to all demands, claims or Actions commenced after the Distribution Date or Trust Transfer Date, as applicable, against any one or more of DMRC, Digimarc or any

 

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or their Affiliates relating to events that take place before, on or after the Distribution Date or Trust Transfer Date, as applicable, such demands, claims or Actions shall be controlled by:

 

(i)             DMRC, if such claim, demand or Action relates (A) solely to the DMRC Assets, the DMRC Liabilities or the Digital Watermarking Business (other than any such claim, demand or Action relating to IDMarc Software or IDMarc Source Code licensed to L-1 Identity Solutions Operating Company and its Affiliates pursuant to the License Agreement), (B) a claim, demand or Action arises from or relates to the Form 10, the Schedule 14D-9 or any other document filed with any Governmental Authority (including the SEC) by DMRC or Digimarc in connection with the Restructuring, the Separation or the Distribution or Trust Transfer or (C) a claim, demand or Action is brought by or on behalf of the current or former stockholders of DMRC or Digimarc and relates to the Restructuring, the Separation or the Distribution or Trust Transfer (the matters in clauses (A) through (C) being “ Future DMRC Litigation Matters ”), and DMRC shall use its commercially reasonable efforts to have a member of the DMRC Group substituted for any member of the Digimarc Group that may be named as a defendant in such Future DMRC Litigation Matter; provided , however , that DMRC shall not be required to make any such effort if the removal of any member of the Digimarc Group would jeopardize insurance coverage or rights to indemnification from third parties applicable to such Future DMRC Litigation Matter;

 

(ii)            Digimarc, if such claim, demand or Action relates solely to Assets retained by Digimarc, the Secure ID Business or IDMarc Software or IDMarc Source Code licensed to L-1 Identity Solutions Operating Company and its Affiliates pursuant to the License Agreement  (a “ Future ID Litigation Matter ”), and Digimarc shall use its commercially reasonable efforts to have a member of the Digimarc Group substituted for any member of the DMRC Group that may be named as a defendant in such Future ID Litigation Matter; provided , however , that Digimarc shall not be required to make any such effort if the removal of any member of the DMRC Group would jeopardize insurance coverage or rights to indemnification from third parties applicable to such Future ID Litigation Matter; and

 

(iii)           except as provided in subparagraphs (i) or (ii) above, or as may be otherwise agreed by Digimarc and DMRC, Digimarc and DMRC jointly if a claim, demand or Action is brought by any person against DMRC, Digimarc and/or any of their Affiliates with respect to both the DMRC Assets, the DMRC Liabilities or the Digital Watermarking Business, on the one hand, and the Assets retained by Digimarc or the Secure ID Business, on the other hand (a “ Future Joint Litigation Matter ”); provided , however , that neither Party may settle a Future Joint Litigation Matter without the prior written consent of the other Party or its Affiliates named or involved in such Future Joint Litigation Matter, which consent shall not be unreasonably withheld or delayed; provided, further, that either Party or its Affiliates may settle a Future Joint Litigation matter, at its sole discretion and expense, if such settlement is for money only and provides a full release from any Liability under such Future Joint Litigation Matter for the other Party and, as applicable, the other and its Affiliates.

 

52



 

(d)           To the extent the party named in an Action described in this Section 10.01 is not substituted for as described in Sections 10.01(a) , 10.01(b) , 10.01(c)(i)  or 10.01(c)(ii)  by a member of the Group which has assumed control of such Action pursuant to this Section 10.01 , the Parties agree to cooperate in defending against such Action and, subject to Section 4.01 , to provide each other with access to all Information relating to such Action except to the extent providing such access and such Information would prejudice an indemnification claim available to such Parties as contemplated in Article V .

 

Section 10.02.        Claims Against Third Parties .  Claims, demands and Actions by DMRC or any of its Subsidiaries against third parties, and any proceeds or other benefits that may be received as a result of such claims, demands or Actions and any Liabilities arising out of or resulting from such claims, demands or Actions, that are (a) DMRC Claims shall be the property of DMRC, (b) Digimarc Claims shall be the property of Digimarc, and (c) Joint Claims shall be the property of, and shall be shared by, DMRC and Digimarc in proportion to their respective interests.

 

Section 10.03.        Notice to Third Parties; Service of Process; Cooperation .

 

(a)            Each of DMRC and Digimarc shall, and shall cause their respective Affiliates to, promptly notify their respective agents for service of process and all other necessary parties, including plaintiffs and courts, of the Separation and shall provide instructions for proper service of legal process and other documents.

 

(b)            DMRC and Digimarc shall, and shall cause their respective Affiliates to, use their commercially reasonable efforts to deliver to each other any legal process or other documents incorrectly served upon them or their agents as soon as possible following receipt.

 

Section 10.04.        IDMarc Software .  Digimarc hereby represents and warrants that: (a) except as set forth on Schedule 10.04 (Claims), none of Digimarc or its Subsidiaries has received any written notice of any claim or threatened claim that any of the IDMarc Software or IDMarc Source Code infringes or constitutes or results from the misappropriation of any Intellectual Property of any third Person and (b) none of Digimarc or its Subsidiaries has entered into any agreement granting any third Person any right to use, commercialize or otherwise exploit any of the IDMarc Software and IDMarc Source Code outside of the Secure ID Business.

 

ARTICLE XI

GENERAL PROVISIONS

 

Section 11.01.         Entire Agreement; No Third-Party Beneficiaries .  This Agreement (together with the other Transaction Agreements, the exhibits and the schedules and the other documents delivered pursuant to this Agreement) constitutes the entire agreement, and supersedes all prior agreements and understandings, both written and oral, among the

 

53



 

Parties with respect to the subject matter hereof and, except for the provisions of Sections 5.02 and 5.03 , is not intended to confer upon any Person other than the Parties any rights or remedies hereunder.  Notwithstanding the foregoing, in the event that the provisions of this Agreement conflict with the provisions of the Merger Agreement, the Merger Agreement shall prevail.

 

Section 11.02.         Expenses .  Except as expressly set forth herein or in the Merger Agreement, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the Party incurring such cost and expense.

 

Section 11.03.         Governing Law; Jurisdiction; Waiver of Jury Trial .

 

(a)            This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, applicable to contracts executed in and to be performed entirely within that State.

 

(b)            All actions and proceedings arising out of this Agreement shall be heard and determined in the Chancery Court of the State of Delaware or any federal court sitting in the State of Delaware, and the Parties hereby irrevocably submit to the exclusive jurisdiction of such courts (and, in the case of appeals, appropriate appellate courts therefrom) in any such action or proceeding and irrevocably waive the defense of an inconvenient forum to the maintenance of any such action or proceeding.  Each party hereby consents to process being served in any such action or proceeding by the mailing of a copy thereof to the address set forth in Section 11.04 hereof and agrees that such service upon receipt shall constitute good and sufficient service of process or notice thereof.  The consents to jurisdiction set forth in this paragraph shall not constitute general consents to service of process in the State of Delaware and shall have no effect for any purpose except as provided in this paragraph and shall not be deemed to confer rights on any Person other than the Parties.  The Parties agree that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by applicable Law.

 

(c)            EACH OF THE PARTIES HERETO HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION BETWEEN THE PARTIES HERETO DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY.

 

Section 11.04.         Notices .  All notices, requests and other communications to any party hereunder shall be in writing and shall be deemed given if delivered personally, facsimiled (which is confirmed), sent by email (with a return receipt) or sent by overnight courier (providing proof of delivery) to the parties at the following addresses:

 

(a)            if to Digimarc or any Digimarc Entity prior to the Distribution Date or Trust Transfer Date, as applicable, to:

 

54



 

9405 SW Gemini Drive

Beaverton, OR 97008

Attention:  Robert Chamness

Facsimile:  (503) 469-4771

Email:  Robert.Chamness@digimarc.com

 

with a copy (which shall not constitute notice) to:

 

Perkins Coie LLP

1120 N.W. Couch St.

Tenth Floor

Portland, OR 97209

Attention: Roy W. Tucker and John R. Thomas

Facsimile:  (503) 727-2222

Email:         rtucker@perkinscoie.com

jrthomas@perkinscoie.com

 

(b)            if to DMRC or any DMRC Entity, to:

 

9405 SW Gemini Drive

Beaverton, OR 97008

Attention:  Robert Chamness

Facsimile:  (503) 469-4771

Email:  Robert.Chamness@digimarc.com

 

with a copy (which shall not constitute notice) to:

 

Perkins Coie LLP

1120 N.W. Couch St.

Tenth Floor

Portland, OR 97209

Attention: Roy W. Tucker and John R. Thomas

Facsimile:  (503) 727-2222

Email:       rtucker@perkinscoie.com
jrthomas@perkinscoie.com

 

(c)            if to L-1, Digimarc or any Digimarc Entity on or after the Distribution Date or Trust Transfer Date, as applicable, to:

 

177 Broad Street

Stamford, CT 06901

Attention:  Mark Molina

Facsimile:  (203) 504-1104

Email:  mmolina@L1ID.com

 

with a copy (which shall not constitute notice) to:

 

55



 

Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153

Facsimile:  (212) 310-8007
Attention:  Marita A. Makinen

 

and to:

 

Weil, Gotshal & Manges LLP

201 Redwood Shores Parkway

Redwood Shores, CA 94065
Facsimile:  (650) 802-3100
Attention:  Kyle Krpata

 

or such other addresses or facsimile number as such Party may hereafter specify by like notice to the other Parties.  All such notices, requests and other communications shall be deemed received on the date of receipt by the recipient thereof if received prior to 5:00 p.m. in the place of receipt and such day is a Business Day in the place of receipt.  Otherwise, any such notice, request or communication shall be deemed not to have been received until the next succeeding Business Day in the place of receipt.

 

Section 11.05.         Counterparts .  This Agreement may be executed in one or more counterparts, all of which will be considered one and the same agreement and will become effective when one or more counterparts have been signed by each Party and delivered to the other Party, it being understood that each Party need not sign the same counterpart.

 

Section 11.06.         Assignment .  Except as set forth in any other Transaction Agreement, neither this Agreement nor any of the rights, interests or obligations under this Agreement will be assigned, in whole or in part, by operation of Law or otherwise, by either of the Parties without the prior written consent of the other Party, except (a) for assignments in connection with the acquisition of beneficial ownership of fifty percent (50%) or more of the voting securities of such Party, including by way of merger or any other business combination, or the sale of all or substantially all assets of such Party, and (b) that either Party may assign any or all of its rights, interests or obligations under this Agreement to any one or more of its direct or indirect wholly owned Subsidiaries or DMRC Subsidiaries; provided that no such assignment will relieve the assigning Party from any of its obligations under this Agreement.  Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of, and be enforceable by Digimarc and DMRC and their respective successors and assigns.

 

Section 11.07.         Enforcement .  The Parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached.  It is accordingly agreed that the Parties will be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement.

 

56



 

Section 11.08.         Severability .  If any term or other provision of this Agreement is determined by a court of competent jurisdiction to be invalid, illegal or incapable of being enforced by any rule of Law or public policy, all other terms, provisions and conditions of this Agreement shall nevertheless remain in full force and effect.  Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible to the fullest extent permitted by applicable Law in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the extent possible.

 

Section 11.09.         Headings .  Headings of the Articles and Sections of this Agreement and the Transaction Agreements are for convenience of the Parties only and will be given no substantive or interpretive effect whatsoever.

 

Section 11.10.         Attorneys’ Fees .  If any Action at Law or equity, including an Action for declaratory relief, is brought to enforce or interpret any provision of this Agreement, the prevailing party shall be entitled to recover reasonable attorneys’ fees and expenses from the other party, which fees and expenses shall be in addition to any other relief which may be awarded.

 

Section 11.11.         Amendment .  This Agreement and the Transaction Agreements may not be waived, amended or modified in any respect unless such waiver, amendment or modification is in writing and signed on behalf of the Parties or thereto, and such waiver, amendment or modification is approved as provided in the Merger Agreement.

 

Section 11.12.         Limited Liability .  Notwithstanding any other provision of this Agreement, no stockholder or Representative of DMRC or Digimarc, in its capacity as such, shall have any liability in respect of or relating to the covenants or obligations of such Party under this Agreement or in respect of any certificate delivered with respect hereto or thereto and, to the fullest extent legally permissible, each of DMRC and Digimarc, for itself and its stockholders, directors, officers and Affiliates, waives and agrees not to seek to assert or enforce any such liability that any such Person otherwise might have pursuant to applicable Law.

 

Section 11.13.         Interpretation .  Words in the singular shall be held to include the plural and vice versa and words of one gender shall be held to include the other genders as the context requires.  The terms “hereof,” “herein,” and “herewith” and words of similar import herein (or in any Transaction Agreement) shall, unless otherwise stated, be construed to refer to this Agreement (or the applicable other Transaction Agreement) taken as a whole (including all of the schedules and exhibits hereto and thereto) and not to any particular provision of this Agreement (or such other Transaction Agreement).  Article, Section, Exhibit and Schedule references are to the Articles, Sections, Exhibits and Schedules to this Agreement (or the applicable other Transaction Agreement) unless otherwise specified.  The word “including” and words of similar import when used in this Agreement (or the applicable other Transaction Agreement) means “including, without limitation,” unless the context otherwise requires or unless otherwise specified.  Unless

 

57



 

expressly stated to the contrary in this Agreement or in any other Transaction Agreement, all references to “the date hereof,” “the date of this Agreement,” “hereby” and “hereupon” and words of similar import shall all be references to August 1, 2008 (or the date of which the relevant Transaction Agreement is first entered into, as the case may be) regardless of any amendment or restatement hereof (or thereof).  The Parties have participated jointly in the negotiation and drafting of this Agreement, and in the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties, and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any provisions of this Agreement.

 

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

 

58



 

IN WITNESS WHEREOF, the undersigned have caused this Agreement to be signed by their respective officers thereunto duly authorized, all as of the date first written above.

 

 

DIGIMARC CORPORATION

 

 

 

 

 

 

 

By:  

/s/ Robert Chamness

 

 

Name:  Robert Chamness

 

 

Title: Chief Legal Officer and Secretary

 

 

 

 

 

DMRC LLC

 

 

 

 

 

By:  

/s/ Robert Chamness

 

 

Name: Robert Chamness

 

 

Title: Chief Legal Officer and Secretary

 

 

 

 

 

DMRC CORPORATION

 

 

 

By:  

/s/ Robert Chamness

 

 

Name: Robert Chamness

 

 

Title: Chief Legal Officer and Secretary

 

 

 

 

 

L-1 IDENTITY SOLUTIONS, INC, solely
for the purposes of Section 3.02. Section
4.09(b)(iii) and Section 4.13

 

 

 

 

 

By:  

/s/ Robert V. LaPenta

 

 

Name: Robert V. LaPenta

 

 

Title: Chairman, President and

 

 

Chief Executive Officer

 

 

[SIGNATURE PAGE TO SEPARATION AGREEMENT]

 



 

SCHEDULES TO

SEPARATION AGREEMENT, DATED AUGUST 1, 2008,

BY AND AMONG DIGIMARC CORPORATION,

DMRC LLC, DMRC CORPORATION

AND, WITH RESPECT TO SECTIONS 3.02, 4.09(b)(iii) and 4.13,

L-1 IDENTITY SOLUTIONS, INC.

 

Schedule 1.01

 

Consents

 

 

 

Schedule 1.01

 

Digimarc Litigation Matters

 

 

 

Schedule 1.01

 

Government Approvals

 

 

 

Schedule 1.01

 

Joint Claims

 

 

 

Schedule 1.01

 

Legal Impediments

 

 

 

Schedule 1.01

 

Shared Assets

 

 

 

Schedule 1.01

 

DMRC Intellectual Property and Technology

 

 

 

Schedule 1.01

 

Digital Watermarking Business Contracts

 

 

 

Schedule 1.01

 

DMRC Employees

 

 

 

Schedule 1.01

 

DMRC Equity Investments

 

 

 

Schedule 1.01

 

DMRC Assumed Liabilities

 

 

 

Schedule 1.01

 

DMRC Litigation Matters

 

 

 

Schedule 2.01(e)

 

Ongoing Agreements

 

 

 

Schedule 4.09

 

Group Welfare Plans

 

 

 

Schedule 7.01(c)

 

Consents and Government Approvals

 

 

 

Schedule 10.04

 

Claims

 




Exhibit 4.1

 

[GRAPHIC]

 

016570| 003590|127C|4|057-423

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

COMMON STOCK

 

 

 

COMMON STOCK

 

 

 

 

 

 

 

 

 

PAR VALUE $0.001

 

 

THIS CERTIFICATE IS TRANSFERABLE IN

 

 

 

 

 

CANTON, MA AND JERSEY CITY, NJ

 

 

 

 

 

 

 

 

 

Certificate

 

 

 

 

 

 

 

Shares

Number

 

 

 

 

 

ZQ 000000

 

 

 

 

 

 

 

 

 

DMRC CORPORATION

INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE

 

 

 

 

 

 

 

 

 

THIS CERTIFIES THAT

CUSIP 233256 10 6

SEE REVERSE FOR CERTAIN DEFINITIONS

 

 

 

 

is the owner of

 

 

 

FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, OF THE PAR VALUE OF $0.001 EACH, OF

 

DMRC Corporation , transferable on the books of the Corporation by the holder hereof in person, or by a duly authorized attorney, upon surrender of this Certificate properly endorsed. This Certificate is not valid unless countersigned by the Transfer Agent and registered by the Registrar.

 

WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers.

 

 

 

DATED << Month Day, Year>>

 

 

 

COUNTERSIGNED AND REGISTERED:

[SEAL]

COMPUTERSHARE TRUST COMPANY, N.A.

Chairman of the Board of Directors

 

TRANSFER AGENT AND REGISTRAR,

 

 

 

 

 

 

 

By

 

Treasurer

 

 

AUTHORIZED SIGNATURE

 

1234567

 


 

DMRC CORPORATION

 

THIS CERTIFICATE ALSO EVIDENCES AND ENTITLES THE HOLDER HEREOF TO CERTAIN RIGHTS AS SET FORTH IN THE RIGHTS AGREEMENT DATED AS OF JULY 31, 2008 AS IT MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME (THE “RIGHTS AGREEMENT”), BETWEEN DMRC CORPORATION (“DMRC”) AND COMPUTERSHARE TRUST COMPANY, N.A. (OR ANY SUCCESSOR THERETO), AS RIGHTS AGENT (OR BETWEEN DMRC AND ANY SUCCESSOR RIGHTS AGENT UNDER THE RIGHTS AGREEMENT), THE TERMS OF WHICH ARE HEREBY INCORPORATED HEREIN BY REFERENCE AND A COPY OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF DMRC.  UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN THE RIGHTS AGREEMENT, SUCH RIGHTS WILL BE EVIDENCED BY SEPARATE CERTIFICATES AND WILL NO LONGER BE EVIDENCED BY THIS CERTIFICATE.  DMRC WILL MAIL TO THE HOLDER OF THIS CERTIFICATE A COPY OF THE RIGHTS AGREEMENT WITHOUT CHARGE AFTER RECEIPT OF A WRITTEN REQUEST THEREFOR.  RIGHTS BENEFICIALLY OWNED BY ACQUIRING PERSONS OR THEIR AFFILIATES OR ASSOCIATES (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) AND BY ANY SUBSEQUENT HOLDER OF SUCH RIGHTS ARE NULL AND VOID AND NONTRANSFERABLE.

 

A STATEMENT OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS AS ESTABLISHED, FROM TIME TO TIME, BY THE CERTIFICATE OF INCORPORATION OF THE CORPORATION AND BY ANY CERTIFICATE OF DESIGNATION, AND THE NUMBER OF SHARES CONSTITUTING EACH CLASS AND SERIES AND THE DESIGNATIONS THEREOF, MAY BE OBTAINED BY THE HOLDER HEREOF UPON REQUEST AND WITHOUT CHARGE FROM THE CORPORATION AT ITS PRINCIPAL OFFICE.

 

The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations:

 

TEN COM

-

as tenants in common

UNIF GIFT MIN ACT-

Custodian

 

 

 

 

(Cust)

(Minor)

TEN ENT

-

as tenants by the entireties

 

under Uniform Gifts to Minors Act

 

 

 

 

(State)

JT TEN

-

as joint tenants with right of survivorship

UNIF TRF MIN ACT

Custodian (until age    )

 

 

and not as tenants in common

 

(Cust)

(Minor)

 

 

 

 

under Uniform Transfers to Minors Act

 

 

 

 

(State)

 

 

Additional abbreviations may also be used though not in the above list.

 

PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE

 

For value received,                                                        hereby sell, assign and transfer unto

 

 

 

(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING POSTAL ZIP CODE, OF ASSIGNEE)

 

 

 

Shares

of the common stock represented by the within Certificate, and do hereby irrevocably constitute and appoint

Attorney

to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises.

 

Dated:

 

20

 

 

 

 

 

 

 

 

 

 

 

 

Signature:

 

 

Signature(s) Guaranteed: Medallion Guarantee Stamp

 

 

 

THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN

 

 

 

ELIGIBLE GUARANTOR INSTITUTION (Banks,

Signature:

 

 

Stockbrokers, Savings and Loan Associations and Credit

 

Notice: The signature to this assignment must correspond with the name as written upon the face of the certificate, in every particular, without alteration or enlargement, or any change whatever.

 

Unions) WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM,
PURSUANT TO S.E.C. RULE 17Ad-15
.

 




EXHIBIT 4.2

 

 

 

RIGHTS AGREEMENT

 

 

Dated as of July 31, 2008

 

 

between

 

 

DMRC CORPORATION

 

 

and

 

 

COMPUTERSHARE TRUST COMPANY, N.A.,

 

as Rights Agent

 

 

 



 

CONTENTS

 

SECTION 1.

CERTAIN DEFINITIONS

1

 

 

 

SECTION 2.

APPOINTMENT OF RIGHTS AGENT

7

 

 

 

SECTION 3.

ISSUANCE OF RIGHTS AND RIGHTS CERTIFICATES

8

 

 

 

SECTION 4.

FORM OF RIGHTS CERTIFICATES

9

 

 

 

SECTION 5.

EXECUTION, COUNTERSIGNATURE AND REGISTRATION

10

 

 

 

SECTION 6.

TRANSFER, SPLIT-UP, COMBINATION AND EXCHANGE OF RIGHTS CERTIFICATES; LOST, STOLEN, DESTROYED OR MUTILATED RIGHTS CERTIFICATES; UNCERTIFICATED RIGHTS

11

 

 

 

SECTION 7.

EXERCISE OF RIGHTS; EXPIRATION DATE OF RIGHTS

12

 

 

 

SECTION 8.

CANCELLATION AND DESTRUCTION OF RIGHTS CERTIFICATES

14

 

 

 

SECTION 9.

RESERVATION AND AVAILABILITY OF PREFERRED SHARES

14

 

 

 

SECTION 10.

PREFERRED SHARES RECORD DATE

16

 

 

 

SECTION 11.

ADJUSTMENTS IN RIGHTS AFTER THERE IS AN ACQUIRING PERSON; EXCHANGE OF RIGHTS FOR SHARES; BUSINESS COMBINATIONS

16

 

 

 

SECTION 12.

CERTAIN ADJUSTMENTS

20

 

 

 

SECTION 13.

CERTIFICATE OF ADJUSTMENT

21

 

 

 

SECTION 14.

ADDITIONAL COVENANTS

22

 

 

 

SECTION 15.

FRACTIONAL RIGHTS AND FRACTIONAL SHARES

22

 

 

 

SECTION 16.

RIGHTS OF ACTION

23

 

 

 

SECTION 17.

AGREEMENT OF RIGHTS HOLDERS

24

 

 

 

SECTION 18.

RIGHTS CERTIFICATE HOLDER NOT DEEMED A SHAREHOLDER

25

 

 

 

SECTION 19.

CONCERNING THE RIGHTS AGENT

25

 

 

 

SECTION 20.

MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT

26

 

 

 

SECTION 21.

RIGHTS AND DUTIES OF RIGHTS AGENT

26

 

 

 

SECTION 22.

CHANGE OF RIGHTS AGENT

29

 

 

 

SECTION 23.

ISSUANCE OF ADDITIONAL RIGHTS AND RIGHTS CERTIFICATES

30

 

 

 

SECTION 24.

REDEMPTION AND TERMINATION

30

 

 

 

SECTION 25.

NOTICES

31

 



 

SECTION 26.

SUPPLEMENTS AND AMENDMENTS

32

 

 

 

SECTION 27.

SUCCESSORS

33

 

 

 

SECTION 28.

BENEFITS OF THIS RIGHTS AGREEMENT; DETERMINATIONS AND ACTIONS BY THE COMPANY’S BOARD OF DIRECTORS

33

 

 

 

SECTION 29.

SEVERABILITY

34

 

 

 

SECTION 30.

GOVERNING LAW

34

 

 

 

SECTION 31.

COUNTERPARTS

34

 

 

 

SECTION 32.

DESCRIPTIVE HEADINGS

34

 

 

 

SECTION 33.

FORCE MAJEURE

34

 



 

RIGHTS AGREEMENT

 

RIGHTS AGREEMENT, dated as of July 31, 2008 between DMRC Corporation, a Delaware corporation (the “ Company ”), and Computershare Trust Company, N.A., a federally chartered trust company, as Rights Agent (the “ Rights Agent ”).

 

Subject to the completion of the merger of DMRC LLC with and into the Company, its wholly-owned subsidiary, with the Company being the surviving company in the merger (the “ DMRC Merger ”) , the Board of Directors of the Company (the “ Board of Directors ”) has authorized and declared a dividend of one Right (as hereinafter defined) for each share of common stock, $0.001 par value per share, of the Company (the “ Common Stock ”) outstanding at the Close of Business (as hereinafter defined) on August 1, 2008 (the “ Record Date ”).  The Board of Directors has further authorized the issuance of one Right (as such number may be hereinafter adjusted pursuant to the provisions of this Rights Agreement) with respect to each share of Common Stock that shall become outstanding between the Record Date and the earliest of the Distribution Date, the Redemption Date and the Expiration Date (as such terms are hereinafter defined); provided, however , that the Company may issue Rights with respect to shares of Common Stock that shall become outstanding after the Distribution Date and prior to the earlier of the Redemption Date and the Expiration Date in accordance with the provisions of Section 23 hereof.  Each Right shall initially represent the right to purchase one one-hundredth (1/100) of a share of Series R Participating Cumulative Preferred Stock, $0.001 par value per share, of the Company (the “ Preferred Shares ”), having the powers, rights and preferences set forth in the Certificate of Designation (as hereinafter defined) attached as Exhibit A hereto.

 

Accordingly, in consideration of the premises and the mutual agreements set forth in this Rights Agreement, the Company and the Rights Agent hereby agree as follows:

 

SECTION 1.                             CERTAIN DEFINITIONS

 

For purposes of this Rights Agreement, the following terms have the meanings indicated:

 

Acquiring Person ” shall mean any Person (as hereinafter defined) who or which, alone or together with all Affiliates and Associates (as such terms are hereinafter defined) of such Person, shall be the Beneficial Owner (as hereinafter defined) of 15% or more of the Common Shares (as hereinafter defined) then outstanding, but shall not include:  (a) the Company, (b) any Subsidiary (as hereinafter defined) of the Company, (c) any employee benefit or compensation plan of the Company or of any of its Subsidiaries or any Person holding Common Shares for or pursuant to the terms of any such employee benefit or compensation plan or (d) any Person who has become and is the Beneficial Owner of 15% or more of the Common Shares outstanding at the time solely as the result of (i) a change in the aggregate number of Common Shares outstanding since the last date on which such Person acquired Beneficial Ownership of any Common Shares, (ii) the acquisition by such Person or one or more of its Affiliates or Associates of Beneficial Ownership of additional Common

 

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Shares if such acquisition was made in the good faith belief that such acquisition would not (A) cause the Beneficial Ownership by such Person, together with its Affiliates and Associates, to equal or exceed 15% of the Common Shares outstanding at the time of such acquisition and such good faith belief was based on the good faith reliance on information contained in publicly filed reports or documents of the Company that are inaccurate or out-of-date or (B) otherwise cause a Distribution Date or the adjustment provided for in Section 11(a) hereof to occur or (iii) the acquisition by such Person or one or more of its Affiliates or Associates of Beneficial Ownership of additional Common Shares if the Board of Directors determines that such acquisition was made in good faith without the knowledge by such Person or Affiliates or Associates that such Person would thereby become an Acquiring Person (which determination of the Board of Directors of the Company shall be conclusive and binding on such Person, the Rights Agent, the holders of the Rights and all other Persons).  Notwithstanding clause (d)(ii) or (d)(iii) of the prior sentence, if any Person that is not an Acquiring Person due to such clause (d)(ii) or (d)(iii) does not reduce its percentage of Beneficial Ownership of Common Shares to less than 15% by the Close of Business on the tenth calendar day after notice from the Company (the date of notice being the first day) that such Person’s Beneficial Ownership of Common Shares would make it an Acquiring Person, such Person shall, at the end of such ten calendar day period, become an Acquiring Person (and such clause (d)(ii) or (d)(iii) shall no longer apply to such Person).  For purposes of this definition, the determination whether any Person acted in “good faith” shall be conclusively determined by the Board of Directors.

 

Affiliate ” and “ Associate ,” when used with reference to any Person, shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Exchange Act (as hereinafter defined), as in effect on the date of this Rights Agreement.

 

A Person shall be deemed to be the “ Beneficial Owner ” of, to “ Beneficially Own ,” and to have “ Beneficial Ownership ” of, any securities:

 

(a)                                   that such Person or any of such Person’s Affiliates or Associates is deemed to “Beneficially Own” within the meaning of Rule 13d-3 of the General Rules and Regulations under the Exchange Act, as in effect on the date of this Rights Agreement;

 

(b)                                  that such Person or any of such Person’s Affiliates or Associates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (written or oral), or upon the exercise of conversion rights, exchange rights, rights (other than the Rights), warrants or options, or otherwise; provided, however , that a Person shall not be deemed to be the Beneficial Owner of, to Beneficially Own, or to have Beneficial Ownership of, any securities tendered pursuant to a tender or exchange offer made by or on behalf of such Person or any of such Person’s Affiliates or Associates until such tendered securities are accepted for purchase or exchange thereunder or (ii) the right to vote pursuant to any agreement, arrangement or understanding (written or oral); provided, however , that a Person shall not be deemed to be the Beneficial Owner of, to Beneficially Own, or to have Beneficial Ownership of, any security if (A) the agreement, arrangement or understanding

 

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(written or oral) to vote such security arises solely from a revocable proxy or consent given to such Person in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations under the Exchange Act and (B) the beneficial ownership of such security is not also then reportable on Schedule 13D under the Exchange Act (or any comparable or successor report); or

 

(c)                                   that are Beneficially Owned, directly or indirectly, by any other Person with which such Person or any of such Person’s Affiliates or Associates has any agreement, arrangement or understanding (written or oral) for the purpose of acquiring, holding, voting (except pursuant to a revocable proxy as described in clause (b)(ii) of this definition) or disposing of any securities of the Company.

 

Notwithstanding the foregoing, nothing contained in this definition shall cause a Person ordinarily engaged in business as an underwriter of securities to be the “Beneficial Owner” of, or to “Beneficially Own,” any securities acquired in a bona fide firm commitment underwriting pursuant to an underwriting agreement with the Company.

 

Notwithstanding anything in this definition to the contrary, the phrase “then outstanding,” when used with reference to a Person’s Beneficial Ownership of securities of the Company, shall mean the number of such securities then issued and outstanding, together with the number of such securities not then actually issued and outstanding which such Person would be deemed to own beneficially hereunder.

 

Book Value ,” when used with reference to Common Shares issued by any Person, shall mean the amount of such Person’s equity applicable to each Common Share, determined (a) in accordance with generally accepted accounting principles in effect on the date as of which such Book Value is to be determined, (b) using all the consolidated assets and all the consolidated liabilities of such Person on the date as of which such Book Value is to be determined, except that no value shall be included in such assets for goodwill arising from completion of a business combination, and (c) after giving effect to (i) the exercise of all rights, options and warrants to purchase such Common Shares (other than the Rights), and the conversion of all securities convertible into such Common Shares, at an exercise or conversion price per Common Share that is less than such Book Value before the exercise or conversion (whether or not exercisability or convertibility is conditioned upon occurrence of a future event), (ii) all dividends and other distributions on the capital stock of such Person declared prior to the date as of which such Book Value is to be determined and to be paid or made after such date, and (iii) any other agreement, arrangement or understanding (written or oral), transaction or other action prior to the date as of which such Book Value is to be determined that would have the effect of thereafter reducing such Book Value.

 

Business Combination ” shall have the meaning set forth in Section 11(c)(i) hereof.

 

Business Day ” shall mean any day other than a Saturday, Sunday or a day on which banking institutions in the Commonwealth of Massachusetts are authorized or obligated by law or executive order to close.

 

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Certificate of Designation ” shall mean the Certificate of Designation of Series R Participating Cumulative Preferred Stock setting forth the powers, preferences, rights, qualifications, limitations and restrictions of such series of Preferred Stock of the Company, a form of which is attached to this Rights Agreement as Exhibit A.

 

Close of Business ” on any given date shall mean 5:00 p.m., Boston, Massachusetts time, on such date; provided, however , that if such date is not a Business Day, “Close of Business” shall mean 5:00 p.m., Boston, Massachusetts time, on the next succeeding Business Day.

 

Common Shares ,” when used with reference to the Company prior to a Business Combination, shall mean the shares of Common Stock of the Company or any other shares of capital stock of the Company into which the Common Stock shall be reclassified or changed.  “Common Shares,” when used with reference to any Person (other than the Company prior to a Business Combination), shall mean shares of capital stock of such Person (if such Person is a corporation) of any class or series, or units of equity interests in such Person (if such Person is not a corporation) of any class or series, the terms of which (i) do not limit (as a maximum amount and not merely in proportional terms) the amount of dividends or income payable or distributable on such class or series or the amount of assets distributable on such class or series upon any voluntary or involuntary liquidation, dissolution or winding up of such Person and (ii) do not provide that such class or series is subject to redemption at the option of such Person, or any shares of capital stock or units of equity interests into which the foregoing shall be reclassified or changed; provided, however , that, if at any time there shall be more than one such class or series of capital stock or equity interests of such Person, “Common Shares” of such Person shall include all such classes and series substantially in the proportion of the total number of shares or other units of each such class or series outstanding at such time.

 

Common Stock ” shall have the meaning set forth in the second paragraph of this Rights Agreement.

 

Company ” shall have the meaning set forth in the introductory paragraph of this Rights Agreement; provided, however , that if there is a Business Combination, “Company” shall have the meaning set forth in Section 11(c)(iii) hereof.

 

control ” with respect to any Person shall mean the power to direct the management and policies of such Person, directly or indirectly, by or through stock ownership, agency or otherwise, or pursuant to or in connection with an agreement, arrangement or understanding (written or oral) with one or more other Persons by or through stock ownership, agency or otherwise.  The term “controlled” shall have meaning correlative to the foregoing.

 

Distribution Date ” shall have the meaning set forth in Section 3(b).

 

Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended and in effect on the date in question, unless otherwise specifically provided in this Rights Agreement.

 

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Exchange Consideration ” shall have the meaning set forth in Section 11(b)(i).

 

Expiration Date ” shall have the meaning set forth in Section 7(a) hereof.

 

Formula Number ” shall have the meaning set forth in the Certificate of Designation.

 

Major Part ,” when used with reference to the assets of the Company and its Subsidiaries as of any date, shall mean assets (a) having a fair market value aggregating 50% or more of the total fair market value of all the assets of the Company and its Subsidiaries (taken as a whole) as of the date in question, (b) accounting for 50% or more of the total value (net of depreciation and amortization) of all the assets of the Company and its Subsidiaries (taken as a whole) as would be shown on a consolidated or combined balance sheet of the Company and its Subsidiaries as of the date in question, prepared in accordance with generally accepted accounting principles then in effect, or (c) accounting for 50% or more of the total amount of net income or revenues of the Company and its Subsidiaries (taken as a whole) as would be shown on or derived from a consolidated or combined statement of income of the Company and its Subsidiaries for the period of 12 months ending on the last day of the Company’s monthly accounting period next preceding the date in question, prepared in accordance with generally accepted accounting principles then in effect.

 

Market Value ,” when used with reference to any securities on any date, shall mean the average of the daily per share closing prices of such securities for the period that is the shorter of (a) 30 consecutive Trading Days (as hereinafter defined) immediately prior to (but not including) the date in question and (b) the number of consecutive Trading Days beginning on the Trading Day immediately after the date of the first public announcement of the event requiring a determination of the Market Value and ending on the Trading Day immediately prior to but not including the record date of such event; provided, however , that, in the event that the Market Value of such securities is to be determined in whole or in part during a period following the announcement by the issuer of such securities of any action of the type described in Section 12(a) hereof that would require an adjustment thereunder, then, and in each such case, the Market Value of such securities shall be appropriately adjusted to reflect the effect of such action on the market price of such securities.  The closing price for each Trading Day shall be the closing price quoted on the principal United States securities exchange registered under the Exchange Act (or any recognized foreign stock exchange) on which such securities are listed, or if such securities are not listed on any such exchange, the average of the closing bid and asked quotations with respect to a share of such securities on the Nasdaq Stock Market or such other system then in use or, if no such quotations are available, the average of the closing bid and asked prices as furnished by a professional market maker making a market in such securities selected by the Company’s Board of Directors.  If on any such Trading Day no market maker is making a market in such securities, the closing price of such securities on such Trading Day shall be deemed to be the fair value of such securities as determined in good faith by the Company’s Board of Directors (whose determination shall be described in a statement filed with the Rights Agent and shall be binding on the Rights Agent, the holders of Rights and all other Persons); provided,

 

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however , that for the purpose of determining the closing price of the Preferred Shares for any Trading Day on which there is no public market for the Preferred Shares or there is no such market maker for the Preferred Shares, the closing price on such Trading Day shall be deemed to be the Formula Number times the closing price of the Common Stock on such Trading Day.

 

Person ” shall mean an individual, firm, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization or other entity and shall include any successor (by merger or otherwise) thereof or thereto.

 

Preferred Shares ” shall have the meaning set forth in the second paragraph of this Rights Agreement.  Any reference in this Rights Agreement to Preferred Shares shall be deemed to include any authorized fraction of a Preferred Share, unless the context otherwise requires.

 

Principal Party ” shall mean the Surviving Person (as hereinafter defined) in a Business Combination; provided, however , that if such Surviving Person is a direct or indirect Subsidiary of any other Person, “Principal Party” shall mean the Person which is the ultimate parent of such Surviving Person and which is not itself a Subsidiary of another Person.  In the event ultimate control of such Surviving Person is shared by two or more Persons, “Principal Party” shall mean that Person which is immediately controlled by such two or more Persons.

 

Purchase Price ” with respect to each Right shall mean $100.00, subject to adjustment as provided herein, and shall be payable in lawful money of the United States of America.  All references herein to the Purchase Price shall mean the Purchase Price as in effect at the time in question.

 

Record Date ” shall have the meaning set forth in the second paragraph of this Rights Agreement.

 

Redemption Date ” shall have the meaning set forth in Section 24(a) hereof.

 

Redemption Price ” with respect to each Right shall mean $0.001, as such amount may from time to time be adjusted in accordance with Section 12 hereof.  All references in this Rights Agreement to the Redemption Price shall mean the Redemption Price as in effect at the time in question.

 

Registered Common Shares ” shall mean Common Shares that are, as of the date of completion of a Business Combination, and have continuously been for the 12 months immediately preceding such date, registered under Section 12 of the Exchange Act.

 

Right ” shall mean the right to purchase Preferred Shares (or other securities) as provided in this Rights Agreement.

 

Rights Agent ” shall (a) have the meaning set forth in the introductory paragraph of this Rights Agreement, (b) mean any successor or replacement to Computershare Trust

 

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Company, N.A. as provided in Sections 20 and 22, or (c) mean any additional Person appointed pursuant to Section 2.

 

Rights Certificate ” shall mean a certificate evidencing a Right in substantially the form attached to this Rights Agreement as Exhibit B.

 

Securities Act ” shall mean the Securities Act of 1933, as amended and in effect on the date in question, unless otherwise specifically provided in this Rights Agreement.

 

Shares Acquisition Date ” shall mean the first date of public announcement by the Company or an Acquiring Person that an Acquiring Person has become such.

 

Subsidiary ” shall mean a Person, at least a majority of the total outstanding voting power (being the power under ordinary circumstances and not merely upon the happening of a contingency) to vote in the election of directors of such Person (if such Person is a corporation) or to participate in the management and control of such Person (if such Person is not a corporation) of which is owned, directly or indirectly, by another Person or by one or more other subsidiaries of such other Person or by such other Person or by one or more other subsidiaries of such other Person.

 

Summary of Rights ” shall mean the Summary of Rights to Purchase Preferred Shares in substantially the form of Exhibit C attached hereto.

 

Surviving Person ” shall mean (a) the Person which is the continuing or surviving Person in a consolidation or merger specified in Section 11(c)(i)(A) or 11(c)(i)(B) hereof or (b) the Person to which the Major Part of the assets of the Company and its Subsidiaries is sold, leased, exchanged or otherwise transferred or disposed of in a transaction specified in Section 11(c)(i)(C) hereof; provided, however , that if the Major Part of the assets of the Company and its Subsidiaries is sold, leased, exchanged or otherwise transferred or disposed of in one or more related transactions specified in Section 11(c)(i)(C) hereof to more than one Person, the “Surviving Person” in such case shall mean the Person that acquired assets of the Company and/or its Subsidiaries with the greatest fair market value in such transaction or transactions.

 

Trading Day ” shall mean a day on which the principal national securities exchange (or principal recognized foreign stock exchange, as the case may be) on which any securities or Rights, as the case may be, are listed or admitted to trading is open for the transaction of business or, if the securities or Rights in question are not listed or admitted to trading on any national securities exchange (or recognized foreign stock exchange, as the case may be), a Business Day.

 

SECTION 2.                             APPOINTMENT OF RIGHTS AGENT

 

The Company hereby appoints the Rights Agent to act as agent for the Company in accordance with the terms and conditions of this Rights Agreement, and the Rights Agent hereby accepts such appointment.  The Company may from time to time appoint one or more co-Rights Agents as it may deem necessary or desirable upon ten (10) days’ prior written

 

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notice thereof to the Rights Agent.  Notwithstanding the foregoing, the Rights Agent shall have no duty to supervise, and in no event shall be liable for, the acts or omissions of any such co-Rights Agent.

 

SECTION 3.                             ISSUANCE OF RIGHTS AND RIGHTS CERTIFICATES

 

(a)                                   One Right shall be associated with each share of Common Stock outstanding on the Record Date, each additional share of Common Stock that shall become outstanding between the Record Date and the earliest of the Distribution Date, the Redemption Date and the Expiration Date and each additional share of Common Stock with which Rights are issued after the Distribution Date but prior to the earlier of the Redemption Date and the Expiration Date as provided in Section 23 hereof; provided, however , that if the number of outstanding Rights are combined into a smaller number of outstanding Rights pursuant to Section 12(a) hereof, the appropriate fractional Right determined pursuant to such Section shall thereafter be associated with each such share of Common Stock.

 

(b)                                  Until the earlier of (i) the Close of Business on the tenth Business Day after the Shares Acquisition Date and (ii) the Close of Business on such date, if any, as may be designated by the Company’s Board of Directors following the commencement of, or first public disclosure of an intent to commence, a tender or exchange offer by any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any of its Subsidiaries, or any Person holding Common Stock for or pursuant to the terms of any such employee benefit plan) for outstanding Common Stock, if upon consummation of such tender or exchange offer such Person could be the Beneficial Owner of 15% or more of the outstanding Common Stock (the Close of Business on the earlier of the dates set forth in (i) and (ii) being the “ Distribution Date ”), (x) the Rights will be evidenced by the certificates for Common Stock registered in the names of the holders thereof and not by separate Rights Certificates and (y) the Rights, including the right to receive Rights Certificates, will be transferable only in connection with the transfer of Common Stock.  The Company will notify the Rights Agent in writing as promptly as practicable that a Distribution Date has occurred and, if such notification is given orally, the Company shall confirm the same in writing on or prior to the next Business Day.  Until such notice is received by the Rights Agent, the Rights Agent may presume conclusively for all purposes that the Distribution Date has not occurred.  As soon as practicable after the Distribution Date, the Company will prepare and execute, the Rights Agent will countersign, and the Company will deliver or cause to be sent by first-class, postage-prepaid mail, to each record holder of Common Stock as of the Distribution Date, at the address of such holder shown on the records of the Company, a Rights Certificate evidencing one whole Right for each share of Common Stock (or for the number of shares of Common Stock with which one whole Right is then associated if the number of Rights per share of Common Stock held by such record holder has been adjusted in accordance with the proviso in Section 3(a) hereof).  If the number of Rights associated with each share of Common Stock has been adjusted in accordance with the proviso in Section 3(a) hereof, at the time of distributing the Rights Certificates the Company may make any necessary and appropriate rounding adjustments so that Rights Certificates representing only whole numbers of Rights are distributed and cash is paid in lieu of any fractional Right in accordance with Section 15(a) hereof.  The Company

 

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will notify the Rights Agent in writing as promptly as practicable of any such adjustments.  As of and after the Distribution Date, the Rights will be evidenced solely by such Rights Certificates.

 

(c)                                   As soon as practicable, and in any event no later than 30 days after the Record Date, the Company will send a copy of a Summary of Rights, by first-class, postage-prepaid mail, to each record holder of Common Stock as of the Close of Business on the Record Date at the address of such holder shown on the records of the Company.  With respect to certificates for Common Stock outstanding as of the Record Date, until the earliest of the Distribution Date, the Redemption Date and the Expiration Date, (i) the Rights will be evidenced by such certificates registered in the names of the holders thereof, together with a copy of the Summary of Rights attached thereto, and the registered holders of the Common Stock shall also be the registered holders of the associated Rights, and (ii) the surrender for transfer of any such certificate, even without a copy of the Summary of Rights attached thereto, shall also constitute the transfer of the Rights associated with the Common Stock represented thereby.

 

(d)                                  Certificates representing Common Stock issued after the Record Date (including, without limitation, upon transfer or exchange of outstanding Common Stock), but prior to the earliest of the Distribution Date, the Redemption Date and the Expiration Date, shall have printed on, written on or otherwise affixed to them substantially the following legend:

 

This certificate also evidences and entitles the holder hereof to certain rights as set forth in the Rights Agreement dated as of July 31, 2008 as it may be amended or supplemented from time to time (the “Rights Agreement”), between DMRC Corporation (“DMRC”) and Computershare Trust Company, N.A. (or any successor thereto), as Rights Agent (or between DMRC and any successor Rights Agent under the Rights Agreement), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal executive offices of DMRC.  Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate.  DMRC will mail to the holder of this certificate a copy of the Rights Agreement without charge after receipt of a written request therefor.  Rights Beneficially Owned by Acquiring Persons or their Affiliates or Associates (as such terms are defined in the Rights Agreement) and by any subsequent holder of such Rights are null and void and nontransferable.

 

Notwithstanding the requirements of this paragraph (d), neither the omission of this legend nor the inclusion of a legend that refers to a rights agreement other than the Rights Agreement shall affect the enforceability of any part of this Rights Agreement or the rights of any holder of Rights.

 

SECTION 4.                             FORM OF RIGHTS CERTIFICATES

 

The Rights Certificates (and the form of election to purchase and form of assignment to be printed on the reverse side thereof) shall be in substantially the form set forth as

 

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Exhibit B and may have such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Rights Agreement and which do not affect the rights, duties or responsibilities of the Rights Agent, or as may be required to comply with any applicable law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which the Rights may from time to time be listed, or to conform to usage.  Subject to the provisions of Sections 7, 11 and 23 hereof, the Rights Certificates, whenever issued, shall be dated as of the Distribution Date, and on their face shall entitle the holders thereof to purchase such number of Preferred Shares as shall be set forth therein for the Purchase Price set forth therein, subject to adjustment from time to time as herein provided.

 

SECTION 5.                             EXECUTION, COUNTERSIGNATURE AND REGISTRATION

 

(a)                                   The Rights Certificates shall be executed on behalf of the Company by the Chief Executive Officer, the President, the Chief Financial Officer, the Treasurer or a Vice President (whether preceded by any additional title) of the Company, either manually or by facsimile signature, and shall have affixed thereon the Company’s seal or a facsimile thereof, if any, which shall be attested by the Secretary, an Assistant Secretary or a Vice President (whether preceded by any additional title, provided that such Vice President shall not have also executed the Rights Certificates) of the Company, either manually or by facsimile signature.  The Rights Certificates shall be countersigned by the Rights Agent, either manually or by facsimile signature, and shall not be valid for any purpose unless so countersigned.  In case any officer of the Company who shall have signed any of the Rights Certificates shall cease to be such an officer of the Company before countersignature by the Rights Agent and issuance and delivery by the Company, such Rights Certificates may nevertheless be countersigned by the Rights Agent and issued and delivered by the Company with the same force and effect as though the person who signed such Rights Certificates had not ceased to be such an officer of the Company, and any Rights Certificate may be signed on behalf of the Company by any person who, at the actual date of execution of such Rights Certificate, shall be a proper officer of the Company to sign such Rights Certificate, although at the date of execution of this Rights Agreement any such person was not such an officer of the Company.

 

(b)                                  Following the Distribution Date and receipt by the Rights Agent of (i) written notice of the occurrence of the Distribution Date pursuant to Section 3(b), and (ii) all necessary information requested by the Rights Agent pursuant to Section 3(b), the Rights Agent will keep or cause to be kept, at its office designated for such purpose, books for registration and transfer of the Rights Certificates issued under this Rights Agreement.  Such books shall show the names and addresses of the respective holders of the Rights Certificates, the number of Rights evidenced by each Rights Certificate, the certificate number of each Rights Certificate and the date of each Rights Certificate.

 

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SECTION 6.                             TRANSFER, SPLIT-UP, COMBINATION AND EXCHANGE OF RIGHTS CERTIFICATES; LOST, STOLEN, DESTROYED OR MUTILATED RIGHTS CERTIFICATES; UNCERTIFICATED RIGHTS

 

(a)                                   Subject to the provisions of Sections 7(e), 11 and 15 hereof, at any time after the Distribution Date, and at or prior to the Close of Business on the earlier of the Redemption Date and the Expiration Date, any Rights Certificate or Rights Certificates (other than Rights Certificates representing Rights that have become null and void pursuant to Section 7(e) hereof or that have been exchanged pursuant to Section 11(b) hereof) may be transferred, split up, combined or exchanged for another Rights Certificate or Rights Certificates entitling the registered holder to purchase a like number of one one-hundredths of a Preferred Share as the Rights Certificate or Rights Certificates surrendered then entitled such holder to purchase.  Any registered holder desiring to transfer, split up, combine or exchange any Rights Certificate or Rights Certificates shall make such request in writing delivered to the Rights Agent and shall surrender the Rights Certificate or Rights Certificates to be transferred, split up, combined or exchanged at the office of the Rights Agent designated for such purpose.  The Rights Certificates are transferable only on the registry books of the Rights Agent.  Neither the Rights Agent nor the Company shall be obligated to take any action whatsoever with respect to the transfer of any Rights Certificate surrendered for transfer until the registered holder shall have properly completed and signed the certification contained in the form of assignment on the reverse side of such Rights Certificate and shall have provided such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates thereof as the Company or the Rights Agent shall reasonably request.  Thereupon the Rights Agent shall, subject to the provisions of Sections 7(e), 11 and 15 hereof, countersign and deliver to the Person entitled thereto a Rights Certificate or Rights Certificates, as the case may be, as so requested.  The Company or the Rights Agent may require payment from a Rights holder of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer, split-up, combination or exchange of Rights Certificates.

 

The Rights Agent shall have no duty or obligation to take any action under this Section 6 or under any Section of this Rights Agreement which requires the payment by a Rights holder of applicable taxes or governmental charges unless and until it is satisfied that all such taxes and/or charges have been paid in full.

 

(b)                                  Upon receipt by the Company and the Rights Agent of evidence reasonably satisfactory to them of the loss, theft, destruction or mutilation of a valid Rights Certificate, and, in case of such loss, theft or destruction, of indemnity or security satisfactory to them, and, at the Company’s or Rights Agent’s request, reimbursement to the Company and the Rights Agent of all reasonable expenses incidental thereto, and upon surrender to the Rights Agent and cancellation of the Rights Certificate if mutilated, the Company will make a new Rights Certificate of like tenor and deliver such new Rights Certificate to the Rights Agent for countersignature and delivery to the registered holder in lieu of the Rights Certificate so lost, stolen, destroyed or mutilated.

 

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(c)                                   Notwithstanding any other provision of this Rights Agreement to the contrary, the Company and the Rights Agent may amend this Rights Agreement to provide for uncertificated Rights in addition to or in place of Rights evidenced by Rights Certificates.

 

SECTION 7.                             EXERCISE OF RIGHTS; EXPIRATION DATE OF RIGHTS

 

(a)                                   Subject to Section 7(e) hereof and except as otherwise provided in this Rights Agreement (including Section 11 hereof), each Right shall entitle the registered holder thereof, upon exercise thereof as provided in this Rights Agreement, to purchase for the Purchase Price, at any time after the Distribution Date and at or prior to the earlier of (i) the Close of Business on the 10th anniversary of the date of this Rights Agreement (the Close of Business on such date being the “ Expiration Date ”) and (ii) the Redemption Date, one one-hundredth (1/100) of a Preferred Share, subject to adjustment from time to time as provided in Sections 11 and 12 hereof.

 

(b)                                  The registered holder of any Rights Certificate may exercise the Rights evidenced thereby (except as otherwise provided in this Rights Agreement) in whole or in part at any time after the Distribution Date, upon surrender of the Rights Certificate with the form of election to purchase on the reverse side thereof duly executed, to the Rights Agent at the office of the Rights Agent designated for such purpose, together with payment of the Purchase Price for each one one-hundredth (1/100) of a Preferred Share as to which the Rights are exercised, at or prior to the earliest of (i) the Expiration Date, (ii) the Redemption Date, and (iii) the time at which such Rights are exchanged as provided in Section 11(b) hereof.

 

(c)                                   Upon receipt of a Rights Certificate representing exercisable Rights, with the form of election to purchase duly executed, accompanied by payment of the Purchase Price for the Preferred Shares to be purchased, together with an amount equal to any applicable tax or charge, by certified check, cashier’s check or money order payable to the order of the Company, the Rights Agent shall thereupon (i) either (A) promptly requisition from any transfer agent of the Preferred Shares (or make available, if the Rights Agent is the transfer agent) certificates for the number of Preferred Shares to be purchased, and the Company hereby irrevocably authorizes its transfer agent to comply with all such requests, or (B) if the Company shall have elected to deposit the Preferred Shares with a depositary agent under a depositary arrangement, promptly requisition from the depositary agent depositary receipts representing the number of one one-hundredths (1/100) of a Preferred Share to be purchased (in which case certificates for the Preferred Shares to be represented by such receipts shall be deposited by the transfer agent with the depositary agent) and the Company will direct the depositary agent to comply with all such requests, (ii) when necessary to comply with this Agreement, promptly requisition from the Company the amount of cash to be paid in lieu of the issuance of fractional shares in accordance with Section 15 hereof, (iii) promptly after receipt of such certificates or depositary receipts, cause the same to be delivered to or upon the order of the registered holder of such Rights Certificate, registered in such name or names as may be designated by such holder, and (iv) when necessary to comply with this Agreement, after receipt, promptly deliver such cash to or upon the order of the registered

 

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holder of such Rights Certificate.  In the event that the Company is obligated to issue other securities (including Common Stock) of the Company, pay cash and/or distribute other property pursuant to Section 11(a) hereof, the Company shall make all arrangements necessary so that such other securities, cash and/or other property are available for distribution by the Rights Agent, if and when necessary to comply with this Agreement.

 

(d)                                  In case the registered holder of any Rights Certificate shall exercise fewer than all the Rights evidenced thereby, a new Rights Certificate evidencing Rights equivalent to the Rights remaining unexercised shall be issued by the Rights Agent and delivered to the registered holder of such Rights Certificate or to his or her duly authorized assigns, subject to the provisions of Section 6 and Section 15 hereof.

 

(e)                                   Notwithstanding anything in this Rights Agreement to the contrary, if the Rights are at any time Beneficially Owned by (i) an Acquiring Person or an Affiliate or Associate of an Acquiring Person, (ii) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee after the Acquiring Person becomes such, or (iii) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee prior to or concurrently with the Acquiring Persons becoming such and receives such Rights pursuant to either (A) a transfer (whether or not for consideration) from the Acquiring Person to holders of equity interests in such Acquiring Person or to any Person with whom the Acquiring Person has any continuing agreement, arrangement or understanding regarding the transferred rights or (B) a transfer which the Board of Directors of the Company has determined is part of an agreement, arrangement or understanding which has as a primary purpose or effect the avoidance of this Section 7(e), such Rights shall be null and void and nontransferable and no holder of any such Right (including any purported transferee or subsequent holder) shall have any rights whatsoever with respect to such Rights, whether under any provision of this Rights Agreement or otherwise.  No Rights Certificate shall be issued at any time upon the transfer of any Rights to an Acquiring Person whose Rights would be null and void pursuant to the preceding sentence or any Associate or Affiliate thereof or to any nominee of such Acquiring Person, Associate or Affiliate; and any Rights Certificate delivered to the Rights Agent for transfer to an Acquiring Person whose Rights would be null and void pursuant to the preceding sentence shall be canceled.  The Company shall notify the Rights Agent in writing when this Section 7(e) applies and shall use all reasonable efforts to ensure that the provisions of this Section 7(e) are complied with, but neither the Company nor the Rights Agent shall have any liability to any holder of any Rights Certificate or any other Person as a result of the Company’s failure to make any determinations with respect to an Acquiring Person or its Affiliate or Associate, or any transferee thereof, hereunder.  The Company shall give the Rights Agent written notice of the identity of any such Acquiring Person, Associate or Affiliate, or the nominee of any of the foregoing, and the Rights Agent may rely on such notice in carrying out its duties under this Agreement and shall be deemed not to have any knowledge of the identity of any such Acquiring Person, Associate or Affiliate, or the nominee of any of the foregoing unless and until it shall have received such notice.

 

(f)                                     Notwithstanding anything in this Rights Agreement to the contrary, neither the Rights Agent nor the Company shall be obligated to undertake any action with respect to

 

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a registered holder of any Rights Certificates upon the occurrence of any purported exercise as set forth in this Section 7 unless such registered holder shall have (i) properly completed and signed the certificate contained in the form of election to purchase set forth on the reverse side of the Rights Certificate surrendered for such exercise and (ii) provided such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates thereof as the Company or the Rights Agent shall reasonably request.

 

(g)                                  The Company may temporarily suspend, for a period of time not to exceed 90 calendar days after the Distribution Date, the exercisability of the Rights in order to prepare and file a registration statement under the Securities Act, on an appropriate form, with respect to the Preferred Shares purchasable upon exercise of the Rights and permit such registration statement to become effective; provided, however , that no such suspension shall remain effective after, and the Rights shall without any further action by the Company or any other Person become exercisable immediately upon, the effectiveness of such registration statement.  Upon any such suspension, the Company shall notify the Rights Agent in writing thereof and issue a public announcement stating that the exercisability of the Rights has been temporarily suspended and shall issue a further public announcement at such time as the suspension is no longer in effect (with prompt notice thereof to the Rights Agent including copies of such announcements).  Notwithstanding any provision in this Rights Agreement to the contrary, the Rights shall not be exercisable in any jurisdiction if the requisite qualification under the blue sky or securities laws of such jurisdiction shall not have been obtained or the exercise of the Rights shall not be permitted under applicable law.

 

SECTION 8.                             CANCELLATION AND DESTRUCTION OF RIGHTS CERTIFICATES

 

All Rights Certificates surrendered or presented for the purpose of exercise, transfer, split-up, combination or exchange shall, and any Rights Certificate surrendered or presented for any purpose that represents Rights that have become null and void and nontransferable pursuant to Section 7(e) hereof shall, if surrendered or presented to the Company or to any of its agents, be delivered to the Rights Agent for cancellation or in canceled form, or, if surrendered or presented to the Rights Agent, shall be canceled by it, and no Rights Certificates shall be issued in lieu thereof except as expressly permitted by this Rights Agreement.  The Company shall deliver to the Rights Agent for cancellation and retirement, and the Rights Agent shall so cancel and retire, any Rights Certificate purchased or acquired by the Company.  The Rights Agent shall deliver all canceled Rights Certificates to the Company, or shall, at the Company’s written request, destroy such canceled Rights Certificates, and in such case shall deliver a certificate of destruction thereof to the Company.

 

SECTION 9.                             RESERVATION AND AVAILABILITY OF PREFERRED SHARES

 

(a)                                   The Company shall cause to be reserved and kept available out of its authorized and unissued Preferred Shares or any authorized and issued Preferred Shares held in its treasury, free from preemptive rights or any right of first refusal, a number of Preferred Shares sufficient to permit the exercise in full of all outstanding Rights.

 

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(b)                                  In the event that there shall not be sufficient Preferred Shares authorized but unissued to permit the exercise or exchange of Rights in accordance with Section 11 hereof, the Company shall take all such action as may be necessary to authorize additional Preferred Shares for issuance upon the exercise or exchange of Rights pursuant to Section 11 hereof; provided , however , that if the Company is unable to cause the authorization of additional Preferred Shares, then the Company shall, or if action by the Company’s shareholders is necessary to cause such authorization in lieu of seeking any such authorization, the Company may, to the extent necessary and permitted by applicable law and any agreements or instruments in effect prior to the Distribution Date to which it is a party, (i) upon surrender of a Right, pay cash equal to the Purchase Price in lieu of issuing Preferred Shares and requiring payment therefor, (ii) upon due exercise of a Right and payment of the Purchase Price for each Preferred Share as to which such Right is exercised, issue equity securities having a value equal to the value of the Preferred Shares that otherwise would have been issuable pursuant to Section 11 hereof, which value shall be determined by a nationally recognized investment banking firm selected by the Board of Directors of the Company, or (iii) upon due exercise of a Right and payment of the Purchase Price for each Preferred Share as to which such Right is exercised, distribute a combination of Preferred Shares, cash and/or other equity and/or debt securities having an aggregate value equal to the value of the Preferred Shares that otherwise would have been issuable pursuant to Section 11 hereof, which value shall be determined by a nationally recognized investment banking firm selected by the Board of Directors of the Company.  To the extent that any legal or contractual restrictions (pursuant to agreements or instruments in effect prior to the Distribution Date to which it is party) prevent the Company from paying the full amount payable in accordance with the foregoing sentence, the Company shall pay to holders of the Rights as to which such payments are being made all amounts that are not then restricted on a pro rata basis as such payments become permissible under such legal or contractual restrictions until such payments have been paid in full.

 

(c)                                   The Company shall take all such action as may be necessary to ensure that all Preferred Shares delivered upon exercise or exchange of Rights shall, at the time of delivery of the certificates for such Preferred Shares (subject to payment of the Purchase Price), be duly and validly authorized and issued and fully paid and nonassessable shares.

 

(d)                                  So long as the Preferred Shares issuable upon the exercise or exchange of Rights are to be listed on the New York Stock Exchange, the Nasdaq Stock Market or any national securities exchange, the Company shall use its commercially reasonable best efforts to cause, from and after such time as the Rights become exercisable or exchangeable, all Preferred Shares reserved for such issuance to be listed on the New York Stock Exchange, the Nasdaq Stock Market or such securities exchange upon official notice of issuance.

 

(e)                                   The Company shall pay when due and payable any and all taxes and governmental charges that may be payable in respect of the issuance or delivery of Rights Certificates or of any Preferred Shares upon the exercise or exchange of Rights.  The Company shall not, however, be required to pay any tax or charge that may be payable in respect of any transfer or delivery of Rights Certificates to a Person other than, or in respect of the issuance or delivery of certificates representing the Preferred Shares in a name other

 

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than that of, the registered holder of the Rights Certificate evidencing Rights surrendered for exercise or exchange or to issue or deliver any certificates representing Preferred Shares upon the exercise or exchange of any Rights until any such tax or charge shall have been paid (any such tax or charge being payable by the holder of such Rights Certificate at the time of surrender) or until it has been established to the Company’s and the Rights Agent’s satisfaction that no such tax or charge is due.

 

SECTION 10.                      PREFERRED SHARES RECORD DATE

 

Each Person in whose name any certificate for Preferred Shares is issued upon the exercise or exchange of Rights shall for all purposes be deemed to have become the holder of record of the Preferred Shares represented thereby on, and such certificate shall be dated, the date on which the Rights Certificate evidencing such Rights was duly surrendered and payment of any Purchase Price (and any applicable taxes and governmental charges ) was made; provided, however , that if the date of such surrender and payment is a date on which the Preferred Shares transfer books of the Company are closed, such Person shall be deemed to have become the record holder of such Preferred Shares on, and such certificate shall be dated, the next succeeding Business Day on which the Preferred Shares transfer books of the Company are open.  Prior to the exercise of the Rights evidenced thereby, the holder of a Rights Certificate shall not be entitled to any rights of a holder of Preferred Shares for which the Rights shall be exercisable, including, without limitation, the right to vote, to receive dividends or other distributions or to exercise any preemptive rights, and shall not be entitled to receive any notice of any proceedings of the Company, except as provided herein.

 

SECTION 11.                      ADJUSTMENTS IN RIGHTS AFTER THERE IS AN ACQUIRING PERSON; EXCHANGE OF RIGHTS FOR SHARES; BUSINESS COMBINATIONS

 

(a)                                   Upon a Person becoming an Acquiring Person, each holder of a Right, except as provided in Section 7(e) hereof, shall thereafter have a right to receive, upon exercise thereof for the Purchase Price in accordance with the terms of this Rights Agreement, such number of shares of Common Stock as shall equal the result obtained by multiplying the Purchase Price by a fraction, the numerator of which is the number of one one-hundredths (1/100) of a Preferred Share for which a Right is then exercisable and the denominator of which is 50% of the Market Value of the Common Stock on the date on which a Person becomes an Acquiring Person.  As soon as practicable after a Person becomes an Acquiring Person (provided the Company shall not have elected to make the exchange permitted by Section 11(b)(i) hereof for all outstanding Rights), the Company shall use its commercially reasonable efforts to:

 

(i)                        prepare and file a registration statement under the Securities Act, on an appropriate form, with respect to the securities purchasable upon exercise of the Rights;

 

(ii)                     cause such registration statement to become effective as soon as practicable after such filing;

 

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(iii)                  cause such registration statement to remain effective (with a prospectus at all times meeting the requirements of the Securities Act) until the Expiration Date; and

 

(iv)                 qualify or register the securities purchasable upon exercise of the Rights under the blue sky or securities laws of such jurisdictions as may be necessary or appropriate.

 

(b)                       (i)                         The Company’s Board of Directors may, at its option, at any time after a Person becomes an Acquiring Person, mandatorily exchange all or part of the then outstanding and exercisable Rights (which shall not include Rights that shall have become null and void and nontransferable pursuant to the provisions of Section 7(e) hereof) for consideration per Right consisting of either (A) one-half of the securities that would be issuable at such time upon the exercise of one Right in accordance with Section 11(a) hereof, or, if applicable, Section 9(b)(ii) or 9(b)(iii) hereof or (B) if applicable, the cash consideration specified in Section 9(b)(i) hereof (the consideration issuable per Right pursuant to this Section 11(b)(i) being the “ Exchange Consideration ”).  The Company’s Board of Directors may, at its option, issue, in substitution for Preferred Shares, Common Shares in an amount per Preferred Share equal to the Formula Number if there are sufficient Common Shares issued but not outstanding or authorized but unissued.  If the Company’s Board of Directors elects to exchange all the Rights for the Exchange Consideration pursuant to this Section 11(b)(i) prior to the physical distribution of the Rights Certificates, the Company may distribute the Exchange Consideration in lieu of distributing Rights Certificates, in which case for purposes of this Rights Agreement holders of Rights shall be deemed to have simultaneously received and surrendered for exchange Rights Certificates on the date of such distribution.  Notwithstanding the foregoing, the Board of Directors shall not be empowered to effect such exchange at any time after any Person (other than the Company, any Subsidiary of the Company, any employee benefit plan of the Company or any such Subsidiary, or any Person holding Common Shares for or pursuant to the terms of any such plan), together with all Affiliates and Associates of such Person, becomes the Beneficial Owner of more than 50% of the Common Shares then outstanding.

 

(ii)                         Any action of the Company’s Board of Directors ordering the exchange of any Rights pursuant to Section 11(b)(i) hereof shall be irrevocable and, immediately upon the taking of such action and without any further action and without any notice, the right to exercise any such Right pursuant to Section 11(a) hereof shall terminate and the only right thereafter of a holder of such Right shall be to receive the Exchange Consideration in exchange for each such Right held by such holder or, if the Exchange Consideration shall not have been paid or issued, to exercise any such Right pursuant to Section 11(c)(i) hereof.  The Company shall promptly notify the Rights Agent in writing whenever it makes a public announcement pursuant to this Section 11(b)(ii) and give the Rights Agent a copy of such announcement; provided, however , that the failure to give, or any defect in, such notice shall not affect the validity of such exchange.  The Company promptly shall mail a notice of any such exchange to the Rights Agent and to all holders of such Rights at their last addresses as they appear on the registry books of the Rights Agent.  Any notice that is mailed in the manner provided in this Rights Agreement shall be deemed given, whether or not the holder receives the notice.  Each such notice of exchange shall state the method by which the exchange of the Rights for the Exchange Consideration will be effected and, in the event of

 

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any partial exchange, the number of Rights that will be exchanged.  Any partial exchange shall be effected pro rata based on the number of Rights (other than Rights that shall have become null and void and nontransferable pursuant to the provisions of Section 7(e) hereof) held by each holder of Rights.

 

(c)                        (i)                         In the event that, following a Distribution Date, any transactions specified in the following clause (A), (B) or (C) of this Section 11(c)(i) (each such transaction being a “ Business Combination ”) shall be completed, directly or indirectly:

 

(A)                               the Company shall consolidate with, or merge with and into, any Acquiring Person or any Affiliate or Associate of an Acquiring Person;

 

(B)                                 any Acquiring Person or any Affiliate or Associate of an Acquiring Person shall merge with and into the Company and, in connection with such merger, all or part of the Common Shares shall be changed into or exchanged for capital stock or other securities of the Company or of an Acquiring Person or any Affiliate or Associate of an Acquiring Person or cash or any other property; or

 

(C)                                 the Company shall sell, lease, exchange or otherwise transfer or dispose of (or one or more of its Subsidiaries shall sell, lease, exchange or otherwise transfer or dispose of), in one or more transactions, the Major Part of the assets of the Company and its Subsidiaries (taken as a whole) to an Acquiring Person or any Affiliate or Associate of an Acquiring Person;

 

then, in each such case, proper provision shall be made so that each holder of a Right, except as provided in Section 7(e) hereof, shall thereafter have the right to receive, upon the exercise thereof for the Purchase Price in accordance with the terms of this Rights Agreement, the securities specified below (or, at such holder’s option, the securities specified in Section 11(a) hereof if the Company is the surviving corporation in such Business Combination):

 

(1)                                   If the Principal Party in such Business Combination has Registered Common Shares outstanding, each Right shall thereafter represent the right to receive, upon the exercise thereof for the Purchase Price in accordance with the terms of this Rights Agreement, such number of Registered Common Shares of such Principal Party, free and clear of all liens, encumbrances or other adverse claims, as shall have an aggregate Market Value equal to the result obtained by multiplying the Purchase Price by two; or

 

(2)                                   If the Principal Party in such Business Combination does not have Registered Common Shares outstanding, each Right shall thereafter represent the right to receive, upon the exercise thereof for the Purchase Price in accordance with the terms of this Rights Agreement, at the election of the holder of such Right at the time of the exercise thereof, any of:

 

(x)                                    such number of Common Shares of the Surviving Person in such Business Combination as shall have an aggregate Book Value immediately

 

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after giving effect to such Business Combination equal to the result obtained by multiplying the Purchase Price by two;

 

(y)                                  such number of Common Shares of the Principal Party in such Business Combination (if the Principal Party is not also the Surviving Person in such Business Combination) as shall have an aggregate Book Value immediately after giving effect to such Business Combination equal to the result obtained by multiplying the Purchase Price by two; or

 

(z)                                    if the Principal Party in such Business Combination is an Affiliate of one or more Persons which has Registered Common Shares outstanding, such number of Registered Common Shares of whichever of such Affiliates of the Principal Party has Registered Common Shares with the greatest aggregate Market Value on the date of completion of such Business Combination as shall have an aggregate Market Value on the date of such Business Combination equal to the result obtained by multiplying the Purchase Price by two.

 

(ii)                         The Company shall not complete any Business Combination unless each issuer of Common Shares for which Rights may be exercised, as set forth in this Section 11(c), shall have sufficient authorized Common Shares that have not been issued or reserved for issuance (and that shall, when issued upon exercise thereof in accordance with this Rights Agreement, be validly issued, fully paid and nonassessable and free of preemptive rights, rights of first refusal or any other restrictions or limitations on the transfer or ownership thereof) to permit the exercise in full of the Rights in accordance with this Section 11(c) and unless prior thereto:

 

(A)                               a registration statement under the Securities Act, on an appropriate form, with respect to the Rights and the Common Shares of such issuer purchasable upon exercise of the Rights, shall be effective; and

 

(B)                                 the Company and each such issuer shall have:

 

(1)                                   executed and delivered to the Rights Agent a supplemental agreement providing for the assumption by such issuer of the obligations set forth in this Section 11(c) (including the obligation of such issuer to issue Common Shares upon the exercise of Rights in accordance with the terms set forth in Sections 11(c)(i) and 11(c)(iii)) and further providing that such issuer, at its own expense, will use its best efforts to:

 

(x)                                    cause a registration statement under the Securities Act, on an appropriate form, with respect to the Rights and the Common Shares of such issuer purchasable upon exercise of the Rights, to remain effective (with a prospectus at all times meeting the requirements of the Securities Act) until the Expiration Date;

 

(y)                                  qualify or register the Rights and the Common Shares of such issuer purchasable upon exercise of the Rights under the blue sky or securities laws of such jurisdictions as may be necessary or appropriate; and

 

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(z)                                    list the Rights and the Common Shares of such issuer purchasable upon exercise of the Rights on each national securities exchange on which the Common Shares were listed prior to the completion of the Business Combination or, if the Common Shares were not listed on a national securities exchange prior to the completion of the Business Combination, on a national securities exchange;

 

(2)                                   furnished to the Rights Agent a written opinion of independent counsel stating that such supplemental agreement is a valid, binding and enforceable agreement of such issuer; and

 

(3)                                   filed with the Rights Agent a certificate of a nationally recognized firm of independent accountants setting forth the number of Common Shares of such issuer that may be purchased upon the exercise of each Right after the completion of such Business Combination.

 

(iii)                      After completion of any Business Combination and subject to the provisions of Section 11(c)(ii) hereof, (A) each issuer of Common Shares for which Rights may be exercised as set forth in this Section 11(c) shall be liable for, and shall assume, by virtue of such Business Combination, all the obligations and duties of the Company pursuant to this Rights Agreement, (B) the term “Company” shall thereafter be deemed to refer to such issuer, (C) each such issuer shall take such steps in connection with such completion as may be necessary to ensure that the provisions of this Rights Agreement (including the provisions of Sections 11(a) and 11(c) hereof) shall thereafter apply, as nearly as reasonably may be, in relation to its Common Shares thereafter deliverable upon the exercise of the Rights, and (D) the number of Common Shares of each such issuer thereafter receivable upon exercise of any Right shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions of Sections 11 and 12 hereof, and the provisions of Sections 7, 9 and 10 hereof with respect to the Preferred Shares shall apply, as nearly as reasonably may be, on like terms to any such Common Shares.

 

SECTION 12.                      CERTAIN ADJUSTMENTS

 

(a)                                   To preserve the actual or potential economic value of the Rights, if at any time after the date of this Rights Agreement there shall be any change in the Common Stock or the Preferred Shares, whether by reason of stock dividends, stock splits, recapitalizations, mergers, consolidations, combinations or exchanges of securities, split-ups, split-offs, spin-offs, liquidations, other similar changes in capitalization, any distribution or issuance of cash, assets, evidences of indebtedness or subscription rights, options or warrants to holders of Common Stock or Preferred Shares, as the case may be (other than distribution of the Rights or regular quarterly cash dividends), or otherwise, then, in each such event the Company’s Board of Directors shall make such appropriate adjustments in the number of Preferred Shares (or the number and kind of other securities) issuable upon exercise of each Right, the Purchase Price and Redemption Price in effect at such time and the number of Rights outstanding at such time (including the number of Rights or fractional Rights associated with each share of Common Stock) such that following such adjustment such event shall not have

 

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had the effect of reducing or limiting the benefits the holders of the Rights would have had absent such event.

 

(b)                                  If, as a result of an adjustment made pursuant to Section 12(a) hereof, the holder of any Right thereafter exercised shall become entitled to receive any securities other than Preferred Shares, then the number of such securities so receivable upon exercise of any Right thereafter shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions of Sections 11 and 12 hereof, and the provisions of Sections 7, 9 and 10 hereof with respect to the Preferred Shares shall apply, as nearly as reasonably may be possible, on like terms to any such other securities.

 

(c)                                   All Rights originally issued by the Company subsequent to any adjustment made to the amount of Preferred Shares or other securities relating to a Right shall evidence the right to purchase, for the Purchase Price, the adjusted number and kind of securities purchasable from time to time under this Rights Agreement upon exercise of the Rights, all subject to further adjustment as provided in this Rights Agreement.

 

(d)                                  Irrespective of any adjustment or change in the Purchase Price or the number of Preferred Shares or number or kind of other securities issuable upon the exercise of the Rights, the Rights Certificates theretofore and thereafter issued may continue to express the terms that were expressed in the initial Rights Certificates issued under this Rights Agreement.

 

(e)                                   In any case in which action taken pursuant to Section 12(a) hereof requires that an adjustment be made effective as of a record date for a specified event, the Company may elect to defer (and shall give prompt written notice of such election to the Rights Agent), until the occurrence of such event, issuing to the holder of any Right exercised after such record date the Preferred Shares and/or other securities, if any, issuable upon such exercise over and above the Preferred Shares and/or other securities, if any, issuable before giving effect to such adjustment; provided, however , that the Company shall deliver to such holder a due bill or other appropriate instrument evidencing such holder’s right to receive such additional securities upon the occurrence of the event requiring such adjustment.

 

SECTION 13.                      CERTIFICATE OF ADJUSTMENT

 

Whenever an adjustment is made or any event affecting the Rights or their exercisability (including without limitation an event that causes rights to become null and void) occurs as provided in Section 11 or 12 hereof, the Company shall (a) promptly prepare a certificate setting forth such adjustment and a brief, reasonably detailed statement of the facts and computations accounting for such adjustment, (b) promptly file with the Rights Agent and with each transfer agent for the Preferred Shares a copy of such certificate, and (c) mail a brief summary thereof to each holder of a Rights Certificate (or, prior to the Distribution Date, of Common Stock) in accordance with Section 25 hereof.  The Rights Agent shall be fully protected in relying on any such certificate and on any adjustment or statements contained therein, and shall have no duty or liability with respect to, and shall not

 

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be deemed to have knowledge of, any such adjustment or any such event unless and until it shall have received such a certificate.

 

SECTION 14.                      ADDITIONAL COVENANTS

 

(a)                                   Notwithstanding any other provision of this Rights Agreement, no adjustment to the number of Preferred Shares (or fraction of a share) or other securities for which a Right is exercisable or the number of Rights outstanding or associated with each Common Share or any similar or other adjustment shall be made or be effective if such adjustment would have the effect of reducing or limiting the benefits the holders of the Rights would have had absent such adjustment, including, without limitation, the benefits under Sections 11 and 12 hereof, unless the terms of this Rights Agreement are amended so as to preserve such benefits.

 

(b)                                  The Company shall not, after the Distribution Date, except as permitted by Section 26 hereof, take (or permit any Subsidiary of the Company to take) any action if at the time such action is taken it is reasonably foreseeable that such action will reduce or otherwise limit the benefits the holders of the Rights would have had absent such action, including, without limitation, the benefits under Sections 11 and 12 hereof.  Any action taken by the Company during any period after any Person becomes an Acquiring Person but prior to the Distribution Date shall be null and void unless such action could be taken under this Section 14(b) from and after the Distribution Date.  The Company shall not complete any Business Combination if any issuer of Common Shares for which Rights may be exercised after such Business Combination in accordance with Section 11(c) hereof shall have taken any action that reduces or otherwise limits the benefits the holders of the Rights would have had absent such action, including the benefits under Sections 11 and 12 hereof.

 

SECTION 15.                      FRACTIONAL RIGHTS AND FRACTIONAL SHARES

 

(a)                                   The Company may, but shall not be required to, issue fractional Rights or distribute Rights Certificates that evidence fractional Rights.  In lieu of such fractional Rights, the Company may pay to the registered holders of the Rights Certificates with regard to which such fractional Rights would otherwise be issuable an amount in cash equal to the same fraction of the current market value of a whole Right.  For purposes of this Section 15(a), the current market value of a whole Right shall be the closing price of the Rights (as determined pursuant to the second and third sentences of the definition of Market Value contained in Section 1 hereof) for the Trading Day immediately prior to the date on which such fractional Rights would have been otherwise issuable.

 

(b)                                  The Company may, but shall not be required to, issue fractional Preferred Shares upon exercise of the Rights or distribute certificates that evidence fractional Preferred Shares.  In lieu of fractional Preferred Shares, the Company may elect to (i) utilize a depository arrangement as provided by the terms of the Preferred Shares or (ii) in the case of a fractional Preferred Share (other than one one-hundredth (1/100th) of a Preferred Share or any integral multiple thereof), pay to the registered holders of Rights Certificates at the time such Rights are exercised as provided in this Rights Agreement an amount in cash equal to the same fraction of the current market value of one Preferred Share, if any are outstanding

 

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and publicly traded (or the Formula Number times the current market value of one share of Common Stock if the Preferred Shares are not outstanding and publicly traded).  For purposes of this Section 15(b), the current market value of a Preferred Share (or share of Common Stock) shall be the closing price of a Preferred Share (or share of Common Stock) (as determined pursuant to the second and third sentences of the definition of Market Value contained in Section 1 hereof) for the Trading Day immediately prior to the date of such exercise.  If, as a result of an adjustment made pursuant to Section 12(a) hereof, the holder of any Right thereafter exercised shall become entitled to receive any securities other than Preferred Shares, the provisions of this Section 15(b) shall apply, as nearly as reasonably may be, on like terms to such other securities.

 

(c)                                   The Company may, but shall not be required to, issue fractional Common Shares upon exchange of Rights pursuant to Section 11(b) hereof, or to distribute certificates that evidence fractional Common Shares.  In lieu of such fractional Common Shares, the Company may pay to the registered holders of Rights Certificates with regard to which such fractional Common Shares would otherwise be issuable an amount in cash equal to the same fraction of the current Market Value of one Common Share as of the date on which a Person became an Acquiring Person.

 

(d)                                  Each holder of Rights, by accepting the Rights, expressly waives his, her or its right to receive any fractional Rights or any fractional shares upon exercise of a Right, except as provided in this Section 15.

 

(e)                                   Whenever a payment for fractional Rights or fractional shares is to be made by the Rights Agent, the Company shall (i) promptly prepare and deliver to the Rights Agent a certificate setting forth in reasonable detail the facts related to such payment and the prices and/or formulas utilized in calculating such payments, and (ii) provide sufficient monies to the Rights Agent in the form of fully collected funds to make such payments.  The Rights Agent shall be fully protected in relying upon such a certificate and shall have no duty with respect to, and shall not be deemed to have knowledge of any payment for fractional Rights or fractional shares under any Section of this Rights Agreement relating to the payment of fractional Rights or fractional shares unless and until the Rights Agent shall have received such a certificate and sufficient monies.

 

SECTION 16.                      RIGHTS OF ACTION

 

(a)                                   All rights of action in respect of this Rights Agreement, excepting the rights of action given to the Rights Agent under Sections 19 and 21 hereof, are vested in the respective registered holders of the Rights Certificates (and, prior to the Distribution Date, the registered holders of the Common Stock), and any registered holder of any Rights Certificate (or, prior to the Distribution Date, of the Common Stock), without the consent of the Rights Agent or of the holder of any other Rights Certificate (or, prior to the Distribution Date, of the Common Stock), may, in his, her or its own behalf and for his, her or its own benefit, enforce, and may institute and maintain any suit, action or proceeding against the Company to enforce, or otherwise act in respect of, his, her or its right to exercise the Rights evidenced by such Rights Certificate in the manner provided in such Rights Certificate and in the Rights

 

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Agreement.  Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach by the Company of this Rights Agreement and shall be entitled to specific performance of the obligations of any Person under, and injunctive relief against actual or threatened violations by the Company of the obligations of any Person subject to, this Rights Agreement.

 

(b)                                  Any holder of Rights who prevails in an action to enforce the provisions of this Rights Agreement against the Company shall be entitled to recover the reasonable costs and expenses, including attorneys’ fees, incurred in such action.

 

(c)                                   Notwithstanding anything in this Agreement to the contrary, neither the Company nor the Rights Agent shall have any liability to any holder of a Right or other Person as a result of its inability to perform any of its obligations under this Rights Agreement by reason of any preliminary or permanent injunction or other order, judgment, decree or ruling (whether interlocutory or final) issued by a court or by a governmental, regulatory, self regulatory or administrative agency or commission, or any statute, rule, regulation or executive order promulgated or enacted by any governmental authority, prohibiting or otherwise restraining performance of such obligation; provided, however , that the Company must use all reasonable efforts to have any such injunction, order, judgment, decree or ruling lifted or otherwise overturned as soon as possible.

 

SECTION 17.                      AGREEMENT OF RIGHTS HOLDERS

 

Every holder of a Right, by accepting the same, consents and agrees with the Company and the Rights Agent and with every other holder of a Right that:

 

(a)                                   prior to the Distribution Date, the Rights will be transferable only in connection with the transfer of the Common Stock, and the Rights associated with each share of Common Stock shall be automatically transferred upon the transfer of each share of Common Stock;

 

(b)                                  after the Distribution Date, the Rights Certificates will be transferable, subject to Section 7(e) hereof, only on the registry books of the Rights Agent if surrendered at the office of the Rights Agent designated for such purpose, duly endorsed or accompanied by a proper instrument of transfer with all required certifications completed; and

 

(c)                                   the Company and the Rights Agent may deem and treat the Person in which name a Rights Certificate (or, prior to the Distribution Date, the associated Common Stock certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on the Rights Certificates or the associated Common Stock certificate made by anyone other than the Company or the Rights Agent) for all purposes whatsoever, and neither the Company nor the Rights Agent shall be affected by any notice to the contrary.

 

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SECTION 18.                      RIGHTS CERTIFICATE HOLDER NOT DEEMED A SHAREHOLDER

 

No holder, as such, of any Rights Certificate shall be entitled to vote or receive dividends or be deemed for any purpose the holder of the Preferred Shares or of any other securities of the Company that may at any time be issuable on the exercise of the Rights represented thereby, nor shall anything contained in this Rights Agreement or in any Rights Certificate be construed to confer upon the holder of any Rights Certificate, as such, any of the rights of a shareholder of the Company, including, without limitation, any right to vote for the election of directors or on any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting shareholders, or to receive dividends or other distributions or subscription rights, or otherwise, until the Right or Rights evidenced by such Rights Certificate shall have been exercised in accordance with the provisions of this Rights Agreement.

 

SECTION 19.                      CONCERNING THE RIGHTS AGENT

 

(a)                                   The Company agrees to pay to the Rights Agent reasonable compensation for all services rendered by it under this Rights Agreement and, from time to time, on demand of the Rights Agent, its reasonable expenses and counsel fees and disbursements and other disbursements incurred in preparing, negotiating, delivering, amending, administering and executing this Rights Agreement and exercising and performing its duties under this Rights Agreement, including any taxes or governmental charges imposed as a result of any action taken by it hereunder (other than taxes on the fees payable to it).  The Company also agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss, liability, damage, judgment, fine, penalty, claim, demand, settlement, cost or expense (including without limitation, the reasonable fees and expenses of legal counsel) incurred without gross negligence, bad faith or willful misconduct on the part of the Rights Agent for any action taken, suffered or omitted by the Rights Agent in connection with the execution, acceptance, administration, exercise or performance of its duties under this Rights Agreement, including, without limitation, the costs and expenses of defending against any claim of liability arising therefrom, directly or indirectly.  The provisions of this Section 19 and Section 21 below shall survive the termination of this Rights Agreement, the exercise or expiration of the Rights and the resignation or removal of the Rights Agent.  The costs and expenses incurred in enforcing this right of indemnification by the Rights Agent shall be paid by the Company.

 

(b)                                  The Rights Agent shall be authorized to rely on, shall be protected and shall incur no liability for or in respect of any action taken, suffered or omitted by it in connection with its acceptance and administration of this Rights Agreement or the exercise or performance of its duties hereunder, in reliance on any Rights Certificate or certificate for the Preferred Shares or Common Stock or for other securities of the Company, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement or other paper or document believed by it to be genuine and to be signed, executed and, where necessary, verified or acknowledged by the proper Person or Persons, or otherwise upon the advice of counsel as set forth in Section 21.  The Rights

 

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Agent shall not be deemed to have knowledge of any event of which it was supposed to receive notice thereof hereunder, and the Rights Agent shall be fully protected and shall incur no liability for failing to take any action in connection therewith unless and until it has received such notice in writing.

 

SECTION 20.                      MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT

 

(a)                                   Any Person into which the Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated, or any Person resulting from any merger or consolidation to which the Rights Agent or any successor Rights Agent shall be a party, or any Person succeeding to the business of the Rights Agent or any successor Rights Agent, shall be the successor to the Rights Agent under this Rights Agreement without the execution or filing of any paper or any further act on the part of any of the parties to this Rights Agreement; provided, however , that such Person would be eligible for appointment as a successor Rights Agent under the provisions of Section 22 hereof.  In case at the time such successor Rights Agent shall succeed to the agency created by this Rights Agreement, any of the Rights Certificates shall have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of the predecessor Rights Agent and deliver such Rights Certificates so countersigned; and, in case at that time any of the Rights Certificates shall not have been countersigned, any successor Rights Agent may countersign such Rights Certificates either in the name of the predecessor Rights Agent or in the name of the successor Rights Agent; and, in all such cases, such Rights Certificates shall have the full force provided in the Rights Certificates and in this Rights Agreement.

 

(b)                                  In case at any time the name of the Rights Agent shall be changed and at such time any of the Rights Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Rights Certificates so countersigned; and, in case at that time any of the Rights Certificates shall not have been countersigned, the Rights Agent may countersign such Rights Certificates either in its prior name or in its changed name; and, in all such cases, such Rights Certificates shall have the full force provided in the Rights Certificates and in this Rights Agreement.

 

SECTION 21.                      RIGHTS AND DUTIES OF RIGHTS AGENT

 

The Rights Agent undertakes to perform only the duties and obligations, expressly imposed by this Rights Agreement (and no implied duties or obligations) upon the following terms and conditions, by all of which the Company and the holders of the Rights Certificates (or, prior to the Distribution Date, of the Common Stock), by their acceptance thereof, shall be bound:

 

(a)                                   The Rights Agent may consult with legal counsel of its choice (who may be legal counsel for the Company, or may be an employee of the Rights Agent), and the advice or opinion of such counsel shall be full and complete authorization and protection to the Rights Agent, and the Rights Agent shall incur no liability for or in respect of any action taken, suffered or omitted by it in accordance with such advice or opinion.

 

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(b)                                  Whenever in the performance of its duties under this Rights Agreement the Rights Agent shall deem it necessary or desirable that any fact or matter (including, without limitation, the identity of any Acquiring Person and the determination of “current market price”) be proved or established by the Company prior to taking, suffering or omitting any action under this Rights Agreement, such fact or matter (unless other evidence in respect thereof be specifically prescribed in this Rights Agreement) may be deemed to be conclusively proved and established by a certificate signed by any one of the Chairman of the Board, any Vice Chairman of the Board, the Chief Executive Officer, the President, the Chief Financial Officer, a Vice President (whether preceded by any additional title), the Treasurer or the Secretary of the Company and delivered to the Rights Agent, and such certificate shall be full and complete authorization and protection to the Rights Agent, and the Rights Agent shall incur no liability for or in respect of any action taken or suffered or omitted to be taken by it under the provisions of this Rights Agreement in reliance upon such certificate.

 

(c)                                   The Rights Agent shall be liable under this Rights Agreement to the Company and any other Person only for its own gross negligence, bad faith or willful misconduct.  Anything in this Rights Agreement to the contrary notwithstanding, in no event shall the Rights Agent be liable for special, punitive, indirect, incidental or consequential loss or damage of any kind whatsoever (including, but not limited to, lost profits), even if the Rights Agent has been advised of the possibility or likelihood of such loss or damage.  Any liability of the Rights Agent under this Agreement will be limited to the amount of annual fees paid by the Company to the Rights Agent.

 

(d)                                  The Rights Agent shall not have any liability for, nor be liable for or by reason of any of the statements of fact or recitals contained in this Rights Agreement or in the Rights Certificates (except as to its countersignature thereof) or be required to verify the same, but all such statements and recitals are and shall be deemed to have been made by the Company only.

 

(e)                                   The Rights Agent shall not have any liability for, nor be under any responsibility in respect of the validity of this Rights Agreement or the execution and delivery hereof (except the due execution of this Rights Agreement by the Rights Agent) or in respect of the validity or execution of any Rights Certificate (except its countersignature thereof); it shall not be responsible for any breach by the Company of any covenant or condition contained in this Rights Agreement or in any Rights Certificate; it shall not be responsible for any change or adjustment in the terms of the Rights including any adjustment required under the provisions of Section 11 or 12 hereof or for the manner, method or amount of any such adjustment or the ascertaining of the existence of facts that would require any such adjustment (except with respect to the exercise of Rights evidenced by Rights Certificates after actual notice of any such adjustment, upon which the Rights Agent may rely); it shall not by any act under this Rights Agreement be deemed to make any representation or warranty as to the authorization or reservation of any Preferred Shares or Common Stock to be issued pursuant to this Rights Agreement or any Rights Certificate or as to whether any Preferred Shares or Common Stock will, when so issued, be validly authorized and issued, fully paid and nonassessable; and it shall not be responsible for any

 

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change in the exercisability of the Rights (including the Rights becoming null and void hereunder).

 

(f)                                     The Company agrees that it shall perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Rights Agreement.

 

(g)                                  The Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties under this Rights Agreement from any one of the Chairman of the Board, any Vice Chairman of the Board, the Chief Executive Officer, the President, the Chief Financial Officer, a Vice President (whether preceded by any additional title), the Treasurer or the Secretary of the Company, and to apply to such officers for advice or instructions in connection with its duties, and such advice or instructions shall be full authorization and protection to the Rights Agent and the Rights Agent shall incur no liability (i) for or in respect of any action taken, suffered or omitted by it, in accordance with the advice or instructions of any such officer or (ii) in failing to take action prior to receiving such advice or instruction.  The Rights Agent shall be fully authorized and protected in relying upon the most recent instructions received by any such officer.  Any application by the Rights Agent for written instructions from the Company may, at the option of the Rights Agent, set forth in writing any action proposed to be taken, suffered or omitted by the Rights Agent under this Rights Agreement and the date on and/or after which such action shall be taken or suffered or such omission shall be effective.  The Rights Agent shall not be liable for any action taken or suffered by, or omission or, the Rights Agent in accordance with a proposal included in any such application on or after the date specified therein (which date shall not be less than five Business Days after the date any such officer of the Company actually receives such application, unless any such officer shall have consented in writing to an earlier date) unless, prior to taking, suffering or omitting any such action (or the effective date in case of an omission), the Rights Agent has received written instructions in response to such application specifying the action to be taken, suffered or omitted.

 

(h)                                  The Rights Agent and any shareholder, Affiliate, director, officer or employee of the Rights Agent may buy, sell or deal in any of the Rights or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though the Rights Agent were not the Rights Agent under this Rights Agreement.  Nothing in this Rights Agreement shall preclude the Rights Agent or any such shareholder, Affiliate, director, officer or employee from acting in any other capacity for the Company or for any other Person.

 

(i)                                      The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty under this Rights Agreement either itself (through its directors, officers and employees) or by or through its attorneys or agents, and the Rights Agent shall not be answerable or accountable for any act, omission, default, neglect or misconduct of any such attorneys or agents or for any loss to the Company or any other Person resulting from any such act, omission, default, neglect or misconduct absent any gross

 

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negligence, bad faith or willful misconduct in the selection and continued employment thereof.

 

(j)                                      No provision of this Rights Agreement shall require the Rights Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of its rights if it believes that repayment of such funds or adequate indemnification against such risk or liability is not reasonably assured to it.

 

(k)                                   If, with respect to any Rights Certificate surrendered to the Rights Agent for exercise or transfer, the certificate attached to the form of assignment or form of election to purchase, as the case may be, has not been completed, the Company and the Rights Agent will deem the beneficial owner of the rights evidenced by such Rights Certificate to be an Acquiring Person or an Affiliate or Associate thereof and such assignment or election to purchase will not be honored.

 

SECTION 22.                      CHANGE OF RIGHTS AGENT

 

The Rights Agent or any successor Rights Agent may resign and be discharged from its duties under this Rights Agreement upon thirty (30) days’ notice in writing mailed to the Company and to each transfer agent of the Common Stock or the Preferred Shares known to the Rights Agent by registered or certified mail, and to the holders of the Rights Certificates (or, prior to the Distribution Date, of the Common Stock) by first-class mail.  In the event the transfer agency relationship in effect between the Company and the Rights Agent terminates, the Rights Agent will be deemed to have resigned automatically and be discharged from its duties under this Agreement as of the effective date of such termination, and the Company shall be responsible for sending any required notice.  The Company may remove the Rights Agent or any successor Rights Agent upon thirty (30) days’ notice in writing mailed to the Rights Agent or successor Rights Agent, as the case may be, and to each transfer agent of the Common Stock or the Preferred Shares by registered or certified mail, and to the holders of the Rights Certificates (or, prior to the Distribution Date, of the Common Stock) by first-class mail.  If the Rights Agent shall resign or be removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the Rights Agent.  If the Company shall fail to make such appointment within a period of thirty (30) days after giving notice of such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of a Rights Certificate (or, prior to the Distribution Date, of Common Stock) (who shall, with such notice, submit his, her or its Rights Certificate or, prior to the Distribution Date, the certificate representing his, her or its Common Stock, for inspection by the Company), then the registered holder of any Rights Certificate (or, prior to the Distribution Date, of the Common Stock) may apply to any court of competent jurisdiction for the appointment of a new Rights Agent.  Any successor Rights Agent, whether appointed by the Company or by such a court, shall be either (A) a Person in good standing organized and doing business under the laws of the United States or of any state of the United States so long as such Person is subject to supervision or examination by federal or state authority and which has at the time of its appointment as Rights Agent a combined capital and surplus of at least fifty million dollars ($50,000,000), or (B) an Affiliate of a Person described in clause (A) of this

 

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sentence.  After appointment, the successor Rights Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; provided, however , that the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it under this Rights Agreement, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose.  Not later than the effective date of any such appointment, the Company shall file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the Common Stock and the Preferred Shares, and mail a notice thereof in writing to the registered holders of the Rights Certificates (or, prior to the Distribution Date, of the Common Stock).  Failure to give any notice provided for in this Section 22, however, or any defect therein shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be.

 

SECTION 23.                      ISSUANCE OF ADDITIONAL RIGHTS AND RIGHTS CERTIFICATES

 

Notwithstanding any of the provisions of this Rights Agreement or of the Rights to the contrary, the Company may, at its option, issue new Rights Certificates evidencing Rights in such form as may be approved by its Board of Directors to reflect any adjustment or change made in accordance with the provisions of this Rights Agreement.  In addition, in connection with the issuance or sale of Common Stock following the Distribution Date and prior to the earlier of the Redemption Date and the Expiration Date, the Company (a) shall issue, with respect to Common Stock so issued or sold pursuant to the exercise of stock options or under any employee plan or arrangement, or upon the exercise, conversion or exchange of securities, notes or debentures issued by the Company, and (b) may issue, in any other case, if deemed necessary or appropriate by the Company’s Board of Directors, Rights Certificates representing the appropriate number of Rights in connection with such issuance or sale; provided, however , that (i) no such Rights Certificate shall be issued if, and to the extent that, the Company shall be advised by counsel that such issuance would create a significant risk of material adverse tax consequences to the Company or the Person to whom such Rights Certificate would be issued, (ii) no such Rights Certificate shall be issued if, and to the extent that, appropriate adjustment shall otherwise have been made in lieu of the issuance thereof, and (iii) no such Rights Certificate shall be issued to an Acquiring Person or an Affiliate or Associate of any Acquiring Person.

 

SECTION 24.                      REDEMPTION AND TERMINATION

 

(a)                                   The Company’s Board of Directors may, at its option, at any time prior to the earlier of (i) such time as any Person becomes an Acquiring Person and (ii) the Close of Business on the Expiration Date, order the redemption of all, but not fewer than all, the then outstanding Rights at the Redemption Price (the date of such redemption being the “ Redemption Date ”), and the Company, at its option, may pay the Redemption Price either in cash or in Common Shares or other securities of the Company deemed by the Board of Directors, in the exercise of its sole discretion, to be at least equivalent in value to the Redemption Price.  The redemption of the Rights by the Board of Directors may be made

 

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effective at such time, on such basis and with such conditions as the Board of Directors in its sole discretion may establish.

 

(b)                                  Immediately upon the action of the Company’s Board of Directors ordering the redemption of the Rights, and without any further action and without any notice, the right to exercise the Rights will terminate and the only right thereafter of the holders of Rights shall be to receive the Redemption Price.  Within ten (10) Business Days after the action of the Company’s Board of Directors ordering the redemption of the Rights, the Company shall give notice of such redemption to the Rights Agent and to the holders of the then outstanding Rights by mailing such notice to all such holders at their last addresses as they appear upon the registry books of the Rights Agent or, prior to the Distribution Date, on the registry books of the transfer agent for the Common Stock.  Each such notice of redemption will state the method by which payment of the Redemption Price will be made.  The notice, if mailed in the manner provided in this Rights Agreement, shall be conclusively presumed to have been duly given, whether or not the holder of Rights receives such notice.  In any case, failure to give such notice by mail, or any defect in the notice, to any particular holder of Rights shall not affect the sufficiency of the notice to other holders of Rights.

 

SECTION 25.                      NOTICES

 

Notices or demands authorized by this Rights Agreement to be given or made by the Rights Agent or by the holder of a Rights Certificate (or, prior to the Distribution Date, of Common Stock) to or on the Company shall be sufficiently given or made if delivered by facsimile transmission (provided confirmation of receipt is received immediately thereafter) or sent by first-class mail or overnight delivery service, postage prepaid, addressed (until another address is filed in writing with the Rights Agent) as follows:

 

DMRC Corporation

9405 SW Gemini Drive

Beaverton, OR 97008

Attention:  Secretary

 

Subject to the provisions of Section 22 hereof, notices or demands authorized by this Rights Agreement to be given or made by the Company or by the holder of a Rights Certificate (or, prior to the Distribution Date, of Common Stock) to or on the Rights Agent shall be sufficiently given or made if delivered by facsimile transmission (provided confirmation of receipt is received immediately thereafter) or sent by first-class mail or overnight delivery service, postage prepaid, addressed (until another address is filed in writing with the Company) as follows:

 

Computershare Trust Company, N.A.
250 Royall Street
Canton, MA  02021
Attention:  Client Services

 

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Notices or demands authorized by this Rights Agreement to be given or made by the Company or the Rights Agent to any holder of a Rights Certificate (or, prior to the Distribution Date, of Common Stock) shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed to such holder at such holder’s address as shown on the registry books of the Rights Agent or, prior to the Distribution Date, on the registry books of the transfer agent for the Common Stock.

 

SECTION 26.                      SUPPLEMENTS AND AMENDMENTS

 

At any time prior to the time any Person becomes an Acquiring Person and subject to the last two sentences of this Section 26, the Company may in its sole and absolute discretion, and the Rights Agent shall if the Company so directs, subject to the other terms and conditions of this Rights Agreement, supplement or amend any provision of this Rights Agreement (including, without limitation, the date on which the Distribution Date or the Expiration Date shall occur, the amount of the Purchase Price, the definition of “Acquiring Person,” the time during which the Rights may be redeemed pursuant to Section 24 hereof or any provision of the Certificate of Designation) without the approval of any holder of the Rights, which amendment or supplement shall be effective as of the date of execution of such amendment or supplement by the Company.  From and after the time any Person becomes an Acquiring Person and subject to applicable law and the last two sentences of this Section 26, the Company may in its sole and absolute discretion, and the Rights Agent shall if the Company so directs, amend this Rights Agreement without the approval of any holder of Rights Certificates to (a) cure any ambiguity or correct or supplement any provision contained in this Rights Agreement that may be defective or inconsistent with any other provision of this Rights Agreement or (b) make any other provision in regard to matters or questions arising under this Rights Agreement that the Company may deem necessary or desirable and that shall not adversely affect the interests of the Rights Agent or the holders of Rights Certificates (other than an Acquiring Person or an Affiliate or Associate of an Acquiring Person), which amendment shall be effective as of the date of execution of such amendment by the Company.  Any supplement or amendment adopted during any period after any Person has become an Acquiring Person but prior to the Distribution Date shall be null and void unless such supplement or amendment could have been adopted under the prior sentence from and after the Distribution Date.  Upon the receipt of a certificate from an appropriate officer of the Company which states that the proposed supplement or amendment is in compliance with the terms of this Section 26, the Rights Agent shall acknowledge such supplement or amendment.  In addition, notwithstanding anything to the contrary contained in this Rights Agreement, no supplement or amendment to this Rights Agreement shall be made which reduces the Redemption Price (except as required by Section 12(a) hereof).   Any supplement or amendment that affects the Rights Agent’s own rights, duties, obligations or immunities under this Rights Agreement shall not be effective until such supplement or amendment has been executed by each of the Company and the Rights Agent.

 

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SECTION 27.                      SUCCESSORS

 

All the covenants and provisions of this Rights Agreement by or for the benefit of the Company or the Rights Agent shall bind and inure to the benefit of their respective successors and assigns under this Rights Agreement.

 

SECTION 28.                      BENEFITS OF THIS RIGHTS AGREEMENT; DETERMINATIONS AND ACTIONS BY THE COMPANY’S BOARD OF DIRECTORS

 

(a)                                   Nothing in this Rights Agreement shall be construed to give to any Person other than the Company, the Rights Agent and the registered holders of the Rights Certificates (and, prior to the Distribution Date, of the Common Stock) any legal or equitable right, remedy or claim under this Rights Agreement; provided, however , that this Rights Agreement shall be for the sole and exclusive benefit of the Company, the Rights Agent and the registered holders of the Rights Certificates (and, prior to the Distribution Date, of the Common Stock).

 

(b)                                  Except as explicitly otherwise provided in this Rights Agreement, the Company’s Board of Directors shall have the exclusive power and authority to administer this Rights Agreement and to exercise all rights and powers specifically granted to the Company’s Board of Directors or to the Company, or as may be necessary or advisable in the administration of this Rights Agreement, including, without limitation, the right and power to (i) interpret the provisions of this Rights Agreement and (ii) make all determinations or calculations deemed necessary or advisable for the administration of this Rights Agreement (including, without limitation, a determination to redeem or not redeem the Rights or to amend this Rights Agreement and a determination of whether there is an Acquiring Person).  All such actions, calculations, interpretations and determinations (including, for purposes of clause (y) below, all omissions with respect to the foregoing) that are done or made by the Board of Directors in good faith, shall (x) be final, conclusive and binding on the Company, the Rights Agent, the holders of the Rights, as such, and all other Persons, and (y) not subject the Board of Directors to any liability to the holders of the Rights.  The Rights Agent shall always be entitled to assume that the Board of Directors acted in good faith and shall be fully protected and incur no liability in reliance thereon.

 

(c)                                   Nothing contained in this Rights Agreement shall be deemed to be in derogation of the obligation of the Board of Directors to exercise its fiduciary duty.  Without limiting the foregoing, nothing contained herein shall be construed to suggest or imply that the Board of Directors shall not be entitled to reject any tender offer or other acquisition proposal, or to recommend that holders of Common Stock reject any tender offer, or to take any other action (including the commencement, prosecution, defense or settlement of any litigation and the submission of additional or alternative offers or other proposals) with respect to any tender offer or other acquisition proposal that the Board of Directors believes is necessary or appropriate in the exercise of such fiduciary duty.

 

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SECTION 29.                      SEVERABILITY

 

If any term, provision, covenant or restriction of this Rights Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Rights Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated.

 

SECTION 30.                      GOVERNING LAW

 

This Rights Agreement, each Right and each Rights Certificate issued under this Rights Agreement shall be deemed to be a contract made under the laws of the state of Delaware and for all purposes shall be governed by, and construed in accordance with the laws of the State of Delaware applicable to contracts to be made and performed entirely within the State of Delaware.

 

SECTION 31.                      COUNTERPARTS; EFFECTIVENESS

 

This Rights Agreement may be executed in any number of counterparts, each of which shall for all purposes be deemed to be an original, and all of which shall together constitute but one and the same instrument.  This Rights Agreement shall be effective as of the date of this Rights Agreement, upon the time of the completion of the DMRC Merger on such date.

 

SECTION 32.                      DESCRIPTIVE HEADINGS

 

Descriptive headings of the several Sections of this Rights Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions of this Rights Agreement.

 

SECTION 33.                      FORCE MAJEURE

 

Notwithstanding anything to the contrary contained herein, the Rights Agent shall not be liable for any delays or failures in performance resulting from acts beyond its reasonable control including, without limitation, acts of God, terrorist acts, shortage of supply, breakdowns or malfunctions, or loss of data due to power failures or mechanical difficulties with information storage or retrieval systems, labor difficulties, war, or civil unrest.

 

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IN WITNESS WHEREOF, the parties hereto have caused this Rights Agreement to be duly executed as of the day and year first above written.

 

 

DMRC CORPORATION

 

 

 

 

 

By:

/s/ Robert Chamness

 

 

 

 

 

Name: Robert Chamness

 

 

Its: Chief Legal Officer and Secretary

 

 

 

 

 

COMPUTERSHARE TRUST COMPANY, N.A.,
as Rights Agent

 

 

 

 

 

By:

/s/  Michael J. Lang

 

 

 

 

 

Name:  Michael J. Lang

 

 

Its:  Senior Vice President

 

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EXHIBIT INDEX

 

Exhibit

 

Description

 

 

 

A

 

Certificate of Designation

 

 

 

B

 

Form of Rights Certificate

 

 

 

C

 

Summary of Rights to Purchase Preferred Shares

 



 

EXHIBIT A

 

Certificate of Designation

 

1.                                       Designation of Rights and Preferences of Series R Participating Cumulative Preferred Stock

 

The following series of Preferred Stock is hereby designated, which series shall have the rights, preferences and privileges and limitations set forth below:

 

1.1                                Designation of Series R Participating Cumulative Preferred Stock

 

The shares of such series shall be designated the “Series R Participating Cumulative Preferred Stock” (the “Series R Preferred Stock”), $0.001 par value per share.  The number of shares initially constituting the Series R Preferred Stock shall be 500,000.  Such number of shares may be decreased by resolution of the Board of Directors; provided, however , that no decrease shall reduce the number of shares of Series R Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Corporation convertible into Series R Preferred Stock.

 

1.2                                Dividends and Distributions

 

(a)                                   Subject to the prior and superior rights of the holders of shares of any other series of Preferred Stock or other class of capital stock of the Corporation ranking prior and superior to the shares of Series R Preferred Stock with respect to dividends, the holders of shares of Series R Preferred Stock shall be entitled to receive, when, as, and if declared by the Board of Directors, out of the assets of the Corporation legally available therefor, quarterly dividends payable in cash on the last day of each fiscal quarter in each year, or such other dates as the Corporation’s Board of Directors shall approve (each such date being referred to in this Designation as a “Quarterly Dividend Payment Date”), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or a fraction of a share of Series R Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (i) $0.001 and (ii) the Formula Number (as hereinafter defined) then in effect times the cash dividends then to be paid on each share of Common Stock.  In addition, if the Corporation shall pay any dividend or make any distribution on the Common Stock payable in assets, securities or other forms of noncash consideration (other than dividends or distributions solely in shares of Common Stock), then, in each such case, the Corporation shall simultaneously pay or make on each outstanding whole share of Series R Preferred Stock a dividend or distribution in like kind equal to the Formula Number then in effect times such dividend or distribution on each share of Common Stock.  As used in this Designation and in the Rights Agreement, the “Formula Number” shall be 100; provided, however , that if at any time after the completion of the DMRC Merger the Corporation shall (i) declare or pay any dividend on the Common Stock payable in shares of Common Stock or make any distribution on the Common Stock in shares of Common Stock, (ii) subdivide (by a stock split or otherwise) the outstanding shares of Common Stock into a larger number of shares of

 

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Common Stock, or (iii) combine (by a reverse stock split or otherwise) the outstanding shares of Common Stock into a smaller number of shares of Common Stock, then in each such event the Formula Number shall be adjusted to a number determined by multiplying the Formula Number in effect immediately prior to such event by a fraction, the numerator of which is the number of shares of Common Stock that are outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that are outstanding immediately prior to such event (and rounding the result to the nearest whole number); and provided further , that if at any time after the Completion of the DMRC Merger the Corporation shall issue any shares of its capital stock in a merger, reclassification or change of the outstanding shares of Common Stock, then in each such event the Formula Number shall be appropriately adjusted to reflect such merger, reclassification or change so that each share of Preferred Stock continues to be the economic equivalent of a Formula Number of shares of Common Stock prior to such merger, reclassification or change.

 

(b)                                  The Corporation shall declare a dividend or distribution on the Series R Preferred Stock as provided in Section 1.2(a) immediately prior to or at the same time it declares a dividend or distribution on the Common Stock (other than a dividend or distribution solely in shares of Common Stock); provided, however , that in the event no dividend or distribution (other than a dividend or distribution in shares of Common Stock) shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $0.001 per share on the Series R Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date.  The Corporation’s Board of Directors may fix a record date for the determination of holders of shares of Series R Preferred Stock entitled to receive a dividend or distribution declared thereon, which record date shall be the same as the record date for any corresponding dividend or distribution on the Common Stock and which shall not be more than 60 days prior to the date fixed for payment thereof.

 

(c)                                   Dividends shall begin to accrue and be cumulative on outstanding shares of Series R Preferred Stock from and after the Quarterly Dividend Payment Date next preceding the date of original issue of such shares of Series R Preferred Stock; provided, however , that dividends on such shares that are originally issued after the record date for the determination of holders of shares of Series R Preferred Stock entitled to receive a quarterly dividend on or prior to the next succeeding Quarterly Dividend Payment Date shall begin to accrue and be cumulative from and after such Quarterly Dividend Payment Date.  Notwithstanding the foregoing, dividends on shares of Series R Preferred Stock that are originally issued prior to the record date for the determination of holders of shares of Series R Preferred Stock entitled to receive a quarterly dividend on or prior to the first Quarterly Dividend Payment Date shall be calculated as if cumulative from and after the last day of the fiscal quarter (or such other Quarterly Dividend Payment Date as the Corporation’s Board of Directors shall approve) next preceding the date of original issuance of such shares.  Accrued but unpaid dividends shall not bear interest.  Dividends paid on the shares of Series R Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding.

 

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(d)                                  So long as any shares of Series R Preferred Stock are outstanding, no dividends or other distributions shall be declared, paid or distributed, or set aside for payment or distribution, on the Common Stock unless, in each case, the dividend required by this Section 1.2 to be declared on the Series R Preferred Stock shall have been declared.

 

(e)                                   The holders of shares of Series R Preferred Stock shall not be entitled to receive any dividends or other distributions except as provided in this Designation.

 

1.3                                Voting Rights

 

The holders of shares of Series R Preferred Stock shall have the following voting rights:

 

(a)                                   Each holder of Series R Preferred Stock shall be entitled to a number of votes equal to the Formula Number then in effect for each share of Series R Preferred Stock held of record on each matter on which holders of the Common Stock or stockholders generally are entitled to vote, multiplied by the maximum number of votes per share that any holders of the Common Stock or stockholders generally then have with respect to such matter (assuming any holding period or other requirement to vote a greater number of shares is satisfied).

 

(b)                                  Except as otherwise provided in this Designation or by applicable law, the holders of shares of Series R Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Corporation having general voting rights shall vote together as one class for the election of directors of the Corporation and on all other matters submitted to a vote of stockholders of the Corporation.

 

(c)                                   Except as provided in this Designation or by applicable law, holders of Series R Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth in this Designation) for authorizing or taking any corporate action.

 

1.4                                Certain Restrictions

 

(a)                                   Whenever quarterly dividends or other dividends or distributions payable on the Series R Preferred Stock as provided in Section 1.2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series R Preferred Stock outstanding shall have been paid in full, the Corporation shall not:

 

(i)                                      declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series R Preferred Stock;

 

(ii)                                   declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation,

 

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dissolution or winding up) with the Series R Preferred Stock, except dividends paid ratably on the Series R Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled;

 

(iii)                                redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) with the Series R Preferred Stock; provided, however , that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series R Preferred Stock; or

 

(iv)                               redeem or purchase or otherwise acquire for consideration any shares of Series R Preferred Stock, or any shares of stock ranking on a parity with the Series R Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Corporation’s Board of Directors) to all holders of such shares upon such terms as the Corporation’s Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective Preferred Stock classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes.

 

(b)                                  The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (a) of this Section 1.4, purchase or otherwise acquire such shares at such time and in such manner.

 

1.5                                Liquidation Rights

 

Upon the liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, no distribution shall be made to (a) the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series R Preferred Stock unless, prior thereto, the holders of shares of Series R Preferred Stock shall have received an amount equal to the greater of (i) $0.001 per share and (ii) the accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, plus an aggregate amount per share equal to the Formula Number then in effect times the aggregate amount to be distributed per share to holders of Common Stock or (b) the holders of shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series R Preferred Stock, except distributions made ratably on the Series R Preferred Stock and all other such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up.

 

1.6                                Consolidation, Merger, etc.

 

In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into

 

A-4



 

other stock or securities, cash and/or any other property, then in any such case the then outstanding shares of Series R Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share equal to the Formula Number then in effect times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is exchanged or changed.  In the event both this Section 1.6 and Section 1.2 appear to apply to a transaction, this Section 1.6 will control.

 

1.7                                No Redemption; No Sinking Fund

 

(a)                                   The shares of Series R Preferred Stock shall not be subject to redemption by the Corporation or at the option of any holder of Series R Preferred Stock; provided, however , that the Corporation may purchase or otherwise acquire outstanding shares of Series R Preferred Stock in the open market or by offer to any holder or holders of shares of Series R Preferred Stock.

 

(b)                                  The shares of Series R Preferred Stock shall not be subject to or entitled to the operation of a retirement or sinking fund.

 

1.8                                Ranking

 

The Series R Preferred Stock shall rank junior to all other series of Preferred Stock of the Corporation, unless the Corporation’s Board of Directors shall specifically determine otherwise in fixing the powers, preferences and relative, participating, optional and other special rights of the shares of such Preferred Stock and the qualifications, limitations and restrictions thereof.

 

1.9                                Fractional Shares

 

The Series R Preferred Stock shall be issuable upon exercise of the Rights issued pursuant to the Rights Agreement in whole shares or in any fractional share that is one one-hundredth (1/100th) of a share or any integral multiple of such fraction, and shall entitle the holder, in proportion to such holder’s fractional shares, to receive dividends, exercise voting rights, participate in distributions and have the benefit of all other rights of holders of Series R Preferred Stock.  In lieu of fractional shares, the Corporation, prior to the first issuance of a share or a fractional share of Series R Preferred Stock, may elect to (a) make a cash payment as provided in the Rights Agreement for a fractional share other than one one-hundredth (1/100th) of a share or any integral multiple thereof or (b) issue depository receipts evidencing such authorized fractional share of Series R Preferred Stock pursuant to an appropriate agreement between the Corporation and a depository selected by the Corporation; provided, however , that such agreement shall provide that the holders of such depository receipts shall have all the rights, privileges and preferences to which they are entitled as holders of the Series R Preferred Stock.

 

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1.10                         Reacquired Shares

 

Any shares of Series R Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof.  All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock, without designation as to series until such shares are once more designated as part of a particular Series by the Corporation’s Board of Directors pursuant to the provisions of Article VI of the Certificate of Incorporation.

 

1.11                         Amendment

 

None of the powers, preferences and relative, participating, optional and other special rights of the Series R Preferred Stock as provided in this Designation or in the Certificate of Incorporation shall be amended in any manner that would alter or change the powers, preferences, rights or privileges of the holders of Series R Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series R Preferred Stock, voting as a separate class.

 

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EXHIBIT B

 

Certificate No. R-

Rights

 

NOT EXERCISABLE AFTER [            ] [    ], 20[    ] OR EARLIER IF REDEMPTION OR EXCHANGE OCCURS.  THE RIGHTS ARE SUBJECT TO REDEMPTION AT THE OPTION OF THE COMPANY AT $0.001 PER RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT.

 

RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) AND BY ANY SUBSEQUENT HOLDER OF SUCH RIGHTS ARE NULL AND VOID AND NONTRANSFERABLE.

 

RIGHTS CERTIFICATE

 

DMRC CORPORATION

 

This certifies that                                 , or registered assigns, is the registered owner of the number of Rights set forth above, each of which entitles the owner thereof, subject to the terms, provisions and conditions of the Rights Agreement, dated as of July 31, 2008, 2008 (the “ Rights Agreement ”), between DMRC CORPORATION, a Delaware corporation (the “ Company ”), and Computershare Trust Company, N.A., a federally chartered trust company as Rights Agent (the “ Rights Agent ”), unless the Rights evidenced hereby have been previously redeemed by the Company, to purchase from the Company at any time after the Distribution Date (as such term is defined in the Rights Agreement) and prior to 5:00 P.M., Portland, Oregon time, on July 31, 2018 at the office of the Rights Agent designated for such purpose, or at the office of its successor as Rights Agent, one one-hundredth (1/100) of a fully paid non-assessable share of Series R Participating Cumulative Preferred Stock, $0.001 par value per share (the “ Preferred Shares ”), of the Company, at a purchase price of $100.00 per one one-hundredth of a Preferred Share (the “ Purchase Price ”), upon presentation and surrender of this Rights Certificate with the Form of Election to Purchase duly executed.  The number of Rights evidenced by this Rights Certificate (and the number of one-hundredths of a Preferred Share that may be purchased upon exercise hereof) set forth above, and the Purchase Price set forth above, are the number and Purchase Price as of July 31, 2008, based on the Preferred Shares as constituted at such date.  As provided in the Rights Agreement, the Purchase Price and the number of one one-hundredths of a Preferred Share that may be purchased upon the exercise of the Rights evidenced by this Rights Certificate are subject to modification and adjustment upon the happening of certain events.

 

If the Rights evidenced by this Rights Certificate are at any time beneficially owned by an Acquiring Person or an Affiliate or Associate of an Acquiring Person (as such terms

 

B-1



 

are defined in the Rights Agreement), such Rights shall be null and void and nontransferable and the holder of any such Right (including any purported transferee or subsequent holder) shall not have any right to exercise or transfer any such Right.

 

This Rights Certificate is subject to all the terms, provisions and conditions of the Rights Agreement, which terms, provisions and conditions are hereby incorporated herein by reference and made a part hereof and to which Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities hereunder of the Rights Agent, the Company and the holders of the Rights Certificates.  Copies of the Rights Agreement are on file at the principal executive offices of the Company.

 

This Rights Certificate, with or without other Rights Certificates, upon surrender at the office of the Rights Agent designated for such purpose, may be exchanged for another Rights Certificate or Rights Certificates of like tenor and date evidencing rights entitling the holder to purchase a like aggregate number of Preferred Shares as the Rights evidenced by the Rights Certificate or Rights Certificates surrendered shall have entitled such holder to purchase.  If this Rights Certificate shall be exercised in part, the holder shall be entitled to receive upon surrender hereof another Rights Certificate or Rights Certificates for the number of whole Rights not exercised.

 

Subject to the provisions of the Rights Agreement, the Rights evidenced by this Certificate (i) may be redeemed by the Company at a redemption price (in cash or shares of Common Stock or other securities of the Company deemed by the Company’s Board of Directors to be at least equivalent in value) of $0.001 per Right (subject to adjustment, as provided in the Rights Agreement) or (ii) may be exchanged in whole or in part for shares of the Company’s Common Stock, $0.001 par value per share, or for Preferred Shares.

 

The Company may, but shall not be required to, issue fractions of Preferred Shares or distribute certificates that evidence fractions of Preferred Shares upon the exercise of any Right or Rights evidenced hereby.  In lieu of issuing fractional shares, the Company may elect to make a cash payment as provided in the Rights Agreement for fractions of a share other than one one-hundredth (1/100) of a share or any integral multiple thereof or to issue certificates or utilize a depository arrangement as provided in the terms of the Rights Agreement and the Preferred Shares.

 

No holder of this Rights Certificate shall be entitled to vote or receive dividends or be deemed for any purpose the holder of the Preferred Shares or of any other securities of the Company that may at any time be issuable on the exercise hereof, nor shall anything contained in the Rights Agreement or herein be construed to confer upon the holder hereof, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting, shareholders (except as provided in the Rights Agreement), or to receive dividends or subscriptions rights, or otherwise, until the Right or Rights evidenced by this Rights Certificate shall have been exercised as provided in the Rights Agreement.

 

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This Rights Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Rights Agent.

 

WITNESS the facsimile signature of the proper officers of the Company and its corporate seal, if any.  Dated as of                   ,         .

 

 

DMRC CORPORATION

 

 

 

 

 

By:

 

 

Its:

 

 

 

COUNTERSIGNED:

 

COMPUTERSHARE TRUST COMPANY, N.A.
as Rights Agent

 

 

By:

 

 

Its:

 

 

 

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—Form of Reverse Side of Rights Certificate—

 

FORM OF ASSIGNMENT

 

(To be executed by the registered holder if such holder desires to transfer the Rights Certificate)

 

FOR VALUE RECEIVED                                                                                            hereby sells, assigns and transfer unto

 

(Please print name and address of transferee)

 

this Rights Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint                            as attorney, to transfer this Rights Certificate on the books of the within-named Company, with full power of substitution.

 

The undersigned hereby certifies that (1) the Rights evidenced by this Rights Certificate are not being sold, assigned or transferred by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate thereof (as such terms are defined in the Rights Agreement), (2) this Rights Certificate is not being sold, assigned or transferred to or on behalf of any such Acquiring Person, Affiliate or Associate, and (3) after inquiry and to the best knowledge of the undersigned, the undersigned did not acquire the Rights evidenced by this Rights Certificate from any Person who is or was an Acquiring Person or an Affiliate or Associate thereof (as such terms are defined in the Rights Agreement).

 

Dated:

 

 

 

 

 

 

 

 

 

 

 

 

Signature :

 

 

 

 

 

 

Signature Guarantee*

 

 

 

 

 

 

 

 

 

 

 

 


*Signatures must be guaranteed by a participant in the Securities Transfer Agent Medallion Program, the Stock Exchanges Medallion Program or the New York Stock Exchange, Inc. Medallion Signature Program.

 

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—Form of Reverse Side of Rights Certificate—

(continued)

 

FORM OF ELECTION TO PURCHASE

 

(To be executed if holder desires to exercise Rights represented by the Rights Certificate)

 

To:  DMRC CORPORATION

 

The undersigned hereby irrevocably elects to exercise                      Rights represented by this Rights Certificate to purchase the Preferred Shares issuable upon the exercise of such Rights and requests that certificates for such Preferred Shares be issued in the name of:

 

Please insert social security or other identifying number

 

 

(Please print name and address)

 

If such number of Rights shall not be all the Rights evidenced by this Rights Certificate, a new Rights Certificate for the balance remaining of such Rights shall be registered in the name of and delivered to:

 

Please insert social security or other identifying number

 

 

(Please print name and address)

 

The undersigned hereby certifies that (1) the Rights evidenced by this Rights Certificate are not beneficially owned by an Acquiring Person or an Affiliate or Associate thereof (as such terms are defined in the Rights Agreement), and (2) after inquiry and to the best knowledge of the undersigned, the undersigned did not acquire the Rights evidenced by this Rights Certificate from any Person who is or was an Acquiring Person or an Affiliate or Associate thereof (as such terms are defined in the Rights Agreement).

 

 

Dated:

 

 

 

 

 

 

 

 

 

 

 

 

Signature :

 

 

 

 

 

 

Signature Guarantee*

 

 

 

 

 

 

 

 

 

 

 

 

 


*Signatures must be guaranteed by a participant in the Securities Transfer Agent Medallion Program, the Stock Exchanges Medallion Program or the New York Stock Exchange, Inc. Medallion Signature Program.

 

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—Form of Reverse Side of Rights Certificate—

(continued)

 

NOTICE

 

The signature in the Form of Assignment or Form of Election to Purchase, as the case may be, must conform to the name as written on the face of this Rights Certificate in every particular, without alteration or enlargement or any change whatsoever.

 

In the event the certification set forth above in the Form of Assignment or the Form of Election to Purchase, as the case may be, is not completed, the Company and the Rights Agent will deem the beneficial owner of the Rights evidenced by this Rights Certificate to be an Acquiring Person or an Affiliate or Associate thereof (as defined in the Rights Agreement) and such Assignment or Election to Purchase will not be honored.

 

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EXHIBIT C

 

DMRC CORPORATION

 

SHAREHOLDER RIGHTS PLAN

 

SUMMARY OF RIGHTS
TO PURCHASE PREFERRED SHARES

 

Distribution and Transfer of Rights; Rights Certificates:

 

On July 31, 2008, the Board of Directors (the “ Board of Directors ”) of DMRC Corporation (the “ Company ”) authorized the implementation of a Shareholder Rights Plan, subject to the completion of the merger of DMRC LLC with and into the Company, its wholly-owned subsidiary, with the Company being the surviving company in the merger (the “ DMRC Merger ”), and declared a dividend of one preferred share purchase right (a “ Right ”) for each outstanding share of common stock, $0.001 par value per share, of the Company (the “ Common Shares ”), upon completion of the DMRC Merger. Prior to the Distribution Date referred to below, if any, the Rights will be evidenced by and trade with the certificates for the Common Stock. After the Distribution Date, if any, the Company will cause rights certificates to be delivered to the Company’s shareholders and the Rights will become transferable apart from the Common Stock.

 

 

 

Distribution Date:

 

The Rights will separate from the Common Stock and become exercisable following the earlier of (i) the close of business on the tenth business day after a public announcement that a person or group (including any affiliate or associate of such person or group) has acquired beneficial ownership of 15% or more of the outstanding Common Shares on the date of completion of the DMRC Merger (such person or group being an “ Acquiring Person ”) and (ii) the close of business on such date, if any, as may be designated by the Board of Directors following the commencement of, or first public disclosure of an intent to commence, a tender or exchange offer for outstanding Common Shares which could result in the offeror becoming the beneficial owner of 15% or more of the outstanding Common Shares (the earlier of such dates being the “ Distribution Date ”).

 

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Preferred Shares Purchasable upon Exercise of Rights:

 

After the Distribution Date, each Right will entitle the holder to purchase, for $100.00 (the “ Purchase Price ”), one one-hundredth (1/100) of a share of Series R Participating Cumulative Preferred Stock of the Company (a “ Preferred Share ”) with economic terms similar to that of one Common Share.

 

 

 

Flip-In Provision:

 

In the event a person or group becomes an Acquiring Person, the Rights will entitle each holder of a Right (other than an Acquiring Person (or any affiliate or associate of such Acquiring Person)) to purchase, for the Purchase Price, that number of Common Shares equivalent to the number of Common Shares which at the time of the transaction would have a market value of twice the Purchase Price. Any Rights that are at any time beneficially owned by an Acquiring Person (or any affiliate or associate of an Acquiring Person) will be null and void and nontransferable and any holder of any such Right (including any purported transferee or subsequent holder) will be unable to exercise or transfer any such Right.

 

 

 

Flip-Over Provision:

 

If, at any time after any person or group becomes an Acquiring Person, the Company is acquired in a merger or other business combination with another entity, or if 50% or more of its assets or assets accounting for 50% or more of its net income or revenues are transferred (in one or more transactions), each Right will entitle its holder to purchase, for the Purchase Price, that number of shares of common stock of the person or group engaging in the transaction having a then current market value of twice the Purchase Price.

 

 

 

Exchange Provisions:

 

At any time after any person or group becomes an Acquiring Person, but before a person or group becomes the beneficial owner of more than 50% of the Common Shares, the Board of Directors may elect to exchange each Right (other than Rights that have become null and void and nontransferable as described above) for consideration per Right consisting of one-half of the number of Common Shares that would be issuable at such time on the exercise of one Right and without payment of the Purchase Price.

 

 

 

Redemption of Rights:

 

At any time prior to any person or group becoming an Acquiring Person, the Board of Directors may redeem the

 

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Rights in whole, but not in part, at a price of $0.001 per Right, subject to adjustment as provided in the Rights Agreement (the “ Redemption Price ”).

 

 

 

Expiration of Rights:

 

The Rights are not exercisable until the Distribution Date and will expire on July 31, 2018, unless earlier redeemed or exchanged by the Company.

 

 

 

Amendment of Terms of Rights:

 

The terms of the Rights and the Rights Agreement may be amended without the approval of any holder of the Rights, at any time prior to the Distribution Date.

 

 

 

Voting Rights:

 

Until a Right is exercised, the holder thereof, as such, will have no rights as a shareholder of the Company, including, without limitation, the right to vote or receive dividends.

 

 

 

Antidilution Provisions:

 

In order to preserve the actual or potential economic value of the Rights, the number of Preferred Shares or other securities issuable upon exercise of the Right, the Purchase Price, the Redemption Price and the number of Rights associated with each outstanding Common Share are all subject to adjustment by the Board of Directors pursuant to certain customary antidilution provisions.

 

 

 

Taxes:

 

The Rights distribution should not be taxable for federal income tax purposes. Following an event that renders the Rights exercisable or upon redemption of the Rights, shareholders may recognize taxable income.

 

The foregoing is a summary of certain principal terms of the Shareholder Rights Plan and is qualified in its entirety by reference to the detailed terms of the Rights Agreement.  A copy of the Rights Agreement has been filed with the Securities and Exchange Commission as an exhibit to a Registration Statement on Form 8-A and is available free of charge from the Company.

 

C-3




EXHIBIT 10.3

 

CONFIDENTIAL PORTIONS OMITTED

 

AGREEMENT

 

This is an agreement (the “Agreement”) between Digimarc Corporation, a Delaware Corporation, having a place of business at 9405 SW Gemini Drive, Beaverton, Oregon 97008, and its subsidiaries (“Digimarc”), and The Nielsen Company (US), Inc., a New York Corporation, having a place of business at 770 Broadway, New York, New York 10003, its Su bsidiaries and Affiliates (“Nielsen”) .

 

Nielsen “Affiliates” are The Nielsen Company, B.V., a Netherlands corporation, and any of the Subsidiaries of The Nielsen Company, B.V. that are not also a Subsidiary of Nielsen (US).  Nielsen “Subsidiaries” include any corporation, partnership or other entity in which a party holds, directly or indirectly, ownership of, or the right to vote on behalf of, more than forty percent (40%) of its voting stock or other voting equity interests, for so long as such ownership or right to vote exists.  An entity in which Nielsen owns more than forty percent (40%) of its voting stock or other voting equity interests but less than a majority of the voting stock or other voting equity interests, is not considered a Subsidiary under this definition unless that entity agrees in writing to be bound to all applicable provisions of this Agreement.

 

The effective date of this Agreement is October 1, 2007 (“Effective Date”) and the parties hereby further agree:

 

1.               IP Ownership and License Grants.

 

1.1.    Digimarc Patents .  “Digimarc Patents” means all patents and patent applications owned by Digimarc that Digimarc has the right to license, and any reissues, continuations, continuations-in-part, divisionals, extensions, re-examinations, substitutions and renewals of any such patents and patent applications and any and all foreign counterparts and equivalents of the foregoing; excluding U.S. Patent Nos. [**], and any reissues, continuations, continuations-in-part, divisionals, extensions, re-examinations, substitutions, renewals and foreign counterparts and equivalents of those patents.

 

1.2.    Current Nielsen Products and Services .  Subject to the terms and conditions of this Agreement, as of January 1, 2008 (the “License Initiation Date”), Digimarc hereby grants to Nielsen a worldwide[**] (except as set forth in Section 6.4) license under the Digimarc Patents to make, have made, use, import, Sell and Offer to Sell Current Nielsen Products and Services.  “Current Nielsen Products and Services” means [**] .

 

1.3.    CIMR Products and Services .  Subject to the terms and conditions of this Agreement, as of the License Initiation Date, Digimarc hereby grants to Nielsen a worldwide[**] (except as set forth in Section 6.4) license under the Digimarc Patents to make, have made, use, import, Sell and Offer to Sell the CIMR Products and Services.  “CIMR Products and Services ” means products and

 


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services that are made or offered by and/or for Nielsen and that are provided to customers by Nielsen and described in Appendix D, and any improvements and other modifications, that are developed and marketed as a result of this Agreement, using [**].

 

1.4.    Technology and Patents Developed Pursuant to Services Agreement .  All (a) technology and patents arising from Services performed by Digimarc for Nielsen and paid for by Nielsen and (b) technology and patents that are jointly developed by Nielsen and Digimarc arising from Digimarc Services (collectively, the “[**] Technology”) shall be [**] owned by [**].  For so long as both the Current Nielsen Products and Services and CIMR Products and Services licenses are in effect and subject to Digimarc’s pre-existing agreements (as of the Effective Date, and as may be amended and/or extended from time to time in ways consistent with the relevant terms as they exist as of the Effective Date), Digimarc covenants that it shall [**] right, license or permission in or to any [**] Technology [**] the fields of CIMR Products and Services and [**]in which Nielsen conducts such activities as of the Effective Date (“[**]”).

 

1.5.          License Limitations and Exclusions .

 

1.5.1.       Pre-existing License .   The licenses for Current Nielsen Products and Services and CIMR Products and Services do not cover products and services covered by the license from Digimarc to [**], later [**] to Nielsen [**].

 

1.5.2.       Excluded Applications .  Neither Current Nielsen Products and Services nor CIMR Products and Services shall include: [**] .

 

1.5.3.       Sell and Offer to Sell Defined .  The terms “Sell” and “Offer to Sell” and other forms of such terms, with respect to software products, mean the granting of licenses to use such software products in accordance with this Agreement.

 

1.5.4.       No implied licenses .  Nothing contained in this Agreement will be construed as conferring by implication, estoppel or otherwise, any license or other right under any patent rights or other industrial or intellectual property rights of either party except for the licenses expressly granted herein.   For the avoidance of doubt, the licenses for Current Nielsen Products and Services and CIMR Products and Services do not authorize Nielsen to grant any license concerning any Digimarc Patents that is not in connection with the use of CIMR Products and Services or Current Nielsen Products and Services.

 

2.      Royalties and Other Consideration for Licenses.

 

2.1.          Consideration Exchanged.   The minimum royalty payments and ongoing royalties and fees for Digimarc Services set forth in this Agreement provide

 


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partial consideration for several elements of value provided by Digimarc including: (i) licenses for both Current Nielsen Products and Services and CIMR Products and Services; (ii)  use of Digimarc’s technology and market development work prior to the Effective Date; (iii) [**]; (iv) [**]; and (v) foregoing potential claims against alleged use of Digimarc Patents by Nielsen in Current Nielsen Products and Services while that license is in place.

 

2.2.          Current Nielsen Products and Services .  The license for Current Nielsen Products and Services shall remain in effect for so long as Nielsen is in compliance with payments of CIMR Royalties and Digimarc Service Fees, the Nielsen Commitment of Resources, and all other material terms of this Agreement.  The license will become permanent once Nielsen has paid [**].  The fully paid up license to Current Nielsen Products and Services will [**], and will continue in effect prospectively and perpetually without further fees or royalties to Digimarc, and will not be thereafter terminable. [**].

 

2.3.          CIMR Products and Services.   The license for CIMR Products and Services shall be royalty bearing:

 

2.3.1.      Royalties .  Nielsen will pay to Digimarc royalties on CIMR Net Revenues for each year (a “Royalty Year”), as follows:

 

In Royalty Year One (Jan.1-Sept. 30, 2008)

 

[**]%

In Royalty Year Two (Oct. 1, 2008-Sept. 30, 2009)

 

[**]%

In Royalty Year Three

 

[**]%

In Royalty Year Four

 

[**]%

In Royalty Year Five; and each year thereafter

 

[**]%.

 

2.3.2                       CIMR Net Revenues .  “CIMR Net Revenues” means all revenues recognized by Nielsen that are received from, attributable to, or derived from, the CIMR Products and Services, such as revenue from [**] fees, from [**], from [**] fees, from [**] fees, from [**] fees and from [**], less: (i) any [**].  All CIMR Net Revenues, including Other Non-Interest Income, shall be calculated in good faith by Nielsen in accordance with United States generally accepted accounting principles (“GAAP”).

 

2.3.3                       Minimum Royalties.   Regardless of the level of CIMR Net Revenues, Nielsen shall pay to Digimarc, on an equal quarterly basis, annual minimum royalties as follows:

 

In Royalty Year One -

 

$[**];

In Royalty Year Two -

 

$[**];

In Royalty Year Three -

 

$[**];

In Royalty Year Four -

 

$[**]; and

In Royalty Year Five -

 

$[**].

 


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2.3.4                     Royalty Payments.   With the exception of the Royalty Year One payments, quarterly payments of the annual minimum royalties shall be due on the first day of the quarter, e.g., the first quarterly payment for Royalty Year Two shall be due on October 1, 2008.  The three quarterly payments (of $[**]) for Royalty Year One shall be due on January 1, 2008, April 1, 2008, and July 1, 2008.

 

2.3.5                     Reports.   Within sixty (60) days after the end of each quarter in each Royalty Year, Nielsen will submit to Digimarc a statement in writing, in the form attached as Appendix B (the “Quarterly License Reporting Statement”), including with respect to that quarter:  (a) all CIMR Net Revenues; (b) the royalties owed to Digimarc under this Agreement based on such CIMR Net Revenues; and (c) such other information reasonably necessary to enable Digimarc to verify Nielsen’s calculation of royalties payable .

 

2.3.6                     Payment of Royalties in Excess of Minimums.   Within sixty (60) days after the end of each quarter of each Royalty Year, Nielsen shall pay to Digimarc the amount of the royalties owed for that quarter if earned royalties for that Royalty Year to date exceed the annual Minimum Royalties owed for that Royalty Year.  Royalty payments (including annual Minimum Royalties) are nonrefundable and any unused portions of annual Minimum Royalties do not carry forward into future Royalty Years.

 

2.3.7                     Credits.   If Nielsen has to reverse previously recognized CIMR Net Revenues reported under a previous Quarterly License Reporting Statement submitted to Digimarc in any Royalty Year in which Nielsen paid royalties exceeding the minimum annual royalty, Nielsen can claim a credit on a subsequent Quarterly License Reporting Statement in the same quarter it reverses this revenue on its income statement to the extent that it did actually pay royalties exceeding the minimum annual royalty for that Royalty Year.  Such credit will not exceed the amount of royalties to be paid in the then-current quarter, but the unused credit may be carried over to succeeding quarters until exhausted.

 

2.3.8                     Books and Records.   Nielsen will maintain documents with respect to the CIMR Net Revenues in accordance with United States generally accepted accounting principles (GAAP) and will make complete and accurate entries concerning all transactions relevant to this Agreement.  All such documents will be kept available by Nielsen for no less than three (3) years after the end of each Royalty Year or until the resolution of any dispute between the parties concerning the payment of royalties that arises within that three-year period.

 


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2.3.9                     Audit.   For a period of three (3) years following the end of any Royalty Year, or until the resolution of any dispute concerning the accuracy of any Quarterly License Reporting Statement submitted during that Royalty Year and arising within that three-year period, Digimarc (and its designated agents) shall have the right to inspect and examine relevant Nielsen documents relating to the calculation of royalties, provided, however, that Nielsen may redact such documents to preserve the confidentiality of Nielsen proprietary information that is not necessary to verify the calculation of royalties.  Any such inspection and examination will take place upon reasonable prior written notice to Nielsen, during Nielsen’s regular business hours and no more than once a year. The cost of such inspection and examination will be borne by Digimarc unless there is an actual underpayment of more than five percent (5%) by Nielsen in that Royalty Year, in which case Nielsen will pay the reasonable out-of-pocket cost of the inspection and examination.

 

2.3.10               Overdue Amounts.   Digimarc will be entitled to charge, and Nielsen will pay, interest on any overdue amounts or underpayments under this Agreement at the rate of one percent (1%) per month (or part thereof), or at such lower rate as may be the maximum rate allowed under applicable law.

 

3.                Digimarc Services.

 

3.1.       Authorized Services.   Digimarc will perform services for Nielsen relating to the CIMR Products and Services (the “Digimarc Services”), including research, development, engineering, quality assurance, market research and development, strategic planning, strategy development, business development, preparing, obtaining and maintaining patents, project management, reporting, and such other services or activities as the parties may mutually agree.  Digimarc will perform the Digimarc Services in good faith and with a reasonable standard of quality, but in no event with a standard of quality less than that Digimarc employs for services Digimarc performs for itself The Digimarc Services shall not include any time or labor spent by Digimarc in its own strategic planning or the management of its own organization, outside of the management of the specific activities to be conducted as part of such Services.

 

3.2          Annual Plan.   The particular services to be performed and expenditures to be made by Digimarc shall be set forth in an annual plan and budget (the “Annual Plan”).  The parties shall mutually agree upon a process for determining the Annual Plan, which shall state reasonable and specific objectives to be met by Digimarc, and which shall take into account Nielsen’s strategic goals and operational experience, Digimarc’s resources and capabilities to assist Nielsen in achieving those goals, and the market conditions then prevailing.  The parties shall also mutually agree upon an informal process for change management and for resolving disputes concerning determination of the Annual Plan.  In all events,

 


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Digimarc shall make resources available in each year covered by a timely submitted and reasonable Annual Plan (a “Plan Year”) sufficient to perform the Services identified in the Annual Plan.  The first Plan Year will begin on October 1, 2007, prior to completion of the Annual Plan, based upon a short statement of work to be agreed upon by the parties.  The first Annual Plan will be determined as soon as practicable thereafter, and no later than December 15, 2007.  Successive Annual Plans shall be determined no later than ninety (90) days prior to the beginning of each subsequent Plan Year.  If Digimarc reasonably believes that any requested changes to the Annual Plan will result in additional expenditures exceeding those approved by Nielsen in the Annual Plan, it shall so inform Nielsen.  If Nielsen and Digimarc agree to the requested changes and such additional expenditures, they shall amend the Annual Plan to reflect such changes.  Unless Nielsen authorizes such additional expenditures in writing, Nielsen shall not be obligated to pay for Services in excess of the larger of (a) the amount set forth in the Annual Plan (including as amended pursuant to the preceding sentence) or (b) the Service Minimum Fee (as defined below).

 

3.3   Quarterly Reporting and Review.   Within thirty (30) days following the end of each quarter during each Plan Year, Digimarc shall provide reports stating its progress in achieving the objectives set forth in the Annual Plan, and describing in detail the Services performed and expenditures made in that quarter.  The parties shall mutually agree upon a process for a joint quarterly review of Digimarc’s progress in achieving the objectives set forth in the Annual Plan, and for considering any changes that either Nielsen or Digimarc may propose to the Annual Plan.

 

3.4   Minimum Service Fees.   Subject to any termination of its obligation to engage Digimarc to perform Services, Nielsen shall pay, in equal quarterly payments as set forth below, the following minimum annual amounts for Services in each Plan Year (the “Minimum Service Fees”):

 

Annual Plan Period

 

Plan Year 1

 

Plan Year 2

 

Plan Years 3-5
(per year)

 

 

 

 

 

 

 

 

 

Minimum Fees

 

$

[**]

 

$

[**]

 

$

[**]

 

 

Quarterly payments of such fees, including Minimum Service Fees, will be due and payable to Digimarc only for those quarters in which Digimarc performs Services in accordance with a timely submitted and reasonable Annual Plan, at such levels as would be sufficient to generate the Minimum Service Fees as set forth above; or if Nielsen fails to timely submit a reasonable Annual Plan, in which Digimarc was ready, willing and able to perform such level of Services.  Quarterly Minimum Service Fee payments are due and payable to Digimarc on the first day of each quarter in which the Services are to be provided.  There will be no Minimum Service Fee for the first quarter (beginning October 1, 2007) of the first Plan Year.  The Plan Year 1 Minimum Service Fees, less actual fees earned in that first quarter, will be spread evenly over the remaining quarters of that Year.

 


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3.5   Labor Rates.   Labor rates charged for Services will be as shown in Appendix A.  The labor rates will be increased by five percent per year, reflecting an estimate of average rates of wage and benefits cost inflation, and may otherwise be adjusted by mutual agreement of the parties.

 

3.6   Services Payment Schedule and Invoice.   Digimarc shall furnish an invoice to Nielsen following each quarter of any Plan Year.  The invoice shall be accompanied by an itemization of the Services actually performed in that quarter, including an identification of individual timekeepers, their respective hours and rates, and the nature of the work performed by them with reference to the objectives of the Annual Plan.  The invoice shall also be accompanied by an itemization of those out-of-pocket expenditures reasonably incurred by Digimarc in performing the Services, reimbursement of which shall be included in the Minimum Service Fees.  Within thirty (30) days of receipt of such invoice, Nielsen shall pay for Services actually performed by Digimarc in accordance with the then-current Annual Plan in that quarter to the extent that the Services actually performed by Digimarc within that Plan Year to date, as reflected in the cumulative quarterly invoices for that Plan Year, exceed the Minimum Service Fees owed for that Plan Year cumulatively to date.  If the amount of Services actually performed and invoiced in that quarter, when added to the amount of Services actually performed and invoiced in prior quarters of that Plan Year, is less than the Minimum Service Fees owed for that Plan Year cumulatively to date, Nielsen shall [**].

 

3.7   Audit Rights.   For a period of three (3) years following the end of any Plan Year, or until resolution of a dispute concerning the accuracy of the invoices or quarterly reports for a particular Plan Year arising within that three-year period, Nielsen (and its designated agents) shall have the right to inspect and examine Digimarc’s books and records relating to the Digimarc Services, including time records and activity logs, for the purpose of determining whether Digimarc’s invoices and quarterly reports for that Plan Year are accurate; provided, however, that Digimarc may redact such documents to preserve the confidentiality of Digimarc proprietary information that is not necessary to verify the accuracy of the invoices or quarterly reports Any such inspection and examination will take place upon reasonable prior written notice to Digimarc, during regular business hours and no more than once a year.  Digimarc shall promptly refund to Nielsen any amount that the audit shows was overpaid by Nielsen in that Plan Year per the Agreement and, if the overpayment is greater than 5% of the total payment for that Plan Year, Digimarc shall also pay the reasonable out-of-pocket costs of the inspection and examination.

 

3.8   Nielsen Commitment of Resources.    For so long as the CIMR Products and Services license remains in effect, Nielsen shall use its reasonable best efforts to develop and support the CIMR Products and Services, including the commitment of a reasonable amount of marketing, financial and organizational resources.  In furtherance of those efforts, Nielsen shall prepare an annual plan for the development and support of the CIMR Products and Services business, shall invite Digimarc to

 


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advise and contribute to the formation of such plan, and shall share such plan with Digimarc.

 

3.9   Digimarc Opportunity [**] .   For so long as [**], Nielsen shall provide Digimarc with a reasonable opportunity to [**].

 

3.10 Limitations on Digimarc Services [**] .  For as long as Nielsen is timely paying Digimarc for Digimarc Services, Digimarc shall not [**].

 

3.11 Patent Prosecution .  The parties shall endeavor to identify potentially patentable inventions arising from the Digimarc Services relating to the [**] Technology.  As such inventions are identified and the filing of patent applications is agreed upon, [**] will have primary responsibility to manage the process of applying for and maintaining patents relating to the [**] Technology.  The parties shall agree upon a process enabling [**] to have substantial prior review and participation in the preparation of patent applications relating to [**] Technology.  [**] and [**] shall [**] the reasonable expenses incurred by [**] in the prosecution and maintenance of such patents on [**] basis, including expenses incurred after the termination of the Services.  Notwithstanding the foregoing, either party may decide, at any time, that it does not wish to pay its share of the costs of applying for or maintaining patents relating to [**] Technology, which decision can be made on a jurisdiction by jurisdiction basis.  In that event, the other party has the option either to abandon the application or patent, or to proceed on its own to pay the remaining costs of applying for or maintaining the patent.  If either elects not to pay its share of the costs of applying for or maintaining such patent, notwithstanding that the other party may elect to apply for and maintain such patent, the parties’ respective ownership and rights in that patent shall otherwise remain unchanged.  For so long as the Services portion of this Agreement shall be in effect, all reasonable costs reasonably incurred by [**] that are to be paid by [**] pursuant to this provision shall be invoiced by [**] and included in [**] .

 

3.12         Patent Enforcement .  Unless limited by the covenant of Section 1.4, each party shall have the right to defend or prosecute its rights in and to the [**] Technology, in its own name, on its own behalf, and at its own expense.  Each party shall be entitled to retain all revenue obtained by it from third parties (without accounting to the other) as a result of any revenue generating activities.

 

3.13         Nielsen Data Rights Retention .  Nielsen retains the sole right to use or grant to any third party the right to use, any [**], as well as [**].  Digimarc will have no right to use or grant any rights of usage of any [**].

 

3.14         Assertion and Defense of Patents.   Except as provided in this section, all defense and litigation of Digimarc Patents will remain the sole responsibility of Digimarc.  Digimarc has no duty to enforce any patents.  All defense and litigation of patents owned or controlled by Nielsen independent of Digimarc (the “Nielsen Patents”), will remain the sole responsibility of Nielsen.  Nielsen has no duty to

 


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Digimarc to enforce any Nielsen Patents.  For so long as Nielsen enjoys a covenant concerning certain [**] Technology, Nielsen has the right, as between Digimarc and Nielsen, to bring suit against third parties for infringement of those patents within those fields and may, if it deems it necessary, join Digimarc as a party to such lawsuits.  In such event, Nielsen shall be solely responsible for all costs of such litigations and shall be entitled to retain the proceeds from any such case to the extent they relate to infringement occurring within the [**] fields.  Any proceeds relating to infringement occurring outside the [**] field shall be shared with Digimarc on [**] basis, after the deduction of [**].

 

4.               Remedies for Breach .

 

4.1.          Responsibility for Performance .  Nielsen (US) shall be solely responsible for its performance under this Agreement. A breach by a Subsidiary or by an Affiliate shall be deemed to be a breach by Nielsen (US).

 

4.2.          Remedies for Breach .  If either party materially breaches this Agreement, the non-breaching party may, in addition to other remedies at law and in equity, terminate this Agreement.  Prior to terminating this Agreement for breach, the non-breaching party must first give the breaching party written notice specifying in detail the alleged breach.  The breaching party shall then have sixty (60) days to cure such breach.

 

5.               Termination .

 

5.1        Nielsen Option to Terminate After [**] Years.   Within thirty days after the [**] anniversary of the Effective Date, Nielsen may terminate this Agreement if, in its reasonable judgment, the market opportunity for CIMR Products and Services has not been realized.  Notwithstanding the foregoing, the parties agree that the market opportunity will be considered to have been realized if the CIMR Products and Services generate CIMR Net Revenues of at least $[**] in [**].

 

5.2        Nielsen Option to Terminate After [**] Years.    Nielsen may terminate this Agreement at any time after the [**] anniversary of the Effective Date for any reason or no reason.

 

5.3        Termination by Digimarc Due to Patent Challenges by Nielsen.   If Nielsen files an action challenging the validity or enforceability of any Digimarc Patents (except as a defense or counterclaim to an action for infringement brought by Digimarc or its assignee), Digimarc can: (i) before the Current Nielsen Products and Services license becomes permanent under Section 2.2, terminate either or both of the Current Nielsen Products and Services license and/or the CIMR Products and Services license; and (ii) after that time, terminate the CIMR Products and Services license.

 


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5.4        Termination of CIMR License Due to Failure to Meet Working Requirements.    Following any Royalty Year after Royalty Year [**] of this Agreement, Digimarc may terminate the CIMR Products and Services license, with prospective effect only, if Nielsen does not pay Digimarc: (a) at least $[**] in royalties for a Royalty Year within sixty (60) days following the end of that Royalty Year; or (b) if royalties for a Royalty Year are less than $[**], a lump sum payment equal to the difference, to be made within sixty (60) days following the end of that Royalty Year.

 

5.5        Notice of Termination.    Any termination of this Agreement by either party for any reason other than the material breach of the other party shall be made on no less than ninety (90) days’ notice to the other party.

 

5.6        Effects of Termination .  Termination of this Agreement by either party prior to the [**] anniversary of the Effective Date will automatically terminate the licenses for CIMR Products and Services and for Current Nielsen Products and Services, unless Nielsen agrees to pay, and does pay, [**], in that latter case, only the license for CIMR Products and Services will automatically terminate. Thereafter, if Nielsen elects to terminate after [**] years pursuant to Section 5.2, the license for CIMR Products and Services will automatically terminate.  In the event of termination of either or both licenses for any reason, [**].  In other words, [**].  Digimarc will not be barred from [**].  If either, or both, of the Current Nielsen Products and Services or the CIMR Products and Services licenses are terminated, the covenant in Section 1.4 with respect to [**] Technology shall automatically terminate. After termination of the CIMR Products and Services license, Nielsen shall have no right to use trade secrets or other information and plans of Digimarc in the CIMR Products and Services.  [**].

 

6.               Other Provisions.

 

6.1.          Press Release The parties will issue a mutually agreeable press release, similar to the one in Appendix C, relating to the subject matter of this Agreement no later than four days after execution of this Agreement.  Except as expressly permitted herein, neither party will make public announcements or issue press releases relating to this Agreement without the prior written consent of the other party, which consent or refusal will not be unreasonably withheld.

 

6.2.          Confidentiality .  Each party agrees that it will treat this Agreement as confidential and will handle confidential information of the other party in a manner consistent with the policies and practices of that party for handling its own confidential information.  Notwithstanding the foregoing, either party may provide a copy of this Agreement to a third party considering in good faith a bona fide transaction as contemplated in Section 6.4, provided that such third party agrees in writing to be bound to a confidentiality agreement customary to such transactions and prohibiting use of its knowledge of this Agreement or its

 


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provisions for any competitive purpose.  Upon request by the disclosing party with respect to specifically identified information, the receiving party will return to the disclosing party or destroy all of the confidential information in the receiving party’s possession or control furnished to it by the disclosing party which the receiving party does not need to retain in order to perform any obligations imposed, or exercise any rights (including rights of ownership) acquired, by this Agreement, and shall certify in writing its return or destruction of such confidential information.  If the receiving party is subject to judicial or governmental proceedings or is subject to government regulations requiring disclosure of confidential information of the disclosing party, then prior to disclosing such information, the receiving party will provide the disclosing party with reasonable prior notice for the disclosing party to seek a protective order for confidential treatment of the confidential information and will only disclose that information that is necessary and required.  If the entire Agreement is terminated, the obligations set out in this Section will extend for a period of [**] years from this termination date, except that the confidential information of the disclosing party that is specifically identified by it as a trade secret will be protected for a period of [**] years.

 

6.3.          Non-solicitation Neither party will, directly or through a third party, during the period of the Digimarc Services and for a period of [**] after the end of such Services, solicit or entice away those key employees of the other party specifically identified to it by name in Appendix E hereto (as may be amended from time to time at the sole discretion of either party), provided that the foregoing will not prohibit either party from hiring or soliciting to hire any person (a) responding to general advertising or general solicitations (including solicitations by recruiting firms retained by a party and not directed at the employees of the other party), or (b) who has been terminated by another party, or (c) has not been employed by the other party during the [**] preceding any such action.

 

6.4.          Assignment .  Neither party may assign any of its rights or obligations under this Agreement to any person without the prior written consent of the other, and any such purported assignment shall be null and void from inception; provided, however, that (a) either party may assign all its rights and delegate all its obligations hereunder to a single person without such approval in connection with: (i) a merger, consolidation, reorganization, statutory conversion, amalgamation or similar corporate transaction, or (ii) a sale or other disposition of all or substantially all of its assets in the businesses relating to this Agreement, and (b) Nielsen may assign all its rights and delegate all its responsibilities to an Affiliate in connection with a restructuring or reorganization of Nielsen.  In the event that Digimarc assigns this Agreement to [**] (an “Assignee”) pursuant to this provision, the Digimarc Patents subject to the licenses granted in this Agreement shall include [**].

 


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6.5.          Bankruptcy Any intellectual property licenses and rights granted to either party hereunder or pursuant hereto are, and will be deemed to be, for purposes of Section 365(n) of the United States Bankruptcy Code (“Code”) licenses of “intellectual property”, as defined under the Code.  Notwithstanding any provision contained herein to the contrary, if a party is under any proceeding under the Code and the trustee in bankruptcy of that party, or that party as a debtor in possession, rightfully elects to reject this Agreement, then the other party pursuant to the relevant portions of Section 365(n) of the Code may retain any and all of such other party’s licenses and rights hereunder to the maximum extent permitted by law.

 

6.6.          Tolling.   Nielsen agrees to toll any statute of limitations and any time limitation on damages under [**] relative to [**].  In return for this tolling agreement, Digimarc will not [**].

 

6.7.          Limitations on Damages.   NEITHER DIGIMARC NOR NIELSEN WILL BE LIABLE UNDER ANY CIRCUMSTANCES OR ANY LEGAL OR EQUITABLE THEORY, WHETHER IN CONTRACT, TORT, STRICT LIABILITY OR OTHERWISE FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, EXEMPLARY, RELIANCE, PUNITIVE OR SPECIAL DAMAGES ARISING OUT OF THIS AGREEMENT, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

 

6.8.          Infringement Remedies.   Nothing in this Agreement prevents either party from seeking any available remedies under patent law for any patent infringement by the other party in periods when the party does not have a license to that activity including any remedies available under 35 U.S.C. 281, 283, 284 and 285.

 

6.9.          Governing Law, Jurisdiction and Venue.   This Agreement shall be governed by New York law.  Effective as of the termination date of either license in this Agreement, Digimarc may seek judgment and remedies for alleged infringement of its patents in any forum where jurisdiction and venue are proper, including the United States International Trade Commission or Government Customs Service proceedings, for alleged infringement occurring before the License Initiation Date or after any such license termination date.  All other matters concerning the interpretation of, or performance under, this Agreement will be resolved in the state or federal courts in New York applying New York law and jurisdiction and venue will be proper in such New York courts.

 

6.10.          No Waiver.   Each and all of the various rights, powers and remedies of the parties will be considered to be cumulative with and in addition to any other rights, powers and remedies which such parties may have at law or in equity in the event of breach of any of the terms of this Agreement.  The exercise or partial exercises of any rights, powers or remedies will neither constitute the exclusive election thereof nor the waiver of any other right, power or remedy available to such party.  In no event will any waiver of any rights hereunder constitute the

 


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waiver of such rights in any future instance unless the waiver so specifies in writing.

 

6.11.                    Notices .  All notices of breach or early termination must be made in writing.  Any written notice under this Agreement will be sent by email with a hard copy sent via certified mail, return receipt requested, or by recognized courier service with tracking capabilities.  The notice will be deemed effective as of the earlier of (i) the date of delivery, as evidenced by a delivery receipt or the addressee’s registry, or (ii) five business days after sending notice to the correct address in the authorized manner.  The addresses of the parties, as set forth above, will be used for any such notice unless either party hereafter designates a substitute address in writing in accordance with this provision.

 

The contacts to address the notices to are:

 

For Digimarc: Reed Stager, Executive Vice President; with a co-copy to: General Counsel; and

 

For Nielsen: James M. O’Hara, President, Media Product Leadership; with a co-copy to: General Counsel.

 

6.12.                    Integration This Agreement embodies the entire agreement of the parties hereto regarding the subject matter herein, and supersedes and cancels any and all previous negotiations, agreements or commitments with respect to them.

 

6.13.                    Severability .  If any provision of this Agreement is held to be void or unenforceable, the parties agree that such determination will not result in the nullity or unenforceability of the remaining portions of this Agreement.  The parties further agree to replace such void or unenforceable provisions of this Agreement with valid and enforceable provisions that will achieve, to the extent legally permissible, the economic, business and other purposes of the void or unenforceable provisions and that reflect the intent of the parties when entering into this Agreement.

 

6.14.                    Amendments .  This Agreement may not be modified in any manner except by an instrument in writing duly signed by each of the parties hereto.

 

6.15.                    Construction .  Each party and its counsel have participated fully in the review and revision of this Agreement.  Any rule or construction to the effect that ambiguities are to be resolved against the drafting party will not apply in interpreting this Agreement.

 

6.16.                    No Agency.   Nothing in this Agreement will be construed as creating any agency, partnership or other form of joint enterprise between Digimarc and Nielsen.  The relationship between Digimarc and Nielsen will at all times be that

 


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of independent contractors.  Neither party will have authority to contract for or bind the other in any manner whatsoever.

 

6.17.                    Other Documents.   Each party hereto will execute any documents which may be necessary or advisable to carry out or effectuate the foregoing.

 

6.18.                    Survival.   Upon expiration or termination of this Agreement, rights to payment under this Agreement and the provisions set out in Sections 2.3.5-2.3.10, 3.11-3.14, 4, 5.6 and 6.2-6.19 will remain in effect.

 

6.19.                    Counterparts.   This Agreement may be executed in separate counterparts, and by facsimile, each of which will be deemed an original, and when executed, separately or together, will constitute a single original instrument, effective in the same manner as if the parties had executed one and the same instrument.

 


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CONFIDENTIAL PORTIONS OMITTED

 

DIGIMARC CORPORATION

THE NIELSEN COMPANY (US),

 

INC.

 

 

By:

/s/ Robert P. Chamness

 

By:

/s/ James O’Hara

(Signature)

(Signature)

 

 

Robert P. Chamness

Name: James O’Hara

 

(Please print)

 

 

CLO and Secretary

Title: President-Media Product Leadership

 

 

Date: November 27, 2007

Date: November 27, 2007

 




EXHIBIT 10.4

 

CONFIDENTIAL PORTIONS OMITTED

 

COUNTERFEIT DETERRENCE SYSTEM

DEVELOPMENT AND LICENSE AGREEMENT

 

This Counterfeit Deterrence System Development and License Agreement (the “Agreement”) is made

 

Between

 

DIGIMARC CORPORATION , a corporation incorporated under the laws of Oregon and having its head office at One Centerpointe Drive, Suite 500, Lake Oswego, Oregon. U.S.A.  97035-8615                                                 (“Digimarc”)

 

and

 

[**]

 

Recitals

 

Digimarc has expertise in, and owns extensive intellectual property, including patents, patent applications, copyrights and trade secrets, [**].

 

[**] possesses or will possess the right to grant licences in respect of intellectual property rights related to the application of such intellectual property to the detection and deterrence of bank note counterfeiting.

 

Digimarc and [**] have cooperated in the development of means, using such intellectual property, to detect and deter the counterfeiting of bank notes [**].

 

The CDS is an improvement to Digimarc’s existing copyright protection system for deterring personal computer-based counterfeiting of bank notes.

 

The CDS has [**].

 

[**]  In return, [**] will acquire the exclusive right, as more particularly detailed herein, to grant and direct Digimarc to [**] to [**] the CDS [**] and [**].

 

[**] is also investing in certain improvements to [**] and a broadening of the deployment of the[**] across the personal computer industry.  In return, [**] during the term of the Agreement [**], as more particularly detailed herein.

 


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In consideration of these premises, the covenants set out in this Agreement and other good and valuable consideration, the receipt and adequacy of which are acknowledged by each of the parties, the parties agree as follows:

 

1.                                       DEFINITIONS AND PRINCIPLES OF INTERPRETATION

 

1.1                                Definitions - Whenever used in this Agreement, the following words and terms shall have the meanings set out below:

 

“Agreement” means these articles of agreement, including the Schedules, and those documents as specified or referenced in this Agreement as forming part of the Agreement, all as may be amended from time to time;

 

“Allowable Cost” means a cost of the kind identified in Schedule I;

 

“Arbitration Agreement” means the Arbitration Agreement dated June 21, 1999, a copy of which is attached as Schedule E;

 

“[**]” has the meaning assigned to it by clause 5.1;

 

“[**]” means that technology, if any, from the technology described in Schedule “F” in respect of which from time to time [**] after discussion between the [**] and the [**], [**] offers, and Digimarc accepts in writing, a [**] on the [**] in clause 8.2 to use, design or implement the CDS and all Intellectual Property Rights in that [**];

 

“Business Day” means a day on which both [**] and Digimarc are open for business at their respective addresses noted above;

 

“CDS Technology” collectively, means whatever of the [**], the Digimarc Technology and the Project Technology is incorporated into the CDS;

 

“Confidential Information” means information disclosed during the Term of this Agreement in any form which, if disclosed in tangible form, is labelled “Confidential”, “Proprietary” or with a similar legend, or if disclosed orally is information that by its nature would be understood to be confidential to the Discloser;

 

“Counterfeit Deterrence System” or “CDS” or “System” means a system for [**] that includes, without limitation, [**].  The System incorporates means for [**];

 

“Deliverable” for a [**] means a task to be performed or an item to be delivered by Digimarc to [**], identified in the Statement of Work for [**], and in the case of a Deliverable [**]Digimarc’s obligations to [**] with the Escrow Agent as part of the Technical Information;

 


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“Designated Country” means a country , the [**] of which is designated in writing by [**] effective on the Effective Date, and any additional country as may be designated by [**] in writing to Digimarc from time to time;

 

“[**]” means those portions of the Project Technology and the Digimarc Technology which relate to [**] including [**];

 

“Device” means a [**] for a general purpose [**], or a device [**];

 

“[**]” means the [**] of a [**];

 

“Digimarc Contract Authority” means the President of Digimarc;

 

“Digimarc Project Manager” means the Project Manager appointed by Digimarc in accordance with the provisions of clause 4.1;

 

“Digimarc Technology” means:

 

(a)                                   the technology partially described in Schedule “G” developed or owned by Digimarc prior to [**] to the extent that it forms part of the CDS,

(b)                                  all Improvements to the technology described in (a) made by or on behalf of Digimarc other than under this Agreement to the extent that they form part of the CDS,

(c)                                   all Improvements to the technology described in (a) made by or on behalf of Digimarc under this Agreement to the extent that they relate to or form part of the CDS, and

(d)                                  all Intellectual Property Rights in all such technology and Improvements;

 

“Digital Watermark” refers to [**] (including [**]) that are [**] from [**] by [**] of [**], which [**] of [**] and yet do not significantly [**] from the aesthetics of the [**] or [**] thereby.  Examples include, but are not limited to:

 

1.                                        generally imperceptible changes to [**] or placement in [**];

2.                                        [**] of a substrate, where the [**] substantially uniform to human touch;

3.                                        slight localized changes to [**] or [**] of a printed document;

4.                                        slight changes to [**]; or

5.                                        [**] of substantially [**];

 

“Discloser” means a party which has disclosed or otherwise made available its Confidential Information to the other party;

 

“DLA Contract Authority” means the Contract Authority designated by [**] in writing to Digimarc from time to time;

 


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“DLA Project Manager” means the project manager appointed by the DLA Contract Authority from time to time on notice to the Digimarc Contract Authority who shall also serve as the person primarily responsible to conduct inspections on behalf of [**];

 

[**] ;

 

[**] ;

 

[**] ;

 

“Effective Date” means [**];

 

[**] ;

 

[**] ;

 

[**] ;

 

“Escrow Agent” means [**], or any mutually acceptable new custodian appointed pursuant to clause 11.2 or 11.3 of the Escrow Agreement;

 

“Escrow Agreement” means the agreement in the form attached as Schedule M;

 

“Escrowed Materials” means any and all materials deposited or to be deposited by Digimarc with the Escrow Agent under this Agreement and the Escrow Agreement including the Technical Information and Improvements pertaining to the CDS Technology which shall include but not be limited to the following:

 

1.                                        details of the deposit including: full name and version details, number of media items, media type and density, file or archive format, list or retrieval commands, archive hardware and operating system details;

2                                           name and functionality of each module or application of the Escrowed Materials;

3.                                        names and versions of development tools;

4.                                        documentation describing the procedures for building, compiling, executing and using the software which forms part of the Escrowed Materials ([**]);

5.                                        hardcopy directory listings and tables of the contents of the computer media, manuals and other materials; and

6.                                        name and contact details of employee(s) with knowledge of how to maintain and support the Escrowed Materials;

 

“Feasibility Work” means that portion of [**] performed by Digimarc between [**] and the date of signature of this Agreement;

 

“Improvement” means any change in the CDS Technology or the Technical Information made by or at the direction of Digimarc after [**] which enhances, whether by

 


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improvement, enhancement, correction, addition or otherwise, the properties, characteristics or manufacture of the CDS including, for greater certainty, [**];

 

“Integration Support” means the consulting and programming services to be provided by Digimarc to a [**] on the terms described in Schedule P attached to assist the [**] to ensure that the [**];

 

“Intellectual Property Rights” means all intellectual property rights existing now and in the future including, without limitation, trade secrets, copyright, database rights, know-how, topographies, patents and patent applications;

 

“[**]” means an entity responsible for [**];

 

“Licensed [**]” means an [**] licensed by Digimarc pursuant to clause 2.8;

 

“[**]” means an entity, regardless of whether it has a legal status distinct from that of an [**] pursuant to clause 2.9;

 

“Other [**] Technology” means any of the technology described in Schedule F which is not [**] Technology, but in respect of which Digimarc elects, on written notice given to the DLA Contract Authority prior to the expiry of the [**] of the Project, to obtain a licence on the terms set out in clause 8.2 to use in relation to [**] for a Security Purpose in accordance with clause 9.2;

 

“Person” means any individual or other legal entity, including without limitation a sole proprietorship, partnership, unincorporated association, unincorporated syndicate, unincorporated organization, trust, body corporate, or a natural person in the capacity of trustee, executor, administrator or other legal representative;

 

[**] ;

 

[**] ;

 

[**] ;

 

[**] ;

 

“[**]” means the tasks and Deliverables identified in the [**] attached as Schedule B to be performed or produced [**];

 

“[**]” means the tasks and Deliverables identified in the [**] attached as Schedule C to be performed or produced [**];

 

“[**]” means the tasks and Deliverables identified in the [**] attached as Schedule D to be performed or produced [**];

 


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“Problem Report” means a report of a problem addressing as many of the topics specified in Schedule “R” as are relevant to a reasonable understanding of the problem;

 

“Project Technology” means the technology described in Schedule “H” developed by or on behalf of Digimarc under this Agreement after [**], all Improvements to that technology or to the [**] Technology or to the Other [**] Technology, and all Intellectual Property Rights in that technology and those Improvements;

 

“Properly Embedded” when used in reference to a [**] means that the [**] is [**] in accordance with the written instructions provided by Digimarc with the [**] used to [**] and is capable of passing the Verification Test;

 

“Recipient” means a party to which the Confidential Information of the other party has been disclosed or otherwise made available;

 

“Schedule” means a schedule to this Agreement;

 

[**] ;

 

“Security Purpose” means the purpose of [**];

 

“Security Requirements ” means the requirements for physical security including, without limitation, electronic systems security set out in Schedule J;

 

“Specifications” for the CDS or any part thereof means the specifications for the CDS or part thereof accepted by [**] under this Agreement;

 

[**] ;

 

“Statement of Work” means the Statement of Work set out in Schedules B, C or D as applicable;

 

“System Support” means the maintenance and other support for the CDS described in Schedule “O” attached;

 

“Technical Information” means all information including, without limitation, source code, programming instructions, algorithms, software and other works of authorship, manufacturing and technical data, drawings, specifications, instruction manuals, user manuals, procedures, facilities, prices, suppliers’ lists and all other information comprising or relating to the development of the [**] Technology, or any part thereof, or the application of the CDS Technology, or any part thereof, in the [**];

 

“Term” means the period commencing on the Effective Date and ending on [**];

 


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“Training” means the training in the use and operation of the [**] described in Schedule Q;

 

“Verification Test” means a test or tests developed by Digimarc as part of the [**] to determine if [**]; and

 

“Work” means the Work that is required to be performed by Digimarc in order to complete the tasks and deliver the Deliverables and otherwise comply with its obligations under this Agreement.

 

1.2                                Interpretation - In this Agreement:

 

1.2.1                         unless otherwise specified, all references to money amounts are to the currency of the United States of America;

 

1.2.2                         the use of words in the singular or plural, or with a particular gender, shall not limit the scope or exclude the application of any provision of this Agreement to such Person or Persons or circumstances as the context otherwise permits;

 

1.2.3                         whenever a provision of this Agreement requires an acceptance, approval or consent by a party to this Agreement and notice of such acceptance, approval or consent is not delivered within the applicable time, then the party shall be conclusively deemed to have withheld the acceptance, consent or approval;

 

1.2.4                         unless otherwise specified, the number of days within or following which any payment is to be made or act is to be done shall be interpreted to be continuous and shall be calculated by excluding the day on which the period commences and including the day which ends the period and by extending the period to the next Business Day if the last day of the period is not a Business Day;

 

1.2.5                         unless otherwise specified, the order of precedence for interpreting this Agreement shall be:

 

(a)                                   this Agreement, excluding Schedules;

 

(b)                                  the Schedules; and

 

(c)                                   as between the delivery schedules forming part of a Statement of Work, and other provisions of such Statement of Work, the delivery schedules shall take precedence.

 

1.2.6                         for greater certainty, a party or representative to which this Agreement grants the right to make a decision or determination in the sole discretion of the party or representative is not required to act reasonably in making the decision or determination and no such decision or determination may be challenged by the other party under the Arbitration Agreement or otherwise;

 


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1.2.7                         the words “includes” or “including” will be construed as meaning “included without limitation” and “including without limitation” as the case may be; and

 

1.2.8                         a clause or Schedule, unless the context requires otherwise, is a reference to a clause to, a Schedule of, or a paragraph of a Schedule to, this Agreement, as amended from time to time in accordance with this Agreement.

 

1.3                                Applicable Law - This Agreement shall be construed in accordance with the laws of England to the exclusion of its rules of conflicts of laws.

 

1.4                                Schedules - The Schedules to this Agreement, listed below, are an integral part of this Agreement:

 

Schedule

 

Description

Schedule “A”

 

System Description

Schedule “B”

 

[**]

Schedule “C”

 

[**]

Schedule “D”

 

[**]

Schedule “E”

 

Arbitration Agreement

Schedule “F”

 

[**]

Schedule “G”

 

Digimarc Technology

Schedule “H”

 

Project Technology

Schedule “I”

 

[**]

Schedule “J”

 

Security Requirements

Schedule “K-1”

 

[**]

Schedule “K-2”

 

[**] - Non-[**]

Schedule “L-1”

 

[**]

Schedule “L-2”

 

[**] - Non-[**]

Schedule “M”

 

Escrow Agreement

Schedule “N”

 

Progress Reporting and Project Reviews

Schedule “O”

 

System Support Services Agreement

Schedule “P”

 

Fees for Integration Support and Verification Testing

Schedule “Q”

 

Training

Schedule “R”

 

Problem Report

Schedule “S”

 

Proforma Invoice

Schedule “T”

 

Form of Deed of Adherence

Schedule “U”

 

Form of Comfort Letter

 

2.                                       SCOPE OF THE WORK

 

2.1                                  Digimarc shall perform [**] in accordance with the [**] and, subject to [**] acceptance of the corresponding Offer described in clause 2.3, the [**] in accordance with the [**] and the [**] in accordance with the [**].

 

2.2                                  On or before (i) [**]and (ii) [**], Digimarc shall deliver to [**] and the DLA Project Manager a written proposal (the “Proposal”) for the Work to be done [**], which Proposal will

 


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be in the form of a proposed amendment to this Agreement and will include, but not be limited to:

 

(a)                                   changes to the Statement of Work for [**];

 

(b)                                  an estimate of the [**] to be incurred by Digimarc in connection with Digimarc’s performance of the Work for [**]; and

 

(c)                                   the nature, timing and estimated quantity of the effort which will be required from [**] to enable Digimarc to perform the Work as proposed [**] including, for greater certainty, the assistance reasonably required from [**].

 

2.3                                  The Proposal for [**] when delivered by Digimarc to [**] pursuant to clause 2.2 shall be deemed to constitute an irrevocable offer (the “Offer”) to amend the Agreement.  Digimarc undertakes and represents that each Proposal will be prepared with all due care and diligence and that at the date of [**]’ acceptance of each Offer it will not be aware of any matters within its reasonable control which might or will adversely affect its ability to perform the Work for the applicable Phase.

 

2.4                                  The Offer (i) for [**] shall remain open until [**] and (ii) for the [**] shall remain open until [**] for written acceptance by [**] at its sole discretion.  If requested by the DLA Contract Authority at least seven (7) days before the expiry date for an Offer, Digimarc shall prepare and submit a revised Offer to take into account any reasonable revisions and clarifications to the original Offer requested by the DLA Contract Authority and [**] will have ten (10) days from receipt of the revised Offer to accept it.

 

2.5                                  Effective immediately on [**]’ acceptance of the Offer or revised Offer in respect of a [**], the Statement of Work [**] and all other relevant provisions of this Agreement will be deemed to have been amended to reflect the Proposal as accepted by [**].

 

2.6                                  The Term will continue notwithstanding that [**] elects not to accept the Offer for [**].

 

2.7                                  Pending acceptance, or express or implied rejection by [**] of the Offer as provided in clause 2.4, the DLA Contract Authority may, in his or her sole discretion, authorize Digimarc to perform all or part of the Work described in the Offer (or other Work as agreed between the parties’ respective Contract Authorities).  If [**] accepts the Offer for [**], all such authorized Work will be deemed to form part of the Work [**] to which the Offer relates.  In any event, [**] shall compensate Digimarc for such authorized Work as though it were [**].

 

2.8                                  Commencing no later than ten (10) Business Days after every written request made during the Term by the DLA Contract Authority, Digimarc shall make an irrevocable offer, which offer shall remain open for acceptance within sixty (60) days from the date of receipt by [**] to which the Offer is addressed, to grant to an [**] a [**] to [**] in connection with the [**] of the [**] on terms no less favourable to that [**] than those set out in whichever of Schedules “K-1” and “K-2” is applicable.

 


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2.9                                  Commencing no later than ten (10) Business Days after every written request made during the Term by the DLA Contract Authority or a [**], Digimarc shall make an irrevocable offer, which offer shall remain open for acceptance within sixty (60) days of receipt by the [**]to which the Offer is addressed, to:

 

(a)                                   [**] designated by the DLA Contract Authority or a [**] a [**] to [**] in connection with [**] of a [**], on terms no less favourable to the [**] than those set out in whichever of Schedules “L-1” and “L-2” is applicable; and

 

(b)                                  [**] referred to in clause 2.9(a) at no charge and provide the Training to the [**] for the charges to the [**] described in clause 2.12 within ten (10) Business Days after the [**] acceptance of the offer to [**], or at such other time as may be agreed between Digimarc and the [**].

 

2.10                            No later than sixty (60) Business Days after every written request made by a [**] during the Term, Digimarc shall provide Integration Support to the [**] on a date or dates agreed between Digimarc and the [**] for the charges described in clause 2.12 provided that in 1999 the sixty (60) Business Day limit shall apply only to the first three [**] which require such services.

 

2.11                            No later than twenty (20) Business Days after every written request made by [**] or a [**] during the Term, Digimarc shall conduct Verification Tests of [**] on a date or dates agreed between Digimarc and the [**] or the [**], as the case may be, for the charges specified in clause 2.12.

 

2.12                            The amount charged by Digimarc to the [**] or Licensed [**] for the Training, Integration Support and Verification Tests provided:

 

(i)                                      before the [**], will be determined in accordance with the provisions of Schedule “P”;

 

(ii)                                   [**], will not be greater than the charge then paid to Digimarc for similar support by Digimarc’s most favoured customer.

 

2.13                            At any time during the Term following [**]which [**] elects to proceed with as described in clause 2.4 Digimarc shall on receipt of a written request from a [**].

 

2.14                            Digimarc shall report to the DLA Contract Authority at least once each calendar quarter of the Term on Improvements and [**] which Digimarc has made or caused to be made since the last report.  Promptly following notice by the DLA Contract Authority, Digimarc [**] the [**] provided to the [**] designated by the DLA Contract Authority to [**] the [**].  Digimarc shall in any event issue the [**] to the [**].  The [**] of such [**] by Digimarc (i) before [**] of the [**] and (ii) following [**]of the[**] and will be [**].  Notwithstanding the foregoing, [**] an Improvement into [**] employed by it in [**].  Digimarc shall [**] the System Support for the two (2) versions of [**] which preceded the then current version of [**] or for all versions of [**] released within

 


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twenty-four (24) months prior to the date of issue of the [**], [**] at [**] to the [**] above the [**] for the System Support.

 

2.15                            Digimarc shall obtain at its own expense all licenses or permits required to be obtained from the Government of the United States in order for Digimarc to comply with its obligations under this Agreement including, without limitation, to [**] and Escrowed Materials, and grant the associated licenses, to [**] and other licensees.

 

2.16                            Digimarc acknowledges and confirms [**]’ right to enforce clauses 2.9 and 2.11 by an application for specific performance or otherwise.

 

3.                                       PRICE AND PAYMENT

 

3.1                                  In addition to the amounts payable in accordance with clause 8, [**] shall pay Digimarc [**] for the [**] to the Digimarc Technology granted to [**] under clause 8 of this Agreement by the later of (a) five (5) Business Days after the date that the Escrow Agent notifies [**] that it has taken possession of the reproductions of the Technical Information for the CDS Technology under clause 8.7 and successfully verified that Technical Information in accordance with the Verification Process (as defined in the Escrow Agreement), and (b) thirty (30) days after this Agreement is signed by both parties.  Both parties will use their best efforts to ensure the activities in a) are completed within 30 days after this Agreement is signed.

 

3.2                                  Subject to the limits set out in this Agreement and unless otherwise expressly set out herein, [**] shall [**] Digimarc for all the [**] reasonably and properly incurred by Digimarc during each calendar month to perform [**], and any other Work authorized by [**] in writing, plus a [**] on the [**] (the “[**]”).  Digimarc shall invoice [**] monthly in arrears for such Costs and [**].  Each invoice shall specify the time spent by the staff and sub-contractors of Digimarc in performing the Work and shall give a [**] of the [**] in the form attached as Schedule S.

 

3.3                                  The amount which [**] is required to pay Digimarc for the [**] incurred in performing the [**] and [**] in calendar year 1999 will not be greater than [**].  The amount which [**] is required to reimburse Digimarc for the [**] incurred in performing [**], respectively, will not be greater than the estimates for that Work accepted by [**] pursuant to the provisions of clause 2.4.  Digimarc shall complete all relevant work notwithstanding that it is unable to recover [**] incurred in relation thereto due to the operation of the limits set out in this clause 3.3.

 

3.4                                  Except as otherwise expressly provided herein, the total amount which [**] will be liable to pay Digimarc for or in connection with the [**] and [**] for [**] will not be greater than [**] and, assuming that (i) [**] has accepted Digimarc’s Offer for [**] and, (ii) [**] does not terminate this Agreement as permitted herein prior to the date on which Digimarc completes [**] in accordance with the provisions of this Agreement, not less than [**], subject to Digimarc having performed the Work equal to this amount of [**] and [**].

 


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3.5                                  If [**] elects not to proceed with [**] as described in clause 2.4 above, and at the time of such election [**] has not served notice of breach, or termination for Digimarc’s default, under clause 15, [**] shall pay Digimarc an amount equal to [**] of the total amount paid for [**] and the corresponding [**] for the Work done during the previous nine (9) months.

 

3.6                                  [**] shall pay Digimarc each amount which [**] owes Digimarc under this Agreement no later than thirty (30) days after the later of the payment due date and the date on which [**] receives a detailed and correct invoice for the amount.

 

3.7                                  For a period commencing on the Effective Date and ending on the date [**] following the last date on which Digimarc issues an invoice to [**] for [**], Digimarc shall maintain proper, up-to-date, accurate and complete books, records and other documentation substantiating [**] invoiced under this Agreement including, without limitation, time sheets showing the hours spent on each task which forms part of the Work and receipts for all disbursements.  Digimarc shall produce such books, records and documentation to [**] or its representatives for inspection and copying at all reasonable times on request by the DLA Project Manager.

 

3.8                                  Except as otherwise expressly provided in this Agreement, [**] shall pay Digimarc all sales, use, goods and services or other similar taxes levied by any government in the [**] which Digimarc is obliged to collect and remit to such government(s) in connection with any amount paid by [**] to Digimarc under this Agreement.  Such payments by [**] shall be in addition to those set forth in clause 3.4.

 

3.9                                  Digimarc is responsible for, and shall indemnify [**] against, and hold [**] harmless from, the payment of all taxes levied by any government on or in respect of Digimarc’s income and any amounts required by law to be paid in respect of social benefits for Digimarc’s employees relating to or arising out of the performance of the Work by Digimarc.  If required by law, [**] shall deduct all such taxes and amounts from the amounts otherwise payable to Digimarc and remit them to the appropriate authorities.

 

3.10                            [**] may set off against any amount which [**] owes Digimarc under or in connection with this Agreement any amount which Digimarc owes [**] under or in connection with this Agreement.

 

4.                                         PROJECT MANAGEMENT

 

4.1                                  Digimarc shall designate a responsible individual with adequate authority and competence as the Digimarc Project Manager whose responsibilities, in addition to those expressly set out in this Agreement, shall be to serve as project leader and primary interface with [**].

 

4.2                                  The DLA Project Manager shall be responsible for coordinating fulfilment by [**] of its obligations under this Agreement including the provision of all the general information about [**] that Digimarc may reasonably require in order to perform its obligations under this Agreement.  The DLA Project Manager shall have no authority to amend this Agreement,

 


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approve payments or approve or accept Deliverables or other Work or Proposals on behalf of [**], all of which actions shall be within the exclusive authority of [**].

 

4.3                                  The Digimarc Project Manager shall be responsible for coordinating the performance of the Work by Digimarc but shall have no authority to agree to an amendment of this Agreement on behalf of Digimarc which action shall be within the exclusive authority of the Digimarc Contract Authority.

 

4.4                                  Either party’s Project Manager or Contract Authority may from time to time appoint one or more persons to represent him or her on prior written notice to the other party’s Project Manager or Contract Authority.

 

4.5                                  Digimarc shall not, without first obtaining the written consent of the DLA Contract Authority which consent will not be unreasonably withheld, remove or replace:

 

(a)                                     any employee of Digimarc or its authorized subcontractors assigned to do any part of the Work if the employee or subcontractor is critical to completion of the Work by Digimarc in accordance with this Agreement; or

 

(b)                                    its Project Manager.

 

“Critical” means that the Work cannot timely be completed by Digimarc without such employee.

 

4.6                                  Digimarc shall replace within a reasonable time under the circumstances any of its employees or authorized subcontractors engaged in fulfilling its obligations under this Agreement, including its Project Manager, whose removal is required by the DLA Contract Authority, provided that the DLA Contract Authority specifies reasonable cause for such removal in writing.

 

4.7                                  Digimarc represents that all personnel assigned to do the Work will be employees of Digimarc. Digimarc shall not engage any subcontractor other than the subcontractors identified by Digimarc in writing to [**] before this Agreement was executed to do any part of the Work without first obtaining the prior written consent of the DLA Project Manager, who may give or withhold such consent in his or her sole discretion.  Digimarc undertakes that it shall obtain from each subcontractor prior to permitting that subcontractor to do any part of the Work a written undertaking that all Intellectual Property Rights in any Work created by that subcontractor vest absolutely in Digimarc upon the date of creation. Digimarc hereby warrants and represents that it has obtained such undertakings from all subcontractors engaged in relation to the Work prior to the date of execution of this Agreement.

 

4.8                                  Digimarc shall report on progress of the Work and conduct progress reviews in accordance with the provisions of Schedule “N”.

 

4.9                                  In the event that it becomes evident to either party’s Project Manager that a failure or delay by either party to perform in accordance with its obligations under this Agreement will

 


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result in a material impact on the completion of the Work in accordance with the applicable Statement of Work, then the relevant Project Manager shall immediately bring the issue to the attention of the other party’s Project Manager.

 

5.                                         RESPONSIBILITIES OF [**]

 

5.1                                  [**] shall perform all tasks assigned to it in the Statement of Work [**] (herein sometimes referred to as the [**] Tasks).

 

5.2                                  Unless otherwise expressly set out in this Agreement, [**] shall respond in writing within ten (10) Business Days to every written request for consent required by this Agreement received from Digimarc.

 

5.3                                  If [**] is delayed in complying with any of its obligations under clauses 5.1 or 5.2 for any reason not attributable to Digimarc, and such delay is the cause of a delay in the completion and delivery by Digimarc of any Deliverable, then the time for completion of the Deliverable, and all subsequent Deliverables dependent thereon, will be extended automatically by one day for each day of delay by [**] or such other period as may be agreed in writing between the parties’ respective Contract Authorities.  If Digimarc suffers increased costs by reason of such delay, other than a delay due to a force majeure event, such costs shall be borne by [**] and shall be in addition to the [**] otherwise contemplated by this Agreement. If the delay is due to a force majeure event, such costs shall be borne equally by [**] and Digimarc, and shall be in addition to the [**].  This clause 5.3 sets forth Digimarc’s only remedy for a delay by [**] in complying with any such obligation.

 

6.                                         CHANGES TO THE WORK

 

6.1                                  Either party may propose a change to the Work from time to time by submitting a request in writing to the other party’s Project Manager.

 

6.2                                  On making such a request or within three (3) Business Days after receiving such a request from the DLA Project Manager, Digimarc shall inform the DLA Project Manager of the amount, if any, which Digimarc intends to invoice [**] to investigate whether the change can be made and the effect the change will have on the Statement of Work and the [**] for [**].

 

6.3                                  Within ten (10) Business Days after receiving the written authorization of the DLA Project Manager to conduct the investigation or such longer period as may be authorized by the DLA Project Manager, Digimarc shall report to the DLA Project Manager, in writing, on the results of the investigation.

 

6.4                                  Within ten (10) Business Days after the DLA Project Manager receives the report, the DLA Contract Authority shall, on behalf of [**], notify Digimarc whether or not [**] authorizes the change.

 


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6.5                                  Digimarc shall not implement any change to the Work until the change is authorized in writing by the DLA Contract Authority on behalf of [**].

 

6.6                                  Pending receipt of a written authorization from the DLA Contract Authority, on behalf of [**], Digimarc shall proceed with the Work in accordance with the Agreement.

 

7.                                         APPROVAL OF DELIVERABLES

 

7.1                                  If Digimarc fails to produce a Deliverable acceptable to [**] by the date set out in the applicable Statement of Work, or in the case where the Statement of Work requires the parties to agree on whether a Deliverable is acceptable, if the parties fail to agree for any reason by the date specified in the Statement of Work or, if no date is specified, within ten (10) Business Days after a party’s Contract Authority asks the other party’s Contract Authority for agreement, then the DLA Contract Authority may, in its sole discretion, by written notice to Digimarc, either:

 

(a)                                     allow additional time for Digimarc to produce a Deliverable acceptable to [**] or for the parties to come to agreement, whereupon the time for completion of all other Deliverables which depend on the acceptance or agreement will be automatically extended by one day for each additional day or such other period as may be agreed in writing between the parties’ respective Contract Authorities; or

 

(b)                                    cancel any further Work on the Deliverable and all Deliverables which depend on the acceptance or agreement, whereupon the Statement or Statements of Work which provide for the cancelled Work or Deliverables will be deemed to be amended to exclude them.

 

7.2                                  Neither party shall refer for arbitration any failure to agree referred to in clause 7.1.

 

8.                                         INTELLECTUAL PROPERTY MATTERS

 

8.1                                  [**] acknowledges that Digimarc does not have sufficient basis on which to determine whether [**] is the owner of the [**] Technology or the Other [**] Technology.

 

8.2                                  [**] shall grant to Digimarc following Digimarc’s written acceptance of an offer by [**] to obtain a licence for any [**] Technology a [**] such [**] Technology to comply with its obligations under this Agreement and any license agreement entered into as directed or permitted by the DLA Contract Authority under this Agreement and for no other purpose.

 

8.3                                  Digimarc acknowledges that [**] does not have sufficient basis on which to determine whether Digimarc is the owner of the Digimarc Technology or the Project Technology but as between [**] and Digimarc, Digimarc is the owner of the Project Technology, the Improvements thereon and the Technical Information related thereto.  Except as otherwise provided herein, Digimarc may freely use and license all such technology.

 

8.4                                  Digimarc hereby grants to [**], effective upon the date specified in clause 8.5, the [**] the Digimarc Technology and the Project Technology, and all Improvements thereto, and the Technical Information pertaining to the Digimarc Technology, the Project Technology and such

 


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Improvements, and to sublicense the use of the Digimarc Technology and the Project Technology and such Improvements and Technical Information to other Persons, for the purposes of [**] the System and any such component thereof, and making the System and any component available to others solely for [**].  On the effective date of the grant of the license referred to above, [**] copy and use the Escrowed Materials for the purpose of exercising all rights granted under the license and the Escrow Agent shall be deemed authorized to release the Escrowed Materials to [**].  The expressions “[**]” as used in this clause 8.4, shall be deemed to refer to [**].

 

8.5                                  The license described in clause 8.4 shall take effect on the earliest of:

 

(a)                                     the date on which the DLA Contract Authority requests in writing the license and [**] pays Digimarc the difference, if any, between [**] and the total of the amounts paid and owing to Digimarc pursuant to clause 3.3 above;

 

(b)                                    [**], subject to payment of all sums properly due to Digimarc under clause 3.2 for Work completed up to [**];

 

(c)                                     sixty (60) days following the effective date of termination of this Agreement by [**] in accordance with the provisions of clause 15.2 (a), (b), (d) or (e) unless Digimarc demonstrates within such sixty (60) day period that, notwithstanding the occurrence of the events giving rise to the termination, Digimarc is willing and able to comply with its obligations under the Agreement; and

 

(d)                                    the effective date of termination of this Agreement by [**] in accordance with the provisions of clauses 15.2(c), 15.2 (f), 15.2(g) or 15.3.

 

8.6                                  Digimarc hereby grants to [**], effective on the date specified in this clause, the [**] the Digimarc Technology and the Project Technology and all Improvements thereto, and the Technical Information pertaining to the Digimarc Technology, the Project Technology and such Improvements, and to sublicense the use of the Digimarc Technology,  the Project Technology and such Improvements and Technical Information to other Persons, for the sole purpose [**] solely for [**].  This license shall take effect on written request by the DLA Contract Authority at any time following the later of the date on which the license referred to in 8.4 takes effect and the date on which [**] pays Digimarc [**].

 

8.7                                  Upon the date on which this Agreement is last signed by them, [**] and Digimarc shall sign the Escrow Agreement and procure that the Escrow Agent signs that Agreement within thirty (30) days.  Upon complete signature of the Escrow Agreement, Digimarc shall make available a complete and accurate copy of the Technical Information for the Digimarc Technology and the Project Technology existing on April 19, 1999, for collection and the carrying out of the Verification Process referred to in clause 3.1 by the Escrow Agent at Digimarc’s premises.

 


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8.8                                  From time to time during the Term, on no less than five (5) Business Days prior written notice by the DLA Project Manager, Digimarc shall, at Digimarc’s premises, present representatives of the Escrow Agent with all the material, in any form, in Digimarc’s possession or control which contains or describes the Technical Information pertaining to the Digimarc Technology and the Project Technology.  The representatives may identify any or all of such material and Digimarc shall arrange, at the expense of [**],  for a complete, accurate and up-to-date copy of the selected material to be made and sent to the Escrow Agent within five (5) Business Days of the selection being made for deposit under the terms of the Escrow Agreement.  If [**] exercises the right granted by this provision 8.8, [**] shall reimburse Digimarc’s costs related thereto which costs are in addition to the [**] otherwise contemplated by this Agreement.

 

8.9                                  Within twenty (20) Business Days after the end of each calendar quarter during each Phase, Digimarc shall update the Escrowed Material in the possession of the Escrow Agent to reflect all Improvements to the CDS Technology and [**] made by or at the request of Digimarc during that quarter.

 

8.10                            Nothing in this Agreement shall be construed to grant any broader license rights than those expressly granted by the Agreement.

 

8.11                            From and after the date on which [**] gets access to the Escrowed Materials pursuant to the Escrow Agreement, [**] shall inform Digimarc within thirty (30) days after the end of each calendar quarter during the Term of all improvements relating to (i) [**]; (ii) [**]; (iii) [**]; and (iv) any other part of the CDS, [**], or caused or permitted to be made, as a result of access to and use of the Escrowed Materials or the Digimarc Confidential Information. The first such information shall be provided to Digimarc within thirty (30) days after the first calendar quarter following said access, and shall cover improvements made from the date [**] first received, or caused or permitted others to receive, any of the Escrowed Materials or any Digimarc Confidential Information.  Following the provision of the information under this clause 8.11, [**] shall provide to Digimarc within a reasonable period of time following request, the Technical Information for those improvements requested by Digimarc in writing.

 

8.12                            [**] hereby grants to Digimarc [**].

 

8.13                            The license referred to in clause 8.12 shall continue until this Agreement expires or is terminated, or until [**]  has no further rights to the Escrowed Materials and Digimarc Confidential Information, whichever occurs last.

 

8.14                            For greater certainty, the obligations set out in clauses 8.11, 8.12 and 8.13 shall not apply to any improvement which [**] can demonstrate would have been made irrespective of access to the Escrowed Materials or Digimarc Confidential Information.

 

8.15                            [**] shall take all reasonable steps to ensure that Persons, other than its directors, officers and employees, to whom it allows access to the Escrowed Materials will be contractually bound in accordance with terms substantially like those set forth in clauses 8.11, 8.12, 8.13 and 8.14, granting rights in favour of Digimarc.

 


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8.16                            Notwithstanding any other provision of this Agreement to the contrary, [**]’ right to acquire the license described in clause 8.4 by payment of the fee described in clause 8.5(a) shall survive termination of this Agreement by [**] in accordance with the provisions of clause 15.2 (a), (b), (d) or (e) and be exercisable at any time during a period of sixty (60) days following such termination.

 

9.                                         SECURITY

 

9.1                                  Unless otherwise expressly permitted by this Agreement or authorized in writing by the DLA Contract Authority pursuant to this Agreement, Digimarc shall not use, or permit or suffer, to be used:

 

(a)                                     [**]

 

(b)                                    the [**] Technology or the Other [**] Technology for any purpose except solely to comply with Digimarc’s obligations under this Agreement and any license agreement entered into as directed by the DLA Contract Authority under this Agreement.

 

Subject to the restrictions set out in this clause 9.1, Digimarc may, at its option, [**]

 

9.2                                  Notwithstanding the provisions of clause 9.1, Digimarc may use the [**] Technology, the Other [**] Technology and the [**], and any Improvements, and the Technical Information pertaining to the [**] Technology, the Other [**] Technology and the [**] and such Improvements, to [**] a Security Client for a Security Purpose.  Such use may continue so long as:

 

(a)                                     [**]; and

 

(b)                                    [**]

 

9.3                                  Digimarc may, at any time, make a proposal to the DLA Contract Authority to use the [**] Technology, the Other [**] Technology and the Technical Information pertaining thereto, to develop products and services and to license the use of those products and services to other clients or for other purposes.  The DLA Contract Authority may, in his or her sole discretion, authorize the proposed use.  Following authorization, such use may continue so long as:

 

(a)                                     the use does not have a material adverse impact on the effectiveness for [**] provided by Digimarc to any Person during the Term for incorporation into any Device in [**]; and

 

(b)                                    Digimarc uses its best efforts, including obtaining a legally binding commitment from the proposed user, to ensure that the proposed user does not use the product or service or permit or suffer the product or service to be used, for any purpose other than the permitted purpose.

 


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9.4                                  For the purposes of clauses 9.2 and 9.3:

 

(a)                                     a license to use shall not, unless expressly agreed to by the DLA Contract Authority in his or her sole discretion, include the right to grant a sublicense to any Person except end-user customers of the licensee; and

 

(b)                                    a “material adverse impact” will be deemed to arise if, as a result of such use or enjoyment, a [**] referred to therein fails to meet the Specifications for the version of the [**] last accepted by [**] under this Agreement.

 

9.5                                  Digimarc shall supply the DLA Contract Authority with all information reasonably available and required to evaluate the effect of each use proposed by Digimarc pursuant to clause 9.3 including, but not limited to, details of the ownership, affiliations, financial stability, security practises, industry reputation, business plans and business operations of the proposed user.

 

9.6                                  If Digimarc learns, or has reasonable cause to believe, that any Person to whom Digimarc:

 

(a)                                     licenses the use of a product or service as permitted by the DLA Contract Authority under clauses 9.2 or 9.3 has used, or permitted or suffered to be used, or proposes to use, or permit or suffer to be used, the product or the results of the services for any purpose which is not permitted as described above, or

 

(b)                                    has granted a license as requested by the DLA Contract Authority under clause 2.8 or 2.9 in respect of, or has used, or permitted or suffered to be used, or proposes to use or permit or suffer to be used, the [**] or the Technical Information pertaining thereto subject of the license for any purpose other than as permitted by this Agreement,

 

Digimarc shall immediately notify the DLA Contract Authority of such unauthorised use and Digimarc shall use its best efforts, at its own expense, to prevent any further such use including exercising whatever legal remedies (including, without limitation, an application for injunctive relief) are available to Digimarc. Digimarc shall, immediately on notice by the DLA Contract Authority, assign to [**] any right of action which Digimarc may have in respect of any such further use, or transfer to [**] the control and conduct of legal proceedings and claims in relation to such use.  Following such assignment or transfer, Digimarc shall cooperate with [**] to achieve the successful prosecution or, if directed by [**], settlement, of any such action, proceedings or claims.

 

9.7                                  Digimarc shall not, except as reasonably necessary to fulfill its obligations under this Agreement or any license agreement entered into as requested by the DLA Contract Authority under clause 2.8 or 2.9, enable any product referred to in clauses 9.2 or 9.3 to produce, display or otherwise make detectable, [**] which is or may be used in [**] by any Licensed [**].

 

9.8                                  Digimarc shall at all times comply, and shall ensure that its employees, agents and subcontractors comply, with the Security Requirements.

 


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10.                                  REPRESENTATIONS AND WARRANTIES OF DIGIMARC

 

10.1                             Digimarc represents, warrants and undertakes to [**] that from and after the Effective Date:

 

(a)                                   the Work will be of professional quality conforming to generally accepted [**] practices and will be performed at all times in a timely and cost effective manner and, for greater certainty Digimarc shall employ the standard of care in performing the work that would be expected of [**] of the same or similar type as the [**] which comprises the CDS Technology;

 

(b)                                  Digimarc is duly incorporated and organized and is validly subsisting under the laws of the State of Oregon, U.S.A. or some other state in the United States with full corporate power and authority to enter into this Agreement;

 

(c)                                   to the best of its knowledge, neither this Agreement nor the Work will contravene, breach, or result in any default under any agreement, permit, by-law, or law or regulation to which Digimarc is subject or by which it is bound including, for greater certainty, any laws or regulations in effect in the United States governing export;

 

(d)                                  this Agreement when executed and delivered by Digimarc shall constitute a valid and binding agreement with Digimarc enforceable against Digimarc according to its terms;

 

(e)                                   Digimarc owns all rights in and to, or is properly licensed in respect of, the Digimarc Technology, the Project Technology and the Technical Information pertaining thereto;

 

(f)                                     Digimarc will at all material times have the right to grant the licenses to the Digimarc Technology, the Project Technology and the Improvements thereon and the Technical Information pertaining to the Digimarc Technology and the Project Technology and all such Improvements as required by this Agreement; and

 

(g)                                  for greater certainty, neither the Project Technology, the Digimarc Technology or Improvements thereon or the Technical Information pertaining to the Project Technology, the Digimarc Technology or such Improvements infringe any Intellectual Property Right of any Person.

 

10.2                            Digimarc represents, warrants and undertakes to [**] that:

 

(a)                                   incorporated as part of its [**] practices and procedures are those measures and security procedures commercially and reasonably available on the date for delivery of a component of the CDS [**]in the CDS that could interfere with the use of the CDS or corrupt, interfere with or damage any data;

 


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(b)                                  the CDS shall contain no lock, clock, timer, counter, copy protection feature, replication device or intentional defects (including but not limited to “viruses” or “worms” as such terms are commonly used in the computer industry), CPU serial number reference, or other device which might:

 

(i)

 

lock, disable or erase the CDS or any data which is loaded on the CDS so as to prevent full use of the CDS by authorized Persons; or

 

 

 

(ii)

 

require action or intervention by Digimarc or any other Person to allow properly trained and authorized Persons to use the CDS;

 

(c)                                   the source code for the CDS, including that deposited with the Escrow Agent, will, without reference to Digimarc or any of its employees or authorized subcontractors, be understandable and usable by expert personnel familiar with the programming languages, and scientific and processing techniques, used therein, and will not involve any programming components that such personnel could not reasonably be expected to understand, and if necessary such source code shall contain sufficient commentary to enable such personnel to understand and use such components; the source code for the CDS will support the year 2000 and neither performance nor functionality will be affected by dates prior to, during and after the year 2000 and, for greater certainty, the CDS will switch to 1 January 2000 on 1 January 2000, and the year 2000 will be recognized as a leap year; and

 

(d)                                  the Technical Information and all other Escrowed Materials deposited with the Escrow Agent under this Agreement will contain all information in human readable form and on suitable media to enable an expert technical consultant, familiar with the scientific and processing techniques used therein, to understand and use the same without reference to Digimarc or any of its employees and authorised subcontractors.

 

10.3                            Digimarc represents, warrants and undertakes to [**] that:

 

(a)                                   [**] accepted by [**] will meet the Specifications for that version from the date that it is accepted by [**] until the earlier of the date on which the next version is accepted by [**] and the last day of the Term; and

 

(b)                                  until the last day of the Term, [**] provided by Digimarc to any Person for incorporation into any Device will be capable of meeting the performance criteria which formed part of the Specifications for the version of the [**] last accepted by [**] under this Agreement at the time such detector was so provided.

 

10.4                            [**] will not be counted in the determination under clause 10.3 as to whether or not an [**] meets the Specifications.

 

10.5                            If any version of the [**] fails to meet the Specifications for that version within one (1) year of the date of acceptance thereof by [**], and such failure could not have been discovered by

 


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[**] using reasonable diligence during the acceptance procedure for that version, then Digimarc shall, at its own expense, within sixty (60) days after receipt of the Problem Report from the DLA Contract Authority or the DLA Project Manager or such other period as the DLA Project Manager may agree, rectify the failure and at the direction of the DLA Project Manager provide a corrected [**] to which Digimarc had previously provided the [**].

 

10.6                            If a particular version of [**]provided by Digimarc to any Person during the Term for incorporation into any Device, including for greater certainty any version of a [**], fails to meet the relevant Specifications within one (1) year of the date of acceptance thereof by [**], and such failure could not have been discovered by [**] using reasonable diligence during the acceptance procedure for that version, then Digimarc shall, at its own expense, within sixty (60) days after receipt of written notice of a Problem Report from the DLA Contract Authority or the DLA Project Manager or such other period as the DLA Project Manager may agree, rectify the failure and at the direction of the DLA Project Manager provide [**] to all Persons to which Digimarc had previously provided such [**].

 

11.                                  REPRESENTATIONS AND WARRANTIES OF THE [**]

 

11.1                            [**] represents and warrants to Digimarc that:

 

(a)                                     [**] has full power and authority to enter into this Agreement;

 

(b)                                    this Agreement when executed and delivered by [**] shall constitute a valid, binding and enforceable obligation of [**];

 

(c)                                     [**] will at all material times have the right to grant the licenses required by this Agreement to the [**] Technology and the Technical Information pertaining to the [**] Technology;

 

(d)                                    from and after the date on which [**] gets access to the Escrowed Materials (the “Release Date”) as provided by clause 8.4 or 8.6 above until the last day of the Term, every [**] which [**] develops, permits, or causes to be developed using the Escrowed Materials for incorporation into any Device will be capable of [**] with the same or better performance ([**]) than the version of the [**] last accepted by [**] possessed on the Release Date on which [**] gets access to the Escrowed Materials.

 

11.2                            [**] makes no representations, warranties or undertakings that [**] has any right to grant any license in respect of any Other [**] Technology or grant the licenses required to be granted by clause 8.12 in relation to any improvements referred to therein and in each case Digimarc shall be solely responsible for determining that any Other [**] Technology and/or such improvements are suitable for the intended use and for the consequences of any use of the same, whether by Digimarc or others, and [**] hereby disclaims all liability in connection therewith.

 

11.3                            For greater certainty, the provisions of clauses 16.5 and 16.6 shall not apply to any Other [**] Technology.

 


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12.                                  CONFIDENTIALITY

 

12.1                            Except as otherwise expressly permitted by this Agreement, a Recipient shall not use, reproduce or disclose the Confidential Information of the Discloser for any purpose other than as reasonably necessary to comply with its obligations under this Agreement or to exercise any rights or licenses granted to it under or pursuant to this Agreement.

 

12.2                            The Recipient shall protect the Confidential Information of the Discloser from disclosure by using the same degree of care, which shall be no less than a reasonable degree of care, as the Recipient uses to protect its own confidential information.

 

12.3                            On written request from the Discloser, the Recipient shall return, or certify the destruction of, all originals and copies of the Discloser’s Confidential Information in the Recipient’s possession or control which the Recipient does not need to retain in order to perform any obligations imposed, or exercise any rights acquired, by this Agreement.

 

12.4                            A Recipient may, on a need to know basis, and only for the purposes described in clause 12.1, give the other party’s Confidential Information to the Recipient’s employees, authorized subcontractors or representatives provided that such employee, subcontractor or representative shall have entered into a non-disclosure agreement in respect of such Confidential Information in favour of the Discloser on terms materially similar to the provisions of this clause 12.  For greater certainty, [**]’ representatives shall include the DLA Contract Authority, the DLA Project Manager and all representatives of members of [**].

 

12.5                            The obligations set out in this clause 12 will not apply to any Confidential Information that:

 

(a)                                     is or becomes publicly available other than through the fault of the Recipient;

 

(b)                                    was known to the Recipient prior to disclosure as shown by documentation sufficient to establish such knowledge;

 

(c)                                     was or is lawfully disclosed to the Recipient by a third party who did not breach any obligation of confidence by such disclosure and who made the disclosure without restriction on further disclosure all of which is shown by documentation sufficient to establish same; or

 

(d)                                    is required by law to be disclosed provided, however, that the Recipient shall first give written notice to the Discloser before the disclosure so that the Discloser may seek an appropriate protective order.

 

The fact that Confidential Information, or any part thereof, can be linked together by a search of publications and other information, followed by a selection of a series of such items of knowledge from unconnected sources, and fitting together those items of knowledge so as to

 


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duplicate or recreate any item of Confidential Information, shall not be deemed to cause the Confidential Information, or any part thereof, to be included within exceptions (a), (b) or (c), above.

 

12.6                            If either party is required by applicable law or regulation, by legal process or by the U.S. Securities and Exchange Commission or listing requirements of any exchange or quotation system on which securities of any party may be listed or quoted, to disclose the terms of this Agreement (such disclosure being referred to herein as “Legally Required Disclosure”), such party shall provide the other party with prompt notice of such requirement so that the other party may seek an appropriate protective order or remedy.  In the event the other party fails to obtain an order or remedy that would permit the requested party not to disclose the required terms, the disclosure shall be permitted, but the disclosing party will use all reasonable efforts to have the disclosure treated confidentially by the recipient.

 

12.7                            The [**] Technology, the Other [**] Technology, and solely for the purposes of clause 12 the [**] insofar as it pertains to [**], and the Technical Information which pertains solely to the [**] Technology and the Other [**] Technology and those aspects of the [**], including any [**] which is or may be used [**] by any Licensed [**], shall be deemed to be the Confidential Information of [**].  Digimarc may disclose such Confidential Information to a person to whom Digimarc has granted a license pursuant to clause 9.2 or 9.3 but only if:

 

(a)                                     Digimarc can demonstrate to the reasonable satisfaction of [**] that disclosure is necessary to enable Digimarc to grant the license under clause 9.2 or 9.3; and

 

(b)                                    such person enters into a non-disclosure agreement in respect of such Confidential Information in favour of [**] on terms materially similar to the provisions of this clause 12.

 

12.8                            Nothing in this Agreement shall be construed to require [**] or any representative of [**] including, for greater certainty, the DLA Project Manager or the DLA Contract Authority, to disclose any information which is confidential to a third party including for greater certainty a [**] or a Licensed [**].

 

12.9                            [**] shall not reverse-engineer, disassemble, or decompile any [**] forming part of the CDS, [**] (except to the extent that any such activity is reasonably necessary to permit [**] to exercise its licence rights under clauses 8.4 and 8.6 of this Agreement or [**]’ right to do so may not be contractually restricted under applicable law), and shall contractually ensure that any other Person to whom [**] provides [**] shall be similarly obliged.

 

12.10                      For greater certainty the obligations imposed by this clause 12 shall continue to apply to the Escrowed Material after it comes into the possession of [**] notwithstanding the circumstances that give rise to such possession.

 

12.11                      General attributes of the CDS may be [**] in connection with promotion of the CDS to the [**], and to customers or prospects in related markets; information relating to the [**] may

 


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be [**] to [**] vendors of [**] subject to a nondisclosure agreement but in all such cases Digimarc shall not disclose any information relating to the [**].  [**]

 

13.                                  AUDIT AND INSPECTION

 

13.1                            [**], or its duly authorised representatives, may from time to time, without notice, at its own expense, conduct an audit or inspection during normal business hours to verify Digimarc’s compliance with its obligations under this Agreement.  Digimarc shall facilitate such audit activities by providing access to its premises, as well as any books, records, and other information relating to this Agreement and the Work as may be reasonably requested by [**].  [**] shall promptly advise Digimarc in writing of the results of any audit.  If [**] exercises this right more frequently than twice in each calendar year, [**] shall reimburse Digimarc’s reasonable costs related thereto which costs are in addition to the [**] otherwise contemplated by this Agreement except in the case where the exercise of such right is reasonably required to follow-up on a non-compliance detected during a previous audit or inspection.

 

13.2                            If, as a result of any such audit, [**] is of the view that Digimarc has engaged in or is about to engage in any act, or has omitted to perform any act, which act or omission is not in compliance with Digimarc’s obligations under this Agreement, the DLA Contract Authority may issue to Digimarc a directive requiring Digimarc to refrain from engaging in such act or to perform such act or acts as the DLA Contract Authority deems necessary, acting reasonably, for Digimarc to comply with the Agreement and Digimarc shall promptly comply with such directive at its own expense.

 

13.3                            No act performed by [**], its duly authorised representatives or the DLA Contract Authority pursuant to the provisions of this clause 13 and no omission by any of them to perform an act pursuant to the provisions of this clause 13 shall in any way affect Digimarc’s obligation to comply with this Agreement.

 

14.                                  DISPUTE RESOLUTION

 

14.1                            Any Dispute (as defined in the Arbitration Agreement) shall be finally settled by arbitration in accordance with the Arbitration Agreement.

 

14.2                            Unless otherwise agreed between the parties or unless the subject matter of the dispute resolution proceedings is a party’s right to terminate this Agreement, the Work shall continue during the arbitration proceedings and payments due to Digimarc shall not be withheld on account of such proceedings unless that particular Work or payment is the subject matter of the proceedings.  Notwithstanding the foregoing, [**] may at its sole discretion instruct Digimarc to continue the performance of that Work, and Digimarc shall act in accordance with those instructions, subject to payment in accordance with clause 3.2.

 


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15.                                  TERM AND TERMINATION

 

15.1                            This Agreement shall take effect on the Effective Date and shall remain in force throughout the Term unless sooner terminated as provided herein.

 

15.2                            [**] may in its sole discretion terminate this Agreement effective immediately on notice to Digimarc if:

 

(a)                                     Digimarc makes a general assignment or any other arrangement for the benefit of its creditors;

 

(b)                                    a proposal or arrangement under applicable bankruptcy or insolvency legislation, or a petition is filed by or against Digimarc under applicable bankruptcy or insolvency legislation and is not discontinued within thirty (30) days;

 

(c)                                     Digimarc is declared or adjudicated bankrupt or goes into liquidation;

 

(d)                                    a liquidator, trustee in bankruptcy, custodian, receiver, administrator, administrative - receiver, manager, or any other officer with similar power is appointed over all or any part of the assets and undertaking of Digimarc;

 

(e)                                     Digimarc commits an act of bankruptcy, institutes proceedings to be adjudged bankrupt or insolvent, consents to the initiation of such appointment or proceedings or admits in writing inability to pay debts generally as they become due;

 

(f)                                       Digimarc assigns the Agreement without [**]`s consent in breach of clause 19.7; or

 

(g)                                    Digimarc ceases or threatens to cease business.

 

15.3                            Either party may terminate this Agreement effective immediately on notice to the other party if:

 

(a)                                     the other party fails, or is unable or unwilling to perform any of its obligations under this Agreement (hereinafter referred to as a “breach”) and fails to remedy such breach within sixty (60) days after receiving written notice of such breach from the other party; or

 

(b)                                    an event of force majeure (as defined in clause 17) has continued for a period longer than sixty (60) continuous days or such longer period as the parties may agree and no satisfactory alternative arrangements have been agreed to continue the Work.

 

15.4                           Notwithstanding the foregoing, [**] has no right to terminate this Agreement for breach under clause 15.3 if the breach consists of a failure by Digimarc to perform a particular task the performance of which proves to be technically infeasible provided that the DLA Project Manager has agreed with the Digimarc Project Manager in writing before the task is commenced that the task may be technically infeasible.

 


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15.5                            As of the effective date of a termination of this Agreement by Digimarc as permitted by clause 15.3(a) above, the licenses granted by Digimarc pursuant to clause 2.8 or 2.9 above shall continue but be deemed to be restricted [**].

 

15.6                            Termination of this Agreement by [**] for any reason in accordance with the provisions of this clause 15 shall not affect any license granted by Digimarc pursuant to clauses 2.8, 2.9, 8.4, or 8.6 above.

 

15.7                            On termination of this Agreement by Digimarc or [**] for any reason Digimarc shall within fifteen (15) Business Days deliver to the Escrow Agent all Work in progress done up to the effective date of termination, including all Technical Information relating to such Work, and all Technical Information pertaining to the Digimarc Technology or the Project Technology which has not previously been deposited with the Escrow Agent and issue to the DLA Contract Authority a certificate signed by an officer of Digimarc that it has fully complied with this obligation.

 

16.                                  INTELLECTUAL PROPERTY INDEMNIFICATION

 

16.1                            [**] shall provide Digimarc with prompt written notice of any claim, demand or action against [**] based on an allegation that the CDS, the Digimarc Technology or the Project Technology or any Improvements thereto or any part thereof, infringes any Intellectual Property Right of any Person (referred to below as a “Claim”).  [**] shall use its reasonable efforts to conduct the defence of any Claim in a timely and cost effective manner.  Digimarc shall, at Digimarc’s expense, comply with all reasonable requests for assistance from [**] in connection with the defence of the Claim.

 

16.2                            Notwithstanding any other provision of this Agreement to the contrary, Digimarc shall indemnify [**] against and save [**] harmless from all loss, costs, liabilities including, for greater certainty an award of damages, and expenses, including, for greater certainty, reasonable legal fees, arising from each Claim.  The obligation set out in this clause 16 shall not apply in respect of any settlement made by [**] without the consent of Digimarc.

 

16.3                            If the CDS, the Digimarc Technology or the Project Technology, or any Improvement thereto or part thereof is held to infringe, or if Digimarc believes that it is likely to be held to infringe, any of the Intellectual Property Rights described in clause 16.1, Digimarc shall, in addition to its other obligations set out above, at its own expense either:

 

(a)                                   procure for [**] the right to continue using the allegedly infringing materials; or

 

(b)                                  replace or modify the materials to the reasonable satisfaction of [**] so that they are no longer infringing but remain functionally equivalent;

 

Failing either of which result [**] may, at its option, terminate this Agreement without prejudice to [**]’ other rights and remedies available in law, at equity or otherwise.

 


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16.4                           Digimarc shall provide [**] with prompt written notice of any claim, demand or action against Digimarc based on an allegation that the [**] Technology or any part thereof, infringes any Intellectual Property Right of any person (referred to below as a “[**] Technology Claim”).  Digimarc shall, at [**]’s expense, comply with all reasonable requests for assistance from [**] in connection with the settlement or defence of any [**] Technology Claim.

 

16.5                           Notwithstanding any other provision of this Agreement to the contrary, [**] shall indemnify Digimarc against and save Digimarc harmless from all loss, costs, liabilities including, for greater certainty an award of damages, and expenses, including, for greater certainty, reasonable legal fees, arising from each [**] Technology Claim.  The obligation set out in this clause 16.5 shall not apply in respect of any settlement made by Digimarc without the consent of [**].

 

16.6                            If the [**] Technology or any part thereof is held to infringe, or if [**] believes that it is likely to be held to infringe, any of the Intellectual Property Rights described in clause 16.4, [**] may, in addition to its other obligations set out above, at its own expense either:

 

(a)                                   procure for Digimarc the right to continue using the allegedly infringing materials; or

 

(b)                                  replace or modify the materials to the reasonable satisfaction of Digimarc so that they are no longer infringing but remain functionally equivalent.

 

17.                                  FORCE MAJEURE

 

17.1                            If the performance by either party of any of its obligations under this Agreement is prevented or delayed by any circumstance of force majeure, which shall mean fire, flood, earthquakes, war, riots, or insurrection, the party shall immediately notify the other party.

 

17.2                            The time period within which the party delayed is obliged to perform its obligations will be delayed during the period such circumstance exists.  During the period of delay the party delayed shall use its best efforts to make alternate arrangements satisfactory to the other party to avoid delay or resume performance.

 

18.                                  NOTICES

 

18.1                            All notices under this Agreement shall be delivered by fax, or recognized international courier service.  The notice shall be deemed effective as of the date of delivery to the address of the party specified below as evidenced by a delivery receipt or the addressee’s registry of incoming correspondence.  Unless otherwise expressly set out in this Agreement, all notices to a party will be sent to the party’s authorized representative identified below and all notices from a party will be sent by the party’s authorized representative identified below.

 


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18.2                            Any notice to DIGIMARC shall be sent to both of, and any notice from Digimarc shall be sent by either:

 

Mr. Bruce Davis

 

Mr. William Y. Conwell

President and CEO

 

Klarquist, Sparkman, Campbell,

Digimarc Corporation

 

Leigh & Whinston

One Centerpointe Drive

 

121 SW Salmon Street

Suite 500

 

Suite 1600

Lake Oswego, Oregon 97035 USA

 

Portland, Oregon 97204 USA

FAX: (503) 968-0219

 

FAX: (503) 228-9446

 

18.3                            Any notice to [**] shall be sent to both of, and any notice from [**] shall be sent by either:

 

[**]

 

[**]

 

18.4                            A party may change its address for notice by notice to the other party in accordance with the provisions of this clause 18.

 

19.                                  MISCELLANEOUS PROVISIONS

 

19.1                            Remedies Cumulative - Except as otherwise expressly set out in this Agreement:

 

(a)                                     each and every right, power and remedy of a party will be considered to be cumulative with and in addition to any other right, power and remedy which such party may have at law or in equity in the event of breach of any of the terms of this Agreement;

 

(b)                                    the exercise or partial exercise of any right, power or remedy will neither constitute the exclusive election thereof nor the waiver of any other right, power or remedy available to such party; and

 

(c)                                     a party terminating this Agreement in accordance with the provisions of this Agreement will have no liability or obligation to the other as a result of or with respect to the termination.

 

19.2                            Severability - If any part of this Agreement is held by an arbitral tribunal appointed pursuant to the Arbitration Agreement or by any other competent authority to be void or unenforceable, the parties agree that such determination will not result in the nullity or unenforceability of the remaining parts of this Agreement, which will continue in force to the fullest extent permitted by law.  The parties further agree to replace such void or unenforceable part of this Agreement with a valid and enforceable provision that will achieve, to the extent legally permissible, the economic, business and other purposes of the void or unenforceable part.

 

19.3                            Counterparts .  This Agreement may be executed in separate counterparts, and by facsimile, each of which will be deemed an original, and when executed, separately or together, will constitute a single original instrument, effective in the same manner as if the parties had executed one and the same instrument.

 


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19.4                            Entire Agreement .  This Agreement is intended by the parties to be the final expression of their agreement and constitutes and embodies the entire agreement and understanding between the parties hereto and constitutes a complete and exclusive statement of the terms and conditions thereof, and will supersede any and all prior correspondence, conversations, negotiations, agreements or understandings between the parties relating to the same subject matter.

 

19.5                            Amendments .  No change in, modification of or addition to the terms and conditions contained herein will be valid as between the parties unless set forth in a writing that is signed by an authorized representative of each party and which specifically states that it constitutes an amendment to this Agreement.

 

19.6                            Waiver .  No waiver of any term, provision, or condition of this Agreement will be effective unless in a written document signed by the waiving party and no such waiver in any one or more instances, will be deemed to be, or be construed as, a further or continuing waiver of that term, provision or condition or any other term, provision or condition of this Agreement.

 

19.7                            Assignment and Successors .  This Agreement may not be assigned, novated or otherwise transferred by Digimarc without the prior written consent of [**], which consent shall not be unreasonably withheld.  For the purpose of this Agreement, an assignment includes a change in the voting control of Digimarc or the sale or other disposal of substantially all of Digimarc’s assets.  This Agreement and all of its terms, conditions and covenants are intended to be fully effective and binding, to the extent permitted by law, on the successors and permitted assigns of the parties hereto.

 

19.8                            Substitution .  [**] may by written notice to Digimarc at any time substitute any of the following (“Substitute”) as a party to this Agreement in place of and in substitution for [**], provided that such notice is accompanied by a Deed Of Adherence duly executed by the Substitute in the form attached as Schedule T:

 

(a)                                     any wholly owned subsidiary of [**];

 

(b)                                    any [**] existing at the Effective Date or any partnership or joint venture, the entire economic interest in which is owned by one or more of such [**];

 

(c)                                     any body corporate, the entire economic interest in which is owned by one or more of the [**] described in clause 19.8(b); or

 

(d)                                    [**].

 

With effect from the date of such notice the Substitute shall benefit from the same rights and be subject to the same obligations as [**] under this Agreement, and [**] shall no longer benefit from such rights and shall no longer be subject to such obligations.

 

19.9                            Upon exercising its right of substitution in favour of any wholly owned subsidiary of the [**], the [**] shall provide Digimarc with a comfort letter in the form attached as Schedule “U”.

 


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19.10                      Captions.   Captions are provided in this Agreement for convenience only and they form no part, and are not to serve as a basis for interpretation or construction, of this Agreement, nor as evidence of the intention of the parties.

 

19.11                      Disclaimer of Agency.   Nothing contained in this Agreement is intended or will be interpreted so as to constitute the parties to this Agreement as partners or joint venturers or as agents of each other. Neither party will have any express or implied right or authority to assume or create any obligations on behalf of or in the name of any other party or to bind any other party in any contract, agreement or undertaking with any third party. No employee of a party shall be deemed or considered to be an employee of the other party or of both parties.

 

19.12                      Publicity.    The parties agree that from time-to-time it will be beneficial to both parties to issue press releases and other public announcements concerning benefits arising from the CDS.  Each party agrees to submit such releases or announcements for prior approval by the other party which approval may be withheld by the party in its sole discretion.  The DLA Contract Authority shall recommend to the [**] that they issue a communiqué produced by the DLA Project Manager at an appropriate time [**].

 

19.13                      Effectiveness.  This Agreement shall be effective only after it is signed by both of the parties.

 

19.14                      Ambiguities.    Each party and its counsel have participated fully in the review and revision of this Agreement.  Any rule or construction to the effect that ambiguities are to be resolved against the drafting party shall not apply in interpreting this Agreement.

 

19.15                      Survival.      All clauses of this Agreement which expressly or by implication are intended to survive the termination of this Agreement will do so and, for greater certainty and notwithstanding any provision in this Agreement to the contrary, the provisions set out in clauses 2.5, 3.6, 3.7, 3.8, 3.9, 3.10, 8.4, 8.6, 8.11 - 8.16, inclusive, 9.1, 9.2, 9.3, 9.7, 10, 11, 12, 13, 14, 16, 18 and 19 of this Agreement shall survive termination of this Agreement by either party for any reason.

 

IN WITNESS WHEREOF , this Agreement has been executed and delivered by the parties hereto as of the Effective Date.

 

[**]

 

DIGIMARC CORPORATION

 

 

 

 

 

 

Signature

 

Signature

Name:

 

Name:

Bruce Davis

Title:

 

Title:

President & CEO

Date

 

Date:

 

 

 

 

 

 

Signature

 

 

Name:

 

 

Title:

 

 

Date

 

 

 


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AMENDMENT TO [**]

DEVELOPMENT AND LICENSE AGREEMENT

 

This is an Amendment to the [**] Development and License Agreement (the “Amendment”) made

 

Between

 

DIGIMARC CORPORATION , a corporation incorporated under the laws of Delaware and having its head office at 19801 SW 72 nd Avenue, Suite 250, Lake Oswego, Oregon. U.S.A.  97062 ( “Digimarc”)

 

and

 

[**]

 

Recitals

 

Effective 1 January  [**] , the above identified parties entered into an agreement entitled the “ [**] Development and License Agreement” (hereinafter “the Agreement”).  The Agreement included documents listed in Section 1.4 of the Agreement which were made an integral part of the Agreement.

 

As required under Section 2.2 of the Agreement, by 21 December  [**] , Digimarc submitted to [**] a Proposal for the work to be done during Phase [**] .  As required under Section 2.4, Digimarc submitted to [**] a revised Proposal for the work to be done during Phase [**] .

 

Effective 8 March  [**] , Digimarc’s Contract Authority, Bruce Davis, duly appointed J. Scott Carr to represent him in agreeing to amendments to the Agreement on behalf of Digimarc.

 

In consideration of the promises and covenants set out in this Amendment and in the Agreement and other good and valuable consideration, the receipt and adequacy of which are acknowledged by each of the parties, the parties agree as follows:

 

1.                Change the address of Digimarc wherever it appears in the Agreement to the address shown herein.

 

2.                Change the State of Incorporation of Digimarc wherever it appears in the Agreement from the State of Oregon, U.S.A. to the “State of Delaware, U.S.A.”

 

3.                Delete the notice requirement to Mr. William Y. Conwell wherever it appears in the Agreement.

 

4.                Replace Attachment 3 of Schedule “B” entitled “ [**] ” with the attached page entitled “SCHEDULE ‘B’, AMENDED ATTACHMENT 3: [**] .”

 


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5.                Replace Schedule “C” with the attached document entitled “AMENDED SCHEDULE ‘C’ DATED MARCH 14 TH [**] PHASE [**] STATEMENT OF WORK.”

 

6.                Replace Schedule “I” with the attached document entitled “AMENDED SCHEDULE ‘I’ ALLOWABLE COSTS.”

 

7.                The parties agree the above-identified replacement documents for a page of Schedule B and all of Schedules C and I are, by this reference, made an integral part of this Amendment and supercede the corresponding documents referenced in Section 1.4 of the Agreement.

 

8.                [**] hereby accepts, under Section 2.5 of the Agreement, the revised Proposal as evidenced in this Amendment and the attachments referenced in this Amendment.

 

9.                Unless modified or superceded by this or other Amendments to the Agreement, all terms of the Agreement remain in full force and effect.

 

IN WITNESS WHEREOF , this Amendment to the Agreement has been executed and delivered by the parties hereto as of the date the last of the parties affixes their signature hereto.

 

[**]

 

DIGIMARC CORPORATION

 

 

 

 

 

 

Signature

 

Signature

Name:

 

Name:

Scott Carr

Title:

 

Title:

Vice President and General Manager,
[**]Programs

Date

 

Date

 

 

 

 

 

 

Signature

 

 

Name:

 

 

Title:

 

 

Date

 

 

 


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AMENDMENT NUMBER TWO TO THE [**]

DEVELOPMENT AND LICENSE AGREEMENT

 

This is the second Amendment to the [**] Development and License Agreement (the “Second Amendment”) made

 

Between

 

DIGIMARC CORPORATION , a corporation incorporated under the laws of Delaware and having its head office at 19801 SW 72 nd Avenue, Suite 100, Tualatin, Oregon. U.S.A.  97062                     ( “Digimarc”)

 

and

 

[**]

 

Recitals

 

Effective 1 January [**], the above-identified parties entered into an agreement entitled the “[**] Development and License Agreement” (hereinafter “the Agreement”).  The Agreement included documents listed in Section 1.4 of the Agreement which were made an integral part of the Agreement.

 

As required under Section 2.2 of the Agreement, by November 22, [**], Digimarc submitted to [**] the Offer for the work to be done during Phase [**].

 

[**] hereby accepts, under Section 2.5 of the Agreement, the Offer as evidenced in this Second Amendment and the attachments referenced in this Second Amendment.

 

In consideration of the promises and covenants set out in this Second Amendment and in the Agreement and other good and valuable consideration, the receipt and adequacy of which are acknowledged by each of the parties, the parties agree as follows:

 

1.                                        Replace Attachment 3 of Schedule “B” entitled “[**]” with the attached page entitled “SCHEDULE ‘B’, AMENDED ATTACHMENT 3: [**].”

 

2.                                        Replace Schedule “D” with the attached document entitled “AMENDED SCHEDULE ‘D’ PHASE [**] STATEMENT OF WORK.”

 

3.                                        Replace Schedule “I” with the attached document entitled “AMENDED SCHEDULE ‘I’ ALLOWABLE COSTS.”

 


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4.                                        The parties agree the above-identified replacement documents for a page of Schedule B and all of Schedules D and I are, by this reference, made an integral part of the Agreement and supersede the corresponding documents referenced in Section 1.4 of the Agreement.

 

5.                                        Unless expressly modified by this Second Amendment or other amendments to the Agreement, all terms of the Agreement remain in full force and effect.

 

6.                                        In the Agreement, replace paragraph 3.4 with the following:

 

“Except as otherwise expressly provided herein, the total amount which [**] will be liable to pay Digimarc for or in connection with the Allowable Costs and Mark-up for the Phase [**] Work, the Phase [**] Work and the Phase [**] Work will not be greater than [**] and assuming that (i) [**] has accepted Digimarc’s Offer for all [**] and, (ii) [**] does not terminate this Agreement as permitted herein prior to the date on which Digimarc completes the Phase [**] Work in accordance with the provisions of this Agreement, not less than [**], subject to Digimarc having performed the Work equal to this amount of Allowable Costs and Mark-up.”

 

7.                                        In the Agreement, add paragraphs 19.16.1 and 19.16.2 as follows:

 

“19.16.1 No third party Person shall have any right to enforce any provision of this Agreement under the Contracts (Rights of Third Parties) Act 1999.

 

19.16.2 Digimarc covenants that it will take all measures which are reasonably necessary to ensure that no third party with which Digimarc contracts or may contract has any right to enforce any provision of this Agreement against the [**] pursuant to the Contracts (Rights of Third Parties) Act 1999 and, in particular, that it will make no statements, representations or warranties to any such third party implying that the latter would have any right to enforce any provision of this Agreement under the Contracts (Rights of Third Parties) Act 1999.”

 

IN WITNESS WHEREOF , this Second Amendment to the Agreement has been executed and delivered by the parties hereto as of the date the last of the parties affixes their signature hereto.

 

[**]

 

DIGIMARC CORPORATION

 

 

 

Signature

 

Signature

Name:

 

Name:

Scott Carr

Title:

 

Title:

Vice President and General Manager,

Date

 

 

[**] Programs

 

 

Date

 

 

 

Signature

 

 

Name:

 

 

Title:

 

 

Date

 

 

 


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AMENDMENT NUMBER THREE TO THE [**]

DEVELOPMENT AND LICENSE AGREEMENT

 

This is the third Amendment to the [**] Development and License Agreement (the “Third Amendment”) made by and between

 

DIGIMARC CORPORATION , a corporation incorporated under the laws of Delaware and having its head office at 19801 SW 72 nd Avenue, Suite 100, Tualatin, Oregon. U.S.A.  97062 (“Digimarc”)

 

and

 

[**]

 

Recitals

 

Effective 1 January [**], the above-identified parties entered into an agreement entitled the “[**] Development and License Agreement” (hereinafter “the Agreement”).  The Agreement included documents listed in clause 1.4 of the Agreement which were made an integral part of the Agreement.

 

On 14 March [**] and 28 December [**] the parties entered into Amendments to the Agreement (hereinafter First and Second Amendments).

 

In consideration of the promises and covenants set out in this Third Amendment, in the Agreement, in the First and Second Amendments and other good and valuable consideration, the receipt and adequacy of which are acknowledged by each of the parties, the parties agree that the Agreement as previously amended will be further amended as of 1 January, [**]:

 

1.                                       DEFINITIONS AND PRINCIPLES OF INTERPRETATION

 

The following definitions in clause 1.1 shall be replaced as follows:

 

“Arbitration Agreement” means the Arbitration Agreement dated 21 June [**] as amended and attached as Schedule “E”.

 

“[**] Technology” means that technology, if any, from the technology described in Schedule “F” in respect of which from time to time during Phases [**] of this Agreement and Phases [**] as defined in the [**] Agreement after discussion between the DLA Project Manager and the Digimarc Project Manager, [**] offers, and Digimarc accepts in writing, a [**]on the [**] in clause 8.2 to use, design or implement [**] and all Intellectual Property Rights in that [**];

 

“Digimarc Contract Authority” means Digimarc’s President or the Vice President,[**];

 


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“Phase” means Phase [**] of this Agreement as the case requires, adjusted if required by any period added pursuant to clause 5.3 or other changes to the Work authorized pursuant to clause 6 below;

 

“Statement of Work” means the Statement of Work set out in Schedules B, C, D, V or W as applicable;

 

Add new Definitions to clause 1.1 as follows:

 

[**] Agreement ” means the Agreement between [**] and Digimarc relating to the provision by Digimarc of certain [**] services effective as of 1 January [**], as amended from time to time.

 

“Phase [**] means the period from 1 January [**] to 31 December [**];

 

“Phase [**]” means the period from 1 January [**] to 31 December [**];

 

“Phase [**] Work” means the tasks and Deliverables identified in the Phase [**] Statement of Work attached as Schedule V to be performed or produced during Phase [**];

 

“Phase [**] Work” means the tasks and Deliverables identified in the Phase [**] Statement of Work attached as Schedule W to be performed or produced during Phase [**] if [**] elects to proceed with Phase [**]; and

 

Project Manager ” means either the Digimarc or DLA Project Manager, as the context requires.

 

1.2                              Interpretation :

 

Clause 1.2.5 shall be replaced with:

 

1.2.5                               unless otherwise specified, the order of precedence for interpreting this Agreement shall be:

 

a)                                  the Amendments to the Agreement with the Third Amendment supplementing the Second Amendment and the Second Amendment supplementing the First Amendment;

 

b )                                 the other terms of this Agreement, excluding Schedules;

 

c)                                  the Schedules; and

 


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d)             as between the delivery schedules forming part of a Statement of Work, and other provisions of such Statement of Work, the delivery schedules shall take precedence.

 

Add new clause 1.2.9 as follows:

 

1.2.9         When a definition or a clause in this Agreement is described in the Third Amendment as a replacement, the definition or clause in this Third Amendment replaces the previous definition or clause in the Agreement. When a new definition or a clause is presented in this Third Amendment, the new definition or clause in this Third Amendment is considered added to and incorporated into the Agreement. The changes in this Third Amendment are referenced by the clauses they appear in the Agreement and such changes shall not apply to the interpretation of any part of the Agreement relating to any events, acts or omissions occurring prior to 1 January [**] unless such events, acts or omissions are relevant to any event, act or omission occurring on and after that date. Unless expressly modified, superseded or replaced by this Third Amendment, each term of the Agreement as amended by the First or Second Amendment remains in full force and effect.

 

1.4                                Schedules

 

In clause 1.4,

 

Replace Schedules E, I, K-1, K-2, L-1, L-2, N and S as attached; and

 

Add the following new schedules:

Schedule V described as Phase [**] Statement of Work;

When agreed upon, Schedule W described as Phase [**] Statement of Work; and Schedule X described as [**]Expenditures.

 

The parties agree the above-identified replacement document Schedules E, I, K-1, K-2, L-1, L-2, N and S supersede the corresponding documents referenced in clause 1.4 of the Agreement and such replacement Schedules together with the new Schedules V, W and X are, by this reference, made an integral part of the Agreement.

 

2.                                       SCOPE OF THE WORK

 

Add new clauses to clause 2 as follows:

 

2.17                            [**] has accepted Digimarc’s Offer to perform the Phase [**] Work in accordance with the “Phase [**] Statement of Work.”  Digimarc shall perform the Phase [**] Work in accordance with the “Phase [**] Statement of Work.” [**] has no right to terminate this Agreement during Phase [**], unless [**] terminates this Agreement under clause 15 before Digimarc completes the Phase [**] Work.

 


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2.18                            Subject to [**] acceptance of the corresponding Offer described in clauses 2.20 and 2.21, Digimarc shall perform the Phase [**] Work in accordance with the “Phase [**] Statement of Work.”  After acceptance by [**] of the Offer described in clauses 2.20 and 2.21, [**] has no right to terminate this Agreement during Phase [**], unless [**] terminates this Agreement under clause 15 before Digimarc completes the Phase [**] Work.

 

2.19                            On or before 15 August [**], Digimarc shall deliver to [**] and the DLA Project Manager a written proposal (the “Proposal”) for the Work to be done during Phase [**], which Proposal will be in the form of a proposed amendment to the Agreement and will include, but not be limited to:

 

(a)                                   The Statement of Work for Phase [**] (Schedule W);

 

(b)                                  an estimate of the Allowable Costs to be incurred by Digimarc in connection with Digimarc’s performance of the Work for Phase [**]; and

 

c)                                       the nature, timing and estimated quantity of the effort which will be required from [**] to enable Digimarc to perform the Work as proposed during Phase [**].

 

2.20                            The Proposal for Phase [**] when delivered by Digimarc to [**] pursuant to clause 2.19 shall be deemed to constitute an irrevocable offer (the “Offer”) to amend the Agreement.  Digimarc undertakes and represents that the Proposal will be prepared with all due care and diligence and that at the date of [**] acceptance of the Offer, it will not be aware of any matters within its reasonable control which might or will adversely affect its ability to perform the Work for Phase [**].

 

2.21                            The Offer for the Phase [**] Work shall remain open for written acceptance by [**] at its sole discretion until the earlier of 30 November [**] or notice by [**] that it elects not to proceed with Phase [**].  If requested by the DLA Contract Authority by November 1, [**], Digimarc shall prepare and send by November 10, [**] a revised Offer to [**] to take into account any reasonable revisions and clarifications to the original Offer requested by the DLA Contract Authority and [**] will have until November 30, [**], subject to receipt of the revised Offer by November 15, [**], to accept the revised Offer.

 

2.22                            The Term will continue notwithstanding that [**] elects not to accept the Offer for the Phase [**] Work.

 

2.23                            Pending acceptance, or express or implied rejection by [**] of the Offer as provided in clause 2.21, the DLA Contract Authority may, in his or her sole discretion, authorize Digimarc to perform all or part of the Work described in the Offer (or other Work as agreed between the parties’ respective Contract Authorities).  If [**] accepts the Offer for Phase [**], all such authorized Work will be deemed to form part of the Work

 


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for Phase [**].  In any event, [**] shall compensate Digimarc for such authorized Work as though it were Phase [**] Work.

 

2.24                            Actions or lack of actions by the [**] under clauses 2.21 or 2.23 do not waive or delay any notice duties of the [**] under clauses 3.13-3.17.

 

2.25                            This Third Amendment is conditional upon execution of an Amendment to [**]between the [**] and the requisite[**]. After execution of this Third Amendment by [**] and Digimarc, the [**] will proceed with reasonable diligence to have the Amendment to the [**] fully executed. When the Amendment to the [**]is fully executed, the [**] will so notify Digimarc that the condition of this clause 2.25 has been removed from this Third Amendment.

 

3.                                       PRICE AND PAYMENT

 

Clause 3.7 shall be replaced in relation to Phase [**] and Phase [**] as follows:

 

3.7                                  For a period commencing on the Effective Date and ending on the date [**]following the last date on which Digimarc issues an invoice to [**] for Allowable Costs, Digimarc shall maintain proper, up-to-date, accurate and complete books, records and other documentation substantiating the Allowable Costs invoiced under this Agreement including, without limitation, time sheets showing the hours spent on each task which forms part of the Work and receipts for all Expenses (as defined in Schedule I).  Digimarc shall produce such books, records and documentation to [**] or its representatives for inspection and copying at all reasonable times on request by the DLA Project Manager.

 

Add new clauses to clause 3 as follows:

 

3.11                            Subject to the limits set out in this Agreement and unless otherwise expressly set out herein, [**] shall reimburse Digimarc for all the Allowable Costs reasonably and properly incurred by Digimarc during each calendar month to perform the Phase [**] Work and the Phase [**] Work (if any) and any other Work authorized by [**] in writing.  Digimarc shall invoice [**] monthly in arrears for such Allowable Costs.  Each invoice shall specify the Expenses incurred and the time spent by the staff and sub-contractors of Digimarc in performing the Work and shall give a breakdown of the Allowable Costs in the form attached as Schedule S.

 

3.12.1                   Unless [**] terminates this Agreement under clause 15 before Digimarc completes the Phase [**] Work or terminates [**]before Digimarc completes [**] Phase [**] (as such expression is defined in the [**] Agreement), and subject always to clause 3.12.2, the total amount which [**] will be liable to pay Digimarc for or in connection with the Phase [**] Work and/or for the [**] Phase [**], will not be less than [**](“[**]”).

 


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3.12.2                   [**]obligation to pay the [**] is subject to Digimarc having performed all of its obligations under this Agreement and the [**] Agreement relating to the performance of Work and Services (as such expression is defined in the [**] Agreement) which Digimarc is obliged to perform in connection with Phase [**] Work and [**] Phase [**], including any Work or Services which Digimarc is requested to perform pursuant to clause 3.16.  If [**] requests, under clause 3.16, that Digimarc cease or reduce the scope of the Work and/or Services remaining to be completed, [**]payment obligation would still be due.

 

3.13                            If [**] elects not to proceed with both Phase [**] and [**] Phase [**] and [**] has provided Digimarc with notice of such election by 30 September [**] will not owe Digimarc any money for Phase [**] or [**] Phase [**] or have any other liability to Digimarc in connection with [**] election not to proceed with Phase [**] or [**] Phase [**]. Such notice will not affect either party’s obligations under Phase [**] or [**] Phase [**].

 

3.14                            If [**] elects not to proceed with both Phase [**] and [**] Phase [**] and [**] has provided Digimarc with notice of such election between October 1, [**] and November 30, [**], then, subject to clause 3.16,[**] sole liability to Digimarc relative to Phase [**] and [**] Phase [**] is that [**] shall owe Digimarc an amount equal to [**]months of Work and Services from the effective date of such notice.  For example, if [**] provides notice on November 30, [**] of a decision by [**] not to proceed with Phase [**] and [**] Phase [**] shall owe Digimarc through February 28[**].  The amount of such payment shall be calculated in accordance with clause 3.15.

 

3.15                            When such notice is provided as in clause 3.14 for both Phase [**] and [**] Phase [**] or if clause 3.18 applies in respect of both Phase [**] and [**] Phase [**], the amount due Digimarc shall be calculated as follows:  (i) for the remainder of [**] in accordance with the remaining financial commitments made for Phase [**] and [**] Phase [**] by[**]; and (ii) for the relevant portion of [**] at the rate of [**]per calendar day. If [**] continues with either Phase [**] or [**] Phase [**], then no payment shall be due under clause 3.14 or clause 3.15 and [**] payment obligation in respect of the Phase which is not terminated shall be the [**]referred to and payable in accordance with clause 3.17.

 

3.16                            During the [**]month period after notice under clause 3.14, or, if clause 3.18 applies, [**] may request, (but it is not obliged to do so) and Digimarc will, if requested by[**], (a) at [**] sole discretion, cease or reduce the scope of the Work and/or Services remaining to be completed at the date of [**] giving notice and/or, (b) if reasonably possible, provide services relating to Work and/or Services, including work or services relating to the wind down or transfer of the Work and/or Services to [**] and/or any replacement provider as reasonably directed by the DLA Project Manager, commensurate with the payment obligations of the [**] in accordance with clause 3.14.  Such requested work or services will be deemed to form part of the Work under this Agreement and/or Services under the [**] Agreement, as applicable.  If, when operating under this clause, [**] requests Digimarc to cease or reduce the scope of the Work and/or Services

 


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remaining to be completed, [**] payment obligations under clauses 3.12.1, 3.14 or 3.18, as applicable, will still be due.  Sums due under such obligations will be invoiced monthly in arrears.

 

3.17.1                   If (i) [**] has accepted the Offer for Phase [**] by Digimarc with notice by November 30, [**], or (ii) [**] does not terminate [**]before 30 November [**], then subject always to clause 3.17.2, the total amount which [**] will be liable to pay Digimarc for or in connection with Phase [**] and/or for [**] Phase [**] will not be less than [**]unless [**] terminates this Agreement under clause 15 before Digimarc completes the Phase [**] Work or terminates [**]

 

3.17.2                   [**]obligation to pay the [**] is subject to Digimarc having performed all of its obligations under this Agreement and [**] relating to the performance of Work and Services which Digimarc is obliged to perform in connection with Phase [**] Work and [**] Phase [**].

 

3.18                            If by November 30, [**] has not accepted an Offer by Digimarc for Phase [**] with notice and has provided notice of termination of the [**] Agreement[**], then, subject to clause 3.16, [**] Sole liability to Digimarc relative to Phase [**] and [**] Phase [**] is that [**] shall owe Digimarc an amount equal to [**]months of Work and Services from November 30, [**] through February 28, [**].  The amount of such payment shall be calculated in accordance with clause 3.15.

 

3.19.                         For greater certainty, it is confirmed and agreed that[**], subject to previously agreed upon Statements of Work under this Agreement and [**] Plans (as such expression is defined in the [**] Agreement), and in accordance with the procedures and timescales set out in clause [**] is entitled from time to time a) to determine in what proportion the [**] referred to in clause 3.12.1 is to be allocated between Work and/or Services to be performed as Phase [**] Work and/or [**] Phase [**] Services; and b) to determine in what proportion the [**] referred to in clause 3.17.1 is to be allocated between Work and/or Services to be performed as Phase [**] Work and/or [**] Phase [**] Services (if any).

 

3.20                            Unless authorized in this Agreement, [**] or otherwise agreed in writing by[**], the [**] under this Agreement and the [**] Agreement shall not be greater than an amount equal to the amount listed in Schedule X and the [**] under this Agreement and the [**] Agreement shall not be greater than an amount equal to the amount listed in Schedule X.  Such [**] limitations of this clause 3.20 do not apply to costs or charges identified in clauses 3.8, 3.21, 6.5, 8.6 and 8.8 of this Agreement or in clauses 3.6, 6.5, 8.2, 15.7 and 19 of the [**] Agreement.  The [**] limitations of this clause may, in some cases, not apply to costs or charges identified in clauses 5.3 and 13.1 of this Agreement or in clauses 5.3 and 13.1 of the [**] Agreement.

 

3.21                            Any equipment or software [**]purchased for over [**] as an Allowable Cost under Schedule I for [**] shall be owned by the [**] or another entity designated by the

 


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DLA Contract Authority and shall be held in trust by Digimarc.  Digimarc will ensure that [**] or the designated entity is identified on such [**]and [**]as the owner.  Unless such [**]or [**]needs to be used in a manner that it was not designed for and the [**] is made aware of such need, Digimarc will, at its own risk, use such [**]or [**]in a reasonably careful and proper manner and in accordance with all operating instructions. In any event such [**]and [**]shall be used by Digimarc solely for the provision of the Work under this Agreement or Services under the [**] Agreement.  Upon termination of this Agreement and at [**] request, Digimarc will promptly deliver such [**]and [**]to the [**] or designated entity, at no charge to Digimarc.   Such [**]and [**]shall be returned in the same condition as originally received by Digimarc, reasonable wear and tear excepted.  If, however, the [**]or [**]needs to be used in a manner that it was not designed for and the [**] is made aware of such need, then such [**]and [**]will be returned “as is.” [**] will reimburse Digimarc for any unrecovered costs of such [**]or [**](i.e. costs not recovered through depreciation charges), subject to receipt of a correct and properly due invoice.

 

5.               RESPONSIBILITIES OF [**]

 

Clause 5.3 shall be replaced as follows:

 

5.3                                  If [**] is delayed in complying with any of its obligations under clauses 5.1 or 5.2 for any reason not attributable to Digimarc, and such delay will cause a delay in the completion and delivery by Digimarc of any Deliverable, then Digimarc shall reasonably promptly advise the DLA Project Manager of the impact of the delay.  The time for completion of the Deliverable and all subsequent Deliverables dependent thereon, will then be extended automatically by one day for each day of delay by [**] or such other period as may be agreed in writing between the parties’ respective Contract Authorities.  If Digimarc suffers increased costs by reason of such delay, other than a delay due to a force majeure event, such costs reasonably and necessarily incurred by Digimarc shall be borne by[**].  Digimarc shall make every reasonable effort to reassign staff and otherwise to mitigate the increased costs associated with such a delay.  If the delay is due to a force majeure event, such costs shall be borne equally by [**] and Digimarc.  If any additional costs to be borne by [**] would lead to the [**] otherwise contemplated by this Agreement being exceeded, Digimarc will reasonably promptly notify the DLA Contract Authority of such and [**] will either approve of costs beyond the [**] and/or request a change to the Work under clause 6.  Such a change request under clause 6 will ask Digimarc to stay within the [**] and to describe the effect the costs and delay under this clause 5.3 will have on the applicable [**] Plans or Statements of Work. If after Digimarc describes the effect the costs and delay under this clause 5.3 will have on the applicable [**] Plans or Statements of Work, the DLA Contract Authority requests such a change, Digimarc will implement such change in [**] Plans and Statements of Work so that Digimarc remains within the [**] limitations.  This clause 5.3 sets forth Digimarc’s only remedy for a delay by [**] in complying with any such obligation.

 


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6.                                       CHANGES TO THE WORK

 

Clause 6 shall be replaced as follows:

 

6.1                                  [**] or Digimarc may request, a change to the Statements of Work or the [**] Plans (as defined in the [**] Agreement) from time to time by submitting a request in writing to the other party’s Project Manager. Such changes directed by [**] may include allocating development personnel other than the Project Manager to provide Services under the [**] Agreement in accordance with clause 4.6 of the [**] Agreement.  Any such request will indicate the nature of the new work to be performed, and indicate the desired number and optimum skill set of the personnel to be redirected, in a form sufficient for Digimarc to investigate the effect of the change.

 

6.2                                  On making such a change request or within three (3) Business Days after receiving a change request from the DLA Project Manager, Digimarc shall inform the DLA Project Manager of the amount, if any, which Digimarc intends to invoice [**] to investigate the effect the change will have on the applicable [**] Plans or Statements of Work and the [**] for the applicable [**] Plans or Statements of Work.

 

6.3                                  Within ten (10) Business Days after receiving the written authorization of the DLA Project Manager to conduct the investigation of a change, or such longer period as may be authorized by the DLA Project Manager, Digimarc shall report to the DLA Project Manager, in writing, on the results of the investigation.

 

6.4                                  Within ten (10) Business Days after the DLA Project Manager receives the report, the DLA Contract Authority shall, on behalf of[**], notify Digimarc whether or not [**] authorizes the change.  Any authorized change will include an amendment to the Statement of Work and the associated [**] Plans to properly state the new obligations of Digimarc.

 

6.5                                  Digimarc shall not implement any change to the Work until the change is authorized in writing by the DLA Contract Authority on behalf of[**].  Digimarc shall implement any change directed and authorized by [**] pursuant to clause 6.4 provided: i) the change is technically feasible and is within the capabilities of Digimarc; ii) the costs associated with such change identified by Digimarc in its investigation report and approved by [**] as part of the approval of the change are borne by [**] (such costs may be over and above the Phase [**] or the Phase [**]); and iii) Digimarc is given commensurate relief in the manner and to the extent as specified in the authorized change from prior commitments under the Statements of Work and/or the [**] Plans.

 

6.6                                  Pending receipt of a written authorization from the DLA Contract Authority, on behalf of[**], Digimarc shall proceed with the Work in accordance with this Agreement.

 


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8.                                       INTELLECTUAL PROPERTY MATTERS

 

Clause 8.4, 8.6, 8.8 and 8.9 shall be replaced as follows:

 

8.4                                  Digimarc hereby grants to[**], effective upon the date specified in clause 8.5, the [**] the Digimarc Technology and the Project Technology, and all Improvements thereto, and the Technical Information pertaining to the Digimarc Technology, the Project Technology and such Improvements, and to [**]the Digimarc Technology and the Project Technology and such Improvements and Technical Information to other Persons, for the purposes of [**] the [**] and any such component thereof, and making the [**] and any component available to others solely for the[**]  On the effective date of the [**]referred to above, [**] copy and use the Escrowed Materials for the purpose of exercising all rights [**]and the Escrow Agent shall be deemed authorized to release the Escrowed Materials to[**].  The expressions [**] as used in this clause 8.4, shall be deemed to refer to [**]  The [**]by clause 8.4 applies to Digimarc Technology and the Project Technology and all Improvements thereto, and the Technical Information pertaining to the Digimarc Technology, the Project Technology and such Improvements existing on or before December 31, [**].  Digimarc acknowledges that in accordance with clause 8.5, the [**]herein is effective as of 15 November [**].

 

8.6                                  Digimarc hereby grants to[**], effective on the date specified in this clause, the [**] the Digimarc Technology and the Project Technology and all Improvements thereto, and the Technical Information pertaining to the Digimarc Technology, the Project Technology and such Improvements, and [**]the Digimarc Technology, the Project Technology and such Improvements and Technical Information to other Persons, for the sole purpose of[**], solely for[**]  This [**] shall take effect on written request by the DLA Contract Authority at any time following the later of the date on which the [**] referred to in 8.4 takes effect and the date on which [**] pays Digimarc[**].  The [**] of clause 8.6 applies to Digimarc Technology and the Project Technology and all Improvements thereto, and the Technical Information pertaining to the Digimarc Technology, the Project Technology and such Improvements existing on or before December 31, [**].

 

8.8                                  From time to time during the Term, on no less than five (5) Business Days prior written notice by the DLA Project Manager, Digimarc shall, at Digimarc’s premises, present representatives of the Escrow Agent with all the material, in any form, in Digimarc’s possession or control which contains or describes the Technical Information pertaining to the Digimarc Technology and the Project Technology.  The representatives may identify any or all of such material and Digimarc shall arrange, at the expense of[**], for a complete, accurate and up-to-date copy of the selected material to be made and sent to the Escrow Agent within five (5) Business Days of the selection being made for deposit under the terms of the Escrow Agreement.

 

8.9                                  If so requested by the[**], within twenty (20) Business Days after the end of each calendar quarter during each Phase, Digimarc shall update the Escrowed Material in the possession of the Escrow Agent to reflect all Improvements to the [**] Technology and [**]Updates made by or at the request of Digimarc during that quarter.

 


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Add new clauses to clause 8 as follows:

 

8.17                            Digimarc hereby confirms and agrees that a) the [**]to [**] by clause 8.4 applies, effective upon the date specified in clause 8.18, to Digimarc Technology and the Project Technology and all Improvements thereto, and the Technical Information pertaining to the Digimarc Technology, the Project Technology and such Improvements, created between January 1, [**] and the earlier of the completion of the Phase [**] Work and the termination of this Agreement; and b) the expressions [**] as used in clause 8.4, shall be deemed to include [**]

 

8.18                            The [**] described in clause 8.17 shall take effect in respect of each specific item of Digimarc Technology, Project Technology or Improvements thereto, or Technical Information pertaining to the Digimarc Technology, the Project Technology or such Improvements created between 1 January, [**] and the earlier of the completion of the Phase [**] Work and the termination of this Agreement on the earliest of:

 

a)                                       the date on which both the [**] referred to in clause 8.4 takes effect and [**] pays Digimarc all sums properly due to Digimarc under this Agreement for the development of that specific item;

 

b)                                      sixty (60) days following the effective date of termination of this Agreement by [**] in accordance with the provisions of clause 15.2 (a), (b), (d) or (e) unless Digimarc demonstrates within such sixty (60) day period that, notwithstanding the occurrence of the events giving rise to the termination, Digimarc is willing and able to comply with its obligations under the Agreement; or

 

c)                                       the effective date of termination of this Agreement by [**] in accordance with the provisions of clauses 15.2(c), 15.2 (f), 15.2(g) or 15.3.

 

8.19                            Digimarc hereby confirms and agrees that any [**]to [**] pursuant to clause 8.6 applies, without any additional payments over and above that in clauses 8.6 and 8.18, to Digimarc Technology and the Project Technology and all Improvements thereto, and the Technical Information pertaining to the Digimarc Technology, the Project Technology and such Improvements created between January 1, [**] and the earlier of the completion of the Phase [**] Work and the termination of this Agreement. The [**] confirmed by this clause 8.19 is effective when both the [**] under clauses 8.6 and 8.17 take effect.

 

8.20                            Notwithstanding any other provision of this Agreement to the contrary, [**]right to acquire the [**] described in clause 8.17 by payments as described in clause 8.18(a) shall survive termination of this Agreement by [**] in accordance with the provisions of clause 15.2 (a), (b), (d) or (e) and be exercisable at any time during a period of sixty (60) days following such termination.

 


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10.                                REPRESENTATIONS AND WARRANTIES OF DIGIMARC

 

Sub-clause (g) of clause 10.1 shall be replaced as follows:

 

(g)                                  for greater certainty, with the exception of the [**], neither the Project Technology, the Digimarc Technology or Improvements thereon or the Technical Information pertaining to the Project Technology, the Digimarc Technology or such Improvements infringe any Intellectual Property Right of any person.

 

11.                                REPRESENTATIONS AND WARRANTIES OF THE [**]

 

Sub-clauses (b) and (d) of clause 11.1 shall be replaced as follows:

 

(b)                                  this Agreement when executed and delivered by [**] shall constitute a valid, binding and enforceable obligation of[**].  With regard to the obligations under the Third Amendment, this representation will be subject to clause 2.25 of the Third Amendment;

 

(d)                                  from and after the date on which [**] gets access to the Escrowed Materials (the “Release Date”) as provided by clauses 8.4, 8.6, 8.17 and 8.19 above until the last day of the Term, every[**], permits, or causes to be developed using the Escrowed Materials for incorporation into [**] will be capable of [**]

 

12.                                CONFIDENTIALITY

 

Clauses 12.4, 12.7, 12.9 and 12.11 shall be replaced as follows:

 

12.4                            A Recipient may, on a need to know basis, and only for the purposes described in clause 12.1, give the other party’s Confidential Information to the Recipient’s employees, authorized subcontractors or representatives provided that such employee, subcontractor or representative shall have entered into a non-disclosure agreement in respect of such Confidential Information in favour of the Discloser on terms requiring at least [**]years of confidentiality from the date of disclosure of such Confidential Information but that are in all other respects materially similar to the provisions of this clause 12.  For greater certainty, [**]representatives shall include the DLA Contract Authority, the DLA Project Manager and [**].

 

12.7                            The [**] Technology, the Other [**] Technology, and solely for the purposes of clause 12 the [**]insofar as it pertains to[**], and the Technical Information which pertains solely to the [**] Technology and the Other [**] Technology and those aspects of the [**], including any [**]which is or may be used [**]by any[**], shall be deemed to

 


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be the Confidential Information of[**].  Digimarc may disclose such Confidential Information to a person to whom Digimarc has [**]pursuant to clause 9.2 or 9.3 but only if:

 

a)                                       Digimarc can demonstrate to the reasonable satisfaction of [**] that disclosure is necessary to enable Digimarc to [**]under clause 9.2 or 9.3; and

 

b)                                      such person enters into a non-disclosure agreement in respect of such Confidential Information in favour of [**] on terms requiring at least [**]years of confidentiality from the date of disclosure of such Confidential Information but that are in all other respects materially similar to the provisions of this clause 12.

 

12.9                            [**] shall not reverse-engineer, disassemble, or decompile any Digimarc software forming part of [**](except to the extent that any such activity is reasonably necessary to permit [**] to exercise its licence rights under clauses 8.4, 8.6, 8.17 and 8.19 of this Agreement or [**] right to do so may not be contractually restricted under applicable law), and shall contractually ensure that any other Person to whom [**] provides [**]shall be similarly obliged.

 

12.11                      General attributes of the [**] may be disclosed in connection with [**]of the [**], and to [**]; information relating to the [**]and the [**]may be disclosed to [**]and [**]of [**]subject to a nondisclosure agreement on terms requiring at least [**]years of confidentiality from the date of disclosure of such Confidential Information but that are in all other respects materially similar to the provisions of this clause 12, but in all such cases Digimarc shall not disclose any information relating to the[**].  The existence and terms of this Agreement may be disclosed to the parties’ professional advisors, to members of the[**], and to Digimarc’s present shareholders, institutional and corporate investors, and commercial and investment bankers, who have a reasonable need to know such information subject to a non-disclosure agreement.

 

13.                                AUDIT AND INSPECTION

 

Clause 13.1 shall be replaced as follows:

 

13.1                            [**], or its duly authorised representatives, may from time to time, without notice, at its own expense, conduct an audit or inspection during normal business hours to verify Digimarc’s compliance with its obligations under this Agreement.  Digimarc shall facilitate such audit activities by providing access to its premises, as well as any books, records, and other information relating to this Agreement and the Work as may be reasonably requested by[**].  [**] shall promptly advise Digimarc in writing of the results of any audit.  If [**] exercises this right more frequently than twice in each calendar year, [**] shall reimburse Digimarc’s reasonable costs related thereto which costs are in addition to the [**] otherwise contemplated by this Agreement except in the case where the exercise of such right is reasonably required to follow-up on a non-compliance detected during a previous audit or inspection.

 


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14.                                DISPUTE RESOLUTION

 

Clause 14.2 shall be replaced as follows:

 

14.2                            Unless otherwise agreed between the parties or unless the subject matter of the dispute resolution proceedings is a party’s right to terminate this Agreement, the Work shall continue during the arbitration proceedings and payments due to Digimarc shall not be withheld on account of such proceedings unless that particular Work or payment is the subject matter of the proceedings.  Notwithstanding the foregoing, [**] may at its sole discretion instruct Digimarc to continue the performance of that Work, and Digimarc shall act in accordance with those instructions, subject to payment in accordance with this Agreement.

 

15.                                TERM AND TERMINATION

 

Clauses 15.6 and 15.7 shall be replaced as follows:

 

15.6                            Termination of this Agreement by [**] for any reason in accordance with the provisions of this clause 15 shall not affect any [**]by Digimarc pursuant to clauses 2.8, 2.9, 8.4, 8.6, 8.17 or 8.19 above.

 

15.7                            On termination of this Agreement by Digimarc or [**] for any reason, Digimarc shall within fifteen (15) Business Days deliver to the Escrow Agent all Work in progress done up to the effective date of termination, including all Technical Information relating to such Work, and all Technical Information pertaining to the Digimarc Technology or the Project Technology which has not previously been deposited with the Escrow Agent and issue to the DLA Contract Authority a certificate signed by an officer of Digimarc that it has fully complied with this obligation.  Digimarc shall be entitled to charge [**] for its reasonable costs in providing such assistance calculated in accordance with the Allowable Costs.

 

18.                                NOTICES

 

Clause 18.2 shall be replaced as follows:

 

18.2                            Any notice to Digimarc shall be sent to both of, and any notice from Digimarc shall be sent by either:

 

Mr. Scott Carr

or

 

Mr. William Y. Conwell

Vice President and General Manager,

 

 

[**]

 

Vice President, Intellectual Property

Digimarc Corporation

 

Digimarc Corporation

19801 SW 72nd Avenue

 

19801 SW 72 nd Avenue

Suite 100

 

Suite 100

Tualatin, Oregon 97062 USA

 

Tualatin, Oregon 97062 USA

FAX: (503) 885-9880

 

FAX: (503) 885-9880

 


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19.                                MISCELLANEOUS PROVISIONS

 

Clause 19.15 shall be replaced as follows:

 

19.15    Survival.        All clauses of this Agreement which expressly or by implication are intended to survive the termination of this Agreement will do so and, for greater certainty and notwithstanding any provision in this Agreement to the contrary, the provisions set out in clauses 2.5, 3.6-3.10 inclusive, 3.12-3.18 inclusive, 3.20, 3.21, 8.4, 8.5, 8.6, 8.8, 8.11-8.20 inclusive, 9.1, 9.2, 9.3, 9.7, 10, 11, 12, 13, 14, 16, 18 and 19 of this Agreement shall survive termination of this Agreement by either party for any reason.

 

IN WITNESS WHEREOF , this Third Amendment has been executed and delivered by the parties hereto as of the date of the last signature below.

 

[**]

 

 

 

 

 

 

Signature

Signature

Name:

Name:

Title:

Title:

Date

Date

 

 

DIGIMARC CORPORATION

 

 

 

 

 

 

Signature

 

Name:

Paul Gifford

 

Title:

President

 

Date

 

 

 


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AMENDMENT NUMBER FOUR TO THE [**] DEVELOPMENT AND LICENSE AGREEMENT

 

This is the fourth Amendment to the [**] Development and License Agreement (the “Fourth Amendment”) made by and between

 

DIGIMARC CORPORATION , a corporation incorporated under the laws of Delaware and having its head office at 9405 SW Gemini Drive, Beaverton, Oregon, U.S.A.  97008 (“Digimarc”)

 

and

 

[**]

 

Recitals

 

Effective 1 January [**], the above-identified parties entered into an agreement entitled the “[**] Development and License Agreement” (hereinafter, “the Agreement”).

 

On 14 March [**], 28 December [**] and 1 January [**], the parties entered into Amendments to the Agreement (hereinafter, First, Second and Third Amendments).

 

In consideration of the promises and covenants set out in this Fourth Amendment, in the Agreement, in the First, Second and Third Amendments and other good and valuable consideration, the receipt and adequacy of which are acknowledged by each of the parties, the parties agree that the Agreement as previously amended will be further amended with effect from 1 January [**], with the exception of Schedule W, effective from 1 January [**]:

 

1.                                       DEFINITIONS AND PRINCIPLES OF INTERPRETATION

 

The following definitions in clause 1.1 shall be deleted and replaced as follows:

 

“[**] Technology” means that technology, if any, from the technology described in Schedule “F” in respect of which from time to time during Phases [**] of this Agreement and Phases [**] as defined in the [**] Agreement after discussion between the [**] Project Director and the Digimarc Project Director, [**] offers, and Digimarc accepts in writing, a [**] on the [**] in clause 8.2 [**] and all Intellectual Property Rights in that [**];

 

“Digimarc Contract Authority” means Digimarc’s President or the President, Digimarc Watermarking Solutions;

 

“Improvement” means any change in the [**] Technology or the Technical Information made by or at the direction of Digimarc after [**] which enhances, whether by improvement, enhancement, correction, addition or otherwise, the properties,

 


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characteristics or [**] of the [**] including, for greater certainty, the [**] and the [**], and any change to the [**] the [**] Technology, the [**] Technology and/or the [**] made by or at the direction of Digimarc or any [**] in connection with the [**] of the [**] by any [**] that Digimarc has rights in, including customization, improvements, enhancements, corrections, and changes to the [**] so that it can interface properly to a [**];

 

“Phase” means Phase [**] of this Agreement as the case requires, adjusted if required by any period added pursuant to clause 5.3 or other changes to the Services authorized pursuant to clause 6 below;

 

“Security Purpose” means the purpose of [**]; and

 

“Statement of Work” means the Statement of Work set out in Schedules B, C, D, V or W as applicable, or the Statements of Work developed for Phases [**] in accordance with the Planning Process set forth in Section 2.

 

The following terms in clause 1.1 shall be renamed and redefined as follows:

 

Delete “Digimarc Project Manager” and replace with “Digimarc Project Director” means the project director appointed by the Digimarc Contract Authority in accordance with clause 4.2.;

 

Delete “DLA Contract Authority” and replace with “[**] Contract Authority” means the Contract Authority designated by [**] in writing to Digimarc from time to time;

 

Delete “DLA Project Manager” and replace with “[**] Project Director” means the project director appointed by the [**] Contract Authority from time to time on notice to the Digimarc Contract Authority who shall also serve as the person primarily responsible to conduct inspections on behalf of[**];

 

Delete “Project Manager” and replace with “Project Director” means either the [**] or Digimarc Project Director, as the context requires;

 

Delete “[**]” and replace with “[**]” means a committee of representatives from various [**]called “[**]”, previously known as “[**]”; and

 

Delete “Work” and replace with “Services” means the services required to be performed by Digimarc as authorized by [**] in the Planning Process set out in Section 2.  Digimarc shall provide all development, maintenance and [**] services related to the [**], including (a) acting as[**]; (b) any tasks required to be performed to complete and deliver the [**](c) any task to be performed by Digimarc for and any item to be delivered by Digimarc to [**]as such tasks and items are identified in the [**] Plan for that[**]; and (d) other services reasonably necessary to comply with its obligations under this Agreement.

 


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Add new definitions to clause 1.1 as follows:

 

“[**] means the [**]established by the [**] Contract Authority and that is responsible for the oversight of the overall relationship between [**] and Digimarc and for the key day-to-day contract management;

 

[**]

 

“Dependancy” means any of the following dependencies of Digimarc on [**]and such [**] employees, agents, representatives and subcontractors:

 

(a)                                   performing a task upon which Digimarc’s performance of any part of the Services is dependent;

(b)                                  timely providing to Digimarc the relevant technical information,[**];

(c)                                   timely returning/negotiating [**], documents of understanding as necessary to protect Digimarc or [**] intellectual property;

(d)                                  having attendance of the relevant [**]employees or consultants at key briefings and review meetings;

(e)                                   maintaining/not materially changing planned [**];

(f)                                     not materially altering their [**]; or

(g)                                  such dependencies as are expressly identified in the [**]may be revised;

 

[**] Agreement” means that [**] Agreement effective as of 1 January [**] between [**] and Digimarc;

 

“[**] Personnel” means any officer, employee, permitted agent or subcontractor assigned by Digimarc to perform any part of the Services required under a [**];

 

“[**]

 

“[**] Problem Report” means a report of a [**] problem addressing as many of the topics specified in Schedule “BB” as are relevant to a reasonable understanding of the problem;

 

“Key [**] Personnel” means those [**] Personnel identified in Schedule AA;

 

“Phase[**]” means the period from 1 January [**] to 31 December [**];

 

“Phase[**]” means the period from 1 January [**] to 31 December [**];

 

“Phase[**]” means the period from 1 January [**] to 31 December [**];

 

“Planning Process” means the process set forth in Section 2 of this Agreement by which [**] and Digimarc will develop Program Work Plans, Statements of Work for Phases [**] and [**] Plans;

 


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“[**]” means the[**]; and

 

“Program Work Plan” means a two-year plan developed pursuant to Section 2.26 with an estimated budget for each of the two years, approved tasks for the first year and anticipated tasks for the second year.

 

Section 1.2                                    Interpretation

 

Clause 1.2.5 shall be replaced with:

 

1.2.5.        unless otherwise specified, the order of precedence for interpreting this Agreement shall be:

 

a)              the Amendments to the Agreement with the Fourth Amendment supplementing the Third Amendment and the Third Amendment supplementing the Second Amendment and the Second Amendment supplementing the First Amendment;

 

b)             the other terms of this Agreement, excluding Schedules;

 

c)              the Schedules excluding the [**] Plans;

 

d)             as between the delivery schedules forming part of a Statement of Work, and other provisions of such Statement of Work, the delivery schedules shall take precedence;

 

e)              the [**] Plans except that as between the delivery schedules, if any, forming part of a [**] Plan and other provisions of such plan, the delivery schedules shall take precedence.

 

Replace clause 1.2.9 as follows:

 

(a)  When a definition or clause in this Agreement is described in the Fourth Amendment as a replacement, the definition or clause in this Fourth Amendment replaces the previous definition or clause in the Agreement.  When a new definition or clause is presented in this Fourth Amendment, the new definition or clause is considered added to and incorporated into the Agreement.

 

(b)  The changes in this Fourth Amendment are referenced by the clauses as they appear in the Agreement and such changes shall not apply to the interpretation of any part of the Agreement relating to any events, acts or omissions occurring prior to 1 January [**] unless such events, acts or omissions are relevant to any event, act or omission occurring on and after that date.  Unless expressly modified, superseded or replaced by this Fourth Amendment, each term of the Agreement as

 


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amended by the First, Second or Third Amendment remains in full force and effect.

 

1.3                                Applicable Law

 

Clause 1.3 shall be replaced as follows:

 

1.3                                  This Agreement and all amendments thereto shall be construed in accordance with the laws of England to the exclusion of its rules of conflicts of laws.

 

1.4                                Schedules

 

In clause 1.4,

 

Replace Schedules G, H, I, K-1, K-2, L-1, L-2, N, S and W, as attached; and

 

Add the following new schedules:

Schedule Y, described as [**] Plan;

Schedule Z, described as [**] Team;

Schedule AA, described as [**] Personnel;

Schedule BB, described as [**] Problem Report; and

Schedule CC, described as Project Indicators.

 

The parties agree that the above-identified replacement document Schedules G, H, I, K-1, K-2, L-1, L-2, N, S and W supersede the corresponding documents referenced in clause 1.4 of the Agreement and such replacement Schedules together with the new Schedules Y, Z, AA, BB and CC are, by this reference, made an integral part of the Agreement.

 

2.                                       SCOPE AND DURATION OF THE SERVICES

 

Clause 2.15 shall be replaced as follows:

 

2.15                            Digimarc shall obtain at its own expense all licenses or permits required to be obtained from the Government of the United States in order for Digimarc to comply with its obligations under this Agreement.  [**], [**]

 

Add new clauses to clause 2 as follows:

 

2.26                            [**] and Digimarc have agreed that Digimarc shall provide the Services for Phases [**] as stated in the Statements of Work and [**] Plans developed in accordance with the Planning Process set forth herein.  The [**]and Digimarc shall hold planning meetings in each June and December during the then-current phase to review the scope and status of current and planned projects under the Statement of Work and the current

 


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and proposed [**] Plans, relative to the timing schedule and expenditures and budgets and to establish the Statement of Work and revised or new [**] Plans for subsequent periods.  Prior to these meetings, the [**]and Digimarc shall exchange such information as is reasonably necessary to enable the parties to conduct an informed evaluation.  In addition, the [**]and Digimarc shall meet approximately two months in advance of each planning meeting to discuss [**] and similar issues related to the development,[**].  At this preparation meeting the parties shall also discuss the project indicators, in accordance with the process set out in Schedule CC.  The Statement of Work and revised or new [**] Plans for the next calendar year shall be finalized at the June meeting, except that the Statement of Work and [**] Plans for [**] and the [**]for [**] shall be finalized by May 12, [**].  The [**]and tentative Statement of Work and [**] Plans for the year following the next year shall be set at the December meeting.  Services may be added and/or priorities changed, and resources and priorities may be shifted between tasks following a process to be agreed to between the [**]and Digimarc.  Digimarc shall not exceed the [**]for a given calendar year without the written approval of the[**].  At each planning meeting, the planned tasks and associated estimated budget shall be set for an additional six months to create an updated Program Work Plan.  The [**]and Digimarc shall present the agreed-upon Statement of Work and revised or new [**] Plans to the [**]for approval.  The [**] Contract Authority shall notify Digimarc in writing of the [**] approval of the Statement of Work and revised or new [**] Plans.

 

2.27                            The parties shall, unless otherwise agreed, prepare a specific [**] plan for a [**]following the [**]of Schedule Y.  Digimarc undertakes and represents that each [**] Plan and every revision thereto prepared by Digimarc shall be prepared with all due care and diligence and that as of the date of the applicable June or December planning meeting, Digimarc shall not be aware of any matters within its reasonable control which might or will adversely affect its ability to perform the Services described in that [**] Plan or revised [**] Plan and other existing approved [**] Plans.

 

2.28                            In the event that the [**]and Digimarc are unable to mutually agree on the pricing of a given task(s) proposed in a Statement of Work or [**] Plan, the matter will be escalated as follows:  (1) to the [**] Project Director and the President of Digimarc Watermarking Solutions, (2) to the [**]and the President of Digimarc Corporation, and (3) ultimately to an agreed upon third party expert who is qualified by education and training to pass upon the particular matter to be decided.  The dispute resolution process provided for in this clause 2.28 is non-binding.  If the parties do not accept the expert’s decision, either party may initiate the arbitration process in accordance with Clause 14.

 

2.29  Phase [**] shall commence on 1 January [**] unless [**] notifies Digimarc in writing on or before 31 December [**] that it is not exercising its option for Phase [**] or unless Phase [**] is terminated prior to 31 December [**].  Assuming that [**] exercises its option for Phase [**] Phase [**] shall commence on 1 January [**] unless [**] notifies Digimarc in writing on or before 31 December [**] that it is not exercising its option for Phase [**] or unless Phase [**] is terminated prior to 31 December[**].

 


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2.30  [**] may terminate for convenience without cause the Services being performed in any of Phases [**] if and only if [**] determines to cease development and[**].  Termination shall be effective on the last day of the calendar year in which [**] gives written notice of such termination to Digimarc, provided that Digimarc receives that notice on or before June 30 of that year.

 

2.31  In the event of a termination for convenience without cause, [**] shall pay Digimarc all of its actual and reasonable termination costs, including third party contract termination costs, employee re-deployment or termination costs, undepreciated capital costs of assets purchased exclusively for the project, and accounting, legal and travel costs associated with termination and termination negotiation (“Termination Costs”).  Actual and reasonable termination costs shall be capped [**].  Digimarc shall use commercially reasonable efforts to mitigate all Termination Costs.  [**] shall also pay Digimarc an amount equal to[**].  [**] exercises its termination for convenience without cause option during the last year of a phase, the “remaining years” of that phase will mean the number of years in the follow-on phase.

 

2.32.                         Digimarc agrees to make Key [**] Personnel and/or other suitably skilled and experienced personnel available as mutually agreed between [**] and Digimarc to provide assistance as part of any termination transition plan that is agreed to three months prior to the date of termination of Services.  Alternatively, at the request of the[**] Project Director, Digimarc agrees for a period of up to six months after termination of Services for any reason except for breach by [**] under clause 15.3 to make Key [**] Personnel and/or other suitably skilled and experienced personnel, at Digimarc’s reasonable discretion and acceptable to [**]available to render to [**]or any third party designated by[**], all reasonable assistance. [**] agrees to pay for such assistance provided prior to the termination date at the then-current DLA Labor Rates and for such assistance provided after the termination date at the then-current labor rates charged to Digimarc Watermarking Solutions’s most favored customers, excluding the [**] and inter-company transfers, and for Expenses as allowed in accordance with the Allowable Costs.

 

2.33                            The Term will continue notwithstanding that [**] may elect not to exercise its option for Phase [**] or Phase [**] or that it may terminate for convenience without cause the Services being provided by Digimarc under Phases [**]

 

2.34                            This Fourth Amendment is conditional upon execution of an Amendment to the [**]between the [**] and the requisite[**].  After execution of this Fourth Amendment by the [**] and Digimarc, the [**] shall proceed with reasonable diligence to have the Amendment to the [**]fully executed.  When the Amendment to the [**] is fully executed, the [**] shall so notify Digimarc that the condition of this clause 2.34 has been removed from this Fourth Amendment.

 


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3.                                       PRICE AND PAYMENT

 

Replace clause 3.7 as follows:

 

3.7                                  For a period commencing on the Effective Date and ending on the date [**] following the last date on which Digimarc issues an invoice to [**] for Allowable Costs, Digimarc shall maintain proper, up-to-date, accurate and complete books, records and other documentation substantiating the Allowable Costs invoiced under this Agreement including time sheets showing the hours spent on each task which forms part of the Services and receipts for all Expenses (as defined in Schedule I).  Digimarc shall produce such books, records and documentation to [**] or its representatives for inspection and copying at Digimarc’s premises (with the right to take such copies from Digimarc’s premises as long as Digimarc is notified in writing what copies are removed from Digimarc’s premises and the copies are handled by [**] or its representative in accordance with [**] confidentiality obligations under clause 12) at all reasonable times on request by [**] Project Director.

 

Add new clauses to clause 3 as follows:

 

3.22                            Subject to the limits set out in this Agreement and unless otherwise expressly set out herein, [**] shall reimburse Digimarc for all the Allowable Costs reasonably and properly incurred by Digimarc during each calendar month to perform the Phase [**] Services, Phase [**] Services (if any), Phase [**] Services (if any) and other Services authorized by [**] in writing.  Digimarc shall invoice [**] monthly in arrears for such Allowable Costs.  Each invoice shall specify the Expenses incurred and the time spent by the staff and sub-contractors of Digimarc in performing the Services, including time spent by [**] Personnel, and shall give a breakdown of the Allowable Costs, including a breakdown in respect of each [**] Plan, in the form attached as Schedule S.

 

3.23                            If [**] terminates this Agreement in accordance with Clause 15, Digimarc shall be reimbursed for all Services performed through the date of termination and for any transition services provided after the date of termination in accordance with Clause 2.32.  For greater certainty, [**]obligation to pay the [**]for a given year (as determined in accordance with the Planning Process) is subject to Digimarc having performed all of its obligations under this Agreement relating to the performance of Services.

 

4.                                       PROJECT MANAGEMENT

 

Replace Section 4 as follows:

 

4.1                                  The [**] Project Director shall be responsible for coordinating fulfillment by [**] of its obligations under this Agreement including the provision of all the general information about [**] that Digimarc may reasonably require in order to perform its obligations under this Agreement and directing Digimarc in respect of prioritizing effort and timing of Services in relation to any [**]in accordance with the agreed upon [**] Plans and changes thereto.  The [**] Project Director shall have no authority to amend this Agreement, approve payments or approve or accept Deliverables or other Services or

 


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proposals on behalf of [**], all of which action shall be within the exclusive authority of [**].

 

4.2                                  Digimarc shall designate a responsible individual with adequate authority and competence as the Digimarc Project Director.  The Digimarc Project Director shall be responsible for coordinating the performance of the Services by Digimarc including serving as project leader and primary interface with [**] but shall have no authority to agree to an amendment of this Agreement on behalf of Digimarc which action shall be within the exclusive authority of the Digimarc Contract Authority.

 

4.3                                  Either party’s Project Director or Contract Authority may from time to time appoint one or more persons to represent him or her on prior written notice to the other party’s Project Director or Contract Authority.

 

4.4                                  Digimarc shall maintain throughout Phases [**] (unless [**] terminates for convenience without cause the Services being performed by Digimarc or elects not to exercise its option for Phases[**]) the [**] Team as defined in Schedule Z comprising the Key [**] Personnel and other persons who have the qualifications, expertise and experience reasonably necessary to perform the tasks and roles of the members of the [**] Team specified in Schedule Z.

 

4.5                                  Digimarc acknowledges that it is important to [**] that [**] has the flexibility, at the discretion of [**]to maximize the use of the combined resource pool of personnel allocated by Digimarc to development and [**] Services.  Accordingly, as directed by the [**] Project Director in accordance with the procedures set out in clause 6, Digimarc shall: (a) increase the number of [**] Personnel assigned by Digimarc to perform the Services beyond the number of the [**] Team or to subsequently reduce the [**] Personnel back to the level of the [**] Team; and/or (b) assign those [**] Personnel who have the necessary skills to development Services or vice versa.

 

4.6                                  The names of the Key [**] Personnel approved by the [**] Contract Authority are set out in Schedule AA.  If it becomes necessary for Digimarc to provide substitute or add Key [**] Personnel for any reason, the [**] Contract Authority must approve such Key [**] Personnel in advance, which approval shall not be unreasonably withheld.

 

4.7                                  Digimarc shall not, without first obtaining the written consent of the [**] Contract Authority, which consent shall not be unreasonably withheld, remove or replace:

 

(a)                                   any employee of Digimarc or its authorized subcontractors assigned to do any part of the Services if the employee or subcontractor is critical to completion of the Services by Digimarc in accordance with this Agreement or the applicable [**] Plan.  “Critical” means that the applicable Services cannot be completed by Digimarc without such person; or

 

(b)                                  its Project Director.

 


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4.8                                  Digimarc shall replace within a reasonable time under the circumstances any of its employees or authorized subcontractors engaged in fulfilling its obligations under this Agreement, including its Project Director, whose removal is required by the[**] Contract Authority, provided that the [**] Contract Authority specifies reasonable cause for such removal in writing.  With respect to [**] Personnel, Digimarc shall, at Digimarc’s cost, train the replacement personnel about the job specifics so the replacement personnel shall be able to perform the Services in a manner substantially equal to the replaced [**] Personnel at the particular state the Services had reached when the personnel change occurred.

 

4.9                                  Digimarc undertakes that all personnel assigned to do the Services shall be employees of Digimarc unless it provides reasonable prior written notice of its intent to use a specific subcontractor.  The [**] Project Director shall have the right to approve all subcontractors, which approval shall not be unreasonably withheld.  Digimarc undertakes that it shall obtain from each subcontractor prior to permitting that subcontractor to do any part of the Services a written undertaking that all Intellectual Property Rights in any work developed by that subcontractor while providing the Services shall vest absolutely in Digimarc upon the date of creation.  Digimarc shall remain responsible for any obligations which are performed by a subcontractor and for the conduct of subcontractors as if they were the acts or omissions of Digimarc.

 

4.10                            Digimarc shall report on progress of the Services and conduct progress reviews in accordance with the provisions of Schedule “N”.

 

4.11                            In the event that it becomes evident to either party’s Project Director that a failure or delay by either party to perform in accordance with its obligations under this Agreement will result in a material impact on the completion of the Services in accordance with the applicable Statement of Work or [**] Plan, then the relevant Project Director shall immediately bring the issue to the attention of the other party’s Project Director.

 

5.                                       RESPONSIBILITIES OF [**]

 

Clauses 5.1 and 5.3 shall be replaced as follows:

 

5.1                                  [**] shall perform all tasks assigned to it in a Statement of Work or an applicable [**] Plan by the dates set out therein (herein referred to as the [**] Tasks), provided that if the [**] Task is required in relation to a [**] Plan, Digimarc has provided the [**] Contract Authority with reasonable notice that there is a Digimarc action that is dependent on that [**] Task.

 

5.3                                  If [**] is delayed in complying with any of its obligations under clauses 5.1 or 5.2 for any reason not attributable to Digimarc, and such delay will cause a delay in the completion and delivery by Digimarc of any Services, then Digimarc shall reasonably

 


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promptly advise the [**] Project Director of the impact of the delay.  The time for completion of the Services and all subsequent Services dependent thereon, shall then be extended automatically by one day for each day of delay by [**] or such other period as may be agreed in writing between the parties’ respective Contract Authorities.   If Digimarc suffers increased costs by reason of such delay, other than a delay due to a force majeure event (as defined in clause 17.1), such costs reasonably and necessarily incurred by Digimarc shall be borne by [**].  Digimarc shall make every reasonable effort to reassign staff and otherwise to mitigate the increased costs associated with such a delay.  If the delay is due to a force majeure event, such costs shall be borne equally by [**] and Digimarc.  If there are any additional costs to be borne by [**] otherwise than as agreed under clause 2 of this Agreement, Digimarc shall reasonably promptly notify the [**] Contract Authority of such and [**] shall either approve of such costs and/or request a change to the Services under clause 6.  Such a change request will ask Digimarc to describe the effect the costs and delay under this clause 5.3 will have on the applicable [**] Plans or Statements of Work.  If after Digimarc describes the effect the costs and delay under this clause 5.3 will have on the applicable [**] Plans or Statements of Work, the [**] Contract Authority requests such a change, Digimarc shall implement such change in [**] Plans and Statements of Work so that Digimarc remains within the previously approved budget.  This clause 5.3 sets forth Digimarc’s only remedy for a delay by [**] in complying with any such obligation.

 

6.                                       CHANGES TO THE SERVICES

 

Clause 6.1 shall be replaced as follows:

 

6.1                                  [**] or Digimarc may request a change to the Statements of Work or the [**] Plans from time to time by submitting a request in writing to the other party’s Project Director.  Such changes directed by [**] may include allocating personnel other than the Project Director to provide development and/or [**] Services in accordance with clause 4.5.  Any such request will indicate the nature of the new work to be performed, and indicate the desired number and optimum skill set of the personnel to be redirected, in a form sufficient for Digimarc to investigate the effect of the change.

 

7.                                       PERFORMANCE OF SERVICES

 

Add new clauses to clause 7 as follows:

 

7.3                                  If any part of the [**] Services have not been performed in accordance with this Agreement and Digimarc receives a [**] Problem Report from the[**] Project Director, Digimarc shall at its own cost and expense, without charge to [**]and in the fastest time reasonably practicable, but no later than sixty (60) days after receipt of a [**] Problem Report from the[**] Project Director, ensure, by taking all steps reasonably necessary, that the relevant part of the Services is re-performed or corrected in compliance with this Agreement.

 


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7.4                                  Digimarc shall not be responsible to the extent any failure by Digimarc to perform the Services in accordance with this Agreement is directly attributable to: a) a delay by [**] to perform any [**] Task (as defined in clause 5.1) applicable to the affected part of the Services; b) a Dependancy applicable to the affected part of the Services not being fulfilled by [**]; or c) a force majeure event (as defined in clause 17.1).

 

8.                                       INTELLECTUAL PROPERTY MATTERS

 

The following provision shall be added at the end of clause 8.6:

 

In the event that this Agreement is terminated by [**] under clauses 15.2 or 15.3, [**]in this Section 8.6 shall take effect on the date on which [**] pays Digimarc [**]and agrees to pay Digimarc an additional [**]by January 31 of the following year.  In the event [**] fails to pay [**]by January 31 of the following year, the [**]shall become void ab initio .  Interest shall accrue on the outstanding amount from the date the [**] is effective to and including the day the balance is paid in full [**].

 

Clauses 8.17, 8.18, 8.19 and 8.20 shall be replaced as follows:

 

8.17                            Digimarc hereby confirms and agrees that a) [**]to [**] by clause 8.4 applies, effective upon the date specified in clause 8.18, to Digimarc Technology and the Project Technology and all Improvements, and the Technical Information pertaining to the Digimarc Technology, the Project Technology and such Improvements, created between January 1, [**] and December 31, [**] and to Digimarc Technology and the Project Technology and all Improvements, and the Technical Information pertaining to the Digimarc Technology, the Project Technology and such Improvements, created on an on-going basis under any subsequent Statement of Work or [**] Plan approved under clause 2.26; and b) the expressions[**] as used in clause 8.4, shall be deemed to include[**].

 

8.18                            The [**]in clause 8.17 shall take effect in respect of each specific item of Digimarc Technology, Project Technology or Improvements, or Technical Information pertaining to the Digimarc Technology, the Project Technology or such Improvements created as set out in clause 8.17 on the earliest of:

 

a)                                       the date on which both [**]to in clause 8.4 takes effect and [**] pays Digimarc all sums properly due to Digimarc under this Agreement for the development of that specific item;

 

b)                                      sixty (60) days following the effective date of termination of this Agreement by [**] in accordance with the provisions of clause 15.2(a), (b), (d) or (e) unless Digimarc demonstrates within such sixty (60) day period that, notwithstanding the occurrence of the events giving rise to the termination, Digimarc is willing and able to comply with its obligations under the Agreement; or

 


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c)                                       the effective date of termination of this Agreement by [**] in accordance with the provisions of clauses 15.2(c), 15.2(f), 15.2(g) or 15.3 or of termination for convenience without cause of Services under clause 2.30.

 

8.19                            Digimarc hereby confirms and agrees that any [**]to [**] pursuant to clause 8.6 applies, without any additional payments over and above that in clauses 8.6 and 8.18, to Digimarc Technology and the Project Technology and all Improvements, and the Technical Information pertaining to the Digimarc Technology, the Project Technology and such Improvements created between January 1, [**] and December 31, [**] and to Digimarc Technology and the Project Technology and all Improvements, and the Technical Information pertaining to the Digimarc Technology, the Project Technology and such Improvements created on an on-going basis under any subsequent Statement of Work or [**] Plan approved under clause 2.26.  The [**]by this clause 8.19 is effective when [**] under clauses 8.6 and 8.17 take effect.

 

8.20                            Notwithstanding any other provision of this Agreement to the contrary, [**]right to [**]in clause 8.17 by payments as described in clause 8.18(a) shall survive termination of this Agreement by [**] in accordance with the provisions of clauses 15.2 (a), (b), (d) or (e) or termination for convenience without cause of Services under clause 2.30 and be exercisable at any time during a period of sixty (60) days following such termination.

 

Add new clauses to clause 8 as follows:

 

8.21                            Digimarc hereby [**], with effect from 1 January [**] the [**] the Digimarc Technology and the Project Technology, and all Improvements, and the Technical Information pertaining to the Digimarc Technology, the Project Technology and such Improvements, and [**]the Digimarc Technology and the Project Technology and such Improvements and Technical Information pertaining to the Digimarc Technology, the Project Technology and such Improvements to other Persons for the purposes of[**], the [**] and any such component thereof, and making the [**]and any component available to others solely for[**].  [**], including[**].  For greater certainty, the uses permitted by this grant are limited to[**]  This grant does not permit any other uses,[**]  The expressions[**] as used in this clause 8.21 shall be deemed to refer to[**].   The [**]by clause 8.21 applies to Digimarc Technology and the Project Technology and all Improvements, and the Technical Information pertaining to the Digimarc Technology, the Project Technology and such Improvements existing on or before December 31, [**], and to Digimarc Technology and the Project Technology and all Improvements, and the Technical Information pertaining to the Digimarc Technology, the Project Technology and such Improvements created on an on-going basis under any subsequent Statement of Work or [**] Plan approved under clause 2.26.   This [**] is in addition to those rights granted in Sections 8.4, 8.6, 8.17 and 8.19 of this Agreement.

 


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8.22                            Digimarc grants to [**], effective on the date specified in this clause, the [**] the Digimarc Technology and the Project Technology and all Improvements, and the Technical Information pertaining to the Digimarc Technology, the Project Technology and such Improvements, and [**]the Digimarc Technology, the Project Technology and such Improvements and Technical Information to other Persons, for the sole purpose of [**]solely for [**].  This grant is subject to the limitations set forth in Clause 8.21.  This [**] shall take effect on written request by the [**] Contract Authority at any time following the later of the date on which the [**]to in 8.21 takes effect and the date on which [**] pays Digimarc the amount as set forth below:

 

(a)                                   if [**] desires to [**]during the period covered by Phase [**], [**] shall pay an amount to be negotiated by [**] and Digimarc, in addition to the amount to be paid under clause 8.6;

(b)                                  if [**] desires to [**]during the period covered by Phases [**] shall only pay to Digimarc [**]as set out in clause 8.6; or

(c)                                   if [**] desires to [**] at any time after the refusal to perform or other material breach of the Agreement by Digimarc, [**] shall [**] at no cost.

 

The [**] clause 8.22 applies to Digimarc Technology and the Project Technology and all Improvements, and the Technical Information pertaining to the Digimarc Technology, the Project Technology and such Improvements existing on or before December 31, [**], and to Digimarc Technology and the Project Technology and all Improvements, and the Technical Information pertaining to the Digimarc Technology, the Project Technology and such Improvements created on an on-going basis under any subsequent Statement of Work or [**] Plan approved under clause 2.26.

 

8.23                            [**] hereby grants Digimarc during the term of this Agreement a [**] may have or acquire under clauses 8.4, 8.6, 8.17, 8.19, 8.21 and 8.22 of the Agreement.  This [**]to Digimarc is retroactive to any previously [**]rights from Digimarc to [**] may have or may acquire under clauses 8.4, 8.6, 8.17 and 8.19 of the Agreement.

 

10.                                REPRESENTATIONS AND WARRANTIES OF DIGIMARC

 

Add new subclauses to clause 10.1 as follows:

 

(h)                                  it possesses the necessary skills, knowledge and experience to perform all [**] Services under this Agreement and such [**] Services shall be performed at all times in a timely, cost effective, professional and diligent manner by Digimarc exercising due professional care, skill and competence.  For greater certainty Digimarc shall, and shall ensure that the [**] Personnel shall, employ the standard of care in performing the [**] Services that would be expected of a competent and experienced provider of the same or similar type of [**] Services; and

 

(i)                                      Digimarc shall ensure that the [**] Personnel are appropriately qualified, skilled, trained and experienced to undertake the [**] Services and tasks assigned to them, and that each of the [**] Personnel shall possess the qualifications and experience which Digimarc has represented them to possess.

 


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11.                                REPRESENTATIONS AND WARRANTIES OF [**]

 

Sub-clause (d) of clause 11.1 shall be replaced as follows:

 

from and after the date on which [**] gets access to the Escrowed Materials (the “Release Date”) as provided by clauses 8.4, 8.6, 8.17, 8.19, 8.21 and 8.22 above until the last day of the Term, every [**] which [**]will be capable of [**]

 

12.                                CONFIDENTIALITY

 

Clause 12.9 shall be replaced as follows:

 

[**] shall not reverse-engineer, disassemble, or decompile any Digimarc software forming part of the[**], [**](except to the extent that any such activity is reasonably necessary to permit [**] to exercise its [**] clauses 8.4, 8.6, 8.17, 8.19, 8.21 and 8.22 of this Agreement or [**] right to do so may not be contractually restricted under applicable law), and shall contractually assure that any other Person to whom [**] provides [**]shall be similarly obliged.

 

Clause 12.11 shall be replaced as follows:

 

12.11                      General attributes of [**] may be disclosed in connection with [**]of the [**] to[**], and [**]; information relating to the [**] may be [**] of [**]subject to a nondisclosure agreement on terms requiring at least [**]years of confidentiality from the date of disclosure of such Confidential Information, but that are in all other respects materially similar to the provisions of this clause 12, but in all such cases Digimarc may disclose information relating to [**]but to no others.  The existence and terms of this Agreement may be disclosed to the parties’ professional advisors, to members of the [**]and to Digimarc’s shareholders, institutional and corporate investors, and commercial and investment bankers, who have a reasonable need to know such information subject to a non-disclosure agreement, or as required by applicable law or regulations.

 

15.                                TERM AND TERMINATION

 

Clause 15.6 shall be replaced as follows:

 

15.6                            Termination of this Agreement by [**] for any reason in accordance with the provisions of this clause 15 or termination for convenience without cause of Services under clause 2.30 shall not affect any [**]by Digimarc pursuant to clauses 2.8, 2.9, 8.4, 8.6, 8.17, 8.19, 8.21 or 8.22 above.

 


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18.                                NOTICES

 

Clause 18.2 shall be replaced as follows:

 

18.2                            Any notice to Digimarc shall be sent to both of, and any notice from Digimarc shall be sent by either:

 

Mr. J. Scott Carr

Mr. Robert Chamness

President, Digimarc Watermarking

Vice President and General Counsel

Solutions

Digimarc Corporation

9405 SW Gemini Drive

9405 SW Gemini Drive

Beaverton, Oregon 97008 USA

Beaverton, Oregon 97008 USA

FAX: (503) 469-4777

FAX: (503) 469-4777

 

 

With a copy to:

 

 

 

Digimarc Project Director

 

Digimarc Corporation

 

9405 SW Gemini Drive

 

Beaverton, Oregon 97008 USA

 

FAX: (503) 469-4777

 

 

Clause 18.3 shall be replaced as follows:

 

18.3                            Any notice to [**] shall be sent to both of, and any notice from [**] shall be sent by either:

 

[**]

 

With a copy to:

 

[**]

 

Clause 18.4 shall be replaced as follows:

 

18.4                            A party may change its addressee(s) or address(es) for notice by notice to the other party in accordance with the provisions of this clause 18.

 

19.                                MISCELLANEOUS PROVISIONS

 

Clause 19.12 shall be replaced as follows:

 

19.12                      The parties agree that from time-to-time it will be beneficial to both parties to issue [**]and other [**] arising from [**] of [**].  Each party agrees to submit such [**]for prior approval by the other party if the name of the other party is mentioned, which approval may be withheld by the other party in its sole discretion.  Any Digimarc [**]that mention [**] or [**] must be pre-approved by the [**] Project Director.

 

Clause 19.15 shall be replaced as follows.

 


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19.15                      Survival.  All clauses of this Agreement which expressly or by implication are intended to survive the termination of this Agreement will do so and, for greater certainty and notwithstanding any provision in this Agreement to the contrary, the provisions set out in clauses 2.5, 3.6-3.10 inclusive, 3.12-3.18 inclusive, 3.20, 3.21, 8.4, 8.5, 8.6, 8.8, 8.11-8.22 inclusive, 9.1, 9.2, 9.3, 9.7, 10, 11, 12, 13, 14, 16, 18, 19 and 20 of this Agreement shall survive termination of this Agreement by either party for any reason.

 

20.                                INTELLECTUAL PROPERTY INDEMNIFICATION [**]

 

Add new clause 20 as follows:

 

20.1                            Digimarc hereby undertakes to assume and be responsible for the provision of intellectual property (IP) infringement indemnification in respect of any infringement or alleged infringement of any third party intellectual property rights of any kind (“IP Indemnification”) arising in respect of [**]that Digimarc [**]after January 10, [**] (a) Digimarc has the right to direct the defense of any infringement and indemnity claim; (b) [**]shall take such actions as are reasonably requested by Digimarc in connection with managing, defending, and settling any claim or demand, including mitigation of damages; (c) to facilitate mitigation or avoid infringement, Digimarc can supply, at its own cost, [**]prior approval which shall not be unreasonably withheld; and (d) if [**] as of the date of the notice.

 

20.2                            Unless otherwise agreed between Digimarc and the [**] Project Director,[**]  Digimarc and the [**] Project Director shall mutually agree on a [**]such agreement not to be unreasonably withheld.

 

20.3                            [**]Digimarc shall provide indemnification [**]in accordance with its obligations under this Agreement, [**] provided that [**]in accordance with clause[**].

 

20.4                            In addition to any other [**]obligations in this Agreement and in consideration of Digimarc’s continuing compliance at all times with its obligations under this clause 20, [**] agrees [**] Digimarc for the IP Indemnification [**]subject to [**]in accordance with clause 20.5.  [**].

 

20.5                            Prior to November 15 [**]that the IP Indemnification of clauses 20.1 and 20.2 [**], the [**] Project Director [**] to Digimarc [**] Digimarc under clause 20.4 in the following contract year [**], or, if a review is conducted as per this clause 20.5, [**]

 

20.6                            [**]is not included under the provisions of this clause 20.  [**]

 

20.7                            This clause 20 is not subject to the termination provisions of clause 15, but will continue until terminated in accordance with this clause 20.7.  [**] has the option, at its sole discretion, to terminate the IP Indemnification obligations of Digimarc under this

 


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clause 20: (a) at the end of a calendar year and discontinue [**] under this clause 20 as of the end of that same calendar year with written notice by November 15 of that same calendar year; (b) immediately on written notice by [**] if this Agreement is terminated by [**] pursuant to clauses 15.3; or (c) immediately on written notice by [**] if any of the events specified in clauses 15.3 occur after the termination of this Agreement whilst the provisions of this clause 20 are in force.   Digimarc has the option to terminate the indemnification obligations of Digimarc under this clause 20 if [**]under clause 20 after receiving [**] by [**] of a termination notice from Digimarc.  Upon termination of this clause 20, Digimarc shall [**] from and [**] shall arrange for [**]covered by this clause 20 except that if [**]before such termination, Digimarc shall [**], in accordance with clause 20, [**]

 

20.8          Digimarc undertakes to review the [**] with [**] Contract Authority [**] Technology or any part thereof in [**]

 

20.9          Notwithstanding the above, Digimarc has agreed [**] to allow the [**] to:

 

a)              continue the IP Indemnification obligations of Digimarc under this clause 20 for the first six months of [**].

 

b)             [**] has the option, at its sole discretion, to terminate the IP Indemnification obligations of Digimarc under this clause 20 effective June 30, [**] by providing Digimarc with written notice by April 15, [**].   Upon termination of this clause 20, Digimarc shall [**]and [**] shall arrange for [**]covered by this clause 20 except that if [**], in accordance with clause 20, [**].

 

c)              if [**] does not exercise its option as set out in (b), the IP Indemnification obligations of Digimarc under this clause 20 shall continue for the remainder of [**] and [**] Digimarc [**]

 

20.10        Notwithstanding the above, Digimarc has agreed for [**] to allow [**] to:

 

a)              continue the IP Indemnification obligations of Digimarc under this clause 20 for the first six months of [**].

 

b)             [**] has the option, at its sole discretion, to terminate the IP Indemnification obligations of Digimarc under this clause 20 effective June 30, [**] by providing Digimarc with written notice by March 31, [**].   Upon termination of this clause 20, Digimarc shall [**]and [**] shall arrange for [**]covered by this clause 20 except that if [**], in accordance with clause 20, [**].

 

c)              if [**] does not exercise its option as set out in (b), the IP Indemnification obligations of Digimarc under this clause 20 shall continue for the remainder of [**] and [**]Digimarc[**].

 


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IN WITNESS WHEREOF, this Fourth Amendment has been executed and delivered by the parties hereto as of the date of the last signature below.

 

[**]

 

 

 

Signature:

 

 

Signature:

 

 

 

Name:

Name:

 

 

Title:

Title:

 

 

Date:

Date:

 

 

DIGIMARC CORPORATION

 

 

 

By:

 

 

 

 

 

Name:

J. Scott Carr

 

 

 

Title:

President, Digimarc Watermarking Solutions

 

 

 

Date:

 

 


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SCHEDULE “A”

 

DIGITAL COUNTERFEIT DETERRENCE SYSTEM DESCRIPTION

 

1.0            GENERAL DESCRIPTION OF THE DIGITAL COUNTERFEIT DETERRENCE SYSTEM (“CDS”)

 

The CDS is a system designed to hinder or deter the counterfeiting of bank notes by the use of personal computer-based equipment.  [**]

 

[**]

 

The capitalized terms in this Schedule A have the meanings provided in the Counterfeit Deterrence System Development and License Agreement to the extent same are not elaborated herein.

 

The term [**]refers to a [**]

 

2.0            FUNCTIONAL DESCRIPTION OF THE [**]

 

The CDS is comprised of the following three subsystems:

 

1.              [**]

 

2.              [**]

 

3.              [**]

 

The functions of the various subsystems and components described below may be changed by the [**] or the [**].

 

2.1           [**]

 

2.1.1        [**]

 

1.              [**]

 

2.              [**]

 

3.              [**]

 

4.              [**]

 


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2.1.2        [**]

 

1.              [**].

 

2.              [**]

 

3.              [**]

 

4.              [**]

 

5.              [**]

 

2.1.3        [**]

 

1.              [**]

 

2.2           [**]

 

1.              [**]

 

2.              [**]

 

3.              [**]

 

4.              [**]

 

(a)            [**]

(b)            [**]

(c)            [**]

 

5.              [**]

 

6.              [**]

 

7.              [**]

 


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SCHEDULE “B”

 

[**]

1. 0           DESCRIPTION OF [**]

 

Digimarc shall perform the following Work [**]. (The specific responsibilities to be discharged by [**] are also described below.)

 

1.1            [**] Study

 

Digimarc shall conduct the “[**]Study” described below.

 

1.              Digimarc shall examine the feasibility of integrating [**] in the form of the [**].  This study will investigate viable technical approaches and report on the performance, false positive rates, and [**]time that might be expected from the preferred approach.

 

2.              Digimarc shall deliver a final report to the [**] by the date set out in the Delivery Schedule attached as Attachment 2 (the “Delivery Schedule”) describing the findings of the study and providing recommendations useful in the development of a prototype including the detection rates for [**].

 

1.2            [**] Study

 

Digimarc shall conduct a study to attempt to characterise the behaviour of [**]and its measure of strength, as determined by [**] through the [**].  Digimarc shall relate the results of this characterisation to [**] performance. Digimarc shall submit a report on this study to the DLA Project Manager[**]. The results, and other information as available, will be made available by Digimarc to the [**]  as guidance in the use of [**].

 

As part of the [**], Digimarc shall:

 

1.              deliver a study plan to the DLA Project Manager outlining the objects, test and analysis methods for the [**];

 

2.              perform a suite of tests on [**]on [**].  [**] shall assist Digimarc in the performance of a reasonable number of tests involving the [**];

 

3.              conduct parameter measurements (e.g. signal correlation and error rate) on the experimental designs listed in paragraph 4 below and report on and attempt to characterise how the parameters change through the sequence from [**].

 

4.              [**] .

 


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1.3            Design, Development and Production of the CDS[**]

 

Digimarc shall design, develop and produce for acceptance by [**] of each of the [**] and each component thereof and the [**] according to the following process:

 

1.              By the date set out in the Delivery Schedule, Digimarc shall develop a detailed specification for each subsystem and component which support the functional description of the subsystem or component described in Schedule A and the additional requirements for the subsystem or component, if any, specified below.

 

2.              Digimarc shall deliver the specifications to the DLA Project Manager by the dates set out in the Delivery Schedule for [**]review,  comment and acceptance or rejection.

 

3.              As soon as possible after receiving them under 2, the DLA Project Manager shall notify the Digimarc Project Manager in writing whether or not [**] approves the specifications and if not, why not. Within fifteen (15) calendar days after receiving notice of rejection,  Digimarc shall change the specifications to make them acceptable to [**] and redeliver them to [**] for approval as provided above.

 

4.              Upon notice of approval under 3, Digimarc shall develop the subsystem or component which will meet the approved specifications and deliver the “evaluation release” of the subsystem or component to [**] for testing and acceptance.

 

5.              Within forty five (45) calendar days after receiving an evaluation version under 4, the DLA Project Manager shall notify the Digimarc Project Manager in writing whether or not the evaluation release meets the specifications with details of the non-compliance.   Any problems shall be detailed using, to the extent appropriate, the [**]form attached as Schedule “R.”

 

6.              By the date set out in the Delivery Schedule, Digimarc shall develop a final release of the subsystem or component incorporating any changes required to the evaluation release to rectify the non-compliance with the specifications and any other modifications agreed in writing between the parties’ respective project managers and deliver the final release to [**] for testing and acceptance.

 

7.              Within forty five (45) calendar days after receiving the final release under 6,  the DLA Project Manager shall notify the Digimarc Project Manager in writing whether or not the final release meets the specifications with details of the non-compliance. Within thirty (30) calendar days after receiving notice of rejection,  Digimarc shall rectify all non-compliance and redeliver the final release to [**] for approval as provided above.

 

1.4            Acceptance Procedures

 

1.4.1        The acceptance procedures for the [**] will include the following:

 

1.              The [**] will be evaluated at the facilities of up to three [**].

 


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2.              Digimarc will train one person on the [**] from each evaluation facility to enable them to evaluate the [**] as part of the acceptance process. Digimarc shall conduct the training at a single facility to be agreed between Digimarc Project Manager and the DLA Project Manager.

 

1.4.2        The acceptance procedures for the [**] will include the following:

 

1.              Digimarc shall deliver the [**] to the DLA Project Manager in an example [**] that Digimarc will develop to allow the [**] to conduct acceptance tests on performance, robustness, and resistance to [**].  Digimarc shall deliver a detailed description of how the [**] was integrated and the techniques used to defend against [**].

 

1.5            Implementation of [**]

 

1.5.1        Digimarc shall implement [**] as follows :

 

1.              [**]

 

1.6            Training Program

 

1.              Digimarc shall develop a training program acceptable to the DLA Project Manager to train the personnel of [**] as set out in Schedule “Q” to the Agreement. This training program will be delivered according to the Delivery Schedule for [**] .

 

2.              Each [**] shall equip its site for training and installation prior to the start of training, following a pre-site configuration guide to be developed by Digimarc. Failure to establish the required hardware and software environment in advance of installation will lengthen the required installation and training time and costs.

 

3.              Training will be provided in English and will be designed for delivery in five days to students who speak English. Translation, if required, shall be provided by the [**] , and may lengthen the training time and costs.

 

2.0           DESCRIPTION OF, AND REQUIREMENTS FOR, VERSIONS 1.0

 

2.1           [**]

 

[**]:

 

2.1.1        [**]

 

1.              [**].

 

2.              [**].

 

3.              [**].

 

4.              [**].

 

5.              [**].

 

6.              [**].

 

2.1.2        [**]

 

1.              [**].

 

2.              [**].

 


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2.1.3        [**]

 

1.              [**].

 

2.              [**].

 

3.              [**].

 

4.              [**].

 

5.              [**] .

 

6.              [**].

 

2.2           [**]

 

2.2.1        [**]:

 

1.              [**].

 

2.              [**]:

 

(a)            [**].

 

(b)            [**].

 

3.              [**].

 

4.              [**].

 

5.              [**].

 

6.              [**].

 

7.              [**] :

 

(a)            [**] .

 

(b)            [**]CDS [**] .

 

(c)            [**] .

 


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Attachment 1

 

BASELINE, EXTENDED BASELINE, AND OPTIONAL TESTS

 

1.0

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1.1

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1.1.1

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1.1.2

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1.1.3.2

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1.1.3.3

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1.2.3

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1.2.4

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1.2.5

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2.0

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2.1

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2.1.1

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2.1.2

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2.1.3

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2.1.4

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2.1.5

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2.1.6

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2.1.7

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2.1.8

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2.2

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2.2.1

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2.2.2

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2.2.3

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2.2.4

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3.0

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3.1

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3.2

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3.2.1

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3.2.2

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3.2.3

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Attachment 2

 

CDS PHASE 1 DELIVERY SCHEDULE

 

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Attachment 3

 

DEVICE VENDORS

 

[**]

 


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SCHEDULE “B,”  AMENDED ATTACHMENT 3

 

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AMENDED SCHEDULE “C”

PHASE [**] STATEMENT OF WORK

 

Digimarc shall perform the following Work during Phase [**]. (The specific responsibilities to be discharged by [**] during Phase [**] are also described below.)

 

1.0           [**]

 

Digimarc shall [**] for acceptance by [**] and each component thereof according to the following process:

 

1.              By the date set out in the Delivery Schedule, Digimarc shall develop a detailed specification for the [**] that supports the [**] of the [**] described in Schedule A and the additional requirements for the [**], if any, specified below.

 

2.              Digimarc shall deliver the specifications to the DLA Project Manager by the dates set out in the Delivery Schedule for [**]’ review, comment and acceptance or rejection.

 

3.              As soon as possible after receiving them under 2, the DLA Project Manager shall notify the Digimarc Project Manager in writing whether or not [**] approves the specifications and if not, why not. Within fifteen (15) calendar days after receiving notice of rejection, Digimarc shall change the specifications to make them acceptable to [**] and redeliver them to [**] for approval as provided above.

 

4.              Upon notice of approval under 3, Digimarc shall [**] which will meet the approved specifications and deliver [**] and acceptance.

 

5.              Within forty five (45) calendar days after receiving an [**] under 4, the DLA Project Manager shall notify the Digimarc Project Manager in writing whether or not the [**]  meets the specifications with details of the non-compliance.   Any problems shall be detailed using, to the extent appropriate, the [**] Problem Report form attached as Schedule “R.”

 

6.              By the date set out in the Delivery Schedule, Digimarc shall [**] incorporating any changes required to the [**] with the specifications and any other modifications agreed in writing between the parties’ respective project managers and deliver the [**] to [**] for [**].

 

7.              Within thirty (30) calendar days after receiving [**] under 6, the DLA Project Manager shall notify the Digimarc Project Manager in writing whether or not [**] meets the specifications [**]. Within thirty (30) calendar days after receiving notice of rejection, Digimarc shall rectify all non-compliance and redeliver the [**] for approval as provided above.

 


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1.2            Acceptance Procedures

 

1.2.1        The acceptance procedures for the [**] will include the following:

 

1.              Digimarc shall deliver the [**] for [**] to the DLA Project Manager in an example [**] that Digimarc will develop to allow [**] to conduct [**].

 

2.              Digimarc shall deliver the [**] for [**] DLA Project Manager in a [**] that Digimarc will develop based on [**].  The [**] will allow the [**] to conduct [**].

 

3.              Digimarc shall deliver into escrow and review with the [**] a detailed description of how the [**].

 

1.3            [**]

 

1.3.1        Digimarc shall [**] as follows :

 

1.              Digimarc shall [**] with [**] attached to Schedule B as Attachment 3 or such other [**] as may be agreed between the parties’ respective Project Managers.  Digimarc shall deliver [**].

 

2.              Digimarc shall [**] with at least [**] from [**] or [**] as may be agreed between the parties’ respective Project Managers.  Development of [**].

 

2.0            DESCRIPTION OF, AND REQUIREMENTS FOR, [**]

 

For the purpose of this Schedule, [**] means an agreed upon [**] used to produce [**].  For Phase [**], the [**] was the February [**].

 

2.1            [**]

 

Digimarc shall develop for approval by the DLA Project Manager a set of [**] that defines the term [**]. This includes a [**].

 

2.2            New [**]

 

The [**] was selected by the [**] as the new [**] design. The [**] will be [**] as described in paragraph 2.5.1.

 

2.3            [**]

 

Digimarc shall [**] according to the following requirements:

 

2.3.1         [**] Requirements

 

The [**] will meet the following [**] requirements:

 

1.              The [**] shall be capable of being [**].

 


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2.              The [**] shall meet all the requirements in Schedule B paragraph 2.2, plus it shall [**].

 

3.              The [**] shall [**] when more than one [**].

 

4               The [**] shall [**]. Refinements to the [**] will be recommended as required to accommodate the unique needs of a [**].

 

2.3.2         [**] Improvements

 

Digimarc shall [**] improvements that will be incorporated into [**] as follows:

 

1.              Digimarc will focus such improvement work on the new [**].

 

2.              The [**] made at the start of the Phase [**] and described below in section 2.5.1 (4) using the [**] will establish a [**].  The [**] and Digimarc will mutually agree to [**]. Since these [**] will be established after the detailed specification has been delivered to [**], as described in the Delivery Schedule, the [**] will be described in an amendment to the [**] detailed specification.

 

3.              [**] improvements will focus on improving [**] in [**].  [**] and Digimarc will mutually set priorities for the various possible improvements, and such priorities will guide Digimarc’s development work.

 

2.3.3         [**]

 

Digimarc shall build and [**]:

 

1.              Digimarc shall [**].

 

2.              Digimarc shall build and maintain [**], or [**], for [**] and all [**] to use the [**].

 

2.4            [**] and [**]

 

Digimarc shall deliver a [**] and [**]. Digimarc shall work [**]or independently to [**] as mutually agreed with [**].  [**] will be capable of [**] identified by Digimarc and [**]. The capability to [**] selected by [**] will be added if resources and schedule permit as mutually agreed by Digimarc and [**].  Once a decision is made as to whether Digimarc will work [**] or independently, Attachment 1 will be updated with the [**] and[**] schedule.

 

To complete the development, it may be necessary for Digimarc [**] in order to implement [**].  [**] and Digimarc will mutually agree on a strategy to [**].

 


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2.5            [**] Study

 

Digimarc shall conduct the [**] Phase of the [**] Study that attempts to [**] the relationship between [**] during [**] and [**] as follows:

 

2.5.1        [**]

 

Digimarc shall work [**] as follows:

 

1.              [**] shall provide Digimarc with [**] for the [**].

 

2.              Digimarc shall [**] and provide the [**].

 

3.              [**] shall [**] and provide the [**] to Digimarc.

 

4.              Digimarc shall assess and report [**] in the versions of the [**].  The version of [**] to use as the [**] will be mutually agreed to between [**] and Digimarc.  These [**] will establish a [**] to use in [**] improvements.

 

2.5.2        [**] Characterization

 

Digimarc shall:

 

1.              conduct a study to characterize the behavior of the [**];

 

2.              include a study of the [**] and [**] of the [**] such that [**] into a [**] may be [**];

 

3.              [**].

 

4.              deliver a study plan to the DLA Project Manager outlining the objectives, test and analysis methods for the [**];

 

5.              deliver a report of the results of the study to the DLA Project Manager by the dates set out in the Delivery Schedule.

 

2.6            [**]

 

2.6.1         [**] in [**] Applications

 

Digimarc shall [**] as described in section 1.3.1 (1) as follows:

 

1.              Digimarc shall provide [**] assist [**] in [**] in [**].

 

2.              Digimarc and [**] shall agree to [**] in [**].

 


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3.              Digimarc shall [**].

 

4.              [**] may, at its option, evaluate [**] of [**] which [**] has been [**]. The DLA Project Manager shall identify to Digimarc any concerns which [**] may have relating to [**] or [**]. Digimarc shall make a proposal to the DLA Project Manager to address those concerns for approval by the DLA Project Manager.

 

2.6.2         [**] and [**]

 

Digimarc shall [**] in [**] as follows:

 

1.              Digimarc and the [**] shall define [**]program that establishes agreed to [**] and [**].  This program will be developed with the assistance [**] and will be described by a [**]plan. This [**] program will be comprised of three elements:

 

a) To [**].

 

b) To [**].

 

2.              Digimarc shall [**].

 

3.              Digimarc shall[**].

 

4.              Digimarc shall [**].

 

5.              [**].

 

6.              [**] shall support in-person meetings with [**] as needed to [**].

 

7.              Digimarc shall [**]. Digimarc shall [**], and Digimarc shall [**].  Digimarc shall report [**] to [**].

 

2.7            [**] Study

 

Digimarc shall work [**] to [**] and Digimarc shall provide[**].

 

2.8            [**]

 

Digimarc shall [**] as follows:

 

1.              Digimarc and [**] shall develop a plan to [**] in the [**], and to[**].

 

2.              Digimarc shall update the [**] documentation and [**] on an as-needed basis [**].

 

3.              Digimarc shall [**].

 


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Attachment 1

 

[**] PHASE [**] DELIVERY SCHEDULE

 

[**]

 

Num.

 

Deliverable

 

Owner

 

Sec/Para Ref.

 

Depends
On

 

Days

 

CompletionDate

 

[**]-1

 

Detailed [**] specification delivered

 

[**]

 

1.1

 

 

 

28 Feb [**]

 

[**]-2

 

[**] specification signoff

 

[**]

 

1.2

 

[**]-1

 

11

 

9 Mar [**]

 

[**]-3

 

Detailed [**]
specification update – [**]

 

[**]

 

1.1

 

[**]-3
[**]-2

 

30

 

13 Apr [**]

 

[**]-4

 

[**] customer specification signoff

 

[**]

 

1.2

 

[**]-3

 

11

 

18 Apr [**]

 

[**]-5

 

[**] Approved

 

[**]

 

2.3.1.4

 

[**]-2

 

82

 

1 Jun [**]

 

[**]-6

 

[**] Test Set change deadline

 

[**]

 

 

 

 

 

 

 

1 Jun [**]

 

 

 

 

 

[**]

 

 

 

 

 

 

 

 

 

[**]-7

 

Delivery [**]

 

[**]

 

1.4

 

[**]-4

 

97

 

8 Sep [**]

 

[**]-8

 

[**] acceptance of [**]

 

[**]

 

1.5

 

[**]-5

 

41

 

5 Oct [**]

 

[**]-9

 

Delivery of the [**]

 

[**]

 

1.6

 

[**]-6

 

42

 

1 Dec [**]

 

[**]-10

 

[**] acceptance of final [**]

 

[**]

 

1.7

 

[**]-7

 

27

 

28 Dec [**]

 

 

[**] and [**]

 

Num.

 

Deliverable

 

Owner

 

Sec/Para Ref.

 

Depends
On

 

Days

 

CompletionDate

 

 

 

[**] Study with [**]

 

[**]

 

 

 

 

 

15 Feb [**]

 

[**]-1

 

[**] report delivered

 

[**]

 

2.4

 

 

 

15 Feb [**]

 

[**]-2

 

[**] evaluation of [**]

 

[**]

 

2.4

 

[**]-1

 

43

 

28 Mar [**]

 

[**]-3

 

[**] determined

 

[**]

 

2.4

 

[**]-2

 

 

28 Mar [**]

 

 


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[**]

 

Num.

 

Deliverable

 

Owner

 

Sec/Para Ref.

 

Depends
On

 

Days

 

CompletionDate

 

[**]-1

 

[**]

 

[**]

 

2.5.1.1

 

 

 

17 Jan [**]

 

[**]-2

 

[**].

 

[**]

 

2.5.1.2

 

[**]-1

 

21

 

8 Feb [**]

 

[**]-3

 

[**]

 

[**]

 

2.5.1.3

 

[**]-2

 

23

 

15 Mar [**]

 

[**]-4

 

[**] reported and Phase [**]

 

[**]

 

 

 

[**]-3

 

23

 

13 Apr [**]

 

 

[**] Study

 

Num.

 

Deliverable

 

Owner

 

Sec/Para Ref.

 

Depends
On

 

Days

 

CompletionDate

 

[**]-1

 

[**] study plan delivered

 

[**]

 

2.5.2.3

 

 

 

28 Feb [**]

 

[**]-2

 

[**] Study plan signoff

 

[**]

 

1.2

 

[**]-1

 

11

 

9 Mar [**]

 

[**]-1

 

[**] Analysis [**] delivered

 

[**]

 

 

 

[**]-2

 

103

 

8 Sep [**]

 

[**]-2

 

Draft report delivered

 

[**]

 

2.5.2.5

 

[**]-1

 

103

 

8 Sep [**]

 

[**]-3

 

[**] evaluation of draft report

 

[**]

 

 

[**]-2

 

20

 

6 Oct [**]

 

[**]-4

 

Final report delivered

 

[**]

 

 

[**]-3

 

41

 

4 Dec [**]

 

[**]-5

 

[**] evaluation of the final report

 

[**]

 

 

[**]-4

 

20

 

29 Dec [**]

 

[**]-1

 

[**] Study draft report delivered

 

[**]

 

 

 

[**]-2

 

75

 

1 Aug [**]

 

[**]-2

 

[**] evaluation of draft report

 

[**]

 

 

[**]-1

 

28

 

29 Aug [**]

 

[**]-3

 

Final report delivered

 

[**]

 

 

[**]-2

 

41

 

25 Oct [**]

 

[**]-4

 

[**] evaluation of the final report

 

[**]

 

 

[**]-3

 

20

 

21 Nov [**]

 

[**]-1

 

[**] Study draft report delivered

 

[**]

 

 

 

[**]-2

 

60

 

30 May [**]

 

[**]-2

 

[**] evaluation of draft report

 

[**]

 

 

[**]-1

 

40

 

25 Jul [**]

 

[**]-3

 

Final report delivered

 

[**]

 

 

[**]-2

 

41

 

20 Sep [**]

 

[**]-4

 

[**] evaluation of the final report

 

[**]

 

 

[**]-3

 

20

 

17 Oct [**]

 

 


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Verification Test ([**])

 

Num.

 

Deliverable

 

Owner

 

Sec/Para Ref.

 

Depends
On

 

Days

 

CompletionDate

 

[**]-1

 

Proposed [**] program

 

[**]

 

 

 

 

 

28 Jul [**]

 

[**]-2

 

[**] feedback on verification test [**]

 

[**]

 

 

 

[**]-1

 

30

 

24 Aug [**]

 

[**]-3

 

Final verification test [**] signoff

 

[**]

 

 

 

[**]-2

 

25

 

7 Sep [**]

 

[**]-4

 

[**] acceptance of the [**] test [**]

 

[**]

 

 

 

[**]-3

 

13

 

21 Sep [**]

 

 

[**] Tests

 

Num.

 

Deliverable

 

Owner

 

Sec/Para Ref.

 

Depends
On

 

Days

 

CompletionDate

 

[**]-1

 

Proposed [**] test program

 

[**]

 

 

 

 

 

28 Apr [**]

 

[**]-2

 

[**] feedback on [**] test program

 

[**]

 

 

 

[**]-1

 

40

 

25 May [**]

 

[**]-3

 

Final [**] test program signoff

 

[**]

 

 

 

[**]-2

 

35

 

8 Jun [**]

 

[**]-4

 

[**] acceptance of the [**] test program

 

[**]

 

 

 

[**]-3

 

13

 

22 Jun [**]

 

 


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AMENDED SCHEDULE “D”

 

PHASE [**] STATEMENT OF WORK

 

1.0      DESCRIPTION OF PHASE [**] WORK

 

Digimarc shall perform the following Work during Phase [**]. (The specific responsibilities to be discharged by [**] during Phase [**] are also described below.)

 

1.1         [**] Of The Phase [**] Deliverables

 

Digimarc shall [**] for acceptance by [**] the Phase [**] Deliverables according to the following process:

 

1.      By the date set out in the Delivery Schedule outlined in Attachment 1, Digimarc shall develop a detailed Specification for each [**] that supports the functional description of the [**] described in Schedule A as relates to Phase [**] and the additional requirements for the [**], if any, specified below.

 

2.      Digimarc shall deliver the Specifications to the DLA Project Manager by the dates set out in the Delivery Schedule for [**] review, comment and acceptance or rejection.

 

3.      Within thirty (30) calendar days after receiving them under 2, the DLA Project Manager shall notify the Digimarc Project Manager in writing whether or not [**] approves the Specifications and if not, why not. Within fifteen (15) calendar days after receiving notice of rejection, Digimarc shall change the Specifications to make them acceptable to [**] and redeliver them to [**] for approval as provided above.

 

4.      Upon notice of approval under 3, Digimarc shall [**] which will meet the approved Specifications and deliver the [**] and acceptance.

 

5.      Within thirty (30) calendar days after receiving an [**] under 4, the DLA Project Manager shall notify the Digimarc Project Manager in writing whether or not the evaluation release meets the Specifications with details of any non-compliance.   Any problems shall be detailed using, to the extent appropriate, the [**] Report form attached as Schedule “R.”

 

6.      By the date set out in the Delivery Schedule, Digimarc shall [**] incorporating any changes required to the [**] with the Specifications and any other modifications agreed in writing between the parties’ respective project managers and deliver the final release to [**] for [**] and acceptance.

 

7.      Within fifteen (15) calendar days after receiving the final release under 6, the DLA Project Manager shall notify the Digimarc Project Manager in writing whether or not the final release meets the Specifications with details of any non-compliance. Within thirty (30) calendar days

 


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after receiving any notice of rejection, Digimarc shall rectify all [**] for approval as provided above.

 

1.2         Acceptance Procedures

 

1.2.1         [**]

 

The acceptance procedures for the [**] will be the following:

 

1.      Digimarc shall deliver or make available the [**] for [**] to the DLA Project Manager in a [**] that Digimarc will develop based on [**] from a [**].  The [**] will allow the [**] to conduct [**] as set forth in the Specification.

 

2.      Digimarc shall deliver into escrow and review with the [**] a detailed description of how the [**] for [**] was integrated into the [**] and the techniques used to [**].

 

1.2.2        [**]

 

The acceptance procedure for the [**] will be the following:

 

1.      Digimarc shall deliver or make available the [**] to the DLA Project Manager in a suitably modified [**] from a [**] for [**] on compliance with the Specification.

 

2.      Digimarc shall deliver into escrow and review with the [**] a detailed description of how the [**] was [**], as well as copies of the [**].  This excludes deposit into escrow of any [**] proprietary data or information for the design and operation of the [**].

 

2.0      DESCRIPTION OF, AND REQUIREMENTS FOR, PHASE [**] DELIVERABLES

 

2.1         [**]

 

Digimarc shall develop the [**] according to the following requirements:

 

2.1.1         [**] requirements

 

[**] will meet the following requirements:

 

1.      [**] shall be capable of being [**].

 

2       [**] shall be capable of [**] shall be conditional upon Digimarc [**]Digimarc and the [**] to intellectual property [**] in order to [**].

 

3.      Digimarc shall [**] needed for replacement of the [**] with a suitably designed alternative [**].

 

4.      Detailed requirements for [**] will be specified in a Specification delivered in accordance with the Delivery Schedule outlined in Attachment 1.

 


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2.2         [**]

 

Digimarc shall develop an [**] according to the following requirements:

 

1.  Digimarc shall make [**] changes to the [**] necessary for [**].

 

2.      Digimarc shall develop [**] needed to implement an [**].  Digimarc will engage one or more [**] in this effort [**] during the [**] phase.

 

3.      Digimarc shall work with one [**] to implement the [**] of the [**] a selected [**].  The implementation will be used to demonstrate that the [**] functions properly when [**].

 

4.      Digimarc shall deliver or make available the [**] for assessment by the [**].

 

5.      Digimarc shall deliver a detailed technical report on the findings of the Work and recommendations for any future work including requirements to add [**].

 

The detailed requirements for the [**] will be specified in a Specification delivered in accordance with the Delivery Schedule outlined in Attachment 1.

 

2.3         [**]

 

2.3.1        Implementation of [**]

 

Digimarc shall implement the [**] as follows:

 

1.      Digimarc shall [**] to [**] with [**]from the list of such [**] attached to Schedule B as Attachment 3 or such other [**] as may be agreed to between the parties’ respective project managers.  Digimarc shall deliver and [**].

 

2.      Digimarc shall [**] to [**] attached to Schedule B as Attachment 3 or such other [**] as may be agreed to between the parties’ respective project managers.  Digimarc shall deliver and [**].

 

3.      Digimarc shall [**] to [**] attached to Schedule B as Attachment 3 or such other [**] as may be agreed to between the parties’ respective project managers.

 

2.3.2         Support for [**]

 

Digimarc shall support [**] that [**] as follows:

 

1.      Digimarc shall provide [**] to assist [**].

 


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2.      Digimarc shall administer the certification program approved by [**] for the ongoing review and certification of [**].

 

3.      [**] may, at its option, evaluate the [**] each[**].  The DLA Project Manager shall identify to Digimarc any concerns that [**] may have relating to [**]. Digimarc shall make a proposal to the [**] Project Manager to address those concerns for approval by the [**] Project Manager.

 

2.3.3         [**]

 

Digimarc shall operate, maintain and improve the [**] as follows:

 

1.      Digimarc shall operate the [**] making it available at [**].

 

2.3.4         [**] and [**] research

 

1.      Digimarc shall develop, in cooperation with the DLA Project Manager, a program of activities to enhance [**] and [**]. This program will provide detailed strategies and plans. The focus will be on [**] and [**]. The program will support [**] initiatives to motivate [**] of [**].

 

2.      The DLA Contract Authority will authorize use of an additional [**] upon successful completion by May 15, [**] of the [**] specified in the program described in 2.3.4.1.

 

3.      Digimarc shall deliver to the [**] and provide training for [**].

 

4.      Digimarc shall track and summarize for [**] and [**] trends that affect the [**] and development strategy.

 

5.      [**] shall support in-person meetings with [**] as needed to promote support for the [**] of the [**].

 

6.      Digimarc shall manage [**].

 

2.3.5         [**]

 

1.      Digimarc shall [**] the [**] to [**] and their [**], including administration of [**].

 

3.0     Representations and Warranties.

 

For the avoidance of doubt, with the exception of the conditions in Section 2.1.1.2 of Amended Schedule D, Digimarc represents, warrants and undertakes that the performance of its obligations under Amended Schedule D are covered by Section 10 of the Agreement.

 


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Amended Schedule D

Attachment 1

 

[**] PHASE [**] DELIVERY SCHEDULE

 

[**] for [**]

 

Num.

 

Deliverable

 

Owner

 

Sec/Para Ref.

 

Depends
On

 

Days

 

CompletionDate

 

[**]-1

 

Detailed [**] specification delivered

 

[**]

 

1.1.2

 

 

 

15 Jan [**]

 

[**]-2

 

[**] specification signoff

 

[**]

 

1.1.3

 

[**]-1

 

15

 

31 Jan [**]

 

[**]-3

 

[**] Approved

 

[**]

 

2.1

 

[**]-2

 

28

 

1 Mar [**]

 

[**]-4

 

[**] of the [**]evaluation release

 

[**]

 

1.1.4

 

[**]-2

 

161

 

7 Sept [**]

 

[**]-5

 

[**] acceptance of [**]

 

[**]

 

1.1.5

 

[**]-4

 

30

 

19 Oct [**]

 

[**]-6

 

[**] of the [**]

 

[**]

 

1.1.6

 

[**]-5

 

28

 

3 Dec [**]

 

[**]-7

 

[**] acceptance of [**]

 

[**]

 

1.1.7

 

[**]-6

 

28

 

31 Dec [**]

 

 

[**]

 

Num.

 

Deliverable

 

Owner

 

Sec/Para Ref.

 

Depends
On

 

Days

 

CompletionDate

 

[**]-1

 

[**] Specification

 

[**]

 

1.1.2

 

 

 

15 Jan [**]

 

[**]-2

 

[**] Specification signoff

 

[**]

 

1.1.3

 

[**]-1

 

15

 

31Jan [**]

 

[**]-3

 

[**]

 

[**]

 

1.1.6

 

[**]-2

 

213

 

3 Dec [**]

 

[**]-4

 

Deliver [**] Report

 

[**]

 

1.1.6

 

[**]-2

 

213

 

3 Dec [**]

 

[**]-5

 

[**] acceptance of [**] and report

 

[**]

 

1.1.7

 

[**]-3, [**]-4

 

28

 

31 Dec [**]

 

 


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DLA: SCHEDULE “E”

 

ARBITRATION AGREEMENT

 

An Agreement dated June 21, [**], hereby amended effective as of January 1, [**], by and among the Parties (as defined below) to submit for final and binding resolution by [**] arbitration all Disputes (as defined below) arising out of or otherwise connected to a project relating to the [**] (as defined in the Development and License Agreement identified below) and the services of Digimarc (as defined below) in relation to the project.

 

WHEREAS, Digimarc Corporation, a corporation existing under the laws of the State of Delaware, USA, is developing, [**] and referred to in the Development and License Agreement (identified below) as [**]), technology [**] as defined in the Development and License Agreement identified below);

 

WHEREAS, the [**] has asked the [**], to provide it with [**] of the [**] as set out in a Development and License Agreement (the “DLA”) effective from January 1, [**] and [**] Agreement effective January 1, [**];

 

WHEREAS, in performance of the DLA, the [**] and Digimarc will enter into a contract with [**], which will act as escrow agent for certain purposes pursuant to an Escrow Agreement (the “Escrow Agreement”) which is attached as Schedule M to the DLA;

 

WHEREAS, in the course of performance of the DLA, Digimarc may [**] licenses to certain [**] of license agreement which are attached at Schedules K-1, K-2, L-1 and L-2 to the DLA all as amended;

 

WHEREAS, in the course of performance of the DLA, Digimarc may enter into System Support Services Agreements, a form of which is attached at Schedule O to the DLA, with licensees;

 

WHEREAS, in the course of performance of the DLA, Digimarc may provide consulting and programming services to a [**] on the terms described in Schedule P to the DLA to assist [**] to ensure that a [**] (as defined in the DLA) [**];

 

WHEREAS, [**], pursuant to an[**] Agreement (as amended from time to time) of or of approximately the same date as this Arbitration Agreement (the “[**] Agreement”), agreed to [**] in respect of any [**] in connection with the project;

 

WHEREAS, given [**] of the Agreements (as defined below), all the Parties (as defined below) to the Agreements (as defined below) are desirous to avoid recourse to [**] courts and the potential expense and delay of prosecuting connected Claims (as defined below) in more than one proceeding and also to exclude the risk of having to apply contradictory or inconsistent fact-findings, conclusions, judgments or awards for any Dispute (as defined below) which may arise between or among the Parties (as defined below) and instead wish to resort to

 


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[**] arbitration as the exclusive means of resolving in a final, binding and consistent manner all Disputes (as defined below) arising in connection with the Agreements (as defined below) for the [**] and of establishing through this Arbitration Agreement a mechanism to these ends.

 

The Parties agree as follows:

 

1.              The meaning of the following terms in this Arbitration Agreement shall be as set out below:

 

(a)            “Agreements” shall mean all agreements, contracts, schedules or other arrangements in connection with the development or licensing or [**] or servicing of the [**] as listed in Schedule B, as amended from time to time.

 

(b)            “Appointing Authority” shall mean the [**].

 

(c)            “Arbitrating Party” or “Arbitrating Parties” shall mean (i) any and all Parties which have become involved in any arbitration under this Arbitration Agreement as Claimants or Respondents or (ii) which have been otherwise joined to any arbitration under this Arbitration Agreement or (iii) the [**], Digimarc, any [**] or any [**] in the aforementioned circumstances or when it or they has or have exercised their right of Intervention in any arbitration under this Arbitration Agreement.

 

(d)            “Claim” shall include without limitation any claim or counterclaim or crossclaim made by an Arbitrating Party.

 

(e)            “Claimant” or “Claimants” shall mean any Party which, either separately or together with any other Party or Parties, initiates an arbitration under this Arbitration Agreement.

 

(f)             “Dispute” shall mean any dispute, difference, controversy or claim except only for an Excluded Dispute (as defined below) between or among the parties arising out of or relating to or in connection with this Arbitration Agreement or any of the Agreements listed in Schedule B, including, but not limited to, their signature, validity, interpretation, performance, amendment, breach, termination and post-termination obligations.

 

(g)            “Excluded Dispute” shall mean only a dispute between the [**] and Digimarc as described in clause 6.4 of the Escrow Agreement as to the occurrence of a Release Event as defined in clause 6.1 of the Escrow Agreement. Any such dispute shall be referred to an expert appointed by the Managing Director of the Escrow Agent (as defined in the Escrow Agreement) and any decision rendered by such an expert pursuant to clause 6.4 of the Escrow Agreement shall be accorded res judicata effect by any arbitral tribunal appointed under this Arbitration Agreement.

 

(h)            “Intervention” shall mean the right of any of the [**], Digimarc, any [**] or any [**] to intervene into a particular arbitration as an Arbitrating Party even when it is not a

 


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Claimant or Respondent and has not been joined into any arbitration by an Arbitrating Party.

 

(i)             “Notice of Arbitration” shall mean the document given when initiating recourse to arbitration or to join any Party as an Arbitrating Party as well as to initiate recourse in arbitration against any Party which is already an Arbitrating Party.

 

(j)             “Party” or “Parties” shall mean any of the signatories to this Arbitration Agreement and those parties listed in Schedule A as amended from time to time.

 

(k)            “Respondent” or “Respondents” shall mean any Party which, either separately or together with any other Party, is named as a Respondent in an arbitration by any Claimant or Claimants.

 

(l)             In interpreting this Arbitration Agreement, singular shall be read for plural where appropriate to reflect the multi-party nature of any arbitration.

 

2.              Any Dispute shall be finally settled by arbitration under the [**] as in force at the date of [**] except as the [**] Rules are modified in the body and Schedule C of this Arbitration Agreement and to the exclusion of any provisions of the [**] Rules as are inconsistent with the express provisions of this Arbitration Agreement or with the multi-party nature of an arbitration under this Arbitration Agreement.

 

3.              [**]

 

4.              The place of Arbitration shall be [**].

 

5.              Arbitration pursuant to this Arbitration Agreement shall be the sole and exclusive means for resolving any Dispute.

 

6.              No entity shall become a Party unless that entity has become a Party to this Arbitration Agreement by executing a counterpart of this Arbitration Agreement.

 

7.              No Party shall enter into any contract or agreement which alters or amends in any material respect any of the rights or obligations of any Party under any Agreement unless the contract or agreement shall contain the clause set out in Schedule D.  Each Party to this Arbitration Agreement hereby expressly accepts the addition of new parties to Schedule A and of new contracts or agreements to Schedule B.  Any Party which fails to act in conformity with this Article 7 shall be fully liable for any loss, injury or damage whatsoever resulting therefrom to any other Party.

 

8. (a)        Any Claimant or Claimants shall initiate recourse to arbitration by giving to each Respondent a Notice of Arbitration and statement of claim which specify, inter alia , the Agreement or Agreements involved in the Dispute. Any Claimant or Claimants shall also at the same time send a copy of the same Notice of Arbitration and statement of claim to

 


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all other Parties and to the [**]. An arbitration shall be deemed to commence upon receipt of the Notice of Arbitration and statement of claim by the [**].

 

(b)            Within thirty (30) days of the date on which each Respondent received the Notice of Arbitration, a Respondent may give a third party Notice of Arbitration in order to join into the arbitration any Party or Parties as an Arbitrating Party or Arbitrating Parties. The Respondent shall also at the same time send a copy of any third party Notice of Arbitration to all other Parties and to the [**].

 

(c)            Any third party joined as an Arbitrating Party may, within thirty (30) days of receipt of any third party Notice of Arbitration, give fourth party Notices of Arbitration in order to join any Party or Parties as an Arbitrating Party or Arbitrating Parties. The third party shall also at the same time send a copy of any fourth party Notice of Arbitration to all other Parties and to the [**].

 

(d)            Parties may be joined as further additional Arbitrating Parties by any Arbitrating Party or Arbitrating Parties until such time as thirty (30) days have elapsed without a new Arbitrating Party being joined into the arbitration.

 

(e)            The [**], Digimarc, any [**], and any [**], whether or not joined as a Respondent or as a further additional Arbitrating Party, shall each have the right to intervene in any arbitration by giving a Notice of Arbitration to each of the Arbitrating Parties within thirty (30) days after receipt of the copy of a Notice of Arbitration from the last Arbitrating Party to be joined or from the last Party to intervene. The [**], Digimarc, any [**], and any [**] shall also at the same time send a copy of the Notice of Arbitration to the [**] and to all other Parties.

 

(f)             The arbitral tribunal, once constituted and after affording the Arbitrating Parties and all other Parties a reasonable period of time in which to comment, shall have the authority to require by an order that any Party or Parties which is not or are not an Arbitrating Party or Arbitrating Parties shall nonetheless be joined into the arbitration as an Arbitrating Party or Arbitrating Parties should the arbitral tribunal determine that: (a) the absence of said Party or Parties from the pending arbitration would prevent the according of complete relief in regard to the Claims of the Arbitrating Parties; or (b) that the Party or Parties has or have a real and significant interest in the Agreement or Agreements out of or in connection with which the Disputes involved in the pending arbitration have arisen and that the absence of said Party or Parties would significantly impede its or their ability to protect that interest. Any such order issued by the arbitral tribunal shall be final and binding upon the Parties.

 

(g)            Any Arbitrating Party may join into a pending arbitration any Dispute which presents issues of law or fact common with those in the Dispute or Disputes already in the pending arbitration by issuing, within 30 days of its receipt of a Notice of Arbitration, a Notice of Arbitration and a statement of claim which specify, inter alia , the Agreement or

 


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Agreements involved in the Dispute and sets out the issues of law or fact it alleges are common with those in the Dispute or those Disputes already in the pending arbitration.

 

(h)            The arbitral tribunal shall determine by an order, which shall be final and binding upon the Parties, any issue raised by an Arbitrating Party as to whether or not a Dispute joined into any pending arbitration did, in fact, at the time it was joined into the arbitration, present issues of law or fact common with those presented in other Disputes in the pending arbitration. Any Dispute which is found not to have presented common issues of law or fact shall be dismissed without prejudice from the pending arbitration.

 

(i)             Joinder of any Party or Parties or of any Dispute or Disputes to any arbitration pursuant to this Arbitration Agreement shall be permitted only when made in accordance with the provisions of this Arbitration Agreement, including, without limitation, the strict time limits and no joinder or Intervention other than those provided for shall be permitted.

 

(j)             Any multi-party arbitration arising as a result of there being more than two Arbitrating Parties will be conducted as a single arbitration involving all Arbitrating Parties.

 

(k)            Any Arbitrating Party giving any Notice of Arbitration or sending any copy of a Notice of Arbitration shall send to each recipient according to the provisions set out above a full copy of the document by international courier or other appropriate means of ensuring rapid and certain delivery and, when required to send documents to several recipients, the Arbitrating Party shall send all documents on the same day.

 

(l)             Any advances deemed necessary to cover the costs of any arbitration shall be made in equal shares by all Arbitrating Parties, provided that multiple Claimants or multiple Respondents shall be deemed to constitute one Arbitrating Party for purposes of this subparagraph only, and provided further that should any Arbitrating Party fail to advance its share (a “Defaulting Arbitrating Party”), it shall be the responsibility of the Arbitrating Party which gave the Notice of Arbitration against the Defaulting Arbitrating Party or Defaulting Arbitrating Parties to advance the share due from the Defaulting Arbitrating Party or Defaulting Arbitrating Parties. Any Claim brought by a Defaulting Arbitrating Party shall be dismissed without prejudice. However, the recipient of any Notice of Arbitration given by a Defaulting Arbitrating Party shall continue to be an Arbitrating Party if it has itself given any Notice of Arbitration, unless it withdraws any such Notice of Arbitration. Should any Defaulting Arbitrating Party commence arbitration in order to reassert any Claim which has been dismissed pursuant to this subparagraph, that Claim shall be deemed to be connected to the pending arbitration from which it was dismissed for the purposes of Article [**] of the [**] Arbitration Act, 1986 and the Defaulting Arbitrating Party shall be required to cover the costs of the arbitration as though its Claim had not been dismissed.

 

9.              If any Dispute arises whilst an arbitration is pending in accordance with the provisions of this Arbitration Agreement, but one or more of the Arbitrating Parties to that Dispute cannot be joined to the pending arbitration in accordance with the provisions of Article 8 of this Arbitration

 


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Agreement, the Dispute and the Arbitrating Parties thereto shall nonetheless be joined into the pending arbitration at the request of a Party which is an Arbitrating Party in both the pending arbitration and the Dispute which has arisen so that the Disputes may be resolved in the same arbitration, provided the arbitral tribunal decides that the later Dispute presents issues of law or fact common with those in the pending arbitration and that joinder under these circumstances would not result in undue delay for the pending arbitration.

 

10.            Each Party agrees that neither an arbitral tribunal established pursuant to this Arbitration Agreement nor the Parties shall be authorised to take or seek from any arbitral tribunal or judicial authority any interim measure or any pre-award relief against the [**], any provision of the [**] Rules notwithstanding. Nothing in this Arbitration Agreement shall operate or be regarded as a waiver, renunciation or other modification of the [**], of whatever nature and wherever situated, under international convention or under any applicable law. Except as otherwise provided in this Article 10 with regard to the [**], each Party irrevocably agrees that, to the extent that it or any of its [**], from any legal proceedings, whether in [**] or elsewhere, to enforce or collect upon any obligation of that Party in connection with the transaction contemplated under any Agreement, including, without limitation, [**] prior to the rendering of an arbitral award under this Arbitration Agreement or entry of judgment, it [**].

 

11. (a)      Any Dispute, regardless of the number of Arbitrating Parties, shall be submitted to an arbitral tribunal of three (3) arbitrators appointed by the Appointing Authority.

 

(b)            The arbitral tribunal shall be appointed by the Appointing Authority once the time has terminated during which any Party is entitled to give a Notice of Arbitration to join any other Party or the [**], Digimarc, any [**] or any [**] is entitled to intervene.

 

(c)            The presiding arbitrator of the arbitral tribunal shall be a British national and shall have been admitted to practice as a barrister or solicitor in England and shall also have significant expertise in the resolution of disputes in [**] commercial matters. All arbitrators shall have a full [**].

 

(d)            The arbitrators appointed in accordance with this Arbitration Agreement shall be remunerated in accordance with the provisions of the Rules of the [**] in effect at the time [**].

 

12.            Awards shall be final and binding as from the date the awards are made. The Parties undertake to carry out all awards without delay and waive their right to any form of appeal or recourse to a court of law or other judicial authority, insofar as any such waiver may validly be made. All awards may if necessary be enforced by any court having jurisdiction in the same manner as the judgment of any such court.

 

13.            Each Party explicitly agrees hereby that it shall recognise any arbitral award rendered in an arbitration under this Arbitration Agreement as final and binding upon it unless a competent arbitral tribunal or a competent judicial authority determines that said Party never received notice of the pendency of the arbitration in which the award was rendered.

 


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14.            Any arbitral award rendered under this Arbitration Agreement shall be accorded res judicata effect by any arbitral tribunal appointed under this Arbitration Agreement in regard to those Parties which are bound by an award pursuant to Article 13.

 

15.            The obligations of the Parties to the Agreements shall not be altered or suspended by reason of any arbitration being conducted during the life of any Agreement.

 

16.            Any Agreement in regard to which a Dispute has arisen shall be governed by the applicable law as specified in that Agreement.

 

17.            This Arbitration Agreement shall bind and inure to the benefit of the respective successors and permitted assigns of the Parties, subject to all Parties respecting Articles 6 and 7 hereto.

 

18.            This Arbitration Agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement.

 

19.            Any provision of this Arbitration Agreement which is invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction.

 

20.            This Arbitration Agreement shall enter into full force and effect on the date first written above and shall continue in full force and effect indefinitely, unless it is terminated by mutual written consent of all of the Parties.

 

21.            This Arbitration Agreement shall be governed by and construed in all respects in accordance with the laws of England, to the exclusion of its rules of conflicts of law.

 

                The Parties have caused this Arbitration Agreement to be executed in multiple copies, with effect from January 1, [**].

 

[Signatures]

 


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Schedule A to Arbitration Agreement

 

The following, together with their assigns or successors are Parties to the Arbitration Agreement. Each Party has the obligation to advise every other Party of any change in address and each Party expressly agrees that any notice delivered to that Party at the listed address or to any duly notified change of address shall be deemed to be valid notice and that any notice shall be deemed to have been received on the day it is so delivered:

 

[**],

Digimarc,

[**]

 


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Schedule B to Arbitration Agreement

 

The following are considered to be Agreements:

 

1.                Development and License Agreement

2.                [**] Agreement

3.                Escrow Agreement

4.                [**] License Agreements – [**]

5.                [**] License Agreements – [**]

6.                [**] License Agreements – [**]

7.                [**] License Agreements – [**]

8.                System Support Services Agreements

9.                [**] Agreement

 


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Schedule C to Arbitration Agreement

 

In accordance with Article 1.1 of the [**] Rules, in addition to such other modifications of the [**] Rules as are contained in this Arbitration Agreement, the Parties to this Arbitration Agreement and to the Agreements modify the [**] Rules as follows:

 

(a)                                            Notwithstanding Article [**] Rules, a Notice of Arbitration may be given by any Arbitrating Party to any Party or Parties so as to join said Party or Parties into any pending arbitration and this Arbitration Agreement shall allow for multi-party arbitration involving third parties, fourth parties and any further additional parties.

 

(b)                                           Notwithstanding Article [**] Rules, arbitral proceedings under this Arbitration Agreement shall be deemed to commence on the date on which the Claimant’s Notice of Arbitration is received by the [**].

 

(c)                                            Notwithstanding Article [**] of the [**] Rules, the Notice of Arbitration shall not contain a proposal as to the number or appointment or the notification of the appointment of arbitrators (and, if made, any such proposal shall be disregarded).

 

(d)                                           Notwithstanding Article [**] Rules, any Arbitrating Party must make any counter-claim or claim for the purpose of set-off in its statement of defence and not at a later stage of the arbitral proceedings.

 

(e)                                            Notwithstanding Article [**] Rules, the arbitral tribunal shall, in considering whether it is appropriate to allow a party to amend or supplement a written communication (given the interests of economy, efficiency and the desire to avoid the risk of inconsistent awards), have particular regard to the multi-party nature of any arbitration proceeding, the consequences in terms of delay and the objective of resolving related Claims in a single arbitration involving all relevant Parties.

 

(f)                                              Notwithstanding Article [**] Rules, in considering whether an extension of a time-limit for the communication of written statements is justified, the arbitral tribunal shall have particular regard to the multi-party nature of any arbitration proceeding and the consequences in terms of delay.

 

(g)                                           Notwithstanding Article [**] Rules, no interim measures shall be sought or applied against the [**] in connection with any Dispute by either an arbitral tribunal established pursuant to this Arbitration Agreement or any judicial authority.

 


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Schedule D to Arbitration Agreement

 

Standard language to be inserted in each Agreement.

 

“[Article No: and heading (e.g., Settlement of Disputes), if applicable]

 

Any Dispute (as defined in the Arbitration Agreement) shall be finally settled by arbitration in accordance with the Arbitration Agreement as amended from time to time.

 

“[Article No: and heading (e.g., Governing Law), if applicable]

 

This [Agreement] shall be governed by and construed in all respects in accordance with the laws of [INSERT], to the exclusion of [INSERT]’s rules of conflicts of law.”

 

[E – Arbitration Agreement]

 


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SCHEDULE “F”

 

OTHER [**] TECHNOLOGY

 

1.             Techniques for [**].

 

2.             Copyright in the [**].

 

3.             The above technology is partially described in the following UK patent applications:

 

UK Patent Application Nos:              [**]

 


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SCHEDULE “G”

 

DIGIMARC TECHNOLOGY

 

The Digimarc Technology includes [**].

 

This technology is partially described in the following issued U.S. patents:

 

[**]

 


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SCHEDULE “H”

 

PROJECT TECHNOLOGY

 

The Project Technology shall include:

 

1.                                        The modification of techniques for using the Digimarc and [**] Technologies in the [**].

 

2.                                        The effects and behaviours of [**] when used in [**].

 

3.                                        The effects of various types [**].

 

4.                                        Improvements to Digimarc’s testing and certification processes used in testing and certifying [**].

 

5.                                        The improvement of [**].

 

6.                                        The use of [**].

 

7.                                        Detailed techniques [**]

 

8.                                        [**]

 

9.                                        Intellectual Property Rights that: a) [**] under Section 8 of this Agreement; b) were developed by or on behalf of Digimarc under this Agreement; and c) were developed by or on behalf of Digimarc after 1 January [**].

 

10.                                  Examples of Project Technology include the following:

 

[**]

 


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SCHEDULE “I”

 

ALLOWABLE COSTS

 

1.                                        For the purposes of this Schedule I:

 

[**]

 

 

 

 

 

  [**]

 

[**]

 

 

 

  [**]

 

[**]

  [**]

 

[**]

  [**]

 

[**]

  [**]

 

[**]

  [**]

 

[**]

  [**]

 

[**]

  [**]

 

[**]

  [**]

 

[**]

  [**]

 

[**]

  [**]

 

[**]

  [**]

 

[**]

  [**]

 

  [**]

 

[**]

 


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SCHEDULE “J”

 

SECURITY REQUIREMENTS

 

1.             Digimarc shall implement the “Security Measures” normally followed by a [**] and distributor comparable to Digimarc in number of employees and revenue engaged in the development and distribution of [**] and maintain such Security Measures in effect at all times throughout the Term.  The Security Measures will include but not be limited to :

 

1.1           Electronic security for protection of the network and protection of the CDS software products that are under development.

 

(a)           Network protection which will ensure that unauthorized users will not get access to design information, sensitive test data, proprietary information, released software products or software documentation that is hosted on the network. This protection will include:

 

(i)            erecting barriers to prevent hackers, whether inside or outside the Digimarc facility, from accessing the secure network; and

 

(ii)           the customizing of developmental and operational procedures for the software development team that maximize security while not impeding the team’s ability to work efficiently and effectively.

 

1.2           Physical Security, including the following:

 

(a)           the Digimarc facility at which the Work will be performed will be secure from unauthorized visitors;

 

(b)           the software development laboratory and the computer network employed in the Work shall be secure;

 

(c)           all  personnel authorized to have access to sensitive CDS information, data and designs including but not limited to the employees of authorised Subcontractors will be properly screened; and

 

(d)           production and handling of interim and final versions of the Deliverables will be carefully controlled, monitored and audited.

 

2.             Within sixty (60) days after the Agreement is last signed,[**] shall conduct an audit, at its own expense, of the Security Measures.

 

3.             Following the audit, the DLA Project Manager shall submit  a “Security Plan” to Digimarc which will prescribe the actions which Digimarc must take, if any, to improve the

 


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Security Measures to be followed by Digimarc until the end of Phase 3 and the dates by which Digimarc shall take them.

 

4.             Within twenty (20) Business Days after receipt of the Security Plan, Digimarc shall notify the DLA Project Manager of the cost to implement the Plan. Within ten (10) Business Days after receipt of the notice, the DLA Project Manager shall notify Digimarc which aspects of the Security Plan to implement and Digimarc shall implement them in accordance with the Plan.

 

5.             Any cost incurred providing security required by the Security Plan, beyond what is reasonable and customary for a similarly-situated [**]company in the Portland area, will be an Allowable Cost and compensated by [**] accordingly.  Digimarc has budgeted[**].  Costs required in excess of this amount may require an adjustment to the [**] and/or Statement of Work .

 


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SCHEDULE”K-1”

 

[**] LICENSE AGREEMENT - [**]

 

This [**]LICENSE AGREEMENT (the “Agreement”) is made

 

BETWEEN

 

<<[**] and Address>> (“[**]”)

 

- AND -

 

DIGIMARC CORPORATION , a corporation incorporated under the laws of Delaware and having its head office at 9405 SW Gemini Drive, Beaverton, Oregon. U.S.A.  97008 (“Digimarc”)

 

[**]

 

Digimarc has expertise in, and owns extensive intellectual property, including patents, patent applications, copyrights and trade secrets related to digital watermarks, [**], copyright protection, and device control (the ¨Digimarc IPR”);

 

[**] possesses or will possess intellectual property rights related to the application of such intellectual property [**];

 

Digimarc and [**] have cooperated in the development of means, using such intellectual property, [**];

 

[**] desires to obtain a license to certain components of the [**] so it can [**].

 

In consideration of these premises , the covenants set out in this Agreement and other good and valuable consideration, the receipt and adequacy of which are acknowledged by each of the parties, the parties agree as follows:

 

I.              DEFINITIONS AND PRINCIPLES OF INTERPRETATION

 

1.1           Definitions

 

“Agreement” means these articles of agreement, including the Attachments, and those documents as specified or referenced in this Agreement as forming part of the Agreement, all as may be amended from time to time;

 

“Arbitration Agreement” means the Arbitration Agreement entered into between the parties and others and effective 1 January [**], as amended from time to time;

 


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“Attachment” means a document specified as being attached to this Agreement;

 

[**]

 

“Business Day” means a day that both Digimarc and [**] are open for business at their respective addresses noted above;

 

“Confidential Information” means information disclosed before or during the Term of this Agreement in any form which, if disclosed in tangible form, is or was labeled “Confidential”, “Proprietary” or with a similar legend, or if disclosed orally, is or was information that by its nature would be understood to be confidential to the Discloser.  For greater certainty, the Confidential Information of Digimarc includes the Digimarc IPR and the [**];

 

[**]

 

“Digimarc IPR” means Intellectual Property Rights owned by Digimarc, now or during the Term of this Agreement, to the extent that same specifically relates to or forms part of [**];

 

“Digital [**]” refers to [**] (including [**]) that are [**] from [**] by [**] of [**], which [**] of [**] and yet do not significantly [**]from the aesthetics of the [**] or [**] thereby. Examples include:

 

1.                                        generally imperceptible changes to [**] or placement in [**];

2.                                        [**] of a substrate, where the [**] substantially uniform to human touch;

3.                                        slight localized changes to [**] or [**] of a printed document;

4.                                        slight changes to [**]; or

5.                                        [**] of substantially [**].

 

“Discloser” means a party which has disclosed or otherwise made available its Confidential Information to the other party;

 

“DLA Contract Authority” means the individual appointed as such under the [**] License;

 

[**]

 

“Effective Date” means the date on which this Agreement is last signed by the parties;

 

[**]

 

“Field of Use” means the field of[**]

 

“Improvement” means an improvement provided to [**] under clause 2.14 of the [**] License;

 

“Intellectual Property Rights” or “ IPR” means all intellectual property rights existing now and in the future including, without limitation, trade secrets, copyright, database rights, know-how, topographies, patents and patent applications;

 

[**]

 


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[**]

 

“[**] License” means Schedule L-1 to the [**] License;

 

[**]

 

“Recipient” means a party to which the Confidential Information of the other party has been disclosed or otherwise made available;

 

“Services” means the Verification Tests and any other service performed by Digimarc under this Agreement;

 

“Term” means the period commencing on the Effective Date and ending on the earlier of 31 December [**] or the date of termination of this Agreement; and

 

“Verification Test” means a test or tests developed under the [**] License  to determine [**]

 

1.2           Interpretation - In this Agreement:

 

1.2.1        unless otherwise specified, all references to money amounts are to the currency of the United States of America;

 

1.2.2        the use of words in the singular or plural, or with a particular gender, shall not limit the scope or exclude the application of any provision of this Agreement to such person or persons or circumstances as the context otherwise permits;

 

1.2.3        whenever a provision of this Agreement requires an approval or consent by a party to this Agreement and notice of such approval or consent is not delivered within the applicable time, then the party shall be conclusively deemed to have withheld the consent or approval;

 

1.2.4        unless otherwise specified, the number of days within or following which any payment is to be made or act is to be done shall be interpreted to be continuous and shall be calculated by excluding the day on which the period commences and including the day which ends the period and by extending the period to the next Business Day if the last day of the period is not a Business Day;

 

1.2.5        unless otherwise specified, the order of precedence for interpreting this Agreement shall be:

 

(a)                                   this Agreement, excluding Attachments, and

 

(b)                                  the Attachments;

 

1.2.6        for greater certainty, a party or representative to which this Agreement grants the right to make a decision or determination in the sole discretion of the party or representative is not required to act reasonably in making the decision or determination and no such decision or

 


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determination may be challenged by the other party under the Arbitration Agreement or otherwise;

 

1.2.7        the words “includes” or “including” will be construed as meaning “included without limitation” and “including without limitation” as the case may be; and

 

1.2.8        a clause or Attachment, unless the context requires otherwise, is a reference to a clause to, an Attachment of, or a paragraph of an Attachment to, this Agreement, as amended from time to time in accordance with this Agreement.

 

1.3           Applicable Law - This Agreement shall be construed in accordance with the laws of England to the exclusion of its rules of conflicts of laws.

 

1.4           Attachments - The attachments to this Agreement, listed below, are an integral part of this Agreement:

 

 

 

Attachment

 

Description

 

 

Attachment “1”

 

[**]

 

 

Attachment “2”

 

Problem Report

 

 

Attachment “3”

 

Payment for Services

 

 

Attachment “4”

 

[**]

 

 

Attachment “5”

 

[**]

 

2.             GRANT OF RIGHTS AND SERVICES

 

2.1           Subject to the terms of this Agreement, Digimarc hereby grants to [**], a [**]license under the Digimarc IPR and the [**] IPR, in the Field of Use only, [**]

 

2.2           [**] acknowledges and agrees that the Digimarc IPR, and any technology developed by Digimarc during the course of its forthcoming and prior work with [**], is the property of Digimarc and that [**] has no right to sublicense it. [**] acknowledges that a [**] may not [**]

 

2.3           [**] acknowledges and agrees that the [**] IPR is the property of its owner and that [**] has no right to sublicense it.

 

2.4           Nothing in this Agreement shall be construed to grant, by implication or otherwise, any broader rights than those specifically granted herein.

 

2.5           Commencing no later than ten (10) Business Days after every written request made during the Term by [**], Digimarc shall make an irrevocable offer, which offer shall remain open for acceptance within sixty (60) days of receipt [**]

 

2.6           Commencing no later than twenty (20) Business Days after every written request made by [**] during the Term, Digimarc shall conduct Verification Tests of specified [**] on a date or dates agreed between Digimarc and [**] for the charges specified in clause 3.

 


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2.7           Digimarc shall obtain at its own expense all licenses or permits required to be obtained from the Government of the United States in order for Digimarc to comply with its obligations under this Agreement including, without limitation, to deliver the [**], and grant the foregoing license to [**].

 

3.             SERVICE FEES

 

3.1           [**] shall pay to Digimarc a fee for the  Services as detailed below.  The fee for Services provided pursuant to any prior agreements between the parties referenced herein shall be as set forth therein.  Otherwise, the fee for Services provided:

 

(a)                                   on or before 31 December [**], is as set out in Attachment 3;

 

(b)                                  after 31 December [**], will be no greater than the fee then paid to Digimarc for similar services by Digimarc’s most favoured customer.

 

3.2           Shipments of [**], [**] and related documentation shall be by air, Cost, Insurance & Freight (C.I.F.) closest major airport (i.e., Digimarc shall be responsible for transportation and insurance to this port of entry).  Except as otherwise expressly provided in this Agreement, [**] shall pay Digimarc all sales, use, goods and services or other similar taxes levied by any government in the United States or the [**] principal place of business which Digimarc is obliged to collect and remit to [**] in connection with any amount paid by [**] to Digimarc under this Agreement.

 

3.3           Digimarc is responsible for, and shall indemnify [**] against, and hold [**] harmless from, the payment of all taxes levied by any government on or in respect of Digimarc’s income and any amounts required by law to be paid in respect of social benefits for Digimarc’s employees relating to or arising out of the performance of the Services. If required by law, [**] shall deduct all such taxes and amounts from the amounts otherwise payable to Digimarc and remit them to the appropriate authorities.

 

4.              NUMBER NOT USED

 

5.             [**] RESPONSIBILITIES

 

5.1           [**] shall make every reasonable effort, including obtaining a legally binding commitment from all [**], to ensure that the [**] do not use [**] or the Digimarc IPR, or permit or suffer the [**] or the Digimarc IPR to be used, for any purpose other than [**].

 

5.2           If [**] learns, or has reasonable cause to believe, that any [**]has used, or permitted or suffered to be used, or proposes to use or permit or suffer to be used, [**] or the Digimarc IPR except as expressly authorised herein, [**] shall immediately notify Digimarc and the DLA Contract Authority, and [**] shall use all reasonable efforts, at its own expense,  to prevent any further such use including exercising whatever legal remedies (including, without limitation, an

 


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application for injunctive relief) are available to [**].  [**] shall, immediately on notice by Digimarc, assign to Digimarc any right of action which [**] may have to prevent any further such use. Following such assignment, [**] shall cooperate with Digimarc to achieve the successful prosecution, or, if elected by Digimarc, settlement, of any such action.

 

5.3           [**] shall promptly report to Digimarc every instance which comes to its attention of:

 

(i)                                      a failure of the [**] to meet the specifications established under the [**] Agreement in the form of the Problem Report attached as Attachment 2; or

 

(ii)                                   unauthorised access to the [**] in the possession of a [**]; or

 

(iii)                                failure of any [**] or [**] provided by Digimarc to [**] in response to the attempted [**].

 

5.4           [**] shall inform Digimarc within thirty (30) days after the end of each calendar quarter during the Term  of all  improvements  relating to (i) [**]; (ii) [**]; (iii) [**];  (iv) any other part of the [**] has made, or caused or permitted to be made, as a result of access to and use of the Digimarc Confidential Information. The first such information shall be provided to Digimarc within thirty (30) days after the first calendar quarter following said access, and shall cover improvements made from the date the [**] first learned of the Digimarc Confidential Information.  Following the provision of the information under this clause 5.4, [**] shall provide to Digimarc within a reasonable period of time following request, the Technical Information for those improvements requested by Digimarc in writing.

 

5.5           [**] hereby grants to Digimarc a royalty-free, non-exclusive, sub-licensable, worldwide license to use the improvements described in clause 5.4 and in any patents thereon owned or otherwise licenseable by [**].

 

5.6           Such license shall continue until this Agreement expires or is terminated, or until [**] has no further rights to Digimarc IPR, whichever occurs last.

 

5.7           For greater certainty, the obligations set out in clauses 5.4, 5.5 and 5.6 shall not apply to any such improvement which the [**] can demonstrate would have been made irrespective of access to the Digimarc Confidential Information.

 

5.8                                  [**] (or Digimarc if [**] so designates), shall conduct Verification Tests on representative [**].  A report detailing the results of the Tests shall be prepared and promptly provided to [**].

 

5.9           If [**] designates Digimarc to conduct the tests:

 

(i)                                      on or before December 31, [**], [**] shall pay Digimarc the fees set out in  Attachment 3;

 


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(ii)                                   after December 31, [**],  [**] shall pay Digimarc the fees then paid to Digimarc for similar services by Digimarc’s most favoured customer.

 

5.10         In the event that said Tests do not indicate, to [**] satisfaction, that [**] standards detailed in the Verification Tests, [**] will require the [**] to immediately take whatever corrective action(s) [**] considers appropriate.

 

5.11         [**] shall advise Digimarc in writing in advance of any changes which [**] may, at its sole discretion, make from time to time to the information set forth in Attachments 4 and 5.

 

6.             CONFIDENTIALITY

 

6.1           Except as otherwise expressly permitted by this Agreement, a Recipient shall not use,  reproduce or disclose the Confidential Information of the Discloser for any  purpose other than as reasonably necessary to comply with its obligations  under this Agreement or to exercise any rights or licenses granted to it under or pursuant to this Agreement.

 

6.2           The Recipient shall protect the Confidential Information of the Discloser from

 

disclosure by using the same degree of care, which shall be no  less than a reasonable degree of care, as the Recipient uses to protect its own confidential  information.

 

6.3           On written request from the Discloser, the Recipient shall return, or certify the destruction of, all originals and copies of the Discloser’s Confidential Information in the Recipient’s possession or control which the Recipient does not need to retain in order to perform any obligations imposed, or exercise any rights acquired, by this Agreement.

 

6.4           A Recipient may, on a need to know basis, and only for the purposes  described in clause 6.1, give the other party’s Confidential Information to the Recipient’s employees or  authorized subcontractors provided that such employee or subcontractor shall have entered into a non-disclosure agreement in respect of such Confidential Information in favour of the Discloser on terms materially similar to the provisions of this clause 6.

 

6.5           The obligations set out in this clause 6 will not apply to any Confidential Information that:

 

(a)                                   is or becomes publicly available other than through the fault of the Recipient;

 

(b)                                  was known to the Recipient prior to disclosure as shown by documentation sufficient to establish such knowledge;

 

(c)                                   was or is lawfully disclosed to the  Recipient by a third party who did not breach any obligation of confidence by such disclosure and who made the disclosure without restriction on further disclosure all of which is shown by documentation sufficient to establish same; or

 


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(d)                                  is required by law to be disclosed  provided, however, that the Recipient shall first give written notice to the Discloser before the disclosure so that the Discloser may seek an appropriate protective order.

 

Notwithstanding the foregoing, the fact that Confidential Information, or any part thereof, can be linked together by a search of publications and other information, followed by a selection of a series of such items of knowledge from unconnected sources, and fitting together those items of knowledge so as to duplicate or recreate any item of Confidential Information, shall not be deemed to cause the Confidential Information, or any part thereof, to be included within exceptions (a), (b) or (c), above.

 

6.6                                  [**] shall not make any disclosure of Digimarc Confidential Information to [**] which is not licensed by Digimarc, except as expressly and previously authorized in writing by Digimarc.  Disclosure to [**] shall only be made if and to the extent reasonably necessary for [**] to fulfill its obligations to [**].

 

6.7                                  The obligations of the parties under this clause 6 will survive the Term or sooner termination of this Agreement and will remain in full force and effect regardless of the cause of any termination.

 

6.8                                  Nothing in this Agreement shall be construed to require [**] to disclose any information which is confidential to a third party including for greater certainty [**].

 

7.                                       INTELLECTUAL PROPERTY INDEMNIFICATION

 

7.1                                  [**] shall provide Digimarc with prompt written notice of any claim, demand or action against [**] based on an allegation that the  Digimarc IPR or any part thereof, infringes any Intellectual Property Right of any person (referred to below as a “Claim”).

 

7.2                                  Subject to the limitations set out in clauses 7.3 to 7.6 inclusive, Digimarc shall, at its own expense:

 

(a)                                   negotiate the resolution of any such Claim;

 

(b)                                  pay all costs associated with the Claim; and

 

(c)                                   defend any action based on the Claim.

 

7.3                                  [**] shall, at Digimarc’s expense, comply with all reasonable requests by Digimarc for assistance from [**] in connection with the settlement or defence of the Claim.

 

7.4                                  Notwithstanding any other provision of this Agreement to the contrary, but subject to the limitations in this clause 7, Digimarc shall indemnify [**]  against and save [**] harmless from all loss, costs, liabilities including an award of damages, and expenses, including legal fees, arising from each Claim first notified to Digimarc prior to 31 December [**].  The obligation set

 


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out in this clause 7 shall not apply in respect of any settlement made by [**] without the consent of Digimarc.

 

7.5                                  For the purposes of clauses 7.2 through 7.4 inclusive, “Claim” shall mean any Claim, other than a Claim for patent infringement which Digimarc can demonstrate occurred without Digimarc acting recklessly or negligently.

 

7.6                                  The provisions of this Section 7 shall apply to any prior Agreements between the parties referenced herein as if fully set forth therein.

 

8.                                       REPRESENTATIONS AND WARRANTIES OF DIGIMARC

 

8.1                                  Digimarc represents, warrants and undertakes to [**] that from and after the Effective Date:

 

(a)           the Services provided under this Agreement will be of professional quality conforming to generally accepted practices for like services and will be performed at all times in a timely and cost effective manner and, for greater certainty Digimarc shall employ the standard of care in performing the Services  that would be expected of an expert [**] of the same or similar type as the [**] which comprises the [**];

 

(b)                                  Digimarc is duly incorporated and organized and is validly subsisting under the laws of the State of Delaware, U.S.A. or some other state in the United States with full corporate power and authority to enter into this Agreement;

 

(c)                                   to the best of its knowledge, neither this Agreement nor the Services will contravene, breach, or result in any default under any agreement, permit, by-law, or law or regulation to which Digimarc is subject or by which it is bound including, for greater certainty any laws or regulations in effect in the United States governing export;

 

(d)                                  this Agreement when executed and delivered by Digimarc shall constitute a valid and binding agreement with Digimarc enforceable against Digimarc according to its terms; and

 

(e)                                   Digimarc will at all material times have the right to grant the licenses to the Digimarc IPR as required by this Agreement.

 

8.2                                  Digimarc represents, warrants and undertakes to [**] that:

 

(a)                                   incorporated as part of its [**];

 

(b)                                  [**] shall contain no lock, clock, timer, counter, copy protection feature, replication device or intentional defects (including but not limited to “viruses” or “worms” as such

 


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terms are commonly used in the computer industry), CPU serial number reference, or other device which might:

 

(i)                                      lock, disable or erase the [**] or any data which is loaded on the [**] so as to prevent full use of the [**] by authorized persons; or

 

(ii)                                   require action or intervention by Digimarc or any other person to allow properly trained and authorized persons to use the [**];

 

(c)           the source code for the [**] will support the year 2000 and neither performance nor functionality will be affected by dates prior to, during and after the year 2000, and for greater certainty, the [**] will switch to 1 January 2000 on 1 January 2000, and the year 2000 will be recognized as a leap year.

 

9.                                       REPRESENTATIONS AND WARRANTIES OF [**]

 

9.1                                  [**] represents and warrants to Digimarc that:

 

(a)                                   [**] has full power and authority to enter into this Agreement; and

 

(b)                                  this Agreement when executed and delivered by  [**] shall constitute a valid, binding and enforceable obligation of  [**].

 

9.2                                  [**] makes no representations, warranties or undertakings that [**] has any right to grant the licenses required to be granted by clause 5.5 and Digimarc shall be solely responsible for determining that such improvements are suitable for the intended use and for the consequences of any use of the same whether by Digimarc or others, and [**] hereby disclaims all liability in connection therewith.

 

10.                                TERM AND TERMINATION

 

10.1                            This Agreement will take effect on the Effective Date and will remain in force throughout the Term unless sooner terminated as provided herein.

 

10.2                            Either party may terminate this Agreement if the other party breaches any of its obligations under this Agreement and fails to remedy such breach within thirty (30) days after receiving written notice of such breach from the other party.

 

10.3                            Upon termination of this Agreement:

 

(a)                                   all rights granted to [**] under this Agreement will immediately terminate.  No interest in any such rights will thereafter remain with [**],except that [**], but no further [**] shall be permitted; and

 

(b)                                  each party shall return, or certify the destruction of, to the Discloser, all originals and copies of the  Discloser’s Confidential Information in the party’s possession or control

 


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which the party does not need to retain in order to exercise any rights acquired by this Agreement.

 

10.4                            No termination of this Agreement will in any manner release, or be construed as releasing, any party from any liability arising out of or in connection with that party’s breach of or failure to perform any covenant, duty or obligation contained herein prior to the date of such termination.

 

10.5                            Upon termination of the [**] License by Digimarc for cause, the rights of the [**] hereunder to use the Digimarc IPR shall be deemed to be restricted to the [**] as of the date of such termination.

 

11.                                DISPUTE RESOLUTION

 

11.1                            Any Dispute (as defined in the Arbitration Agreement) shall be finally settled by arbitration in accordance with the Arbitration Agreement.

 

11.2                            Unless otherwise agreed between the parties or unless the subject matter of the dispute resolution proceedings is a party’s right to terminate this Agreement, the Services shall continue during the dispute resolution proceedings and payments due to Digimarc shall not be withheld on account of such proceedings unless that particular services or payment is the subject matter of the proceedings.  Notwithstanding the foregoing, [**] may in its sole discretion instruct Digimarc to continue to perform services which are the subject matter of the proceedings and Digimarc shall act in accordance with those instructions, subject to payment under clause 3.1.

 

12.                                MISCELLANEOUS PROVISIONS

 

12.1                            Remedies Cumulative - Except as otherwise expressly set out in this Agreement:

 

(a)                                   each and every right, power and remedy of a party will be considered to be cumulative with and in addition to any other right, power and remedy which such party may have at law or in equity in the event of breach of any of the terms of this Agreement;

 

(b)                                  the exercise or partial exercise of any right, power or remedy will neither constitute the exclusive election thereof nor the waiver of any other right, power or remedy available to such party; and

 

(c)           a party terminating this Agreement in accordance with the provisions of the Termination clause will have no liability or obligation to the other as a result of or with respect to the termination.

 

12.2                            Notices.    All notices under this Agreement shall be delivered by fax or recognized [**] courier service.  The notice shall be deemed effective as of the date of delivery to the address of the party specified below, as evidenced by a delivery receipt or the addressee’s registry of incoming correspondence.  Unless otherwise expressly set out in this

 


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Agreement, all notices to a party will be sent to the party’s authorized representative identified below and all notices from a party will be sent by the party’s authorized representative identified below.

 

12.3                            Any notice to [**] shall be sent to both of, and any notice from [**] shall be sent by either:

 

Name 1

Name 2

Address 1

Address 2

 

12.4                            Any notice to Digimarc shall be sent to both of, and any notice from Digimarc shall be sent by either:

 

Mr. Robert Chamness

Mr. Scott Carr

Vice President and General Counsel

President, Digimarc [**]

Digimarc Corporation

Digimarc Corporation

9405 SW Gemini Drive

9405 SW Gemini Drive

Beaverton, OR 97008

Beaverton, OR 97008

Fax: (503) 469-4777

Fax: (503) 469-4777

 

12.5                            A copy of every notice sent by either party shall be sent to: [**].

 

12.6                            A party may change its address for notice by notice to the other party in accordance with the foregoing provisions.

 

12.7                            Severability.    If any part of this Agreement is held by an arbitral tribunal appointed pursuant to the Arbitration Agreement or other competent authority to be void or unenforceable, the parties agree that such determination will not result in the nullity or unenforceability of the remaining parts of this Agreement, which will continue in force to the fullest extent permitted by law. The parties further agree to replace such void or unenforceable part of this Agreement with a valid and enforceable provision that will achieve, to the extent legally permissible, the economic, business and other purposes of the void or unenforceable part.

 

12.8                            Counterparts.   This Agreement may be executed in separate counterparts, and by facsimile, each of which will be deemed an original, and when executed, separately or together, will constitute a single original instrument, effective in the same manner as if the parties had executed one and the same instrument.

 

12.9                            Entire Agreement.   With the exception of any prior agreements between the parties referenced herein, this Agreement is intended by the parties to be the final expression of their agreement and constitutes and embodies the entire agreement and understanding between the parties hereto and constitutes a complete and exclusive statement of the terms and conditions thereof, and will supersede any and all prior correspondence, conversations, negotiations, agreements or understandings relating to the same subject matter.  In case of a conflict of any

 


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prior agreements between the parties referenced herein and this Agreement, the latter shall control.

 

12.10                      Amendments.     No change in, modification of or addition to the terms and conditions contained herein will be valid as between the parties unless set forth in a writing that is signed by an authorized representative of each of the parties and which specifically states that it constitutes an amendment to this Agreement.

 

12.11                      Waiver.   No waiver of any term, provision, or condition of this Agreement will be effective unless in a written document signed by the waiving party and no such waiver in any one or more instances, will be deemed to be, or be construed as, a further or continuing waiver of that term, provision or condition or any other term, provision or condition of this Agreement.

 

12.12                      Assignment and Successors.     This Agreement may not be assigned by [**] without Digimarc’s consent, which consent shall not be unreasonably withheld or delayed. This Agreement and all of its terms, conditions and covenants are intended to be fully effective and binding, to the extent permitted by law, on the successors and permitted assigns of the parties hereto.

 

12.13                      Captions.    Captions are provided in this Agreement for convenience only and they form no part, and are not to serve as a basis for interpretation or construction, of this Agreement, nor as evidence of the intention of the parties hereto.

 

12.14                      Disclaimer of Agency.    Nothing contained in this Agreement is intended or will be construed so as to constitute the parties to this Agreement as partners or joint venturers or as agents of each other. Neither party will have any express or implied right or authority to assume or create any obligations on behalf of or in the name of any other party or to bind any other party in any contract, agreement or undertaking with any third party.  No employee of a party shall be deemed or considered to be an employee of the other party or of both parties.

 

12.15                      Publicity.   The parties agree that from time-to-time it will be beneficial to both parties to issue [**] and [**] from the [**]. Each party agrees to submit for approval by the other party any [**] that involves the other party, which approval shall not unreasonably be withheld.

 

12.16                      Effectiveness.  This Agreement shall not be effective until it is signed by both of the parties.

 

12.17                      Ambiguities.   Each party and its counsel have participated fully in the review and revision of this Agreement. Any rule or construction to the effect that ambiguities are to be resolved against the drafting party shall not apply in interpreting this Agreement.

 

12.18                      Survival.    All clauses of this Agreement which expressly or by implication are intended to survive the termination of this Agreement will do so and, for greater certainty and notwithstanding any provision in this Agreement to the contrary, the provisions of clauses 3.2,

 


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3.3, 5.1, 5.2, 5.5, 5.6, 6, 7,11, and 12 of this Agreement shall survive termination of this Agreement by either party for any reason.

 

IN WITNESS WHEREOF , this Agreement has been executed and delivered by the parties hereto as of the Effective Date.

 

DIGIMARC CORPORATION

 

<< [**]>>

By:

 

 

By:

 

Name:

 

 

Name:

 

Title:

 

 

Title:

 

Date:

 

 

Date:

 

 


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ATTACHMENT 1

 

[**]

 

[**] will cause the following [**] to take place:

 

(a)           [**]

 

(b)           [**]

 

(c)           [**]

 


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ATTACHMENT 2

 

PROBLEM REPORT

 

Each problem report will contain all information necessary to reproduce or demonstrate the occurrence of the problem.  Problem reports will [**] and will be delivered electronically in a format to be provided by Digimarc.

 

Problem reports will contain:

 

·                   Date problem was encountered

·                   Detailed description of the problem, including the frequency with which the problem occurs

·                   Name and [**] the problem

·                   Step by step instructions to reproduce the problem

·                   All data files required to reproduce the problem

·                   [**]

·                   Severity of problem

·                   Contact information for person to contact for further information (name, phone number, FAX number, email address)

 

[**] agrees to work with Digimarc to provide reasonable additional information and perform reasonable additional tests, as requested by Digimarc, to assist Digimarc in resolution of the problem.

 


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ATTACHMENT 3

 

PAYMENT FOR SERVICES

 

Digimarc shall bill [**] for services in one hour increments at the following hourly rates:

 

Technical/Design Consultant

[**]

Senior Engineer

[**]

R&D/Engineering Executive

[**]

Project Manager

[**]

Administrator/Scheduler

[**]

 

Fees for services will be invoiced on the earlier of 1) the last day of the month or 2) the completion of the Services.  Invoices are due thirty (30) days from the date of receipt of a correct invoice.  A late charge of 1.5% per month will be charged on any late payments.  All fees are due and payable in [**].

 

[**] will reimburse Digimarc for all out-of-pocket expenses reasonably and necessarily incurred in providing the Verification Tests and other services.  Expenses will be itemized and reported by category.  Out-of-pocket expenses will not be “marked up” by Digimarc.  Costs include, but are not limited to, reasonable travel and lodging expenses, telephone and fax charges, postage and overnight deliveries, and charges for rental equipment or materials purchased specifically to be used in providing the Verification Tests and other services.  All invoices for out-of-pocket expenses will be issued monthly in arrears and are due thirty (30) days from the date of receipt of a correct invoice.  Supporting receipts and vouchers will be available for review at Digimarc’s offices.  A late charge of 1.5% per month will be charged on any late payments. Payments will additionally include Value Added taxes and other tariffs and fees that may be imposed [**].

 


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ATTACHMENT 4

 

IDENTIFICATION OF [**]

 


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ATTACHMENT 5

 

[**]

 


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SCHEDULE “K-2”

 

[**] LICENSE AGREEMENT - [**]

 

This [**] LICENSE AGREEMENT (the “Agreement”) is made

 

BETWEEN

 

<name and address of [**]> (“[**]”)

 

- AND -

 

DIGIMARC CORPORATION , a corporation incorporated under the laws of Delaware and having its head office at 9405 SW Gemini Drive, Beaverton, OR 97006 (“Digimarc”)

 

RECITALS

 

Digimarc has expertise in, and owns extensive intellectual property, including patents, patent applications, copyrights and trade secrets related to digital watermarks, [**], copyright protection, and device control (the “Digimarc IPR”); and

 

The [**] possesses or will possess intellectual property rights related to the application of such intellectual property [**]; and

 

Digimarc and [**] have cooperated in the development of means, using such intellectual property, [**]

 

[**] desires to obtain a license to certain components of the [**] so it can have [**].

 

In consideration of these premises , the covenants set out in this Agreement and other good and valuable consideration, the receipt and adequacy of which are acknowledged by each of the parties, the parties agree as follows:

 

I.                                          DEFINITIONS AND PRINCIPLES OF INTERPRETATION

 

1.1                                  Definitions

 

“Agreement” means these articles of agreement, including the Attachments, and those documents as specified or referenced in this Agreement as forming part of the Agreement, all as may be amended from time to time;

 


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“Arbitration Agreement” means the Arbitration Agreement entered into between the parties and others effective 1 January [**], as amended from time to time;

 

“Attachment” means a document specified as being attached to this Agreement;

 

[**]

 

“Business Day” means a day that both Digimarc and [**] are open for business at their respective addresses noted above;

 

“Confidential Information” means information disclosed before or during the Term of this Agreement in any form which, if disclosed in tangible form, is or was labelled “Confidential”, “Proprietary” or with a similar legend, or if disclosed orally, is or was information that by its nature would be understood to be confidential to the Discloser.  For greater certainty, the Confidential Information of Digimarc includes [**];

 

[**]

 

“Digimarc IPR” means Intellectual Property Rights owned by Digimarc, now or during the Term of this Agreement, to the extent that same specifically relates to or forms part of the [**];

 

“Digital Watermark” refers to [**] (including [**]) that are [**] from [**] by [**] of [**], which [**] and yet do not significantly [**] from the aesthetics of the [**] or [**] thereby. Examples include:

 

1.                generally imperceptible changes to [**] or placement in [**];

2.                [**] of a substrate, where the [**] substantially uniform to human touch;

3.                slight localized changes to [**] or [**] of a printed document;

4.                slight changes to [**]; or

5.                [**] of substantially [**].

 

“Discloser” means a party which has disclosed or otherwise made available its Confidential Information to the other party;

 

“DLA Contract Authority” means the individual appointed as such under the [**] License;

 

[**]

 

[**]

 

[**]

 

[**]

 

“Effective Date” means the date on which this Agreement is last signed by the parties;

 

[**]

 

“Field of Use” means the field of [**];

 

“Improvement” means an improvement provided to [**] under clause 2.14 of the [**];

 

“Intellectual Property Rights” or “ IPR” means all intellectual property rights existing now and in the future including, without limitation, trade secrets, copyright, database rights, know-how, topographies, patents and patent applications;

 


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[**]

 

[**]

 

“[**]License” means Schedule L-2 to the [**] License ;

 

[**]

 

“Recipient” means a party to which the Confidential Information of the other party has been disclosed or otherwise made available;

 

“Services” means the Verification Tests and any other service performed by Digimarc under this Agreement;

 

“Term” means the period commencing on the Effective Date and ending on the earlier of 31 December [**] or the date of termination of this Agreement; and

 

“Verification Test” means a test or tests developed under the [**] License  to determine if a [**].

 

1.2            Interpretation - In this Agreement:

 

1.2.1         unless otherwise specified, all references to money amounts are to the currency of the United States of America;

 

1.2.2         the use of words in the singular or plural, or with a particular gender, shall not limit the scope or exclude the application of any provision of this Agreement to such person or persons or circumstances as the context otherwise permits;

 

1.2.3         whenever a provision of this Agreement requires an approval or consent by a party to this Agreement and notice of such approval or consent is not delivered within the applicable time, then the party shall be conclusively deemed to have withheld the consent or approval;

 

1.2.4         unless otherwise specified, the number of days within or following which any payment is to be made or act is to be done shall be interpreted to be continuous and shall be calculated by excluding the day on which the period commences and including the day which ends the period and by extending the period to the next Business Day if the last day of the period is not a Business Day;

 

1.2.5         unless otherwise specified, the order of precedence for interpreting this Agreement shall be:

 

(a)             this Agreement, excluding Attachments, and

 

(b)             the Attachments;

 


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1.2.6         for greater certainty, a party or representative to which this Agreement grants the right to make a decision or determination in the sole discretion of the party or representative is not required to act reasonably in making the decision or determination and no such decision or determination may be challenged by the other party under the Arbitration Agreement or otherwise;

 

1.2.7         the words “includes” or “including” will be construed as meaning “included without limitation” and “including without limitation” as the case may be; and

 

1.2.8         a clause or Attachment, unless the context requires otherwise, is a reference to a clause to, an Attachment of, or a paragraph of an Attachment to, this Agreement, as amended from time to time in accordance with this Agreement.

 

1.3            Applicable Law - This Agreement shall be construed in accordance with the laws of England to the exclusion of its rules of conflicts of laws.

 

1.4            Attachments - The attachments to this Agreement, listed below, are an integral part of this Agreement:

 

Attachment

 

Description

Attachment “1”

 

[**]

Attachment “2”

 

Opinion of Counsel

Attachment “3”

 

Problem Report

Attachment “4”

 

Payment for Services

Attachment “5”

 

[**]

Attachment “6”

 

[**]

 

2.              GRANT OF RIGHTS AND SERVICES

 

2.1            Subject to the terms of this Agreement, Digimarc hereby grants to [**], a [**]license under the Digimarc IPR and the [**] IPR, in the Field of Use only, [**].

 

2.2            [**] acknowledges and agrees that the Digimarc IPR, and any technology developed by Digimarc during the course of its work [**], is the property of Digimarc and that [**] has no right to sublicense it. [**] acknowledges that [**] may not [**].

 

2.3            [**] acknowledges and agrees that the [**] IPR is the property of its owner and that [**] has no right to sublicense it.

 

2.4            Nothing in this Agreement shall be construed to grant, by implication or otherwise, any broader rights than those specifically granted herein.

 

2.5            Commencing no later than ten (10) Business Days after every written request made during the Term by [**], Digimarc shall make an irrevocable offer, which offer shall remain open for acceptance within sixty (60) days of receipt [**]

 


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2.6            Commencing no later than twenty (20) Business Days after every written request made by [**] during the Term, Digimarc shall conduct Verification Tests of specified [**] on a date or dates agreed between Digimarc and [**] for the charges specified in clause 3.

 

2.7            Digimarc shall obtain at its own expense all licenses or permits required to be obtained from the Government of the United States in order for Digimarc to comply with its obligations under this Agreement including, without limitation, to deliver the [**], and grant the foregoing license to [**].

 

3.              SERVICE FEES

 

3.1            [**] shall pay to Digimarc a fee for the Services as detailed below.  The fee for Services provided:

 

(a)            on or before 31 December [**], is as set out in Attachment 4;

 

(b)            after 31 December [**], will be no greater than the fee then paid to Digimarc for similar services by Digimarc’s most favoured customer.

 

3.2            Shipments of [**], [**] and related documentation shall be by air, Cost, Insurance and Freight (C.I.F.) closest major airport (i.e., Digimarc shall be responsible for transportation and insurance to this port of entry).  Except as otherwise expressly provided in this Agreement, [**] shall pay Digimarc all sales, use, goods and services or other similar taxes levied by any government in the United States or the [**] principal place of business which Digimarc is obliged to collect and remit to [**] in connection with any amount paid by [**] to Digimarc under this Agreement.

 

3.3            Digimarc is responsible for, and shall indemnify [**] against, and hold [**] harmless from, the payment of all taxes levied by any government on or in respect of Digimarc’s income and any amounts required by law to be paid in respect of social benefits for Digimarc’s employees relating to or arising out of the performance of the Services. If required by law, [**] shall deduct all such taxes and amounts from the amounts otherwise payable to Digimarc and remit them to the appropriate authorities.

 

4.              OPINION OF COUNSEL

 

4.1            Before introducing [**] shall obtain and forward to Digimarc a written opinion of counsel substantially in the form attached as Attachment 2 that confirms:

 

(a)            the validity and enforceability of the terms of this Agreement, under the laws of the jurisdiction where [**] resides; and

 

(b)            the legality of each [**] under the laws of the jurisdiction where [**] resides.

 


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4.2            Digimarc shall not unreasonably withhold its consent to any qualifications which [**] counsel may require to be made to such opinion.

 

5.              [**] RESPONSIBILITIES

 

5.1            [**] shall make every reasonable effort, including obtaining a legally binding commitment from all [**], to ensure that the [**] do not use the [**] or the Digimarc IPR, or permit or suffer the [**] or the Digimarc IPR to be used, for any purpose other than [**].

 

5.2            If [**] learns, or has reasonable cause to believe, that any [**] has used, or permitted or suffered to be used, or proposes to use or permit or suffer to be used, [**] or the Digimarc IPR except as expressly authorised herein, [**] shall immediately notify Digimarc and the DLA Contract Authority, and [**] shall use all reasonable efforts, at its own expense,  to prevent any further such use including exercising whatever legal remedies (including, without limitation, an application for injunctive relief) are available to [**].  [**] shall, immediately on notice by Digimarc, assign to Digimarc any right of action which [**] may have to prevent any further such use. Following such assignment, [**] shall cooperate with Digimarc to achieve the successful prosecution, or, if elected by Digimarc, settlement, of any such action.

 

5.3            [**] shall promptly report to Digimarc every instance which comes to its attention of:

 

(i)       a failure of the [**] to meet the specification established under the [**] in the form of the Problem Report attached as Attachment 3; or

 

(ii)      unauthorised access to the [**] in the possession of a [**]; or

 

(iii)     failure of any [**] or [**] provided by Digimarc to [**] in response to the attempted [**].

 

5.4            [**] shall inform Digimarc within thirty (30) days after the end of each calendar quarter during the Term  of all  improvements  relating to (i) [**]; (ii) [**] (iii) [**] (iv) any other part of the [**] has made, or caused or permitted to be made, as a result of access to and use of the Digimarc Confidential Information. The first such information shall be provided to Digimarc within thirty (30) days after the first calendar quarter following said access, and shall cover improvements made from the date [**] first learned of the Digimarc Confidential Information.  Following the provision of the information under this clause 5.4, [**] shall provide to Digimarc within a reasonable period of time following request, the Technical Information for those improvements requested by Digimarc in writing.

 

5.5            [**] hereby grants to Digimarc a royalty-free, non-exclusive, sub-licensable, worldwide license to use the improvements described in clause 5.4 and in any patents thereon owned or otherwise licenseable by [**].

 


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5.6            Such license shall continue until this Agreement expires or is terminated, or until [**] has no further rights to Digimarc IPR, whichever occurs last.

 

5.7            For greater certainty, the obligations set out in clauses 5.4, 5.5 and 5.6 shall not apply to any such improvement which the [**] can demonstrate would have been made irrespective of access to the Digimarc Confidential Information.

 

5.8            [**] (or Digimarc if [**] so designates), shall conduct Verification Tests on representative [**].  A report detailing the results of the Tests shall be prepared and promptly provided to [**].

 

5.9            If [**] designates Digimarc to conduct the tests:

 

(i)       on or before December 31, [**], [**] shall pay Digimarc the fees set out in  Attachment 4;

 

(ii)      after December 31, [**],  [**] shall pay Digimarc the fees then paid to Digimarc for similar services by Digimarc’s most favoured customer.

 

5.10          In the event that said Tests do not indicate, to [**] satisfaction, that [**] standards detailed in the Verification Tests, [**] will require the [**] to immediately take whatever corrective action(s) [**] considers appropriate.

 

5.11          [**] shall advise Digimarc in writing in advance of any changes which [**] may, at its sole discretion, make from time to time to the information set forth in Attachments 5 and 6.

 

6.              CONFIDENTIALITY

 

6.1            Except as otherwise expressly permitted by this Agreement, a Recipient shall not use,  reproduce or disclose the Confidential Information of the Discloser for any  purpose other than as reasonably necessary to comply with its obligations under this Agreement or to exercise any rights or licenses granted to it under or pursuant to this Agreement.

 

6.2            The Recipient shall protect the Confidential Information of the Discloser from disclosure by using the same degree of care, which shall be no  less than a reasonable degree of care, as the Recipient uses to protect its own confidential  information.

 

6.3            On written request from the Discloser, the Recipient shall return, or certify the destruction of, all originals and copies of the Discloser’s Confidential Information in the Recipient’s possession or control which the Recipient does not need to retain in order to perform any obligations imposed, or exercise any rights acquired, by this Agreement.

 


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6.4            A Recipient may, on a need to know basis, and only for the purposes  described in clause 6.1, give the other party’s Confidential Information to the Recipient’s employees or  authorized subcontractors provided that such employee or subcontractor shall have entered into a non-disclosure agreement in respect of such Confidential Information in favour of the Discloser on terms materially similar to the provisions of this clause 6.

 

6.5            The obligations set out in this clause 6 will not apply to any Confidential Information that:

 

(a)            is or becomes publicly available other than through the fault of the Recipient;

 

(b)            was known to the Recipient prior to disclosure as shown by documentation sufficient to establish such knowledge;

 

(c)            was or is lawfully disclosed to the  Recipient by a third party who did not breach any obligation of confidence by such disclosure and who made the disclosure without restriction on further disclosure all of which is shown by documentation sufficient to establish same; or

 

(d)            is required by law to be disclosed  provided, however, that the Recipient shall first give written notice to the Discloser before the disclosure so that the Discloser may seek an appropriate protective order.

 

Notwithstanding the foregoing, the fact that Confidential Information, or any part thereof, can be linked together by a search of publications and other information, followed by a selection of a series of such items of knowledge from unconnected sources, and fitting together those items of knowledge so as to duplicate or recreate any item of Confidential Information, shall not be deemed to cause the Confidential Information, or any part thereof, to be included within exceptions (a), (b) or (c), above.

 

6.6            [**] shall not make any disclosure of Digimarc Confidential Information to [**] which is not licensed by Digimarc, except as expressly and previously authorized in writing by Digimarc.  Disclosure [**] shall only be made if and to the extent reasonably necessary for [**] to fulfill its obligations to [**].

 

6.7            The obligations of the parties under this clause 6 will survive the Term or sooner termination of this Agreement and will remain in full force and effect regardless of the cause of any termination.

 

6.8            Nothing in this Agreement shall be construed to require [**] to disclose any information which is confidential to a third party including for greater certainty [**].

 


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7.              INTELLECTUAL PROPERTY INDEMNIFICATION

 

7.1            [**] shall provide Digimarc with prompt written notice of any claim, demand or action against [**] based on an allegation that the Digimarc IPR or any part thereof, infringes any Intellectual Property Right of any person (referred to below as a “Claim”).

 

7.2            Subject to the limitations set out in clauses 7.3 to 7.7 inclusive, Digimarc shall, at its own expense:

 

(a)            negotiate the resolution of any such Claim;

 

(b)            pay all costs associated with the Claim; and

 

(c)            defend any action based on the Claim.

 

7.3            [**] shall, at Digimarc’s expense, comply with all reasonable requests by Digimarc for assistance from [**] in connection with the settlement or defence of the Claim.

 

7.4            Notwithstanding any other provision of this Agreement to the contrary, but subject to the limitations in this clause 7, Digimarc shall indemnify [**] and all of  the [**] against and save [**] and all [**] harmless from all loss, costs, liabilities including an award of damages, and expenses, including legal fees, arising from each Claim first notified to Digimarc prior to 31 December [**].  The obligation set out in this clause 7 shall not apply in respect of any settlement made by [**] without the consent of Digimarc.

 

7.5            The liability of Digimarc under clause 7.4 of this Agreement and under the equivalent clause of every other licence or consulting agreement entered into between Digimarc and [**] and [**] pursuant to the provisions of [**] License will not exceed the Indemnity Limit as defined in clause 7.6 below.

 

7.6            The Indemnity Limit shall be [**], or such higher amount as notified by Digimarc from time to time.

 

7.7            For the purposes of clauses 7.2 through 7.6 inclusive, “Claim” shall mean any Claim, other than a Claim for patent infringement which Digimarc can demonstrate occurred without Digimarc acting recklessly or negligently.

 

7.8            The provisions of this Section 7 shall apply to any prior Agreements between the parties referenced herein as if fully set forth therein.

 

8.              REPRESENTATIONS AND WARRANTIES OF DIGIMARC

 

8.1            Digimarc represents, warrants and undertakes to [**] that from and after the Effective Date:

 

(a)            the Services provided under this Agreement will be of professional quality conforming to generally accepted practices for like services and will be performed at all times in a

 


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timely and cost effective manner and, for greater certainty Digimarc shall employ the standard of care in performing the Services  that would be expected of an expert [**] of [**] of the same or similar type as the [**] which comprises the [**];

 

(b)            Digimarc is duly incorporated and organized and is validly subsisting under the laws of the State of Delaware, U.S.A. or some other state in the United States with full corporate power and authority to enter into this Agreement;

 

(c)            to the best of its knowledge, neither this Agreement nor the Services will contravene, breach, or result in any default under any agreement, permit, by-law, or law or regulation to which Digimarc is subject or by which it is bound including, for greater certainty any laws or regulations in effect in the United States governing export;

 

(d)            this Agreement when executed and delivered by Digimarc shall constitute a valid and binding agreement with Digimarc enforceable against Digimarc according to its terms; and

 

(e)            Digimarc will at all material times have the right to grant the licenses to the Digimarc IPR as required by this Agreement.

 

8.2            Digimarc represents, warrants and undertakes to [**] that:

 

(a)            incorporated as part of [**];

 

(b)            [**] shall contain no lock, clock, timer, counter, copy protection feature, replication device or intentional defects (including but not limited to “viruses” or “worms” as such terms are commonly used in the computer industry), CPU serial number reference, or other device which might:

 

(i)             lock, disable or erase the [**] or any data which is loaded on the [**] so as to prevent full use of the [**] by authorized persons; or

 

(ii)            require action or intervention by Digimarc or any other person to allow properly trained and authorized persons to use the [**];

 

(c)            the source code for the [**] will support the year 2000 and neither performance nor functionality will be affected by dates prior to, during and after the year 2000, and for greater certainty, the [**] will switch to 1 January 2000 on 1 January 2000, and the year 2000 will be recognized as a leap year.

 

9.              REPRESENTATIONS AND WARRANTIES OF [**]

 

9.1            [**] represents and warrants to Digimarc that:

 

(a)            [**] has full power and authority to enter into this Agreement; and

 


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(b)            this Agreement when executed and delivered by  [**] shall constitute a valid, binding and enforceable obligation of  [**].

 

9.2            [**] makes no representations, warranties or undertakings that [**] has any right to grant the licenses required to be granted by clause 5.5 and Digimarc shall be solely responsible for determining that such improvements are suitable for the intended use and for the consequences of any use of the same whether by Digimarc or others, and [**] hereby disclaims all liability in connection therewith.

 

10.           TERM AND TERMINATION

 

10.1          This Agreement will take effect on the Effective Date and will remain in force throughout the Term unless sooner terminated as provided herein.

 

10.2          Either party may terminate this Agreement if the other party breaches any of its obligations under this Agreement and fails to remedy such breach within thirty (30) days after receiving written notice of such breach from the other party.

 

10.3          Upon termination of this Agreement:

 

(a)            all rights granted to [**] under this Agreement will immediately terminate.  No interest in any such rights will thereafter remain with [**], except that [**], but no further [**] shall be permitted; and

 

(b)            each party shall return, or certify the destruction of, to the Discloser, all originals and copies of the  Discloser’s Confidential Information in the party’s possession or control which the party does not need to retain in order to exercise any rights acquired by this Agreement.

 

10.4          No termination of this Agreement will in any manner release, or be construed as releasing, any party from any liability arising out of or in connection with that party’s breach of or failure to perform any covenant, duty or obligation contained herein prior to the date of such termination.

 

10.5          Upon termination of the [**] License by Digimarc for cause, the rights of the [**] hereunder to use the Digimarc IPR shall be deemed to be restricted to the [**] as of the date of such termination.

 

11.           DISPUTE RESOLUTION

 

11.1          Any Dispute (as defined in the Arbitration Agreement) shall be finally settled by arbitration in accordance with the Arbitration Agreement.

 


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11.2          Unless otherwise agreed between the parties or unless the subject matter of the dispute resolution proceedings is a party’s right to terminate this Agreement, the Services shall continue during the dispute resolution proceedings and payments due to Digimarc shall not be withheld on account of such proceedings unless that particular services or payment is the subject matter of the proceedings.  Notwithstanding the foregoing, [**] may in its sole discretion instruct Digimarc to continue to perform services which are the subject matter of the proceedings and Digimarc shall act in accordance with those instructions, subject to payment under clause 3.1.

 

12.           MISCELLANEOUS PROVISIONS

 

12.1          Remedies Cumulative - Except as otherwise expressly set out in this Agreement:

 

(a)            each and every right, power and remedy of a party will be considered to be cumulative with and in addition to any other right, power and remedy which such party may have at law or in equity in the event of breach of any of the terms of this Agreement;

 

(b)            the exercise or partial exercise of any right, power or remedy will neither constitute the exclusive election thereof nor the waiver of any other right, power or remedy available to such party; and

 

(c)            a party terminating this Agreement in accordance with the provisions of the Termination clause will have no liability or obligation to the other as a result of or with respect to the termination.

 

12.2          Notices.    All notices under this Agreement shall be delivered by fax or recognized [**] courier service.  The notice shall be deemed effective as of the date of delivery to the address of the party specified below, as evidenced by a delivery receipt or the addressee’s registry of incoming correspondence.  Unless otherwise expressly set out in this Agreement, all notices to a party will be sent to the party’s authorized representative identified below and all notices from a party will be sent by the party’s authorized representative identified below.

 

12.3          Any notice to [**] shall be sent to both of, and any notice from [**] shall be sent by either:

 

Name1

 

Name2

Address1

 

Address2

 

12.4          Any notice to Digimarc shall be sent to both of, and any notice from Digimarc shall be sent by either:

 

Mr. Robert Chamness

 

Mr. Scott Carr

Vice President and General Counsel

 

President Digimarc

Digimarc Corporation

 

[**]

 


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9405 SW Gemini Drive

 

Digimarc Corporation

Beaverton, OR 97008

 

9405 SW Gemini Drive

Fax: (503) 469-4777

 

Beaverton, OR 97008

 

12.5          A copy of every notice sent by either party shall be sent to: [**] .

 

12.6          A party may change its address for notice by notice to the other party in accordance with the foregoing provisions.

 

12.7          Severability.    If any part of this Agreement is held by an arbitral tribunal appointed pursuant to the Arbitration Agreement or other competent authority to be void or unenforceable, the parties agree that such determination will not result in the nullity or unenforceability of the remaining parts of this Agreement, which will continue in force to the fullest extent permitted by law. The parties further agree to replace such void or unenforceable part of this Agreement with a valid and enforceable provision that will achieve, to the extent legally permissible, the economic, business and other purposes of the void or unenforceable part.

 

12.8          Counterparts.   This Agreement may be executed in separate counterparts, and by facsimile, each of which will be deemed an original, and when executed, separately or together, will constitute a single original instrument, effective in the same manner as if the parties had executed one and the same instrument.

 

12.9          Entire Agreement.   This Agreement is intended by the parties to be the final expression of their agreement and constitutes and embodies the entire agreement and understanding between the parties hereto and constitutes a complete and exclusive statement of the terms and conditions thereof, and will supersede any and all prior correspondence, conversations, negotiations, agreements or understandings relating to the same subject matter.

 

12.10        Amendments.     No change in, modification of or addition to the terms and conditions contained herein will be valid as between the parties unless set forth in a writing that is signed by an authorized representative of each of the parties and which specifically states that it constitutes an amendment to this Agreement.

 

12.11        Waiver.   No waiver of any term, provision, or condition of this Agreement will be effective unless in a written document signed by the waiving party and no such waiver in any one or more instances, will be deemed to be, or be construed as, a further or continuing waiver of that term, provision or condition or any other term, provision or condition of this Agreement.

 

12.12        Assignment and Successors.     This Agreement may not be assigned by [**] without Digimarc’s consent, which consent shall not be unreasonably withheld or delayed. This Agreement and all of its terms, conditions and covenants are intended to be fully effective

 


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and binding, to the extent permitted by law, on the successors and permitted assigns of the parties hereto.

 

12.13        Captions.    Captions are provided in this Agreement for convenience only and they form no part, and are not to serve as a basis for interpretation or construction, of this Agreement, nor as evidence of the intention of the parties hereto.

 

12.14        Disclaimer of Agency.    Nothing contained in this Agreement is intended or will be construed so as to constitute the parties to this Agreement as partners or joint venturers or as agents of each other. Neither party will have any express or implied right or authority to assume or create any obligations on behalf of or in the name of any other party or to bind any other party in any contract, agreement or undertaking with any third party.  No employee of a party shall be deemed or considered to be an employee of the other party or of both parties.

 

12.15        Publicity.   The parties agree that from time-to-time it will be beneficial to both parties to issue [**] and [**] from the [**]. Each party agrees to submit for approval by the other party any [**] that involves the other party, which approval shall not unreasonably be withheld.

 

12.16        Effectiveness.  This Agreement shall not be effective until it is signed by both of the parties.

 

12.17        Ambiguities.   Each party and its counsel have participated fully in the review and revision of this Agreement. Any rule or construction to the effect that ambiguities are to be resolved against the drafting party shall not apply in interpreting this Agreement.

 

12.18        Survival.    All clauses of this Agreement which expressly or by implication are intended to survive the termination of this Agreement will do so and, for greater certainty and notwithstanding any provision in this Agreement to the contrary, the provisions of clauses 3.2, 3.3, 5.1, 5.2, 5.5, 5.6, 6, 7, 11, and 12 of this Agreement shall survive termination of this Agreement by either party for any reason.

 

IN WITNESS WHEREOF , this Agreement has been executed and delivered by the parties hereto as of the Effective Date.

 

DIGIMARC CORPORATION

 

<[**]>

 

 

 

By:

 

 

By:

 

Name:

 

 

Name:

 

Title:

 

 

Title:

 

Date:

 

 

Date:

 

 


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ATTACHMENT 1

 

[**]

 

The [**] will cause the following [**] to take place:

 

(a)            [**]

 

(b)            [**]

 

(c)            [**] by {date TBD}[**]

 


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ATTACHMENT 2

 

DRAFT OPINION OF COUNSEL

 

Digimarc Corporation

9405 SW Gemini Drive

Beaverton, OR 97008

USA

 

Attention:

 

President and CEO

 

Dear:

 

In connection with your proposal to grant a license to <[**]> to use the [**] and for no other purpose, we confirm that:

 

(a)            each provision of this Agreement is valid and enforceable against <[**]> under the laws of <[**]>; and

 

(b)            none of the [**] described below, at the time of writing, contravenes any law, regulation, policy, principle, or doctrine in effect in the jurisdiction of the <principal place of business/head office> of <[**]>.

 

<[**]>

 

Yours truly,

 

 


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ATTACHMENT 3

 

PROBLEM REPORT

 

Each problem report will contain all information necessary to reproduce or demonstrate the occurrence of the problem.  Problem reports will [**] and will be delivered electronically in a format to be provided by Digimarc.

 

Problem reports will contain:

 

·       Date problem was encountered

·       Detailed description of the problem, including the frequency with which the problem occurs

·       Name and [**] the problem

·       Step by step instructions to reproduce the problem

·       All data files required to reproduce the problem

·       [**]

·       Severity of problem

·       Contact information for person to contact for further information (name, phone number, FAX number, email address)

 

Licensee agrees to work with Digimarc to provide reasonable additional information and perform  reasonable additional tests, as requested by Digimarc, to assist Digimarc in resolution of the problem.

 


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ATTACHMENT 4

 

PAYMENT FOR SERVICES

 

Digimarc shall bill [**] for services in one hour increments at the following hourly rates:

 

Technical/Design Consultant

 

[**]

Senior Engineer

 

[**]

R&D/Engineering Executive

 

[**]

Project Manager

 

[**]

Administrator/Scheduler

 

[**]

 

Fees for services will be invoiced on the earlier of 1) the last day of the month or 2) the completion of the Services.  Invoices are due thirty (30) days from the date of receipt of a correct invoice.  A late charge of 1.5% per month will be charged on any late payments.  All fees are due and payable [**].

 

[**] will reimburse Digimarc for all out-of-pocket expenses reasonably and necessarily incurred in providing the Verification Tests and other services.  Expenses will be itemized and reported by category.  Out-of-pocket expenses will not be “marked up” by Digimarc.  Costs include, but are not limited to, reasonable travel and lodging expenses, telephone and fax charges, postage and overnight deliveries, and charges for rental equipment or materials purchased specifically to be used in providing the Verification Tests and other services.  All invoices for out-of-pocket expenses will be issued monthly in arrears and are due thirty (30) days from the date of receipt of a correct invoice.  Supporting receipts and vouchers will be available for review at Digimarc’s offices.  A late charge of 1.5% per month will be charged on any late payments. Payments will additionally include Value Added taxes and other tariffs and fees that may be imposed [**].

 


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ATTACHMENT 5

 

IDENTIFICATION OF [**]

 


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ATTACHMENT 6

 

[**]

 


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SCHEDULE “L-1”

 

[**] LICENSE AGREEMENT - [**]

 

This [**] LICENSE AGREEMENT ( the “Agreement”) is made

BETWEEN

 

<name and address of Licensee> (“Licensee”)

 

- AND -

 

DIGIMARC CORPORATION , a corporation incorporated under the laws of Delaware and having its head office at 9405 SW Gemini Drive, Beaverton, Oregon. U.S.A.  97006 (“Digimarc”)

 

“[**]”

 

RECITALS

 

Digimarc has expertise in, and owns extensive intellectual property, including patents, patent applications, copyrights and trade secrets related to digital watermarks, [**], copyright protection, and device control;

 

The [**] possesses or will possess intellectual property rights related to the application of such intellectual property to [**]; and

 

Digimarc and [**] have cooperated in the development of means, using such intellectual property, [**]; and

 

Digimarc is licensing its [**] authorized by a duly licensed [**], and

 

Licensee, having been authorized by a duly licensed [**], desires access to such technology so that Licensee can include Digimarc’s [**];

 

In consideration of these premises , the covenants set out in this Agreement and for other good and valuable consideration, the receipt and adequacy of which are acknowledged by each of the parties, the parties agree as follows:

 


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1.              DEFINITIONS AND PRINCIPLES OF INTERPRETATION

 

In this Agreement:

 

“Agreement” means these articles of agreement, including the Attachments, and those documents as specified or referenced in this Agreement as forming part of the Agreement, all as may be amended from time to time;

 

“Arbitration Agreement” means the Arbitration Agreement entered into between the parties and others effective 1 January [**], as amended from time to time;

 

“Attachment” means a document specified as being attached to this Agreement;

 

[**]

 

“Business Day” means a day on which both Digimarc and Licensee are open for business at their respective addresses noted above;

 

“Confidential Information” means information disclosed before or during the Term of this Agreement in any form which, if disclosed in tangible form, is or was labeled “Confidential”, “Proprietary” or with a similar legend, or if disclosed orally is or was information that by its nature would be understood to be confidential to the Discloser. For greater certainty, the Confidential Information of Digimarc includes the Digimarc IPR and the [**];

 

[**]

 

“Consulting Services” means the Integration Support and all other services that Digimarc provides to Licensee regarding [**], and such other matters as Licensee may request and Digimarc agrees to provide, pursuant to this Agreement;

 

“Digimarc IPR” means Intellectual Property Rights owned by Digimarc, now or during the Term of this Agreement, to the extent that same specifically relates to or forms part of [**];

 

“Digital [**]” refers to [**] (including [**]) that are [**] from [**] by [**] of [**], which [**] of [**] and yet do not significantly [**] from the aesthetics of the [**] or [**] thereby. Examples include, but are not limited to:

 

1.              generally imperceptible changes to [**] or placement in [**];

2.              [**] of a substrate where the [**] substantially uniform to human touch;

3.              slight localized changes to [**] or [**] of a printed document;

4.              slight changes to [**]; or

5.              [**] of substantially [**];

 

“Discloser” means a party that has disclosed or otherwise made available its Confidential Information to the other party;

 

[**]

 

“Effective Date” means the later of the date on which this Agreement is last signed by the parties and the date on which Digimarc receives written notice from the [**] that the Licensee is authorized to [**];

 


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[**]

 

“Field of Use” means the field of [**];

 

“Improvement” means an improvement provided to [**] under clause 2.14 of the [**] Agreement;

 

“Installation” means installation of the Digimarc [**] in accordance with in the design work flow of the Licensee.

 

“Integration Support” means the consulting and programming services to be provided by Digimarc to Licensee to assist Licensee to [**];

 

“Intellectual Property Rights” or “IPR” means all intellectual property rights existing now and in the future including, without limitation, trade secrets, copyright, database rights, know-how, topographies, patents and patent applications;

 

“[**]” means the [**] named above;

 

[**]

 

“Recipient” means the party to which the Confidential Information of the other party has been disclosed or otherwise made available;

 

“Services” means Installation, the Verification Tests, the Training, and the Consulting Services, or any of them;

 

“Term” means the period commencing on the Effective Date and ending on the earlier of 31 December [**] or the date of termination of this Agreement;

 

“Training” means the training in the use of the [**] described in Attachment 6; and

 

“Verification Test” means a test or tests developed under the [**] Agreement to determine [**].

 

1.2            Interpretation - In this Agreement:

 

1.2.1         unless otherwise specified, all references to money amounts are to the currency of the United States of America;

 

1.2.2         the use of words in the singular or plural, or with a particular gender, shall not limit the scope or exclude the application of any provision of this Agreement to such person or persons or circumstances as the context otherwise permits;

 

1.2.3         whenever a provision of this Agreement requires an approval or consent by a party to this Agreement and notice of such approval or consent is not delivered within the applicable time, then, the party shall be conclusively deemed to have withheld the consent or approval;

 


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1.2.4                         unless otherwise specified, the number of days within or following which any payment is to be made or act is to be done shall be interpreted to be continuous and shall be calculated by excluding the day on which the period commences and including the day which ends the period and by extending the period to the next Business Day if the last day of the period is not a Business Day;

 

1.2.5                         unless otherwise specified, the order of precedence for interpreting this Agreement shall be:

 

(a)                                   this Agreement, excluding Attachments, and

 

(b)                                  the Attachments;

 

1.2.6                         for greater certainty, a party or representative to which this Agreement grants the right to make a decision or determination in the sole discretion of the party or representative is not required to act reasonably in making the decision or determination and no such decision or determination may be challenged by the other party under the Arbitration Agreement or otherwise;

 

1.2.7                         the words “includes” or “including” will be construed as meaning “included without limitation” and “including without limitation” as the case may be; and

 

1.2.8                         a clause or Attachment, unless the context requires otherwise, is a reference to a clause to, an Attachment of, or a paragraph of an Attachment to, this Agreement, as amended from time to time in accordance with this Agreement.

 

1.3                                  Applicable Law - This Agreement shall be construed in accordance with the laws of England to the exclusion of its rules of conflicts of laws.

 

1.4                                  Attachments - The attachments to this Agreement, listed below, are an integral part of this Agreement:

 

Attachment

 

Description

Attachment “1”

 

[**]

Attachment “2”

 

Problem Report

Attachment “3”

 

Payment for Services

Attachment “4”

 

[**]

Attachment “5”

 

[**]

Attachment “6”

 

Training

 


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2.              GRANT OF RIGHTS

 

2.1            Subject to the terms of this Agreement, Digimarc hereby grants to Licensee a [**] license in the Field of Use to use the [**], the Digimarc IPR and the [**] IPR at the [**] to:

 

(a)            [**];

 

(b)            [**];

 

(c)            [**]; and

 

(d)            [**] to [**].

 

2.2            For greater certainty, the foregoing license applies [**].

 

2.3            Licensee shall not use the [**], the Digimarc IPR or the [**] IPR at, or transfer the Digimarc IPR or [**] IPR to, any place other than the [**].

 

2.4            Licensee acknowledges and agrees that the Digimarc IPR, and any technology developed by Digimarc during the course of its work with Licensee under this Agreement is the property of Digimarc and that, except as otherwise expressly set out in this Agreement, Licensee has no right to sublicense it. Licensee acknowledges that it may [**] unless and until, and only during such period, that [**] is licensed therefore by Digimarc.

 

2.5            Licensee acknowledges and agrees that the [**] IPR is the property of its owner and that Licensee has no right to sublicense it.

 

2.6            Nothing in this Agreement shall be construed to grant, by implication or otherwise, any broader rights than those specifically granted herein.

 

2.7            Digimarc shall obtain at its own expense all licenses or permits required to be obtained from the Government of the United States in order for Digimarc to comply with its obligations under this Agreement including, without limitation, to deliver [**], and grant the associated licenses to Licensee.

 

2.8            Digimarc shall inform Licensee within thirty (30) days after the end of each calendar quarter during the Term of all Improvements relating to [**] which Improvements Digimarc has made, or caused or permitted to be made, during the course of its work with Licensee under this Agreement.  Following the provision of the information under this clause 2.8, Digimarc shall provide to Licensee within a reasonable period of time following request, the Technical Information for those Improvements requested by Licensee in writing.

 

2.9            Digimarc hereby grants to Licensee a [**] license to use the Improvements described in clause 2.8 and in any patents thereon owned or otherwise licenseable by Digimarc.  Such license shall continue until this Agreement expires or is terminated or until Licensee has no further rights to Digimarc IPR, whichever occurs last.

 


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2.10          For greater certainty, the obligations set out in clauses 2.8 and 2.9 shall not apply to any such Improvements which Digimarc can demonstrate would have been made irrespective of Digimarc’s work with Licensee under this Agreement.

 

3.              SERVICES

 

3.1    Digimarc shall ship [**] to the Licensee within ten (10) Business Days after the Effective Date or after instructions from the [**] whichever is later. The shipment shall be by air, Cost, Insurance and Freight (C.I.F.) closest major airport (i.e., Digimarc shall be responsible for transportation and insurance to this port of entry).

 

3.2    Digimarc shall provide Installation of the [**] at Licensee’s [**] for the fees described in clause 4.  The Installation will take no more than ten (10) person days, provided the site is prepared according to a site preparation guide to be provided to Licensee by Digimarc reasonably prior to Installation.

 

3.3         Digimarc shall provide the Training to Licensee within ten (10) Business Days after completion of installation of the [**] or at such other time as the parties may agree for the fees described in clause 4.  The [**] training will be designed to be delivered by one trainer in five days for up to two trainees, provided the trainees [**].

 

3.4            No later than sixty (60) Business Days after every written request made by Licensee during the Term, Digimarc shall provide Integration Support to Licensee on a date or dates agreed between Digimarc and the Licensee for the fees described in clause 4.

 

3.5            Commencing no later than twenty (20) Business Days after every written request made by Licensee during the Term, Digimarc shall conduct Verification Tests of [**] on a date or dates agreed between Digimarc and Licensee for the fees described in clause 4.

 

3.6            Commencing no later than five (5) Business Days after every written request therefore made by Licensee during the Term, Digimarc shall schedule Consulting Services, which Services shall commence not less than thirty (30) Business Days after the written request or at such other time agreed between Digimarc and Licensee.

 

3.7            Digimarc shall periodically apprise Licensee of Improvements which Digimarc makes to the [**].  Rights to employ such Improvements shall automatically be granted to Licensee pursuant to the terms of clause 2 at no additional charge to Licensee.

 

4.              FEES

 

4.1            Licensee shall pay to Digimarc a fee for the Services as detailed below.  The fee for Services provided:

 

(a)            on or before 31 December [**], is as set out in Attachment 3;

 


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(b)            after 31 December [**], will be no greater than the fee then paid to Digimarc for similar services by Digimarc’s most favoured customer.

 

4.2            Except as otherwise expressly provided in this Agreement, Licensee shall pay Digimarc all sales, use, goods and services or other similar taxes levied by any government in the United States or [**] principal place of business which Digimarc is obliged to collect and remit to [**] in connection with any amount paid by Licensee to Digimarc under this Agreement.

 

4.3            Digimarc is responsible for, and shall indemnify Licensee against, and hold Licensee harmless from, the payment of all taxes levied by any government on or in respect of Digimarc’s income and any amounts required by law to be paid in respect of social benefits for Digimarc’s employees relating to or arising out of the performance of the Services. If required by law, Licensee shall deduct all such taxes and amounts from the amounts otherwise payable to Digimarc and remit them to the appropriate authorities.

 

5.              NUMBER NOT USED

 

6.              LICENSEE RESPONSIBILITIES

 

6.1            Licensee shall promptly report to Digimarc every instance which comes to its attention of:

 

(i)             [**] to meet the specifications established under the [**] Agreement in the form of the Problem Report attached as Attachment 2;

 

(ii)            unauthorised access to the [**] in the possession of Licensee; or

 

(iii)           [**]

 

6.2            Licensee shall inform Digimarc within thirty (30) days after the end of each calendar quarter during the Term of all improvements relating to (i) [**]; (ii) [**], (iii) [**] (iv) any other part of the [**] has made, or caused or permitted to be made, as a result of knowledge of Digimarc Confidential Information.  The first such information shall be provided to Digimarc within thirty (30) days after the Effective Date and shall cover improvements made from the date Licensee first learned of the Digimarc Confidential Information. Following the provision of the information under this clause 6.2, Licensee shall provide to Digimarc within a reasonable period of time following request, the Technical Information for those improvements requested by Digimarc in writing.

 

6.3            Licensee hereby grants to Digimarc a royalty-free, non-exclusive, sub-licenseable worldwide license to use the improvements described in clause 6.2 and in any patents thereon owned or otherwise licenseable by Licensee.

 

6.4            Such license shall continue until this Agreement expires or is terminated, or until Licensee has no further rights to Digimarc IPR, whichever occurs last.

 


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6.5            For greater certainty, the obligations set out in clauses 6.2, 6.3, and 6.4 shall not apply to any such improvement which the Licensee can demonstrate would have been made irrespective of knowledge of the Digimarc Confidential Information.

 

6.6            Licensee shall, as directed by [**], cooperate fully with [**] and/or Digimarc in all matters concerning testing of [**] to confirm that they pass the Verification Tests.

 

7.              REPRESENTATIONS AND WARRANTIES OF DIGIMARC.

 

7.1            General - Digimarc represents, warrants and undertakes to Licensee that from and after the Effective Date:

 

(a)            the Services provided under this Agreement will be of professional quality conforming to generally accepted practices for like services and will be performed at all times in a timely and cost effective manner and, for greater certainty Digimarc shall employ the standard of care in performing the Services that would be expected of an [**] of the same or similar type as the [**] which comprises the [**];

 

(b)            Digimarc is duly incorporated and organized and is validly subsisting under the laws of the State of Delaware, U.S.A. or some other state in the United States with full corporate power and authority to enter into this Agreement;

 

(c)            to the best of its knowledge, neither this Agreement nor the Services will contravene, breach, or result in any default under any agreement, permit, by-law, or law or regulation to which Digimarc is subject or by which it is bound including, for greater certainty any laws or regulations in effect in the United States governing export;

 

(d)            this Agreement when executed and delivered by Digimarc shall constitute a valid and binding agreement with Digimarc enforceable against Digimarc according to its terms; and

 

(e)            Digimarc will at all material times have the right to grant the licenses to the Digimarc IPR as required by this Agreement.

 

7.2            Digimarc represents, warrants and undertakes to Licensee that:

 

(a)            [**] provided to Licensee hereunder will, for a period of one hundred eighty (180) days following the date on [**] of the [**] first commences, meet the specifications for that version of [**] accepted by [**];

 

(b)            until the last day of the Term, [**]; and

 

(c)            incorporated as part of its installation and integration practices and procedures are those measures and security procedures commercially and reasonably available on the date for

 


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delivery of a component of [**] to search for, detect and eliminate [**] viruses in [**] that could interfere with the use of [**] or corrupt, interfere with or damage any data;

 

(d)            the [**] shall contain no lock, clock, timer, counter, copy protection feature, replication device or intentional defects (including but not limited to “viruses” or “worms” as such terms are commonly used in the computer industry), CPU serial number reference, or other device which might:

 

(i)             lock, disable or erase[**] or any data which is loaded on [**] so as to prevent full use of [**] by authorized persons; or

 

(ii)            require action or intervention by Digimarc or any other person to allow properly trained and authorized persons to use [**];

 

(e)            the source code for [**] will support the year 2000 and neither performance nor functionality will be affected by dates prior to, during and after the year 2000, and , for greater certainty, the [**] will switch to 1 January 2000 on 1 January 2000, and the year 2000 will be recognized as a leap year.

 

7.3            If [**] fails to meet the relevant Specifications then Digimarc shall, within thirty (30) days after receipt of written notice of the failure from Licensee, on the form attached as Attachment 2, rectify the failure and provide a [**] to Licensee.

 

8.              REPRESENTATIONS AND WARRANTIES OF LICENSEE

 

8.1            Licensee represents and warrants to Digimarc that:

 

(a)            Licensee has full power and authority to enter into this Agreement; and

 

(b)            this Agreement when executed and delivered by Licensee shall constitute a valid, binding and enforceable obligation of Licensee.

 

8.2            Licensee makes no representations, warranties or undertakings that Licensee has any right to grant the licenses required to be granted by clause 6.3 and Digimarc shall be solely responsible for determining that such improvements are suitable for the intended use and for the consequences of any use of the same whether by Digimarc or others, and Licensee and hereby disclaims all liability in connection therewith.

 

9.              CONFIDENTIALITY

 

9.1            Except as otherwise expressly permitted by this Agreement, a Recipient shall not use,  reproduce or disclose the Confidential Information of the Discloser for any purpose other than as reasonably necessary to comply with its obligations under this Agreement or to exercise any rights or licenses granted to it under or pursuant to this Agreement.

 


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9.2            The Recipient shall protect the Confidential Information of the Discloser from disclosure by using the same degree of care, which shall be no less than a reasonable degree of care, as the Recipient uses to protect its own confidential information.

 

9.3            On written request from the Discloser, the Recipient shall return, or certify the destruction of, all originals and copies of the Discloser’s Confidential Information in the Recipient’s possession or control which the Recipient does not need to retain in order to perform any obligations imposed, or exercise any rights acquired, by this Agreement.

 

9.4            A Recipient may, on a need to know basis, and only for the purposes described in clause 9.1, give the other party’s Confidential Information to the Recipient’s employees or authorized subcontractors provided that such employee or subcontractor shall have entered into a non-disclosure agreement in respect of such Confidential Information in favour of the Discloser on terms materially similar to the provisions of this clause 9.

 

9.5            The obligations set out in this clause 9 will not apply to any Confidential Information that:

 

(a)            is or becomes publicly available other than through the fault of the Recipient;

 

(b)            was known to the Recipient prior to disclosure as shown by documentation sufficient to establish such knowledge;

 

(c)            was or is lawfully disclosed to the Recipient by a third party who did not breach any obligation of confidence by such disclosure and who made the disclosure without restriction on further disclosure all of which is shown by documentation sufficient to establish same; or

 

(d)            is required by law to be disclosed provided, however, that the Recipient shall first give written notice to the Discloser before the disclosure so that the Discloser may seek an appropriate protective order.

 

Notwithstanding the foregoing, the fact that Confidential Information, or any part thereof, can be linked together by a search of publications and other information, followed by a selection of a series of such items of knowledge from unconnected sources, and fitting together those items of knowledge so as to duplicate or recreate any item of Confidential Information, shall not be deemed to cause the Confidential Information, or any part thereof, to be included within exceptions (a), (b) or (c), above.

 

9.6            The obligations of the parties under this clause 9 will survive the Term or sooner termination of this Agreement and will remain in full force and effect regardless of the cause of any termination.

 

9.7            Nothing in this Agreement shall be construed to require Licensee to disclose any information which is confidential to a third party including for greater certainty a [**]

 


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10.           INTELLECTUAL PROPERTY INDEMNIFICATION

 

10.1          Licensee shall provide Digimarc with prompt written notice of any claim, demand or action against Licensee based on an allegation that the Digimarc IPR or any part thereof, infringes any Intellectual Property Right of any person (referred to below as a “Claim”).

 

10.2          Subject to the limitations set out in clauses 10.3 to 10.7 inclusive, Digimarc shall, at its own expense:

 

(a)            negotiate the resolution of any such Claim;

 

(b)            pay all costs associated with the Claim; and

 

(c)            defend any action based on the Claim.

 

10.3          Licensee shall, at Digimarc’s expense, comply with all reasonable requests by Digimarc for assistance from Licensee in connection with the settlement or defense of the Claim.

 

10.4          Notwithstanding any other provision of this Agreement to the contrary, but subject to the limitations in this clause 10, Digimarc shall indemnify Licensee against and save Licensee harmless from all loss, costs, liabilities including an award of damages, and expenses, including legal fees, arising from each Claim first notified to Digimarc prior to 31 December [**].  The obligation set out in this clause 10 shall not apply in respect of any settlement made by Licensee without the consent of Digimarc.

 

10.5          The liability of Digimarc under clause 10.4 of this Agreement and under the equivalent clause of every other licence or consulting agreement entered into between Digimarc and [**] and [**] pursuant to the provisions of the [**] Agreement will not exceed the Indemnity Limit as defined in clause 10.6 below.

 

10.6          The Indemnity Limit shall be [**], or such higher amount as notified by Digimarc from time to time.

 

10.7          For the purposes of clauses 10.2 through 10.6 inclusive, “Claim” shall mean any Claim, other than a Claim for patent infringement which Digimarc can demonstrate occurred without Digimarc acting recklessly or negligently.

 

11.          TERM AND TERMINATION

 

11.1          This Agreement will take effect on the Effective Date and will remain in force throughout the Term unless sooner terminated as provided herein.

 


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11.2                            Either party may terminate this Agreement if the other party breaches any of its obligations under this Agreement and fails to remedy such breach within thirty (30) days after receiving written notice of such breach from the other party.

 

11.3                            Upon termination of this Agreement:

 

(a)                                   all rights granted to Licensee under this Agreement will immediately terminate. No interest in any such rights will thereafter remain with Licensee, except that [**], but no further [**] Licensee shall be permitted; and

 

(b)                                  each party shall return, or certify the destruction of, to the Discloser, all originals and copies of the Discloser’s Confidential Information in the party’s possession or control which the party does not need to retain in order to exercise any rights acquired by this Agreement.

 

11.4                            No termination of this Agreement will in any manner release, or be construed as releasing, any party from any liability arising out of or in connection with that party’s breach of or failure to perform any covenant, duty or obligation contained herein prior to the date of such termination.

 

11.5                            Upon termination of the [**] Agreement by Digimarc for cause, the rights of Licensee hereunder to use the Digimarc IPR shall be deemed to be restricted to the [**] as of the date of such termination.

 

11.6                            Termination of the license between Digimarc and [**] shall automatically act to terminate this Agreement.

 

12.                                DISPUTE RESOLUTION

 

12.1                            Any Dispute (as defined in the Arbitration Agreement) shall be finally settled by arbitration in accordance with the Arbitration Agreement.

 

12.2                            Unless otherwise agreed between the parties or unless the subject matter of the dispute resolution proceedings is a party’s right to terminate this Agreement, the Services shall continue during the dispute resolution proceedings and payments due to Digimarc shall not be withheld on account of such proceedings unless that particular services or payment is the subject matter of the proceedings.  Notwithstanding the foregoing, Licensee may in its sole discretion instruct Digimarc to continue to perform such services which are the subject matter of the proceedings and Digimarc shall act in accordance with those instructions, subject to payment under clause 4.1.

 


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13.           MISCELLANEOUS PROVISIONS

 

13.1          Remedies Cumulative - Except as otherwise expressly set out in this Agreement:

 

(a)            each and every right, power and remedy of a party will be considered to be cumulative with and in addition to any other right, power and remedy which such party may have at law or in equity in the event of breach of any of the terms of this Agreement;

 

(b)            the exercise or partial exercise of any right, power or remedy will neither constitute the exclusive election thereof nor the waiver of any other right, power or remedy available to such party; and

 

(c)            a party terminating this Agreement in accordance with the provisions of the Termination clause will have no liability or obligation to the other as a result of or with respect to the termination.

 

13.2          All notices under this Agreement shall be delivered by fax, or recognized [**] courier service.  The notice shall be deemed effective as of the date of delivery to the address of the party specified below as evidenced by a delivery receipt or the addressee’s registry of incoming correspondence.  Unless otherwise expressly set out in this Agreement, all notices to a party will be sent to the party’s authorized representative identified below and all notices from a party will be sent by the party’s authorized representative identified below.

 

13.3          Any notice to Licensee shall be sent to both of, and any notice from Licensee shall be sent by either:

 

Name 1

 

Name 2

Address 1

 

Address 2

 

13.4          Any notice to Digimarc shall be sent to both of, and any notice from Digimarc shall be sent by either:

 

Mr. Robert Chamness

 

Mr. Scott Carr

Vice President and General Counsel

 

President [**]

Digimarc Corporation

 

Digimarc Corporation

9405 SW Gemini Drive

 

9405 SW Gemini Drive

Beaverton, OR 97008

 

Beaverton, OR 97008

Fax: (503) 469-4777

 

Fax: (503) 469-4777

 

13.5          A copy of every notice sent by either party shall be sent to: [**].

 

13.6          A party may change its address for notice by notice to the other party in accordance with the foregoing provisions.

 

13.7          Severability.     If any part of this Agreement is held by an arbitral tribunal appointed pursuant to the Arbitration Agreement or other competent authority to be void or unenforceable,

 


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the parties agree that such determination will not result in the nullity or unenforceability of the remaining parts of this Agreement, which will continue in force to the fullest extent permitted by law.  The parties further agree to replace such void or unenforceable part of this Agreement with a valid and enforceable provision that will achieve, to the extent legally permissible, the economic, business and other purposes of the void or unenforceable part.

 

13.8          Counterparts.    This Agreement may be executed in separate counterparts, and by facsimile, each of which will be deemed an original, and when executed, separately or together, will constitute a single original instrument, effective in the same manner as if the parties had executed one and the same instrument.

 

13.9          Entire Agreement.    This Agreement is intended by the parties to be the final expression of their agreement and constitutes and embodies the entire agreement and understanding between the parties hereto and constitutes a complete and exclusive statement of the terms and conditions thereof, and will supersede any and all prior correspondence, conversations, negotiations, agreements or understandings relating to the same subject matter.

 

13.10        Amendments.    No change in, modification of or addition to the terms and conditions contained herein will be valid as between the parties unless set forth in a writing that is signed by an authorized representative of each of the parties and which specifically states that it constitutes an amendment to this Agreement.

 

13.11        Waiver.     No waiver of any term, provision, or condition of this Agreement, will be effective unless in a written document signed by the waiving party and no such waiver in any one or more instances, will be deemed to be, or be construed as, a further or continuing waiver of that term, provision or condition or any other term, provision or condition of this Agreement.

 

13.12        Assignment and Successors.    This Agreement may not be assigned by Licensee without Digimarc’s consent, which consent shall not be unreasonably withheld or delayed.  This Agreement and all of its terms, conditions and covenants are intended to be fully effective and binding, to the extent permitted by law, on the successors and permitted assigns of the parties hereto.

 

13.13        Captions.    Captions are provided in this Agreement for convenience only and they form no part, and are not to serve as a basis for interpretation or construction, of this Agreement, nor as evidence of the intention of the parties hereto.

 

13.14        Disclaimer of Agency.     Nothing contained in this Agreement is intended or will be construed so as to constitute the parties to this Agreement as partners or joint venturers or as agents of each other. Neither party will have any express or implied right or authority to assume or create any obligations on behalf of or in the name of the other party or to bind any other party in any contract, agreement or undertaking with any third party.  No employee of a party shall be deemed or considered to be an employee of the other party or of both parties.

 


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13.15        Publicity.   The parties agree that from time-to-time it will be beneficial to both parties to issue [**] and [**] from the [**].  Each party agrees to submit for approval by the other party any [**] that involves the other party, which approval shall not unreasonably be withheld.

 

13.16        Effectiveness.    This Agreement shall not be effective until it is signed by both of the parties.

 

13.17        Ambiguities.   Each party and its counsel have participated fully in the review and revision of this Agreement. Any rule or construction to the effect that ambiguities are to be resolved against the drafting party shall not apply in interpreting this Agreement.

 

13.18        Survival.    All clauses of this Agreement which expressly or by implication are intended to survive the termination of this Agreement will do so and, for greater certainty and notwithstanding any provision in this Agreement to the contrary, the provisions of clause 2.9, 4.2, 4.3, 6.1, 6.3, 6.4, 7.2(b), 9, 10, 12 and 13 of this Agreement shall survive termination of this Agreement by either party for any reason.

 

IN WITNESS WHEREOF , this Agreement has been executed and delivered by the parties hereto as of the Effective Date.

 

DIGIMARC CORPORATION

 

<Licensee>

 

 

 

 

 

 

By:

 

 

By:

 

Name:

 

 

Name:

 

Title:

 

 

Title:

 

Date:

 

 

Date:

 

 


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ATTACHMENT 1

 

[**]

 

[**] will cause the following [**] to take place:

 

(a)            [**]

 

(b)            [**]

 

(c)            [**] a date TBD [**]

 


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ATTACHMENT 2

 

PROBLEM REPORT

 

Each problem report will contain all information necessary to reproduce or demonstrate the occurrence of the problem.  Problem reports will [**] and will be delivered electronically in a format to be provided by Digimarc.

 

Problem reports will contain:

 

·                                           Date problem was encountered

·                                           Detailed description of the problem, including the frequency with which the problem occurs

·                                           Name and [**] the problem

·                                           Step by step instructions to reproduce the problem

·                                           All data files required to reproduce the problem

·                                           [**]

·                                           Severity of problem

·                                           Contact information for person to contact for further information (name, phone number, FAX number, email address)

 

Licensee agrees to work with Digimarc to provide reasonable additional information and perform reasonable additional tests, as requested by Digimarc, to assist Digimarc in resolution of the problem.

 


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ATTACHMENT 3

 

PAYMENT FOR SERVICES

 

Digimarc shall bill Licensee for Services in one hour increments at the following hourly rates:

 

Technical/Design Consultant

 

[**]

 

Senior Engineer

 

[**]

 

R&D/Engineering Executive

 

[**]

 

Project Manager

 

[**]

 

Administrator/Scheduler

 

[**]

 

 

Fees for Services will be invoiced on the earlier of 1) the last day of the month or 2) the completion of the Services.  Invoices are due thirty (30) days from the date of receipt of a correct invoice.  A late charge of 1.5% per month will be charged on any late payments.  All fees are due and payable in [**].

 

Licensee will reimburse Digimarc for all out-of-pocket expenses reasonably and necessarily incurred in providing the Services.  Expenses will be itemized and reported by category.  Out-of-pocket expenses will not be “marked up” by Digimarc.  Costs include, but are not limited to, reasonable travel and lodging expenses, telephone and fax charges, postage and overnight deliveries, and charges for rental equipment or materials purchased specifically to be used in providing the Service.  All invoices for out-of-pocket expenses will be issued monthly in arrears and are due thirty (30) days from the date of receipt of a correct invoice. Supporting receipts and vouchers will be available for review at Digimarc’s offices.  A late charge of 1.5% per month will be charged on any late payments.  Payments will additionally include Value Added taxes and other tariffs and fees that may be imposed [**].

 


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ATTACHMENT 4

 

[**]

 


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ATTACHMENT 5

 

IDENTIFICATION OF [**]

 


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ATTACHMENT 6

 

TRAINING

 

1.0

 

As part of the [**], Digimarc shall develop a program of training acceptable to the [**] Project Director (as defined in the [**] Agreement) in the [**].

 

 

 

2.0

 

Digimarc shall deliver the Training as follows:

 

 

 

2.1

 

Digimarc shall provide the Training to up to two (2) people simultaneously. The trainees will be experienced in digital design system operation.

 

 

 

2.2

 

Digimarc shall conduct the Training at the [**] or, at the request of Licensee, at Digimarc’s [**] or at some other place agreed between Digimarc and Licensee.

 

 

 

2.3

 

Digimarc shall give Licensee reasonable notice concerning the equipment which Digimarc will require in order to conduct the Training. Licensee shall provide all such equipment at its own expense. If the parties are unable to agree on the equipment to be provided either party may refer the matter for decision to the DLA Contract Authority (as defined in the [**] Agreement).

 

 

 

2.4

 

Digimarc shall conduct the Training using the [**].

 

 

 

2.5

 

Digimarc shall provide a training manual [**] to every trainee. Any [**] which the trainees may require will be provided by Licensee at its own expense.

 

 

 

2.6

 

Digimarc shall provide each trainee with a certificate of training at the completion of the Training session.

 

 

 

2.7

 

Digimarc shall conduct the Training [**].

 


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SCHEDULE “L-2”

 

[**] AGREEMENT [**]

 

This [**]LICENSE AGREEMENT ( the “Agreement”) is made

BETWEEN

 

<name and address of Licensee> (“Licensee”)

 

- AND -

 

DIGIMARC CORPORATION , a corporation incorporated under the laws of Delaware and having its head office at 9405 SW Gemini Drive, Beaverton, Oregon. U.S.A.  97006 (“Digimarc”)

 

[**]

RECITALS

 

Digimarc has expertise in, and owns extensive intellectual property, including patents, patent applications, copyrights and trade secrets related to digital watermarks, [**], copyright protection, and device control;

 

[**]possesses or will possess intellectual property rights related to the application of such intellectual property [**]; and

 

Digimarc and [**] have cooperated in the development of means, using such intellectual property, [**]; and

 

Digimarc is licensing its [**] authorized by a duly licensed[**]; and

 

Licensee, having been authorized by a duly licensed [**], desires access to such technology so that Licensee can include Digimarc’s [**].

 

In consideration of these premises , the covenants set out in this Agreement and for other good and valuable consideration, the receipt and adequacy of which are acknowledged by each of the parties, the parties agree as follows:

 


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1.                                       DEFINITIONS AND PRINCIPLES OF INTERPRETATION

 

In this Agreement:

 

“Agreement” means these articles of agreement, including the Attachments, and those documents as specified or referenced in this Agreement as forming part of the Agreement, all as may be amended from time to time;

 

“Arbitration Agreement” means the Arbitration Agreement entered into between the parties and others effective 1 January [**], as amended from time to time;

 

“Attachment” means a document specified as being attached to this Agreement;

 

[**]

“Business Day” means a day on which both Digimarc and Licensee are open for business at their respective addresses noted above;

 

“Confidential Information” means information disclosed before or during the Term of this Agreement in any form which, if disclosed in tangible form, is or was labeled “Confidential”, “Proprietary” or with a similar legend, or if disclosed orally is or was information that by its nature would be understood to be confidential to the Discloser. For greater certainty, the Confidential Information of Digimarc includes the Digimarc IPR and the [**]

 

[**]

“Consulting Services” means the Integration Support and all other services that Digimarc provides to Licensee regarding [**], and such other matters as Licensee may request and Digimarc agrees to provide, pursuant to this Agreement;

 

“Digimarc IPR” means Intellectual Property Rights owned by Digimarc, now or during the Term of this Agreement, to the extent that same specifically relates to or forms part of [**];

 

“Digital [**]” refers to [**] (including [**]) that are [**] from [**] by [**] of [**], which [**] of [**] and yet do not significantly [**] from the aesthetics of the [**] or [**] thereby. Examples include, but are not limited to:

 

1.                generally imperceptible changes to [**] or placement in [**];

2.                [**] of a substrate, where the [**] substantially uniform to human touch;

3.                slight localized changes to [**] or [**] of a printed document;

4.                slight changes to [**]; or

5.                [**] of substantially [**].

 

“Discloser” means a party that has disclosed or otherwise made available its Confidential Information to the other party;

 

[**]

 


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“Effective Date” means the later of the date on which this Agreement is last signed by the parties and the date on which Digimarc receives written notice from the [**]that the Licensee is authorized to [**]

 

[**]

“Field of Use” means the field of [**];

 

“Improvement” means an improvement provided to [**] under clause 2.14 of the [**] Agreement;

 

“Installation” means installation of the Digimarc [**]in accordance with in the design work flow of the Licensee.

 

“Integration Support” means the consulting and programming services to be provided by Digimarc to Licensee to assist Licensee to [**];

 

“Intellectual Property Rights” or “IPR” means all intellectual property rights existing now and in the future including, without limitation, trade secrets, copyright, database rights, know-how, topographies, patents and patent applications;

 

“[**]” means the [**] named above;

 

[**]

“Recipient” means the party to which the Confidential Information of the other party has been disclosed or otherwise made available;

 

“Services” means the Installation, Verification Tests, the Training, and the Consulting Services, or any of them;

 

“Term” means the period commencing on the Effective Date and ending on the earlier of 31 December [**] or the date of termination of this Agreement;

 

“Training” means the training in the use of the [**]described in Attachment 7; and

 

“Verification Test” means a test or tests developed under the [**] Agreement to determine [**].

 

1.2

Interpretation - In this Agreement:

 

 

1.2.1

unless otherwise specified, all references to money amounts are to the currency of the United States of America;

 

 

1.2.2

the use of words in the singular or plural, or with a particular gender, shall not limit the scope or exclude the application of any provision of this Agreement to such person or persons or circumstances as the context otherwise permits;

 


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1.2.3                       whenever a provision of this Agreement requires an approval or consent by a party to this Agreement and notice of such approval or consent is not delivered within the applicable time, then, the party shall be conclusively deemed to have withheld the consent or approval;

 

1.2.4                       unless otherwise specified, the number of days within or following which any payment is to be made or act is to be done shall be interpreted to be continuous and shall be calculated by excluding the day on which the period commences and including the day which ends the period and by extending the period to the next Business Day if the last day of the period is not a Business Day;

 

1.2.5                       unless otherwise specified, the order of precedence for interpreting this Agreement shall be:

 

(a)                                 this Agreement, excluding Attachments, and

 

(b)                                the Attachments;

 

1.2.6                       for greater certainty, a party or representative to which this Agreement grants the right to make a decision or determination in the sole discretion of the party or representative is not required to act reasonably in making the decision or determination and no such decision or determination may be challenged by the other party under the Arbitration Agreement or otherwise;

 

1.2.7                       the words “includes” or “including” will be construed as meaning “included without limitation” and “including without limitation” as the case may be; and

 

1.2.8                       a clause or Attachment, unless the context requires otherwise, is a reference to a clause to, an Attachment of, or a paragraph of an Attachment to, this Agreement, as amended from time to time in accordance with this Agreement.

 

1.3                                Applicable Law - This Agreement shall be construed in accordance with the laws of England to the exclusion of its rules of conflicts of laws.

 

1.4                                Attachments - The attachments to this Agreement, listed below, are an integral part of this Agreement:

 

Attachment

 

Description

Attachment “1”

 

[**]

Attachment “2”

 

Opinion of Counsel

Attachment “3”

 

Problem Report

Attachment “4”

 

Payment for Services

Attachment “5”

 

[**]

Attachment “6”

 

[**]

Attachment “7”

 

Training

 


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2.

GRANT OF RIGHTS

 

 

2.1

Subject to the terms of this Agreement, Digimarc hereby grants to Licensee a [**] license in the Field of Use to use the [**], the Digimarc IPR and [**] IPR at the [**]to:

 

 

(a)

[**]

 

 

(b)

[**]

 

 

(c)

[**]; and

 

 

(d)

[**] to [**].

 

 

2.2

For greater certainty, the foregoing license applies [**]

 

 

2.3

Licensee shall not use the[**], the Digimarc IPR or the [**]IPR at, or transfer the Digimarc IPR or [**]IPR to, any place other than the [**].

 

 

2.4

Licensee acknowledges and agrees that the Digimarc IPR, and any technology developed by Digimarc during the course of its work with Licensee under this Agreement is the property of Digimarc and that, except as otherwise expressly set out in this Agreement, Licensee has no right to sublicense it. Licensee acknowledges that it may [**]unless and until, and only during such period, that [**]is licensed therefore by Digimarc.

 

 

2.5

Licensee acknowledges and agrees that the [**]IPR is the property of its owner and that Licensee has no right to sublicense it.

 

 

2.6

Nothing in this Agreement shall be construed to grant, by implication or otherwise, any broader rights than those specifically granted herein.

 

 

2.7

Digimarc shall obtain at its own expense all licenses or permits required to be obtained from the Government of the United States in order for Digimarc to comply with its obligations under this Agreement including, without limitation, to deliver [**], and grant the foregoing licenses to Licensee.

 

 

2.8

Digimarc shall inform Licensee within thirty (30) days after the end of each calendar quarter during the Term of all Improvements relating to [**]which Improvements Digimarc has made, or caused or permitted to be made, during the course of its work with Licensee under this Agreement. Following the provision of the information under this clause 2.8, Digimarc shall provide to Licensee within a reasonable period of time following request, the Technical Information for those Improvements requested by Licensee in writing.

 


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2.9

Digimarc hereby grants to Licensee a [**] license to use the Improvements described in clause 2.8 and in any patents thereon owned or otherwise licenseable by Digimarc. Such license shall continue until this Agreement expires or is terminated or until Licensee has no further rights to Digimarc IPR, whichever occurs last.

 

 

2.10

For greater certainty, the obligations set out in clauses 2.8 and 2.9 shall not apply to any such Improvements which Digimarc can demonstrate would have been made irrespective of Digimarc’s work with Licensee under this Agreement.

 

 

3.

SERVICES

 

 

3.1

Digimarc shall ship [**]to the Licensee within ten (10) Business Days after the Effective Date or after instructions from the [**]whichever is later. The shipment shall be by air, Cost, Insurance and Freight (C.I.F.) closest major airport (i.e., Digimarc shall be responsible for transportation and insurance to this port of entry).

 

 

3.2

Digimarc shall provide Installation of the [**] at Licensee’s [**]for the fees described in clause 4. The Installation will take no more than ten (10) person days, provided the site is prepared according to a site preparation guide to be provided to Licensee by Digimarc reasonably prior to Installation.

 

 

3.3

Digimarc shall provide the Training to Licensee within ten (10) Business Days after completion of installation of the [**]or at such other time as the parties may agree for the fees described in clause 4. The [**]training will be designed to be delivered by one trainer in five days for up to two trainees, provided the trainees [**].

 

 

3.4

No later than sixty (60) Business Days after every written request made by Licensee during the Term, Digimarc shall provide Integration Support to Licensee on a date or dates agreed between Digimarc and Licensee for the fees described in clause 4.

 

 

3.5

Commencing no later than twenty (20) Business Days after every written request made by Licensee during the Term, Digimarc shall conduct Verification Tests of [**]on a date or dates agreed between Digimarc and Licensee for the fees described in clause 4.

 

 

3.6

Commencing no later than five (5) Business Days after every written request made by Licensee during the Term, Digimarc shall schedule Consulting Services, which Services shall commence not less than thirty (30) Business Days after the written request or at such other time agreed between Digimarc and Licensee.

 

 

3.7

Digimarc shall periodically apprise Licensee of Improvements which Digimarc makes to the[**]. Rights to employ such Improvements shall automatically be granted to Licensee pursuant to the terms of clause 2 at no additional charge to Licensee.

 


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4.

FEES

 

 

4.1

Licensee shall pay to Digimarc a fee for the Services as detailed below. The fee for Services provided:

 

 

(a)

on or before 31 December [**], is as set out in Attachment 4;

 

 

(b)

after 31 December [**], will be no greater than the fee then paid to Digimarc for similar services by Digimarc’s most favoured customer.

 

 

4.2

Except as otherwise expressly provided in this Agreement, Licensee shall pay Digimarc all sales, use, goods and services or other similar taxes levied by any government in the United States or [**] principal place of business which Digimarc is obliged to collect and remit to [**] in connection with any amount paid by Licensee to Digimarc under this Agreement.

 

 

4.3

Digimarc is responsible for, and shall indemnify Licensee against, and hold Licensee harmless from, the payment of all taxes levied by any government on or in respect of Digimarc’s income and any amounts required by law to be paid in respect of social benefits for Digimarc’s employees relating to or arising out of the performance of the Services. If required by law, Licensee shall deduct all such taxes and amounts from the amounts otherwise payable to Digimarc and remit them to the appropriate authorities.

 

 

5.

OPINION OF COUNSEL

 

 

5.1

Before producing [**], Licensee shall obtain and forward to Digimarc a written opinion of counsel substantially in the form attached as Attachment 2 that confirms:

 

 

(a)

the validity and enforceability of the terms of this Agreement under the laws of the jurisdiction of Licensee’s principal place of business; and

 

 

(b)

the legality of each of the [**]under the laws of the jurisdiction of Licensee’s principal place of business.

 

 

5.2

Digimarc shall not unreasonably withhold its consent to any qualifications which Licensee’s counsel may require to be made to such opinion.

 

 

6.

LICENSEE RESPONSIBILITIES

 

 

6.1

Licensee shall promptly report to Digimarc every instance which comes to its attention of:

 

(i)

[**]to meet the specifications established under the [**] Agreement in the form of the Problem Report attached as Attachment 3;

 

 

 

 

(ii)

unauthorised access to the [**]in the possession of Licensee; or

 

 

 

 

(iii)

[**]

 


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6.2

Licensee shall inform Digimarc within thirty (30) days after the end of each calendar quarter during the Term of all improvements relating to (i) [**](ii) [**](iii) [**]and (iv) any other part of the [**] has made, or caused or permitted to be made, as a result of knowledge of Digimarc Confidential Information. The first such information shall be provided to Digimarc within thirty (30) days after the Effective Date and shall cover improvements made from the date Licensee first learned of the Digimarc Confidential Information. Following the provision of the information under this clause 6.2, Licensee shall provide to Digimarc within a reasonable period of time following request, the Technical Information for those improvements requested by Digimarc in writing.

 

 

6.3

Licensee hereby grants to Digimarc a royalty-free, non-exclusive, sub-licenseable worldwide license to use the improvements described in clause 6.2 and in any patents thereon owned or otherwise licenseable by Licensee.

 

 

6.4

Such license shall continue until this Agreement expires or is terminated, or until Licensee has no further rights to Digimarc IPR, whichever occurs last.

 

 

6.5

For greater certainty, the obligations set out in clauses 6.2, 6.3, and 6.4 shall not apply to any such improvement which the Licensee can demonstrate would have been made irrespective of knowledge of the Digimarc Confidential Information.

 

 

6.6

Licensee shall, as directed by[**], cooperate fully with [**]and/or Digimarc in all matters concerning testing of [**] to confirm that they pass the Verification Tests.

 

 

7.

REPRESENTATIONS AND WARRANTIES OF DIGIMARC.

 

 

7.1

General - Digimarc represents, warrants and undertakes to Licensee that from and after the Effective Date:

 

 

(a)

the Services provided under this Agreement will be of professional quality conforming to generally accepted practices for like services and will be performed at all times in a timely and cost effective manner and, for greater certainty Digimarc shall employ the standard of care in performing the Services that would be expected of an [**] of the same or similar type as the [**]which comprises the [**];

 

 

(b)

Digimarc is duly incorporated and organized and is validly subsisting under the laws of the State of Delaware, U.S.A. or some other state in the United States with full corporate power and authority to enter into this Agreement;

 

 

(c)

to the best of its knowledge, neither this Agreement nor the Services will contravene, breach, or result in any default under any agreement, permit, by-law, or law or regulation to which Digimarc is subject or by which it is bound including, for greater certainty any laws or regulations in effect in the United States governing export;

 


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(d)

this Agreement when executed and delivered by Digimarc shall constitute a valid and binding agreement with Digimarc enforceable against Digimarc according to its terms; and

 

 

(e)

Digimarc will at all material times have the right to grant the licenses to the Digimarc IPR as required by this Agreement.

 

 

7.2

Digimarc represents, warrants and undertakes to Licensee that:

 

 

(a)

[**]provided to Licensee hereunder will, for a period of one hundred eighty (180) days following the date on [**] of the [**] first commences, meet the specifications for that version of [**] accepted by [**];

 

 

(b)

until the last day of the Term, [**]; and

 

 

(c)

incorporated as part of its installation and integration practices and procedures are those measures and security procedures commercially and reasonably available on the date for delivery of a component of [**]to search for, detect and eliminate [**]viruses in [**]that could interfere with the use of [**]or corrupt, interfere with or damage any data;

 

 

(d)

[**]shall contain no lock, clock, timer, counter, copy protection feature, replication device or intentional defects (including but not limited to “viruses” or “worms” as such terms are commonly used in the computer industry), CPU serial number reference, or other device which might:

 

 

 

(i)

lock, disable or erase [**]or any data which is loaded on [**]so as to prevent full use of [**]by authorized persons; or

 

 

 

 

(ii)

require action or intervention by Digimarc or any other person to allow properly trained and authorized persons to use [**];

 

 

(e)

the source code for [**]will support the year 2000 and neither performance nor functionality will be affected by dates prior to, during and after the year 2000, and, for greater certainty, the [**]will switch to 1 January 2000 on 1 January 2000, and the year 2000 will be recognized as a leap year.

 

 

7.3

If [**]fails to meet the relevant Specifications then Digimarc shall, within thirty (30) days after receipt of written notice of the failure from Licensee, on the form attached as Attachment 3, rectify the failure and provide a [**]to Licensee.

 

 

8.

REPRESENTATIONS AND WARRANTIES OF LICENSEE

 

 

8.1

Licensee represents and warrants to Digimarc that:

 

 

(a)

Licensee has full power and authority to enter into this Agreement; and

 


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(b)

this Agreement when executed and delivered by Licensee shall constitute a valid, binding and enforceable obligation of Licensee.

 

 

8.2

Licensee makes no representations, warranties or undertakings that Licensee has any right to grant the licenses required to be granted by clause 6.3 and Digimarc shall be solely responsible for determining that such improvements are suitable for the intended use and for the consequences of any use of the same whether by Digimarc or others, and Licensee and hereby disclaims all liability in connection therewith.

 

 

9.

CONFIDENTIALITY

 

 

9.1

Except as otherwise expressly permitted by this Agreement, a Recipient shall not use, reproduce or disclose the Confidential Information of the Discloser for any purpose other than as reasonably necessary to comply with its obligations under this Agreement or to exercise any rights or licenses granted to it under or pursuant to this Agreement.

 

 

9.2

The Recipient shall protect the Confidential Information of the Discloser from disclosure by using the same degree of care, which shall be no less than a reasonable degree of care, as the Recipient uses to protect its own confidential information.

 

 

9.3

On written request from the Discloser, the Recipient shall return, or certify the destruction of, all originals and copies of the Discloser’s Confidential Information in the Recipient’s possession or control which the Recipient does not need to retain in order to perform any obligations imposed, or exercise any rights acquired, by this Agreement.

 

 

9.4

A Recipient may, on a need to know basis, and only for the purposes described in clause 9.1, give the other party’s Confidential Information to the Recipient’s employees or authorized subcontractors provided that such employee or subcontractor shall have entered into a non-disclosure agreement in respect of such Confidential Information in favour of the Discloser on terms materially similar to the provisions of this clause 9.

 

 

9.5

The obligations set out in this clause 9 will not apply to any Confidential Information that:

 

 

(a)

is or becomes publicly available other than through the fault of the Recipient;

 

 

(b)

was known to the Recipient prior to disclosure as shown by documentation sufficient to establish such knowledge;

 

 

(c)

was or is lawfully disclosed to the Recipient by a third party who did not breach any obligation of confidence by such disclosure and who made the disclosure without restriction on further disclosure all of which is shown by documentation sufficient to establish same; or

 


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(d)

is required by law to be disclosed provided, however, that the Recipient shall first give written notice to the Discloser before the disclosure so that the Discloser may seek an appropriate protective order.

 

 

 

Notwithstanding the foregoing, the fact that Confidential Information, or any part thereof, can be linked together by a search of publications and other information, followed by a selection of a series of such items of knowledge from unconnected sources, and fitting together those items of knowledge so as to duplicate or recreate any item of Confidential Information, shall not be deemed to cause the Confidential Information, or any part thereof, to be included within exceptions (a), (b) or (c), above.

 

 

9.6

The obligations of the parties under this clause 9 will survive the Term or sooner termination of this Agreement and will remain in full force and effect regardless of the cause of any termination.

 

 

9.7

Nothing in this Agreement shall be construed to require Licensee to disclose any information which is confidential to a third party including for greater certainty a [**].

 

 

10.

INTELLECTUAL PROPERTY INDEMNIFICATION

 

 

10.1

Licensee shall provide Digimarc with prompt written notice of any claim, demand or action against Licensee based on an allegation that the Digimarc IPR or any part thereof, infringes any Intellectual Property Right of any person (referred to below as a “Claim”).

 

 

10.2

Subject to the limitations set out in clauses 10.3 to 10.7 inclusive, Digimarc shall, at its own expense:

 

 

(a)

negotiate the resolution of any such Claim;

 

 

(b)

pay all costs associated with the Claim; and

 

 

(c)

defend any action based on the Claim.

 

 

10.3

Licensee shall, at Digimarc’s expense, comply with all reasonable requests by Digimarc for assistance from Licensee in connection with the settlement or defence of the Claim.

 

 

10.4

Notwithstanding any other provision of this Agreement to the contrary, but subject to the limitations in this clause 10, Digimarc shall indemnify Licensee against and save Licensee harmless from all loss, costs, liabilities including an award of damages, and expenses, including legal fees, arising from each Claim first notified to Digimarc prior to 31 December [**]. The obligation set out in this clause 10 shall not apply in respect of any settlement made by Licensee without the consent of Digimarc.

 

 

10.5

The liability of Digimarc under clause 10.4 of this Agreement and under the equivalent clause of every other licence or consulting agreement entered into between Digimarc and

 


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[**]and [**]pursuant to the provisions of the [**] Agreement will not exceed the Indemnity Limit as defined in clause 10.6 below.

 

 

10.6

The Indemnity Limit shall be [**], or such higher amount as notified by Digimarc from time to time.

 

 

10.7

For the purposes of clauses 10.2 through 10.6 inclusive, “Claim” shall mean any Claim, other than a Claim for patent infringement which Digimarc can demonstrate occurred without Digimarc acting recklessly or negligently.

 

 

 

11.

TERM AND TERMINATION

 

 

 

11.1

This Agreement will take effect on the Effective Date and will remain in force throughout the Term unless sooner terminated as provided herein.

 

 

11.2

Either party may terminate this Agreement if the other party breaches any of its obligations under this Agreement and fails to remedy such breach within thirty (30) days after receiving written notice of such breach from the other party.

 

 

11.3

Upon termination of this Agreement:

 

 

(a)

all rights granted to Licensee under this Agreement will immediately terminate. No interest in any such rights will thereafter remain with Licensee, except that [**], but no further [**]Licensee shall be permitted; and

 

 

(b)

each party shall return, or certify the destruction of, to the Discloser, all originals and copies of the Discloser’s Confidential Information in the party’s possession or control which the party does not need to retain in order to exercise any rights acquired by this Agreement.

 

 

11.4

No termination of this Agreement will in any manner release, or be construed as releasing, any party from any liability arising out of or in connection with that party’s breach of or failure to perform any covenant, duty or obligation contained herein prior to the date of such termination.

 

 

11.5

Upon termination of the [**] Agreement by Digimarc for cause, the rights of Licensee hereunder to use the Digimarc IPR shall be deemed to be restricted to the [**]as of the date of such termination.

 

 

11.6

Termination of the license between Digimarc and [**]shall automatically act to terminate this Agreement.

 


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12.                                DISPUTE RESOLUTION

 

12.1                           Any Dispute (as defined in the Arbitration Agreement) shall be finally settled by arbitration in accordance with the Arbitration Agreement.

 

12.2                           Unless otherwise agreed between the parties or unless the subject matter of the dispute resolution proceedings is a party’s right to terminate this Agreement, the Services shall continue during the dispute resolution proceedings and payments due to Digimarc shall not be withheld on account of such proceedings unless that particular services or payment is the subject matter of the proceedings.  Notwithstanding the foregoing, Licensee may in its sole discretion instruct Digimarc to continue to perform such services which are the subject matter of the proceedings and Digimarc shall act in accordance with those instructions, subject to payment under clause 4.1.

 

13.                                MISCELLANEOUS PROVISIONS

 

13.1                            Remedies Cumulative - Except as otherwise expressly set out in this Agreement:

 

(a)                                  each and every right, power and remedy of a party will be considered to be cumulative with and in addition to any other right, power and remedy which such party may have at law or in equity in the event of breach of any of the terms of this Agreement;

 

(b)                                 the exercise or partial exercise of any right, power or remedy will neither constitute the exclusive election thereof nor the waiver of any other right, power or remedy available to such party; and

 

(c)                                  a party terminating this Agreement in accordance with the provisions of the Termination clause will have no liability or obligation to the other as a result of or with respect to the termination.

 

13.2                           All notices under this Agreement shall be delivered by fax, or recognized [**] courier service.  The notice shall be deemed effective as of the date of delivery to the address of the party specified below as evidenced by a delivery receipt or the addressee’s registry of incoming correspondence.  Unless otherwise expressly set out in this Agreement, all notices to a party will be sent to the party’s authorized representative identified below and all notices from a party will be sent by the party’s authorized representative identified below.

 

13.3                           Any notice to Licensee shall be sent to both of, and any notice from Licensee shall be sent by either:

 

Name1

 

Name2

Address1

 

Address2

 


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13.4

Any notice to Digimarc shall be sent to both of, and any notice from Digimarc shall be sent by either:

 

Mr. Robert Chamness

 

Mr. Scott Carr

Vice President and General Counsel

 

President

Digimarc Corporation

 

Digimarc [**]

9405 SW Gemini Drive

 

9405 SW Gemini Drive

Beaverton, OR 97008

 

Beaverton, OR 97008

Fax: (503) 469-4777

 

Fax: (503) 469-4777

 

13.5                           A copy of every notice sent by either party shall be sent to:  [**]

 

13.6                           A party may change its address for notice by notice to the other party in accordance with the foregoing provisions.

 

13.7                           Severability.    If any part of this Agreement is held by an arbitral tribunal appointed pursuant to the Arbitration Agreement or other competent authority to be void or unenforceable, the parties agree that such determination will not result in the nullity or unenforceability of the remaining parts of this Agreement, which will continue in force to the fullest extent permitted by law.  The parties further agree to replace such void or unenforceable part of this Agreement with a valid and enforceable provision that will achieve, to the extent legally permissible, the economic, business and other purposes of the void or unenforceable part.

 

13.8                           Counterparts.   This Agreement may be executed in separate counterparts, and by facsimile, each of which will be deemed an original, and when executed, separately or together, will constitute a single original instrument, effective in the same manner as if the parties had executed one and the same instrument.

 

13.9                           Entire Agreement .   This Agreement is intended by the parties to be the final expression of their agreement and constitutes and embodies the entire agreement and understanding between the parties hereto and constitutes a complete and exclusive statement of the terms and conditions thereof, and will supersede any and all prior correspondence, conversations, negotiations, agreements or understandings relating to the same subject matter.

 

13.10                     Amendments.    No change in, modification of or addition to the terms and conditions contained herein will be valid as between the parties unless set forth in a writing that is signed by an authorized representative of each of the parties and which specifically states that it constitutes an amendment to this Agreement.

 

13.11                     Waiver.     No waiver of any term, provision, or condition of this Agreement, will be effective unless in a written document signed by the waiving party and no such waiver in any one or more instances, will be deemed to be, or be construed as, a further or continuing waiver of that term, provision or condition or any other term, provision or condition of this Agreement.

 

13.12                     Assignment and Successors.    This Agreement may not be assigned by Licensee without Digimarc’s consent, which consent shall not be unreasonably withheld or delayed.  This

 


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Agreement and all of its terms, conditions and covenants are intended to be fully effective and binding, to the extent permitted by law, on the successors and permitted assigns of the parties hereto.

 

 

13.13

Captions.   Captions are provided in this Agreement for convenience only and they form no part, and are not to serve as a basis for interpretation or construction, of this Agreement, nor as evidence of the intention of the parties hereto.

 

 

13.14

Disclaimer of Agency.   Nothing contained in this Agreement is intended or will be construed so as to constitute the parties to this Agreement as partners or joint venturers or as agents of each other. Neither party will have any express or implied right or authority to assume or create any obligations on behalf of or in the name of the other party or to bind any other party in any contract, agreement or undertaking with any third party. No employee of a party shall be deemed or considered to be an employee of the other party or of both parties.

 

 

13.15

Publicity.   The parties agree that from time-to-time it will be beneficial to both parties to issue [**] and [**] from the [**]. Each party agrees to submit for approval by the other party any [**] that involves the other party, which approval shall not unreasonably be withheld.

 

 

13.16

Effectiveness. This Agreement shall not be effective until it is signed by both of the parties.

 

 

13.17

Ambiguities.   Each party and its counsel have participated fully in the review and revision of this Agreement. Any rule or construction to the effect that ambiguities are to be resolved against the drafting party shall not apply in interpreting this Agreement.

 

 

13.18

Survival.   All clauses of this Agreement which expressly or by implication are intended to survive the termination of this Agreement will do so and, for greater certainty and notwithstanding any provision in this Agreement to the contrary, the provisions of clause 2.9, 4.2, 4.3, 6.1, 6.3, 6.4, 7.2(b), 9, 10, 12 and 13 of this Agreement shall survive termination of this Agreement by either party for any reason.

 

IN WITNESS WHEREOF , this Agreement has been executed and delivered by the parties hereto as of the Effective Date.

 

DIGIMARC CORPORATION

 

<Licensee>

 

 

 

 

 

 

By:

 

 

By:

 

Name:

 

 

Name:

 

Title:

 

 

Title:

 

Date:

 

 

Date:

 

 


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ATTACHMENT 1

 

[**]

 

The [**]will cause the following [**] to take place:

 

(a)                                   [**]

 

(b)                                  [**].

 

(c)                                   [**] <<a date TBD>> [**].

 


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ATTACHMENT 2

 

DRAFT OPINION OF COUNSEL

 

Digimarc Corporation

9405 SW Gemini Drive

Beaverton, OR 97062

USA

 

Attention:

President and CEO

 

Dear:

 

In connection with your proposal to grant  a license to <name of Licensee> to use  the [**]and for no other purpose, we confirm that:

 

(a)

each provision of this Agreement is valid and enforceable against <name of Licensee> under the laws of [**]; and

 

 

(b)

none of the [**]described below, at the time of writing, contravenes any law, regulation, policy, principle, or doctrine in effect in the jurisdiction of the <principal place of business/head office> of <name of Licensee>.

 

[**]

 

Yours truly,

 


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ATTACHMENT 3

 

PROBLEM REPORT

 

Each problem report will contain all information necessary to reproduce or demonstrate the occurrence of the problem.  Problem reports will [**] and will be delivered electronically in a format to be provided by Digimarc.

 

Problem reports will contain:

 

·                   Date problem was encountered

·                   Detailed description of the problem, including the frequency with which the problem occurs

·                   Name and [**] the problem

·                   Step by step instructions to reproduce the problem

·                   All data files required to reproduce the problem

·                   [**]

·                   Severity of problem

·                   Contact information for person to contact for further information (name, phone number, FAX number, email address)

 

Licensee agrees to work with Digimarc to provide reasonable additional information and perform reasonable additional tests, as requested by Digimarc, to assist Digimarc in resolution of the problem.

 


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ATTACHMENT  4

 

PAYMENT FOR SERVICES

 

Digimarc shall bill Licensee for Services in one hour increments at the following hourly rates:

 

Technical/Design Consultant

 

[**]

Senior Engineer

 

[**]

R&D/Engineering Executive

 

[**]

Project Manager

 

[**]

Administrator/Scheduler

 

[**]

 

Fees for Services will be invoiced on the earlier of 1) the last day of the month or 2) the completion of the Services.  Invoices are due thirty (30) days from the date of receipt of a correct invoice.  A late charge of 1.5% per month will be charged on any late payments.  All fees are due and payable in [**].

 

Licensee will reimburse Digimarc for all out-of-pocket expenses reasonably and necessarily incurred in providing the Services.  Expenses will be itemized and reported by category.  Out-of-pocket expenses will not be “marked up” by Digimarc.  Costs include, but are not limited to, reasonable travel and lodging expenses, telephone and fax charges, postage and overnight deliveries, and charges for rental equipment or materials purchased specifically to be used in providing the Service.  All invoices for out-of-pocket expenses will be issued monthly in arrears and are due thirty (30) days from the date of receipt of a correct invoice. Supporting receipts and vouchers will be available for review at Digimarc’s offices.  A late charge of 1.5% per month will be charged on any late payments.  Payments will additionally include Value Added taxes and other tariffs and fees that may be imposed [**].

 


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ATTACHMENT 5

 

[**]

 


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ATTACHMENT 6

 

IDENTIFICATION OF [**]

 


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ATTACHMENT 7

 

TRAINING

 

1.0

As part of the[**], Digimarc shall develop a program of training acceptable to the [**] Project Director(as defined in the [**] Agreement) in the [**]

 

 

2.0

Digimarc shall deliver the Training as follows:

 

 

2.1

Digimarc shall provide the Training to up to two (2) people simultaneously. The trainees will be experienced in digital design system operation.

 

 

2.2

Digimarc shall conduct the Training at the [**]or, at the request of Licensee , at Digimarc’s [**]or at some other place agreed between Digimarc and Licensee.

 

 

2.3

Digimarc shall give Licensee reasonable notice concerning the equipment which Digimarc will require in order to conduct the Training. Licensee shall provide all such equipment at its own expense. If the parties are unable to agree on the equipment to be provided either party may refer the matter for decision to the DLA Contract Authority (as defined in the [**] Agreement).

 

 

2.4

Digimarc shall conduct the Training using the [**]

 

 

2.5

Digimarc shall provide a training manual [**] to every trainee. Any [**] which the trainees may require will be provided by Licensee at its own expense.

 

 

2.6

Digimarc shall provide each trainee with a certificate of training at the completion of the Training session.

 

 

2.7

Digimarc shall conduct the Training [**].

 


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SCHEDULE M

 

ESCROW AGREEMENT

 

DATED:

 

Between:

 

(1)

DIGIMARC CORPORATION whose head office is at One Centerpointe Drive, Suite 500, Lake Oswego, Oregon. U.S.A. 97035-8615 (“Digimarc”);

 

 

(2)

[**]

 

 

(3)

[**]whose registered office is at [**]

 

Each of the parties to this Agreement acknowledges that the considerations for their respective undertakings given under it are the undertakings given under it by each of the other parties.

 

It is agreed that:

 

1.                                       Definitions

 

In this Agreement the following terms shall have the following meanings:

 

1.1                                  “Arbitration Agreement” means the Arbitration Agreement entered into between the parties and others effective 1 January 1999.

 

1.2                                  “Business Day” means a day on which each of [**], Digimarc, and [**] is open for business at their respective addresses noted above;

 

1.3                                  “Intellectual Property Rights” means copyright, trade secret, patent, and all other rights of a similar nature;

 

1.4                                  “Licence Agreement” means the Counterfeit Deterrence System Development and License Agreement entered into between Digimarc and [**], effective 1 January 1999.

 

1.5                                  “Material” means the “Escrowed Materials” as that term is defined in the Licence Agreement; and

 

1.6                                  “Technology” means the CDS Technology as defined in the Licence Agreement.

 


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2.                                       Owner’s Duties and Warranties

 

2.1                                  Digimarc shall:

 

2.1.1                         deliver a copy of the Material to [**] within thirty (30) days of the date of this Agreement;

 

2.1.2                         make available to [**] at Digimarc’s premises a copy of the Material in accordance with its obligations under Clause 8.8 of the Licence Agreement; and

 

2.1. 3                      deliver to [**] a replacement copy of the Material within twenty (20) Business Days of receipt of a notice served upon it by [**] under the provisions of Clause 4.1.5.

 

2.2                                  Digimarc warrants to [**] that Digimarc has sufficient rights in the Intellectual Property Rights in the Material to enter into this Agreement, and that it has authority to enter into this Agreement.

 

3.                                       [**]’ Responsibilities

 

It shall be the responsibility of [**] to notify [**] of any change to the Technology that necessitates a replacement deposit of the Material.

 

4.                                       [**]’s Duties

 

4.1                                  [**] shall:

 

4.1.1                         hold the Material in a safe and secure environment;

 

4.1.2                         notify Digimarc and [**] of the receipt of any copy of the Material;

 

4.1.3                         in accordance with the terms of Clause 9 perform the Verification Process from time to time;

 

4.1.4                         at all times retain a copy of the latest verified deposit of the Material;

 

4.1.5                         notify Digimarc and [**] if it becomes aware at any time during the term of this Agreement that the copy of the Material held by it has been lost, damaged or destroyed; and

 

4.1.6                         upon receipt and verification of a new version of the Material, return all prior versions of the Material to Digimarc with ten (10) Business Days.

 

4.2                                  [**] shall not be responsible for procuring the delivery of the Material in the event of failure by Digimarc to deliver it.

 

5.                                       Payment

 

[**]’s fees are payable in accordance with Schedule 1.

 


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6.                                       Release Events

 

6.1                                  For the purposes of this Agreement any of the following events shall be considered to be a “Release Event”:

 

(a)                                   the date on which the license referred to in Clause 8.4 of the Licence Agreement takes effect in accordance with Clause 8.5 of that Agreement;

 

(b)                                  the date on which the license referred to in Clause 8.6 of the Licence Agreement takes effect.

 

6.2                                  [**] must notify [**] of the occurrence of a Release Event by delivering to [**] a statutory or notarized declaration (“the Declaration”) made by an officer of [**] attesting that such event has occurred and that the Licence Agreement was still valid and effective up to the occurrence of such event and exhibiting:

 

6.2.1                         such documentation in support of the Declaration as [**] shall reasonably require; and

 

6.2.2                         a copy of the Licence Agreement.

 

6.3                                  Upon receipt of a Declaration from [**] claiming a Release Event under Clause 6.1:

 

6.3.1                         [**] shall send a copy of the Declaration to Digimarc by courier and fax; and

 

6.3.2                         unless within fourteen (14) days after the date of delivery Digimarc delivers to [**] a counter-notice signed by a duly authorized officer of Digimarc stating that no such Release Event has occurred

 

then [**] will release the Material to an authorized officer of [**] upon receipt of the release fee stated in Schedule 1.

 

6.4                                  Where there is any dispute as to the occurrence of any of the events set out in Clause 6.1, such dispute will be referred at the request of either Digimarc or [**] to the Managing Director for the time being of [**] (or the equivalent officer of any new custodian appointed pursuant to Clause 11.2 or 11.3) for the appointment of an expert who shall give a decision on the matter within fourteen (14) days of the date of referral or as soon as practicable thereafter.  The expert’s decision shall be final and binding as between Digimarc and [**] except in the case of manifest error.

 

6.5                                  If the expert’s decision is that a Release Event has occurred, [**] shall immediately release the Material to an authorized officer of [**] upon receipt of the release fee stated in Schedule 1.

 


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7.                                       Confidentiality

 

7.1                                  The Material shall remain the confidential property of Digimarc and in the event that [**] provides a copy of the Material to [**], [**] shall be permitted to use and sublicence the Material only in accordance with the terms set forth in the License Agreement.

 

7.2                                  [**] agrees to maintain all information and/or documentation coming into its possession or to its knowledge under this Agreement in strictest confidence and secrecy.  [**] further agrees not to make use of such information and/or documentation other than for the purposes of this Agreement and will not disclose or release it other than in accordance with the terms of this Agreement.

 

7.3                                  Termination of this Agreement will not relieve [**] or its employees, or [**] or its employees, from the obligations of confidentiality contained in this Clause 7.

 

8.                                       Intellectual Property Rights

 

The release of the Material to [**] will not act as an assignment or license of any Intellectual Property Rights that Digimarc possesses in the Material except as specifically provided in the Licence Agreement.

 

9.                                       Verification

 

9.1                                  Subject to the provisions of Clauses 9.2 and 9.3, [**] shall bear no obligation or responsibility to any person, firm, company or entity whatsoever to determine the existence, relevance, completeness, accuracy, effectiveness or any other aspect of the Material.

 

9.2                                  Upon the Material being lodged with [**] from time to time under Clause 2.1, [**] shall perform tests in accordance with its standard verification service applying from time to time and shall provide a copy of the test report to [**] and Digimarc.  Additionally, at [**]’ request and expense, [**] shall perform the Verification Process detailed in clause 9.3 below.

 

9.3                                  Verification Process.  [**] shall inspect, audit and verify any or all of the Material for accuracy, completeness and sufficiency.  Such verification process may include, at [**]’s option, assembling and/or compiling the source code into executable object code.  Digimarc agrees to make reasonably available, at its standard consulting rates as in effect from time to time, technical and support personnel reasonably necessary for [**] to perform verification of the Material, and further agrees to give [**] reasonable access to Digimarc’s facilities, including its computer systems, for the purpose of such verification at no additional charge.  Digimarc hereby grants [**] permission to release to [**] directory lists and/or tables of contents of computer media, manuals, and other materials comprising the Material.  Digimarc and [**] shall be entitled to have a representative present at all times to observe such verification by [**].  Any report prepared by [**] shall be provided to all parties hereto.

 


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10.                                [**]’s Liability

 

10.1                            [**] shall not be liable for any loss caused to Digimarc or [**] either jointly or severally except for loss of or damage to the Material to the extent that such loss or damage is caused by the negligent acts or omissions of [**], its employees, agents or sub-contractors and in such event [**]’s total liability in respect of all claims arising under or by virtue of this Agreement shall not (except in the case of claims for personal injury or death) exceed the sum of five hundred thousand pounds (£500,000).

 

10.2                            [**] shall in no circumstances be liable to Digimarc or [**] for indirect or consequential loss of any nature whatsoever whether for loss of profit, loss of business or otherwise.

 

10.3                            [**] shall be protected in acting upon any written request, waiver, consent, receipt or other document furnished to it pursuant to this Agreement, not only in assuming its due execution and the validity and effectiveness of its provisions but also as to the truth and acceptability of any information contained in it, which [**] in good faith believes to be genuine and what it purports to be.

 

11.                                Termination

 

11.1                            [**] may terminate this Agreement after failure by [**] to comply with a 30 day written notice from [**] to pay any outstanding fee.

 

11.2                            [**] may terminate this Agreement by giving sixty (60) days written notice to Digimarc and [**].  In that event Digimarc and [**] shall appoint a mutually acceptable new custodian on terms similar to those contained in this Agreement.

 

11.3                            If a new custodian is not appointed within 30 days of delivery of any notice issued by [**] in accordance with the provisions of Clause 11.2, Digimarc or [**] shall be entitled to request the President for the time being of the British Computer Society to appoint a suitable new custodian upon such terms and conditions as he shall require.  Such appointment shall be final and binding on all parties.

 

11.4                            If the rights of all parties to use the Technology under or pursuant to the Licence Agreement have expired or have been lawfully terminated this Agreement will automatically terminate on the same date.

 

11.5                            [**] may terminate this Agreement at any time by giving written notice to Digimarc and [**].

 

11.6                            Digimarc may only terminate this Agreement with the written consent of [**].

 

11.7                            This Agreement shall terminate upon release of the Material to [**] in accordance with Clause 6.

 


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11.8                            Upon termination under the provisions of Clauses 11.4, 11.5 or 11.6 [**] will deliver the Material to Digimarc.  If [**] is unable to trace Digimarc, [**] will destroy the Material. Upon termination under the provisions of Clause 11.2 [**] will deliver the Material to the new custodian agreed under Clause 11.2 or appointed under Clause 11.3.

 

11.9                            Upon termination under the provisions of Clause 11.1 the Material will be available for collection by Digimarc from [**] for thirty (30) days from the date of termination.  After such thirty (30) day period [**] will destroy the Material.

 

12.                                General

 

12.1                            This Agreement shall be governed by and construed in accordance with the laws of England to the exclusion of its rules of conflicts of laws.

 

12.2                            This Agreement represents the whole agreement relating to the escrow arrangements between the parties for the Material and supersedes all prior arrangements, negotiations and undertakings.

 

12.3                            Except as otherwise provided, all notices to be given to the parties under this Agreement shall be served by hand, by internationally-recognized courier service, or by registered post (return receipt requested), addressed to the signatories hereto at the addresses given above or, for companies based in the UK, at the registered office.  Facsimile may not be used except as a supplement to one of the foregoing.  Notices shall be deemed to have been duly given or made when delivered, as evidenced by delivery receipt or customary courier delivery notification.

 

12.4                            Any “Dispute”, as the term is defined in the Arbitration Agreement, shall be finally settled by arbitration in accordance with the Arbitration Agreement.

 

Signed on behalf of

 

[**]

 

 

 

 

 

Signature

 

Name:

 

Title:

(Authorized Signatory)

Date

 

 

 

 

 

 

Signature

 

Name:

 

Title:

(Authorized Signatory)

Date

 

 


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DIGIMARC CORPORATION

 

 

 

 

Signature

 

Name:

Bruce Davis

 

Title:

President & CEO

(Authorized Signatory)

Date:

 

 

 

[**] ESCROW INTERNATIONAL LIMITED

 

 

 

 

 

Signature

 

Name:

 

Title:

(Authorized Signatory)

Date:

 

 


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SCHEDULE 1

 

[**]’s Fees (St£)

 

DESCRIPTION

 

FEE

 

DIGIMARC

 

[**]

 

 

 

 

 

 

 

 

 

1

 

Initial Fee

 

£700

 

NIL

 

100%

 

 

 

 

 

 

 

 

 

2

 

Annual Fee
(payable on completion of this Agreement and on each anniversary thereafter)

 

£385

 

NIL

 

100%

 

 

 

 

 

 

 

 

 

3

 

Update Fee

 

 

 

 

 

 

 

 

(per update after the first 4 updates per annum)

 

£100

 

NIL

 

100%

 

 

 

 

 

 

 

 

 

4

 

Storage Fee

 

 

 

 

 

 

 

 

(an additional annual fee may be payable for deposits in excess of one cubic foot)

 

TBA

 

NIL

 

100%

 

 

 

 

 

 

 

 

 

5

 

Liability Fee

 

 

 

 

 

 

 

 

(£100 per £500,000 of liability exceeding £500,000, per annum)

 

Not Applicable

 

NIL

 

Not

 

 

 

 

 

 

 

 

Applicable

 

 

 

 

 

 

 

 

 

6

 

Release Fee

 

 

 

 

 

 

 

 

(plus [**]’s reasonable expenses)

 

£500

 

NIL

 

100%

 

 

 

 

 

 

 

 

 

7.

 

Verification Fee

 

£700 per day

 

NIL

 

100 %

 

 

(plus [**]’s reasonable expenses)

 

 

 

 

 

 

 

1.                                        All fees are subject to VAT where applicable*

2.                                        All fees are reviewed by [**] from time to time

 

*  only applicable to countries within the EU.

 


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SCHEDULE “N”

 

PROGRESS REPORTS AND PROJECT REVIEWS

 

1.                                       TASK STATUS

 

Within fifteen (15) Business Days after the end of every calendar month [**]  Digimarc shall deliver reports to the [**] Project Director in accordance with Sections 8 to 10 herein as agreed in the current Program Work Plan.

 

2.                                       PROBLEM REPORT

 

Digimarc shall report to the [**] Project Director on problems that impact technical or schedule performance. Each problem will be reported in a problem list that includes the following information:

 

Problem title

Date reported

Task or Service affected

Task or Service impact

Proposed corrective action

Current status

Date closed

 

Red Flag reports (see paragraph 7) will be included on the problem list. A problem will remain on the list until closed or otherwise resolved.

 

3.                                       PROGRESS REVIEWS

 

Digimarc shall provide materials, information and documentation in support of progress review meetings with the [**] once every [**] months on average throughout the period during which Phase [**]  Services are being performed and will attend progress review meetings as requested by the [**] Project Director. The objective of each meeting is to review the: status of each major task and Service; status of deliverable items; [**] progress for each [**]; each parties’ proposed plans concerning [**] including intended outcome during the Term of this Agreement and during the period until the next meeting under this Schedule; [**]; a summary of the financial status; contractual and administrative matters; contract changes and amendments, as necessary; technical reports or data; [**] and user factors and [**] activities; and other topics as necessary and relevant.

 

Each meeting that Digimarc is requested to attend will last no more than 2 days unless otherwise agreed upon in advance. Attendees will include management, technical and administrative representatives from Digimarc and [**], including the parties’ respective Project Directors or suitable designees. To ensure meeting effectiveness, [**] will be limited to ten (10) 

 


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or fewer persons including any outside [**] or consultants deemed necessary by agreement of the parties’ respective Project Directors to be necessary to ensure an effective meeting.

 

In between the quarterly meetings described above, the technical representatives of Digimarc and [**] shall hold technical review meetings at least six (6) times per year or as otherwise agreed by the parties to review technical, and resource matters. Each such meeting will last no more than 2 days unless otherwise agreed upon in advance and will be held at a mutually agreeable date and location. At least half of the reviews will be held at Digimarc’s facilities. Digimarc will provide a presentation for the [**] on development and [**] progress at least once per year if requested by the [**] Project Director.

 

4.                                       AGENDA

 

An agenda will be prepared by Digimarc and sent to the [**] ten (10) days in advance of each progress review and technical review meeting for review and comment or approval.

 

5.                                       MEETING MATERIALS

 

Progress review and technical review meeting materials will consist of power point presentations , technical data, marketing white papers, studies, technical specifications analyses and other reports. Meeting materials will be delivered to the [**].

 

6                                          REPORT

 

Within five (5) Business Days after the progress review or technical review meeting, Digimarc shall prepare and deliver to the [**] a report summarizing the essential topics discussed including the action items assigned during the meeting. Meeting materials will be appended to the report.

 

7.                                       RED FLAG REPORT

 

Digimarc shall prepare and deliver to the [**] Project Director a “Red Flag” report when a problem requiring the immediate attention of [**] is required.  Red Flag reports may be informative; e.g., a report about a [**] delinquency that will impact a critical version release date.  They may also report on problems whose correction requires immediate consideration or action from [**] or another organization external to Digimarc. Red Flag reports on development or [**] problems will contain the following information:

 

·                   A summary describing the development or [**] problem and background information that may be necessary to understand the development or [**] problem.

·                   A description of the impact of the problem on the development project(s) or [**] plan(s).

·                   The date by which a resolution is required.

·                   A description of the recommended next action.

·                   The action requested of the [**] Project Director.

 


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8.              PROJECT REPORTING GENERAL

 

Monthly activities reports will be provided that include a report for each of the [**] areas: Development, Maintenance, [**] and Program Wide.

 

a.      DEVELOPMENT DETAIL

 

1.      Project Objectives – Statement of the objectives for the project

2.      Major project risks or unknowns – Project Directors view of the major risks and unknowns as of the current month

3.      Accomplishments in the current month – List of major tasks completed and milestones reached in the current month

4.      Changes to plan – Changes to the project plan made during the current month

5.      Next month’s tasks and milestones – List of the major tasks and the milestones that are expected to be reached in the next month

6.      Current project Gantt chart – Updated Gantt chart project with all project changes to date

7.      Utilized resources – List of staff utilized on the project during the current month

8.      Monthly labor hours by type of labor – Summary of labor hours by job class for the current month

9.      Monthly Utilization – Actual monthly Allowable Costs, forecast to end of scope of work, and comparison to estimated Allowable Costs projection.

 

b.      MAINTENANCE DETAIL

 

1.      Project Objectives – Statement of the objectives for the project

2.      Major project risks or unknowns – Project Directors view of the major risks and unknowns as of the current month

3.      Accomplishments in the current month – List of major tasks completed and milestones reached in the current month

4.      Changes to plan – Changes to the project plan made during the current month

5.      Next month’s tasks and milestones – List of the major tasks and the milestones that are expected to be reached in the next month

6.      Current project Gantt chart – Updated Gantt chart project with all project changes to date

7.      Utilized resources – List of staff utilized on the project during the current month

8.      Monthly labor hours by type of labor – Summary of labor hours by job class for the current month

 


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9.      Monthly Utilization – Actual monthly Allowable Costs, forecast to end of scope of work, and comparison to estimated Allowable Costs projection.

 

c.      [**] DETAIL

 

1.      Project Objectives – Statement of the objectives for the project

2.      Major project risks or unknowns – Digimarc Project Director’s view of the major risks and unknowns as of the current month

3.      Accomplishments in the current month – List of major tasks completed in the current month

4.      Changes to plan – Changes to the project plan made during the current month

5.      Next month’s tasks – List of the major tasks that are expected to be accomplished in the next month

6.      Utilized resources – List of staff utilized on the project during the current month

7.      Monthly labor hours by type of labor – Summary of labor hours by job class for the current month

8.      Monthly Utilization – Actual monthly Allowable Costs, forecast to end of scope of work, and comparison to estimated Allowable Costs projection.

 

d.      PROGRAM WIDE DETAIL

 

1.      Project Objectives – Statement of the objectives for the project

2.      Accomplishments in the current month – List of major tasks completed in the current month

3.      Changes to plan – Changes to the project plan made during the current month

4.      Next month’s tasks – List of the major tasks that are expected to be accomplished in the next month

5.      Utilized resources – List of staff utilized on the project during the current month

6.      Monthly labor hours by type of labor – Summary of labor hours by job class for the current month

7.      Monthly Utilization – Actual monthly Allowable Costs, forecast to end of scope of work, and comparison to estimated Allowable Costs projection.

 

9.                      PROJECT MANAGEMENT UPDATES

 

1.      Digimarc and the [**] will conduct weekly project management updates to review progress on [**] plans and coordinate [**] work to be undertaken over the next period.

 


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2.      Digimarc will be responsible for the issuance of minutes for each project management update and also maintain a register of changes in process and approved.

3.      Digimarc will update the [**] activity report once per month.

 

10.                   [**] REPORTS

 

1.      Digimarc will provide [**] reports on the status of the [**] and related [**] twice per year – in March and September.  The [**] will reimburse to Digimarc the cost of providing additional [**] reports as requested by the [**] Project Director.

2.      Digimarc will provide reports to the [**] on the specific [**] identified in the [**] Plans once per quarter if requested by the [**] Project Director.

 


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SCHEDULE “O”

 

THIS SYSTEM SUPPORT SERVICES AGREEMENT (the “Agreement”) is made

 

BETWEEN

 

<name and address of licensee> (“Licensee”)

 

- AND -

 

DIGIMARC CORPORATION , a corporation incorporated under the laws of Oregon and having its head office at One Centerpointe, Suite 500 Drive, Lake Oswego, Oregon. U.S.A.  97035-8615 (“Digimarc”)

 

Licensee entered into one or more license agreements with Digimarc for the license of the [**] a counterfeit deterrence system (the “CDS”);

 

Licensee now wishes to engage Digimarc to maintain and support [**];

 

In consideration of these premises, the covenants set out in this Agreement and for other good and valuable consideration, the receipt and adequacy of which are acknowledged by each of the parties, the parties agree as follows:

 

1.              DEFINITIONS AND PRINCIPLES OF INTERPRETATION

 

1.1            Definitions - Whenever used in this Agreement, the following words and terms shall have the meanings set out below:

 

“Arbitration Agreement” means the Arbitration Agreement entered into between the parties and others effective 1 January 1999;

 

“Agreement” means these articles of agreement, including the Attachments, and those documents as specified or referenced in this Agreement as forming part of the Agreement, all as may be amended from time to time;

 

[**] Agreement” means Counterfeit Deterrence System Development and License Agreement entered into between [**] and Digimarc effective 1 January 1999;

 

“Business Day” means a day on which both Licensee and Digimarc are open for business at their respective addresses noted above;

 

“Confidential Information” means information disclosed during the Term of this Agreement in any form which, if disclosed in tangible form, is labelled “Confidential”,

 


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“Proprietary” or with a similar legend, or if disclosed orally is information that by its nature would be understood to be confidential to the Discloser;

 

“Core Hours” means 7:00 a.m. to 7:00 p.m. Monday through Friday, United States Pacific time zone, excluding statutory holidays observed by Licensee at its Site;

 

“Discloser” means a party which has disclosed or otherwise made available its Confidential Information to the other party;

 

“Effective Date” means the date on which this Agreement is last signed, or the Effective Date of the License Agreement, whichever is later;

 

[**]

“Hot-line” means a single dedicated telephone line provided by Digimarc to Licensee for the reporting of problems with [**];

 

“License Agreement” means, collectively, all license agreements entered into between the parties pursuant to which Licensee acquired a license to use [**];

 

“Person” means any individual or other legal entity, including without limitation sole proprietorship, partnership, unincorporated association, unincorporated syndicate, unincorporated organization, trust, body corporate, or a natural person in the capacity of trustee, executor, administrator or other legal representative;

 

“Recipient” means a party to which the Confidential Information of the other party has been disclosed or otherwise made available;

 

“Services” means the services described in clauses 2 and 3 below, or any of them;

 

“Severity Level One Software Problem” means a Software Problem which causes the [**] to cease operating or which causes the computer system running [**] to crash;

 

“Severity Level Two Software Problem” means a Software Problem which causes the [**] to cease operation in accordance with its Specifications or which produces substantially incorrect data;

 

“Severity Level Three Software Problem” means a Software Problem which is not a Severity Level Two Problem or a Severity Level One Problem;

 

“Site” means the [**] of Licensee at which a Software Problem is encountered;

 

“Software Problem” means a circumstance where [**] does not function in accordance with its Specifications, produces substantially incorrect data, or causes a computer running [**] to crash, or other problem with [**] and which can be reproduced by

 


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Digimarc, at Digimarc’s facility, based on information provided to Digimarc by Licensee in a Software Problem Report;

 

“Software Problem Report” means a written report in the form attached as Attachment 1;

 

“Specifications” has the meaning given to it by the [**] Agreement;

 

“System Documentation” means the documentation for [**] provided by Digimarc to Licensee under a License Agreement;

 

“Training Manual” means the training manual which relates to the use of [**] provided by Digimarc to Licensee under a License Agreement; and

 

“Work” means the tasks that are required to be performed by Digimarc in order to comply with its obligations under this Agreement.

 

1.2            Interpretation - In this Agreement:

 

1.2.1         unless otherwise specified, all references to money amounts are to the currency of the United States of America;

 

1.2.2         the use of words in the singular or plural, or with a particular gender, shall not limit the scope or exclude the application of any provision of this Agreement to such Person or Persons or circumstances as the context otherwise permits;

 

1.2.3         whenever a provision of this Agreement requires an approval or consent by a party to this Agreement and notice of such approval or consent is not delivered within the applicable time, then the party shall be conclusively deemed to have withheld the consent or approval;

 

1.2.4         unless otherwise specified, the number of days within or following which any payment is to be made or act is to be done shall be interpreted to be continuous and shall be calculated by excluding the day on which the period commences and including the day which ends the period and by extending the period to the next Business Day if the last day of the period is not a Business Day;

 

1.2.5         unless otherwise specified, the order of precedence for interpreting this Agreement shall be:

 

(a)            this Agreement, excluding the Attachments,

 

(b)            the Attachments;

 


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If this Agreement conflicts in substance with a License Agreement entered into between the parties, the License Agreement shall control;

 

1.2.6         for greater certainty, a party or representative to which this Agreement grants the right to make a decision or determination in the sole discretion of the party or representative is not required to act reasonably in making the decision or determination and no such decision or determination may be challenged by the other party under the Arbitration Agreement or otherwise;

 

1.2.7         the words “includes” or “including” will be construed without limitation to the generality of the preceding words;

 

1.2.8         a clause, Schedule or Attachment unless the context requires otherwise, is a reference to a clause, a Schedule or Attachment of, or a paragraph of a Schedule or Attachment of, this Agreement, as amended from time to time in accordance with this Agreement; and

 

1.2.9         any due date or time period prescribed by this Agreement may be changed by written agreement between the parties’ respective representatives identified in clauses 5.1 and 5.2.

 

1.3            Applicable Law - This Agreement shall be construed in accordance with the laws of England to the exclusion of its rules of conflicts of laws.

 

1.4            Attachments - The attachment to this Agreement, listed below, is an integral part of this Agreement:

 

Attachment 1                         Software Problem Report

 

2.              SCOPE OF THE WORK

 

2.1            Digimarc shall provide the Services described in this clause 2 as required to ensure that [**] will conform to and operate in accordance with the Specifications.

 

2.2            Problem Resolution.   Digimarc shall resolve every Software Problem in [**] reported by Licensee as follows:

 

2.2.1         Digimarc shall provide and maintain in effect throughout the Term:

 

(a)            a Hot-line which Licensee representative shall use to report Software Problems, and;

 

(b)            a paging service by which Licensee can communicate with Digimarc when Licensee is unable to communicate with Digimarc using the Hot-line.

 


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Licensee will follow-up each such communication with a Software Problem Report.

 

2.2.2         Both Digimarc and Licensee shall log each Software Problem reported by Licensee.

 

2.2.3         Upon receipt by Digimarc of a report from Licensee of a Software Problem, Digimarc shall respond as provided below in accordance with the level of severity of the Software Problem identified by Licensee.  Digimarc may respond to the report of a Software Problem by telephone or in writing.

 

2.2.4         Digimarc shall file a “Resolution Report” with Licensee for each Software Problem reported by Licensee which will include a description of the cause of the Software Problem and the means by which the Software Problem was resolved.

 

2.2.5         Digimarc shall use its best efforts to respond to a Software Problem Report of a Severity Level One Software Problem made during Core Hours and resolve the identified Software Problem within two (2) Business Days of receipt of the Software Problem Report.  The resolution of the Software Problem may include a work-around to the Software Problem acceptable to Licensee in the form of an amendment to [**] on an interim basis if a permanent resolution is provided within a further twenty (20) Business Days. If:

 

(a)            Digimarc fails to provide a permanent resolution of the Software Problem within twenty (20) Business Days after Digimarc provides the work-around, or

 

(b)            Digimarc fails to provide a work-around to the Software Problem within two (2) Business Days after receipt of a report from Licensee of the Software Problem,

 

Licensee may, at its option, reduce the monthly charge for the Services by [**] for each Business Day after the first Business Day which elapses until Digimarc provides the required temporary or permanent resolution to that Software Problem.

 

2.2.6         Digimarc shall use commercially reasonable efforts to respond to a Software Problem Report of a Severity Level Two Software Problem within ten (10) Business Days of receipt and resolve the identified Software Problem within a further ten (10) Business Days of receipt.  If Digimarc fails to resolve the Software Problem within the twenty (20) Business Day period, Licensee may, at its option, designate the Software Problem as a Severity Level One Software Problem.

 

2.2.7         Digimarc will accept reports for Severity Level Three Software Problems and will consider them for resolution in a future release.

 

2.2.8         The period for resolution of any Software Problem identified under Clause 2.2.5 and 2.2.6 shall commence with the receipt by Digimarc of the information necessary to

 


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reproduce the reported Software Problem if the resolution of that Problem requires such reproduction.

 

2.3            Application Support .   Digimarc shall, using the Hotline, answer questions from Licensee related to the use of [**] and resolve problems with [**] which do not require changes to [**].

 

2.4            Documentation Updating .   Digimarc shall update both the hard copy and the electronic versions of the Training Manuals as required to reflect changes in [**] which result from the provision by Digimarc of the Services.

 

2.5            Digimarc shall provide the Services during the Core Hours.  If Licensee notifies Digimarc that the provision of the Services during Core Hours will have a noticeable impact on Licensee’s normal operations, Digimarc shall provide the Services outside of Core Hours at a time or times and for the charges to be agreed with Licensee.

 

2.6            Changes to the [**] other than changes to redress a Software Problem shall be made by Digimarc only at the direction of the DLA Contracting Authority, pursuant to the terms of the [**] Agreement.

 

2.7            All Services required to be provided as a result of :

 

(a)            use by Licensee of [**] other than in accordance with the Training Manual supplied by Digimarc under a License Agreement; or

 

(b)            failure of the computer system on which [**] is installed to operate in accordance with the applicable manufacturer’s specifications;

 

will be for the account of Licensee.

 

3.              [**] UPDATES

 

3.1            No Licensee shall be compelled to incorporate [**].

 

3.2            Digimarc shall continue to provide the Services to Licensee for the two (2) versions of [**] which immediately preceded the then current version of [**]or for all versions of [**] released within twenty-four (24) months of the date of issue of the [**], whichever is the greater, at no additional cost to Licensee.

 

4.              PURCHASE PRICE AND PAYMENT

 

4.1            The fee for the Services is [**] for each year during the Term. Licensee shall pay the fee in equal monthly installments on or before the first day of the calendar month.

 


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4.2            Except as otherwise expressly provided in this Agreement, Licensee shall pay Digimarc all sales, use, goods and services or other similar taxes levied by any government in the United States or the country of Licensee’s principal place of business which Digimarc is obliged to collect and remit to such government(s) in connection with any amount paid by Licensee to Digimarc under this Agreement.

 

4.3            Digimarc is responsible for, and shall indemnify Licensee against, and hold Licensee harmless from, the payment of all taxes levied by any government on or in respect of Digimarc’s income and any amounts required by law to be paid in respect of social benefits for Digimarc’s employees relating to or arising out of the services performed under this Agreement by Digimarc.  If required by law, Licensee shall deduct all such taxes and amounts from the amounts otherwise payable to Digimarc and remit them to the appropriate authorities.

 

4.4            Licensee may set off against any amount which Licensee owes Digimarc under or in connection with this Agreement any amount which Digimarc owes Licensee under or in connection with this Agreement, and vice versa.

 

5.              SERVICES COORDINATION

 

5.1            Digimarc shall designate a responsible individual with adequate authority and competence as a services representative whose responsibilities, in addition to those expressly set out in this Agreement, shall be to serve as primary interface with Licensee.

 

5.2            Licensee shall designate a responsible individual with adequate authority and competence to serve as primary interface with Digimarc.

 

5.3            Either party’s representative may from time to time appoint one or more Persons to represent him or her on prior written notice to the other party’s representative.

 

5.4            Digimarc shall replace within a reasonable time under the circumstances any of its employees or authorized subcontractors engaged in fulfilling its obligations under this Agreement, including its services representative, whose removal is required by Licensee, provided that Licensee specifies reasonable cause for such removal in writing.

 

5.5            Digimarc represents that all personnel assigned to do the Work will be employees of Digimarc. Digimarc shall not engage any subcontractor to do any part of the work without first obtaining the prior written consent of Licensee, which consent will not unreasonably be withheld.

 

6.              LICENSEE’S RESPONSIBILITIES

 

6.1            Unless otherwise expressly set out in this Agreement, Licensee shall respond in writing within ten (10) Business Days to every written request for consent required by this Agreement received from Digimarc.

 


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6.2            If Licensee is delayed in complying with any of its obligations under clause 6.1 for any reason not attributable to Digimarc, and such delay is the cause of a delay in the compliance by Digimarc with any of its obligations under this Agreement, then the time for completion and the deadlines dependent thereon will be extended automatically by one day for each day of delay by Licensee or such other period as may be agreed in writing between the parties’ respective representatives.  If Digimarc reasonably incurs any costs as a result of the delay, other than a delay due to a force majeure event, such costs will, at Digimarc’s option, be borne by Licensee.  If the delay is due to a force majeure event, such costs shall be borne equally by Licensee and Digimarc.  This clause 6.2 sets forth Digimarc’s only remedy for a delay by Licensee in complying with such obligation.

 

7.              INTELLECTUAL PROPERTY MATTERS

 

7.1            Licensee acknowledges that Digimarc is the owner of all changes to [**] made by Digimarc under this Agreement and all such changes shall be considered for all purposes of a License Agreement as forming part of [**] licensed thereunder.

 

8.              REPRESENTATIONS AND WARRANTIES OF DIGIMARC

 

8.1            General - Digimarc represents, warrants and undertakes to Licensee that from and after the Effective Date:

 

(a)            the Services will be of professional quality conforming to generally accepted software product development practices and will be performed at all times in a timely and cost effective manner and, for greater certainty Digimarc shall employ the standard of care in performing the work that would be expected of an [**] of the same or similar type as [**] which comprises the CDS Technology;

 

(b)            Digimarc is duly incorporated and organized and is validly subsisting under the laws of the State of Oregon, U.S.A. or some other state in the United States with full corporate power and authority to enter into this Agreement;

 

(c)            to the best of its knowledge, neither this Agreement nor the Services will contravene, breach, or result in any default under any agreement, permit, by-law, or law or regulation to which Digimarc is subject or by which it is bound including, for greater certainty any laws or regulations in effect in the United States governing export; and

 

(d)            this Agreement when executed and delivered by Digimarc shall constitute a valid and binding agreement with Digimarc enforceable against Digimarc according to its terms.

 

9.              REPRESENTATIONS AND WARRANTIES OF LICENSEE

 

9.1            Licensee represents and warrants to Digimarc that:

 

(a)            Licensee has full power and authority to enter into this Agreement; and

 


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(b)            this Agreement when executed and delivered by Licensee shall constitute a valid, binding and enforceable obligation of Licensee.

 

10.           CONFIDENTIALITY

 

10.1          Except as otherwise expressly permitted by this Agreement, a Recipient shall not use, reproduce or disclose the Confidential Information of the Discloser for any purpose other than as reasonably necessary to comply with its obligations under this Agreement or to exercise any rights or licenses granted to it under or pursuant to this Agreement.

 

10.2          The Recipient shall protect the Confidential Information of the Discloser from disclosure by using the same degree of care, which shall be no less than a reasonable degree of care, as the Recipient uses to protect its own confidential information.

 

10.3          On written request from the Discloser, the Recipient shall return, or certify the destruction of, all originals and copies of the Discloser’s Confidential Information in the Recipient’s possession or control which the Recipient does not need to retain in order to perform any obligations imposed, or exercise any rights acquired, by this Agreement.

 

10.4          A Recipient may, on a need to know basis, and only for the purposes described in clause 10.1, give the other party’s Confidential Information to the Recipient’s employees, authorized subcontractors or representatives provided that such employee, subcontractor or representative shall have entered into a non-disclosure agreement in respect of such Confidential Information in favour of the Discloser on terms materially similar to the provisions of this clause 10.

 

10.5          The obligations set out in this clause 10 will not apply to any Confidential Information that:

 

(a)            is or becomes publicly available other than through the fault of the Recipient;

 

(b)            was known to the Recipient prior to disclosure as shown by documentation sufficient to establish such knowledge;

 

(c)            was or is lawfully disclosed to the Recipient by a third party who did not breach any obligation of confidence by such disclosure and who made the disclosure without restriction on further disclosure all of which is shown by documentation sufficient to establish same; or

 

(d)            is required by law to be disclosed provided, however, that the Recipient shall first give written notice to the Discloser before the disclosure so that the Discloser may seek an appropriate protective order.

 

The fact that Confidential Information, or any part thereof, can be linked together by a search of publications and other information, followed by a selection of a series of such items of

 


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knowledge from unconnected sources, and fitting together those items of knowledge so as to duplicate or recreate any item of Confidential Information, shall not be deemed to cause the Confidential Information, or any part thereof, to be included within exceptions (a), (b) or (c), above.

 

10.6          Each party hereby consents to any court order sought by the other party to enjoin non-compliance, or to require compliance, by the party with any of the party’s obligations under this clause 10.

 

10.7          Nothing in this Agreement shall be construed to require Licensee or any representative of Licensee to disclose any information which is confidential to a third party including for greater certainty an [**].

 

11.            DISPUTE RESOLUTION

 

11.1          Any Dispute as the term is defined in the Arbitration Agreement shall be finally settled by Arbitration in accordance with the Arbitration Agreement.

 

11.2          Unless otherwise agreed between the parties or unless the subject matter of the dispute resolution proceedings is a party’s right to terminate this Agreement, the Services shall continue during the dispute resolution proceedings and payments due to Digimarc shall not be withheld on account of such proceedings unless that particular Services or payment is the subject matter of the proceedings.  In the latter case, Digimarc may suspend continued provision of the disputed Services until the dispute resolution proceeding is concluded unless Licensee instructs Digimarc to continue the provision of the disputed Services, in which case Digimarc shall act in accordance with such instructions, subject to payment of the fees due for such Services.

 

12.            TERM

 

12.1          This Agreement shall take effect on the Effective Date and shall remain in force for one (1) year thereafter (the “Term”) unless sooner terminated as provided herein.  [**], Licensee may in its sole discretion renew the Agreement for one (1) or more successive one (1) year Terms on no less than sixty (60) days notice prior to the last day of a Term.

 

12.2          Either party may terminate this Agreement if the other party breaches any of its obligations under this Agreement and fails to remedy such breach within thirty (30) days after receiving written notice of such breach from the other party.

 

12.3          Upon termination of this Agreement each party shall return or certify the destruction of, to the Discloser, all originals and copies of the Discloser’s Confidential Information in the party’s possession or control which the party does not need to retain in order to exercise any rights acquired by this Agreement.

 

12.4          No termination of this Agreement will in any manner release, or be construed as releasing, any party from any liability arising out of or in connection with that party’s breach of or

 


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failure to perform any covenant, duty or obligation contained herein prior to the date of such termination.

 

13.           FORCE MAJEURE

 

13.1          If the performance by either party of any of its obligations under this Agreement is prevented or delayed by any circumstance of force majeure (which shall mean fire, flood, earthquakes, war, riots, or insurrection) the party shall immediately notify the other party.

 

13.2          The time period within which the party delayed is obliged to perform its obligations will be delayed during the period such circumstance exists.  During the period of delay the party delayed shall use its best efforts to make alternate arrangements satisfactory to the other party to

 

avoid delay or resume performance.

 

14.            NOTICES

 

14.1          All notices under this Agreement shall be delivered by fax, certified mail, return receipt requested, or recognized international courier service.  The notice shall be deemed effective as of the date of delivery to the address of the party specified below as evidenced by a delivery receipt or the addressee’s registry of incoming correspondence.  Unless otherwise expressly set out in this Agreement, all notices to a party will be sent to the party’s authorized representative identified below and all notices from a party will be sent by the party’s authorized representative identified below.

 

14.2          Any notice to DIGIMARC shall be sent to both of, and any notice from Digimarc shall be sent by either:

 

Mr. Bruce Davis
President and CEO
Digimarc Corporation
One Centerpointe Drive
Suite 500
Lake Oswego, Oregon 97035 USA
FAX: (503) 968-0219

 

Mr. William Y. Conwell
Klarquist, Sparkman,  Campbell,
Leigh & Whinston
121 SW Salmon Street
Suite 1600
Portland, Oregon 97204USA
FAX: (503) 228-9446

 


** CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 



 

14.3

Any notice to Licensee shall be sent to both of, and any notice from Licensee shall be sent by:

 

 

TBD

 

 

 

TBD

 

 

 

14.4

A party may change its address for notice by notice to the other party in accordance with the provisions of this clause 14.

 

 

14.5

A copy of every notice sent by either party shall be sent to: [**]

 

 

15.

MISCELLANEOUS PROVISIONS

 

 

15.1

Remedies Cumulative - Except as otherwise expressly set out in this Agreement:

 

 

(a)

each and every right, power and remedy of a party will be considered to be cumulative with and in addition to any other right, power and remedy which such party may have at law or in equity in the event of breach of any of the terms of this Agreement;

 

 

(b)

the exercise or partial exercise of any right, power or remedy will neither constitute the exclusive election thereof nor the waiver of any other right, power or remedy available to such party; and

 

 

(c)

a party terminating this Agreement in accordance with the provisions of the Termination clause will have no liability or obligation to the other as a result of or with respect to the termination.

 

15.2        Severability - If any part of this Agreement is held by an arbitral tribunal appointed pursuant to the Arbitration Agreement or by any other competent authority to be void or unenforceable, the parties agree that such determination will not result in the nullity or unenforceability of the remaining parts of this Agreement, which will continue in force to the fullest extent permitted by law.  The parties further agree to replace such void or unenforceable part of this Agreement with a valid and enforceable provision that will achieve, to the extent legally permissible, the economic, business and other purposes of the void or unenforceable part.

 

15.3        Counterparts .  This Agreement may be executed in separate counterparts, and by facsimile, each of which will be deemed an original, and when executed, separately or together, will constitute a single original instrument, effective in the same manner as if the parties had executed one and the same instrument.

 

15.4        Entire Agreement .  This Agreement is intended by the parties to be the final expression of their agreement and constitutes and embodies the entire agreement and understanding between the parties hereto and constitutes a complete and exclusive statement of the terms and conditions thereof, and will supersede any and all prior correspondence, conversations, negotiations, agreements or understandings between the parties relating to the same subject matter.

 

15.5        Amendments .  No change in, modification of or addition to the terms and conditions contained herein will be valid as between the parties unless set forth in a writing that is signed by

 


** CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 



 

an authorized representative of each party and which specifically states that it constitutes an amendment to this Agreement.

 

15.6          Waiver .  No waiver of any term, provision, or condition of this Agreement will be effective unless in a written document signed by the waiving party and no such waiver in any one or more instances will be deemed to be, or be construed as, a further or continuing waiver of that term, provision or condition or any other term, provision or condition of this Agreement.

 

15.7          Assignment and Successors .      This Agreement may not be assigned by Licensee without the prior written consent of the Digimarc, which consent may be withheld or given, with or without conditions at Digimarc’s sole discretion.  This Agreement and all of its terms, conditions, and covenants are intended to be fully effective and binding, to the extent permitted by law, on the successors and permitted assigns of the parties hereto.

 

15.8          Captions .     Captions are provided in this Agreement for convenience only and they form no part, and are not to serve as a basis for interpretation, of this Agreement, nor as evidence of the intention of the parties.

 

15.9          Disclaimer of Agency .  Nothing contained in this Agreement is intended or will be interpreted so as to constitute the parties to this Agreement as partners or joint venturers or as agents of each other. Neither party will have any express or implied right or authority to assume or create any obligations on behalf of or in the name of any other party or to bind any other party in any contract, agreement or undertaking with any third party. No employee of a party shall be deemed or considered to be an employee of the other party or of both parties.

 

15.10        Effectiveness .  This Agreement shall be effective only after it is signed by both of the parties.

 

15.11        Ambiguities .   Each party and its counsel have participated fully in the review and revision of this Agreement.  Any rule or construction to the effect that ambiguities are to be resolved against the drafting party shall not apply in interpreting this Agreement.

 

15.12        Survival.   All clauses of this Agreement which expressly or by implication are intended to survive the termination of this Agreement will do so and, for greater certainty and notwithstanding any provision in this Agreement to the contrary, the provisions of clauses 4.2, 4.3, 4.4, 10, 11, 14 and 15 of this Agreement shall survive termination of this Agreement by either party for any reason.

 

IN WITNESS WHEREOF , this Agreement has been executed and delivered by the parties hereto as of the Effective Date.

 


** CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 



 

TBD

 

 

 

 

 

Signature

 

Name:

 

Title:

 

Date

 

 

 

DIGIMARC CORPORATION

 

 

 

 

 

Signature

 

Name:

 

Title:

 

Date:

 

 


** CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 



 

ATTACHMENT 1

 

SOFTWARE PROBLEM REPORT

 

Each problem report will contain all information necessary to reproduce or demonstrate the occurrence of the problem.  Problem reports will be in English and will be delivered electronically in a format to be provided by Digimarc.

 

Problem reports will contain:

 

Date problem was encountered

Detailed description of the problem, including the frequency with which the problem occurs

Name and version number of the program / system component that exhibits the problem

Step by step instructions to reproduce the problem

All data files required to reproduce the problem

[**]

Manufacturer and Model

CPU type and speed

Amount of memory

Operating System and Version

Disk Configuration (number of drives, total space per drive, free space per drive)

Display Adapter Model, Resolution, Number of colors

Peripheral configuration (where applicable)

[**]

TWAIN driver and version number

[**]

Severity of problem

Contact information for person to contact for further information (name, phone number, FAX number, email address)

 

Licensee agrees to work with Digimarc to provide reasonable additional information and perform reasonable additional tests, as requested by Digimarc, to assist Digimarc in resolution of the problem.

 


** CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 


 

SCHEDULE “P”

 

FEES FOR INTEGRATION SUPPORT AND VERIFICATION TESTING

 

Digimarc shall bill [**] for Services in one hour increments at the following hourly rates:

 

Technical/Design Consultant

 

$

[**]

 

 

 

 

 

Senior Engineer

 

$

[**]

 

 

 

 

 

R&D/Engineering Executive

 

$

[**]

 

 

 

 

 

Project Manager

 

$

[**]

 

 

 

 

 

Administrator/Scheduler

 

$

[**]

 

 

Fees for Services will be invoiced on the earlier of 1) the last day of the month or 2) the completion of the Service.  Invoices are due thirty (30) days from the date of receipt of a correct invoice.  A late charge of 1.5% per month will be charged on any late payments.  All fees are due and payable in US funds.

 

The [**] will reimburse Digimarc for all out-of-pocket expenses reasonably and necessarily incurred in providing the Services.  Expenses will be itemized and reported by category.  Out-of-pocket expenses will not be “marked up” by Digimarc.  Costs include, but are not limited to, reasonable travel and lodging expenses, telephone and fax charges, postage and overnight deliveries, and charges for rental equipment or materials purchased specifically to be used in providing the Services.  All invoices for out-of-pocket expenses will be issued monthly in arrears and are due thirty (30) days from the date of receipt of a correct invoice. Supporting receipts and vouchers shall be available for review at Digimarc’s offices. A late charge of 1.5% per month will be charged on any late payments.  All out-of-pocket expenses will be billed and payable in US funds. Payments will additionally include Value Added taxes and other tariffs and fees that may be imposed by any government other than the United States.

 


** CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 



 

SCHEDULE “Q”

 

TRAINING

 

1.0           As part of [**], Digimarc shall develop a program of training acceptable to the DLA Project Manager in [**].

 

2.0           Digimarc shall deliver the Training as follows:

 

2.1           Digimarc shall provide the Training to up to two (2) people simultaneously.  The trainees will be experienced in digital design system operation.

 

2.2           Digimarc shall conduct the Training at the facilities of [**] or, at the request of the [**], at Digimarc’s facilities or at some other place agreed between Digimarc and the [**].

 

2.3           Digimarc shall give the [**] reasonable notice concerning the equipment which Digimarc will require in order to conduct the Training.  The [**] shall provide all such equipment at its own expense.  If the parties are unable to agree on the equipment to be provided either party may refer the matter for decision to the DLA Contract Authority.

 

2.4           Digimarc shall conduct the Training using the [**].

 

2.5           Digimarc shall provide a training manual in English to every trainee.  Any translation or interpretation which the trainees may require will be provided by [**] at its own expense.

 

2.6           Digimarc shall provide each trainee with a certificate of training at the completion of the Training session.

 

2.7           Digimarc shall conduct the training in English.

 


** CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 



 

SCHEDULE “R”

 

SOFTWARE PROBLEM REPORT

 

Each problem report will contain all information necessary to reproduce or demonstrate the occurrence of the problem. Problem reports will be in English and will be delivered electronically in a format to be provided by Digimarc.

 

Problem reports will contain:

 

·                                           Date problem was encountered

·                                           Detailed description of the problem, including the frequency with which the problem occurs

·                                           Name and version number of the program / system component that exhibits the problem

·                                           Step by step instructions to reproduce the problem

·                                           All data files required to reproduce the problem

·                                           PC configuration

·                                           Manufacturer and Model

·                                           CPU type and speed

·                                           Amount of memory

·                                           Operating System and Version

·                                           Disk Configuration (number of drives, total space per drive, free space per drive)

·                                           Display Adapter Model, Resolution, Number of colors

·                                           Peripheral configuration (where applicable)

·                                           Scanner Manufacturer and Model

·                                           TWAIN driver and version number

·                                           Scanning resolution

·                                           Severity of problem

·                                           Contact information for person to contact for further information (name, phone number, FAX number, email address)

 

[**] agrees to work with Digimarc to provide reasonable additional information and perform reasonable additional tests, as requested by Digimarc, to assist Digimarc in resolution of the problem.

 


** CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 



 

DLA: SCHEDULE “S”

 

PROFORMA INVOICE

MONTH, YEAR

[**] DEVELOPMENT SERVICES

 

 

 

 

 

Project 1

 

Project 2

 

Add columns
as necessary

 

Sub-total

 

Program
Wide

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Engineering Labor

 

Hourly Rate

 

 

 

 

 

 

 

 

 

 

 

 

 

Executive

 

$

999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

Director

 

$

999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

Engineering Manager

 

$

999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

Engineer - SW Development

 

$

999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

Engineer - R&D

 

$

999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

QA Engineer

 

$

999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

Sub-total

 

 

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Business Team Labor

 

Hourly Rate

 

 

 

 

 

 

 

 

 

 

 

 

 

Executive

 

$

999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

Project Director

 

$

999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

Lawyer

 

$

999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

Account Manager

 

$

999.99

 

 

 

 

 

 

 

 

 

 

 

 

 

Product Manager

 

$

999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

[**] Engineer

 

$

999.99

 

 

 

 

 

 

 

 

 

 

 

 

 

Technical Writer

 

$

999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

Sub-total

 

 

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Labor

 

 

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consulting

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Name consultant 1

 

 

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

Name consultant 2

 

 

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

Add names as necessary

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sub-total: Consulting

 

 

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equipment

 

 

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

Equipment - [**]

 

 

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

Security costs

 

 

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

Postage and shipping

 

 

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

Communications

 

 

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

Internet

 

 

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

[**] Research

 

 

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

Travel

 

 

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

Other authorized expenses under Schedule I

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Description 1

 

 

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

Description 2

 

 

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

Sub-total

 

 

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Due

 

 

 

$

999,999.99

 

 

 

 

 

 

 

 

 

 

 

 

Note: A 15% charge is included in the Expenses.

 

Wiring Instructions:

Payable to Digimarc Corporation, General Account.

 

Note: A change to the wiring instructions on this invoice is deemed to be a duly authorized change by Digimarc.

 

DLA: Schedule “S”

 

27 February [**]

DLA: SCHEDULE “S”

 

 

 


** CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 



 

PROFORMA INVOICE

MONTH, YEAR

[**] DEVELOPMENT SERVICES

 

 

 

Project 1
Hours

 

Project 2
Hours

 

Add columns
as necessary
Hours

 

Sub-total
Hours

 

Program Wide
Hours

 

Total

 

Engineering Labor

 

 

 

 

 

 

 

 

 

 

 

 

 

Executive

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

Director

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

Engineering Manager

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

Engineer - SW Development

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

Engineer - R&D

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

QA Engineer

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

Sub-total

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Business Team Labor

 

 

 

 

 

 

 

 

 

 

 

 

 

Executive

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

Project Director

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

Lawyer

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

Account Manager

 

 

 

 

 

 

 

 

 

 

 

 

 

Product Manager

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

[**] Engineer

 

 

 

 

 

 

 

 

 

 

 

 

 

Technical Writer

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

Sub-total

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Labor

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consulting

 

 

 

 

 

 

 

 

 

 

 

 

 

Name consultant 1

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

Name consultant 2

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

Add names as necessary

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

Sub-total: Consulting

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

 

DLA: Schedule “S”

 

27 February [**]

 

 

 

DLA: SCHEDULE “S”

 

 

 


** CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 



 

PROFORMA INVOICE

MONTH, YEAR

[**] SERVICES

 

 

 

 

 

 

 

Summary of

 

 

 

 

 

Summary of

 

all [**]

 

 

 

 

 

all [**]

 

including [**]

 

 

 

 

 

including [**]
Research

 

Research
Hours

 

Engineering Labor

 

Hourly Rate

 

 

 

 

 

Executive

 

$

999.99

 

 

 

 

 

Director

 

$

999.99

 

 

 

 

 

Engineering Manager

 

$

999.99

 

 

 

 

 

Engineer - SW Development

 

$

999.99

 

$

999,999.99

 

999,999.99

 

Engineer - R&D

 

$

999.99

 

 

 

 

 

QA Engineer

 

$

999.99

 

$

999,999.99

 

999,999.99

 

Sub-total

 

 

 

$

999,999.99

 

999,999.99

 

 

 

 

 

 

 

 

 

Business Team Labor

 

Hourly Rate

 

 

 

 

 

Executive

 

$

999.99

 

 

 

 

 

Project Director

 

$

999.99

 

$

999,999.99

 

999,999.99

 

Lawyer

 

$

999.99

 

$

999,999.99

 

999,999.99

 

Account Manager

 

$

999.99

 

$

999,999.99

 

999,999.99

 

Product Manager

 

$

999.99

 

 

 

 

 

[**] Engineer

 

$

999.99

 

$

999,999.99

 

999,999.99

 

Technical Writer

 

$

999.99

 

$

999,999.99

 

999,999.99

 

Sub-total

 

 

 

$

999,999.99

 

999,999.99

 

 

 

 

 

 

 

 

 

Total Labor

 

 

 

$

999,999.99

 

999,999.99

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

Consulting

 

 

 

 

 

 

 

Name consultant 1

 

 

 

$

999,999.99

 

999,999.99

 

Name consultant 2

 

 

 

$

999,999.99

 

999,999.99

 

Add names as necessary

 

 

 

$

999,999.99

 

999,999.99

 

Sub-total: Consulting

 

 

 

$

999,999.99

 

999,999.99

 

 

 

 

 

 

 

 

 

Equipment

 

 

 

$

999,999.99

 

 

 

Equipment - [**]

 

 

 

$

999,999.99

 

 

 

Security costs

 

 

 

$

999,999.99

 

 

 

Postage and shipping

 

 

 

$

999,999.99

 

 

 

Communications

 

 

 

$

999,999.99

 

 

 

Internet

 

 

 

$

999,999.99

 

 

 

[**] Research

 

 

 

$

999,999.99

 

 

 

Travel

 

 

 

$

999,999.99

 

 

 

Other authorized expenses under Schedule I

 

 

 

 

 

 

 

Description 1

 

 

 

$

999,999.99

 

 

 

Description 2

 

 

 

$

999,999.99

 

 

 

Sub-total

 

 

 

$

999,999.99

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

$

999,999.99

 

 

 

 

 

 

 

 

 

 

 

Total Due

 

 

 

$

999,999.99

 

 

 

 

DLA: Schedule “S”

 

27 February [**]

 

 

 

DLA: SCHEDULE “S”

 

 

 

 

 

 


** CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 


 

PROFORMA INVOICE

MONTH, YEAR

[**] SERVICES

 

 

 

 

 

[**]

 

[**]

 

[**]

 

[**]

 

[**]

 

 

 

 

 

 

 

Research

 

[**]

 

[**]

 

[**]

 

Activities

 

Maintenance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Engineering Labor

 

Hourly Rate

 

 

 

 

 

 

 

 

 

 

 

 

 

Executive

 

$

999.99

 

 

 

 

 

 

 

 

 

 

 

 

 

Director

 

$

999.99

 

 

 

 

 

 

 

 

 

 

 

 

 

Engineering Manager

 

$

999.99

 

 

 

 

 

 

 

 

 

 

 

 

 

Engineer - SW Development

 

$

999.99

 

 

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

Engineer - R&D

 

$

999.99

 

 

 

 

 

 

 

 

 

 

 

 

 

QA Engineer

 

$

999.99

 

 

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

Sub-total

 

 

 

 

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Business Team Labor

 

Hourly Rate

 

 

 

 

 

 

 

 

 

 

 

 

 

Executive

 

$

999.99

 

 

 

 

 

 

 

 

 

 

 

 

 

Project Director

 

$

999.99

 

 

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

Lawyer

 

$

999.99

 

 

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

Account Manager

 

$

999.99

 

 

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

Product Manager

 

$

999.99

 

 

 

 

 

 

 

 

 

 

 

 

 

[**] Engineer

 

$

999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

Technical Writer

 

$

999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

Sub-total

 

 

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Labor

 

 

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consulting

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Name consultant 1

 

 

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

Name consultant 2

 

 

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

Add names as necessary

 

 

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

Sub-total: Consulting

 

 

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equipment

 

 

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

Equipment - [**]

 

 

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

Security costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Postage and shipping

 

 

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

Communications

 

 

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

Internet

 

 

 

$

999,999.99

 

 

 

 

 

 

 

 

 

 

 

[**] Research

 

 

 

$

999,999.99

 

 

 

 

 

 

 

 

 

 

 

Travel

 

 

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

 

 

Other authorized expenses under Schedule I

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Description 1

 

 

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

Description 2

 

 

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

Sub-total

 

 

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

$

999,999.99

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[**]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DLA: Schedule “S”

 

 

 

 

 

 

 

 

 

 

 

27 February [**]

 

 

 

 


** CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 



 

PROFORMA INVOICE

MONTH, YEAR

[**] SERVICES

 

 

 

[**]

 

[**]

 

[**]

 

[**]

 

[**]

 

 

 

 

 

Research

 

[**]

 

[**]

 

[**]

 

Activities

 

Maintenance

 

 

 

Hours

 

Hours

 

Hours

 

Hours

 

Hours

 

Hours

 

Engineering Labor

 

 

 

 

 

 

 

 

 

 

 

 

 

Executive

 

 

 

 

 

 

 

 

 

 

 

 

 

Director

 

 

 

 

 

 

 

 

 

 

 

 

 

Engineering Manager

 

 

 

 

 

 

 

 

 

 

 

 

 

Engineer - SW Development

 

 

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

Engineer - R&D

 

 

 

 

 

 

 

 

 

 

 

 

 

QA Engineer

 

 

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

Sub-total

 

 

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Business Team Labor

 

 

 

 

 

 

 

 

 

 

 

 

 

Executive

 

 

 

 

 

 

 

 

 

 

 

 

 

Project Director

 

 

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

Lawyer

 

 

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

Account Manager

 

 

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

Product Manager

 

 

 

 

 

 

 

 

 

 

 

 

 

[**] Engineer

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

Technical Writer

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

Sub-total

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Labor

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

Consulting

 

 

 

 

 

 

 

 

 

 

 

 

 

Name consultant 1

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

Name consultant 2

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

Add names as necessary

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

Sub-total: Consulting

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

999,999.99

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

[**]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DLA: Schedule “S”

 

 

 

 

 

 

 

 

 

27 February [**]

 

 

 

 


** CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 



 

SCHEDULE “T”

 

AGREED FORM DEED OF ADHERENCE

 

THIS DEED is made on [                                                                               ]

 

BY [NAME OF SUBSTITUTE] (“Substitute”) of [INSERT ADDRESS]

 

WHEREAS

 

(A)                               At the request of [**], the Substitute is willing to become a party to the Counterfeit Deterrence System Development and License Agreement of [                                        ], 1999 (“DLA”) between the [**] and Digimarc Corporation (“Digimarc”) in substitution for and to the exclusion of the[**]

 

(B)                                 The Substitute is permitted so to become a party to the DLA pursuant to clause 19.8 of the DLA.

 

NOW THIS DEED WITNESSES that with effect from (and including) the date of this Deed, the Substitute agrees with Digimarc to become a party to the DLA in substitution for and to the exclusion of the [**] so that the Substitute, and not the [**], shall have the benefit of, and be subject to the obligations of, the [**] under the DLA, whether arising before, on or after the date of this Deed.

 

Executed as a deed and delivered on the date written at the start of this Deed by

 

[Substitute]

 

acting by

 

[duly authorized signatory]

 

[second duly authorised signatory (where necessary)]

 


** CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 



 

SCHEDULE “U”

 

COMFORT LETTER

 

From:

[**]

 

 

To:

Digimarc Corporation

 

Dear Sirs:

 

We refer to the Development and License Agreement (“DLA”) entered into between us on                                               , 1999.

 

We hereby exercise our right of substitution under clause 19.8(a) of the DLA in favour of [Substitute]; and attach a Deed of Adherence in the form of Schedule “T” to the DLA duly executed by the Substitute.

 

 

We are writing to confirm that [Substitute]:

 

 

1.

Is lawfully organized and existing;

 

 

2.

Is fully qualified, legally and otherwise, to assume the rights and obligations of [**] under the DLA, pursuant to the Deed of Adherence; and under the Escrow Agreement; and

 

 

3.

Has access to and the benefit of all the facilities previously available to [**] for the exercise of its obligations under the DLA and the Escrow Agreement.

 

Yours faithfully,

 

 

[**]

 


** CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 



 

DLA SCHEDULE “V”

PHASE [**] STATEMENT OF WORK

 

DESCRIPTION OF PHASE [**] WORK

 

Digimarc shall perform the following Work during Phase [**]. (The specific responsibilities to be discharged by [**] during Phase [**] are also described below.)

 

1.1           [**] Of The Phase [**]

 

Digimarc shall [**] for acceptance by [**] the Phase [**] according to the following process:

 

1.             By the date set out in the Delivery Schedule outlined in Attachment 1, Digimarc shall develop a detailed Specification for [**] described in Schedule A of the [**] as relates to Phase [**] and the additional requirements for [**], if any, specified below.

 

2.             Digimarc shall deliver the Specifications to the DLA Project Manager by the dates set out in the Delivery Schedule for [**] review, comment and acceptance or rejection.

 

3.             Within thirty (30) calendar days after receiving them under 2, the DLA Project Manager shall notify the Digimarc Project Manager in writing whether or not [**] approves the Specifications and if not, why not. Within fifteen (15) calendar days after receiving notice of rejection, Digimarc shall change the Specifications [**] and redeliver them to [**] for approval as provided above.

 

4.             Upon notice of approval under 3, Digimarc shall [**] will meet the approved Specifications and deliver [**] against specification requirements.

 

5.             Within thirty (30) calendar days after receiving [**] under 4, the DLA Project Manager shall notify the Digimarc Project Manager in writing whether or not [**] meets the Specifications with details of any non-compliance.   Any problems shall be detailed using, to the extent appropriate, the [**] Problem Report form attached as Schedule “R.”

 

6.             By the date set out in the Delivery Schedule, Digimarc shall develop [**] incorporating any changes required [**] with the Specifications and any other modifications agreed in writing between the parties’ respective project managers and deliver [**] to [**] and acceptance.

 

7.             Within thirty (30) calendar days after receiving [**] under 6, the DLA Project Manager shall notify the Digimarc Project Manager in writing whether or not [**] meets the Specifications with details of any non-compliance. Within thirty (30) calendar days after receiving any notice of rejection, Digimarc shall rectify all [**] for approval as provided above.

 


** CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 



 

1.2           Acceptance Procedures

 

1.2.1        [**]

 

The acceptance procedures for the [**] will be the following:

 

1.             Digimarc shall deliver or make available the [**] to the [**] Project Manager in a [**] that Digimarc will develop based on [**].  The [**] will allow the [**] to conduct [**] and [**] as set forth in the Specification.

 

2.             Digimarc shall deliver into escrow and review with the [**] a detailed description of how the [**] was [**] and the techniques used to [**].

 

1.2.2        [**]

 

The acceptance procedure for any improvements to the [**] will be the following:

 

1.                                        Digimarc shall deliver the [**] for [**] to the [**] Project Manager in an example [**] that Digimarc will develop to allow the [**] to [**] and [**].

 

2.                                        Digimarc shall deliver or make available the [**] for [**] to the [**] Project Manager in an example [**] that Digimarc will develop based on [**]. The example [**] will allow the [**] to [**] and [**].

 

3.                                        Digimarc shall deliver the [**] Project Manager in an example [**] that Digimarc will develop based on [**] or other [**]. The example [**] will allow the [**].

 

4.                                        Digimarc shall deliver into escrow and review with the [**] a detailed description of how the [**] was [**] and the techniques used to [**].

 

1.2.3        [**]

 

The acceptance procedure for any improvements to the [**] will be the following:

 

1.                                        Digimarc shall deliver the [**], [**], and the [**] to the [**] Project Manager to allow [**]with the Specifications.

 

2.                                        Digimarc shall deliver updated [**] and training materials to the [**] Project Manager to allow the [**] to review the materials for acceptance.

 

DESCRIPTION OF, AND REQUIREMENTS FOR, PHASE [**]

 

2.1           [**]

 


** CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 



 

Digimarc shall develop the [**] according to the following requirements:

 

2.1.1        [**]

 

Digimarc shall develop [**] to [**].  [**] shall meet the following requirements:

 

[**]1.      [**]for [**] shall be capable of being [**].

 

2.             [**]for [**] shall be capable of [**] and shall meet all the requirements of the Specification for [**]. In addition, the [**] shall meet the performance criteria as determined in the Specification for [**] for [**] and in addition shall meet or exceed the actual performance of [**] as specified in the [**] Specification.

 

3.             [**] shall be capable of [**]and shall meet all the requirements of the Specification for [**] for [**]. In addition, [**] shall meet the performance criteria as determined in the Specification for [**] and in addition shall meet or exceed the actual performance of [**] Specification.  Delivery of such [**] shall be conditional upon Digimarc [**] Digimarc and the [**] to intellectual property held [**] in order to [**].

 

4.             Digimarc shall publish the [**] needed for replacement of the [**] with a suitably designed alternative [**].

 

5.             Detailed requirements for [**] will be specified in a Specification delivered in accordance with the Delivery Schedule outlined in Attachment 1.

 

2.1.2        [**]

 

At the end of [**] will be [**] in [**]:

 

[**] As such, the [**] must be [**].

 

1.                                        Digimarc shall develop [**].

 

2.                                        Detailed requirements for [**] will be specified in a Specification delivered in accordance with the Delivery Schedule outlined in Attachment 1.

 

2.1.3        [**]

 

During the course of the year, [**] activities will result in the need to improve the [**], either to [**] needs or to respond to [**], such as [**] or in response to [**].   To ensure delivery of [**] in September [**]and a [**] in December [**], a detailed Specification for the project must be completed by February 28, [**].

 


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2.2           [**]

 

2.2.1        [**]

 

The [**] Digimarc shall [**]the [**] to add [**] for the following [**]:

 

·                   [**]

 

·                   [**]

 

1.                                        Digimarc shall make technology changes to the [**] necessary to operate [**].

 

2.                                        Digimarc shall make changes to the [**] as necessary to operate [**].

 

3.                                        Upon [**] acceptance, Digimarc shall release the updated version of the [**] to [**].

 

4.                                        The [**] documentation will be [**] to reflect [**].

 

2.3           [**]

 

2.3.1                         Digimarc shall maintain and operate the[**]and make it available at[**].

 

2.4           [**]

 

2.4.1        Digimarc shall [**]the [**] to [**].

 


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SCHEDULE “W”

 

PHASE [**] STATEMENT OF WORK

 

1.                    DESCRIPTION OF PHASE [**] WORK

 

Digimarc shall perform the following Work during Phase [**]. (The specific responsibilities to be discharged by [**] during Phase [**] are also described below.)

 

1.1                      [**] of the Phase [**]Deliverables

 

Digimarc shall [**] for acceptance by [**] the Phase [**] Deliverables according to the following process:

 

1.             By the date set out in the Delivery Schedule outlined in Attachment 1, Digimarc shall develop a detailed Specification for each [**].

 

2.             Digimarc shall deliver the Specifications to the DLA Project Manager by the dates set out in the Delivery Schedule for [**] review, comment and acceptance or rejection.

 

3.             Within thirty (30) calendar days after receiving [**] under 2, the DLA Project Manager shall notify the Digimarc Project Manager in writing whether or not [**] approves the Specifications and if not, why not. Within fifteen (15) calendar days after receiving notice of rejection, Digimarc shall change the Specifications to [**] and redeliver [**] to [**] for approval as provided above.

 

4.             Upon notice of approval under 3, Digimarc shall [**] that will meet the approved Specifications.

 

5.             By the date set out in the [**]Schedule, Digimarc shall [**] that will meet the approved Specifications.

 

6.             Within thirty (30) calendar days after receiving [**] under 5, the [**] Project Manager shall notify the Digimarc Project Manager in writing whether or not [**] meets the Specifications with details of any non-compliance. Any problems shall be detailed using, to the extent appropriate, the [**] Problem Report form attached as Schedule R.

 

7.             Within thirty (30) calendar days after receiving any notice of rejection, Digimarc shall rectify all non-compliance and redeliver [**] for approval as provided above.

 


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1.2                      Acceptance Deliverables

 

1.2.1        [**]

 

1.             Digimarc will deliver the [**] for [**] in the [**]to allow the [**] to [**].

 

2.             Digimarc will deliver or make available the [**] that Digimarc will [**].  The example [**].

 

3.             Digimarc will deliver the [**] for [**].  The example [**].

 

1.2.2        [**]

 

1.             Digimarc will provide the findings of the study to investigate the [**].

 

1.2.3        [**]

 

1.                Digimarc will provide the findings of the study to investigate the [**].

 

2.               DESCRIPTION OF, AND REQUIREMENTS FOR, PHASE [**]

 

Digimarc will develop the [**] according to the requirements described below.

 

2.1                      [**] for Applications and [**]

 

Digimarc shall [**] to meet the following requirements:

 

1.                [**] shall be capable of [**].

 

2.                [**] shall substantially [**].

 

3.                Detailed requirements for [**]

 

2.2                      [**] Study

 

Digimarc shall investigate [**] that meet the following requirements:

 

1.                [**], which may include [**].

 

2.                Technology that could be [**], which may include a [**].

 

3.                Assessment of the current [**].

 


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4.                Provide a strategy for how [**].

 

5.                Detailed requirements for [**] outlined in Attachment 1.

 

6.                Provide a technical report of the findings in accordance with the [**] outlined in Attachment 1.

 

2.3                      [**] Study

 

1.                Digimarc shall investigate [**]:

 

2.                [**].  The requirements [**].

 

3.                The costs to [**] to make the [**]

 

4.      Detailed requirements for [**] will be written in a Specification delivered in accordance with the Delivery Schedule outlined in Attachment 1.

 

5.                Provide a technical report of the findings in accordance with the Delivery Schedule outlined in Attachment 1.

 

2.4                      [**]

 

2.4.1.                      Digimarc shall maintain and operate the [**] and [**]

 

2.5                      [**]

 

2.5.1        Digimarc shall [**] the [**] to [**] and [**], including administration of the [**].

 


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ATTACHMENT 1: DELIVERY SCHEDULES

 

[**]

 

Num.

 

Deliverable

 

Owner

 

SOW Sec,
Par. Ref.

 

Depends
On

 

Completion
Date

 

D-1

 

[**] Draft Specification delivered

 

[**]

 

 

 

[**]

 

D-2

 

[**]

 

[**]

 

 

 

[**]

 

D-3

 

[**] specification signoff

 

[**]

 

1.1.4

 

[**]

 

[**]

 

D-4

 

First Progress Update PowerPoint Summary

 

[**]

 

 

[**]

 

[**]

 

D-5

 

Changes to the [**]

 

[**]

 

 

[**]

 

[**]

 

D-6

 

Second Progress Update and Development Status Technical Report

 

[**]

 

 

[**]

 

[**]

 

D-7

 

Third Progress Update / [**]

 

[**]

 

 

[**]

 

[**]

 

D-8

 

Delivery of [**]

 

[**]

 

1.1.5

 

[**]

 

[**]

 

D-9

 

[**] acceptance of [**]

 

[**]

 

1.1.6

 

[**]

 

[**]

 

 

[**] Study

 

Num.

 

Deliverable

 

Owner

 

Sec/Par.
Ref.

 

Depends
On

 

Completion
Date

 

DSE-1

 

Send out Study Plan

 

[**]

 

 

 

 

 

[**]

 

DSE-2

 

[**] feedback

 

[**]

 

 

 

[**]

 

[**]

 

DSE-3

 

Signoff of Study Plan

 

[**]

 

1.1.4

 

[**]

 

[**]

 

DSE-4

 

First Project Update

 

[**]

 

 

 

[**]

 

[**]

 

DSE-5

 

Second Project Update

 

[**]

 

 

 

[**]

 

[**]

 

DSE-6

 

Deliver Final Report

 

[**]

 

1.1.5

 

[**]

 

[**]

 

DSE-8

 

Final Report Acceptance

 

[**]

 

1.1.6

 

[**]

 

[**]

 

 

[**] Study

 

Num.

 

Deliverable

 

Owner

 

Sec/Par.
Ref.

 

Depends
On

 

Completion
Date

 

CLP-1

 

Send out Study Plan

 

[**]

 

 

 

 

 

[**]

 

CLP-2

 

[**] feedback

 

[**]

 

 

 

[**]

 

[**]

 

CLP-3

 

Signoff of Study Plan

 

[**]

 

1.1.4

 

[**]

 

[**]

 

CLP-4

 

Notification of [**] Participation

 

[**]

 

 

 

[**]

 

[**]

 

 


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Num.

 

Deliverable

 

Owner

 

Sec/Par.
Ref.

 

Depends
On

 

Completion
Date

 

CLP-5

 

First Project Update

 

[**]

 

 

 

[**]

 

[**]

 

CLP-6

 

Deliver Final Report

 

[**]

 

1.1.5

 

[**]

 

[**]

 

CLP-7

 

Final Report Acceptance

 

[**]

 

1.1.6

 

[**]

 

[**]

 

 


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SCHEDULE X:

 

[**]EXPENDITURES

 

Unless authorized in this Agreement, the [**] Agreement or otherwise agreed in writing by [**],

 

the [**]Expenditure under this Agreement and the [**] Agreement shall not be greater than an amount equal to [**]; and

 

the [**]Expenditure under this Agreement and the [**] Agreement shall not be greater than an amount equal to [**].

 


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Schedule “Y”

 

[**]

[**] PLAN

 

PROVIDED TO

 

[**]

 


 

[date]

 

 


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SITUATION ANALYSIS

 

2

 

 

 

 

 

 

DEPENDENCIES

 

2

 

 

 

 

 

WORK TO BE PERFORMED AS OF JANUARY [**]

 

3

 

 

 

 

 

TASK: 1.

[**]

3

 

TASK: 2.

[**] COMPLETION

4

 

TASK: 3.

[**] COMPLETION

5

 

TASK: 4.

[**] COMMITMENT TO [**]

5

 

TASK: 5.

[**] IN PLACE

6

 

TASK: 6.

[**]

7

 

TASK: 7.

[**]

8

 

TASK: 8.

[**]

8

 

TASK: 9.

[**]

9

 

TASK: 10.

[**]

10

 


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Situation Analysis

[One paragraph overview of [**] & current status]

 

[**]:

[Input all relevant [**] details associated with the situation analysis]

·

 

Technical Context

[Input all relevant technical details associated with the situation analysis]

·

 

Primary Contacts

[Input all major contact names and titles [**]]

 

Name – title

Name – title

Name – title

Name – title

 

Current barriers [**]

[Input all [**] or technical [**] barriers]

·

 

Current roles of [**] and Digimarc with relation to [**]:

[**]

[**] Tasks

[**] agrees to complete tasks upon which any part of the Services is dependent. The dependencies include all tasks identified in this plan as a [**] Task and approval and acceptance by [**].

 


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Work to Be Performed in [input year]

[Input the major task names & durations]

 

 

 

Jan

 

Feb

 

Mar

 

Apr

 

May

 

Jun

 

Jul

 

Aug

 

Sep

 

Oct

 

Nov

 

Dec

 

Task Number & Name

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Task Number & Name

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Task Number & Name

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Task Number & Name

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Task Number & Name

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tasks will not necessary follow the order provided below.

 

Task: 1

[**]

 

 

 

1.1

 

Completion

·

 

[**]

 

 

 

1.2

 

Work

·

 

[List tasks to be completed to achieve the objective]

 

 

 

1.3

 

Assumptions

·

 

[List any assumptions made that could affect the work needed to complete the task]

 

 

 

1.4

 

[**] Tasks

·

 

[List deliverables needed from [**] to complete the task]

 

 

 

1.5

 

Dependencies

·

 

[List dependencies that could affect work needed to achieve the objective or Digimarc’s ability to achieve the objective]

 

 

 

1.6

 

Available Budget

 

 

[List information about the approved budget for this task or a reference to the approved budget for this task]

 


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Task: 2

[**] Completion

 

 

2.1

 

Completion

·

 

[**]

·

 

[**]

 

 

 

2.2

 

Work

·

 

[List tasks to be completed to achieve the objective]

 

 

 

2.3

 

Assumptions

·

 

[List any assumptions made that could affect the work needed to complete the task]

 

 

 

2.4

 

[**] Tasks

·

 

[List deliverables needed from [**] to complete the task]

 

 

 

2.5

 

Dependencies

·

 

[List dependencies that could affect work needed to achieve the objective or Digimarc’s ability to achieve the objective]

 

 

 

2.6

 

Available Budget

 

 

[List information about the approved budget for this task or a reference to the approved budget for this task]

 

 

 

Task: 3

 

[**] Completion

 

 

 

3.1

 

Completion

·

 

[**]

·

 

[**]

·

 

[**]

·

 

Digimarc conveys these results to the appropriate [**] representatives

 

 

 

3.2

 

Work

·

 

[List tasks to be completed to achieve the objective]

 

 

 

3.3

 

Assumptions

·

 

[List any assumptions made that could affect the work needed to complete the task]

 

 

 

3.4

 

[**] Tasks

·

 

[List deliverables needed from [**] to complete the task]

 

 

 

3.5

 

Dependencies

·

 

[List dependencies that could affect work needed to achieve the objective or Digimarc’s ability to achieve the objective]

 

 

 

3.6

 

Available Budget

 

 

[List information about the approved budget for this task or a reference to the approved budget for this task]

 


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Task: 4

 

[**] commitment to [**]

 

 

 

[**]

 

 

 

 

 

4.1

 

Completion

·

 

[**]

 

 

 

4.2

 

Work

·

 

[List tasks to be completed to achieve the objective]

 

 

 

4.3

 

Assumptions

·

 

[List any assumptions made that could affect the work needed to complete the task]

 

 

 

4.4

 

[**] Tasks

·

 

[List deliverables needed from [**] to complete the task]

 

 

 

4.5

 

Dependencies

·

 

[List dependencies that could affect work needed to achieve the objective or Digimarc’s ability to achieve the objective]

 

 

 

4.6

 

Available Budget

 

 

[List information about the approved budget for this task or a reference to the approved budget for this task]

 

 

 

Task: 5

 

[**] in Place

 

 

 

5.1

 

Completion

·

 

[**]

 

 

 

5.2

 

Work

·

 

[List tasks to be completed to achieve the objective]

 

 

 

5.3

 

Assumptions

·

 

[List any assumptions made that could affect the work needed to complete the task]

 

 

 

5.4

 

[**] Tasks

·

 

[List deliverables needed from [**] to complete the task]

 

 

 

5.5

 

Dependencies

·

 

[List dependencies that could affect work needed to achieve the objective or Digimarc’s ability to achieve the objective]

 

 

 

5.6

 

Available Budget

 

 

[List information about the approved budget for this task or a reference to the approved budget for this task]

 


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Task: 6

 

[**]

 

 

 

6.1

 

Completion

·

 

[**]

 

 

 

6.2

 

Work

·

 

[List tasks to be completed to achieve the objective]

 

 

 

6.3

 

Assumptions

·

 

[List any assumptions made that could affect the work needed to complete the task]

 

 

 

6.4

 

[**] Tasks

·

 

[List deliverables needed from [**] to complete the task]

 

 

 

6.5

 

Dependencies

·

 

[List dependencies that could affect work needed to achieve the objective or Digimarc’s ability to achieve the objective]

 

 

 

6.6

 

Available Budget

 

 

[List information about the approved budget for this task or a reference to the approved budget for this task]

 

 

 

Task: 7

 

[**]

 

 

 

7.1

 

Completion

 

 

 

·

 

[**]

 

 

 

7.2

 

Work

·

 

[List tasks to be completed to achieve the objective]

 

 

 

7.3

 

Assumptions

·

 

[List any assumptions made that could affect the work needed to complete the task]

 

 

 

7.4

 

[**] Tasks

·

 

[List deliverables needed from [**] to complete the task]

 

 

 

7.5

 

Dependencies

·

 

[List dependencies that could affect work needed to achieve the objective or Digimarc’s ability to achieve the objective]

 

 

 

7.6

 

Available Budget

 

 

[List information about the approved budget for this task or a reference to the approved budget for this task]

 


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Task: 8

 

[**]

 

 

 

8.1

 

Completion

 

 

 

·

 

[**]

 

 

 

8.2

 

Work

·

 

[List tasks to be completed to achieve the objective]

 

 

 

8.3

 

Assumptions

·

 

[List any assumptions made that could affect the work needed to complete the task]

 

 

 

8.4

 

[**] Tasks

·

 

[List deliverables needed from [**] to complete the task]

 

 

 

8.5

 

Dependencies

·

 

[List dependencies that could affect work needed to achieve the objective or Digimarc’s ability to achieve the objective]

 

 

 

8.6

 

Available Budget

 

 

[List information about the approved budget for this task or a reference to the approved budget for this task]

 

 

 

Task: 9

 

[**]

 

 

 

9.1

 

Completion

 

 

 

·

 

[**]

 

 

 

9.2

 

Work

·

 

[List tasks to be completed to achieve the objective]

 

 

 

9.3

 

Assumptions

·

 

[List any assumptions made that could affect the work needed to complete the task]

 

 

 

9.4

 

[**] Tasks

·

 

[List deliverables needed from [**] to complete the task]

 

 

 

9.5

 

Dependencies

·

 

[List dependencies that could affect work needed to achieve the objective or Digimarc’s ability to achieve the objective]

 

 

 

9.6

 

Available Budget

 

 

[List information about the approved budget for this task or a reference to the approved budget for this task]

 

 

 

Task: 10

 

[**]

 

 

 

10.1

 

Completion

 

 

 

·

 

[**]

 


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10.2

 

Work

·

 

[List tasks to be completed to achieve the objective]

 

 

 

10.3

 

Assumptions

·

 

[List any assumptions made that could affect the work needed to complete the task]

 

 

 

10.4

 

[**] Tasks

·

 

[List deliverables needed from [**] to complete the task]

 

 

 

10.5

 

Dependencies

·

 

[List dependencies that could affect work needed to achieve the objective or Digimarc’s ability to achieve the objective]

 

 

 

10.6

 

Available Budget

 

 

[List information about the approved budget for this task or a reference to the approved budget for this task]

 


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SCHEDULE “Z”

 

[**] TEAM

 

Engineer [**] Development: A total of [**] FTE of [**] Engineering time is allocated.  In addition to meeting Digimarc’s requirements as a professional [**] developer, the [**] engineers assigned to the [**] Team must, as a collective group, have skill and experience in the following:

·      [**]

 

QA Engineer:        A total of [**] FTE of Quality Assurance Engineering time is allocated. In addition to meeting Digimarc’s requirements as a professional [**] development QA Engineer, the QA Engineers assigned to the [**] Team must, as a collective group, have skill and experience in the following:

·      [**]

 

Account Manager:        A total of [**] FTE of Account Management time is allocated. In addition to meeting Digimarc’s requirements for an Account Manager, the account managers assigned to the [**] team must have skills in the following:

·      [**]

 

Attorney:        A total of [**] FTE of Attorney (Lawyer) time is allocated. Legal staff assigned to the [**] must have experience [**].

 

[**] Engineer:        A total of [**] FTE of [**] Engineering time is allocated. In addition to meeting Digimarc’s requirements as a [**] Engineer, the [**] Engineer assigned to the [**] Team must have experience providing [**] research for the [**].

 

Technical Writer:        A total of [**] FTE of Technical Writer time is allocated. In addition to meeting Digimarc’s requirements as a professional Technical Writer, the Technical writers assigned to the [**] Team must have experience in the development of technical documentation targeted at [**].

 


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SCHEDULE “AA”

 

KEY [**] PERSONNEL

 

Following are the names and positions of Key [**] Personnel required as per clause 4.6 of this Agreement:

 

- Digimarc Project Director - [**]

- Business Team - [**]

- [**] Development - [**]

- R&D Engineering - [**]

- QA Engineering – [**]

 


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SCHEDULE “BB”

 

[**] PROBLEM REPORT

 

Each [**] Problem Report will contain all information necessary to reproduce or demonstrate the occurrence of the problem.  [**] Problem Reports will be [**] and will be delivered electronically in a format to be provided by Digimarc.

 

[**] Problem Reports will contain:

 

 

 

Name of [**]

 

 

[**]

 

 

Date problem was encountered

 

 

Detailed description of the problem, including the frequency with which the problem occurs

 

 

Severity of problem

 

 

Impact on [**] schedules and other [**] activities

 

 

Cost and budget impact

 

 

Recommended solution and estimated cost of implementation

 

 

Contact information for person to contact for further information (name, phone number, FAX number, email address)

 

If the problem involves [**]:

 

 

 

Name [**] that exhibits the problem

 

 

Step by step instructions to reproduce the problem

 

 

All [**] required to reproduce the problem

 

 

[**]

 

 

[**]

 

 

[**] type and speed

 

 

Amount of [**]

 

 

[**]

 

 

[**]

 

 

[**]

 

 

[**]

 

 

[**]

 

 

[**]

 

 

[**]

 

[**] agrees to work with Digimarc to provide reasonable additional information [**], as requested by Digimarc, to assist Digimarc in resolution of the problem.

 


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SCHEDULE “CC”

 

[**] PROJECT INDICATORS

 

The project indicators established shall be used as a communications and planning tool that will allow the [**] and Digimarc to assess the overall health of the project, and to help identify potential problems.  The agreed upon project indicators may change, new ones may be added or some deleted.  Such changes shall be agreed to by the parties.  Both parties shall work co-operatively to interpret the results of the project indicators. The project indicators shall not be used to assess penalties.

 

The parties shall establish at each June’s planning meeting which project indicators will be measured that year.  A report shall be prepared by the end of March the following year and shall be discussed at the strategic planning meeting held approximately two months prior to the June meeting.  The parties shall agree on what, if any, corrective measures need to be taken.

 

 

 

Among the project indicators which may be measured are the following:

 

 

 

1.

 

[**] Survey – [**] and Digmarc shall develop a joint survey to assess the level of [**] satisfaction with the [**] project and the [**] Services;

 

 

 

2.

 

[**] Survey – [**] and Digmarc shall develop a joint survey to assess the level of [**] satisfaction with the [**] project and the [**] provided by Digimarc;

 

 

 

3.

 

Budget performance – the parties shall track Allowable Costs and Expenses under the Agreement to the established budgets;

 

 

 

4.

 

Help Desk Calls – Digimarc shall monitor and report on the calls from [**] to Digimarc’s help desk; and

 

 

 

5.

 

Number of [**] and Number of [**] – Digimarc shall report on the number and [**] containing the [**] and the number of [**]

 

Each party shall share equally any [**] costs associated with developing, implementing and carrying out the project indicators.  Services performed in developing and reporting on project indicators that is performed as part of normal operational reporting shall be an Allowable Cost.  The parties shall determine in advance if work in addition to normal operational reporting shall be required and whether the costs of such work will be an Allowable Cost.

 


** CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.

 




EXHIBIT 10.5

 

DMRC CORPORATION

 

INDEMNIFICATION AGREEMENT

 

THIS AGREEMENT is entered into, effective as of                                     ,         , by and between DMRC Corporation, a Delaware corporation (the “Company”), and                                        (“Indemnitee”).

 

WHEREAS, it is essential to the Company to retain and attract as directors and officers the most capable persons available;

 

WHEREAS, Indemnitee is a director and/or officer of the Company; and

 

WHEREAS, in recognition of Indemnitee’s need for substantial protection against personal liability in order to enhance Indemnitee’s continued and effective service to the Company, and in order to induce Indemnitee to provide services to the Company as a director and/or officer, the Company wishes to provide in this Agreement for the indemnification of and the advancing of expenses to Indemnitee to the fullest extent (whether partial or complete) permitted by Delaware law and as set forth in this Agreement, and, to the extent insurance is maintained, for the coverage of Indemnitee under the Company’s directors’ and officers’ liability insurance policies.

 

NOW, THEREFORE, in consideration of the above premises and of Indemnitee’s continuing to serve the Company directly or, at its request, with another enterprise, and intending to be legally bound hereby, the parties agree as follows:

 

1.               Certain Definitions .

 

(a)   Board :  the Board of Directors of the Company.

 

(b)   Change In Control :  shall be deemed to have occurred if (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Act”)), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company (collectively “Excluded Persons”), is or becomes the “Beneficial Owner” (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Company representing 30% or more of the total voting power represented by the Company’s then outstanding Voting Securities, or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board and any new director whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the Board, or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation that would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by

 



 

remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 50% of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company (in one transaction or a series of transactions) of all or substantially all of the Company’s assets.

 

(c)   Expenses :  any expense, liability, or loss, including attorneys’ fees, judgments, fines, ERISA excise taxes and penalties, amounts paid or to be paid in settlement, any interest, assessments, or other charges imposed thereon, and any federal, state, local, or foreign taxes imposed as a result of the actual or deemed receipt of any payments under this Agreement, paid or incurred in connection with investigating, defending, being a witness in, or participating in (including on appeal), or preparing for any of the foregoing in, any Proceeding relating to any Indemnifiable Event.

 

(d)   Indemnifiable Event :  any event or occurrence that takes place either prior to or after the effective date of this Agreement, related to the fact that Indemnitee is or was a director or an officer of the Company, or while a director or officer is or was serving at the request of the Company as a director, officer, employee, trustee, agent, or fiduciary of another foreign or domestic corporation, partnership, joint venture, employee benefit plan, trust, or other enterprise, or was a director, officer, employee, or agent of a foreign or domestic corporation that was a predecessor corporation of the Company or of another enterprise at the request of such predecessor corporation, or related to anything done or not done by Indemnitee in any such capacity.

 

(e)   Independent Counsel :  the person or body appointed in connection with Section 3.

 

(f)    Potential Change In Control :  shall be deemed to have occurred if (i) the Company enters into an agreement or arrangement, the consummation of which would result in the occurrence of a Change in Control, (ii) any person (including the Company) publicly announces an intention to take or to consider taking actions that, if consummated, would constitute a Change in Control, (iii) any person (other than an Excluded Person) who is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 10% or more of the combined voting power of the Company’s then outstanding Voting Securities, increases his beneficial ownership of such securities by 5% or more over the percentage so owned by such person on the date hereof, or (iv) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred.

 

(g)   Proceeding :  (i) any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, investigative, or other, or (ii) any inquiry, hearing, or investigation, whether conducted by the Company or any other party, that Indemnitee in good faith believes might lead to the institution of any such action, or proceeding.

 

(h)   Reviewing Party :  the person or body appointed in accordance with Section 3.

 

2



 

(i)    Voting Securities : any securities of the Company that vote generally in the election of directors.

 

2.               Agreement To Indemnify .

 

(a)   General Agreement .  In the event Indemnitee was, is, or become a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, a Proceeding by reason of (or arising in part out of) an Indemnifiable Event, the Company shall indemnify Indemnitee from and against any and all Expenses to the fullest extent permitted by law, as the same exists or may hereafter be amended or interpreted (but in the case of any such amendment or interpretation, only to the extent that such amendment or interpretation permits the Company to provide broader indemnification rights than were permitted prior thereto).

 

(b)   Initiation Of Proceeding .  Notwithstanding anything in this Agreement to the contrary, Indemnitee shall not be entitled to indemnification pursuant to this Agreement in connection with any Proceeding initiated by Indemnitee against the Company or any director or officer of the Company unless (i) the Company has joined in or the Board has consented to the initiation of such Proceeding, (ii) the Proceeding is one to enforce indemnification rights under Section 5, or (iii) the Proceeding is instituted after a Change in Control and Independent Counsel has approved its initiation.

 

(c)   Expense Advances .  If so requested by Indemnitee, the Company shall advance (within ten business days of such request) any and all Expenses to Indemnitee (an “ Expense Advance ”); provided that such request shall be accompanied by reasonable evidence of the expenses incurred by Indemnitee and that, if and to the extent that the Reviewing Party determines that Indemnitee would not be permitted to be so indemnified under applicable law, the Company shall be entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all such amounts theretofore paid.  If Indemnitee has commenced legal proceedings in a court of competent jurisdiction to secure a determination that Indemnitee should be indemnified under applicable law, as provided in Section 4, any determination made by the Reviewing Party that Indemnitee would not be permitted to be indemnified under applicable law shall not be binding and Indemnitee shall not be required to reimburse the Company for any Expense Advance until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or have lapsed).

 

(d)   Mandatory Indemnification .  Notwithstanding any other provision of this Agreement (other than Section 2(f) below), to the extent that Indemnitee has been successful on the merits in defense of any Proceeding relating in whole or in part to an Indemnifiable Event or in defense of any issue or matter therein, Indemnitee shall be indemnified against all Expenses incurred in connection therewith.

 

(e)   Partial Indemnification .  If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of Expenses, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled.

 

3



 

(f)    Prohibited Indemnification .  No indemnification pursuant to this Agreement shall be paid by the Company on account of any Proceeding in which judgment is rendered against Indemnitee for an accounting of profits made from the purchase or sale by Indemnitee of securities of the Company pursuant to the provisions of Section 16(b) of the Act or similar provisions of any federal, state or local laws.

 

3.               Reviewing Party .

 

Prior to any Change in Control, the Reviewing Party shall be any appropriate person or body consisting of a member or members of the Board or any other person or body appointed by the Board who is not a party to the particular Proceeding with respect to which Indemnitee is seeking indemnification; after a Change in Control, the Reviewing Party shall be the Independent Counsel referred to below.  With respect to all matters arising after a Change in Control (other than a Change in Control approved by a majority of the directors on the Board who were directors immediately prior to such Change in Control) concerning the rights of Indemnitee to indemnity payments and Expense Advances under this Agreement or any other agreement or under applicable law or the Company’s Certificate of Incorporation or bylaws now or hereafter in effect relating to indemnification for Indemnifiable Events, the Company shall seek legal advice only from Independent Counsel selected by Indemnitee and approved by the Company and who has not otherwise performed services for the Company or the Indemnitee (other than in connection with indemnification matters) within the last five years.  The Independent Counsel shall not include any person who, under the applicable standards of professional conduct then prevailing would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement.  Such counsel, among other things, shall render its written opinion to the Company and Indemnitee as to whether and to what extent the Indemnitee should be permitted to be indemnified under applicable law.  The Company agrees to pay the reasonable fees of the Independent Counsel and to indemnify fully such counsel against any and all expenses (including attorney’s fees), claims, liabilities, loss, and damages arising out of or relating to this Agreement or the engagement of Independent Counsel pursuant hereto.

 

4.               Indemnification Process And Appeal .

 

(a)   Suit To Enforce Rights .  Regardless of any action by the Reviewing Party, if Indemnitee has not received full indemnification within 60 days after making a request in accordance with Section 2(c), Indemnitee shall have the right to enforce its indemnification rights under this Agreement by commencing litigation, in any appropriate court having subject matter jurisdiction thereof and in which venue is proper, seeking an initial determination by the court or challenging any determination by the Reviewing Party or any aspect thereof, provided, however, that such 60-day period shall be extended for reasonable time, not to exceed another 60 days, if the Reviewing Party in good faith requires additional time for the obtaining or evaluating of documentation and information relating thereto.  The Company hereby consents to service of process and to appear in any such proceeding.  Any determination by the Reviewing Party not challenged by the Indemnitee shall be binding on the Company and Indemnitee.  The

 

4



 

remedy provided for in this Section 4 shall be in addition to any other remedies available to Indemnitee in law or equity.

 

(b)   Defense To Indemnification, Burden Of Proof, And Presumptions .  It shall be a defense to any action brought by Indemnitee against the Company to enforce this Agreement (other than an action brought to enforce a claim for Expenses incurred in defending a Proceeding in advance of its final disposition where the required undertaking has been tendered to the Company) that it is not permissible under applicable law for the Company to indemnify Indemnitee for the amount claimed.  In connection with any such action or any determination by the Reviewing Party or otherwise as to whether Indemnitee is entitled to be indemnified hereunder, the burden of proving such a defense or determination shall be on the Company.  Neither the failure of the Reviewing Party or the Company (including its Board, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action by Indemnitee that indemnification of the claimant is proper under the circumstances because Indemnitee has met the standard of conduct set forth in applicable law, nor an actual determination by the Reviewing Party or Company (including its Board, independent legal counsel, or its stockholders) that the Indemnitee had not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the Indemnitee has not met the applicable standard of conduct.  For purposes of this Agreement, the termination of any claim, action, suit, or proceeding, by judgment, order, settlement (whether with or without court approval), conviction, or upon a plea of nolo contendere, or its equivalent shall not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law.

 

5.               Indemnification For Expenses Incurred In Enforcing Rights .

 

The Company shall indemnify Indemnitee against any and all Expenses and, if requested by Indemnitee, shall (within ten business days of such request), advance such Expenses to Indemnitee, that are incurred by Indemnitee in connection with any claim asserted against or covered action brought by Indemnitee for (i) indemnification of Expenses or Expense Advances by the Company under this Agreement or any other agreement or under applicable law or the Company’s Certificate of Incorporation or bylaws now or hereafter in effect relating to indemnification for Indemnifiable Events, and or (ii) recovery under directors’ and officers’ liability insurance policies maintained by the Company, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, Expense Advances, or insurance recovery, as the case may be.

 

6.               Notification And Defense Of Proceeding .

 

(a)   Notice .  Promptly after receipt by Indemnitee of notice of the commencement of any Proceeding, Indemnitee shall, if a claim in respect thereof is to be made against the Company under this Agreement, notify the Company of the commencement thereof, but the omission so to notify the Company will not relieve the Company from any liability that it may have to Indemnitee, except as provided in Section 6(c).

 

5



 
(b)   Defense .  With respect to any Proceeding as to which Indemnitee notifies the Company of the commencement thereof, the Company shall be entitled to participate in the Proceeding at its own expense and except as otherwise provided below, to the extent the Company so wishes, it may assume the defense thereof with counsel reasonably satisfactory to Indemnitee.  After notice from the Company to Indemnitee of its election to assume the defense of any Proceeding, the Company shall not be liable to Indemnitee under this Agreement or otherwise for any Expenses subsequently incurred by Indemnitee in connection with the defense of such Proceeding other than reasonable costs of investigation or as otherwise provided below.  Indemnitee shall have the right to employ his or her own legal counsel in such Proceeding, but all Expenses related thereto incurred after notice from the Company of its assumption of the defense shall be at Indemnitee’s expense unless:  (i) the employment of legal counsel by Indemnitee has been authorized by the Company, (ii) Indemnitee has reasonably determined that there may be a conflict of interest between Indemnitee and the Company in the defense of the Proceeding, (iii) after a Change in Control, the employment of counsel by Indemnitee has been approved by the Independent Counsel, or (iv) the Company shall not in fact have employed counsel to assume the defense of such Proceeding, in each of which case all Expenses of the Proceeding shall be borne by the Company.  The Company shall not be entitled to assume the defense of any Proceeding brought by or on behalf of the Company or as to which Indemnitee shall have made the determination provided for in (ii) above.
 
(c)   Settlement Of Claims .  The Company shall not be liable to indemnify Indemnitee under this Agreement or otherwise for any amounts paid in settlement of any Proceeding effected without the Company’s written consent, provided, however, that if a Change in Control has occurred, the Company shall be liable for indemnification of Indemnitee for amounts paid in settlement if the Independent Counsel has approved the settlement.  The Company shall not settle any Proceeding in any manner that would impose any penalty or limitation on Indemnitee without Indemnitee’s written consent.  The Company shall not be liable to indemnify the Indemnitee under this Agreement with regard to any judicial award if the Company was not given a reasonable and timely opportunity, at its expense, to participate in the defense of such action; the Company’s liability hereunder shall not be excused if participation in the Proceeding by the Company was barred by this Agreement.
 

7.               Non-Exclusivity .

 

The rights of Indemnitee hereunder shall be in addition to any other rights Indemnitee may have under the Company’s Certificate of Incorporation, bylaws, applicable law, or otherwise.  To the extent that a change in applicable law (whether by statute or judicial decision) permits greater indemnification by agreement than would be afforded currently under the Company’s Certificate of Incorporation, bylaws, applicable law, or this Agreement, it is the intent of the parties that Indemnitee enjoy by this Agreement the greater benefits so afforded by such change.

 

8.               Liability Insurance .

 

To the extent the Company maintains an insurance policy or policies providing directors’ and officers’ liability insurance, Indemnitee shall be covered by such policy or

 

6



 

policies, in accordance with its or their terms, to the maximum extent of the coverage available for any Company director or officer.

 

9.               Amendment Of This Agreement .

 

No supplement, modification, or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto.  No waiver of any of the provisions of this Agreement shall operate as a waiver of any other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver.  Except as specifically provided herein, no failure to exercise or any delay in exercising any right or remedy hereunder shall constitute a waiver thereof.

 

10.        Subrogation .

 

In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the Company effectively to bring suit to enforce such rights.

 

11.        No Duplication Of Payments .

 

The Company shall not be liable under this Agreement to make any payment in connection with any claim made against Indemnitee to the extent Indemnitee has otherwise received payment (under any insurance policy, bylaw, or otherwise) of the amounts otherwise indemnifiable hereunder.

 

12.        Binding Effect .

 

This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors (including any direct or indirect successor by purchase, merger, consolidation, or otherwise to all or substantially all of the business and/or assets of the Company), assigns, spouses, heirs, and personal and legal representatives.  The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity pertaining to an Indemnifiable Event even though he or she may have ceased to serve in such capacity at the time of any Proceeding.

 

13.        Severability .

 

If any provision (or portion thereof) of this Agreement shall be held by a court of competent jurisdiction to be invalid, void, or otherwise unenforceable, the remaining provisions shall remain enforceable to the fullest extent permitted by law.  Furthermore, to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of this Agreement containing any provision held to be invalid, void, or otherwise unenforceable, that is not itself invalid, void, or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, void, or unenforceable.

 

7



 

14.        Governing Law .

 

This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware applicable to contracts made and to be performed in such State without giving effect to the principles of conflicts of laws.

 

15.        Notices .

 

All notices, demands, and other communications required or permitted hereunder shall be made in writing and shall be deemed to have been duly given if delivered by hand, against receipt, or mailed, postage prepaid, certified or registered mail, return receipt requested, and addressed to the Company at:

 

Digimarc Corporation
9405 S.W. Gemini Drive
Beaverton, OR  97008

 

Notice of change of address shall be effective only when given in accordance with this Section.  All notices complying with this Section shall be deemed to have been received on the date of delivery or on the third business day after mailing.

 

16.        Counterparts .

 

This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Indemnification Agreement as of the day specified above.

 

 

DMRC CORPORATION

 

 

 

By:

 

 

 

 

Title:

 

 

 

 

 

 

INDEMNITEE

 

 

 

By:

 

 

 

 

Print Name:

 

 

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Exhibit 99.1

                , 2008

Dear Digimarc Corporation Stockholder:

        I am pleased to inform you that the distribution of all of the shares of common stock of DMRC Corporation, a wholly owned subsidiary of Digimarc Corporation, for the benefit of Digimarc stockholders was completed on August 1, 2008. DMRC Corporation holds all of the assets and liabilities used primarily in Digimarc's digital watermarking business, as well as all of the cash held by Digimarc prior to the distribution.

        The distribution was made in connection with an amended and restated merger agreement, pursuant to which a wholly owned subsidiary of L-1 Identity Solutions, Inc. offered to purchase all of the outstanding shares of common stock of Digimarc, which we refer to as the offer, and Dolomite Acquisition Co. a wholly owned subsidiary of L-1, agreed to merge with and into Digimarc with Digimarc continuing as the surviving company and a wholly owned subsidiary of L-1. On August 1, 2008, prior to the initial expiration of the offer, the shares of DMRC Corporation common stock were transferred to a newly-created trust for the benefit of Digimarc stockholders as of the record date (or anyone who purchases such stockholders' shares of Digimarc common stock in an open market transaction after the record date). The shares of DMRC Corporation common stock will be held by the trust until the Registration Statement on Form 10, of which the accompanying information statement is a part, has been declared effective by the Securities and Exchange Commission, at which time the shares will be distributed to Digimarc's stockholders as of the record date and time (or anyone who purchases such stockholders' shares of Digimarc common stock in an open market transaction after the record date), as beneficiaries of the trust, pro rata in accordance with their ownership of shares of Digimarc common stock on the record date and time.

        Each Digimarc stockholder as of the record date (or anyone who purchases such stockholders' shares of Digimarc common stock in an open market transaction after the record date) is entitled to receive one share of DMRC Corporation common stock for every three and one half shares of Digimarc common stock held by the stockholder as of the record date. The shares will be issued in book-entry form only, which means that no physical stock certificates will be issued. No fractional shares of DMRC Corporation common stock will be issued. If you would have otherwise been entitled to a fractional share of DMRC Corporation common stock in the distribution, you will receive the net cash value of the fractional share instead.

        DMRC Corporation has filed an application to list its common stock under the trading symbol "DMRCD" on The Nasdaq Global Market. Digimarc's common stock will continue to trade on the Nasdaq Global Market until the Digimarc/L-1 merger is completed. DMRC Corporation expects that, following completion of the Digimarc/L-1 merger, it will change its name to Digimarc Corporation.

        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.

        The attached information statement, which is being mailed to all Digimarc Corporation stockholders of record as of August 1, 2008 at 5:30 pm Eastern time, the record date and time, describes the spin-off and contains important information, including financial statements, about DMRC Corporation.

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


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 August 13, 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 Digimarc's digital watermarking business.

        The distribution was made in connection with an amended and restated merger agreement, pursuant to which a wholly owned subsidiary of L-1 Identity Solutions, Inc. offered to purchase all of the outstanding shares of common stock of Digimarc, which we refer to as the offer, and Dolomite Acquisition Co., a wholly owned subsidiary of L-1, agreed to merge with and into Digimarc, with Digimarc continuing as the surviving company and a wholly owned subsidiary of L-1, which we refer to as the Digimarc/L-1 merger. On August 1, 2008, prior to the initial expiration of the offer, Digimarc contributed all of the assets and liabilities related to its digital watermarking business, together with all of Digimarc's cash, to DMRC LLC, a Delaware limited liability company and wholly owned subsidiary of Digimarc, whch we refer to as DMRC LLC, which subsequently merged with and into DMRC Corporation, and the shares of DMRC Corporation common stock were transferred to a newly-created trust for the benefit of Digimarc stockholders as of August 1, 2008 at 5:30 pm Eastern time, the record date and time (or anyone who purchases such stockholders' shares of Digimarc common stock in an open market transaction after the record date), which we refer to as the trust transfer. The shares of DMRC Corporation common stock will be held by the trust until the Registration Statement on Form 10 has been declared effective by the Securities and Exchange Commission, at which time, which we refer to as the DMRC stock delivery date, the shares will be distributed to Digimarc's stockholders as of the record date and time (or anyone who purchases such stockholders' shares of Digimarc common stock in an open market transaction after the record date), as beneficiaries of the trust, pro rata in accordance with their ownership of shares of Digimarc common stock on the record date and time. Each Digimarc stockholder as of the record date and time (or anyone who purchases such stockholders' shares of Digimarc common stock in an open market transaction after the record date) is entitled to receive one share of DMRC Corporation common stock for every three and one half shares of Digimarc common stock held by the stockholder as of the record date and time.

        The shares will be issued in book-entry form only, which means that no physical stock certificates will be issued. No fractional shares of DMRC Corporation common stock will be issued. If you would have otherwise been entitled to a fractional share of DMRC Corporation common stock in the distribution, you will receive the net cash value of the fractional share instead.

        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 now held in trust for the benefit of Digimarc stockholders as of the record date and time (or anyone who purchases such stockholders' shares of Digimarc common stock in an open market transaction after the record date). Accordingly, no public trading market for DMRC Corporation common stock exists. DMRC Corporation has filed 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 trading day following the DMRC stock delivery date.

         In reviewing this information statement, you should carefully consider the matters described under the caption "Risk Factors" beginning on page 11.

         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

SUMMARY   3

RISK FACTORS

 

11

THE SPIN-OFF

 

22

DIVIDEND POLICY

 

32

CAPITALIZATION

 

33

SELECTED HISTORICAL FINANCIAL INFORMATION

 

34

PRO FORMA FINANCIAL INFORMATION

 

36

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

39

BUSINESS OF DMRC CORPORATION

 

62

MANAGEMENT

 

67

DIRECTOR COMPENSATION

 

73

COMPENSATION DISCUSSION AND ANALYSIS

 

75

EXECUTIVE COMPENSATION

 

80

OUR RELATIONSHIP WITH DIGIMARC CORPORATION AFTER THE SPIN-OFF

 

89

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

96

DESCRIPTION OF OUR CAPITAL STOCK

 

98

LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS

 

101

CERTAIN MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES

 

102

WHERE YOU CAN FIND MORE INFORMATION

 

105

INDEX TO FINANCIAL STATEMENTS

 

F-1

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 11 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 enables 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 generally 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 other traditional uses 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 our customers and those of our partners to:

        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 the Central Banks, and many leading companies in the information technology industry. 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 improve 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 entertainment and commercial 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. 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

        Prior to and in connection with the Digimarc/L-1 merger, on August 1, 2008, Digimarc spun off the common stock of DMRC Corporation, which holds all of the assets and liabilities of its digital watermarking business, which we refer to as the Digital Watermarking Business. The shares were transferred to a newly created trust for the benefit of holders of shares of Digimarc common stock as of the record date and time (or anyone who purchases such stockholders' shares of Digimarc common stock in an open market transaction after the record date), on the basis of one share of DMRC Corporation common stock for every three and one-half shares of Digimarc Corporation common stock held by the stockholder. Following the spin-off we issued 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 Digimarc/L-1 merger will take place following completion of the offer. The DMRC stock delivery date will occur upon effectiveness of the Form 10.

Summary of the Transactions

        The following is a brief summary of the terms of the spin-off and the related transactions:

Distributing company   Digimarc. Since the spin-off, Digimarc does not own any shares of our capital stock.

Distributed company

 

After the DMRC stock delivery date, DMRC Corporation will be an independent, publicly-traded company.

Securities to be distributed

 

Shares of DMRC Corporation common stock.

Distribution ratio

 

Each holder of Digimarc common stock will receive one share of DMRC Corporation common stock for every three and one-half shares of Digimarc common stock held by the stockholder on the record date and time (or anyone who purchases such stockholders' shares of Digimarc common stock in an open market transaction after the record date and time).

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Method of distribution

 

For registered Digimarc stockholders, our transfer agent has credited shares of our common stock to book-entry accounts established to hold shares of our common stock. Book-entry refers to a method of recording stock ownership in our records in which no physical certificates are issued. For stockholders who own Digimarc common stock through a broker or other nominee, shares of our common stock will be credited to their accounts by the broker or other nominee. Following the distribution of shares of our common stock, stockholders whose shares are held in book-entry form may request the transfer of their shares of our common stock to a brokerage or other account at any time and may request the delivery of physical stock certificates for their shares, in each case without charge.

Record date and time

 

The record date and time was August 1, 2008 at 5:30 pm Eastern time.

Distribution date and time

 

August 1, 2008 at 5:32 pm Eastern time.

DMRC stock delivery date

 

The DMRC stock delivery date will be the date upon which the Form 10 is declared effective.

Distribution agent, transfer agent and registrar

 

Computershare Trust Company, N.A.

Stock Exchange Listing

 

We have applied for listing of our common stock on The Nasdaq Global Market under the symbol "DMRCD." On the first trading day following the DMRC stock delivery date, trading of our common stock will begin. We cannot predict the trading prices for our common stock on or after the DMRC stock delivery date.

The offer

 

Digimarc has entered into the Digimarc/L-1 merger agreement with L-1 and Dolomite Acquisition Co., a wholly owned subsidiary of L-1, pursuant to which Dolomite Acquisition Co. has offered to purchase all of the outstanding shares of Digimarc common stock, together with the associated preferred stock purchase rights, for $12.25 per share, net to the seller in cash, without interest thereon and less any required withholding taxes. The initial offering period and withdrawal rights expired at 12:00 midnight Eastern time on Friday, August 1, 2008, with approximately 79% of the issued and outstanding shares of Digimarc common stock being validly tendered and not withdrawn. Dolomite Acquisition Co. commenced a subsequent offering period to acquire all of the remaining outstanding shares of common stock of Digimarc not tendered into the offer, which subsequent offering period expired at 5:00 p.m. Eastern time on Friday, August 8, 2008, with approximately 87.5% of the issued and outstanding shares of Digimarc common stock being validly tendered and not withdrawn. Dolomite Acquisition Co. commenced a second subsequent offering period which is set to expire at 5:00 p.m. ET on Wednesday, August 13, 2008. The per share price paid

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in the offer does not include the value attributable to the spin-off. The occurrence of the spin-off was a condition to the completion of the offer.

Digimarc/L-1 merger

 

Digimarc has entered into an agreement with L-1 and Dolomite Acquisition Co., a wholly owned subsidiary of L-1, pursuant to which Dolomite Acquisition Co. will merge with and into Digimarc. The occurrence of the spin-off and completion of the offer were conditions to the occurrence of the Digimarc/L-1 Merger. The Digimarc/L-1 merger is expected to occur following completion of the offer.

Tax consequences to stockholders

 

We believe that for U.S. federal income tax purposes, the spin-off, the offer and the Digimarc/L-1 merger will constitute a single integrated transaction with respect to Holders (as defined in "Certain Material U.S. Federal Income Tax Consequences," beginning on page 102 of this information statement) of Digimarc stock in which the spin-off will be treated as a taxable redemption of shares of Digimarc common stock that qualifies for "exchange" treatment. Accordingly, assuming this characterization will be respected with respect to each U.S. Holder (as defined in "Certain Material U.S. Federal Income Tax Consequences," beginning on page 102 of this information statement) who holds his or her shares of Digimarc common stock as a capital asset (generally, assets held for investment), such a U.S. Holder generally will recognize capital gain or loss for U.S. federal income tax purposes in an amount equal to the difference between (1) the sum of the fair market value of the DMRC LLC interests received in the spin-off, the amount of cash received in the offer, and the amount of cash received in the Digimarc/L-1 merger, and (2) the U.S. Holder's adjusted tax basis in his or her shares of Digimarc common stock surrendered or deemed surrendered in the transactions. The deduction of any recognized loss may be delayed or otherwise adversely affected by certain loss limitation rules. In addition, such a U.S. Holder will not recognize any gain or loss in the DMRC Corporation merger. With respect to each non-U.S. Holder (as defined in "Certain Material U.S. Federal Income Tax Consequences," beginning on page 102 of this information statement) who holds his or her shares of Digimarc common stock as a capital asset, such a non-U.S. Holder generally will not be subject to U.S. federal income tax on any gain realized on the receipt of cash, DMRC LLC interests or shares of DMRC Corporation stock in exchange for shares of Digimarc common stock in the spin-off, the offer, the Digimarc/L-1 merger and the DMRC Corporation merger.

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Tax matters are complicated and the tax consequences of the spin-off, the offer, the Digimarc/L-1 merger and the DMRC Corporation merger to you will depend on your individual circumstances. You should consult your tax advisor to determine the specific tax consequences of the spin-off, the offer, the Digimarc/L-1 merger and the DMRC Corporation merger to you.

 

 

For additional information, please see "Certain Material U.S. Federal Income Tax Consequences," beginning on page 102 of this information statement.

Dividend policy

 

We do not intend to pay dividends on our common stock in the foreseeable future.

Relationship between DMRC Corporation and Digimarc Corporation after the spin-off

 

Digimarc no longer owns any shares of our common stock. Our common stock has been transferred to a trust for the benefit of stockholders of Digimarc Corporation as of the record date and time (or anyone who purchases such stockholders' shares of Digimarc common stock in an open market transaction after the record date) and will be distributed to the stockholders on the DMRC stock delivery date. We, Digimarc and DMRC LLC have entered into a number of agreements that govern the spin-off from Digimarc and our future relationship, including a Separation Agreement, a Transition Services Agreement and a License Agreement, and each of our executive officers has entered into a non-competition agreement with Digimarc and L-1.

Separation Agreement

 

The Separation Agreement among Digimarc, DMRC LLC, us, and with respect to certain sections, L-1, provides for (1) the transfer of specified assets of Digimarc and its subsidiaries to, and the assumption of specified liabilities of Digimarc and its subsidiaries by, DMRC LLC and its subsidiaries, and (2) the distribution of the interests of DMRC LLC to Digimarc's stockholders. The Separation Agreement sets forth the agreement between Digimarc and DMRC LLC relating to employee matters, non-competition, non-solicitation of employees and others, tax matters and purchase price excess or shortfall. Following the DMRC Corporation merger, DMRC Corporation succeeded to all of the rights, interests and obligations of DMRC LLC under the Separation Agreement by operation of law. The Separation Agreement continues in effect following the spin-off with respect to various indemnification, insurance, confidentiality and cooperation provisions. For a description of the rights and obligations of the parties under the Separation Agreement, see "Our Relationship with Digimarc After the Spin-Off—Separation Agreement," beginning on page 89.

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Transition Services Agreement

 

The Transition Services Agreement between Digimarc and us sets forth the terms under which we and Digimarc are providing to one another transition services that are substantially consistent with the services provided by the Secure ID Business to the Digital Watermarking Business, or by the Digital Watermarking Business to the Secure ID Business, as applicable, before completion of the spin-off. For a description of the rights and obligations of the parties under the Transition Services Agreement, see "Our Relationship with Digimarc After the Spin-Off—Transition Services Agreement," beginning on page 94.

License Agreement

 

Under the terms of the License Agreement between DMRC Corporation and L-1 Identity Solutions Operating Company, L-1 Identity Solutions Operating Company granted to DMRC Corporation and its affiliates a license under certain patents owned by L-1 Identity Solutions Operating Company upon completion of the spin-off for use and exploitation in specified fields related to the Digital Watermarking Business, and DMRC Corporation granted to L-1 Identity Solutions Operating Company and its affiliates an exclusive license under certain patents owned by DMRC Corporation upon completion of the spin-off for use and exploitation in certain fields related to the Secure ID Business. For a description of the rights and obligations of the parties under the License Agreement, see "Our Relationship with Digimarc After the Spin-Off—License Agreement," beginning on page 93.

Management and Operation of DMRC Corporation after the distribution

 

DMRC Corporation is operating the Digital Watermarking Business, managed by the same Beaverton, Oregon based management team employed by Digimarc Corporation prior to the distribution, except for Robert Eckel, Digimarc's current President, ID Systems, and Reed Stager, Digimarc's former Executive Vice President.

Anti-takeover effects

 

Some provisions of our certificate of incorporation, our bylaws and Delaware law may have the effect of making more difficult an acquisition of control of us in a transaction not approved by our board of directors. For more information, see "Description of Our Capital Stock."

         You should carefully read the "Risk Factors" beginning on page 11 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 pursuant to 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:

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

        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

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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.

        The dollar amounts in the tables below are in thousands.

 
  For the Years Ended December 31,
  For the Three Months Ended March 31,
  Pro Forma for Three Months Ended March 31,
 
(1)
  2003
(unaudited)

  2004
(unaudited)

  2005
(audited)

  2006
(audited)

  2007
(audited)

  2007
(unaudited)

  2008
(unaudited)

  2008
(unaudited)

 
Operating revenues   $ 9,306   $ 11,184   $ 11,119   $ 11,071   $ 13,025   $ 3,485   $ 5,085   $ 5,085  
Gross profit percentage     58 %   68 %   69 %   66 %   69 %   72 %   73 %   73 %
Operating income (loss)     (2 )   (2 ) $ (5,770 ) $ (3,908 ) $ (1,310 ) $ (121 ) $ 641   $ 641  
 
 
  For the Years Ended December 31,
  As of March 31,
  Pro Forma As of March 31,
(1)
  2003
(unaudited)

  2004
(unaudited)

  2005
(audited)

  2006
(audited)

  2007
(audited)

  2007
(unaudited)

  2008
(unaudited)

  2008
(unaudited)

Cash, cash equivalents and short term investments   $ 78,633   $ 51,836   $ 31,982   $ 33,073   $ 32,713   $ 31,505   $ 37,435   $ 53,875
Total assets     (2 ) $ 56,210   $ 36,896   $ 37,658   $ 38,451   $ 35,469   $ 42,499   $ 58,939
Long-term obligations   $ 0   $ 160   $ 295   $ 294   $ 215   $ 240   $ 220   $ 220

(1)
The Digimarc/L-1 merger agreement 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, Digimarc began a reorganization of its business to focus on its core strengths while significantly reducing its cost of operations in all areas and 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 benefited from the shared services operating model in 2002, and later, beginning in 2005, further benefited as operating costs were reduced and revenues began to rise to current levels. As a result, DMRC Corporation's operating losses were reduced over the years to $1.3 million in 2007. DMRC 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 those risks of which we are aware, that we consider to be material to 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.

        There is no trading market for shares of DMRC common stock, and we do not assure you that such a market will develop or be sustained after the DMRC stock delivery date. DMRC has applied to have its shares of common stock listed on the Nasdaq Global Market under the symbol "DMRCD;" however, following the spin-off, the shares of DMRC common stock are being held in trust for the benefit of Digimarc stockholders until the Form 10 is declared effective by the SEC. Until that time, the shares will not be listed for trading and you will not be able to sell any of your shares of DMRC common stock. Once the shares have been listed and trading commences, 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

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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 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:

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.

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        Following the spin-off, we issued to the executive officers of DMRC Corporation an aggregate of 10,000 shares of Series A Redeemable Nonvoting Preferred stock. In the event of the liquidation, dissolution or other winding up of 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, a consortium of Central Banks and The Nielsen Company, which we refer to as Nielsen, 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.

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        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.

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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        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

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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.

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:

        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

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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.

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:

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        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 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

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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 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:

        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.

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        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 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. Although we rely on some of these technologies for our products or for our licenses to third parties to date, the licensed patents have not been material to our operations.

        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

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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, technologies or other proprietary information may not prevent their misappropriation.

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

Background of the Spin-Off

        As part of its ongoing evaluation of Digimarc's business and strategic direction, Digimarc's board of directors has evaluated from time to time Digimarc's strategic alternatives. In addition, Digimarc has, from time to time, received unsolicited inquiries related to an acquisition of all or part of the company. In the second half of 2006, Digimarc's board of directors determined that Digimarc would benefit from the resources and analysis provided by financial advisors familiar with the company and the businesses in which it is engaged. In November 2006, Digimarc engaged USBX Advisory Services, LLC, which we refer to as USBX Advisory Services, and RA Capital Advisors LLC, which we refer to as RA Capital, as Digimarc's financial advisors to assess Digimarc's Secure ID Business and Digital Watermarking Business, respectively, and to assist in the evaluation of strategic alternatives, including identifying potential complementary businesses for Digimarc to acquire and assisting management and the board of directors in reviewing and analyzing potential inquiries from parties interested in acquiring all or a portion of the company.

        In the spring and summer of 2007, USBX Advisory Services facilitated discussions and financial and legal due diligence with four parties interested in potential strategic transactions with Digimarc, none of which resulted in an offer to acquire Digimarc or any of its assets or businesses. In the fall of 2007, certain assets of USBX Advisory Services, including the Digimarc engagement and the primary USBX Advisory Services bankers working on the Digimarc engagement, were acquired by Imperial Capital, LLC, which we refer to as Imperial Capital.

        On October 11, 2007, Robert Basil, Vice President of Strategic Planning and Business Operations of L-1, contacted a representative of USBX Advisory Services to facilitate a conversation between L-1 and Digimarc about a possible strategic transaction. During October and November 2007, representatives of L-1 and USBX Advisory Services held several discussions regarding L-1's preliminary interest in the acquisition of Digimarc's Secure ID Business.

        On December 6, 2007, at a meeting of Digimarc's board of directors, a representative of USBX Advisory Services reported to the board of directors on his conversations with representatives of L-1 regarding a potential acquisition of Digimarc's Secure ID Business.

        On January 22, 2008, Bruce Davis, President and Chief Executive Officer of Digimarc, James T. Richardson, Digimarc's lead director, and Jay Beaghan, a representative of Imperial Capital after the acquisition of certain assets of USBX Advisory Services, met with Robert V. LaPenta, L-1's President and Chief Executive Officer, at the Portland, Oregon, airport to discuss L-1's interest in a potential transaction involving the acquisition of Digimarc's Secure ID Business. The parties discussed the broad parameters of a potential transaction.

        On January 25, 2008, Digimarc's board of directors held a meeting, during which Messrs. Davis and Richardson reported on their meeting with Mr. LaPenta. The board of directors directed Digimarc's management, and its financial and legal advisors, to explore the threshold structuring, legal and regulatory issues involved in a potential transaction with L-1 to determine the preliminary viability of such a transaction.

        Between January 29, 2008 and February 27, 2008, various representatives of L-1 and Digimarc, including representatives of L-1's financial, accounting and legal advisors, and Digimarc's legal advisors, held a series of telephone conferences to discuss legal, accounting and tax matters relating to a potential transaction between L-1 and Digimarc pursuant to which L-1 would acquire Digimarc's Secure ID Business, and to exchange preliminary due diligence information with respect to each company.

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        On February 28, 2008, at a meeting of Digimarc's board of directors, Digimarc's management and representatives of Perkins Coie LLP, Digimarc's legal counsel, which we refer to as Perkins Coie, reported the results of their initial discussions with L-1 and its representatives. The board of directors discussed a potential transaction between L-1 and Digimarc pursuant to which L-1 would acquire Digimarc's Secure ID Business, the risks related to such a transaction and alternatives to such a transaction available to Digimarc, including the sale of the entire company, remaining as a stand-alone company or acquisitions of other companies or businesses. The board of directors authorized management and Digimarc's advisors to continue to explore a potential transaction with L-1 pursuant to which L-1 would purchase Digimarc's Secure ID Business, and to pursue other opportunities for a strategic transaction.

        On March 4, 2008, various representatives of L-1 and Digimarc, including representatives of their respective legal advisors, held a telephone conference to discuss the proposed tax structure of the potential transaction between L-1 and Digimarc involving the acquisition by L-1 of Digimarc's Secure ID Business.

        On March 11, 2008, Mr. Davis and Mr. Beaghan met with Mr. LaPenta in New York City to discuss the terms of a potential transaction between Digimarc and L-1 involving the acquisition by L-1 of Digimarc's Secure ID Business. After several hours of meetings and discussions of the potential synergies of the companies' businesses and the terms of a potential transaction, Mr. Davis and Mr. LaPenta reached a preliminary understanding on the general economic terms of a proposed acquisition by L-1 of Digimarc's Secure ID Business and the related spin-off of Digimarc's Digital Watermarking Business.

        On March 13, 2008, Digimarc's board of directors convened a meeting to discuss L-1's proposal relating to a potential transaction involving the acquisition by L-1 of Digimarc's Secure ID Business. Representatives of Imperial Capital, RA Capital and Perkins Coie also attended the meeting. The board of directors reviewed the structure and terms of the proposed transaction and received advice from its financial advisors regarding valuation implications of the proposal and strategic alternatives, including the sale of the entire company, remaining as a stand-alone company or acquisitions of other companies. A representative of Perkins Coie advised the board of directors on its fiduciary obligations with respect to the proposed transaction. Imperial Capital, the board of directors and management reviewed a list of potential acquirers and the board of directors then authorized Imperial Capital to contact a selected group of potential acquirers to ascertain whether any in the group was interested in pursuing a transaction. The group of potential acquirers was determined based on previous communications with those parties, the level of interest expressed and the likely value of a transaction with any of the potential acquirers. Following the meeting, Mr. Davis called Mr. LaPenta to confirm the board of directors' support of continued due diligence and the negotiation of the potential transaction involving the acquisition by L-1 of Digimarc's Secure ID Business.

        From March 14, 2008 to March 18, 2008, representatives of Imperial Capital conducted a targeted market check and had conversations with approximately 10 qualified potential acquirers, other than L-1, which included both private equity firms and potential strategic buyers, to solicit interest in a potential transaction with Digimarc. Each party was informed of certain financial and timing considerations of any expression of interest. None of the parties submitted an offer to Digimarc on the bases described.

        From March 15, 2008 through March 23, 2008, Digimarc's management and Perkins Coie, on the one hand, and L-1's management and Weil Gotshal, LLP, L-1's legal counsel, which we refer to as Weil Gotshal, on the other hand, negotiated the terms of a merger agreement and related schedules and agreements. The parties also continued their respective due diligence reviews during this period.

        On March 19, 2008, Digimarc's board of directors met to consider the proposed transaction involving L-1's acquisition of Digimarc's Secure ID Business. Also present at the meeting were

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representatives of Imperial Capital, RA Capital and Perkins Coie. Representatives of Digimarc's management and Perkins Coie reviewed the proposed terms of the merger agreement, including the remaining issues to be negotiated. The representatives of Imperial Capital and RA Capital presented an exhaustive review regarding the potential impact on stockholder value of a range of alternatives, including the potential transaction with L-1, a sale of the entire company, remaining as a stand-alone company or acquisitions of other companies. Representatives of Perkins Coie advised the board of directors on its fiduciary duties regarding the pursuit of alternative proposals and regulatory considerations regarding the proposed transaction. The board of directors directed management and Perkins Coie to attempt to negotiate the definitive merger agreement, including the related schedules and agreements, on terms that would be satisfactory to the board of directors.

        From March 19, 2008 through much of the day on March 22, 2008, Digimarc's management and Perkins Coie, on the one hand, and L-1's management and Weil Gotshal, on the other hand, negotiated the terms of the merger agreement and related schedules and agreements.

        On March 22, 2008, Digimarc's board of directors met to review all the terms of the proposed transaction involving L-1's acquisition of Digimarc's secure ID business and a substantially final draft of the merger agreement, and to receive a report from Perkins Coie of the legal aspects of the transaction. A representative of Perkins Coie again reviewed for the board of directors its fiduciary duties applicable to the potential transaction. Representatives of Imperial Capital and RA Capital then presented their financial analyses with respect to the proposed transaction with L-1. Following this presentation, Imperial Capital reviewed with the board of directors Imperial Capital's financial analyses and delivered to the board of directors an oral opinion, which opinion was confirmed by delivery of a written opinion, dated March 22, 2008, to the effect that, as of that date and based on and subject to various assumptions, matters considered and limitations described in its opinion, the consideration in the Digimarc/L-1 merger was fair, from a financial point of view, to the holders of Digimarc common stock. Digimarc's board of directors then unanimously approved the merger, the merger agreement and the transactions contemplated thereby and the spin-off of the Digital Watermarking Business and recommended that the Digimarc stockholders approve the merger and the merger agreement.

        On March 23, 2008, following the resolution of the final issues in the merger agreement and related schedules and agreements, Digimarc, L-1 and a wholly owned subsidiary of L-1 executed the merger agreement, which merger agreement we refer to as the Original Merger Agreement.

        On March 24, 2008, prior to the opening of U.S. financial markets, Digimarc and L-1 each issued a press release announcing that L-1 had entered into a definitive agreement to acquire Digimarc's Secure ID Business. The press releases also announced the related spin-off of Digimarc's Digital Watermarking Business and cash on hand.

        Following the announcement of the Original Merger Agreement and through the second week of June 2008, Digimarc, L-1 and their respective representatives negotiated the terms of a separation agreement, transition services agreement and license agreement, each related to the spin-off of the Digital Watermarking Business, and prepared a prospectus/proxy statement related to the Digimarc/L-1 merger and a Form 10 for the registration of the shares of common stock of DMRC Corporation to be issued in connection with the spin-off.

        On June 12, 2008, the Federal Trade Commission granted early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, relating to the Digimarc/L-1 merger.

        Subsequently, on June 12, 2008, Digimarc received an unsolicited non-binding indication of interest from Safran S.A., which we refer to as Safran, in which Safran proposed to acquire the outstanding common stock of Digimarc, following the spin-off of Digimarc's Digital Watermarking Business and

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cash on hand, for $300 million in cash, subject to completion of due diligence and negotiation of customary definitive documentation similar to the Original Merger Agreement with L-1.

        Between June 14, 2008 and June 16, 2008, Mr. Davis and Mr. LaPenta engaged in multiple conversations regarding potential modifications to the form and amount of consideration in the Original Merger Agreement and the structure of the transaction between Digimarc and L-1.

        On June 16, 2008, Digimarc's board of directors met to consider the Safran proposal. After consulting with its legal and financial advisors, Digimarc's board of directors determined that the Safran proposal could reasonably be expected to lead to a "superior proposal" as defined in the Original Merger Agreement. Accordingly, the board of directors authorized Digimarc to furnish information to and enter into discussions with Safran regarding the proposal.

        On June 17, 2008, during a telephonic conference, representatives of L-1, Weil Gotshal, Digimarc, Perkins Coie and Bank of America discussed L-1's intent to propose an all cash transaction effected pursuant to a tender offer. The participants also discussed the current status of L-1's debt financing.

        Later on June 17, 2008, Digimarc received a written proposal in which L-1 proposed an all cash tender offer for all of the outstanding shares of Digimarc common stock, together with the associated preferred stock purchase rights, followed by a second-step merger, following the spin-off of Digimarc's Digital Watermarking Business and cash on hand, for an aggregate purchase price of $325 million. In addition, L-1 would invest $5 million in the Digital Watermarking Business.

        In a subsequent telephonic conference on June 17, 2008, representatives of L-1, Weil Gotshal, Digimarc and Perkins Coie discussed L-1's revised proposal. Because of the preliminary nature of L-1's revised proposal, Mr. Davis indicated during the meeting that Digimarc did not intend at that time to terminate its discussions with Safran. At the end of this discussion, L-1 withdrew its revised proposal.

        Later on June 17, 2008, a representative of Perkins Coie formally notified Mr. Molina of Digimarc's board of directors' determination that the Safran acquisition proposal could reasonably be expected to lead to a "superior proposal," as defined in the Original Merger Agreement.

        On June 20, 2008, Safran's Executive Vice President, Strategy, Olivier Andries, Safran's legal and financial advisors, Mr. Davis, Mr. Chamness, Mr. Beaghan and a representative of Perkins Coie conducted a telephonic meeting during which the parties discussed logistics for facilitating Safran's due diligence review of Digimarc.

        On June 22, 2008, Digimarc published a press release announcing receipt of the Safran proposal. During the week of June 22, 2008, representatives of Imperial Capital conducted separate telephonic meetings with Evercore Partners, Safran's financial advisors, and L-1 to discuss their respective acquisition proposals.

        On June 23, 2008, DMRC Corporation filed a registration statement on Form 10 to register the shares of its common stock to be distributed in connection with the spin-off of the Digital Watermarking Business. On the same day, Digimarc published a press release announcing the filing of the registration statement on Form 10 by DMRC Corporation.

        On June 24, 2008, Safran entered into a confidentiality agreement with Digimarc in compliance with the terms of the Digimarc Merger Agreement to permit Safran to begin a due diligence review of Digimarc, and Digimarc delivered a copy of the confidentiality agreement to L-1. Following execution of the confidentiality agreement, representatives of Perkins Coie invited representatives of Safran and Kaye Scholer to conduct more detailed due diligence on Digimarc and its businesses through access to an online data room containing customary due diligence materials.

        On June 25, 2008, representatives of Perkins Coie and Weil Gotshal discussed the terms and structure of a potential new proposal from L-1 by telephone conference.

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        On June 26, 2008, Mr. Davis and Mr. LaPenta discussed the proposed terms of a new revised offer to come from L-1. Separately, Mark S. Molina, L-1's Chief Legal Officer, and Robert P. Chamness, Digimarc's Chief Legal Officer, discussed the schedule and process contemplated by L-1 for presenting its potential new proposal to Digimarc.

        Later on June 26, 2008, as a follow up to the earlier schedule and process call between Mr. Molina and Mr. Chamness, L-1 provided Digimarc and Perkins Coie with proposed amendments to the Original Merger Agreement providing for an offer to acquire, in an all cash tender offer, all of the outstanding Shares followed by a second-step merger, following the spin-off of the Digital Watermarking Business and cash on hand.

        From June 27, 2008 through June 29, 2008, Digimarc, L-1 and their respective counsel and advisors negotiated the terms and conditions of the draft amendment to the Original Merger Agreement.

        On June 28, 2008, L-1 provided a new written offer to Digimarc providing for an all cash tender offer for all of the outstanding shares of Digimarc's common stock, together with the associated preferred stock purchase rights, for an aggregate offer price of $310 million, followed by a second-step merger, following the spin-off of Digimarc's Digital Watermarking Business and cash on hand.

        On June 29, 2008, Digimarc's board of directors met to consider the new L-1 proposal and a substantially final draft of the amended and restated merger agreement. A representative of Perkins Coie discussed material legal aspects of the transaction and reviewed for the board of directors its fiduciary duties applicable to the potential transaction. Representatives of Imperial Capital reviewed with the board of directors Imperial Capital's financial analyses and delivered to the board of directors an oral opinion, which opinion was confirmed by delivery of a written opinion, dated June 29, 2008, to the effect that, as of that date and based on and subject to various assumptions, matters considered and limitations described in its opinion, the consideration to be received by the Digimarc stockholders in the tender offer and in the Digimarc/L-1 merger was fair, from a financial point of view, to the holders of Digimarc common stock. Digimarc's board of directors then unanimously (1) approved and declared advisable the amended and restated merger agreement and the transactions contemplated thereby, including the tender offer by L-1 and the Digimarc /L-1 merger, (2) determined that the amended and restated merger agreement and the transactions contemplated thereby, including the tender offer by L-1 and the Digimarc /L-1 merger, were advisable, fair to and in the best interests of Digimarc and its stockholders and (3) recommended that the Digimarc stockholders accept the tender offer by L-1 and tender their shares of Digimarc common stock pursuant to the tender offer and, if necessary, adopt the amended and restated merger agreement.

        On June 29, 2008, following the resolution of the final issues in the amended and restated merger agreement and related schedules and agreements, Digimarc, L-1 and a wholly owned subsidiary of L-1 executed the amended and restated merger agreement and Digimarc terminated its discussions with Safran.

        On June 30, 2008, prior to the opening of U.S. financial markets, Digimarc and L-1 each issued a press release announcing that L-1 and Digimarc had entered into the amended and restated merger agreement providing for an all-cash transaction, by means of a tender offer followed by a second-step merger, with an aggregate offer price of $310 million.

        Subsequently, on June 30, 2008, Perkins Coie on behalf of Digimarc provided written notice to Safran of Digimarc's decision to terminate discussions with Safran regarding a transaction, and requested the destruction or return of confidential information pursuant to the terms of Safran's non-disclosure agreement with Digimarc.

26


        On July 3, 2008, L-1 and a wholly owned subsidiary of L-1 commenced the tender offer for all of the outstanding shares of Digimarc common stock, together with the associated preferred stock purchase rights.

        Following commencement of the tender offer and through the end of July 2008, Digimarc, L-1 and their respective representatives negotiated the terms of the Separation Agreement, Transition Services Agreement and License Agreement.

        On July 17, 2008, L-1, a wholly owned subsidiary of L-1 and Digimarc executed Amendment No. 1 to the Amended and Restated Agreement and Plan of Merger, dated as of June 29, 2008, pursuant to which the parties agreed to adjust the offer price pursuant to the tender offer to $12.25 per share of Digimarc common stock, together with the associated preferred stock purchase rights.

        On July 23, 2008, DMRC Corporation filed Amendment No. 1 to its Registration Statement on Form 10 with the Securities and Exchange Commission.

        At 12:00 midnight Eastern time on August 1, 2008, the initial offering period and withdrawal rights for the tender offer expired. L-1's subsidiary accepted for payment all of the shares of Digimarc common stock that were validly tendered and not withdrawn, representing approximately 79% of the issued and outstanding shares of Digimarc common stock. L-1 also commenced a subsequent offering period to acquire all of the remaining shares of Digimarc common stock not tendered into the offer, which subsequent offering period expired at 5:00 pm ET on August 8, 2008, following which L-1's subsidiary had accepted for payment approximately 87.5% of the issued and outstanding shares of Digimarc common stock. L-1 commenced a second subsequent offering which will expire at 5:00 pm ET on August 13, 2008.

        Also on August 1, 2008, prior to the expiration of the offer, the parties entered into the Separation Agreement, the Transition Services Agreement and the License Agreement. Digimarc contributed the assets and liabilities of its Digital Watermarking Business and all of its cash on hand to DMRC LLC, which was subsequently merged with and into Digimarc Corporation. The shares of DMRC Corporation were transferred to a newly created trust for the benefit of holders of shares of Digimarc common stock as of the record date and time (or anyone who purchases such stockholders' shares of Digimarc common stock in an open market transaction after the record date), on the basis of one share of DMRC Corporation common stock for every three and one-half shares of Digimarc common stock held by the stockholder.

Reasons for the Spin-Off

        On June 29, 2008, Digimarc's board of directors approved the Digimarc/L-1 merger and the spin-off under the terms of the Digimarc/L-1 merger agreement. 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:

The Separation of the Digital Watermarking Business from Digimarc

        Until August 1, 2008, we were a wholly owned subsidiary of DMRC LLC, which immediately prior to the spin-off was a wholly owned subsidiary of Digimarc. DMRC LLC was formed in Delaware on

27



June 18, 2008, in anticipation of the spin-off of the Digital Watermarking Business. Prior to the expiration of, and as a condition to, the offer, in a transaction which we refer to as the restructuring, Digimarc contributed all of the assets and liabilities related to its Digital Watermarking Business, together with all of Digimarc's cash, including cash received upon the exercise of stock options, to DMRC LLC. We do not believe that the restructuring will result in the loss of any significant customers or contracts.

Description of the Spin-Off

        Following the restructuring, all of the limited liability company interests of DMRC LLC were transferred to a newly-created trust for the benefit of holders of shares of Digimarc common stock in the trust transfer on the basis of one unit of DMRC LLC for every three and one-half shares of Digimarc common stock held by the stockholder. Following the spin-off, DMRC LLC merged with and into its wholly owned subsidiary, DMRC Corporation, and each limited liability company interest of DMRC LLC was converted into one share of common stock of DMRC Corporation in a transaction which we refer to as the DMRC Corporation merger. As a result, upon effectiveness of the Form 10, 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 as of the record date and time. The trust will distribute the shares of DMRC Corporation common stock to the Digimarc stockholders upon effectiveness of the Form 10.

        The trust in which all of the shares of DMRC Corporation are now held was established under Delaware law for the benefit of Digimarc's record stockholders as of the record date and time (or anyone who purchases such stockholders' shares of Digimarc common stock in an open market transaction after the record date). The trust will hold all of the shares of DMRC Corporation until the Form 10 is declared effective by the SEC, at which time the shares will be distributed to Digimarc's stockholders as of the record date and time (or anyone who purchases such stockholders' shares of Digimarc common stock in an open market transaction after the record date), as beneficiaries of the trust, pro rata in accordance with their ownership of shares of Digimarc common stock on the record date and time. The DMRC Corporation shares are the sole asset of the trust, and the sole purpose of the trust is to hold and distribute those shares, as described. The trustees of the trust have been selected from DMRC Corporation's current independent directors, and have exclusive authority to take actions on behalf of the trust within its stated purposes. Beneficial interests in the trust will not be issued in certificated form or otherwise evidenced by separate instruments of any kind, and will not be permitted to be traded. Following distribution of the DMRC Corporation shares by the trust to the beneficiaries, the trust will be liquidated.

        For all U.S. federal and applicable state and local income tax purposes, we, Digimarc and L-1 will treat the transfer of the DMRC LLC interests to the trust as a transfer of the DMRC LLC interests to Digimarc's stockholders followed by a transfer of the interests by the stockholders to the trust, and the Digimarc stockholders will be treated as the grantors and owners of the interests held in the trust pursuant to Section 677 of the Internal Revenue Code of 1986, as amended, which we refer to as the Code, and the trust will be treated as a liquidating trust within the meaning of Treasury Regulations Section 301.7701-4(d). The trustees will value, or cause to be valued, the DMRC LLC interests and notify the stockholders in writing of the valuation.

Manner of Effecting the Spin-Off

        The general terms and conditions of the spin-off are set forth in the separation agreement entered into by and among Digimarc, DMRC LLC, us and, with respect to certain sections, L-1 on August 1, 2008. For a description of the terms of the separation agreement, see "Our Relationship with Digimarc Corporation After the Spin-Off—Separation Agreement."

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        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. No vote of Digimarc stockholders was 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 completion of the spin-off was a condition to the completion of the offer.

        On the DMRC stock delivery date, registered holders of Digimarc common stock as of the record date and time 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 registered holder stating the number of shares of DMRC Corporation common stock credited to the holder's account. Holders of record will receive cash in lieu of any fractional shares of DMRC Corporation common stock. Computershare will aggregate all fractional shares of DMRC Corporation common stock and will sell them in open market transactions at then prevailing prices on behalf of holders who would otherwise be entitled to fractional shares of DMRC Corporation common stock. Computershare will then distribute to those holders their ratable share of the net proceeds of those sales, based on the average gross selling price per share of DMRC Corporation common stock. After the DMRC stock delivery date, any holder may request:

        If you became 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 the DMRC stock delivery date.

        Costs associated with the contemplated transaction are estimated at $8.4 million and relate to investment banking fees, legal, accounting, printing and mailing costs and severance related costs. These costs will be paid out of beginning cash balances retained by DMRC Corporation after the spin-off and are reflected in the pro forma balance sheet that can be found in "Pro Forma Financial Information," beginning on page 36 of this information statement.

Results of the Spin-Off

        Following the DMRC stock delivery date, we will be an independent, publicly-traded company owning and operating the Digital Watermarking Business. Following the spin-off and the DMRC Corporation merger, we had 7,143,442 shares of our common stock and 10,000 shares of Series A Redeemable Nonvoting Preferred stock outstanding.

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

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Market for Our Common Stock

        There is no trading market for our common stock. We have applied 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 when trading commences following the DMRC stock delivery date.

        We cannot predict the price at which our common stock will trade after the DMRC stock delivery date. 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 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, as of the DMRC stock delivery date, 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

        The distribution, effective on the distribution date, August 1, 2008, occurred only after, among other things:

30


        The spin-off was a condition to the completion of the Digimarc/L-1merger. The Digimarc/L-1 merger agreement may be terminated at any time prior to the effective time of the Digimarc/L-1 merger:

31



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.

32



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."

 
  As of March 31, 2008
 
  Historical
  Pro Forma(1)
 
  (In thousands)

Cash and cash equivalents and short-term investments   $ 37,435   $ 53,875
   
 
Total long-term debt        
Stockholders' equity:            
  Net parent's investment     38,514    
  Preferred stock         50
  Common stock         7,143
  Additional paid-in capital         38,101
   
 
Total stockholders' equity   $ 38,514   $ 45,294
   
 
Total capitalization   $ 38,514   $ 45,294
   
 

        Upon the completion of the spin-off, Digimarc's net investment in DMRC will be reclassified as DMRC stockholders' equity and will be allocated between common stock and additional paid-in capital based on the number of shares of DMRC common stock outstanding at the completion of the spin-off. We have assumed for purposes of the pro forma financial statements a distribution ratio of one share of our common stock for every three and one-half shares of outstanding Digimarc common stock, excluding shares held in treasury.

33



SELECTED HISTORICAL FINANCIAL INFORMATION

        The following table sets forth our selected financial information as of and for each of the years in the five-year period ended December 31, 2007, as of and for the three months ended March 31, 2007 and 2008, which has been derived from (a) audited financial statements as of December 31, 2005, 2006 and 2007 and for the years ended December 31, 2005, 2006 and 2007, which are included elsewhere in this information statement, (b) unaudited financial information as of December 31, 2003 and 2004 and for the years ended December 31, 2003 and 2004, which are not included in this information statement and (c) unaudited financial information as of March 31, 2007 and 2008 and for the three months ended March 31, 2007 and 2008, which are included elsewhere in this information statement. In our opinion, the information derived from our unaudited financial statements is presented on a basis consistent with the information in our audited financial statements. The selected financial information presented may not reflect the results of operations or financial condition that would have resulted had we been operating as an independent, publicly-traded company during the periods presented, and is not necessarily indicative of our future performance as an independent company. See "Risk Factors—Risks Related to our Common Stock and the Spin-Off."

        The selected financial information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," the pro forma financial information and accompanying notes, and the historical financial statements and the accompanying notes included elsewhere in this information statement. The dollar amounts in the tables below are in thousands.

Statement of Operations Data(1)

 
  For the Years Ended December 31,
  For the Three Months Ended March 31,
 
 
  2003
(unaudited)

  2004
(unaudited)

  2005
(audited)

  2006
(audited)

  2007
(audited)

  2007
(unaudited)

  2008
(unaudited)

 
Operating revenues   $ 9,306   $ 11,184   $ 11,119   $ 11,071   $ 13,025   $ 3,485   $ 5,085  
Gross profit percentage     58 %   68 %   69 %   66 %   69 %   72 %   73 %
Operating income (loss)     (2 )   (2 ) $ (5,770 ) $ (3,908 ) $ (1,310 ) $ (121 ) $ 641  

Balance Sheet Data(1)

 
  For the Years Ended December 31,
  As of March 31,
 
  2003
(unaudited)

  2004
(unaudited)

  2005
(audited)

  2006
(audited)

  2007
(audited)

  2007
(unaudited)

  2008
(unaudited)

Cash, cash equivalents and short term investments   $ 78,633   $ 51,836   $ 31,982   $ 33,073   $ 32,713   $ 31,505   $ 37,435
Total assets     (2 ) $ 56,210   $ 36,896   $ 37,658   $ 38,451   $ 35,469   $ 42,499
Long-term obligations   $ 0   $ 160   $ 295   $ 294   $ 215   $ 240   $ 220
                                                                              

(1)
The Digimarc/L-1 merger agreement 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

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(2)
Certain financial data for the years ended December 31, 2004 and 2003 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, 2004 and 2003 are not material to an understanding of our financial performance and related trends.

35



PRO FORMA FINANCIAL INFORMATION

        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. As you read this, you should be aware 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. The pro forma financial information should be read with our historical financial statements included in this information statement and the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations."

How we prepared the pro forma financial information

        We prepared the pro forma financial information based upon our historical financial statements adjusted to reflect our estimate of the effect of events that are directly attributable to the spin-off, expected to have a continuing effect on our operations, and are factually supportable. The pro forma adjustments were derived from available information and were based on assumptions that we believe are reasonable and that reflect our current intentions.

Events that are reflected in the pro forma financial information

        The pro forma financial information reflects:

Events that are not reflected in the pro forma financial information

        The pro forma financial information does not reflect pro forma statements of operations for both the year ended December 31, 2007 and three months ended March 31, 2008. These statements of operations have not been presented because we believe they would not be meaningful for the following reasons:

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DMRC Corporation

Unaudited Pro Forma Balance Sheet

As of March 31, 2008

(In thousands, except share data)

 
  Historical
  The
Transaction

  Pro Forma
 
ASSETS                    

Current assets:

 

 

 

 

 

 

 

 

 

 
  Cash and cash equivalents   $ 33,586   $ 16,440   $ 50,026 (2)
  Short-term investments     3,849           3,849  
  Trade accounts receivable, net     3,233           3,233  
  Other current assets     278           278  
   
 
 
 
    Total current assets     40,946     16,440     57,386  
  Property and equipment, net     1,167           1,167  
  Other assets, net     386           386  
   
 
 
 
    Total assets   $ 42,499   $ 16,440   $ 58,939  
   
 
 
 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 
  Accounts payable and other accrued liabilities   $ 411   $ 8,400   $ 8,811 (1)
  Accrued payroll and related costs     325     1,260     1,585 (5)
  Deferred revenue     3,029           3,029  
   
 
 
 
    Total current liabilities     3,765     9,660     13,425  
  Long-term liabilities     220           220  
   
 
 
 
    Total liabilities     3,985     9,660     13,645  
Commitments and contingencies                    
Stockholders' equity:                    
  Net parent's investment     38,514     (38,514 )    
  Preferred stock           50     50 (4)
  Common stock           7,143     7,143 (2)(3)
  Additional paid-in capital           38,101     38,101 (2)(3)(4)
   
 
 
 
    Total stockholders' equity     38,514     6,780     45,294  
   
 
 
 
    Total liabilities and stockholders' equity   $ 42,499   $ 16,440   $ 58,939  
   
 
 
 

        The transactions included in the unaudited pro-forma balance sheet reflects the following:

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38



MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

         The following Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements relating to future events or the future financial performance of DMRC Corporation, which involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements. Please see the discussion regarding forward-looking statements included in this information statement, under the caption "Forward-Looking Statements."

         Although we believe that the expectations reflected in our forward-looking statements are reasonable, we do not give any assurances that these expectations will prove to be correct. These statements by their nature involve substantial risks and uncertainties that could significantly affect expected results. Actual future results could differ materially from those described in our forward-looking statements, and we do not intend to update or revise any forward-looking statements as a result of new information, future events or otherwise. We urge you to carefully review and consider the various disclosures we have made that attempt to advise interested parties of the factors which affect our business, including the disclosures made under the caption "Forward Looking Statements" in this information statement, the audited financial statements and related notes included in this information statement, and other reports and filings made with the SEC by Digimarc.

         The following discussion should be read in conjunction with our financial statements and the related notes and other financial information appearing elsewhere in this information statement.

         All dollar amounts are in thousands, unless otherwise noted.

Planned Merger and Separation

        On June 29, 2008, Digimarc entered into an amended and restated merger agreement, as amended by that Amendment No. 1 dated as of July 17, 2008 and as may be further amended, which we refer to as the Digimarc/L-1 merger agreement, with L-1 and Dolomite, a wholly owned subsidiary of L-1, pursuant to which Dolomite has offered to purchase all of the outstanding shares of Digimarc common stock, together with the associated preferred stock purchase rights for $12.25 per share. The Digimarc/L-1 merger agreement provides, among other things, that following the completion of the offer and subject to other conditions set forth in the Digimarc/L-1 merger agreement, Dolomite will merge with and into Digimarc with Digimarc continuing as the surviving company and a wholly owned subsidiary of L-1.

        On August 1, 2008, prior to the initial expiration of the offer, Digimarc contributed all of the assets and liabilities related to its Digital Watermarking Business, together with all of Digimarc's cash, to DMRC LLC, which subsequently merged with and into DMRC Corporation, and the shares of DMRC Corporation common stock were transferred to a newly-created trust for the benefit of Digimarc stockholders as of August 1, 2008 at 5:30 pm Eastern time, the record date and time (or anyone who purchases such stockholders' shares of Digimarc common stock in an open market transaction after the record date). The shares of DMRC Corporation common stock will be held by the trust until the Registration Statement on Form 10 has been declared effective by the Securities and Exchange Commission, at which time the shares will be distributed to Digimarc's stockholders as of the record date and time (or anyone who purchases such stockholders' shares of Digimarc common stock in an open market transaction after the record date), as beneficiaries of the trust, pro rata in accordance with their ownership of shares of Digimarc common stock on the record date and time. Each Digimarc stockholder as of the record date (or anyone who purchases such stockholders' shares of Digimarc common stock in an open market transaction after the record date) is entitled to receive one share of DMRC Corporation common stock for every three and one half shares of Digimarc common stock held by the stockholder as of the record date and time.

39


        In connection with the Digimarc/L-1 merger, we entered into a separation agreement with Digimarc, DMRC LLC and, with respect to certain sections, L-1 which contained many of the key provisions related to the spin-off of the Digital Watermarking Business from Digimarc. We entered into a transition services agreement with Digimarc to provide one another with transition services and other assistance substantially consistent with the services provided before completion of the spin-off, and a license agreement with L-1 Identity Solutions Operating Company, under which we license to one another certain intellectual property to be used in the other's business following the spin-off. After the completion of the Digimarc/L-1 merger, DMRC Corporation will change its name to Digimarc Corporation. The following Management's Discussion and Analysis of Financial Condition and Results of Operations discusses the historical financial condition and results of operations for the Digital Watermarking Business, or DMRC Corporation, without giving effect to the proposed transactions.

        The following discussion may not reflect the results of operations or financial condition that would have resulted had we been operating as an independent, publicly-traded company during the periods presented. As an independent publicly-traded company, 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 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. Operating a newly-independent, publicly-traded company will pose significant challenges for us. The most significant challenges we expect to face include: the effect of the change in the scale of our business on our ability to compensate our employees at a level required to attract and retain the technical and management expertise necessary to operate our business; the effect of the change in the scale of our business on our ability to control administrative costs; the ability to maintain investment in our company by our institutional investors and to establish and maintain an active trading market for shares of our common stock; and the ability to maintain analyst coverage of our common stock following the spin-off. Perhaps the most significant challenge we will face in our transition to operating as a stand-alone public company will be our ability to separate our business from the Secure ID Business in an efficient and effective manner, and to minimize the distraction to management of that separation, as our management focuses its attention on the Digital Watermarking Business. For a more complete discussion of the risks facing DMRC as an independent, publicly-traded company, please see "Risk Factors," beginning on page 11.

Overview

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

40


        Our revenue is generated primarily from patent and technology license fees paid by business partners, and development and service contracts with a variety of government and commercial organizations, including a consortium of Central Banks and a major media and audience measurement company.

Basis of Accounting

        The financial statements include the assets, liabilities and results of operations of the components of Digimarc that constitute the business of DMRC to be separated, or "carved-out" in connection with the Digimarc/L-1 merger and spin-off. This information primarily consists of the Digital Watermarking Business and certain accounts of Digimarc. All intercompany balances have been eliminated in the carve-out.

        Management believes that the assumptions underlying the financial statements are reasonable. The financial information in these financial statements does not include all of the expenses that would have been incurred had DMRC been a separate, stand-alone public entity. As such, the financial information herein does not reflect the financial position, results of operations and cash flows of DMRC in the future or what they would have been, had DMRC been a separate, stand-alone public entity during the periods presented. Additionally, these historical financial statements include proportional allocations of various shared-services common costs of Digimarc because specific identification of these expenses was not practicable. The common costs include expenses from Digimarc related to various operating shared-services cost centers, including: executive, finance and accounting, human resources, legal, marketing, intellectual property, facilities and information technology. 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.

        Commitments and contingencies related to DMRC operations have been included in the financial statements and those relating to Digimarc have been excluded.

Critical Accounting Policies and Estimates

        The preparation of financial statements in accordance with accounting principles generally accepted in the U.S., which we refer to as U.S. GAAP, requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to bad debts, income taxes, long-term service contracts, license and subscription agreements, investments, and contingencies and litigation. We base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

        Some of our accounting policies require higher degrees of judgment than others in their application. These include revenue recognition on long-term service contracts, revenue recognition on license and subscription arrangements, reserves for uncollectible accounts receivable, contingencies and

41



litigation and stock-based compensation. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements:

        Balances and expenses assignment and allocations:     Balances and expenses were assigned to the different business units based on the following hierarchy:

        Revenue recognition on long-term service contracts:     Revenue from professional service arrangements is generally determined based on time and material. Revenue for professional services is recognized as the services are performed. Billing for services rendered generally occurs within one month following when the services are provided. Revenue earned which has not been invoiced at the reported balance sheet date is classified as unbilled trade receivables, which are included in the balance of trade accounts receivable, net in the balance sheets.

        Revenue recognition on license and subscription arrangements:     Royalty revenue is recognized when the royalty amounts owed to DMRC Corporation have been earned, are determinable, and collection is probable. These revenues include the licensing of digital watermarking products and services for use in authenticating documents, detecting fraudulent documents and deterring unauthorized duplication or alteration of high-value documents, for use in communicating copyright, asset management and business-to-business image commerce solutions, and for use in connecting analog media to a digital environment. Subscriptions are paid in advance and revenue is recognized ratably over the term of the subscription.

        Reserves for uncollectible accounts receivable:     We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. We determine the allowance based on historical write-off experience and current information. We review, and adjust when appropriate, our allowance for doubtful accounts on at least a quarterly basis. If the

42



financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

        Contingencies and litigation:     We periodically evaluate all pending or threatened contingencies or commitments, if any, that are reasonably likely to have a material adverse effect on our operations or financial position. We assess the probability of an adverse outcome and determine if it is remote, reasonably possible or probable as defined in accordance with the provisions of SFAS No. 5, Accounting for Contingencies . If information available prior to the issuance of our financial statements indicates that it is probable that an asset has been impaired or a liability has been incurred at the date of our financial statements, and the amount of the loss, or the range of probable loss can be reasonably estimated, then such loss is accrued and charged to operations. If no accrual is made for a loss contingency because one or both of the conditions pursuant to SFAS No. 5 are not met, but the probability of an adverse outcome is at least reasonably possible, we will disclose the nature of the contingency and provide an estimate of the possible loss or range of loss, or state that such an estimate cannot be made.

        Stock-based compensation:     Digimarc Corporation accounts for stock-based compensation in accordance with SFAS No. 123(R), Share-Based Payment (Revised 2004) , which requires the measurement and recognition of compensation for all stock-based awards made to employees and directors including stock options, employee stock purchases under a stock purchase plan and restricted stock awards based on estimated fair values. Stock compensation expense is allocated to DMRC based on a combination of specific and shared services resource allocations from Digimarc.

43


        Income Taxes:     For all historic periods reported in this filing:

Backlog

        Based on projected commitments we have for the periods under contract with our respective customers, we anticipate our current contracts as of March 31, 2008 will generate approximately $65 million in revenue during the terms of the contracts, currently up to five years. We expect more than $13 million of this amount to be recognized as revenue during the remainder of 2008. This amount includes commitments reasonably expected to be achieved under currently effective contracts. Backlog as of December 31, 2007 and 2006 was approximately $46 million and $13 million respectively. The increase in backlog reflects factors noted below.

        Some factors that lead to increased backlog are:

        Some factors that lead to decreased backlog are:

The mix of these factors, among others, dictates whether our backlog increases or decreases for any given period. There is no assurance that our backlog will result in actual revenue in any particular period, because the orders and contracts included in our backlog may be subject to modification, cancellation or suspension. We may not realize revenue on some orders included in our backlog, or the timing of recognition may change.

44


Results of Operations

        The following table presents our statements of operations data for the periods indicated as a percentage of total revenue.

 
  Three Months Ended March 31,
  Year Ended December 31,
 
 
  2008
  2007
  2007
  2006
  2005
 
Revenue:                      
  Service   50 % 54 % 60 % 62 % 63 %
  License and subscription   50   46   40   38   37  
   
 
 
 
 
 
    Total revenue   100   100   100   100   100  
Cost of revenue:                      
  Service   27   26   29   33   29  
  License and subscription   1   1   2   1   2  
   
 
 
 
 
 
    Total cost of revenue   28   27   31   34   31  
Gross profit   72   73   69   66   69  
Operating expenses:                      
  Sales and marketing   13   18   19   34   42  
  Research, development and engineering   18   21   22   22   28  
  General and administrative   19   25   26   31   33  
  Intellectual property   10   12   12   14   17  
   
 
 
 
 
 
    Total operating expenses   60   76   79   101   120  
   
 
 
 
 
 
Operating income (loss)   12   (3 ) (10 ) (35 ) (51 )
   
 
 
 
 
 
Other income (expense), net   6   11   11   11   8  
   
 
 
 
 
 
Income (loss) before provision for income taxes   18   8   1   (24 ) (43 )
   
 
 
 
 
 
Provision for income taxes   0   0   0   0   0  
   
 
 
 
 
 
    Net income (loss)   18 % 8 % 1 % (24 )% (43 )%
   
 
 
 
 
 

        The overall financial results of DMRC have improved significantly over the past two years as revenues grew, the adoption of products and services based on our technologies became more widespread, and we reduced costs through various improvements in our business processes, which we refer to as "cost reduction initiatives."

45


Three Months Ended March 31, 2008 and 2007

Revenue

 
  Three Months Ended
March 31,

   
   
 
 
  Dollar
Increase
(Decrease)

  Percent
Increase
(Decrease)

 
 
  2008
  2007
 
Revenue:                        
  Service   $ 2,548   $ 1,877   $ 671   36 %
  License and subscription     2,537     1,608     929   58 %
   
 
 
     
    Total   $ 5,085   $ 3,485   $ 1,600   46 %
   
 
 
     

Revenue (as % of total revenue):

 

 

 

 

 

 

 

 

 

 

 

 
  Service     50 %   54 %          
  License and subscription     50 %   46 %          
   
 
           
    Total     100 %   100 %          
   
 
           

        Service.     Service revenue consists primarily of software development and consulting services. The majority of service revenue arrangements are typically structured as time and materials consulting agreements, or fixed price consulting agreements. The majority of our services revenue is derived from contracts with an international consortium of Central Banks, Nielsen, and with other government agencies. The agreements can range from several months to several years in length and our longer term contracts are subject to work plans that are reviewed and agreed upon at least annually. These contracts generally provide for billing hours worked at predetermined rates, and to a lesser extent, for cost reimbursement for third party costs and services. The increases or decreases in the services are generally subject to both volume and price changes. The volume of work is generally negotiated at least annually and can be modified as the needs of the customers arise. We also have provisions in our longer term contracts that allow for specific hourly rate price increases on an annual basis to account for cost of living variables. Contracts with other government agencies are generally shorter term in nature, are less linear in billings and less predictable than our longer terms contracts since they are subject to government budgets and funding.

        The increase in service revenue for the three-month period was primarily attributable to increased consulting revenues, a large portion of which related to our new contract with Nielsen.

        License and subscription.     License revenue originates primarily from licensing our technology and patents where we receive royalties as our income stream. Subscription revenue consists primarily of royalty revenue from the sale of our web-based subscriptions related to various software products, which are more recurring in nature. Revenues from our licensed products have minimal associated direct costs, and thus are highly profitable.

        The increase in license and subscription revenue for the three-month period was primarily due to initial license revenues from Nielsen.

46


Revenue by Geography

 
  Three Months Ended
March 31,

   
   
 
 
  Dollar
Increase
(Decrease)

  Percent
Increase
(Decrease)

 
 
  2008
  2007
 
Revenue by geography:                        
  Domestic   $ 2,658   $ 1,118   $ 1,540   138 %
  International     2,427     2,367     60   3 %
   
 
 
     
    Total   $ 5,085   $ 3,485   $ 1,600   46 %
   
 
 
     

Revenue (as % of total revenue):

 

 

 

 

 

 

 

 

 

 

 

 
  Domestic     52 %   32 %          
  International     48 %   68 %          
   
 
           
    Total     100 %   100 %          
   
 
           

        The increase in domestic revenue for the three-month period was due primarily to additional service and license revenues associated with the Nielsen contract.

Cost of Revenue

        Service.     Cost of service revenue primarily includes costs that are allocated from research, development, engineering and sales and marketing that relate directly to producing revenue under our customer contracts. Allocated costs include:


        License and subscription.     Cost of license and subscription revenue primarily include:

47


Gross Profit

 
  Three Months Ended
March 31,

   
   
 
 
  Dollar
Increase
(Decrease)

  Percent
Increase
(Decrease)

 
 
  2008
  2007
 
Gross profit:                        
  Service   $ 1,199   $ 958   $ 241   25 %
  License and subscription     2,478     1,577     901   57 %
   
 
 
     
    Total   $ 3,677   $ 2,535   $ 1,142   45 %
   
 
 
     

Gross profit (as % of related revenue component):

 

 

 

 

 

 

 

 

 

 

 

 
  Service     47 %   51 %          
  License and subscription     98 %   98 %          
   
Total

 

 

72

%

 

73

%

 

 

 

 

 

        The slight reduction in overall gross profit as a percentage of revenue for the three-month period primarily reflects:

Operating Expenses

    Sales and marketing

 
  Three Months Ended
March 31,

   
   
 
 
  Dollar
Increase
(Decrease)

  Percent
Increase
(Decrease)

 
 
  2008
  2007
 
Sales and marketing   $ 656   $ 639   $ 17   3 %
Sales and marketing (as % of total revenue)     13 %   18 %          

        Sales and marketing expenses consist primarily of:

        We allocate certain costs of sales and marketing to cost of service revenue when they relate directly to our service contracts. For direct billable labor hours, we allocate salaries, a payroll tax and benefits factor and incentive compensation related to our bonus and stock compensation plans. We record all remaining, or "residual," costs as sales and marketing costs.

        Overall, sales and marketing costs remained relatively flat for the three-month period. The operating costs reflected a greater allocation of billable marketing resources to the cost of sales revenue of $0.1 million, offset by higher incentive compensation accruals for incentive bonuses, compared to no bonus accrual for the 2007 period.

48


        Under the current basis of accounting explained above, we anticipate that we will continue to incur sales and marketing costs at current or higher levels for the remainder of 2008.

 
  Three Months Ended
March 31,

   
   
 
 
  Dollar
Increase
(Decrease)

  Percent
Increase
(Decrease)

 
 
  2008
  2007
 
Research, development and engineering   $ 922   $ 729   $ 193   26 %
Research, development and engineering (as % of total revenue)     18 %   21 %          

        Research, development and engineering expenses focus primarily on three areas in support of our business model:

49


        Research, development and engineering expenses consist primarily of:

        We allocate certain costs of research, development and engineering to cost of service revenue when they relate directly to our service contracts. For direct billable labor hours, we allocate salaries, a payroll tax and benefits factor and incentive compensation related to our bonus and stock compensation plans. We record all remaining, or "residual," costs as research, development and engineering costs.

        The increase in research, development and engineering costs for the three-month period resulted primarily from an increase in engineering personnel and higher incentive compensation accruals for incentive bonuses, compared to no bonus accrual for the 2007 period.

        Under the current basis of accounting explained above, we anticipate that we will continue to incur research, development and engineering costs at current levels or higher for the remainder of 2008.

 
  Three Months Ended
March 31,

   
   
 
 
  Dollar
Increase
(Decrease)

  Percent
Increase
(Decrease)

 
 
  2008
  2007
 
General and administrative   $ 980   $ 857   $ 123   14 %
General and administrative (as % of total revenue)     19 %   25 %          

        General and administrative expenses consist primarily of:

        The increase in general and administrative costs for the three-month period resulted primarily from increased compensation related costs, the majority of which related to higher incentive compensation accruals for incentive bonuses, compared to no bonus accrual for the 2007 period.

        Under the current basis of accounting explained above, we anticipate that we will continue to incur general and administrative expenses at least at the current levels for the remainder of 2008, while continuing to examine means to reduce general and administrative spending as a percentage of revenue in the longer term.

 
  Three Months Ended
March 31,

   
   
 
 
  Dollar
Increase
(Decrease)

  Percent
Increase
(Decrease)

 
 
  2008
  2007
 
Intellectual Property   $ 478   $ 431   $ 47   11 %
Intellectual Property (as % of total revenue)     10 %   12 %          

50


        Intellectual property costs primarily consist of:

        The slight increase for the three-month period ended resulted primarily from increased compensation related costs, the majority of which related to higher incentive compensation accruals for incentive bonuses, compared to no bonus accrual for the 2007 period.

        Under the current basis of accounting explained above, we anticipate that we will continue to incur intellectual property costs at least at the current levels for the remainder of 2008.

 
  Three Months Ended
March 31,

   
   
 
 
  Dollar
Increase
(Decrease)

  Percent
Increase
(Decrease)

 
 
  2008
  2007
 
Cost of service   $ 43   $ 16   $ 27   169 %
Sales and marketing     83     72     11   15 %
Research, development and engineering     16     8     8   100 %
General and administrative     220     184     36   20 %
Intellectual property     15     10     5   50 %
   
 
 
     
  Total   $ 377   $ 290   $ 87   30 %
   
 
 
     

        Digimarc accounts for stock-based compensation in accordance with SFAS No. 123(R), Share-Based Payment (Revised 2004) , which requires the measurement and recognition of compensation for all stock-based awards made to employees and directors, including stock options, employee stock purchases under a stock purchase plan and restricted stock awards based on estimated fair values. Stock compensation expense is allocated to DMRC based on a combination of specific and shared services resource allocations from Digimarc.

        The increase in stock-based compensation expense for the three-month period was primarily due to an additional layer of stock-based awards expensed pursuant to the adoption of SFAS 123(R).

        We anticipate incurring additional stock-based compensation expense in the future from Digimarc through the allocation process described above until the close date of the transaction. Thereafter, DMRC will adopt its own stock-based compensation expense under SFAS 123(R). The future effect of the adoption of this statement on our financial position and results of operations will be determined by stock-based awards granted in future periods and the assumptions on which the value of those stock-based awards are based.

Other income (expense), net

 
  Three Months Ended March 31,
   
   
 
 
  Dollar
Increase
(Decrease)

  Percent
Increase
(Decrease)

 
 
  2008
  2007
 
Other income (expense), net   $ 294   $ 375   $ (81 ) (22 )%

        Other income (expense), net consists primarily of interest income from our cash and short term investments.

51


        The decrease in other income (expense) for the three-month period was due primarily to lower interest earned on cash and investment balances.

        Provision for Income Taxes.     The provision for income taxes reflects foreign withholding tax expense in various foreign jurisdictions. For all historic periods reported in the financial statements, Digimarc maintained valuation allowances against its net deferred tax assets, including net operating loss carryforwards, because it was more likely than not that the deferred taxes would not be realized. The provision for income taxes include foreign taxes withheld by our customers and paid to foreign jurisdictions on our behalf. The DMRC "carve-out" financial statements indicate cumulative losses through the first three months of 2008. Furthermore, the amounts of cumulative expenses in the financial statements that were not allowed for Federal and state income tax purposes were not sufficient enough to require us to record income tax expense. As a result of the above, no Federal and state income tax benefit was recognized for the book losses that were incurred in those periods prior to 2007 and no income tax expense was recognized during the 2007 and 2008 periods as any expense was offset by the benefit of net operating loss carry-forwards. After the spin-off, DMRC Corporation, as a separate legal entity, will not benefit from any of the carrryforward tax attributes of Digimarc, including net operating loss carryforwards.

Years Ended December 31, 2007 and 2006

Revenue

 
  Year Ended December 31,
   
   
 
 
  Dollar
Increase
(Decrease)

  Percent
Increase
(Decrease)

 
 
  2007
  2006
 
Revenue:                        
  Service   $ 7,806   $ 6,812   $ 994   15 %
  License and subscription     5,219     4,259     960   23 %
   
 
 
     
    Total   $ 13,025   $ 11,071   $ 1,954   18 %
   
 
 
     

Revenue (as % of total revenue):

 

 

 

 

 

 

 

 

 

 

 

 
  Service     60 %   62 %          
  License and subscription     40 %   38 %          
   
 
           
    Total     100 %   100 %          
   
 
           

        The increase in service revenue for the year was primarily due to increases in consulting revenue from our Central Banks consortium, Nielsen, and contracts with various other government agencies. The increased revenues from the Central Bank includes both volume and price increases reflected in the work plans and contract respectively. We entered into our contract with Nielsen in late 2007.

        The increase in license and subscription revenue for the year was primarily attributable to higher license revenues from customers whose revenues fluctuate from period to period and a combination of growing levels of fixed and variable royalties from a larger customer base.

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Revenue by Geography

 
  Year Ended December 31,
   
   
 
 
  Dollar
Increase
(Decrease)

  Percent
Increase
(Decrease)

 
 
  2007
  2006
 
 
  (in 000'S)

   
 
Revenue by geography:                        
  Domestic   $ 3,696   $ 2,414   $ 1,282   53 %
  International     9,329     8,657     672   8 %
   
 
 
     
    Total   $ 13,025   $ 11,071   $ 1,954   18 %
   
 
 
     

Revenue (as % of total revenue):

 

 

 

 

 

 

 

 

 

 

 

 
  Domestic     28 %   22 %          
  International     72 %   78 %          
   
 
           
    Total     100 %   100 %          
   
 
           

        The increase in domestic revenue for the year was due primarily to increases in service and license revenues from Nielsen.

        The increase in international revenue for the year was due primarily to growing license revenues from various international customers.

Gross Profit

 
  Year Ended December 31,
   
   
 
 
  Dollar
Increase
(Decrease)

  Percent
Increase
(Decrease)

 
 
  2007
  2006
 
Gross profit:                        
  Service   $ 3,991   $ 3,179   $ 812   26 %
  License and subscription     5,002     4,123     879   21 %
   
 
 
     
    Total   $ 8,993   $ 7,302   $ 1,691   23 %
   
 
 
     

Gross profit (as % of related revenue component):

 

 

 

 

 

 

 

 

 

 

 

 
  Service     51 %   47 %          
  License and subscription     96 %   97 %          
    Total     69 %   66 %          

        The overall improvement of gross profit as a percentage of revenue for the year primarily reflects:

Operating Expenses

    Sales and marketing

 
  Year Ended December 31,
   
   
 
 
  Dollar
Increase
(Decrease)

  Percent
Increase
(Decrease)

 
 
  2007
  2006
 
Sales and marketing   $ 2,453   $ 3,740   $ (1,287 ) (34 )%
Sales and marketing (as % of total revenue)     19 %   34 %          

53


        The decrease in sales and marketing expense for year primarily reflects:

 
  Year Ended December 31,
   
   
 
 
  Dollar
Increase
(Decrease)

  Percent
Increase
(Decrease)

 
 
  2007
  2006
 
Research, development and engineering   $ 2,912   $ 2,448   $ 464   19 %
Research, development and engineering (as % of total revenue)     22 %   22 %          

        The increase in research, development and engineering expense for the year reflects:

 
  Year Ended December 31,
   
   
 
 
  Dollar
Increase
(Decrease)

  Percent
Increase
(Decrease)

 
 
  2007
  2006
 
General and administrative   $ 3,345   $ 3,433   $ (88 ) (3 )%
General and administrative (as % of total revenue)     26 %   31 %          

        The slight decrease in general and administrative expense for the year reflects a decrease in our incentive bonus program, reflecting no bonus accrual for the 2007 period.

 
  Year Ended March 31,
   
   
 
 
  Dollar
Increase
(Decrease)

  Percent
Increase
(Decrease)

 
 
  2007
  2006
 
Intellectual Property   $ 1,593   $ 1,589   $ 4   0 %
Intellectual Property (as % of total revenue)     12 %   14 %          

        Intellectual property expense remained relatively consistent from year to year.

54


 
  Year Ended December 31,
   
   
 
 
  Dollar
Increase
(Decrease)

  Percent
Increase
(Decrease)

 
 
  2007
  2006
 
Cost of service   $ 102   $ 42   $ 60   143 %
Sales and marketing     287     172     115   67 %
Research, development and engineering     47     51     (4 ) (8 )%
General and administrative     728     495     233   47 %
Intellectual property     45     30     15   50 %
   
 
 
     
  Total   $ 1,209   $ 790   $ 419   53 %
   
 
 
     

        The increase in stock-based compensation expense for the year was primarily due to an additional layer of stock-based awards expensed pursuant to the adoption of SFAS 123(R).

 
  Year Ended December 31,
   
   
 
 
  Dollar
Increase
(Decrease)

  Percent
Increase
(Decrease)

 
 
  2007
  2006
 
Other income (expense), net   $ 1,387   $ 1,242   $ 145   12 %

        The increase in other income (expense) for the year reflects higher average interest rates on our cash and investment balances.

Years Ended December 31, 2006 and 2005

Revenue

 
  Year Ended December 31,
   
   
 
 
  Dollar
Increase
(Decrease)

  Percent
Increase
(Decrease)

 
 
  2006
  2005
 
Revenue:                        
  Service   $ 6,812   $ 7,051   $ (239 ) (3 )%
  License and subscription     4,259     4,068     191   5 %
   
 
 
     
    Total   $ 11,071   $ 11,119   $ (48 ) 0 %
   
 
 
     

Revenue (as % of total revenue):

 

 

 

 

 

 

 

 

 

 

 

 
  Service     62 %   63 %          
  License and subscription     38 %   37 %          
   
 
           
    Total     100 %   100 %          
   
 
           

        The decrease in service revenue for the year was primarily due to decreased services provided to government agencies other than Central Banks, where projects generally are short term and less predictable in nature.

        The increase in license and subscription revenue for the year was primarily due to a combination of growing levels of fixed and variable royalties from a larger customer base.

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Revenue by Geography

 
  Year Ended December 31,
   
   
 
 
  Dollar
Increase
(Decrease)

  Percent
Increase
(Decrease)

 
 
  2006
  2005
 
Revenue by geography:                        
  Domestic   $ 2,414   $ 2,882   $ (468 ) (16 )%
  International     8,657     8,237     420   5 %
   
 
 
     
    Total   $ 11,071   $ 11,119   $ (48 ) 0 %
   
 
 
     

Revenue (as % of total revenue):

 

 

 

 

 

 

 

 

 

 

 

 
  Domestic     22 %   26 %          
  International     78 %   74 %          
   
 
           
    Total     100 %   100 %          
   
 
           

        The decrease in domestic revenue for the year was due primarily to decreased services provided to government agencies other than Central Banks as discussed above.

        The increase in international revenue for the year was due primarily to increased service revenues from our Central Banks contract and increased license revenues from various customers as discussed above.

Gross Profit

 
  Year Ended December 31,
   
   
 
 
  Dollar Increase (Decrease)
  Percent Increase (Decrease)
 
 
  2006
  2005
 
Gross profit:                        
  Service   $ 3,179   $ 3,752   $ (573 ) (15 )%
  License and subscription     4,123     3,886     237   6 %
   
 
 
     
    Total   $ 7,302   $ 7,638   $ (336 ) (4 )%
   
 
 
     
Gross profit (as % of related revenue component):                        
  Service     47 %   53 %          
  License and subscription     97 %   96 %          
    Total     66 %   69 %          

        The reduction in overall gross profit as a percentage of revenue, for the year reflects:

Operating Expenses

    Sales and marketing

 
  Year Ended December 31,
   
   
 
 
  Dollar Increase (Decrease)
  Percent Increase (Decrease)
 
 
  2006
  2005
 
Sales and marketing   $ 3,740   $ 4,692   $ (952 ) (20 )%
Sales and marketing (as % of total revenue)     34 %   42 %          

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        The decrease in sales and marketing expense for year resulted primarily from:

 
  Year Ended December 31,
   
   
 
 
  Dollar Increase (Decrease)
  Percent Increase (Decrease)
 
 
  2006
  2005
 
Research, development and engineering   $ 2,448   $ 3,208   $ (760 ) (24 )%
Research, development and engineering (as % of total revenue)     22 %   28 %          

        The decrease in research, development and engineering expense for the year resulted primarily from:

 
  Year Ended December 31,
   
   
 
 
  Dollar Increase (Decrease)
  Percent Increase (Decrease)
 
 
  2006
  2005
 
General and administrative   $ 3,433   $ 3,645   $ (212 ) (6 )%
General and administrative (as % of total revenue)     31 %   33 %          

        The decrease in general and administrative expense for the year resulted primarily from:

 
  Three Months Ended March 31,
   
   
 
 
  Dollar Increase (Decrease)
  Percent Increase (Decrease)
 
 
  2006
  2005
 
Intellectual Property   $ 1,589   $ 1,863   $ (274 ) (15 )%
Intellectual Property (as % of total revenue)     14 %   17 %          

        The decrease in intellectual property expenses resulted primarily from realignment of our resources and reduction of third party agent and government fees associated with our cost reduction initiatives.

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  Year Ended December 31,
   
   
 
 
  Dollar Increase (Decrease)
  Percent Increase (Decrease)
 
 
  2006
  2005
 
Cost of service   $ 42       $ 42   0 %
Sales and marketing     172     56     116   207 %
Research, development and engineering     51         51   0 %
General and administrative     495     147     348   237 %
Intellectual property     30         30   0 %
   
 
 
     
  Total   $ 790   $ 203   $ 587   289 %
   
 
 
     

        The increase in stock-based compensation expense for year was primarily due to the adoption by Digimarc of SFAS 123(R) effective in 2006 that required expensing of all stock based awards, including stock options and restricted stock. For 2005, Digimarc's restricted stock grants recorded stock compensation expense in accordance with SFAS 123.

 
  Year Ended December 31,
   
   
 
 
  Dollar Increase (Decrease)
  Percent Increase (Decrease)
 
 
  2006
  2005
 
Other income (expense), net   $ 1,242   $ 928   $ 314   34 %

        The increase in other income (expense) for the year was primarily due to higher interest rates earned on our cash and investment balances.

Liquidity and Capital Resources

        As of March 31, 2008, we had cash and cash equivalents and short-term investments of $37.4 million, representing an increase of approximately $4.7 million from $32.7 million at December 31, 2007. Working capital at March 31, 2008 was $37.2 million, compared to working capital of $33.5 million at December 31, 2007. Cash flow generated by the Parent, which flows to this business unit, and improved operating results contributed to our improved cash and working capital positions.

        Operating Cash Flow.     The components of operating cash flows were:

 
  Three Months Ended March 31,
  Year Ended December 31,
 
 
  (unaudited)

   
   
   
 
 
  2008
  2007
  2007
  2006
  2005
 
Net income (loss)   $ 924   $ 250   $ 55   $ (2,687 ) $ (4,842 )
Non-cash items     653     446     1,821     1,393     769  
Changes in operating assets and liabilities     987     342     (851 )   (473 )   239  
   
 
 
 
 
 
  Net cash provided by (used in) operating activities   $ 2,564   $ 1,038   $ 1,025   $ (1,767 ) $ (3,834 )
   
 
 
 
 
 

        Net income (loss).     The improving operating results in each of the comparable periods reflect:

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        Non-cash charges.     The increase in non-cash charges in each of the comparable periods is primarily the result of:

        Operating assets and liabilities.     The major changes in the operating assets and liabilities for the comparable periods primarily reflect timing differences for:

        Cash provided by (used in) investing activities.     The major changes in our investing activities are the result of:

        Cash provided by (used in) financing activities.     The major changes in our financing activities are the result of cash transactions associated with Digimarc in accordance with the basis of accounting used in these financial statements. Specifically:

        Our significant commitments consist of obligations under non-cancelable operating leases for our facilities rent and various equipment leases, which totaled $3.2 million as of December 31, 2007, and

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are payable in monthly installments through July 2011. Our significant commitments and payment obligations under non-cancelable operating leases at December 31, 2007 are as follows:


Contractual Obligations

 
  Payment Due by Period (in 000's)
 
  Total
  Less than 1 year
  2-3 years
  4-5 years
  More than 5 years
Total contractual obligations   $ 3,174   $ 837   $ 1,738   $ 599   $
   
 
 
 
 

        We believe that our current cash, cash equivalents, and short-term investment balances will satisfy our projected working capital and capital expenditure requirements for at least the next 12 months. In addition, we expect to generate positive cash flow from operations in 2008 that we can use to fund our operating and capital needs. Thereafter, we anticipate continuing to use cash, cash equivalents, short-term investment balances to satisfy our projected working capital and capital expenditure requirements.

        We may utilize cash resources to fund acquisitions or investments in complementary businesses, technologies or product lines. In order to take advantage of opportunities, we may find it necessary to obtain additional equity financing, debt financing, or credit facilities. We do not believe at this time, however, that our long-term working capital and capital expenditures would require us to take steps to remedy any such potential deficiencies. If it were necessary to obtain additional financings or credit facilities, we may not be able to do so, or if these funds are available, they may not be available on satisfactory terms.

Off-Balance Sheet Arrangements

        We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources that is material.

Recent Accounting Pronouncements

        In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in U.S. GAAP, and expands disclosures about fair value. This statement does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. SFAS No. 157 is effective the first fiscal year beginning after November 15, 2007. We have applied the provisions of this standard regarding the framework of measuring fair value and noted no material effect on the current financial statements.

        In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, which permits entities to choose to measure certain financial assets and liabilities at fair value. SFAS No. 159 is effective the first fiscal year beginning after November 15, 2007. We have elected not to measure certain financial assets and liabilities at fair value as permitted by SFAS No. 159.

Forward-Looking Statements

        Because this information statement contains forward-looking statements, any of the risk factors set forth in this information statement or elsewhere in this information statement or incorporated herein by reference could cause our actual results to differ materially from those results projected or

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suggested in such forward-looking statements. Such forward-looking statements include but are not limited to statements relating to:

        Such forward-looking statements also include other statements containing words such as "anticipate," "estimate," "expect," "management believes," "we believe," "we intend," "should" and similar words or phrases, which are intended to identify forward-looking statements. Actual results may vary materially due to, among other things, our failure to become profitable, the failure of the potential markets for our digital watermarking technology to develop as anticipated, the adoption of alternative technologies within these markets, as well as changes in economic, business, competitive, technology and/or regulatory factors and trends, and the other factors described in this information statement or in our other documents filed with the SEC. All forward-looking statements are necessarily only estimates of future results and there can be no assurance that actual results will not differ materially from expectations, and, therefore, investors are cautioned not to place undue reliance on such statements. Investors should understand that it is not possible to predict or identify all risk factors and that the risks discussed in this information statement should not be considered a complete statement of all potential risks and uncertainties. We do not have any intention or obligation to update forward looking statements to reflect future events or developments, except as required by law.

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BUSINESS OF DMRC CORPORATION

Overview

        DMRC Corporation enables 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 generally 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 traditional 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 our customers and theirs to:

        Our revenue is generated primarily from patent and technology license fees paid by business partners, and development and service contracts with a variety of government and commercial organizations, including a consortium of Central Banks and a major media and audience measurement company.

        Financial information about geographic areas is included in Note 4 of our financial statements.

History

        We were formed in Delaware on June 18, 2008 by Digimarc to hold and operate the Digital Watermarking Business and to facilitate the separation of its Secure ID Business through the spin-off and the Digimarc/L-1 merger. Digimarc was founded to commercialize a signal processing innovation known as "digital watermarking." Digital watermarking is a technology that allows our customers to infuse digital data into any media content that is digitally processed at some point during its lifecycle. The technology can be applied to printed materials, video, audio, and images. The inclusion of these digital data enables a wide range of improvements in security and media management, and new business models for distribution and consumption of media content. Over the years our technology and intellectual property portfolios have grown to encompass many related technologies.

        Banknote counterfeit deterrence was the first commercially successful use of our technologies. Digimarc, in cooperation with an international consortium of Central Banks, developed a system to deter the use of digital technologies in the unauthorized reproduction of banknotes. More recently,

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innovations based on our digital watermarking technology and experience have been leveraged to create new products to deter counterfeiting and tampering of driver licenses and other government-issued secure credentials. In parallel, our business partners, under patent or technology licenses from us, are delivering digital watermarking solutions to track and monitor the distribution of music, images, television and movies to consumers. In November of 2007, we announced a relationship with Nielsen to license our patents in support of their audience measurement across more than 95% of the television shows broadcast in the United States and to provide development services for Nielsen's new Digital Media Manager content identification and management system.

Customers and Business Partners

        Our revenue is generated through commercial and government applications of our technologies, including a long-term contract with a consortium of Central Banks. Our contract with the Central Bank consortium is in its tenth year. The contract is in the final year of a 5-year extension and provides for two additional 3-year extensions. The Central Bank consortium has agreed to the first 3-year extension. We also have a development and services agreement with Nielsen, and engage in other development or service initiatives for government or commercial clients from time to time. Other revenue is generated primarily from patent and technology license fees paid by business partners providing media identification and management solutions to movie studios and music labels, television broadcasters, creative professionals and other customers around the world. Patent and technology licensing is expected to continue to contribute most of the revenues from non-government customers for the foreseeable future.

        As part of our work with government customers, we must comply with and are affected by laws and regulations relating to the award, administration and performance of government contracts. Government contract laws and regulations affect how we do business with our customers and, in some instances, impose added costs on our business.

        In some instances, these laws and regulations impose terms or rights that are more favorable to the government than those typically available to commercial parties in negotiated transactions. For example, the government agency may terminate any of our contracts and, in general, subcontracts, at its convenience, as well as for default based on performance. Upon termination for convenience of a fixed-price type contract, we normally are entitled to receive the purchase price for delivered items, reimbursement for allowable costs for work-in-process and an allowance for profit on the contract or adjustment for loss if completion of performance would have resulted in a loss. Upon termination for convenience of a cost reimbursement contract, we normally are entitled to reimbursement of allowable costs plus a portion of the fee.

        In addition, our government contracts typically span one or more base years and multiple option years. The government agency generally has the right to not exercise option periods and may not exercise an option period if the agency is not satisfied with our performance on the contract.

Products and Services

        We provide some media identification and management solutions to commercial entities and government customers. Our license solutions primarily target the media and entertainment industry. We have two multi-year development agreements, one with an international consortium of Central Banks, and the other with Nielsen.

        Commercial customers use secure media solutions from our business partners and us to identify, track, manage and protect content as it is distributed and consumed—either digitally or physically—and to enable new consumer applications to access networks and information from personal computers and

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mobile devices. Movie studios, record labels, broadcasters, creative professionals and other customers rely on our technologies as a cost-effective means to:

        Licensees of our technology or intellectual property include AquaMobile, Cinea, Inc., a subsidiary of Dolby Laboratories, Inc., GCS Research LLC, MediaGrid, Microsoft Corporation, Mobile Data Systems, Inc., The Nielsen Company, Royal Philips Electronics, Signum Technologies Limited, Thomson Multimedia, S.A., USA Video, Verance corporation, Verimatrix, Inc. and VCP (an affiliate of VEIL Interactive Technologies).

Technology and Intellectual Property

        We develop and patent intellectual property to differentiate products and technologies, mitigate infringement risk, and develop opportunities for licensing. Licensing of our technologies is supported by a broad patent portfolio covering a wide range of methods, applications, system architectures and business processes.

        Most of our patents relate to various methods for embedding and detecting digital information in video, audio, images, and printed materials, whether the content is rendered in analog or digital formats. The digital information is generally embedded by making subtle modifications to the fundamental elements of the content itself, generally at a signal processing level. The changes necessary to embed this information are so subtle that they are generally not noticeable by people during normal use. Because the embedded digital information is carried by the content itself, it is file-format independent. The embedded digital information generally survives most normal compression, edits, rotation, scaling, re-sampling, file-format transformations, copying, scanning and printing.

        To protect our intellectual property rights, 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. We believe we have one of the world's most extensive patent portfolios in the field of digital watermarking, 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 in the areas of digital watermarking and related technologies. Separately, we own registered trademarks in both the U.S. and other countries and have applied for other trademarks. We continue to develop and broaden our portfolio of patented technologies, including digital watermarking and related applications and systems.

        Although we devote significant resources to developing and protecting our technologies, and periodically evaluate potential competitors of our technologies for infringement of our intellectual property rights, these infringements may nonetheless go undetected or may arise in the future.

Markets

        Our technologies are used in various media identification and management products and solutions supporting a variety of media objects, from movies, music TV programming and images, to banknotes, secure credentials and physical products or packaging. Each media object enabled by our technology

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can be recognized by networks and digital devices, resulting in a wide range of applications for our technologies, including in the fields of:

        We believe the market potential for our technologies is in the early stages of development and that existing solutions represent only a small portion of the potential market for our products, services, and technologies.

Competition

        There is no single competitor or small number of competitors dominant in our industry. Our competitors vary depending on the application of our products and services. Our business partners and we generally compete with non-digital watermarking technologies for the security or marketing budgets of the producers and distributors of media objects, documents, products and advertising. These alternatives include, among other things, encryption based security systems and technologies and solutions based on fingerprinting and pattern recognition. Our competitive position within the digital watermarking industry is strong because of our large, high quality, sophisticated patent position in the proprietary technology of digital watermarking and our substantial and growing amount of intellectual property in related media security and management innovations that span basic technologies, applications, system designs, and business processes. Our intellectual property portfolio allows us to use proprietary technologies that are well regarded by our customers and partners and not available to our competitors. We compete with others in our industry based on the basket of features we can offer and a traditional cost benefit analysis of our technologies against alternative technologies and solutions. We anticipate that our competitive position within certain markets may be affected by factors such as reluctance to adopt new technologies and, positively or negatively, by changes in government regulations.

Backlog

        Based on projected commitments we have for the periods under contract with our respective customers, we anticipate our current contracts as of March 31, 2008 will generate approximately $65 million in revenue during the terms of the contracts, currently up to 5 years. We expect more than $13 million of this amount to be recognized as revenue during the remainder of 2008. This amount includes commitments reasonably expected to be achieved under currently effective contracts. Backlog as of December 31, 2007 and 2006 was approximately $46 million and $13 million respectively.

Employees

        There are two major drivers of revenue in our business—(1) licensing revenues resulting from the monetization of our intellectual property portfolio and (2) services revenue resulting from the projects for the Central Banks and business, commerce, and media and entertainment customers. This services revenue is dependent upon the billable hours worked by highly qualified technical and management resources assigned to these projects. At December 31, 2007, we had 95 full-time employees, including 16 in sales, marketing, technical support and customer support; 37 in research, development and engineering; and 42 in finance, administration, information technology and legal. We also had 4 contract workers, primarily utilized to support billing services. The employee breakout was based on the

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same allocation methodology that was applied to carving out DMRC's financial statements. Our future success will depend, in part, on our ability to continue to attract, retain and motivate highly qualified technical and management personnel, for whom competition is intense. We offered employment to all of the members of our project service teams, and all of them accepted employment with DMRC Corporation as of August 1, 2008. These offers of employment involved the continuation of the 2008 salary and incentive compensation program through the end of the 2008, and our current benefits plans through their renewal during the second quarter 2009. We do not yet have our 2009 compensation program in place, and of particular importance, we have not yet determined the equity incentive piece that is important to the retention of technical and management resources in this competitive environment. The prior equity holdings of these individuals were liquidated as part of the sale of the Secure ID Business, and this liquidity could allow some employees to retire, start new business ventures, or find alternative employment. Moreover, maintaining similar competitive benefit plan provisions to our current benefit plans at the annual renewal time will be another factor for engagement and retention. We believe that we will be able to provide competitive compensation and equity programs and maintain similarly competitive benefit plans at the time of renewal. For these reasons, we do not anticipate material turnover at this time or in the reasonably foreseeable future, especially among our technical personnel.

        Our employees are not covered by any collective bargaining agreement, and we have never experienced a work stoppage. We believe that our relations with our employees are good.

Properties and Facilities

        Our principal administrative, marketing, research, and intellectual property development facility is located in Beaverton, Oregon. Information about our office leases is set forth below.

 
  Square Feet
  Expires
Beaverton, Oregon   46,000   August 2011

Legal Proceedings

        From time to time in our normal course of business we are a party to various legal claims, actions and complaints. Currently, we do not have any pending litigation that we consider material.

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MANAGEMENT

Executive Officers and Directors

        We were incorporated on June 18, 2008. All of our officers were appointed to their current positions on that date. All of our current directors were elected to our board of directors on July 29, 2008. Set forth below are the names and ages and current positions of our directors and executive officers.

 
  Age
  Position
Bruce Davis   56   Chief Executive Officer and Chairman of the Board of Directors
William J. Miller   62   Director
James T. Richardson   60   Director
Peter W. Smith   74   Director
Bernard Whitney   51   Director
Robert Chamness   55   Executive Vice President, Chief Legal Officer and Secretary
Michael McConnell   58   Chief Financial Officer and Treasurer

        Bruce Davis.     Mr. Davis was elected Chairman of the Board of Directors on June 18, 2008, and was named our Chief Executive Officer on June 18, 2008, having served as Digimarc's Chief Executive Officer since 2001, and a director since December 1997, as Digimarc's chairman of the Board of Directors since May 2002, and as its President from December 1997 through May 2001. Mr. Davis received a B.S. in accounting and psychology and an M.A. in criminal justice from the State University of New York at Albany, and a J.D. from Columbia University.

        William J. Miller.     Prior to the spin-off Mr. Miller served on the Board of Directors of Digimarc since 2005. Mr. Miller is a retired corporate executive with thirty-six years of experience in the high technology and legal sectors, and has, since 1999, served as an independent director and consultant. He serves as a member of the Board of Directors for each of the following companies: Nvidia Corp (Nasdaq: NVDA), a provider of graphics processing units, media and communications processors, wireless media processors, and related software for personal computers, handheld devices, and consumer electronics platforms; Waters Corporation (NYSE: WAT), a manufacturer of analytical instruments; and Overland Storage, Inc. (Nasdaq: OVRL), a supplier of data storage products. Mr. Miller received a B.A. in speech communication from the University of Minnesota and a J.D. from the University of Minnesota.

        James T. Richardson.     Mr. Richardson has been appointed by the Board of Directors to serve as Lead Director. Prior to the spin-off Mr. Richardson served on the Board of Directors of Digimarc since 2003. Mr. Richardson is a director of and consultant to companies in the high-technology sector. Mr. Richardson serves as chairman of the Board of Directors of FEI Company (Nasdaq: FEIC) and as a director and audit committee chair of Tripwire, Inc., a Portland, Oregon-based network security company. Mr. Richardson received a B.A. in finance and accounting from Lewis and Clark College, an M.B.A. from the University of Portland, and a J.D. from Lewis and Clark Law School, and is a licensed C.P.A. and attorney in Oregon.

        Peter W. Smith.     Prior to the spin-off Mr. Smith served on the Board of Directors of Digimarc since 2000. Mr. Smith is a retired corporate executive and has served as a consultant to various other companies since 2000. Most recently, Mr. Smith served as president of News Technology for News America from January 1998 until his retirement in February 2000, where he coordinated technology throughout News Corporation and served as a technology advisor to its Board of Directors. Mr. Smith received a B.E. and B.Sc. from the University of Sydney, with first class honors.

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        Bernard Whitney.     Prior to the spin-off Mr. Whitney served on the Board of Directors of Digimarc since 2005. Mr. Whitney is a retired corporate executive with twenty-seven years of experience in the high technology and finance sectors, and has since 2002 served as an independent director and consultant. He currently serves as a director for a number of private and non-profit entities. Mr. Whitney received a B.S. in business administration, majoring in finance, from California State University Chico, and a masters in business administration from San Jose State University.

        Robert Chamness     Mr. Chamness was named our Executive Vice President, Chief Legal Officer and Secretary on June 18, 2008, having served Digimarc since January 2002 in various roles including Vice President and General Counsel, Secretary, Vice President of Human Resources, Chief Legal Officer, and Executive Vice President. He also served as Digimarc's Compliance Officer and Privacy Officer. Mr. Chamness holds an A.B. cum laude from Wabash College and a J.D. summa cum laude from the Indiana University School of Law.

        Michael McConnell     Mr. McConnell was named our Chief Financial Officer and Treasurer on June 18, 2008, having served since June 2004 as Chief Financial Officer and Treasurer of Digimarc. Before joining Digimarc, Mr. McConnell was senior vice president, chief financial officer and treasurer at WatchGuard Technologies (1999 to 2004). Mr. McConnell is a CPA and holds a B.A. from California Polytechnic State University, San Luis Obispo.

Determination of Independence

        The Board of Directors has determined that each of Messrs. Smith, Richardson, Miller, and Whitney, collectively representing a majority of the members of our Board of Directors, is "independent" as that term is defined by Nasdaq Marketplace Rule 4200. There were no related person transactions involving any of the independent directors of DMRC Corporation.

Lead Director

        The Lead Director presides over all executive sessions of the non-management directors; serves as the principal liaison to the non-management directors; and consults with the Chairman of the Board of Directors regarding information to be sent to the Board of Directors, meeting agendas and establishing meeting schedules. Mr. Richardson was elected Lead Director on July 30, 2008.

Committees of the Board of Directors

        The Board of Directors has three standing committees: an Audit Committee, a Compensation Committee and a Governance and Nominating Committee. The members of these committees are set forth in the following table:

Non-Employee Directors

  Audit
  Governance and
Nominating

  Compensation
William J. Miller   X       Chair
James T. Richardson   X   X   X
Peter W. Smith       Chair   X
Bernard Whitney   Chair   X    

Audit Committee

        We have a standing Audit Committee of the Board of Directors, consisting of Messrs. Whitney (chairman), Richardson, and Miller, that is responsible for overseeing the quality and integrity of our accounting, auditing, and financial reporting practices, the audits of our financial statements, and other duties assigned by the Board of Directors. The Audit Committee's role includes a particular focus on the qualitative aspects of financial reporting to stockholders, our processes to manage business and

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financial risk, and compliance with significant applicable legal, ethical, and regulatory requirements. The Audit Committee will be directly responsible for the appointment, compensation, retention and oversight of the independent registered public accounting firm, including the resolution of any disagreements between management and the independent registered public accounting firm regarding financial reporting, engaged to prepare or issue an audit report on our financial statements or to perform other audit, review or attestation services for us. The Audit Committee is expected to also serves as our Qualified Legal Compliance Committee.

        The Board of Directors has adopted a charter for the Audit Committee to authorize powers consistent with the provisions of the Sarbanes-Oxley Act of 2002 and other requirements. A copy of this charter will be posted on the DMRC website, which we expect to be www.digimarc.com , on the Corporate Governance page. The Board of Directors has determined that each of the three members of the Audit Committee:

        The Board of Directors further determined that each of Messrs. Whitney, Richardson and Miller qualifies as an "Audit Committee financial expert" in compliance with Item 407(d)(5) of Regulation S-K.

Governance and Nominating Committee

        We have a standing Governance and Nominating Committee which will initially consist of Messrs. Smith (chairman), Whitney and Richardson. The Board of Directors has delegated to the Governance and Nominating Committee the responsibility for overseeing the quality and integrity of our corporate governance practices and for assessing the size, membership, skills and characteristics necessary and appropriate for members of the Board of Directors and its committees. The Board of Directors has adopted a written charter for the Governance and Nominating Committee, a copy of which will be posted on the DMRC website, which we expect to be www.digimarc.com , on the Corporate Governance page. The Board of Directors has determined that all members of the Governance and Nominating Committee are "independent" as that term is defined in Nasdaq Marketplace Rule 4200.

        The Governance and Nominating Committee's responsibilities include the review, monitoring, and general oversight of our policies and procedures involving corporate governance and compliance with significant legal, ethical, and regulatory requirements. This oversight responsibility will include monitoring compliance with the Sarbanes-Oxley Act of 2002. The Governance and Nominating Committee will also oversee the structure and evaluation of the Board of Directors and its committees, and the development, monitoring, and enforcement of the corporate governance principles applicable to us.

        The Governance and Nominating Committee is responsible for recruiting individuals to become members of the Board of Directors and evaluating their qualifications under the guidelines described under "Director Nomination Policy" below. The Governance and Nominating Committee is also responsible for the composition of the Board committees. The Board of Directors may assign the Governance and Nominating Committee additional duties and functions from time to time consistent with its charter, our bylaws and governing law. Succession planning is one such responsibility that has been assigned to the committee.

        Director Nomination Policy.     The Governance and Nominating Committee has adopted a formal written policy addressing the nominating process. A copy of this policy will be posted on the DMRC website, which we expect to be www.digimarc.com , on the Corporate Governance page, attached as an

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exhibit to the Governance and Nominating Committee charter located on the Corporate Governance page of the site. Pursuant to its written policy addressing the nominating process, the Governance and Nominating Committee will welcome and encourage recommendations of director candidates from our stockholders, and will consider any director candidates recommended by our stockholders, provided that the information regarding director candidates who are recommended is submitted to the Governance and Nominating Committee in compliance with the terms of its policy. Stockholders will be able to submit director candidate nominations in accordance with the terms of DMRC's bylaws and applicable securities laws.

        In evaluating a potential candidate's qualification for nomination to the Board, the Governance and Nominating Committee will consider the potential candidate's experience, areas of expertise, and other factors relative to the overall composition of the Board of Directors. The Governance and Nominating Committee will also review from time to time the skills and characteristics necessary and appropriate for directors in the context of the current composition of the Board of Directors. Directors will be expected to devote sufficient time to carry out their duties and responsibilities effectively, ensure that other existing and planned future commitments do not materially interfere with his/her service as a director, and attend at least 75% of all Board of Directors and applicable committee meetings.

        The Governance and Nominating Committee's process for identifying and evaluating nominees for director, including nominees recommended by stockholders, will involve compiling names of potentially eligible candidates, vetting those candidates against the factors described above, conducting background and reference checks, conducting interviews with candidates, meeting to consider and approve final candidates and, as appropriate, preparing and presenting to the Board of Directors an analysis with regard to a candidate. There will be no differences in the manner in which the Governance and Nominating Committee evaluates nominees for director based on whether the nominee is recommended by a stockholder or by the Governance and Nominating Committee. The committee will have the authority to, from time to time, pay professional search firms to assist in the identification and evaluation of potential nominees.

Stockholder Communications with the Board of Directors

        The Board of Directors encourages communication from stockholders. All communications must be in written form, addressed to the Board of Directors or to one or more individual members of the Board of Directors, and sent care of the Secretary of DMRC at the address of our principal executive offices or via fax to (503) 469-4771. The Secretary of DMRC will promptly provide all communications to the applicable member(s) of the Board of Directors or the entire Board of Directors, as specified by the stockholder.

Director Resignation Upon Change of Employment

        The Board of Directors has approved a policy that will provide any director who experiences a substantial change in principal employment responsibility that may adversely affect his or her ability to carry out his or her responsibilities as a director effectively to tender his or her resignation from the Board, unless the change was anticipated by the Governance and Nominating Committee at the time of the director's nomination or election to the Board. In accordance with the terms of the anticipated policy, upon receipt of a resignation offered under these circumstances, the Governance and Nominating Committee will review the director's change in employment responsibilities to evaluate whether the director's continued service is appropriate.

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Compensation Committee

        We have a standing Compensation Committee which consists of Messrs. Miller (chairman), Smith and Richardson and has the authority and responsibility to:

        The Compensation Committee's role includes a particular focus on the compensation of our executive officers and non-employee directors and the administration of our stock incentive plans and significant employee benefit programs.

        The Compensation Committee has adopted a written charter, a copy of which will be available on the DMRC website, which we expect to be www.digimarc.com , on the Corporate Governance page. The Board of Directors expects that all members of the Compensation Committee will be:

        The Compensation Committee is permitted, under its charter, to delegate responsibilities to subcommittees of the Committee as necessary and appropriate.

        The Compensation Committee, together with our Chief Executive Officer, will review assessments of executive compensation practices at least annually against comparative data and our compensation philosophy. Our Chief Executive Officer will make recommendations to the Compensation Committee with the intent of keeping our executive officer compensation practices aligned with our compensation philosophy, and the Compensation Committee will be required to approve any recommended changes before they can be made.

        The Compensation Committee has the authority to retain and terminate any compensation and benefits consultant and the authority to approve the related fees and other retention terms of the consultant.

Code of Business Conduct and Ethics

        Our Code of Business Conduct will be posted on the Corporate Governance page of our website, which we expect to be www.digimarc.com . The Code of Business Conduct applies to all employees of DMRC and its subsidiaries, as well as to directors, temporary contractors, and other independent contractors or consultants when engaged by or otherwise representing us or our interests, and sets forth internal policies and guidelines designed to support and encourage ethical conduct and compliance with the laws, rules and regulations that govern our business operations.

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Compensation Committee Interlocks and Insider Participation

        No executive officer of DMRC served as a member of the compensation committee (or other board committee performing equivalent functions or, in the absence of any committee performing equivalent functions, the entire Board of Directors) of another entity, or as a director of another entity, where one of the other entity's executive officers served on the Compensation Committee of DMRC or as a director of DMRC.

Related Person Transactions

        Our Governance and Nominating Committee, in executing the responsibilities delegated to it, reviews, considers, and approves, rejects or qualifies all related person transactions between DMRC and our officers, directors, principal stockholders and affiliates. The Governance and Nominating Committee consists of disinterested, non-employee directors.

        Before our separation from Digimarc, we entered into a separation agreement, which contains many of the key provisions related to our separation from Digimarc and the distribution of shares of our common stock to Digimarc stockholders, and a transition services agreement with Digimarc to effect the separation and provide a framework for our relationships with Digimarc after the separation. These agreements govern the relationship between us and Digimarc subsequent to the completion of the distribution and provide for the allocation between us and Digimarc of Digimarc's assets and liabilities (including employee benefits and tax-related assets and liabilities) related to its Digital Watermarking Business, attributable to periods prior to our separation from Digimarc. The terms of the separation agreement and transition services agreement are set forth elsewhere in this information statement under the heading "Our Relationship with Digiamrc Corporation after the Spin-Off."

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DIRECTOR COMPENSATION

        The following table provides information on compensation that our expected non-employee directors received from Digimarc for the year ended December 31, 2007. Directors who were also Digimarc employees received no additional compensation for their services as directors. During 2007, Mr. Davis was the only director who was an employee of Digimarc. Mr. Davis's compensation is discussed in this information statement under the heading "Executive Compensation."

        The size and scope of DMRC's operations, based on its configuration and business after its separation from Digimarc, will be significantly smaller than those of Digimarc. Consequently, there will be fewer outside directors (four instead of eight) and compensation will be decreased to be commensurate with that paid at comparable companies, defined as companies of similar size within the high tech and software services industries that share similar financial characteristics to DMRC. Only the directors who will continue with DMRC are listed below, but their compensation for the balance of 2008 and beyond will be reduced materially from that set forth herein.

2007 Director Compensation Table

Name

  Fees Earned or Paid in Cash
($)

  Stock Awards
($)(1)

  Option Awards
($)(2)

  Total
($)

Peter W. Smith   $ 37,500   $ 25,496   $ 26,986   $ 89,982
James T. Richardson   $ 70,000   $ 25,496   $ 26,986   $ 122,482
Bernard Whitney   $ 50,000   $ 25,496   $ 39,628   $ 115,124
William J. Miller   $ 40,000   $ 25,496   $ 39,628   $ 105,124

(1)
On May 2, 2007, each director received from Digimarc a grant of 3,000 shares of Digimarc restricted stock with a grant date fair value of $29,640. This grant was Digimarc's second grant of restricted stock to its directors, and the total number of shares of restricted stock held by each director as of December 31, 2007 was a total of 5,400 shares of restricted stock. The amounts disclosed above reflect the expense taken by Digimarc in 2007 for stock granted to the indicated director in 2007 and previous years, disregarding an estimate of forfeitures related to vesting conditions. Accounting costs are determined, as required, under Financial Accounting Standards Board Statement of Financial Accounting Standards No. 123(R), "Share-Based Payment." A summary of the assumptions Digimarc applies in calculating these amounts is set forth in the Notes to Consolidated Financial Statements included in Digimarc's Annual Report on Form 10-K for the year ended December 31, 2007 on page F-17 under the caption "Restricted Stock and Performance Vesting Shares." The same 3,000 share grant was made by Digimarc on May 1, 2008 with a fair value on the grant date of $33,240.

(2)
On May 2, 2007, each director was granted an option to purchase 6,000 shares of Digimarc common stock with a grant date fair value of $28,609. These amounts represent the amount of expense Digimarc took in 2007 for stock options granted to the indicated director in 2007 and previous years, disregarding an estimate of forfeitures related to vesting conditions. Accounting costs are determined, as required, under Financial Accounting Standards Board Statement of Financial Accounting Standards No. 123(R), "Share-Based Payment." A summary of the assumptions Digimarc applies in calculating these amounts is set forth in the Notes to Consolidated Financial Statements included in Digimarc's Annual Report on Form 10-K for the year ended December 31, 2007 on pages F-15 to F-16 under the caption "Stock Options." As of December 31, 2007, the total number of outstanding options held by each director was as follows: Mr. Smith, 100,000; Mr. Richardson, 62,000; Mr. Whitney, 32,000; and Mr. Miller, 32,000.

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All directors were also reimbursed for reasonable and necessary travel, communications, and other out-of-pocket business expenses incurred in connection with their attendance at meetings, while on corporate business or for continuing education related to their board service.

        Cash Compensation.     In 2007, each non-employee director of Digimarc received an annual cash retainer of $30,000. The Lead Director received an additional annual cash retainer of $30,000. Members of the Digimarc audit committee received an annual cash retainer of $10,000, with the chair of the audit committee receiving an annual cash retainer of $20,000. Members of the Digimarc compensation committee received an annual cash retainer of $5,000, with the chair of the Digimarc compensation committee receiving an annual cash retainer of $10,000. Members of other standing committees of the Digimarc board of directors received an additional annual cash retainer of $3,750 for each committee on which the member served, with the chair receiving an annual cash retainer of $7,500. In addition, each Digimarc committee member received a fee of $1,000 for each in-person committee meeting and would have received a fee of $500 for each teleconference committee meeting in excess of eight meetings of the particular committee held in 2007. No fees for excess meetings were paid during 2007.

        Equity Compensation.     Digimarc's 1999 Non-Employee Director Option Program establishes an automatic option grant program for the grant of awards to its non-employee directors. Under this program, each non-employee director who first was elected to Digimarc's board of directors on or after March 29, 2002 is automatically granted an option to acquire 20,000 shares of common stock at an exercise price per share equal to the fair market value of the common stock at the date of grant. These options vest and become exercisable in 36 equal installments on each monthly anniversary of the grant date, so the stock option become fully exercisable three years after the grant date. No new directors were elected to Digimarc's board of directors in 2007. On the date of each annual stockholders meeting, each non-employee director who has been a member of Digimarc's board of directors for at least six months prior to the date of the stockholders meeting automatically receives an option to acquire 6,000 shares of Digimarc common stock at an exercise price per share equal to the fair market value of the common stock at the date of grant, and an automatic grant of 3,000 shares of Digimarc restricted stock. The options vest and become exercisable in twelve equal installments on each monthly anniversary of the grant date, so the stock options become fully exercisable one year after the grant date. The restricted stock awards are subject to a forfeiture restriction that lapses as to 100% of the shares subject to the award one year after the grant date. Messrs. Smith, Richardson, Miller and Whitney all received grants of options and restricted stock from Digimarc in 2007.

        In addition, Digimarc's 1999 Non-Employee Director Option Program provides that, immediately following each annual meeting of its stockholders, each non-employee director who serves as a member of a standing committee of the Board and who has been a member of the Board of Directors for at least six months prior to the date of the stockholders meeting receives an option to acquire 3,000 shares of common stock at an exercise price per share equal to the fair market value of the common stock at the date of grant. These options vest and become exercisable in twelve equal installments on each monthly anniversary of the grant date, so the stock option is fully exercisable one year after the grant date.

        The Digimarc board of directors has discretion to elect not to make the annual option and restricted stock grants to continuing board members and standing committee members. Since 2004, the Digimarc board of directors has elected not to make the annual 3,000 share option grant to directors for service on one or more standing committees. The shares for committee service are a vestige of the former program under which Digimarc directors received only equity compensation, rather than a combination of cash and equity compensation, which is the case now. The Digimarc board of directors determined that the value of the options and restricted stock grants provided sufficient equity compensation for their service as directors of Digimarc.

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New Compensation Proposal for DMRC Directors

        We expect to continue to pay both cash and equity compensation to our non-employee directors in amounts commensurate with that paid at comparable companies.


COMPENSATION DISCUSSION AND ANALYSIS

        This Compensation Discussion and Analysis describes the compensation policy we expect to apply to our named executive officers with respect to fiscal 2008.

General Compensation Policy

        Our executive compensation programs are designed to attract, retain, motivate and appropriately reward our executive officers, as well as to align the interests of executive officers with those of our stockholders. The objectives of our compensation programs are to:

Setting Executive Compensation

        Executive compensation is structured to foster achievement of the objectives of our compensation philosophy and is generally commensurate with compensation structures and levels at companies of similar size within the high tech and software services industries that share similar financial and operating characteristics.

        In general, compensation to Named Executive Officers is based upon the scope of their responsibilities, experience, skills, talents, demonstrated prior performance, and potential contributions to our success. In making these determinations, the Compensation Committee has considered compensation practices at comparable companies, among other data points, to judge the reasonableness of its decisions. In 2008, the Committee retained Equilar, Inc. to provide comparable company data. The Committee also has used the services of both Mercer and Radford Surveys and Consulting, nationally recognized independent consulting firms, to assist it in determining appropriate compensation. Mercer and Radford performed analyses and made recommendations with respect to compensation for each Named Executive Officer', including the appropriate number of stock options and other equity awards to be considered.

        In establishing the compensation to be provided to our Named Executive Officers, the Compensation Committee considered the factors referred to above, including market data and advice provided by Mercer. As a general guideline, for our Named Executive Officers, we set base cash compensation between the 50 th  and 75 th  percentiles, total cash compensation (base plus annual cash incentive ("bonus") compensation) for our Named Executive Officers at or between the 50 th  and 75 th  percentiles (with top quartile opportunity for superior performance) and total equity compensation between the 50 th  and 75 th  percentiles of similar companies. We believe that these levels will enable us

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to attract, retain and motivate executives of high quality, while at the same time keep our overall compensation levels in line with those of comparable companies.

2008 Compensation Components

        The primary elements of each Named Executive Officer's compensation package for the year ended December 31, 2008 will be:

The reasons for choosing each of these components are set forth in the discussion below. Because base compensation, annual cash bonuses, and equity awards are such basic elements of compensation within our industry, as well as the high tech and software industries in general, and are generally expected by employees, we believe that these components must be included in our compensation mix in order for us to compete effectively for talented executives. In determining the mix of these components, we applied our compensation philosophy and principles and considered the advice of Mercer concerning compensation levels for executives at comparable companies. Our objective was to establish a mix that would facilitate the following objectives:

        We use stock options as an element of executive compensation for several reasons. First, stock options facilitate retention of our executives. Stock options will provide a return to the executive only if he or she remains in our employ. Second, stock options align executive compensation with the interests of our stockholders and thereby focus executives on increasing value for the stockholders. Third, stock options are performance based; providing a return to executives only to the extent that the market price of our common stock appreciates over the option term. Fourth, stock options create incentive for increases in stockholder value over a longer term. In determining the number of options to be granted to executives, we take into account the individual's position, scope of responsibility, ability to affect profits and stockholder value, the individual's past and recent performance, and the estimated value of stock options at the time of grant. Assuming individual performance at a level satisfactory to the Compensation Committee, the size of stock option grants to our executives is generally set between the 50 th  and 75 th  percentiles for comparable companies, with top quartile opportunity for superior performance.

        We use time-based restricted stock to help encourage retention and to minimize the burn rate relating to equity awards. Restricted stock provides some of the same benefits as stock options, such as facilitating (i) alignment of the value of an executive's compensation with our performance, the market value of our common stock and the interests of our stockholders and (ii) retention of the executive as an employee. Both stock options and restricted stock provide a return to the executive only to the extent he or she remains in our employ during the vesting period. In the case of restricted stock, the employee receives actual shares, rather than a right to purchase shares at a fixed price. Once the restricted shares vest, they will generally have some value to the employee, even if the share price has not increased since the grant date. On the other hand, stock options will have no value unless the share price increases following the date of grant. As a result, to the extent the stock price has not increased since the date of grant, restricted stock may provide a greater retention benefit than that of stock

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options. Accordingly, we believe that a mix of stock options and restricted stock provides a more certain baseline retention benefit.

        In allocating compensation among the elements identified above, we believe that a substantial portion of the total compensation of our Named Executive Officers, the level of management having the greatest ability to influence our performance, should be performance-based. Accordingly, a substantial portion of the compensation of each Named Executive Officer consisted of incentive cash bonus, stock options, and restricted stock.

        In allocating long term incentive compensation among stock options, time-based restricted stock and performance-based restricted stock, our general guideline is to provide approximately 2 / 3 of the annual long-term incentive value for each Named Executive Officer in the form of stock options, based on the Black-Scholes valuation model. The remaining annual long-term incentive value will be provided in the form of time-based restricted stock. The Committee has determined that stock options align the interests of the executives with the stockholders and therefore a substantial portion of the value of the equity grants was allocated to the executives in the form of stock options, while time-based restricted stock assists in the retention of executives while maintaining alignment with growth in stockholder value.

        Salary.     The salary for each Named Executive Officer is set on the basis of the position and the salary levels in effect for comparable positions with other comparable companies in the industry. Salaries are generally targeted between the 50 th  and 75 th  percentiles, with the opportunity for high-performers and successful incumbents occupying critical positions to have salaries that reflect their seasoning, experience, performance and contributions. During the annual review, the Committee determined that the targeted annual compensation was competitive with the pay targets established by the Compensation Committee.

        The 2008 base salaries for our Named Executive Officers are as follows: Bruce Davis, $410,000; Robert Chamness, $250,000; and Michael McConnell, $260,000. These salaries will continue through calendar year 2008, after which they will be set by the Compensation Committee with respect to future years.

        Annual Cash Incentive Compensation.     The Compensation Committee has established an incentive compensation program for Named Executive Officers. Under this program, our executive officers receive annual cash bonuses based upon the achievement of specified performance objectives. These executives are responsible for establishing strategic direction and are to be responsible for major functional or operating units and have an impact on bottom-line results. Accordingly, evaluation of performance of objectives is generally based on measure of Company performance as well as individual performance. Compensation objectives are explicitly linked to goals and objectives set forth in our Annual Operating Plan, as approved by the Board of Directors.

        The target bonus amounts and the specific company and individual objectives applicable to the cash bonuses paid to our Named Executive Officers will be set annually, with a stub-year plan for the rest of 2008. With respect to each Named Executive Officer, as a general guideline, 20 - 40% of the annual incentive bonus will be based on the achievement of individual performance goals and 60 - 80% will be based on key measures of financial performance.

        The 2008 target bonus amount for Mr. Davis was set at 80% of his base salary (or $328,000). The target bonus amounts for our other Named Executive Officers were set at 55% of their base salaries (or $137,500 and $143,000 for each of Mr. Chamness and Mr. McConnell, respectively). The committee determined that these percentages were competitive within the marketplace and consistent with its overall compensation philosophy. A larger portion of Mr. Davis' cash compensation is performance based because we believe that Mr. Davis, as our Chief Executive Officer, has a greater impact on our results than our other executive officers.

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        The individual performance goals varied with each executive and were set in January 2008 as part of the strategic performance management process. Based on the extraordinary success delivered to stockholders in completion of the sale of the Secure ID Business and spin-off of the Digital Watermarking Business, the Board of Directors determined that 100% of the target annual 2008 bonuses of Messrs. Davis, Chamness and McConnell had been earned as of July 30, 2008, and directed DMRC Corporation to accrue those bonuses and pay them in December of 2008. The Compensation Committee expects to put in place a new incentive program for the balance of 2008 that will reflect objectives for the new company for the balance of the year.

        The size of the grants will be set at a level that the Compensation Committee deems appropriate to create a meaningful opportunity for stock ownership based upon the individual's anticipated position with us. In making these awards, the Committee will look at competitive long term incentive values, and grant equity compensation to our executives based on an evaluation of each executive's performance, and generally within, but not limited to, a value to the executives between the 50 th  and 75 th  percentiles of our peer group for their position. The Committee will allocate the amount and value of such awards among one or more of stock options, time-based restricted stock and stock appreciation rights.

        Equity Compensation.     The Compensation Committee intends to award stock options and restricted stock to each of our executive officers upon their initial hiring and from time to time thereafter. These forms of equity compensation are designed to align the interests of our executive officers with those of our stockholders and to provide each executive officer with a significant incentive to manage us from the perspective of an owner with an equity stake in the business.

        The size of the grants made to each executive officer is set at a level that the Compensation Committee deems appropriate to create a meaningful opportunity for stock ownership based upon the individual's current position with us and individual and company performance. The Compensation Committee also takes into account comparable awards to individuals in similar positions in the industry as reflected in external surveys, the individual's potential for future responsibility and promotion, the individual's performance in recent periods, and our anticipated stock option burn rate. The relative weight given to each of these factors will vary from individual to individual in the Compensation Committee's discretion.

        With the exception of significant promotions and initial hires, including the awards at the time of the spinoff, we will make these awards at the first meeting of the Compensation Committee each calendar year following approval of the Annual Operating Plan by the Board. This process enables us to align compensation with the AOP and to properly budget for associated costs.

        Benefits and Perquisites.     Benefits are established based upon an assessment of competitive market factors and a determination of what is needed to attract and retain talent. The primary benefits received by our Named Executive Officers are the same as for all other employees and include participation in our health, dental and vision plans, the employee stock purchase plan and our disability and life insurance plans. Our general policy is not to provide perquisites or other personal benefits to our Named Executive Officers, other than those benefits provided for all other employees.

Compliance with Internal Revenue Code Section 162(m)

        Section 162(m) of the Code generally disallows a tax deduction to public companies for compensation exceeding $1 million paid to certain executive officers. The limitation applies only to compensation that is not considered to be performance-based. We believe that the non-performance-based compensation paid to each of our executive officers in 2008 will not exceed the $1 million limit and, therefore, no deductions will be disallowed under Section 162(m).

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        The Compensation Committee is aware of the limitations imposed by Section 162(m), and its exemptions, and will address the issue of deductibility when and if circumstances warrant. We review proposed compensation plans in light of applicable tax deductions, and generally seek to maximize the deductibility for tax purposes of all elements of compensation. However, we may approve compensation that does not qualify for deductibility if and when we deem it to be in our best interests.

Practices Regarding Equity Grants

        As a general matter, except for new hire grants and initial grants to be made to our executive officers following the spin-off, we will grant awards of stock options and restricted stock (time based and performance based) to our Named Executive Officers at a Compensation Committee meeting held in early January. Pursuant to our written policy and standard operating procedures with respect to the stock grants, the grant date of these awards is the date of approval of the grants. Our executives have no role in selecting the grant date. The exercise price of stock options is always the closing price of the underlying common stock on the grant date. All stock option, restricted stock and performance vesting share awards to executives are promptly reported on Form 4 filings.

Termination and Change in Control Payments

        We anticipate entering into new employment agreements with Messrs. Davis, Chamness and McConnell.

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EXECUTIVE COMPENSATION

        The following tables contain information concerning the compensation paid to only the Named Executive Officers of Digimarc who we expect to continue with DMRC for services rendered to Digimarc during the years ended December 31, 2006 and December 31, 2007. All of the information included in these tables reflects compensation earned by the individuals for services performed for Digimarc. All references in the following tables to stock options, restricted stock, restricted stock units, and other stock awards relate to awards granted by Digimarc in regard to Digimarc common stock.

        The amounts and forms of compensation reported below do not necessarily reflect the compensation the Named Executive Officers will receive following the spin-off, which could be higher or lower, because historical compensation was determined by Digimarc and future compensation levels will be determined by our compensation committee.

2007 Summary Compensation Table

Name and Principal Position

  Year
  Salary
($)

  Bonus
($)(1)

  Stock
Awards
($)(2)

  Option
Awards
($)(3)

  Non-Equity
Incentive Plan
Compensation
($)

  All Other
Compensation
($)(4)

  Total
($)

Bruce Davis,
Chief Executive Officer
and Chairman of the
Board of Directors
  2007
2006
  $
$
410,000
410,000
  $
$

32,489
  $
$
500,834
276,286
  $
$
255,302
150,430
 
$

225,000
  $
6,750
6,600
  $
1,172,886
1,100,805

Michael McConnell,
Chief Financial Officer
and Treasurer

 

2007
2006

 

$
$

260,000
260,000

 

$
$


13,713

 

$
$

194,120
113,319

 

$
$

127,188
73,685

 


$


75,000

 

$

6,750
5,767

 

$

588,058
541,484

Robert Chamness,
Chief Legal Officer
and Secretary

 

2007
2006

 

$
$

250,000
250,000

 

$
$


13,186

 

$
$

163,290
104,921

 

$
$

77,734
40,696

 


$


77,500

 

$

6,750
938

 

$

497,774
487,241

(1)
No bonuses or non-equity incentive plan compensation were paid for 2007, because Digimarc did not achieve profitability. The 2006 bonus was a special bonus authorized by the Board of Directors of Digimarc for achieving profitability in the third quarter of 2006. The column entitled Non-Equity Incentive Plan Compensation was the earned portion of their targeted bonus compensation for 2006.

(2)
These amounts represent the expense taken by Digimarc in 2007 and 2006 with respect to time based restricted stock and performance based restricted stock granted in 2007 and previous years, based on the estimated fair value of these awards calculated under FAS 123R. A summary of the assumptions Digimarc applies in calculating these estimates is set forth in the Notes to Consolidated Financial Statements included in Digimarc's Annual Report on Form 10-K for the fiscal year ended December 31, 2007 on page F-17 under the caption "Restricted Stock and Performance Vesting Shares." The awards for which expense is shown in this column include awards described in the Grants of Plan-Based Awards Table and in the Outstanding Equity Awards at Fiscal Year-End Table.

(3)
These amounts represent the expense taken by Digimarc in 2007 and 2006, respectively with respect to stock options granted in 2007 and 2006, respectively and previous years, based on the estimated fair value of these awards. Digimarc estimates the fair value of stock options under FAS 123R using the Black-Scholes option valuation model. A summary of the assumptions Digimarc applies in calculating these amounts is set forth in the Notes to Consolidated Financial Statements included in Digimarc's Annual Report on Form 10-K for the fiscal year ended December 31, 2007 on pages F-15 to F-16, under the caption "Stock Options". The awards for which expense is shown in this column include awards described in the Grants of Plan-Based Awards Table and in the Outstanding Equity Awards at Fiscal Year-End Table.

(4)
These amounts consist of matching contributions to the Digimarc 401(k) plan made by Digimarc in 2008 for the 2007 fiscal year. These contributions are made at the same rate as for all other Digimarc employees who elect to participate in the plan.

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2007 Grants of Plan-Based Awards Table

        The following table sets forth certain information with respect to stock options and other plan-based awards granted by Digimarc with respect to Digimarc common stock during the year ended December 31, 2007 to each of the Named Executive Officers. Prior to the record date for the distribution, outstanding Digimarc equity incentive awards were adjusted as described in "Executive Compensation—Treatment of Outstanding Equity Awards in Connection with the Spin-Off."

 
   
  Estimated Future Payouts
Under Non-Equity
Incentive Plan Awards

  Estimated Future Payouts
Under Equity
Incentive Plan Awards

   
   
   
   
Name

  Grant Date
  Threshold
($)

  Target
($)

  Maximum
($)

  Threshold
(#)

  Target
(#)

  Maximum
(#)

  All Other Stock Awards: Number of Shares of Stock or Units
(#)

  All Other Option Awards: Number of Securities Underlying Options
(#)

  Exercise or Base Price of Option Awards
($/Sh)

  Grant Date Fair Value of Stock and Option Awards
($)

Bruce Davis  
1/2/07
1/2/07
1/2/07
  0   $ 328,000    


0
 


30,000
 


30,000
 

30,000
 
100,000
 
$

8.79
 
$
$
$

424,210
263,700
192,264

Michael McConnell

 


1/2/07
1/2/07
1/2/07

 

0

 

$

143,500

 


 




0

 




10,000

 




10,000

 



10,000

 


40,000

 


$


8.79

 


$
$
$


169,684
87,900
64,088

Robert Chamness

 


1/2/07
1/2/07
1/2/07

 

0

 

$

137,500

 


 




0

 




7,500

 




7,500

 



7,500

 


30,000

 


$


8.79

 


$
$
$


127,263
65,925
48,066

Narrative to Summary Compensation Table and Grants of Plan-Based Awards Table

        Estimated Future Payouts Under Non-Equity Incentive Plan Awards.     The "target" amounts represent the 2007 annual bonus target established by Digimarc for each Named Executive Officer.

        Estimated Future Payouts Under Equity Incentive Plan Awards.     These amounts represent the number of shares covered by performance based restricted stock awards granted by Digimarc on January 2, 2007. The grant date fair value of this award was determined by Digimarc using a Monte Carlo valuation model that resulted in a substantial discount to the fair market value of Digimarc's common stock on the date of grant, based on the probability weighting of the specified performance goal.

        All Other Stock Awards.     These amounts represent the number of shares covered by time-based restricted stock awards granted by Digimarc on January 2, 2007. The grant date fair value of this award was based on $8.79 per share (which was the closing price of Digimarc common stock on December 29, 2006), the most recent closing price of Digimarc's common stock.

        All Other Option Awards.     These amounts represent the number of shares covered by stock options granted by Digimarc on January 2, 2007. These options have an exercise price of $8.79 per share (which was the closing price of Digimarc common stock on December 29, 2006, the most recent closing price of Digimarc's common stock). The grant date fair value was determined by Digimarc using the Black-Scholes valuation model.

Employment Agreement with Mr. Davis

        Digimarc has entered into an employment agreement with Bruce Davis, pursuant to which Digimarc agreed to pay Mr. Davis an initial base salary of not less than $300,000 per year and an annual performance bonus of up to 50% of his base salary per year. Consistent with its charter, the

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Digimarc compensation committee annually reviews and determines the compensation of the Chief Executive Officer and other executive officers. The Digimarc compensation committee is not restricted from setting base and bonus amounts at a higher level than as provided in Mr. Davis's employment agreement. Since the date of the employment agreement, Digimarc's compensation arrangement with Mr. Davis has evolved and, over time, the Digimarc compensation committee has determined to increase the amount of base compensation and the percentage amount of Mr. Davis's target bonus. The Digimarc compensation committee determined in 2005 to set the base and annual performance bonus for Mr. Davis in amounts higher than those set forth in his employment agreement, as noted above in the 2007 Summary Compensation Table.

        Mr. Davis also receives vacation and other benefits as are generally provided to other Digimarc executives. Digimarc will grant additional stock options to Mr. Davis consistent with general market practices for similarly situated executives. The employment agreement provides that as long as Mr. Davis serves as Digimarc's Chief Executive Officer, it is our intention that he will be nominated to serve as a director and as chairman of Digimarc's Board of Directors. The employment agreement provides for an initial term from July 16, 2001 to December 31, 2002, automatically renewing for successive two-year periods unless terminated by written notice received at least one year prior to any scheduled termination.

        Other than the agreement with Mr. Davis referenced above, there are no employment contracts between Named Executive Officers and Digimarc. However, as described more fully under "Potential Post-Employment Payments" below, on January 2, 2007, the Digimarc compensation committee approved a more limited Change of Control Retention Agreement between Digimarc and each of Messrs. McConnell and Chamness. All obligations under the Change of Control Retention Agreements will be assumed by DMRC Corporation following the spin-off and DMRC Corporation merger.

Annual Cash Incentive Compensation

        Digimarc did not pay annual cash incentive bonuses for 2007 performance. The amounts paid in 2006 represent discretionary cash bonuses approved by the Board of Directors of Digimarc on November 2, 2006 as an award for achieving profitability in the third quarter of 2006.

        Under Digimarc's incentive compensation program for executive officers, non-equity incentive plan awards are not capped at the target level. The Digimarc plan allows for bonuses to be paid up to 130% of the target if Digimarc's performance exceeds the Digimarc plan.

Equity Compensation

        The awards included in the 2007 Summary Compensation table include awards that are also described in the 2007 Grants of Plan-Based Awards table and in the 2007 Outstanding Equity Awards at Fiscal Year-End table.

        Stock Options.     All options granted to the Named Executive Officers in 2007 are intended to be incentive stock options, but only to the extent that the aggregate fair market value of the common stock with respect to which the stock options are exercisable for the first time during any calendar year under all Digimarc's equity incentive plans for each executive does not exceed $100,000. Any excess over $100,000 is treated as a non-qualified stock option. Each grant allows the executive officer to acquire shares of Digimarc's common stock at a fixed price per share, which is the market price on the grant date over a specified period of time up to 10 years. Such options become exercisable in monthly installments over a four-year period, contingent upon the executive officer's continued employment with Digimarc.

        Time Based Restricted Stock.     Each grant of Digimarc time-based restricted stock granted to the Named Executive Officers in 2007 allows the executive officer to acquire shares of Digimarc common

82



stock at no cost immediately at the time of the grant, subject to divestiture over a specified period of time (in this instance, four years). At the end of each of the first four years following the grant date, the restrictions will lapse on 25 percent of the restricted shares subject to each of these grants, at which time such shares are no longer subject to forfeiture.

        Performance Based Restricted Stock.     The form of agreement used in connection with the grant of Digimarc performance based restricted stock to its executive officers in 2007 provides that the shares will fully vest, subject to the terms of the agreement, if the Total Stockholder Return (as defined below) for certain specified periods is equal to or greater than specified percentile targets as compared to the weighted peer group used by Digimarc's compensation committee for the purposes of determining executive compensation for 2007. If, for the period from the date of grant to December 31, 2009, Digimarc's Total Stockholder Return is equal to or greater than the 60 th  percentile performance of the weighted peer group, then the shares will vest in full as of December 31, 2009. However, if, for the period from the date of grant to December 31, 2008, Digimarc's Total Stockholder Return is equal to or greater than the 75 th  percentile performance of the weighted peer group, then the shares will vest in full as of December 31, 2008. Assuming that all conditions are satisfied, the shares will vest and no longer be subject to forfeiture as of the date on which the performance condition is satisfied. Subject to certain exceptions, all rights to shares of performance based restricted stock are contingent on the executive remaining continuously employed by Digimarc, or any parent or subsidiary of Digimarc, from the grant date through the vesting date. The shares will be automatically forfeited on the third anniversary of the date of grant if the performance condition has not been fully satisfied by such time.

        Digimarc calculates Total Stockholder Return by dividing (i) the change in the share price from December 31, 2006 to the end of the relevant measurement period, plus dividends paid during such period (including stock splits, cash dividends, stock dividends and share repurchases) by (ii) the share price at the date of grant. For purposes of the above calculation, the share price is the closing price on the relevant measurement date. Because the stock markets were closed on January 1, 2007 (the beginning of the measurement periods), Digimarc used the closing price on Friday, December 29, 2006, which was the last preceding trading date for which a closing price was reported. Accordingly, the share price of Digimarc common stock on January 1, 2007 is deemed to be $8.79, the closing price of Digimarc common stock on December 29, 2006.

        For purposes of determining whether Digimarc has met the performance conditions, the Total Stockholder Return of each of the peer companies in Group I is weighted by a factor of three and the Total Stockholder Return of each of the peer companies in Group II is given no additional weighting. Digimarc's compensation committee determines the precise formula to be used to calculate Digimarc's percentile ranking calculation. Digimarc's compensation committee also makes additional adjustments to the calculation of Total Stockholder Return and percentile ranking as it deems appropriate to reflect changes in Digimarc's outstanding shares or any of the companies that comprise the peer group, or other similar non-market factors that may affect share price. The Digimarc compensation committee chose the Total Stockholder Return of Digimarc relative to its peer group as the performance measure in order to closely align a portion of compensation with direct benefit to stockholders. Since Digimarc based a portion of short term incentive compensation (annual incentive cash bonus) on target levels of return on equity, Digimarc felt it appropriate to use share price as the performance measure for performance based restricted stock. Digimarc utilized an "all or nothing" approach in structuring the performance measure in order to provide the maximum incentive to reach the specified goal. Digimarc may consider revising the "all or nothing" approach in future years to more closely reflect other comparable programs in the peer group.

        This approach differed from that used in connection with the grant of performance based restricted stock to Digimarc's executive officers in 2006, which provided that the shares would fully vest, subject to the terms of the agreement, if the closing price of Digimarc's common stock is at least $15 for more than 30 consecutive calendar days during the period that begins on the grant date and ends on the third anniversary of the grant date.

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2007 Outstanding Equity Awards at Fiscal Year-End Table

        The following table provides summary information, as to the Named Executive Officers, concerning Digimarc equity awards outstanding as of December 31, 2007. Prior to the record date for the distribution, outstanding Digimarc equity incentive awards were adjusted as described in "Executive Compensation—Treatment of Outstanding Equity Awards in Connection with the Spin-Off."

 
  Option Awards(1)
  Stock Awards
 
   
   
   
   
   
   
   
   
  Equity
Incentive
Plan Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
($)(5)

 
   
   
   
   
   
   
   
  Equity
Incentive
Plan Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
(#)(4)

 
   
  Number of
Securities
Underlying
Unexercised
Options
(#)

  Number of
Securities
Underlying
Unexercised
Options
(#)

   
   
   
  Market
Value of
Shares or
Units of
Stock
That
Have Not
Vested
($)(3)

 
   
   
   
  Number of
Shares or
Units of
Stock
That
Have Not
Vested
(#)(2)

 
   
  Option
Exercise
Price
($)

   
Name

  Grant
Date

  Option
Expiration
Date

  Exercisable
  Unexercisable
Bruce Davis     
01/31/00
07/17/00
12/21/00
12/18/01
06/25/02
12/12/02
01/02/04
01/05/05
01/03/06
01/02/07
    
100,000
200,000
250,000
150,000
50,000
200,000
110,000
25,000
89,569
22,917
  90,431
77,083
 
$
$
$
$
$
$
$
$
$
$
  
53.9375
26.25
14.125
18.16
8.67
15.24
13.00
9.07
5.91
8.79
    
01/31/10
07/17/10
12/21/10
12/18/11
06/25/12
12/12/12
01/02/14
01/05/15
01/03/16
01/02/17
  85,250   $ 751,905   65,000   $ 573,300
Michael McConnell    
06/01/04
01/05/05
01/03/06
01/02/07
    
200,000
10,000
32,344
9,167
  32,656
30,833
 
$
$
$
$
 
11.53
9.07
5.91
8.79
    
06/01/14
01/05/15
01/03/16
01/02/17
  33,000   $ 291,060   25,000   $ 220,500
Robert Chamness     
01/02/02
12/12/02
01/02/04
01/05/05
01/03/06
01/02/07
    
100,000
28,000
30,000
10,000
24,880
6,875
  25,120
23,125
 
$
$
$
$
$
$
  
19.93
15.24
13.00
9.07
5.91
8.79
    
01/02/12
12/12/12
01/02/14
01/05/15
01/03/16
01/02/17
  26,750   $ 235,935   17,500   $ 154,350

(1)
Option awards vest monthly over a four-year period following the date of grant contingent upon the executive officer's continued employment with Digimarc.

(2)
The awards in this column consist of shares of time based restricted stock granted in 2007 and prior years. These shares will vest annually over a four-year period following the date of grant contingent upon the executive officer's continued employment with Digimarc.

(3)
Based on the $8.82 per share closing price of Digimarc's common stock on December 31, 2007 (which was the last trading day of the 2007 fiscal year).

(4)
The awards in this column consist of shares of performance based restricted stock granted in 2007 and prior years. The 2007 shares will fully vest, subject to the terms of the agreement, if the Total Stockholder Return for certain specified periods is equal to or greater than specified percentile targets as compared to the weighted peer group used by Digimarc's Compensation Committee for the purposes of determining executive compensation for 2007. If, for the period from the date of grant to December 31, 2009, Digimarc's Total Stockholder Return is equal to or greater than the 60 th  percentile performance of the weighted peer group, then the shares shall vest in full as of December 31, 2009. However, if, for the period from the date of grant to December 31, 2008, Digimarc's Total Stockholder Return is equal to or greater than the 75 th  percentile

84


(5)
Based on the $8.82 per share closing price of Digimarc's common stock on December 31, 2007 (which was the last trading day of the 2007 fiscal year).

        The awards in the Outstanding Awards at Fiscal Year-End table include awards that are also described in the 2007 Summary Compensation Table and in the 2007 Grants of Plan-Based Awards Table.

2007 Option Exercises and Stock Vested Table

        The following table provides summary information, as to the Named Executive Officers, concerning Digimarc stock options exercised and Digimarc stock awards vested during 2007.

 
  Stock Awards
Name

  Number of Shares
Acquired on Vesting
(#)

  Value Realized
on Vesting
($)(1)

Bruce Davis   37,750   $ 329,455
Michael McConnell   15,500   $ 135,210
Robert Chamness   14,250   $ 124,685

      (1)
      Based on the $8.82 per share closing price of Digimarc common stock on December 31, 2007, the last trading day of the 2007 calendar year.

2007 Potential Payments Upon Termination or Change-in-Control

        Davis Employment Agreement.     The employment agreement entered into between Digimarc and Mr. Davis provides that if Digimarc terminates Mr. Davis's employment without cause, or if Mr. Davis terminates his employment due to an adverse change in conditions of his employment, Mr. Davis's stock options will immediately and fully vest and Digimarc will be obligated to continue to pay Mr. Davis the benefits described below for two years from the date of termination. "Cause" is defined as "an action or inaction adverse to Digimarc, including dishonesty, grossly negligent misconduct, willful misconduct, disloyalty, an act of bad faith, neglect of duty or material breach of the employment agreement." "Adverse change" includes any of the following changes, if done without Mr. Davis's prior written consent: reduction in title or responsibilities, or mandatory relocation more than 35 miles from current place of employment. For a period of two years following the date of termination, Mr. Davis would continue to receive base compensation at the level in effect on the date of termination and annual bonus compensation at the level earned in the most recent fiscal year. These amounts would be paid according to Digimarc's standard payroll schedules from the date of termination, as if Mr. Davis had not been terminated. For a period of two years following the date of termination, Digimarc would also provide for Mr. Davis and his dependents, continued health, disability and other fringe benefits as are generally provided to other executives of Digimarc. In consideration for the provisions in the employment agreement providing for the post-termination payments described above, Mr. Davis has agreed to certain non-competition and non-solicitation obligations in favor of Digimarc.

        Stock Option Policy.     The Board of Directors of Digimarc adopted a policy, applicable to all of its current and future officers, pursuant to which all shares subject to stock options that have not vested will immediately vest if the following two conditions are met:

    Digimarc merges with another company, which results in a change of control of Digimarc, or Digimarc sells substantially all of its assets to another company; and

85


    the officer's employment is terminated, or constructively terminated, within twelve months thereafter.

        Restricted Stock Agreement.     Digimarc's compensation committee approved a form of the restricted stock agreement for restricted stock awards (both time based and performance based) granted to officers of Digimarc pursuant to its 1999 Stock Incentive Plan, which provides, among other things, that the shares will vest in full upon the termination of the officer's employment without cause or the officer's resignation for good reason following a change in control of Digimarc. Notwithstanding the foregoing, the Digimarc compensation committee has discretionary authority to determine the terms and conditions of any award granted under Digimarc's 1999 Stock Incentive Plan.

        Change of Control Retention Agreement.     On January 2, 2007, Digimarc's compensation committee approved a form of Change of Control Retention Agreement to be entered into by and between Digimarc and each of Messrs. McConnell and Chamness. The Change of Control Retention Agreement is effective until December 31, 2009 and provides for certain severance benefits in the event of termination of the executive without cause by Digimarc, or termination by the executive for good reason, within 12 months following a change of control of Digimarc or the sale of certain divisions of Digimarc during the term of the Change of Control Retention Agreement. "Cause" is defined as willful misconduct that is significantly injurious to Digimarc; fraud, dishonesty, embezzlement, misrepresentation or theft of Digimarc; conviction of (or plea of no contest to) a felony or crime involving moral turpitude; breach of any agreement with Digimarc; unauthorized disclosure of Digimarc's proprietary or confidential information or breach of any confidentiality/invention/proprietary information agreement(s) with Digimarc; violation of Digimarc's code of ethics (if applicable), code of business conduct and ethics or any other employment rule, code or policy; continued failure or refusal to follow our lawful instructions after five days has passed following delivery of a written notice identifying the failure or refusal; a court order or a consent decree barring the executive from serving as an officer or director of a public company; or continued failure to meet and sustain an acceptable level of performance of Executive's duties and obligations to Digimarc for thirty days following notice of failure to perform.

        "Good reason" is defined as a substantial reduction in duties or responsibilities (with certain exceptions); a material reduction in base salary, benefits or total cash compensation, other than as part of an overall reduction for all employees at the same level; a mandatory transfer to another geographic location more than 35 miles from the prior location of employment, other than normal business travel obligations; the failure of a successor to Digimarc to assume the obligations under the agreement; or Digimarc's failure to comply with its obligations under the agreement.

        The severance benefits payable by Digimarc upon such a termination include 12 months' salary, a prorated bonus payment and up to 18 months' premiums necessary to continue the executive's health insurance coverage under Digimarc's health insurance plan and are conditioned upon the executive signing a release of claims. All obligations under the Change of Control Retention Agreements will be assumed by DMRC Corporation following the spin-off and DMRC Corporation merger.

        The following table summarizes potential payments to each of the Named Executive Officers upon termination of employment with Digimarc or a change in control of Digimarc. The amounts set forth in the table are based on the assumption that the triggering event occurred on the last business day of Digimarc's last completed fiscal year and that Digimarc's stock price was the closing market price per share on that date. In the case of stock options, the value of the acceleration was determined based on the difference between (i) the exercise price of the shares for which vesting was accelerated and (ii) the $8.82 closing price on December 31, 2007. In the case of restricted stock, the value of the acceleration

86



was determined by multiplying (i) the number of shares for which vesting was accelerated by (ii) the $8.82 per share closing price on December 31, 2007.

Name

  Benefit
  Before Change in
Control
Termination
w/o Cause or
for Good Reason

  After Change in
Control
Termination
w/o Cause or
for Good Reason

Bruce Davis   Stock Option Vesting Acceleration
Restricted Stock Vesting Acceleration
Salary Continuation
Bonus Continuation
Benefits Continuation
Total Value
  $
$
$
$
$
$
265,467
1,325,205
820,000
0
33,498
2,444,170
  $
$
$
$
$
$
265,467
1,325,205
820,000
0
33,498
2,444,170
Michael McConnell   Stock Option Vesting Acceleration
Restricted Stock Vesting Acceleration
Salary Continuation
Bonus Continuation
Benefits Continuation
Total Value
  $
$
$
$
$
$
0
0
0
0
0
0
  $
$
$
$
$
$
95,954
511,560
260,000
0
17,490
885,004
Robert Chamness   Stock Option Vesting Acceleration
Restricted Stock Vesting Acceleration
Salary Continuation
Bonus Continuation
Benefits Continuation
Total Value
  $
$
$
$
$
$
0
0
0
0
0
0
  $
$
$
$
$
$
73,793
390,285
250,000
0
25,123
739,201

        The salary continuation amounts shown in the table above are based on the Named Executive Officer's base salary, paid by Digimarc, in 2007. Bonus amounts shown in the table represent the cash bonus earned by the Named Executive officer in 2007 under Digimarc's annual incentive bonus cash compensation program.

Treatment of Outstanding Equity Awards in Connection with the Spin-Off

Treatment of Digimarc Stock Options

        All outstanding options to purchase shares of Digimarc common stock became fully vested and exercisable prior to the record date and time. Holders of Digimarc stock options were given the opportunity to exercise their stock options on or prior to the record date and time. The holders of Digimarc common stock issued upon exercise are entitled to receive shares of DMRC Corporation common stock in connection with the spin-off and subsequent DMRC Corporation merger and, to the extent the stockholders remain stockholders until the acceptance time or Digimarc/L-1 merger, they will also be entitled to receive the offer price or the merger consideration, in an amount equal to the offer price per share, as the case may be. Subject to the terms and conditions of Digimarc's stock option plans, Digimarc will use its reasonable best efforts to cause all outstanding Digimarc stock options that were not exercised on or prior to the record date and time to be cancelled as of the spin-off. All Digimarc stock options that are not exercised or cancelled prior to the effective time of the merger will be cancelled and null and void as of the effective time of the merger.

        In connection with the termination of Digimarc's 1995 Stock Incentive Plan, Restated 1999 Stock Plan, 2000 Non-Officer Employee Stock Incentive Plan and 1999 Non-Employee Director Option Program, following the Digimarc/L-1 merger, no holder of Digimarc stock options, or any participant or beneficiary of the plans, will have any right to acquire or receive any equity securities of the surviving corporation, any subsidiary of the surviving corporation or any consideration other than as discussed above.

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Treatment of Digimarc Restricted Stock

        All outstanding shares of Digimarc restricted stock are fully vested and were entitled to a distribution of shares of DMRC Corporation common stock in connection with the spin-off. The holders of Digimarc restricted stock will be entitled to receive the offer price or merger consideration, in an amount equal to the offer price per share, as the case may be.

Treatment of Rights under the Digimarc Employee Stock Purchase Plan

        Digimarc notified participants in the Digimarc Employee Stock Purchase Plan, which we refer to as the ESPP, that the current offer period will terminate on July 25, 2008. Upon the termination of the ESPP, all accumulated payroll deductions allocated to a participant's account under the ESPP during the current offer period will be returned to the participant as provided by the terms of the ESPP and no shares of Digimarc common stock will be purchased under the plan for the current offering period.

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OUR RELATIONSHIP WITH DIGIMARC CORPORATION AFTER THE SPIN-OFF

Overview

        We have entered into a separation agreement with Digimarc, DMRC LLC, and with respect to certain sections, L-1, which contains many of the key provisions related to the spin-off of the Digital Watermarking Business from Digimarc. The transition services agreement referenced in the separation agreement governs certain aspects relating to the spin-off and various interim and ongoing relationships between Digimarc and us following the spin-off and the Digimarc/L-1 merger. Because we were, until completion of the spin-off, a wholly owned subsidiary of Digimarc, these agreements were not negotiated at arms' length and may not reflect terms that would be negotiated between independent parties. However, because Digimarc, which is a party to each of the agreements, will be a subsidiary of L-1 following the Digimarc/L-1 merger, L-1 is a party to the separation agreement with respect to certain sections, and a subsidiary of L-1 is a party to the License Agreement. L-1 participated in the negotiation of these agreements. The following are summaries of the material provisions of the agreements entered into in connection with the spin-off. These summaries do not purport to provide a complete description of the agreements.

Separation Agreement

        We entered into a separation agreement with Digimarc, DMRC LLC, and with respect to certain sections, L-1, which we refer to as the separation agreement, to provide for, upon the terms and subject to the conditions set forth in the separation agreement, (1) the transfer of specified assets of Digimarc and its subsidiaries to, and the assumption of specified liabilities of Digimarc and its subsidiaries by, DMRC LLC and its subsidiaries, which we refer to as the restructuring, and (2) the distribution of the interests of DMRC LLC to Digimarc's stockholders, which we refer to as the distribution. We refer to the restructuring together with the distribution as the spin-off. Following the DMRC Corporation merger, DMRC Corporation succeeded to all of the rights, interests, and obligations of DMRC LLC under the separation agreement by operation of law. The following summary of the separation agreement is qualified in its entirety by reference to the complete text of the form of separation agreement, which is incorporated by reference into this document and attached as exhibit 2.1 to the Form 10. We encourage you to read the separation agreement in its entirety for a more complete description of the terms and conditions of the separation agreement.

The Restructuring

        The restructuring occurred on August 1, 2008. Pursuant to the terms of the separation agreement, DMRC LLC assumed ownership of the following assets of Digimarc, which we refer to as the DMRC assets:

    any assets used primarily in the operation of the Digital Watermarking Business;

    specified assets allocated to the Digital Watermarking Business but shared with Digimarc as the owner of the Secure ID Business;

    specified intellectual property and technology allocated to DMRC LLC;

    specified equity investments in companies in the watermarking business made by Digimarc;

    right, title and interest in the real property located at 9405 S.W. Gemini Drive, Beaverton, Oregon 97008 (Digimarc's current headquarters);

    all cash, cash equivalents, short term investments and restricted cash of Digimarc immediately prior to the distribution date; and

89


    Digimarc's right, title and interest under all its contracts relating to the Digital Watermarking Business.

Digimarc will retain ownership and possession of all other assets.

        Also in connection with the restructuring, DMRC LLC assumed the following liabilities, which we refer to as DMRC liabilities:

    whether arising before, on or after the distribution date:

    any liabilities primarily relating to the Digital Watermarking Business and the DMRC assets;

    certain liabilities, each of which are liabilities other than corporate level liabilities that are not primarily related to either the Secure ID Business or the Digital Watermarking Business, that have been allocated to DMRC LLC;

    all liabilities, agreements and obligations of DMRC LLC or its subsidiaries under the Digimarc/L-1 merger agreement, the separation agreement, the license agreement and the transition services agreement, which we collectively refer to as the transaction agreements; and

    any liabilities relating to, arising out of or resulting from the restructuring and the distribution (except for any tax liabilities arising in connection therewith);

    any liabilities arising out of or resulting from the operation of any business conducted by DMRC LLC or its subsidiaries at any time after the distribution date;

    any liabilities arising out of or resulting from any benefit plan after the distribution date or relating to, arising out of or resulting from any contract with any employees who will become employees of DMRC LLC;

    any liabilities triggered at the acceptance time or any termination of employment concurrently therewith or thereafter arising under any contracts entered into between Digimarc (or any of its subsidiaries) and any of Robert Chamness, Bruce Davis, Michael McConnell or Reed Stager and any other employee of Digimarc who becomes employed by DMRC LLC;

    all liabilities relating to, arising out of or resulting from the termination of (1) any employees who will become employees of DMRC LLC, (2) any employees not employed by Digimarc or its subsidiaries immediately prior to the acceptance time and (3) all employees of Digimarc or its subsidiaries terminated prior to the acceptance time in connection with the spin-off;

    all costs, expenses and fees incurred by or on behalf of Digimarc or DMRC LLC in connection with the transactions contemplated by the Digimarc/L-1 merger agreement prior to the acceptance time;

    any liabilities relating to, arising out of or resulting from any indemnification or exculpation claims by any employees who will become employees of DMRC LLC or director or officer of DMRC LLC under any contract, bylaw or other governing document or statutory provision, whether such claim arises prior to, on or after the distribution date; provided that such claim for indemnification or exculpation must relate to, arise out of or result from the acts or omissions of such indemnified person with respect to the Digital Watermarking Business; and

    any liabilities relating to, arising out of or resulting from litigation matters assumed by DMRC LLC.

Digimarc will remain responsible for all other liabilities.

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The Distribution

        Pursuant to the separation agreement, in connection with the distribution, each holder of record of Digimarc common stock as of August 1, 2008 at 5:30 pm Eastern time, the record date and time selected for the distribution (or anyone who purchases such stockholders' shares of Digimarc common stock in an open market transaction after the record date) became entitled to receive one unit of DMRC LLC for every three and one-half shares of Digimarc common stock held on the record date and time for the distribution. Each unit of DMRC LLC was then converted into one share of DMRC Corporation common stock in connection with the DMRC Corporation merger. All of the shares of DMRC Corporation common stock are being held in trust for the benefit of Digimarc stockholders entitled to the distribution, pending the effectiveness of the Form 10. Following the effectiveness of the Form 10, shares in DMRC Corporation will be distributed to Digimarc stockholders as of the record date and time (or anyone who purchases such stockholders' shares of Digimarc common stock in an open market transaction after the record date) on the basis of one share of DMRC Corporation for every three and one-half shares of Digimarc common stock held by the stockholder at that time. During the period that the trust retains possession of the DMRC Corporation shares, and prior to their distribution, the beneficial interests in such shares will not be certificated or tradable.

Additional Covenants

        The separation agreement contains a number of additional agreements among Digimarc, DMRC LLC and DMRC Corporation, including:

    Employee Matters.   As of the distribution date, employees became employees of DMRC LLC ceased to be employees of Digimarc, and any employment records of such employees were transferred to DMRC LLC. Also effective as of the distribution date, Digimarc assigned and DMRC LLC assumed Digimarc's 401(k) plan. Employees of the Secure ID Business will continue to participate in Digimarc's 401(k) plan until the effective time of the Digimarc/L-1 merger, at which time such employees will be allowed to transfer their account balances under Digimarc's 401(k) plan to L-1's 401(k) plan in a direct rollover.

    On, or as soon as reasonably practicable after the distribution date, Digimarc and DMRC LLC split each group welfare plan into two separate plans, to be administered by each of Digimarc and DMRC LLC and available to their respective employees.

    Non-Competition.   Except as expressly contemplated by the transaction agreements, during the five-year period immediately following the distribution date, each of Digimarc and DMRC LLC (and their respective subsidiaries and affiliates) will not, directly or through another person, in the United States or in any other geographical location in which the other party, its subsidiaries or affiliates is then doing business, own, manage, operate, control, participate in, invest in, lend money to, acquire or hold any investment in, or otherwise carry on, a business that competes with the Digital Watermarking Business or the Secure ID Business, as applicable.

    Non-Solicitation of Employees.   Except as expressly contemplated by the transaction agreements and subject to specified exceptions, during the five-year period immediately following the distribution date, each of Digimarc and DMRC LLC (and their respective subsidiaries), will not, on its own behalf or on behalf of any other person, directly or indirectly, hire, engage, solicit or attempt to solicit for hire any person who is then an employee of the other party.

    Non-Solicitation of Others.   Except as expressly contemplated by the transaction agreements, during the five-year period immediately following the distribution date, each of Digimarc and DMRC LLC (and their respective subsidiaries and affiliates), will not, directly or through another person, in any manner or capacity, (1) solicit or attempt to solicit any person or entity who was a customer of the other party during the 18 months immediately prior to the

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      distribution date or who becomes a customer of the other party during the term of the transition services agreement for the purposes of selling, marketing or engaging in any activity that competes with the digital watermarking business or the Secure ID Business, as applicable, or (2) solicit, request, advise or induce any supplier or other business contact of the other party to cancel, curtail or otherwise adversely change its relationship with the other party.

    Tax Matters.   Digimarc will bear all property and ad valorem tax liability and similar recurring taxes with respect to the DMRC assets for periods ending on or prior to the distribution date irrespective of the reporting and payment dates of such taxes. All other property or ad valorem tax obligations and similar recurring taxes on the DMRC assets (including certain delayed transfer assets) for taxable periods beginning before, and ending after, the distribution date, will be prorated between Digimarc and DMRC LLC as of the distribution date. Digimarc will include in its income tax returns for all taxable periods that include the distribution date, all tax items attributable to DMRC LLC, its assets, and the digital watermarking business through the distribution date. Each of Digimarc and

    DMRC LLC will cooperate with respect to all tax filings and proceedings. Each of Digimarc and DMRC LLC will treat and report the spin-off and the Digimarc/L-1 merger in a consistent manner. Each of Digimarc and DMRC LLC will be entitled to any refunds in respect of taxes for which it is responsible under the separation agreement.

    Purchase Price Excess or Shortfall.   If, at the closing of the Digimarc/L-1 merger, the aggregate price paid to the holders of Digimarc common stock in the offer and Digimarc/L-1 merger (i) exceeds $310,000,000, then DMRC Corporation will pay to L-1 a cash amount equal to the excess, or (2) is less than $310,000,000, then Digimarc will pay to DMRC Corporation a cash amount equal to the shortfall.

Mutual Releases; Indemnification

        Digimarc and DMRC LLC agreed mutually to release each other from any and all liabilities owing to them or their subsidiaries, whether or not known as of the distribution date, including in connection with the transactions contemplated by the Digimarc/L-1 merger agreement and all other activities to implement the restructuring and the distribution, subject to certain exceptions.

        Digimarc and DMRC LLC agreed to indemnify, defend (or, where applicable, pay the defense costs for) and hold harmless each other's indemnitees from, against and in respect of losses, claims, liabilities, damages, costs and expenses relating to:

    the liabilities retained by such party pursuant to the separation agreement;

    any and all liabilities (including third party claims) incurred by the other party's indemnitees that relate to, arise out of or result from the failure of such party or its subsidiary or any other person to pay, perform or otherwise promptly discharge such party's liabilities in accordance with their terms, whether occurring, arising, existing or asserted before, on or after the distribution date;

    any breach by such party or its subsidiary of any of the transaction agreements; and

    the failure by such party to perform in connection with any delayed transfer assets and liabilities.

        Digimarc agreed also to indemnify DMRC LLC with respect to certain tax matters.

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Conditions to the Spin-Off

        Pursuant to the separation agreement, the obligations of Digimarc to effect the spin-off were subject to the fulfillment (or waiver by Digimarc) at or prior to the distribution date of the following conditions:

    Digimarc's board of directors having approved the spin-off and not having abandoned, deferred or modified the spin-off at any time prior to the record date selected for the distribution;

    each of the transaction agreements having been duly executed and delivered by the parties thereto;

    each of the transaction agreements being in full force and effect and the parties thereto having performed or complied with all of their respective covenants, obligations and agreements contained is such agreements and as required to be performed or complied with prior to the distribution date;

    certain specified approvals required in connection with the transactions contemplated by the separation agreement having been received and being in full force and effect;

    the restructuring having been completed in accordance with the separation agreement;

    all of the conditions of the offer having been satisfied or waived (other than those conditions to be satisfied on the expiration of the offer, which must be satisfied as of the distribution date) and the expiration date of the offer being scheduled to occur immediately following the distribution date;

    Digimarc having established the record date for the distribution and having provided notice to the National Association of Securities Dealers no later than 10 days prior to the record date for the distribution in compliance with Rule 10b-17 under the Exchange Act; and

    all inter-group indebtedness having been paid in full and all actions in respect of liability novation contemplated under the separation agreement having occurred.

Further Assurances and Additional Covenants

        At or prior to the effective time of the Digimarc/L-1 merger (1) DMRC LLC will take such action necessary to change its corporate name to "Digimarc Corporation," (2) Digimarc will take such action necessary to change its corporate name, and (3) Digimarc will take such action necessary to remove the term "Digimarc" from the names of each of its subsidiaries.

        Any material showing any affiliation or connection of each of Digimarc or DMRC LLC or any of its respective subsidiaries or affiliates with the other party or any of its respective subsidiaries or affiliates will not be used by such party or its subsidiaries or affiliates after the distribution date, except as required by applicable law or regulations of securities exchanges for filings, reports and other documents required to be filed. Neither Digimarc or DMRC LLC, as applicable, nor its subsidiaries, will represent to third parties that any of them is affiliated or connected with the other party or any of its subsidiaries or affiliates. However, in the case of Digimarc and its subsidiaries and affiliates, such restriction is subject to the license agreement.

License Agreement

        L-1 Identity Solutions Operating Company, which we refer to as L-1 Operating Company, and DMRC Corporation entered into a license agreement, which we refer to as the license agreement, pursuant to which L-1 Operating Company licenses certain intellectual property owned by it upon the completion of the spin-off to DMRC Corporation and its affiliates, and DMRC Corporation licenses certain intellectual property and software to be owned by it upon the completion of the spin-off to

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L-1 Operating Company and its affiliates, as generally described below. The following summary of the license agreement is qualified in its entirety by reference to the complete text of the form of license agreement, which is incorporated by reference into this document and attached as exhibit 10.2 to the Form 10. We encourage you to read the license agreement in its entirety for a more complete description of the terms and conditions of the license agreement.

        Pursuant to the license agreement, L-1 Operating Company granted to DMRC Corporation and its affiliates a non-exclusive worldwide, fully paid-up, royalty-free, perpetual, irrevocable license under certain patents for use and exploitation in the field of digital watermarking, media fingerprinting (pattern recognition but not including any biometric identifiers), digital rights management and other media management approaches. DMRC Corporation granted to L-1 Operating Company and its affiliates an exclusive worldwide, fully paid-up, royalty-free, perpetual, irrevocable license under certain patents for use and exploitation in the field of domestic or international driver licenses, passports, national, federal, state or local government identity cards and any other national, federal, state or local government issued credentials, which we refer to as the secure ID field. Such license is exclusive (subject to certain pre-existing licenses) for five years and non-exclusive thereafter. DMRC Corporation also granted to L-1 Operating Company and its affiliates an exclusive license to use, modify and exploit certain software and derivative works thereof in the secure ID field and, for a transition period, a license to use certain trademarks in the secure ID field. DMRC Corporation will provide certain training and technical assistance to L-1 Operating Company with respect to the software licensed to L-1 Operating Company to enable L-1 Operating Company to use and market the licensed software.

Transition Services Agreement

        Digimarc and DMRC Corporation entered into a transition services agreement, which we refer to as the transition services agreement, to provide one another with transition services and other assistance substantially consistent with the services provided before completion of the spin-off. The following summary of the transition services agreement is qualified in its entirety by reference to the complete text of the form of transition services agreement, which is incorporated by reference into this document and attached as exhibit 10.1 to the Form 10. We encourage you to read the transition services agreement in its entirety for a more complete description of the terms and conditions of the transition services agreement.

        To enable Digimarc to continue its operation of the Secure ID Business and facilitate the effective transition of the Digital Watermarking Business to DMRC Corporation, under the transition services agreement, Digimarc will provide the following services or support to DMRC Corporation: information technology services and legal services. Similarly, DMRC Corporation will provide the following services or support to Digimarc: accounting and tax services, information technology services, legal services, human resources services and facilities.

        The fees for the transition services generally are intended to cover each party's reasonable costs incurred in connection with providing the transition services. Hourly rates for personnel performing transition services were determined based on a fully loaded cost, taking into account base pay, a bonus based on obtaining target earnings, payroll taxes, benefit costs, a pro rata portion of overhead charges paid by DMRC Corporation and the current year stock compensation charge for the individual, divided by the total hours available for the employee for the year, taking into account the need for administrative time. The fees to be paid for the transition services will be paid within 30 days after receipt of an invoice from the other party for transition services performed in the immediately preceding calendar month.

        The duration of services to be provided by each of DMRC Corporation and Digimarc range from 34 days for information technology services to six months for legal services. Additional transition services may be added upon mutual agreement of the parties, and any transition service may be

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terminated without affecting the provision of any other transition services. The parties will review the transition services on a monthly basis to determine whether each transition service will continue during the following month. Either party may choose to terminate a transition service upon providing 30 days' prior written notice to the other party. Unless sooner terminated in accordance with the terms of the transition services agreement, the transition services agreement will terminate upon completion of all transition services to be provided by the parties under the agreement.

        Under the terms of the transition services agreement, except in the case of fraud, neither party will be liable to the other for incidental, punitive or consequential damages with respect to the transition services provided under the transition services agreement. However, each party will be liable and will indemnify the other party for liabilities resulting from the gross negligence, bad faith or willful misconduct of the party, its employees, contractors, agents or representatives in the provision of any transition service.

Non-Competition Agreements

        In connection with the spin-off, each executive officer of DMRC Corporation entered into a non-competition agreement with Digimarc and L-1, which we refer to as the non-competition agreement, pursuant to which each executive officer has agreed not to compete with the Secure ID Business for a period of one year following the distribution date. In addition, pursuant to the non-competition agreement, each executive officer has agreed not to solicit customers of the Secure ID Business or employees of the Secure ID Business for a period of one year following the distribution date.

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        The following table sets forth the beneficial ownership of our common stock as of August 4, 2008 by (1) each of our stockholders who we believe will be a beneficial owner of more than 5% of our outstanding common stock, (2) each of our directors, (3) each Named Executive Officer and (4) all of our executive officers and directors as a group. The beneficial owners of more than 5% of our outstanding common stock in the table represent stockholders that were beneficial owners of 5% or more of Digimarc common stock as of the date stated in the footnote to the entry. The number of shares beneficially owned by these stockholders was estimated by dividing the number of shares owned by the stockholder as of the date of its most recently filed beneficial ownership report by three and one-half, the number of shares of Digimarc common which entitles a holder to one share of DMRC Corporation common stock.

        The beneficial ownership is calculated based on 7,143,442 shares of our common stock outstanding as of August 4, 2008. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting and/or investment power with respect to securities. Except as otherwise noted in the footnotes below, each person or entity identified below has sole voting and investment power with respect to such securities. Unless otherwise stated, the business address of each person listed is c/o Digimarc, 9405 SW Gemini Drive, Beaverton, Oregon 97008.

Name and Address of Beneficial Owner

  Title of Class
  Number of Shares
Beneficially Owned

  Percentage of Class
Beneficially Owned

 

The Clark Estates, Inc.(1)
One Rockefeller Plaza, 31st Floor
New York, NY 10020

 

Common Stock

 

587,445

 

8.22

%

Koninklijke Philips Electronics N. V.(2)
Eindhoven
The Netherlands

 

Common Stock

 

552,536

 

7.73

%

Dimensional Fund Advisors LP(3)
1299 Ocean Avenue
Santa Monica, CA 90401

 

Common Stock

 

414,273

 

5.80

%

Burnham Asset Management Corporation
Burnham Securities Inc.(4)
1325 Avenue of the Americas
New York, NY 10019

 

Common Stock

 

326,285

 

4.57

%

Named Executive Officers:

 

 

 

 

 

 

 
Bruce Davis(5)   Common Stock   85,992   1.20 %
    Series A Preferred   5,000   50 %

Michael McConnell

 

Common Stock

 

45,632

 

*

 
    Series A Preferred   2,500   25 %

Robert Chamness

 

Common Stock

 

30,333

 

*

 
    Series A Preferred   2,500   25 %

Directors:

 

 

 

 

 

 

 
Peter W. Smith   Common Stock   7,228   *  

James T. Richardson

 

Common Stock

 

24,685

 

*

 

Bernard Whitney

 

Common Stock

 

7,685

 

*

 

William Miller

 

Common Stock

 

13,257

 

*

 

All executive officers and directors as a group (7 persons)

 

Common Stock

 

214,812

 

3.01

%

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*
Less than 1%.

(1)
The Clark Estates, Inc. serves as an investment advisor for a number of clients who have the right to receive, or the power to direct the receipt of, dividends from, or the proceeds from the sale of, such securities. One such client, Clarke BP LLC, is known to have such right or power with respect to more than five percent of this class of securities. The foregoing information is based solely on the Schedule 13G filed on March 3, 2008 by The Clark Estates.

(2)
The foregoing information is based solely on the records at the transfer agent involving the purchase of shares by Koninklijke Philips Electronics N.V.

(3)
Dimensional Fund Advisors LP ("Dimensional") furnishes investment advice to four investment companies and serves as investment manager to certain other commingled group trusts and separate accounts. The shares reported in the table are owned by these investment companies, group trusts and separate accounts. These investment companies, trusts and accounts are referred to as the funds. In its role as investment advisor or manager, Dimensional possesses investment and/or voting power over the securities of DMRC Corporation that are owned by the funds, and may be deemed to be the beneficial owner of the shares of DMRC Corporation held by the funds. However, all securities reported in this schedule are owned by the funds. The funds have the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, the securities held in their respective accounts. Dimensional disclaims beneficial ownership of such securities. The foregoing information is based solely on the Schedule 13G/A filed on February 6, 2008 by Dimensional. According to the Schedule 13F-HR for the quarter ended June 30, 2008, filed by Dimensional on August 1, 2008, Dimensional held 1,314,210 shares of Digimarc common stock, which ownership would entitle Dimensional to receive 375,488 shares of common stock of DMRC Corporation.

(4)
Burnham Asset Management Corporation ("Burnham") serves as the investment manager for a number of managed accounts with respect to which it has dispositive authority. The reporting persons disclaim beneficial ownership of the common stock. The foregoing information is based solely on the Schedule 13G filed on January 25, 2008 by Burnham. According to the Schedule 13F-HR for the quarter ended March 31, 2008, filed by Burnham on May 13, 2008, Burnham held 1,386,785 shares of Digimarc common stock, which ownership would entitle Burnham to receive 396,224 shares of common stock of DMRC Corporation.

(5)
Includes 10,971 shares of common stock held in trust for minor children.

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DESCRIPTION OF OUR CAPITAL STOCK

         Below is a summary description of our capital stock. This description is not complete. You should read the full text of our certificate of incorporation and bylaws, which are included as exhibits to the registration statement of which this information statement is a part, as well as the applicable provisions of Delaware law.

General

        Our authorized capital stock consists of 50,000,000 shares of common stock, par value $0.001 per share, and 2,500,000 shares of preferred stock, par value $0.001 per share. Following the spin-off and the DMRC Corporation merger, we had 7,143,442 shares of our common stock and 10,000 shares of Series A Redeemable Nonvoting Preferred stock outstanding.

Common Stock

        The holders of our common stock are entitled to one vote for each share held of record on all matters submitted to a vote of our stockholders, including the election of directors. Subject to preferences that may be granted to any then outstanding preferred stock, holders of common stock are entitled to receive ratably those dividends as may be declared by our board of directors out of funds legally available for such purpose, as well as any distributions to our stockholders. In the event of our liquidation, dissolution or winding up, holders of common stock are entitled to share ratably in all of our assets remaining after payment of liabilities and the liquidation preference of any then outstanding preferred stock. Holders of common stock have no preemptive or other subscription or conversion rights. There are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of common stock are fully paid and non-assessable.

Preferred Stock

        We are authorized to issue 2,500,000 shares of preferred stock. Our board of directors has the authority to issue the undesignated preferred stock in one or more series and to determine the powers, preferences and rights and the qualifications, limitations or restrictions granted to or imposed upon any wholly unissued series of undesignated preferred stock and to fix the number of shares constituting any series and the designation of such series, without any further vote or action by the stockholders. The issuance of preferred stock may have the effect of delaying, deferring or preventing a change of control of our company without further action by stockholders and may adversely affect the voting and other rights of the holders of common stock.

        Ten thousand shares of the authorized preferred stock have been designated as Series A Redeemable Nonvoting Preferred stock. In the event of the liquidation, dissolution or other winding up of 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 stock has no voting rights, except as required by law, and may be redeemed by the board of directors at any time on or after June 18, 2013. Following the spin-off and completion of the DMRC Corporation merger, we issued to the executive officers of DMRC Corporation an aggregate of 10,000 shares of Series A Redeemable Nonvoting Preferred stock.

Anti-Takeover Provisions

        Our rights plan, which is summarized below, and certain provisions in our certificate of incorporation and bylaws, which are summarized below, are expected to discourage coercive takeover practices and inadequate takeover bids. The provisions summarized below are designed to encourage persons seeking to acquire control of us to first negotiate with our Board of Directors. We believe that

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the benefits of the potential ability to negotiate with the proponent of an unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging those proposals because negotiation with such proponent could result in an improvement of their terms.

Stockholder Rights Plan

        On July 31, 2008, our Board of Directors adopted a rights agreement. Pursuant to the rights agreement, one one-hundredth ( 1 / 100 ) of a preferred stock purchase right will be issued for each outstanding share of our common stock. Each right issued will be subject to the terms of the rights agreement. Our Board of Directors believes that the rights agreement will protect our stockholders from coercive or otherwise unfair takeover tactics. In general terms, our rights agreement works by imposing a significant penalty upon any person or group that acquires 15% or more of our outstanding common stock, without the approval of our Board of Directors.

Delaware Takeover Statute

        We are subject to the provisions of Section 203 of the Delaware General Corporation Law, as amended from time to time. Section 203 provides, with certain exceptions, that a publicly-held corporation is prohibited from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless:

    prior to such date, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder;

    upon completion of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by persons who are directors and also officers, and by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or

    at or subsequent to such date, the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2 / 3 % of the outstanding voting stock that is not owned by the interested stockholder.

A "business combination" includes the following:

    any merger or consolidation involving the corporation and the interested stockholder;

    any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder;

    subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder;

    any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; or

    the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation.

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Subject to certain exceptions, an "interested stockholder" is a person who, together with affiliates and associates, owns, or within three years did own, 15% or more of the corporation's voting stock. The Delaware takeover statute may render the removal of directors and management more difficult.

Certificate of Incorporation and Bylaws

        Our certificate of incorporation and bylaws contain provisions that could have the effect of discouraging potential acquisition proposals or making a tender offer or delaying or preventing a change in control of Digimarc. In particular, our certificate of incorporation and bylaws, as applicable, among other things:

    Provide that special meetings of the stockholders may be called only by our chairman of the board, by our secretary or at the direction of our board of directors.

    Provide that following the spin-off, the right of our stockholders to act by written consent is expressly prohibited and that stockholder action must take place at a duly called annual or a special meeting of our stockholders.

    Provide advance notice procedures with respect to stockholder proposals and nominations of candidates for election as directors other than nominations made by or at the direction of our board of directors or a committee of our board of directors. The business to be conducted at an annual meeting will be limited to business properly brought before the annual meeting by or at the direction of our board of directors or a duly authorized committee thereof or by a stockholder of record who has given timely written notice to our secretary of the stockholder's intention to bring business before the meeting.

    Do not include a provision for cumulative voting in the election of directors. Under cumulative voting, a minority stockholder holding a sufficient number of shares may be able to ensure the election of one or more directors. The absence of cumulative voting may have the effect of limiting the ability of minority stockholders to effect changes in the board and, as a result, may have the effect of deterring a hostile takeover or delaying or preventing changes in control or management of Digimarc.

    Provide that vacancies on our board of directors may be filled by a majority of directors in office, although less than a quorum, and not by the stockholders.

    Allow us to issue up to 2,500,000 shares of undesignated preferred stock with rights senior to those of the common stock and that otherwise could adversely affect the rights and powers, including voting rights, of the holders of common stock. In certain circumstances, this issuance could have the effect of decreasing the market price of the common stock, as well as having the anti-takeover effect discussed above.

        These provisions are intended to enhance the likelihood of continuity and stability in the composition of our board of directors and in the policies formulated by them, and to discourage certain types of transactions that may involve an actual or threatened change in control of Digimarc. These provisions are designed to reduce our vulnerability to an unsolicited acquisition proposal and to discourage certain tactics that may be used in proxy fights. However, these provisions could have the effect of discouraging others from making tender offers for our shares that could result from actual or rumored takeover attempts. These provisions also may have the effect of preventing changes in our management.

Transfer Agent and Registrar

        The transfer agent and registrar for our common stock is Computershare Trust Company, N.A.

Nasdaq Listing

        DMRC has applied to list its shares of common stock on The Nasdaq Global Market under the symbol "DMRCD."

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LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS

        DMRC is incorporated in Delaware. Section 145 of the Delaware General Corporation Law permits a corporation to indemnify its directors and officers against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by them in connection with any action, suit or proceeding brought by third parties, if such directors or officers acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe their conduct was unlawful. In a derivative action, i.e. , one by or in the right of the corporation, indemnification may be made only for expenses actually and reasonably incurred by directors and officers in connection with the defense or settlement of an action or suit, and only with respect to a matter as to which they shall have acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made if such person shall have been adjudged liable for negligence or misconduct in the performance of his or her respective duties to the corporation, although the court in which the action or suit was brought may determine upon application that the defendant officers or directors are fairly and reasonably entitled to indemnity for such expenses despite such adjudication of liability.

        Section 102(b)(7) of the Delaware General Corporation Law provides that a corporation may eliminate or limit the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that such provisions shall not eliminate or limit the liability of a director (1) for any breach of the director's duty of loyalty to the corporation or its stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) under section 174 of the Delaware General Corporation Law or (4) for any transaction from which the director derived an improper personal benefit. No such provision shall eliminate or limit the liability of a director for any act or omission occurring before the date when such provision becomes effective. The limitations described above do not affect the ability of DMRC or its stockholders to seek non-monetary based remedies, such as an injunction or rescission, against a director for breach of his or her fiduciary duty nor would such limitations limit liability under the federal securities laws.

        DMRC's bylaws require indemnification of directors and officers to the full extent permitted by the Delaware General Corporation Law. We have entered into an agreement with each of our directors and executive officers that requires us to indemnify these persons against any expense, liability or loss, including attorneys' fees, judgments, fines, ERISA excise taxes and penalties, amounts paid or to be paid in settlement, any interest, assessments or other imposed charges, and any federal state, local or foreign taxes imposed as a result of the actual or deemed receipt of any payment under the agreement, paid or incurred in connection with investigating, defending, being a witness in, or participating in, or preparing for any of the foregoing in, any proceeding relating to any event or occurrence by reason of the fact that the person is or was a director or officer of DMRC, or is or was serving at our request in various capacities. The indemnification agreements also set forth procedures that apply in the event of a claim for indemnification. We also intend to renew a policy of directors' and officers' liability insurance obtained by Digimac that insures our directors and officers against the cost of defense, settlement or payment of a judgment in specified circumstances.

101



CERTAIN MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES

The following discussion summarizes certain material U.S. federal income tax consequences of the spin-off, the Digimarc/L-1 merger and the DMRC Corporation merger that may be relevant to Digimarc stockholders that hold shares of Digimarc common stock as a capital asset (generally, assets held for investment) for U.S. federal income tax purposes, which we refer to as Holders. This discussion is based on the Code, applicable Treasury Regulations promulgated thereunder, and administrative and judicial interpretations thereof, each as in effect as of the date hereof, all of which may change, possibly with retroactive effect. There can be no assurance that the U.S. Internal Revenue Service, which we refer to as the IRS, will not challenge the U.S. federal income tax consequences described below and we have not obtained, nor do we intend to obtain, a ruling from the IRS or an opinion from counsel with respect to such U.S. federal income tax consequences.

        The discussion does not address all of the U.S. federal income tax considerations that may be relevant to particular Holders in light of their particular circumstances, or to Holders that are subject to special treatment under U.S. federal income tax laws, including banks, insurance companies, mutual funds or other financial institutions, broker-dealers, traders, expatriates, certain former citizens or long-term residents of the United States, tax-exempt organizations, persons who are subject to the U.S. alternative minimum tax, persons who hold their shares of common stock as part of an integrated investment (including as part of a "straddle" or as part of a "hedging," "conversion" or other risk reduction transaction), controlled foreign corporations, passive foreign investment companies, corporations subject to anti-inversion rules, persons that are partnerships, S corporations or other pass-through entities, persons that have a functional currency other than the U.S. dollar or persons who acquired their shares of Digimarc common stock through stock option or stock purchase plan programs or in other compensatory arrangements.

        In addition, this discussion does not address the U.S. federal income tax considerations applicable to holders of options or warrants, if any, to purchase Digimarc common stock or to Holders who exercise dissenters' rights. Furthermore, except as provided below, this discussion does not address any U.S. federal estate and gift tax consequences or any state, local or foreign tax consequences applicable to Holders.

        For purposes of this discussion, a "U.S. Holder" means a Holder that is:

    an individual who is a citizen or resident of the United States;

    a corporation, or other entity taxable as a corporation for U.S. federal tax purposes, created or organized in or under the laws of the United States or any state thereof or the District of Columbia;

    an estate the income of which is subject to U.S. federal income taxation regardless of its source; or

    a trust (a) the administration over which a U.S. court can exercise primary supervision and all of the substantial decisions of which one or more U.S. persons have the authority to control and (b) certain other trusts considered U.S. persons for U.S. federal income tax purposes.

        A "Non-U.S. Holder" is a Holder (other than an entity treated as a partnership or other pass-through entity for U.S. federal income tax purposes) that is not a U.S. Holder.

        If a partnership (or other entity classified as a partnership for U.S. federal tax purposes) is a beneficial owner of shares of Digimarc common stock, the tax treatment of a partner in that partnership generally will depend on the status of the partner and the activities of the partnership. Holders that are partnerships and partners in these partnerships are urged to consult their tax advisors regarding the U.S. federal income tax consequences of the spin-off, the Digimarc/L-1 merger and the DMRC Corporation merger to them.

102


Tax Consequences of the Spin-Off, the Offer, the Digimarc/L-1 merger and the DMRC Corporation merger

        We believe that for U.S. federal income tax purposes the spin-off, the offer and the Digimarc/L-1 merger will constitute a single integrated transaction with respect to the Holders in which the spin-off will be treated as a taxable redemption of shares of Digimarc common stock in connection with the complete termination of the Holders' interests in Digimarc. Digimarc and L-1 will treat and report the spin-off, the offer and the Digimarc/L-1 merger in a manner consistent with such characterization. We believe that the trust transfer will be treated as a transfer of the DMRC LLC interests to Digimarc's stockholders followed by a transfer of such interests by such stockholders to the trust, and such Digimarc stockholders will be treated as the grantors and owners of such interests held in the trust pursuant to Sections 671 and 677 of the Code and the trust will be treated as a liquidating trust within the meaning of Treasury Regulations Section 301.7701-4(d).

        Although we believe the foregoing treatment, in each case, correctly characterizes the transactions for U.S. federal income tax purposes, and the following discussion assumes this characterization will be respected, the IRS could conceivably assert a different characterization, and were the IRS to prevail, a Holder could experience U.S. federal income tax consequences that are different from those described below. Holders are urged to consult their own tax advisors with respect to the tax consequences of the spin-off, the offer, the Digimarc/L-1 merger and the DMRC Corporation merger to them.

U.S. Holders

        U.S. Holders generally will recognize capital gain or loss for U.S. federal income tax purposes in an amount equal to the difference between (1) the sum of the fair market value of the DMRC LLC interests received in the spin-off, the amount of cash received in the offer and the amount of cash received in the Digimarc/L-1 merger, and (2) such U.S. Holder's adjusted tax basis in his or her shares of Digimarc common stock surrendered or deemed surrendered in the transactions. The deduction of any recognized loss may be delayed or otherwise adversely affected by certain loss limitation rules.

        DMRC LLC or U.S. Holders will not recognize any gain or loss in the DMRC Corporation merger. A U.S. Holder will, immediately following the DMRC Corporation merger, have an aggregate adjusted basis in his or her shares of DMRC Corporation common stock received in the DMRC Corporation merger equal to the fair market value of the DMRC LLC interests received in the spin-off, and his or her holding period in such shares will begin on the day following the spin-off and the DMRC Corporation merger. U.S. Holders should consult their tax advisors with respect to the tax consequences of the DMRC Corporation merger.

        U.S. federal income tax law does not specifically identify how you should determine the fair market value of the DMRC LLC interests. The trustees will value, or cause to be valued, the DMRC LLC interests and notify Digimarc stockholders in writing of such valuation. U.S. Holders are urged to consult their tax advisors regarding the manner in which the fair market value of the DMRC Corporation shares, and gain or loss should be calculated in connection with the spin-off, the offer, the Digimarc/L-1 merger and the DMRC Corporation merger.

Non-U.S. Holders

        A Non-U.S. Holder generally will not be subject to U.S. federal income tax on any gain realized on the receipt of the DMRC LLC interests and cash in the spin-off, the offer or the Digimarc/L-1 merger, or the DMRC Corporation common stock received in the DMRC Corporation merger, unless:

    the Non-U.S. Holder is an individual who was present in the United States for 183 days or more during the taxable year of the spin-off, the offer, and the Digimarc/L-1 merger and certain other conditions are satisfied;

103


    the gain is effectively connected with the Non-U.S. Holder's conduct of a trade or business in the United States, or, if required by an applicable tax treaty, attributable to a permanent establishment maintained by the Holder in the United States; or

    Digimarc is or has been a "United States real property holding corporation," which we refer to as a USRPHC, for U.S. federal income tax purposes at any time within the shorter of the five year period preceding the closing date of the transactions or such Non-U.S. Holder's holding period of Digimarc common stock. We do not believe that Digimarc is, and do not anticipate it becoming, a USRPHC for U.S. federal income tax purposes. If Digimarc were or were to become a USRPHC at any time during the applicable period, however, any gain recognized on a sale or other disposition of its common stock by a Non-U.S. Holder that did not own (actually or constructively) more than 5% of Digimarc's common stock during the five years preceding the closing date of the transactions would not be subject to U.S. federal income tax.

        Gain described in the first bullet point above generally will be subject to U.S. federal income tax at a flat 30% (or lower applicable treaty) rate, but may be offset by U.S. source capital losses. Unless a tax treaty provides otherwise, gain described in the second bullet point above will be subject to U.S. federal income tax on a net income basis in the same manner as if the Non-U.S. Holder were a resident of the United States. Non-U.S. Holders that are foreign corporations also may be subject to a 30% branch profits tax (or lower applicable treaty rate). Non-U.S. Holders are urged to consult any applicable tax treaties that may provide for different rules.

        Prior to the DMRC Corporation merger and immediately following the spin-off, DMRC LLC will not be treated as a corporation for U.S. federal income tax purposes. Non-U.S. Holders are urged to consult their tax advisors concerning the consequences to them (including potential tax filing obligations) of owning DMRC LLC interests during the period when it may not be treated as a corporation for U.S. federal income tax purposes.

Information Reporting and Backup Withholding

        Under U.S. federal income tax laws, the depositary generally will be required to report to a U.S. Holder and to the IRS any reportable payments made to such U.S. Holder in the spin-off, the offer, the Digimarc/L-1 merger and the DMRC Corporation merger. Additionally, a U.S. Holder may be subject to a backup withholding tax, unless the U.S. Holder provides the depositary with the holder's correct taxpayer identification number, which in the case of an individual is his or her social security number, or, in the alternative, establishes a basis for exemption from backup withholding. If the correct taxpayer identification number or an adequate basis for exemption is not provided, a U.S. Holder will be subject to backup withholding (currently at a rate of 28%) on any reportable payment. To prevent backup withholding, each U.S. Holder must complete the IRS Form W-9 or a substitute Form W-9 which will be provided by Computershare Inc., the depositary for the offer, with the letter of transmittal.

        Payments made to Non-U.S. Holders in the spin-off, the offer, the Digimarc/L-1 merger and the DMRC Corporation merger may be subject to information reporting and backup withholding. Non-U.S. Holders generally may avoid backup withholding by furnishing a properly executed IRS Form W-8BEN (or other applicable IRS Form W-8) certifying the Holder's non-U.S. status or by otherwise establishing an exemption.

        Backup withholding is not an additional tax. Rather, Holders may use amounts withheld as a credit against their U.S. federal income tax liability or may claim a refund of any excess amounts withheld by timely and duly filing a claim for refund with the IRS.

        The trustees will furnish Holders with the information required by Holders to file their tax returns with respect to their beneficial ownership of the shares of DMRC Corporation stock held in the trust.

104


THE FOREGOING DISCUSSION IS FOR GENERAL INFORMATION ONLY AND IS NOT INTENDED TO BE LEGAL OR TAX ADVICE TO ANY PARTICULAR HOLDER. TAX MATTERS REGARDING THE SPIN-OFF, THE OFFER, THE DIGIMARC/L-1 MERGER AND THE DMRC CORPORATION MERGER ARE COMPLICATED, AND THE TAX CONSEQUENCES OF THE SPIN-OFF, THE OFFER, THE DIGIMARC/L-1 MERGER AND THE DMRC CORPORATION MERGER TO ANY PARTICULAR HOLDER WILL DEPEND ON THAT STOCKHOLDER'S INDIVIDUAL SITUATION. HOLDERS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISOR TO DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE SPIN-OFF, THE OFFER, THE DIGIMARC/L-1 MERGER AND THE DMRC CORPORATION MERGER, INCLUDING TAX RETURN REPORTING REQUIREMENTS, THE APPLICABILITY OF U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS, AND THE EFFECT OF ANY PROPOSED CHANGE IN THE TAX LAWS TO THEM.


WHERE YOU CAN FIND MORE INFORMATION

        We have filed a registration statement on Form 10 with the SEC with respect to the shares of our common stock being distributed as contemplated by this information statement. This information statement is a part of, and does not contain all of the information set forth in, the registration statement and the exhibits and schedules to the registration statement. For further information with respect to our company and our common stock, please refer to the registration statement, including its exhibits and schedules. Statements made in this information statement relating to any contract or other document are not necessarily complete, and you should refer to the exhibits attached to the registration statement for copies of the actual contract or document. You may review a copy of the registration statement, including its exhibits and schedules, at the SEC's public reference room, located at 100 F Street, N.E., Washington, D.C. 20549, as well as on the Internet web site maintained by the SEC at www.sec.gov . Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Information contained on any web site referenced in this information statement is not incorporated by reference into this information statement or the registration statement of which this information statement is a part.

        After the spin-off, we will become subject to the information and reporting requirements of the Exchange Act and, in accordance with the Exchange Act, we will file periodic reports, proxy statements and other information with the SEC.

        Our SEC filings will be available to the public at no charge from the SEC's website, as described above, and, following the DMRC Corporation merger, on our Web site under the "Investors" tab at www.digimarc.com . Information on our website is not incorporated into this information statement or other securities filings and is not a part of these filings. You may also request a copy of our future SEC filings at no cost, by writing or telephoning us at:

DMRC Corporation
Attn: Robert P. Chamness
9405 SW Gemini Drive
Beaverton, OR 97008
Phone: (503) 469-4800
Fax: (503) 469-4771

        You should rely only on the information contained in this information statement or to which we have referred you. We have not authorized any person to provide you with different information or to make any representation not contained in this information statement.

105



INDEX TO FINANCIAL STATEMENTS

 
  Page

Report of Independent Registered Public Accounting Firm

 

F-2

Balance Sheets

 

F-3

Statements of Operations

 

F-4

Statements of Parent's Investment

 

F-5

Statements of Cash Flows

 

F-6

Notes to Financial Statements

 

F-7

F-1



Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders
Digimarc Corporation

        We have audited the accompanying balance sheets of DMRC Corporation (a carved-out business unit of Digimarc Corporation) as of December 31, 2007 and 2006 and the related statements of operations, changes in parent's investment, and cash flows for each of the three years in the period ended December 31, 2007. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of DMRC Corporation as of December 31, 2007 and 2006, and the results of their operations and cash flows for each of the three years in the period ended December 31, 2007 in conformity with accounting principles generally accepted in the United States of America.

        As more fully described in Note 1 to the financial statements, certain expenses of DMRC Corporation represent allocations from Digimarc Corporation. The accompanying financial statements include such allocations and may not necessarily be representative of the financial position or results of operations had DMRC Corporation operated as an unaffiliated company during the periods presented.

/S/ GRANT THORNTON LLP

Portland, Oregon
June 20, 2008, (except for Note 1, as to
which the date is August 12, 2008)

F-2



DMRC CORPORATION
(a carved-out business of Digimarc Corporation)

BALANCE SHEETS

(In thousands)

 
  March 31,
2008

  December 31,
2007

  December 31,
2006

 
  (unaudited)

   
   
ASSETS                  
Current assets:                  
  Cash and cash equivalents   $ 33,586   $ 29,145   $ 33,073
  Short-term investments     3,849     3,568    
  Trade accounts receivable, net     3,233     3,752     2,441
  Other current assets     278     387     309
   
 
 
    Total current assets     40,946     36,852     35,823
Property and equipment, net     1,167     1,227     1,472
Other assets, net     386     372     363
   
 
 
    Total assets   $ 42,499   $ 38,451   $ 37,658
   
 
 

LIABILITIES AND NET PARENT'S INVESTMENT

 

 

 

 

 

 

 

 

 
Current liabilities:                  
  Accounts payable and other accrued liabilities   $ 411   $ 464   $ 382
  Accrued payroll and related costs     325     199     773
  Deferred revenue     3,029     2,734     1,616
   
 
 
    Total current liabilities     3,765     3,397     2,771
Long-term liabilities     220     215     294
   
 
 
    Total liabilities     3,985     3,612     3,065

Commitments and contingencies (Note 9)

 

 

 

 

 

 

 

 

 

Parent's investment:

 

 

 

 

 

 

 

 

 
    Net Parent's investment     38,514     34,839     34,593
   
 
 
    Total liabilities and net Parent's investment   $ 42,499   $ 38,451   $ 37,658
   
 
 

See accompanying notes to financial statements

F-3



DMRC CORPORATION
(a carved-out business of Digimarc Corporation)

STATEMENTS OF OPERATIONS

(In thousands)

 
  Three Months Ended March 31,
  Year Ended December 31,
 
 
  2008
  2007
  2007
  2006
  2005
 
 
  (unaudited)

   
   
   
 
Revenue:                                
  Service   $ 2,548   $ 1,877   $ 7,806   $ 6,812   $ 7,051  
  License and subscription     2,537     1,608     5,219     4,259     4,068  
   
 
 
 
 
 
    Total revenue     5,085     3,485     13,025     11,071     11,119  

Cost of revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
  Service     1,349     919     3,815     3,633     3,299  
  License and subscription     59     31     217     136     182  
   
 
 
 
 
 
    Total cost of revenue     1,408     950     4,032     3,769     3,481  

Gross profit

 

 

3,677

 

 

2,535

 

 

8,993

 

 

7,302

 

 

7,638

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
  Sales and marketing     656     639     2,453     3,740     4,692  
  Research, development and engineering     922     729     2,912     2,448     3,208  
  General and administrative     980     857     3,345     3,433     3,645  
  Intellectual property     478     431     1,593     1,589     1,863  
   
 
 
 
 
 
    Total operating expenses     3,036     2,656     10,303     11,210     13,408  
   
 
 
 
 
 

Operating income (loss)

 

 

641

 

 

(121

)

 

(1,310

)

 

(3,908

)

 

(5,770

)
Other income (expense), net     294     375     1,387     1,242     928  
   
 
 
 
 
 
Income (loss) before provision for income taxes     935     254     77     (2,666 )   (4,842 )
Provision for income taxes     11     4     22     21      
   
 
 
 
 
 
  Net income (loss)   $ 924   $ 250   $ 55   $ (2,687 ) $ (4,842 )
   
 
 
 
 
 
Unaudited Pro Forma Information (Note 1)                                
Net income (loss) per share—basic and diluted   $ 0.13   $ 0.03   $ 0.01   $ (0.38 ) $ (0.68 )
   
 
 
 
 
 
  Weighted average shares outstanding—basic and diluted     7,143     7,143     7,143     7,143     7,143  
   
 
 
 
 
 

See accompanying notes to financial statements

F-4



DMRC CORPORATION
(a carved-out business of Digimarc Corporation)

STATEMENTS OF CHANGES IN PARENT'S INVESTMENT

(In thousands)

BALANCE AT DECEMBER 31, 2004   $ 53,249  
Cash from Parent stock activity     333  
Stock compensation allocated from Parent     203  
Net activity with Parent     (15,847 )
Net loss     (4,842 )
   
 
BALANCE AT DECEMBER 31, 2005     33,096  
Cash from Parent stock activity     242  
Stock compensation allocated from Parent     790  
Net activity with Parent     3,152  
Net loss     (2,687 )
   
 
BALANCE AT DECEMBER 31, 2006     34,593  
Cash from Parent stock activity     2,187  
Stock compensation allocated from Parent     1,209  
Net activity with Parent     (3,205 )
Net income     55  
   
 
BALANCE AT DECEMBER 31, 2007     34,839  
Cash from Parent stock activity     102 (1)
Stock compensation allocated from Parent     377 (1)
Net activity with Parent     2,272 (1)
Net income     924 (1)
   
 
BALANCE AT MARCH 31, 2008   $ 38,514 (1)
   
 

(1)
Unaudited

See accompanying notes to financial statements.

F-5



DMRC CORPORATION
(a carved-out business of Digimarc Corporation)

STATEMENTS OF CASH FLOWS

(In thousands)

 
  Three Months Ended
March 31,

  Year Ended December 31,
 
 
  2008
  2007
  2007
  2006
  2005
 
 
  (Unaudited)

   
   
   
 
Cash flows from operating activities:                                
  Net income (loss)   $ 924   $ 250   $ 55   $ (2,687 ) $ (4,842 )
  Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:                                
    Depreciation and amortization of property and equipment     276     156     612     616     659  
    Stock-based compensation expense     377     290     1,209     790     203  
    Increase (decrease) in allowance for doubtful accounts                 (13 )   (93 )
    Changes in operating assets and liabilities:                                
      Trade and unbilled accounts receivable, net     519     522     (1,311 )   199     (403 )
      Other current assets     109     35     (78 )   63     (215 )
      Other assets, net     (14 )   (11 )   (9 )       18  
      Accounts payable and other accrued liabilities     (50 )   (84 )   23     (147 )   83  
      Accrued payroll and related costs     126     (560 )   (574 )   (206 )   236  
      Deferred revenue     297     440     1,098     (382 )   520  
   
 
 
 
 
 
        Net cash provided by (used in) operating
activities
    2,564     1,038     1,025     (1,767 )   (3,384 )

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
    Purchase of property and equipment     (216 )   (81 )   (367 )   (536 )   (506 )
    Sale or maturity of short-term investments     41,534     38,355     150,775     136,946     180,568  
    Purchase of short-term investments     (41,815 )   (38,355 )   (154,343 )   (136,207 )   (156,239 )
   
 
 
 
 
 
      Net cash provided by (used in) investing activities     (497 )   (81 )   (3,935 )   203     23,823  

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
    Cash from Parent stock activity     102     442     2,187     242     333  
    Net activity with Parent     2,272     (2,967 )   (3,205 )   3,152     (15,847 )
   
 
 
 
 
 
      Net cash provided by (used in) financing activities     2,374     (2,525 )   (1,018 )   3,394     (15,514 )
   
 
 
 
 
 
      Net increase (decrease) in cash and cash equivalents     4,441     (1,568 )   (3,928 )   1,830     4,475  
      Cash and cash equivalents at beginning of period     29,145     33,073     33,073     31,243     26,768  
   
 
 
 
 
 
Cash and cash equivalents at end of period   $ 33,586   $ 31,505   $ 29,145   $ 33,073   $ 31,243  
   
 
 
 
 
 

See accompanying notes to financial statements.

F-6



DMRC CORPORATION
(a carved-out business of Digimarc Corporation)

NOTES TO FINANCIAL STATEMENTS

(in thousands)

1. Description of Business and Summary of Significant Accounting Policies

Description of Business

    Planned Merger and Separation

        On June 29, 2008, Digimarc Corporation, which we refer to as Digimarc or Parent, entered into an amended and restated merger agreement, as amended by that Amendment No. 1 dated as of July 17, 2008 and as may be further amended, which we refer to as the Digimarc/L-1 merger agreement, with, L-1 Identity Solutions, Inc., which we refer to as L-1, and Dolomite Acquisition Co, which we refer to as Dolomite, a wholly owned subsidiary of L-1, pursuant to which Dolomite has offered to purchase all of the outstanding shares of Digimarc common stock, together with the associated preferred stock purchase rights for $12.25 per share. We refer to the offer to purchase as the offer. The Digimarc/L-1 merger agreement provides, among other things, that following the completion of the offer and subject to other conditions set forth in the Digimarc/L-1 merger agreement, Dolomite will merge with and into Digimarc with Digimarc continuing as the surviving company and a wholly owned subsidiary of L-1. We refer to the merger of Digimarc and Dolomite as the Digimarc/L-1 merger.

        On August 1, 2008, prior to the initial expiration of the offer, Digimarc contributed all of the assets and liabilities related to its digital watermarking business, together with all of Digimarc's cash, to DMRC LLC, which subsequently merged with and into DMRC Corporation, and the shares of DMRC Corporation common stock were transferred to a newly-created trust for the benefit of Digimarc stockholders as of August 1, 2008 at 5:30 pm Eastern time, the record date and time (or anyone who purchases such stockholders' shares of Digimarc common stock in an open market transaction after the record date). The shares of DMRC Corporation common stock will be held by the trust until the Registration Statement on Form 10 has been declared effective by the Securities and Exchange Commission, at which time the shares will be distributed to Digimarc's stockholders as of the record date and time (or anyone who purchases such stockholders' shares of Digimarc common stock in an open market transaction after the record date), as beneficiaries of the trust, pro rata in accordance with their ownership of shares of Digimarc common stock on the record date and time. Each Digimarc stockholder as of the record date (or anyone who purchases such stockholders' shares of Digimarc common stock in an open market transaction after the record date) is entitled to receive one share of DMRC Corporation common stock for every three and one half shares of Digimarc common stock held by the stockholder as of the record date and time.

        Digimarc, L-1, DMRC LLC and DMRC Corporation entered into various agreements in order to accomplish the spin-off transaction. After completion of the Digimarc/L-1 merger, DMRC Corporation will change its name to Digimarc Corporation.

        DMRC is a supplier of advanced technologies for use in media identification and management. our solutions enable governments and businesses around the world to deter counterfeiting and piracy, combat identity theft and fraud, improve the management of media content, and support new digital media distribution models that provide consumers with more choice and access to media content.

Unaudited Interim Results

        The accompanying balance sheet as of March 31, 2008, the statements of operations and cash flows for the three months ended March 31, 2007 and 2008, and the statement of changes in parent's investment for the three months ended March 31, 2008 are unaudited. The unaudited interim financial

F-7


DMRC CORPORATION
(a carved-out business of Digimarc Corporation)

NOTES TO FINANCIAL STATEMENTS (Continued)

(in thousands)

1. Description of Business and Summary of Significant Accounting Policies (Continued)


statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly our financial position at March 31, 2008 and its results of operations and cash flows for the three months ended March 31, 2007 and 2008. The financial data and other information disclosed in these notes to the financial statements related to the three-month periods are unaudited. The results for the three months ended March 31, 2008 are not necessarily indicative of the results to be expected for the year ending December 31, 2008 or for any other interim period or for any other future period.

Basis of Accounting

        The financial statements include the assets, liabilities and results of operations of the components of Digimarc that constitute the business of DMRC to be separated, or "carved-out". DMRC's business primarily consists of Digimarc's Digital Watermarking Business and certain accounts of Digimarc. All intercompany balances have been eliminated in the carve-out.

        Management believes that the assumptions underlying the financial statements are reasonable. The financial information in these financial statements does not include all of the expenses that would have been incurred had DMRC been a separate, stand-alone public entity. As such, the financial information herein does not reflect the financial position, results of operations and cash flows of DMRC in the future or what they would have been, had DMRC been a separate, stand-alone public entity during the periods presented. Additionally, these historical financial statements include proportional allocations of various shared-services common costs of Digimarc because specific identification of these expenses was not practicable. The common costs include expenses from Digimarc related to various operating shared-services cost centers, including: executive, finance and accounting, human resources, legal, marketing, intellectual property, facilities and information technology. 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.

        The cost allocation methods applied to certain shared-services common cost centers include the following:

    Specific identification —where the amounts were specifically identified to DMRC or Secure ID Business unit, they were classified accordingly.

    Reasonable allocation —where the amounts were not clearly or specifically identified, we determined if a reasonable allocation method may be applied. For example in the shared-services Human Resources (HR) cost center we allocated the costs based on the relative headcount of the DMRC and Secure ID Business units based on the assumption that HR support costs should be relatively equal per employee across the broader population. And in the Intellectual Property cost center we allocated the costs based on the relative number of patents that are used between the two business units.

F-8


DMRC CORPORATION
(a carved-out business of Digimarc Corporation)

NOTES TO FINANCIAL STATEMENTS (Continued)

(in thousands)

1. Description of Business and Summary of Significant Accounting Policies (Continued)

    General allocation approach —for consistency, when specific identification or reasonable allocation method did not seem to fit the situation, we used a general allocation approach. This approach consisted of a blended rate based on what we have determined to be the primary drivers for shared-services:

    Revenue ratio between the business units.

    Property and Equipment balances (proxy for capital expenditures)—the effort expended on capital projects is a factor in the expense and effort of shared-services. To avoid fluctuations that happen in capital spending, we believe that these balances represent a relative trend of capital spending between the business units. In determining the relative balances of property, we have removed the central IT assets as it supports the entire organization.

    Headcount between the business units.

    Other key assumptions differing from the historical accounting of the Parent:

    Cash:     All cash balances of Digimarc are treated as retained by DMRC, which is consistent with the Digimarc/L-1 merger agreement. As such, restricted cash on the books of Digimarc that related directly to its operations, flows through to DMRC in these financial statements, as non-restricted cash and is included as cash and cash equivalents in these carved-out financials statements. The letters of credit that required the restricted cash remains with Digimarc as acquired by L-1.

    Incentive compensation allocations to cost of services:     Cost of incentive compensation for bonus and stock compensation charges for employees in the research, development and engineering cost centers, was not considered significant to Digimarc's consolidated operations during the periods reported on and were treated as research, development and engineering costs in those financial statements. For DMRC's reporting purposes, these incentive compensation costs have been allocated to cost of services to the extent that their pro rata salary allocations were made to the cost of services expense category. The impact for the reported periods ranged from a 1% to 3% reduction in margins compared to the results had the allocations not been made.

    Earnings (loss) per share:     As a business unit of Digimarc, earnings per share calculations are not applicable.

    Pro forma earnings per share (unaudited):   The weighted average shares outstanding—basic and diluted was calculated based on a distribution ratio of one share of DMRC Corporation common stock for every three and one-half shares of outstanding Digimarc Corporation common stock, excluding shares held in treasury, at March 31, 2008:

    net issuance of approximately 6,337,000 shares based on 22,180,764 shares of outstanding common stock of Digimarc Corporation, and

    net issuance of approximately 806,000 shares related to the exercise of stock options, employee stock purchase plan purchase and acceleration of vesting for restricted stock in connection with the Digimarc/L-1 merger.

F-9


DMRC CORPORATION
(a carved-out business of Digimarc Corporation)

NOTES TO FINANCIAL STATEMENTS (Continued)

(in thousands)

1. Description of Business and Summary of Significant Accounting Policies (Continued)

    Stock activity:     All stock activity (transactions from stock options, restricted stock, employee stock purchase plan and stock compensation) is carried on the books of Digimarc. All net cash from these activities is retained by DMRC and stock based compensation expense associated with stock activity is allocated to DMRC in accordance with the basis of accounting methodology outlined above.

    Capital leases:     DMRC shares various infrastructure activities with Digimarc and is charged for its allocated share of capital lease costs in the form of allocated depreciation and interest expense. The assets and liabilities associated with the capital leases are carried on the books of Digimarc.

    Leasehold improvements:     DMRC occupies the majority of Digimarc's Beaverton facility and will assume the lease and most all related furniture, fixtures and leasehold improvements once DMRC becomes a separate public company. The leaseholds are recorded as part of property and equipment in the balance sheet of DMRC, and as a result, pro rata depreciation and rent expenses are allocated to Digimarc.

    Intercompany transactions:     With the retention by DMRC of all Digimarc cash, DMRC's cash balances effectively funds the operations, if needed, of Digimarc in these financial statements. The net difference of cash needs for operating and capital expenditures to and from Digimarc is shown as "net activity with Parent" in the Statement of Parent's Investment. All intercompany transactions have been eliminated.

    Commitments and contingencies:     Commitments and contingencies related to DMRC operations have been included in these financial statements, and those relating to Digimarc have been excluded.

Use of Estimates

        The preparation of financial statements in accordance with accounting principles generally accepted in the U.S. requires DMRC to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Some of our accounting policies require higher degrees of judgment than others in their application. These include revenue recognition on long-term service contracts, revenue recognition on license and subscription arrangements, reserves for uncollectible accounts receivable, contingencies and litigation and stock-based compensation. DMRC bases its estimates on historical experience as a business unit of Digimarc and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Cash Equivalents

        We consider all highly liquid investments with original maturities of 90 days or less at the date of acquisition to be cash equivalents. Cash equivalents include money market funds, certificates of deposit, commercial paper, and investments in government bonds. Cash equivalents are carried at cost or amortized cost, which approximates market.

F-10


DMRC CORPORATION
(a carved-out business of Digimarc Corporation)

NOTES TO FINANCIAL STATEMENTS (Continued)

(in thousands)

1. Description of Business and Summary of Significant Accounting Policies (Continued)

Investments

        DMRC Corporation considers all investments with original maturities over 90 days that mature in less than one year to be short-term investments. Investments with maturities beyond one year may be classified as short-term based on their highly liquid nature and because such marketable securities represent the investment of cash that is available for current operations. Short-term investments include federal agency notes, company notes, and commercial paper. Our marketable securities are generally classified as held-to-maturity as of the balance sheet date and are reported at amortized cost, which approximates market. The book value of these investments approximates fair market value and, accordingly, no amounts have been recorded to other comprehensive income.

        A decline in the market value of any security below cost that is deemed to be other-than-temporary results in a reduction in carrying amount to fair value. The impairment is charged to earnings and a new cost basis for the security is established. To determine whether an impairment is other-than-temporary, we consider whether it has the ability and intent to hold the investment until a market price recovery and considers whether evidence indicating the cost of the investment is recoverable outweighs evidence to the contrary. There have been no other-than-temporary impairments identified or recorded by DMRC Corporation.

        Premiums and discounts are amortized or accreted over the life of the related security as an adjustment to yield using a method that approximates the effective-interest method. Dividend and interest income are recognized when earned.

Fair Value of Financial Instruments

        The carrying amounts of cash and cash equivalents, short-term investments, trade accounts receivable, accounts payable and accrued payroll approximate fair value due to the short-term nature of these instruments. Fair value estimates are made at a specific point in time, based on relevant market information about the financial instrument when available. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Concentrations of Business and Credit Risk

        A significant portion of our business depends on a limited number of large contracts. The loss of any large contract may result in loss of revenue and margin on a prospective basis.

        Financial instruments that potentially subject DMRC Corporation to concentrations of credit risk consist primarily of cash and cash equivalents, investments, and trade and unbilled accounts receivable. DMRC Corporation places its cash and cash equivalents with major banks and financial institutions and at times deposits may exceed insured limits. Other than cash used for operating needs, which may include short-term investments with our principal banks, our investment policy limits its credit exposure to any one financial institution or type of financial instrument by limiting the maximum of 5% or $1,000, whichever is greater, to be invested in any one issuer except for the U.S. Government and U. S. federal agencies, which have no limits, at the time of purchase. As a result, the credit risk associated with cash and investments is believed to be minimal.

F-11


DMRC CORPORATION
(a carved-out business of Digimarc Corporation)

NOTES TO FINANCIAL STATEMENTS (Continued)

(in thousands)

1. Description of Business and Summary of Significant Accounting Policies (Continued)

Software Development Costs

        Under SFAS No. 86, Accounting for the Cost of Computer Software to Be Sold, Leased, or Otherwise Marketed, software development costs are to be capitalized beginning when a product's technological feasibility has been established and ending when a product is made available for general release to customers. To date, the establishment of technological feasibility of our products has occurred shortly before general release and, therefore, software development costs qualifying for capitalization have been immaterial. Accordingly, DMRC Corporation has not capitalized any software development costs and has charged all such costs to research and development expense.

        Internal use software development costs are accounted for in accordance with AICPA SOP No. 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use . Costs incurred in the preliminary project stage are expensed as incurred and costs incurred in the application development stage, which meet the capitalization criteria, are capitalized and amortized on a straight-line basis over the estimated useful life of the asset, generally three to five years. Costs incurred in the post-implementation stage are expensed as incurred.

Research and Development

        Research and development costs are expensed as incurred as defined in SFAS No. 2, Accounting for Research and Development Costs . DMRC Corporation accounts for amounts received under its funded research and development arrangements in accordance with the provisions of SFAS No. 68, Research and Development Arrangements . Under the terms of the arrangements, DMRC Corporation is not obligated to repay any of the amounts provided by the funding parties. As a result, DMRC Corporation recognizes revenue as the services are performed.

Revenue Recognition

our revenue is comprised of subscription revenue which includes hardware and software sales, royalties and revenues from the licensing of digital watermarking products and related authentication services. Our revenue recognition policy follows SEC Staff Accounting Bulletin ("SAB") No. 104 Revenue Recognition, SOP No. 97-2, Software Revenue Recognition, as amended by SOP No. 98-9, Modification of SOP No. 97-2, Software Recognition, With Respect to Certain Transactions, SOP 81-1 Accounting for the Performance of Construction Type and Certain Production-Type Contracts, and Emerging Issues Task Force ("EITF") Issue No. 00-21, Revenue Arrangements with Multiple Deliverables.

Other income (expense), net

        Our other income (expense), net consists primarily of interest income earned our on cash and short term investments. Some minor amounts are included in this category that relate to interest expense for capital lease allocations from Digimarc and for other non-operating items.

F-12


DMRC CORPORATION
(a carved-out business of Digimarc Corporation)

NOTES TO FINANCIAL STATEMENTS (Continued)

(in thousands)

2. Recent Accounting Pronouncements

        In September 2006, the Financial Accounting Standards Board ("FASB") issued SFAS No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value. This statement does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. SFAS No. 157 is effective the first fiscal year beginning after November 15, 2007. DMRC Corporation has applied the provisions of this standard regarding the framework of measuring fair value and noted no material effect on the current financial statements.

        In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for the Financial Assets and Financial Liabilities, which permits entities to choose to measure certain financial assets and liabilities at fair value. SFAS No. 159 is effective the first fiscal year beginning after November 15, 2007. DMRC Corporation has elected not to measure certain financial assets and liabilities at fair value as permitted by SFAS No. 159.

3. Revenue Recognition

        Some customer arrangements encompass multiple deliverables, such as software, maintenance fees, and software development fees. The Company accounts for these arrangements in accordance with EITF Issue No. 00-21. If the deliverables meet the criteria in EITF Issue No. 00-21, the deliverables are divided into separate units of accounting and revenue is allocated to the deliverables based on their relative fair values. The criteria specified in EITF Issue No. 00-21 are as follows: (i) the delivered item has value to the customer on a stand-alone basis, (ii) there is objective and reliable evidence of the fair value of the undelivered item, and (iii) if the arrangement includes a general right of return relative to the delivered item, delivery or performance of the undelivered item is considered probable and substantially in the control of the vendor. For our purposes, fair value is generally defined as the price at which a customer could purchase each of the elements independently from other vendors or as the price that the Company has sold the element separately to another customer. Management applies judgment to ensure appropriate application of EITF Issue No. 00-21, including value allocation among multiple deliverables, determination of whether undelivered elements are essential to the functionality of delivered elements and timing of revenue recognition, among others. Revenue is recognized in accordance with SAB 104 when the following four criteria are met (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the fee is fixed or determinable, and (iv) collection is probable.

        AICPA SOP No. 98-9 requires that revenue be recognized using the "residual method" in circumstances when vendor specific objective evidence ("VSOE") exists only for undelivered elements. Under the residual method, revenue is recognized as follows: (1) the total fair value of undelivered elements, as indicated by vendor specific objective evidence, is deferred and subsequently recognized in accordance with the relevant sections of AICPA SOP No. 97-2, and (2) the difference between the total arrangement fee and the amount deferred for the undelivered elements is recognized as revenue related to the delivered elements.

F-13


DMRC CORPORATION
(a carved-out business of Digimarc Corporation)

NOTES TO FINANCIAL STATEMENTS (Continued)

(in thousands)

3. Revenue Recognition (Continued)

        Applicable revenue recognition criteria are considered separately for each separate unit of accounting as follows:

    Revenue from professional service arrangements is generally determined based on time and material. Revenue for professional services is recognized as the services are performed. Billing for services rendered generally occurs within one month following when the services are provided.

    Royalty revenue is recognized when the royalty amounts owed to the Company have been earned, are determinable, and collection is probable. Subscriptions are paid in advance and revenue is recognized ratably over the term of the subscription. These revenues include the licensing of digital watermarking products and services for use in authenticating documents, detecting fraudulent documents and deterring unauthorized duplication or alteration of high-value documents, for use in communicating copyright, asset management and business-to-business image commerce solutions, and for use in connecting analog media to a digital environment.

    Software revenue is recognized in accordance with AICPA SOP No. 97-2, as amended by AICPA SOP No. 98-9. Revenue for licenses of the Company's software products is recognized upon the Company meeting the following criteria: persuasive evidence of an arrangement exists; delivery has occurred; the vendor's fee is fixed or determinable; and collectibility is probable. Software revenue is recognized over the term of the license or upon delivery and acceptance if the Company grants a perpetual license with no further obligations.

    Maintenance revenue is recognized when the maintenance amounts owed to the Company have been earned, are determinable, and collection is probable. Maintenance contracts are, at times, paid in advance and revenue is recognized ratably on a straight-line basis over the term of the service period.

    The Company records revenue from some customers upon cash receipt as a result of collectibility not being reasonably assured.

    Revenue earned that has not been invoiced is classified as unbilled trade receivables, which is included in the balance of trade accounts receivable, net in the balance sheets.

    Deferred revenue consists of payments billed and or received in advance for professional services, licenses, subscriptions and maintenance for which revenue has not been earned.

4. Segment Information

    Geographic Information

        The Company derives its revenue from a single reporting segment: media management solutions. Revenue is generated in this segment through licensing of intellectual property, subscriptions to various products and services, and the delivery of services pursuant to contracts with various customers. The Company markets its products in the United States and in non-U.S. countries through its sales personnel.

F-14


DMRC CORPORATION
(a carved-out business of Digimarc Corporation)

NOTES TO FINANCIAL STATEMENTS (Continued)

(in thousands)

4. Segment Information (Continued)

        Information regarding geographic areas for the three-month periods ended March 31 and the years ended December 31 follow:

 
  Three Months
Ended
March 31,

   
   
   
 
  Years Ended December 31,
Revenue:

  2008
  2007
  2007
  2006
  2005
 
  (unaudited)
   
   
   
Domestic   $ 2,658   $ 1,118   $ 3,696   $ 2,414   $ 2,882
International     2,427     2,367     9,329     8,657     8,237
   
 
 
 
 
  Total   $ 5,085   $ 3,485   $ 13,025   $ 11,071   $ 11,119
   
 
 
 
 

Major Customers

        Customers who accounted for more than 10% of the Company's revenues for the three-month periods ended March 31, 2008 and 2007 respectively and for each of the three years ended December 31, 2007 are summarized as follows:

 
  Three Months
Ended
March 31,

  Years Ended December 31,
 
Revenue:

 
  2008
  2007
  2007
  2006
  2005
 
 
  (unaudited)
   
   
   
 
Customer A   37 % 57 % 60 % 65 % 64 %
Customer B   36 % *   *   *   *  
Customer C   *   19 % 10 % *   *  

      *
      less than 10%

5. Stock-Based Compensation

        Stock-based compensation includes expense charges for all stock-based awards to employees and directors. Such awards include option grants, restricted stock awards, and shares expected to be purchased under an employee stock purchase plan. Stock compensation expense is allocated to DMRC based on a combination of specific and shared services resource allocations from Digimarc. All cash flow related to stock compensation generated by Digimarc is retained by DMRC.

        Stock-based compensation recognized in Digimarc's financial statements is based on the value of the portion of the stock-based award that vested during the period, adjusted for expected forfeitures for stock-based awards granted prior to, but not fully vested as of, December 31, 2005 and stock-based awards granted subsequent to December 31, 2005. The compensation cost for awards granted prior to January 1, 2006 is based on the grant date fair value estimated in accordance with the pro forma provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation , while awards granted on or after January 1, 2006 follow the provisions of SFAS 123(R) to determine the grant date fair value

F-15


DMRC CORPORATION
(a carved-out business of Digimarc Corporation)

NOTES TO FINANCIAL STATEMENTS (Continued)

(in thousands)

5. Stock-Based Compensation (Continued)


and compensation cost. Compensation cost for all stock-based awards is recognized using the straight-line method.

    Determining Fair Value Under SFAS 123(R)

    Stock Options

        Valuation and Amortization Method.     Digimarc estimates the fair value of stock-based awards granted using the Black-Scholes option pricing model. Digimarc amortizes the fair value of all awards on a straight-line basis over the requisite service periods, which are generally the vesting periods. The fair value of each option grant is estimated on the date of grant.

        Expected Life.     The expected life of awards granted represents the period of time that they are expected to be outstanding. Digimarc determines the expected life based on historical experience with similar awards, giving consideration to the contractual terms, vesting schedules and pre-vesting and post-vesting forfeitures. Stock options granted generally vest over four years and have contractual terms of ten years.

        Expected Volatility.     Digimarc estimates the volatility of its common stock at the date of grant based on the historical volatility of its common stock using the Black-Scholes option pricing model based on historical stock prices over the most recent period commensurate with the estimated expected life of the award. This historical period excludes portions of time when unusual transactions occurred, such as a significant acquisition.

        Risk-Free Interest Rate.     Digimarc bases the risk-free interest rate used in the Black-Scholes option pricing model on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term approximately equal to the expected life of the award.

        Expected Dividend Yield.     Neither the Company nor Digimarc has ever paid any cash dividends on its common stock and the Company does not anticipate paying any cash dividends in the foreseeable future. Consequently, Digimarc uses an expected dividend yield of zero in the Black-Scholes option pricing model.

        Expected Forfeitures.     Digimarc uses relevant historical data to estimate pre-vesting option forfeitures. The Company records stock-based compensation only for those awards that are expected to vest.

F-16


DMRC CORPORATION
(a carved-out business of Digimarc Corporation)

NOTES TO FINANCIAL STATEMENTS (Continued)

(in thousands)

5. Stock-Based Compensation (Continued)

        A summary of Digimarc's weighted average assumptions and results for options granted during the periods presented is as follows:

 
  Three Months
Ended
March 31,

  Years Ended December 31,
 
 
  2008
  2007
  2007
  2006
  2005
 
 
  (unaudited)
   
   
   
 
Expected life (in years)     5.7     5.8     5.8     6.0     4.0  
Expected volatility     44 %   44 %   44 %   53 %   50 %
Risk-free interest rate     2.5 %   4.7 %   4.7 %   4.7 %   4.5 %
Expected dividend yield     0 %   0 %   0 %   0 %   0 %
Expected forfeiture rate     15 %   16 %   16 %   14 %   20 %
Fair value   $ 3.65   $ 4.27   $ 4.38   $ 3.62   $ 2.85  

    Employee Stock Purchase Plans

        Digimarc also recognizes stock-based compensation in connection with its 1999 Employee Stock Purchase Plan. The plan, as amended on November 2, 2006, allows employees to purchase shares of Digimarc common stock through payroll deductions of up to 15% of their base compensation during each three-month plan period, up to a maximum deduction of $5.3 for each plan period, not to exceed $21 per year. The three-month plan periods begin December 1, March 1, June 1 and September 1. The price an employee pays for the shares is 85% of the lower of (i) the fair market value of Digimarc common stock at the beginning of the plan period or (ii) the fair market value at the end of the plan period.

    Restricted Stock and Market or Performance Based Vesting Shares

        The Compensation Committee of Digimarc's Board of Directors awarded restricted stock shares under Digimarc's 1999 Stock Incentive Plan, as amended, to certain officers, employees and directors. The shares subject to the restricted stock awards vest over a certain period, usually one to four years, following the date of the grant.

        The fair value of restricted stock awards granted is based on the fair market value of Digimarc's common stock on the date of the grant (measurement date), and is recognized over the vesting period of the related restricted stock using the straight-line method.

        In addition to restricted stock shares that vest over time, Digimarc's Compensation Committee awarded restricted stock that vests upon satisfaction of either market based or employee performance based conditions under the 1999 Stock Incentive Plan, as amended.

        The fair value of restricted stock awards that vest upon the satisfaction of market based conditions is calculated using a Monte Carlo valuation model that results in a discount factor applied to the fair market value of Digimarc's common stock on the date of the grant (measurement date). Compensation cost is recognized over the derived service period, which is shorter than the performance period, using the straight-line method. If the market condition is met prior to completion of the derived service

F-17


DMRC CORPORATION
(a carved-out business of Digimarc Corporation)

NOTES TO FINANCIAL STATEMENTS (Continued)

(in thousands)

5. Stock-Based Compensation (Continued)


period, all remaining expense is immediately recognized in the period the awards vest. Expense for market based awards is recognized if the employee completes the derived service period, regardless of whether the market condition is met. If the market condition is not met, the shares will be forfeited.

        The fair value of restricted stock awards that vest upon the satisfaction of employee performance conditions is based on the fair market value of Digimarc's common stock on the date of grant (measurement date). Management has determined it is probable that all performance conditions can be achieved; therefore, compensation cost is recognized on a straight line basis over the explicit service period. If the performance condition is satisfied early, all remaining compensation cost will be recognized in the period the condition is satisfied. If the performance vesting condition is not met by the end of the explicit service condition, all previously recognized compensation cost will be reversed and the shares will be forfeited.

        Specific terms of the restricted stock awards (including market or performance based vesting share awards) are governed by restricted stock agreements between Digimarc and the award recipients.

    Stock-based Compensation Allocated from Digimarc

        The following table summarizes stock-based compensation allocated from Digimarc for the three-months ended March 31, 2008 and 2007 and the years ended December 31, 2007, 2006, and 2005.

 
  Three Months
Ended
March 31,

  Year Ended December 31,
 
  2008
  2007
  2007
  2006
  2005
 
  (unaudited)
   
   
   
Cost of service   $ 43   $ 16   $ 102   $ 42   $
Sales and marketing     83     72     287     172     56
Research, development and engineering     16     8     47     51    
General and administrative     220     184     728     495     147
Intellectual property     15     10     45     30    
   
 
 
 
 
Total stock-based compensation   $ 377   $ 290   $ 1,209   $ 790   $ 203
   
 
 
 
 

F-18


DMRC CORPORATION
(a carved-out business of Digimarc Corporation)

NOTES TO FINANCIAL STATEMENTS (Continued)

(in thousands)

6. Trade Accounts Receivable

    Trade Accounts Receivable

        Trade accounts receivable are recorded at the invoiced amount and do not bear interest. Revenue earned which has not been invoiced as of the balance sheet date, and generally billed the following month, is classified as unbilled trade receivables in the balance sheets.

 
   
  Year Ended December, 31
 
 
  Three Months
Ended
March 31,
2008

 
 
  2007
  2006
 
 
  (unaudited)
   
   
 
Billed trade receivables   $ 2,714   $ 3,236   $ 2001  
Unbilled trade receivables     562     559     483  
   
 
 
 
  Subtotal     3,276     3,795     2,484  
Allowance for doubtful accounts     (43 )   (43 )   (43 )
   
 
 
 
Trade accounts receivable, net   $ 3,233   $ 3,752   $ 2,441  
   
 
 
 
Unpaid Deferred revenues included in accounts receivable   $ 1,541   $ 2,271   $ 961  
   
 
 
 

    Allowance for doubtful accounts

        The allowance for doubtful accounts is the Company's best estimate of the amount of probable credit losses in the Company's existing accounts receivable. The Company determines the allowance based on historical write-off experience and current information. The Company reviews its allowance for doubtful accounts monthly. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

    Unpaid deferred revenues

        The unpaid deferred revenues that are included in accounts receivable are billed in accordance with the provisions of the contracts with the Company's customers.

F-19


DMRC CORPORATION
(a carved-out business of Digimarc Corporation)

NOTES TO FINANCIAL STATEMENTS (Continued)

(in thousands)

6. Trade Accounts Receivable (Continued)

    Major Customers

        Customers who accounted for more than 10% of net accounts receivable, at March 31, 2008, December 31, 2007 and December 31, 2006, respectively were:

 
   
  Year Ended December, 31
 
 
  Three Months
Ended
March 31,
2008

 
 
  2007
  2006
 
 
  (unaudited)
   
   
 
Customer A   33 % 24 % 42 %
Customer B   45 % 36 % *  
Customer C   *   *   24 %

      *
      less than 10%

7. Property and Equipment

    Property and Equipment

        Property and equipment are stated at cost. Repairs and maintenance are charged to expense when incurred. Depreciation on property and equipment is calculated by the straight-line method over the estimated useful lives of the assets, generally two to seven years.

 
   
  Year Ended December 31,
 
 
  Three Months
Ended
March 31,
2008

 
 
  2007
  2006
 
 
  (unaudited)
   
   
 
Office furniture fixture   $ 1,086   $ 1,086   $ 1,086  
Equipment     3,627     3,411     3,059  
Leasehold improvements     679     679     664  
   
 
 
 
      5,392     5,176     4,809  
Less accumulated depreciation and amortization     (4,225 )   (3,949 )   (3,337 )
   
 
 
 
    $ 1,167   $ 1,227   $ 1,472  
   
 
 
 

F-20


DMRC CORPORATION
(a carved-out business of Digimarc Corporation)

NOTES TO FINANCIAL STATEMENTS (Continued)

(in thousands)

7. Property and Equipment (Continued)

    Leases

        Future minimum lease payments under non-cancelable operating leases related to rent and office equipment are as follows:

Year ending December 31:

  Operating
Leases

2008   $ 837
2009     856
2010     882
2011     599
Thereafter    
   
Total minimum lease payments   $ 3,174
   

        Rent expense on the operating leases for the three months ended March 31, 2008 and 2007 and for the years ended December 31, 2007, 2006 and 2005 totaled $185, $185, $742, $742 and $742, respectively.

8. Income Taxes

        Provision for Income Taxes.     The provision for income taxes reflects withholding tax expense in various foreign jurisdictions. For all historic periods reported in the financial statements, Digimarc maintained valuation allowances against its net deferred tax assets, including net operating loss carryforwards, because it was more likely than not that the deferred taxes would not be realized. The provision for income taxes included foreign taxes withheld by our customers and paid to foreign jurisdictions on our behalf. The DMRC "carve-out" financial statements indicate cumulative losses through the first three months of 2008. Furthermore, the amounts of cumulative expenses in the financial statements that were not allowed for federal and state income tax purposes were not sufficient enough to result in positive taxable income which would have required the company to record income tax expense. As a result of the above, no Federal and state income tax benefit was recognized for the book losses that were incurred in those periods prior to 2007 and no income tax expense was recognized during the 2007 and 2008 periods as any expense was offset by the benefit of net operating loss carry-forwards. After the spin-off, DMRC Corporation as a separate legal entity, will not benefit from any of the carrryforward tax attributes of Digimarc, including net operating loss carryforwards.

9. Commitments and Contingencies

        Certain of the Company's product license and services agreements include an indemnification provision for claims from third parties relating to the Company's intellectual property. Such indemnification provisions are accounted for in accordance with SFAS No. 5, Accounting for Contingencies . To date, there have been no claims made under such indemnification provisions.

        The Company is subject from time to time to other legal proceedings and claims arising in the ordinary course of business. Although the ultimate outcome of these matters cannot be determined, management believes that, as of March 31, 2008, the final disposition of these proceedings will not

F-21


DMRC CORPORATION
(a carved-out business of Digimarc Corporation)

NOTES TO FINANCIAL STATEMENTS (Continued)

(in thousands)

9. Commitments and Contingencies (Continued)


have a material adverse effect on the financial position, results of operations, or liquidity of the Company. No accrual has been recorded because the amounts are not probable or reasonably estimatable in accordance with SFAS No. 5, Accounting for Contingencies .

10. Quarterly Financial Information (unaudited)

Quarter ended:

  March 31
  June 30
  September 30
  December 31
 
2008                          
Service revenue   $ 2,548                    
License and subscription revenue     2,537                    
   
                   
Total revenue     5,085                    
Total cost of revenue     1,408                    
Gross profit     3,677                    
Gross profit percent     72 %                  
Sales and marketing     656                    
Research, development and engineering     922                    
General and administrative     980                    
Intellectual property     478                    
Operating income (loss)     641                    
Net income (loss)     924                    

2007

 

 

 

 

 

 

 

 

 

 

 

 

 
Service revenue   $ 1,877   $ 1,751   $ 2,063   $ 2,115  
License and subscription revenue     1,608     1,095     1,244     1,272  
   
 
 
 
 
Total revenue     3,485     2,846     3,307     3,387  
Total cost of revenue     950     936     993     1,153  
Gross profit     2,535     1,910     2,314     2,234  
Gross profit percent     73 %   67 %   70 %   66 %
Sales and marketing     639     667     634     513  
Research, development and engineering     729     829     656     698  
General and administrative     857     844     797     847  
Intellectual property     431     413     373     376  
Operating income (loss)     (121 )   (843 )   (146 )   (200 )
Net income (loss)     250     (518 )   175     148  

F-22




QuickLinks

TABLE OF CONTENTS
SUMMARY
RISK FACTORS
THE SPIN-OFF
DIVIDEND POLICY
CAPITALIZATION
SELECTED HISTORICAL FINANCIAL INFORMATION
PRO FORMA FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Contractual Obligations
BUSINESS OF DMRC CORPORATION
MANAGEMENT
DIRECTOR COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
EXECUTIVE COMPENSATION
OUR RELATIONSHIP WITH DIGIMARC CORPORATION AFTER THE SPIN-OFF
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
DESCRIPTION OF OUR CAPITAL STOCK
LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
CERTAIN MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
WHERE YOU CAN FIND MORE INFORMATION
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
DMRC CORPORATION (a carved-out business of Digimarc Corporation) BALANCE SHEETS (In thousands)
DMRC CORPORATION (a carved-out business of Digimarc Corporation) STATEMENTS OF OPERATIONS (In thousands)
DMRC CORPORATION (a carved-out business of Digimarc Corporation) STATEMENTS OF CHANGES IN PARENT'S INVESTMENT (In thousands)
DMRC CORPORATION (a carved-out business of Digimarc Corporation) STATEMENTS OF CASH FLOWS (In thousands)
DMRC CORPORATION (a carved-out business of Digimarc Corporation) NOTES TO FINANCIAL STATEMENTS (in thousands)